    [Senate Hearing 107-904]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 107-904

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES 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. 5605/S. 2797

     AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF VETERANS AFFAIRS
    AND HOUSING AND URBAN DEVELOPMENT, AND FOR SUNDRY INDEPENDENT AGENCIES,
      BOARDS, COMMISSIONS, CORPORATIONS, AND OFFICES FOR THE FISCAL YEAR
               ENDING SEPTEMBER 30, 2003, AND FOR OTHER PURPOSES

                                   __________

                 Corporation for National and Community Service
                  Department of Housing and Urban Development
                           Department of the Treasury
                         Department of Veterans Affairs
                        Environmental Protection Agency
                      Federal Emergency Management Agency
                 National Aeronautics and Space Administration
                          National Science Foundation
                     Neighborhood Reinvestment Corporation
                           Nondepartmental witnesses

                                   __________

            Printed for the use of the Committee on Appropriations

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

                                     ______

                           U. S. GOVERNMENT PRINTING OFFICE
    78-495                         WASHINGTON : 2003
    ____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800
    Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001

                          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 VA, HUD, and Independent Agencies

                    BARBARA A. MIKULSKI, Maryland, Chairman
    PATRICK J. LEAHY, Vermont            CHRISTOPHER S. BOND, Missouri
    TOM HARKIN, Iowa                     CONRAD BURNS, Montana
    ROBERT C. BYRD, West Virginia        RICHARD C. SHELBY, Alabama
    HERB KOHL, Wisconsin                 LARRY CRAIG, Idaho
    TIM JOHNSON, South Dakota            PETE V. DOMENICI, New Mexico
    ERNEST F. HOLLINGS, South Carolina   MIKE DeWINE, Ohio
                                         TED STEVENS, Alaska (ex officio)

                               Professional Staff

                                 Paul Carliner
                               Gabriel A. Batkin
                                  Alexa Sewell
                             Jon Kamarck (Minority)
                              Cheh Kim (Minority)

                             Administrative Support
                              Jennifer Storipan

                                C O N T E N T S

                                  ----------

                           Wednesday, March 25, 2002

                                                                       Page
    Department of Veterans Affairs...................................     1

                           Wednesday, March 13, 2002

    Department of Housing and Urban Development......................   109

                           Wednesday, March 20, 2002

    Environmental Protection Agency..................................   177

                           Wednesday, April 17, 2002

    Corporation for National and Community Service...................   303

                           Wednesday, April 24, 2002

    Neighborhood Reinvestment Corporation............................   337
    Department of the Treasury: Community Development Financial
      Institutions Fund..............................................   354

                             Wednesday, May 1, 2002

    National Aeronautics and Space Administration....................   409

                             Wednesday, May 8, 2002

    Federal Emergency Management Agency..............................   481

                            Wednesday, May 15, 2002

    National Science Foundation......................................   533
    Nondepartment witnesses..........................................   575

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                            WEDNESDAY, MARCH 6, 2002

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:35 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Barbara A. Mikulski, (chairman)
    presiding.
        Present: Senators Mikulski, Kohl, Johnson, Bond, Shelby,
    Craig, Domenici, and Stevens.

                         DEPARTMENT OF VETERANS AFFAIRS

    STATEMENT OF HON. ANTHONY J. PRINCIPI, SECRETARY OF
                VETERANS AFFAIRS
    ACCOMPANIED BY:
            FRANCES M. MURPHY, M.D., ACTING UNDER SECRETARY FOR HEALTH
            ROBIN HIGGINS, UNDER SECRETARY FOR MEMORIAL AFFAIRS
            GUY H. MCMICHAEL, III, ACTING UNDER SECRETARY FOR BENEFITS
            D. MARK CATLETT, PRINCIPAL DEPUTY ASSISTANT SECRETARY FOR
                MANAGEMENT
            JAMES W. BOHMBACH, CHIEF FINANCIAL OFFICER, VETERANS BENEFITS
                ADMINISTRATION
            DANIEL TUCKER, DIRECTOR, BUDGET AND PLANNING SERVICE, NATIONAL
                CEMETERY ADMINISTRATION
            VINCENT BARILE, DEPUTY UNDER SECRETARY FOR MANAGEMENT, NCA
            NORA E. EGAN, CHIEF OF STAFF
            TIM S. McCLAIN, GENERAL COUNSEL
            MAUREEN P. CRAGIN, ASSISTANT SECRETARY FOR PUBLIC AND
                INTERGOVERNMENTAL AFFAIRS
            JOHN A. GAUSS, ASSISTANT SECRETARY FOR INFORMATION AND
                TECHNOLOGY
            DENNIS DUFFY, PRINCIPAL DEPUTY ASSISTANT SECRETARY FOR POLICY
                AND PLANNING
            ELIGAH D. CLARK, CHAIRMAN, BOARD OF VETERANS' APPEALS
            JOHN OGDEN, CHIEF CONSULTANT, PHARMACY BENEFITS MANAGEMENT
                STRATEGIC HEALTH GROUP
            ART KLEIN, DIRECTOR OF BUDGET OFFICE, VETERANS HEALTH
                ADMINISTRATION
            JIMMY NORRIS, CHIEF FINANCIAL OFFICER, VETERANS HEALTH
                ADMINISTRATION
            JOHN R. FEUSSNER, M.D., CHIEF RESEARCH AND DEVELOPMENT OFFICER,
                VETERANS HEALTH ADMINISTRATION
            LAURA MILLER, ASSOCIATE UNDER SECRETARY FOR HEALTH, VETERANS
                HEALTH ADMINISTRATION
            GORDON MANSFIELD, ASSISTANT SECRETARY FOR CONGRESSIONAL AND
                LEGISLATIVE AFFAIRS
            RITA A. REED, DEPUTY ASSISTANT SECRETARY FOR BUDGET
            RICHARD J. GRIFFIN, INSPECTOR GENERAL

                opening statement of senator barbara a. mikulski

        Senator Mikulski. Good morning, everybody, to the
    Subcommittee Veterans, Housing, and other Independent Agencies.
    We will come to order.
        Today we have the opportunity to listen to Mr. Secretary
    Anthony Principi, to present to us the appropriations request
    from the administration on behalf--on behalf of the
    administration for the Department of Veterans Affairs.
        This is a wonderful day in the sense that we welcome you,
    Mr. Principi----
        Mr. Principi. Thank you.
        Senator Mikulski [continuing]. An old and dear friend. And
    it is also Senator Bond's birthday.
        And I am not going to tell any more. But, Senator Bond, you
    know we, on the committee, love you. You know, we Democrats are
    just crazy about you.
        You are our little muffin here today.
        Senator Bond. Thank you very much.
        Senator Mikulski. That is just about the calorie count you
    and I are supposed to have for all----
        Senator Bond. I can only eat a quarter of it.
        Senator Mikulski. I know you are--kind of a caffeine-kind
    of guy.
        Senator Bond. Yes, yes.
        Senator Mikulski. No one ever thinks you are decaf; that is
    for sure.
        Senator Bond. No.
        Senator Mikulski. But let me also present this to you this
    morning and just say, Senator Bond, you are the cream in my
    coffee.
        Senator Bond. Thank you. I am deeply honored. Thank you.
        Senator Mikulski. Now are you not glad we have gotten in a
    good mood to talk to you?

                               prepared statement

        Really, Senator Bond, you know that I think the world of
    you. And I really enjoy so much our collegial relationship. And
    I would like to take this time to wish you a happy birthday and
    lots of good health and may you get all of your birthday
    wishes, including the very, very best allocation for our
    subcommittee.
        [The statement follows:]
               Prepared Statement of Senator Barbara A. Mikulski
        I am very pleased to welcome VA Secretary Principi to the
    Subcommittee. It is appropriate that we are beginning our 2003 process
    with Secretary Principi, because keeping our promises to our nation's
    veterans is this Subcommittee's highest priority. We look forward to
    another productive year working with Secretary Principi and his team.
        My goals for this hearing are two-fold. First, we must ensure that
    the 2003 budget keeps the promises we made to our veterans. And second,
    we must make sure the VA is a good steward of taxpayer dollars--so that
    our veterans and the American people get the most for their hard earned
    money.
        The budget requests $57 billion for veterans' benefits and
    services: $29 billion for entitlements, and $28 billion for
    discretionary programs that are under this Subcommittee's jurisdiction.
    This is a $3 billion increase in discretionary funding over 2002.
        Promises made must be promises kept.
        This year's request for medical care is $25.5 billion--a $2.6
    billion increase over 2002. It includes $1.5 billion that the VA
    expects to collect from third-party health insurance and co-payments
    from veterans, as well as $800 million in retirement liability accruals
    as proposed by the Administration.
        So by our math, the real increase in VA medical care over 2002 is
    $1.4 billion--excluding collections and accruals.
        In the last three years, the Subcommittee has provided large
    increases for medical care--$1.7 billion in 2000, $1.3 billion in 2001,
    and $1 billion in 2002, to encourage more veterans to enroll in the VA
    system, and to provide them with the medical care they deserve. At -a
    time when high private health insurance and prescription drug costs are
    really straining our elderly on fixed incomes, we can only expect that
    the Subcommittee will be urged to continue these increases.
        That is why I am very concerned about two major issues affecting
    veterans' medical care.
        First, I am perplexed and perturbed that the VA tells us it has a
    $400 million shortfall in 2002. The VA-HUD Subcommittee provided $350
    million above the President's request for VA medical care to ensure
    that promises made to our--our nation's veterans can count on the
    Subcommittee to keep promises. But the Subcommittee needs to be able to
    count on the VA to provide accurate budget estimates, and I am now very
    concerned about the VA's ability to count.
        Second, I am very troubled about a proposal in this budget to
    require certain veterans to pay a $1,500 deductible for medical care.
    VA tells us that most of our ``Priority 7'' veterans--those who are not
    disabled as a result of their service, and who make more than $24,000
    per year--have private insurance that will pick up the tab. But that
    doesn't mean much to the veteran who was lucky enough to avoid being
    injured in battle, and who now makes a hard earned living in a small
    business that doesn't provide him with health insurance.
        I am very concerned that a $1,500 deductible will leave some
    veterans without any health care at all. Especially in today's
    climate--where the private sector is abdicating its responsibility so
    frequently--we must protect those who use the VA system as a safety
    net. There are many flaws in this deductible proposal, but the worst is
    that VA can't tell us for certain how many veterans it will effect,
    because it has a dismal performance of collecting insurance information
    from our veterans. We have many concerns about the $1,500 deductible
    proposal, and I hope Secretary Principi can answer our tough questions.
        Instead of proposing deductibles to shift the healthcare burden
    onto our veterans, the VA should be finding ways to improve what our
    veterans and taxpayers are owed from private insurance companies. We
    need to do more in this area, and I want to know what the VA is doing
    to ensure that our veterans and taxpayers get what they are owed.
        We understand that collections from veterans will also increase
    because the prescription drug co-payment has been increased from $2 to
    $7. Many of my veterans in Maryland have been surprised by this
    increase, and I would like to know how the VA decided on $7, and if
    there are plans to make further changes the copayment.
        Also in the area of prescription drugs, I believe that the VA can
    provide us with some very valuable lessons learned as we continue to
    look for a Medicare prescription drug benefit. The VA spends almost $3
    billion each year on drugs, and its benefit program could serve as a
    model for the future. I'd like the Secretary to tell us about the
    benefits that VA provides and how it develops its formularies so that
    we can build upon this expertise.
        On the other hand, unfortunately VA still has a way to go on
    waiting times. Veterans still have to wait too long to see a doctor.
        And on the benefits side, while the VA has made progress in
    reducing its claims processing time, 165 days is still unacceptable. I
    know Secretary Principi wants to reduce processing time to 100 days by
    2003, and I am interested in learning how he plans to do this.
        Finally, I also want to be sure that the VA is taking care of its
    own caregivers. A recent Gallup poll found that nursing is the most
    respected profession in the United States. Yet this country is facing a
    nursing shortage that we're working hard to address. I'd like to know
    what VA is doing to recruit, retain, and improve working conditions for
    its nurses.
        Again, I welcome Secretary Principi to his second appearance before
    the Subcommittee and I look forward to hearing his testimony.

        Senator Mikulski. With that, Mr. Principi, why do you not
    go ahead and proceed with your testimony?

                        STATEMENT OF ANTHONY J. PRINCIPI

        Secretary Principi. Thank you, Madam Chairwoman.
        Senator Bond, Senator Johnson, it is a great pleasure to be
    with you.
        And I, too, wish you a very, very happy birthday, Senator
    Bond. It is always good to come up here on birthdays.
        I am very pleased to have this opportunity to present our
    budget request to you and am grateful to the President for his
    support. We are requesting $58 billion for veterans' benefits
    and services, $30.1 billion for entitlement programs, and $27.9
    billion for discretionary programs; an increase of $6.1 billion
    over our 2002 enacted level.
        Let's look specifically at our medical program. First, I
    think it is important to back out accounting transfers, so that
    the budget proposal does not appear to include any smoke and
    mirrors or increases due to a proposed deductible. The real
    apples-to-apples increase is 7 percent for medical care, a
    $1,570,000,000 increase. I will talk a little bit more about
    that increase and the challenges we face in health care.
        Next, we are requesting an increase of $17 million for
    burial services, a $94 million increase for our Veterans
    Benefits Administration to continue the great work that our
    people are doing in reducing the claims backlog, and a $64
    million increase for capital programs. We have a robust medical
    research program. We are requesting an increase that would
    bring our appropriation to $409 million. Combining our $401
    million subsidy from medical care funding with the funds we
    receive through grants from universities and other Federal
    agencies with our appropriation, we will have a $1.46 billion
    program in medical research that we are very, very proud of.

                           VA'S MEDICAL CARE PROGRAM

        With the funds allocated for medical programs, members of
    the committee, we will be able to treat nearly 4.9 million
    veterans in the coming fiscal year. That is a 3.3 percent
    increase over fiscal year 2002. But it does not tell the whole
    story. Clearly, we have seen such a phenomenal growth in
    workload over the past several years. The growth has been
    somewhat staggering since eligibility reform went into effect
    in 1996 and we made the important transition to primary care
    and community-based outpatient clinics. Our growth rate has
    been 38 percent in priorities one through six. But the real
    story is the growth in priority seven, which has grown 500
    percent since 1996.
        In 1996, priority 7s represented 3 percent of our workload.
    Today they represent 33 percent of our workload. And that
    number will grow to over 42 percent by the end of the decade.
    The cumulative cost for priority 7s alone, just this one
    category, is $20 billion between 2003 and 2007. In 2007 it will
    consume over $5 billion a year of our budget.
        So, we have grown in priority 7s from 200,000 veterans in
    our system to over 1 million in 2002. And I believe patients
    are coming to us for many, many reasons. I think there are some
    national policy issues involved here. Veterans seek our care
    because we have a very, very fine benefit package from primary
    to nursing home care, including the very, very important
    pharmacy benefit that we provide.
        Of course, more outpatient clinics have been opened. We
    have 622 now, across the country. Just as depicted in the
    movie, ``If you build it, they will come,'' well, we have built
    them, we have opened them, and they have certainly come. And I
    think our quality is clearly so much better today. Our customer
    satisfaction is good. We are not perfect, but we are doing good
    work.
        Those factors, coupled with HMO's, and Medicare HMO's
    closing down, or no longer offering a pharmacy benefit, and the
    fluctuating economy in some parts of the country, have resulted
    in that increase in workload. That increase is something that
    we need to deal with. I have been very, very honest in saying
    that, notwithstanding this record requested increase in medical
    care funding, without some actions by the Congress or by me as
    Secretary, to either limit enrollment, or to require a greater
    sharing in the cost of their care by priority 7s, or enactment
    of Medicare subvention, or without increased collections for
    medical care cost recovery, we will not have enough money to
    treat all of the veterans who come to us in open enrollment. A
    lot of the changes that took place in 1996 were premised on
    Medicare subvention, which never happened.
        I need to state for the record, because it is an important
    policy issue that all of us have to grapple with to ensure that
    the quality remains high, that the access times to get into
    clinics are not reasonable. We see longer and longer wait times
    in some parts of the country, which is unacceptable and not
    good quality of care. We are not meeting the expectations
    people have of us, and we need to grapple with that issue.

                           $1,500 DEDUCTIBLE PROPOSAL

        The service-connected and some of the poor feel that they
    are being squeezed out in some areas of the country, so there
    are some warning signs on the horizon. After looking at all of
    the options available to me, I opted for a deductible where
    priority 7s would share in the cost of their care, rather than
    closing off enrollment.
        The deductible does not operate like a regular deductible.
    No one is asked for money out-of-pocket at the beginning before
    the care is provided. We will bill insurance companies for
    every dollar of that deductible, and we will charge veterans
    without insurance a percentage of reasonable charges.
        The bottom line is we need to work with the members of this
    committee and the House committee to devise a solution to this
    problem, whether the deductible is modified or we look at other
    steps that we can take to ensure that we manage our growth and
    maintain high quality care.

                         GRANTS FOR VETERAN EMPLOYMENT

        We are also requesting a transfer in funding of $197
    million from the Department of Labor for the Veterans
    Employment in Training Service Program. Though this program has
    not worked as well as it should at the Department of Labor,
    that is not an indictment of the people in the program. I think
    it is more an indictment of the system.
        Veterans in the age group of 20 to 24--those recently
    discharged from the military having served their Nation
    honorably, have a 9.6 unemployment rate compared to the general
    population of 4.2 percent. In 20 States, fewer than 11 percent
    of the veterans who go to the employment service for help were
    place in suitable jobs. We have over 500,000 veterans who are
    unemployed today, a third of whom have been unemployed for more
    than 15 weeks.
        I believe that VA, which has been entrusted with caring for
    veterans as its sole mission, could manage this employment
    program very well by making it outcome-based, performance-
    based, and putting it into the continuum of programs we have
    for veterans through vocational rehabilitation education, and
    other programs. I support this transfer because I think it is
    good for veterans. I would commission a task force, comprised
    of the stakeholders, to help me identify how we can establish
    this new program in VA and how it should work.

                        VETERANS BENEFITS ADMINISTRATION

        On the benefits side of the house, I am pleased to report
    to you that we are making progress on reducing the claims
    backlog. In January of this year, we set a record in the number
    of claims we decided: 62,536. That record was broken in
    February; we decided 62,900 claims. That compares to 29,036 in
    January of a year ago, and 28,900 in February a year ago. So,
    we have doubled our productivity and our accuracy rate remains
    at an all-time high.

                         PROCUREMENT REFORM TASK FORCE

        We are looking at how we manage the VA. I have established
    a procurement reform task force to provide me with
    recommendations on how we can be better procurers of goods and
    services. Outside of Defense, we are probably the largest
    procurement department in government, with purchases of $5
    billion annually in goods and services. I think there is an
    awful lot of room for improvement. I now have the report on my
    desk, and I intend to implement the recommendations to
    standardize and use national contracting volume discounts to
    improve the bottom line so that we have more money for
    veterans.

                            ENTERPRISE ARCHITECTURE

        We did the same with our Information Technology Program,
    and established an enterprise architecture strategy
    implementation and governance plan with an information
    technology board to help us end stove-pipe design, development,
    and procurement of IT. Under the leadership of Dr. John Gauss,
    our new CIO, we will make some real progress in that area.

                        NATIONAL CEMETERY ADMINISTRATION

        With regard to our national cemetery system, we are in the
    process of opening 6 new national cemeteries across the
    country. They are in different phases of development. Due to
    the aging of the World War II population, interments are at an
    all-time high in our national cemeteries. We have to ensure
    that we have space to honor those who served their Nation in
    uniform.

                               PREPARED STATEMENT

        We have great challenges, Madam Chair, Senator Bond,
    members of the committee. But I am convinced that we are on the
    right road. And working together, I think we can overcome the
    challenges that we face.
        Thank you very much.
        [The statement follows:

            Prepared Statement of the Honorable Anthony J. Principi

        Madam Chair, and members of the Committee, good morning. I am
    pleased to be here today to discuss the President's 2003 budget
    proposal for the Department of Veterans Affairs (VA) and tell you about
    the significant progress we are making on behalf of the Nation's
    veterans.
        Our budget reflects the largest increase ever proposed for
    veterans' discretionary programs. It ensures more veterans will receive
    high-quality health care, that we will provide more timely and accurate
    benefit claim determinations, and that we will maintain a dignified and
    respectful setting for deceased veterans. Our proposal reflects the
    debt of gratitude we owe to those who have served our country with
    honor. It also signals our enduring commitment to the men and women in
    uniform who today defend our freedom many miles away.
        We are requesting $58 billion for veterans' benefits and services--
    $30.1 billion for entitlement programs and $27.9 billion for
    discretionary programs. This is an increase of $6.1 billion over the
    2002 enacted level. Our budget increases VA's discretionary funding by
    $3.1 billion over the 2002 level, including medical care collections.
    Increases for specific programs are as follows: $2.7 billion for
    medical programs; $17 million for burial services; $94 million for the
    administration of veterans' benefits; and $64 million for capital
    programs and other departmental administration.
        Our budget request includes $197 million for a new grant activity
    that replaces programs currently administered by the Department of
    Labor and $892 million for certain Federal retiree and health benefits
    as proposed by the Administration's Managerial Flexibility Act of 2001.
    Excluding these new activities, our budget for discretionary programs
    reflects an increase of $1.9 billion, or 7.8 percent over last year's
    funding level.
                                  medical care
        For Medical Care, we are requesting budgetary resources of $25
    billion, including $1.5 billion in collections. This amount includes
    $793 million for accrual for certain Federal retiree and health
    benefits and $260 million in increased collections related to the
    proposed legislation deductible initiative. Under current law without
    the impact of these two variables, the Medical Care increase is $1.5
    billion--comprised of $1.4 billion in increased appropriations and $158
    million in increased collections. This increase when combined with the
    $1.1 billion impact of the deductible proposal, equals $2.7 billion,
    the amount of the medical care increase that would be needed to support
    the projected 6 percent increase in 2003, which is 290,000 more veteran
    health care system users without the enactment of the deductible
    proposal.
        Madam Chair, we are focusing on improvements needed to our billing
    and collection from third party insurers. While we have doubled our
    collections in the past couple of years, we know we need to do more. In
    a collaborative effort with an external contractor, we have identified
    24 actions that will yield significant enhancements to our ability to
    collect revenue. While many of these actions require time and
    investment, we have already begun improvements to the revenue
    collection process. I have directed that we begin the process of
    consolidating billing and collection services, and that we explore the
    cost and benefits of outsourcing these services. In addition, we are
    aggressively pursuing insurance identification by obtaining new HIPAA
    compliant software to facilitate exchange of medical information with
    non-VA entities. We are also mounting increased veteran and employee
    awareness and training campaigns. Further, we have developed a web-
    based performance metrics program that is used by central office and
    medical center staff to monitor and evaluate the critical steps in the
    revenue cycle. Following the original implementation of reasonable
    charges in September 1999, we have implemented two updates. Work is
    nearly complete on the next reasonable charges update, which we expect
    to publish in the Federal Register as an Interim Final Rule and
    implement during Spring 2002. We expect to collect over $1 billion this
    year with continuing increases in 2003 and beyond. We are committed to
    maximizing our revenue opportunities from this source.
        VA has experienced unprecedented growth in the medical system
    workload over the past few years. The total number of patients treated
    increased by over 11 percent from 2000 to 2001--more than twice the
    prior year's rate of growth. For the first quarter of 2002, we
    experienced a similar growth rate when compared to the same period last
    year. The growth rate for Priority 7 medical care users has averaged
    more than 30 percent annually for the last 6 years, and they now
    comprise 33 percent of enrollees in the VA health care system. Based on
    current law, this percentage is expected to increase to 42 percent by
    2010.
        I am proud that an increasing number of veterans are choosing to
    receive their health care in the VA system. Despite this success, we
    have much to accomplish. Patient access to our medical facilities must
    be improved and this budget reaffirms our commitment to do so. Our goal
    is for veterans to receive non-urgent appointments for primary and
    specialty care in 30 days or less, while being seen within 20 minutes
    of their scheduled appointment. We have included an additional $159
    million in our request to work toward this goal.
        Madam Chair, I know you agree that VA's health care system should
    maintain timely, high quality care for service-connected and low income
    veterans and remain open to all veterans. To effectively manage
    participation in the system, we are proposing a $1,500 medical
    deductible for Priority 7 veterans. With no change in policy, the cost
    of care for Priority 7 veterans would grow from $1 billion in 2000 to
    over $5 billion in 2007. To assure that rising workload does not dilute
    the quality of care, Priority 7 veterans are being asked to pay for a
    greater portion of their health care than in the past. We are
    recommending that these veterans be assessed a deductible for their
    health care at a percentage of the reasonable charges up to a $1,500
    annual ceiling. This is not a standard deductible that must be paid
    upfront and veterans' insurance may cover all charges. If all
    projections, funding levels, and the new deductible are realized, VA
    anticipates continued open enrollment to all veterans in 2003 without
    detriment to our traditional core patients--those with service-
    connected disabilities and lower incomes.
        VA is working to meet the challenges in long-term care for
    veterans. However, we believe that a literal interpretation of Public
    Law 106-117, the ``Veteran's Millennium Health Care and Benefits Act of
    1999'' will result in less than optimal solutions for increasing our
    long-term care capacity. The number of individual veterans who received
    care in VA increased from more than 3 million veterans in 1998 to more
    than 4 million veterans in 2001, due primarily to VA's efforts to
    expand access for primary care. During that same time period, efforts
    have been made to meet the increased demand for long-term care.
    Although the average daily census in VA nursing homes declined,
    veterans mandated under Public Law 106-117 to receive such care are
    being served in VA and contract community nursing homes. VA is also
    supporting a significantly increased census of veterans in State
    veterans nursing homes. At the same time, VA has been expanding care
    for veterans in home and community-based extended care, consistent with
    the mandates of Public Law 106-117. Indications we have received from
    veterans show that they are pleased with options providing long-term
    care closer to home, as well as alternatives to more traditional
    skilled-nursing environments. We look forward to working with Congress
    to pursue the best options to provide veterans with long-term care.
        Our rapidly aging veteran population requires more health care
    services. Our request includes $817 million to address this rising
    demand. These funds will support our emphasis on access and service
    delivery, pharmaceutical support, prosthetics, CHAMPVA for Life, and
    information technology. Management savings of over $316 million will
    partially offset resource needs. For example, I am establishing a
    program across the VA system that will implement ``best practice''
    standards for dispensing and prescribing pharmaceuticals.
        The 2003 budget supports our cooperative efforts with the
    Department of Defense (DOD) to improve Federal health care delivery
    services. Over the past year, we have undertaken unprecedented efforts
    to improve cooperation and sharing in a variety of areas through a
    reinvigorated VA and DOD Executive Council. VA and DOD entered into a
    Memorandum of Understanding (MOU) in December 1999, with the objective
    of reducing contract duplication. The first addendum to that MOU
    resulted in the conversion of DOD's Pharmacuetical Distribution and
    Pricing Agreements (DAPAs) to reliance on VA's Federal Supply Schedule
    (FSS) contracts for pharmaceuticals, which was completed in December
    2000. The second addendum is an agreement to convert DOD's DAPAs for
    medical/surgical products to reliance on VA's FSS. This effort was
    completed in December 2001. To address some of the remaining
    challenges, the Departments have identified four high-priority items
    for improved coordination: veteran enrollment, computerized patient
    records, cooperation on air transportation of patients, and facility
    sharing instead of construction.
                        medical and prosthetic research
        VA's clinical research program is funded at the highest level in
    history with a partnership of government, universities and the private
    sector. Over $1.46 billion will be invested in 2003: $409 million in
    direct appropriation; $401 million in support from the VA Medical Care
    appropriation primarily in the form of salary support for the clinical
    researchers; $460 million from Federal organizations such as DOD and
    NIH; and $196 million from universities and other private institutions.
    This investment will allow VA to expand knowledge in areas critical to
    veterans' and other citizens' health care needs including
    schizophrenia, diabetes, further implementation of cholesterol and
    other guidelines, aging, renal failure treatment, and clinical drug
    treatment evaluations. This investment is relevant to the medical needs
    of the entire Nation and will enhance future quality of life.
            capital asset realignment for enhanced services (cares)
        We continue our effort to transform the veterans' health care
    system under the Capital Asset Realignment for Enhanced Services
    (CARES) initiative. We are evaluating the health care services we
    provide, identifying the best ways to meet veterans' future medical
    needs, and realigning our facilities and services to meet those needs
    more effectively.
        Madam Chair, this initiative is not a perfunctory exercise. The
    CARES process has already had a significant impact on our planning
    process. Last week, I announced my decision on realigning VA health
    care facilities in VISN 12. For example, we will shift inpatient
    services to a remodeled Chicago West Side Division, and maintain a
    Lakeside Division multi-specialty outpatient clinic in the downtown
    area. The Hines VA Medical Center will be renovated, including the
    Blind Rehabilitation and Spinal Cord Injury Centers. Sharing
    opportunities between the North Chicago VA Medical Center and the
    adjacent Naval Hospital Great Lakes will be enhanced.
        CARES is critical to the future of VA health care. It will allow us
    to redirect funds from the maintenance and operation of facilities we
    no longer need to direct patient care. I am prepared to make the
    difficult choices necessary to ensure accessible care to more veterans
    in the most convenient and appropriate settings. We will complete CARES
    studies of our remaining health care networks within two years. Any
    savings that result from CARES will be put back into the community to
    provide higher quality care and more services to veterans. Changes will
    affect only the way VA delivers care--health care services will not be
    reduced.
                     major and minor construction programs
        For all capital programs (construction and grants) this is the
    largest request since 1996. Specifically for major construction, new
    budget authority of $194 million is requested. We are requesting funds
    for four seismic projects in exceptionally high-risk areas: two in Palo
    Alto, one in San Francisco, and one in West Los Angeles, CA. These
    projects involve primary care buildings and a consolidated research
    facility--all of which will be part of any service delivery option
    resulting from the CARES process. Seismic improvements will ensure
    veterans and their families, and VA staff, will continue to be cared
    for, and work in a safe environment. The 2003 Major request also
    addresses critical National Cemetery needs. Resources are included for
    new cemeteries in Pittsburgh, PA and Southern Florida and a columbaria
    and cemetery improvements project at the Willamette National Cemetery,
    OR. Design funds are provided in the amount of $3.4 million for the
    design of new cemeteries in Detroit, MI and Sacramento, CA. We are also
    requesting funds to remove hazardous waste and asbestos from
    Department-owned buildings, perform an emergency response security
    study, reimburse the judgment fund, and support other construction-
    related activities.
        To date, we have received $80 million in Major Construction funding
    to support the design and construction of projects that result from
    CARES studies. Our Major request for 2003 includes $5 million to
    continue efforts to realign our facilities.
        New budget authority in the amount of $211 million is requested for
    the Minor Construction program. Particular emphasis will be placed on
    outpatient improvements, patient environment, and infrastructure
    improvements. A total of $35 million is earmarked for CARES-related
    design and construction needs. These funds have been proposed to allow
    VA to immediately implement CARES options that can be accomplished
    through the minor construction program (i.e., capital projects costing
    more than $500 thousand and a total project cost less than $4 million).
    In addition, $20 million is dedicated to a newly created category to
    fund minor seismic projects, which will allow VA to further address its
    seismic corrections needs.
                               veterans' benefits
        For the administration of veterans' benefits, we are requesting
    $1.2 billion and an additional 125 employees over the 2002 level. The
    President has promised to improve the timeliness and quality of claims
    processing. Last year, I established a claims processing task force to
    recommend changes that would improve the time it takes to process
    claims. The results of that task force, as well as implementation
    plans, have been presented to me and we have already begun to execute
    many of the recommendations.
        I have set a goal of reaching 100 days to process compensation and
    pension claims by the summer of 2003. While the annual average number
    of days for these claims is projected to be 165 for 2003, we expect to
    achieve the 100-day goal by the last quarter of the year. Four months
    ago, we began a major effort to resolve 81,000 of the oldest
    Compensation and Pension claims. A key element of this effort involves
    a ``Tiger Team'' at the Cleveland Regional Office that will tackle many
    of these claims over an 18-month period. The team became fully
    operational in November 2001. Additionally, consolidation of pension
    benefit maintenance at three sites will allow VBA to free up employees
    to focus on rating compensation claims.
        At the same time we are reducing the time it takes to process
    claims, we continue to improve the quality of claims processing. During
    2003, the national accuracy rate for compensation and pension claims is
    projected to grow to 88 percent--a significant improvement from the 59
    percent rate evidenced in 2000. This budget contains $3.5 million to
    support 64 additional employees dedicated to the Systematic Individual
    Performance Assessment (SIPA) initiative. This is an important
    contribution to enhance internal control mechanisms and bring
    accountability to the accuracy of claims processing.
        This budget provides additional staff and resources to continue the
    development of information technology tools to support improved claims
    processing. Over the last several years, VBA has developed and
    implemented major initiatives, established cooperative ventures with
    other agencies, and used technology and training to address accuracy
    and timeliness. This budget continues to focus on initiatives in these
    high payoff areas. For example, this budget requests $6 million in
    support of the Virtual VA initiative. This effort, when complete, will
    replace the current intensive paper-based claims folder with electronic
    images and data that can be accessed and transferred through a web-
    based application.
        Our budget also addresses the mandate to ensure that Montgomery GI
    Bill (MGIB) education benefits provide meaningful transition assistance
    and aid in the recruitment and retention of our Armed Forces. Recent
    legislation has improved these benefits and our priority is to deliver
    them as efficiently as possible. I am pleased to report that the
    Imaging Management System (TIMS) is now functioning in all four
    Regional Processing Offices. The electronic folders that result from
    this effort have expanded access points, improved data access, and
    enhanced customer satisfaction. This budget requests $6.2 million to
    develop and install the Education Expert System (TEES). Among other
    benefits, this expert system will enable us to automate a greater
    portion of the education claims process and expand enrollment
    certification. In 2003, we will continue to improve the accuracy and
    timeliness of education claims and improve blocked call rates.
        Madam Chair, I would like to take this opportunity to mention one
    of VA's great success stories--the administration of more than 4
    million insurance policies in force. The American Customer Satisfaction
    Index (ASCI) and the University of Michigan conducted a study of the
    insurance death claims process and the satisfaction of beneficiaries
    who received awards. This study gave the VA's insurance program a score
    of 90 on a scale of 100. This is one of the highest scores ever
    recorded for either government or private industry. This budget
    provides funding to continue the Insurance Center's history of
    excellence. Our request includes a paperless processing initiative,
    which improves timeliness and quality of service while reducing the
    cost to policyholders.
                     new veterans employment grants program
        Veterans represent a unique and invaluable human resource for
    American society and the economy. Service personnel leave the military
    knowing they have made a vital contribution to their country. Veterans
    want to continue making meaningful contributions as they return to
    civilian life. However, in 21 States, fewer than 10 percent of veterans
    between the ages of 22 and 44 were placed in employment after seeking
    job search assistance from State service providers; during 2001, there
    was an average of 519,000 unemployed veterans, and in the same time
    period, 32 percent of unemployed veterans experienced 15 or more
    consecutive weeks of unemployment.
        America's labor exchange market has evolved in the time since the
    foundation for current programs was laid. This budget proposes
    legislation that will allow VA to create a new competitive grant
    program to help veterans obtain employment. VA is working with the
    Department of Labor (DOL), veterans' service organizations and others
    to propose a veterans' employment program tailored to the needs of 21st
    century veterans seeking assistance in finding suitable employment. The
    details of the legislative proposal to implement this initiative are
    not yet final. If authorized by Congress, the new program will broaden
    our ability to assist veterans with employment and training services.
    Our first priority will be serving unemployed service-connected
    disabled veterans and those recently separated from military service.
    We will also help other veterans searching for employment. Our budget
    request for discretionary programs includes $197 million for the grant
    initiative.
        We have the flexibility to design a program that will incorporate
    elements currently contained in the DOL grant program--transition
    assistance; disabled veterans' outreach; local veterans' employment
    representatives; and homeless veterans reintegration. Veterans look to
    the VA for education benefits, home loan assistance and, in some
    instances, rehabilitation and employment, medical care and compensation
    benefits in the transition years after leaving active duty. Later in
    life, many veterans may return to the VA for health care and ultimately
    burial benefits. Adding an enhanced employment opportunity program to
    the spectrum of care and services provided by VA would provide veterans
    with a single access point to a full continuum of benefits and services
    throughout their lifetime.
        I know there are many questions left unanswered regarding this new
    program. We are in the process of finalizing our legislative proposal
    within the Administration and will submit it to you in the near future.
    At that time, we will be prepared to address your questions in greater
    detail.
                        national cemetery administration
        The budget proposal includes $138 million to operate the National
    Cemetery Administration. The request preserves our commitment to
    maintain VA's cemeteries as National shrines, dedicated to preserving
    our Nation's history, nurturing patriotism, and honoring the service
    and sacrifice of our veterans. It provides a total of $10 million to
    continue renovation of gravesites, as well as clean, raise, and realign
    headstones and markers.
        As noted earlier in my testimony, our budget request for Major
    Construction includes funds for the development of two new national
    cemeteries in the vicinity of Pittsburgh, PA and Miami, FL. Operating
    funds also are requested to prepare for interment operations in 2004 at
    these two locations and to begin interment operations at new cemeteries
    at Fort Sill, OK, and near Atlanta, GA.
                            management improvements
        Madam Chair, last year I stated my commitment to reform VA's use of
    information technology. I am pleased to report that we have made
    substantial progress in this area and will continue our reform efforts.
    As VA moves forward with implementation of the One-VA Enterprise
    Architecture developed in 2001, we will manage information technology
    resources to account for all expenditures and ensure our scarce
    resources are spent in compliance with this Enterprise Architecture. A
    strong program is under development for Cyber Security. We are re-
    engineering our IT workforce to ensure we have the proper skill sets to
    support our program needs. I have recently approved a comprehensive
    change in how we manage our IT projects to ensure they deliver high
    quality products, meet performance requirements, and are delivered on
    time and within budget.
        VA is bringing enterprise-wide discipline and integration of our
    telecommunications capability to increase security, performance, and
    value. Command and control capabilities are being established to
    support the Department in times of emergency. Electronic government
    will be expanded and internet capabilities will be enhanced to improve
    the delivery of services and the sharing of knowledge for the benefit
    of the veteran. All of these efforts will focus on meeting the
    objectives of the President's Management Agenda.
        We are pursuing other important initiatives that will promote
    better management practices throughout the Department. For example, I
    recently convened the VA Procurement Reform Task Force to examine our
    acquisition process and develop recommendations for improvement. The
    Task Force has presented 60 recommendations to accomplish several major
    goals that will enhance our ability to: 1) leverage purchasing power;
    2) obtain comprehensive VA procurement information; 3) improve VA
    procurement organizational effectiveness; and 4) ensure a sufficient
    and talented VA acquisition workforce. Mandatory use of the Federal
    Supply Schedule, reorganization and elevation of the VHA logistics
    function to more quickly standardize medical and surgical supplies, and
    establishment of a National Item File are some of the more prominent
    recommendations being made in order to maximize savings in our medical
    care procurements. We are well on our way to achieving savings and
    increased effectiveness in VA's acquisition arena.
        Finally, our 2003 request includes funds for a new Office of
    Operations, Security and Preparedness (OS&P). Since the tragic events
    of September 11, 2001, we have made substantial investments to address
    the Department's security and preparedness, and to meet our primary and
    critical emergency response missions. VA is the only pre-deployed
    nationwide health care system. We must be prepared for any disaster
    response. OS&P will play an important role in the Federal government's
    continuity of operations in the event of an emergency situation. The
    new office is formed with the specific intent of improving VA's ability
    to respond to any contingency with minimal disruption to services for
    veterans and their families. This office will coordinate all VA
    involvement with the Office of Homeland Security, FEMA, the Department
    of Health and Human Services and DOD.
        Madam Chair, that concludes my formal remarks. Although many
    challenges lie ahead, I am proud of the accomplishments that have taken
    place over the past year. Our budget request for 2003 is a good budget
    for veterans and positions us for continued success. I thank you and
    the members of this Committee for your dedication to our Nation's
    veterans. I look forward to working with you. My staff and I would be
    pleased to answer any questions.

                          SENATOR MIKULSKI'S COMMENTS

        Senator Mikulski. Well, thank you very much, Mr. Secretary,
    for that testimony and really the very serious both policy and
    appropriations issues that are raised in the course of
    appropriations testimony to policy and the changing nature of
    the enrollment in the veterans health care system.
        In my enthusiasm for wishing Senator Bond a happy birthday,
    we did not go to opening statements. But also, I am just going
    to ask unanimous consent that all Senators' opening statements
    go into the record. And then we can move very promptly to
    questions, knowing that other subcommittee hearings are
    pressing other colleagues.
        I would also like to ask unanimous consent that the letter
    from the veterans organizations that--every year they do an
    analysis of the Veterans Administration budget request. They do
    an outstanding job and, I believe, a service to the Nation.
    Their covering letter to the committee and appropriate people,
    I would like to have those introduced into the record just as
    their views. And then we will be meeting with them separately
    on another occasion.
        [The information follows:]

                       Letter From The Independent Budget

                                                       January 7, 2002.
    The Honorable George W. Bush,
    President of the United States, The White House, Washington, DC.
        Dear Mr. President: On behalf of the co-authors of The Independent
    Budget, AMVETS, Disabled American Veterans, Paralyzed Veterans of
    America, and the Veterans of Foreign Wars of the United States, we are
    writing to strongly urge your Administration to fully fund veterans'
    medical care spending to $24.5 billion in fiscal year 2003.
        The brave men and women called to service after the tragic events
    of September 11, to defend our interests here and abroad, will be
    tomorrow's veterans. We implore you to ensure that these service
    members and those who have served before them in defense of our nation
    will have the health care and benefits they have earned and deserve
    from the Department of Veterans Affairs (VA).
        The fiscal year 2002 VA medical care budget falls $1.5 billion
    short of what is recommended by The Independent Budget. We are
    extremely disappointed that the Administration and Congress have gone
    forward with a VA appropriation that will not even fund the pending
    mandated wage increase for VA's employees. We are especially concerned
    about reports of VA facilities having significant waiting lists for
    initial services once a veteran is enrolled in the system, as well as
    closed enrollment at some hospitals. Most disturbing are reports of
    severely disabled veterans having to wait for health care services and
    specialized services such as home health care.
        We understand that VISN directors were recently informed health
    care allocations for fiscal year 2002 include a two percent
    ``efficiency'' cut. One medical center director reported his VISN must
    slice $80 million from its budget to help make up for the deficit in
    the budget. He added that the VISN was required to submit its plan to
    reduce spending to the VA by December 28, 2001. It is outrageous that
    hospital directors, already struggling to meet demand, are now being
    forced to make further cuts. New mandates coupled with an insufficient
    budget, will undoubtedly result in rationed health care and closed
    enrollment. VISN directors will have no choice but to close beds,
    consolidate services, and reduce the number of full-time employees.
    This two percent cut could equate to a loss of 13,000 full-time
    employees. This pressure on the system will especially hurt sick and
    service-connected disabled veterans and affect their access to timely
    health care.
        We appreciate the Administration's decision to provide additional
    funding to allow the Department to continue to enroll all veterans in
    its health care system for next year. Unfortunately, the fiscal year
    2002 budget shortfall and continued open enrollment have stretched the
    Veterans Health Administration to its limits, making it extremely
    difficult for VA to provide timely, quality health care services
    veterans deserve. Current spending is a least $400 million below needs
    according to Secretary Principi. We understand the deficit is actually
    closer to $750 million if you factor in inflation and maintain workload
    at current levels. At the very least, in order to continue enrollment
    of all veterans, Congress and the Administration must find the
    additional funds necessary to address this shortfall.
        Without additional funding, VA is unable to meet veterans' health
    care needs and provide the high quality care it is capable of
    delivering. The Veterans Health Administration (VHA) is a national
    treasure, responsible for training most of the nation's medical care
    workforce. It is also responsible for great advances in medical science
    due to VA research. These advances in medical science have benefited
    all Americans, not just veterans. Finally, VHA is the most cost-
    effective application of Federal health care dollars. Research shows
    VHA provides care for at least 25 percent less than comparable Medicare
    services. Given the proper resources, VA can effectively function as a
    backup to the Department of Defense during a time of conflict or to the
    Federal Emergency Management Agency during a national emergency.
    Therefore, it is an excellent investment, and it makes good fiscal
    sense to keep this system functioning well, especially now while our
    nation is at war. Our treasured way of life and freedom is a result of
    the sacrifices and commitment made by the men and women serving in our
    armed forces.
        The Administration can no longer ignore the serious financial
    problems VA is now facing and its negative impact on sick and disabled
    veterans. Mr. President, the Administration must increase VA medical
    care spending to $24.5 billion in fiscal year 2003 to ensure a secure
    and stable future for those who have served our nation through military
    service.
        We urge you to continue to support our nation's veterans by
    providing VA with the funding needed to maintain a viable health care
    system now and in the future.
                Sincerely,
                                       Robert Jones,
                                                    Executive Director.
                                       Robert E. Wallace,
                   Executive Director, AMVETS Veterans of Foreign Wars.
                                       Delatorro L. McNeal,
                                                    Executive Director.
                                       David W. Gorman,
    Executive Director, Paralyzed Veterans of America Disabled American
                                                              Veterans.

                    SENATOR MIKULSKI'S GOALS FOR THE HEARING

        Senator Mikulski. Mr. Secretary, my goals for this hearing
    are two-fold: one, to ensure that in fiscal 2003 promises made
    are promises kept; and that, at the same time, to be good
    stewards of the taxpayers' dollars. I am concerned about
    several major issues. But the two most dominant are those where
    we know that the VA told us that they had a $400 million
    shortfall in 2002 after the subcommittee had provided $350
    million over the President's request, and actually $1 billion
    more. I--and then that somehow or another Congress is at fault.
    I am going to come back to that.
        Then there is the issue of the priority 7 veterans and the
    deductible that you are proposing. I think you raise very
    challenging issues. But we really do not want a moat. It is one
    thing for there to be policy priorities. But we really do not
    want a money moat around veterans health care. And these are
    other areas that we will want to pursue. And, of course, I know
    the issues around construction and the maintenance of
    facilities are a significant issue, as well as the CARES.

                         $400 MILLION BUDGET SHORTFALL

        But let me go right on to my first set of questions here.
    Last year, when we provided more money, there was an
    announcement by you that there was a $400 million shortfall and
    that actions were going to be taken, which essentially would
    have very much limited veterans' health care. And somehow or
    another, it looked like it was our fault that we did not give
    you enough money, when we gave you more money than the
    President asked and more money than this subcommittee gave last
    year.
        Could you tell us why you had this shortfall? And I do
    not--this is not to be brusque or a spring hazing. I have so
    much respect for you. But was it that the VA could not count? I
    mean, we had a hearing; we had a discussion. And then we got
    this $400 million shortfall and a letter going out to the
    veterans, really limiting their access. So could you tell us
    why, number one; number two, how you made it up; and number
    three, how we do not get into a jackpot this coming year after
    we have done what we think is our job in trying to help you do
    your job to protect our veterans?
        Secretary Principi. Yes. I fully understand, Madam Chair.
    Our workload projections for fiscal year 2002 were based upon
    the workload growth that we had seen for the period 1998
    through the year 2000. We had been seeing a 5 percent growth in
    workload during that period of time and projected that the
    growth would remain around 5 percent.
        Well, it doubled. It doubled in 2001 and then again in
    2002, 11 to 12 percent a year. I think that is attributable to
    many factors. One, a little bit of a fluctuating economy, so
    more and more veterans are coming to us for care. With open
    enrollment, any veterans, irrespective of service-connected
    disability or not, income, poor, or middle income, can come to
    us any day of the year; and indeed they have.
        Senator Mikulski. Well, Mr. Secretary, excuse me. Are you
    saying that the shortfall, the $400 million shortfall, that you
    announced, I believe, last summer--am I--when did you make that
    announcement?
        Secretary Principi. In the fall.
        Senator Mikulski. Excuse me. In the fall. Was that due to
    the fact of the increased enrollment from priority 7? Or was it
    just that, taken over in the transition, there were so many
    loose ends? And I am going to acknowledge, you overtook a
    situation that had not been well-managed for a significant
    amount of time. So I am going to acknowledge that when you
    walked in, you had your hands full. But was it because of more
    people or because the estimates were not proper?
        Secretary Principi. No. I think the estimates were not
    proper for the most part. There may have been some other
    smaller issues. At that time, we also thought that the TRICARE
    for Life Program enacted into law by Congress, was a great
    program for military retirees and they would leave VA at age
    65, but have some 600,000 military retirees enrolled in our
    health care system.
        When Congress passed TRICARE for Life, so that these
    military retirees could now receive their care through the
    TRICARE Program, we estimated that a significant number would
    go to Tricare. We did not see that early on in the program.
    Their pharmacy benefit is a little bit more generous than our
    pharmacy benefit. It is only $9 for a 90-day supply. We thought
    that the transition would be a lot faster.
        I think the shortfall really had to do with inaccurate
    projections of workload.
        Senator Mikulski. Well, are we going to have--do you think
    you have estimated right this time? See, I have my doubts. And
    then again, let me tell you why I have my doubts. And I would
    like you to come back.
        Number one, there are certain assumptions in your request,
    one of which is that you are going to be able to recover a
    significant amount of money from third parties. The VA has
    never been able to meet their own targets. That is number one.

                   $1,500 DEDUCTIBLE FOR PRIORITY 7 VETERANS

        Number two, you are proposing a $1,500 deductible for
    priority 7 veterans. That is an assumption which the Congress
    has not agreed to and, as you know, is enormously
    controversial. It gives many of us great pause about--in other
    words, if you can afford--my own--if you can afford the $1,500,
    would you be in another program? In other words, is this really
    the cost of what you think their prescription drugs are?
        But those two items there tell me that you really--that I
    really question the--I really question your request, because I
    believe the assumptions are faulty. Would you like to comment?
    Because I really do not want a jackpot this fall for our
    veterans or for this committee.
        Secretary Principi. You are absolutely right, Madam Chair.
    It is a dilemma. Without the deductible, we, in my view, are
    over $1 billion short, $1.1 billion. That is why the deductible
    was proposed. We have a 7 percent increase of $1.5 billion
    requested which, relative to other Federal programs, is a good
    increase. But without the deductible, we cannot get there from
    here.
        MCCF, medical care cost recovery. On the one hand I am
    pleased to see a 13-percent improvement in our collections. We
    are 13 percent ahead of our projections. But we have a long way
    to go.

                           MEDICAL CARE FUNDING NEEDS

        Senator Mikulski. So what do you think you are really going
    to need? And then I am going to defer to Senator Bond.
        Secretary Principi. Madam Chair, it depends on whether we
    work out some cost-sharing arrangement for the priority 7s.
    Congress directed that I make an enrollment decision every year
    on who we can afford to care for. Without some form of
    deductible or some form of cost-sharing, I would probably make
    the decision to limit enrollment for priority 7s, rather than
    reduce the quality of care and the timeliness, which is getting
    worse.
        So my choices are very narrow. Limit enrollment, as the
    Congress asks the VA Secretary to decide annually, because this
    is a discretionary program, or work with Congress to see if
    there is a cost-sharing arrangement that can be worked out for
    the priority 7s.
        Senator Mikulski. Or ask for more money in the
    appropriations.
        Secretary Principi. Yes, more money in the program.
        Senator Mikulski. Well my time has expired. I know other
    members would want to pursue this.
        Senator Bond?

                 OPENING REMARKS BY SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you, Madam Chair. And I want to thank
    you for the birthday gift. I would have to say that the
    greatest gift I have throughout the year is the fact that we
    have such a good working relationship, whether it is ranking
    member and chair or chair and ranking member. I have my
    preferences. We are not going to get into that today.
        Senator Mikulski. We do not get a veterans preference here.
        Senator Bond. I would say to my colleagues that my high
    regard for the Senator from Maryland is well known. I am going
    to be roasted by a charity in Kansas City this spring. And they
    all wanted Senator Mikulski to come out, because they have
    heard so much about her and figured that she would probably do
    the most effective job on me that anybody could do.
        But I do want to turn to our leader on the Republican side,
    who has to go to another hearing. So it would be my pleasure to
    yield to Senator Stevens for his questions.
        Senator Stevens. Well, Madam Chair, if you go, I will go
    and turn the spit. All right?
        Senator Mikulski. Okay.
        Senator Bond. Oh, that is dangerous.

                             ALASKAN VETERAN ISSUES

        Senator Stevens. And I am grateful to both of you for
    allowing me to participate quickly. We have a defense hearing
    this morning, and I hate to interrupt a birthday party. You all
    do know it is Senator Bond's birthday, right?
        Senator Bond. Oh, yes. That is what----
        Senator Stevens. All right. Let me say that I am grateful
    to you for a conversation we had the other day about the
    homeless problems in Anchorage. And I do hope that we can find
    some way to work on that outreach center. I do not know if you
    all know but we have the largest number of veterans per capita
    in the United States. And it is becoming increasingly difficult
    to deal with that high portion of that population under some of
    the limitations we have.
        For instance, that 30-year rule, it applies to those who
    have been involved in the rate reduction program, the bond
    program we have. As I understand it, there is a provision that
    cuts off veterans who served in Vietnam and the Persian Gulf
    and other conflicts. But those lapse in 2007. Those people
    would no longer be eligible unless they have been out of the
    service for more than 30 years. I do not understand that 30-
    year rule. I would urge you to take a look at that.
        And I would also ask if you would help us on another
    problem. I am really not asking questions. I would just make a
    statement, if I can. We have States, 5 States, that are
    eligible for a program on housing. As I understand it, it is--
    we have a cap on these States. My State is one that has, as I
    indicated, so high a percentage of veterans, it is hard for us
    to work under that cap.
        Are you familiar with that? We are allowed to--we are told
    that we are down to a level of--let me be sure. The current
    allocation for Alaska is $303 million limit under the AHFC
    program. That is the Alaska Housing Finance Corporation dealing
    with the VA bond cap. I want to talk to you about whether or
    not we could find some way to either put an escalator for
    States that have a high percentage of veterans in their
    population. Either that or lift the cap. It has been in place
    for a long time and it is not relevant to our program.
        We are prepared, through the Alaska Housing Finance
    Corporation, to assist veterans. But we cannot do it unless we
    can issue bonds for veterans housing under the Federal
    authorization. I would urge you to take a look at that.
        Secretary Principi. I will do that, sir.
        [The information follows:]
                       Alaska Housing Finance Corporation
        We are aware that the basic criteria for Alaska Housing Finance
    Corporation (AHFC) Veterans Mortgage Program (VMP) are that the veteran
    must have entered the service prior to 1977 and cannot have been
    discharged for more than 30 years. AHFC requires that when veterans
    apply to them for a loan, they submit a VA issued Certificate of
    Eligibility along with their DD214 so that it can be determined when
    they went into the military and what date they were discharged.
    However, this program is administered by AHFC, not VA. Therefore, we
    have no authority over the provisions of the program.
                           maximum federal bond rate
        VA has no knowledge of or authority with respect to a Federal cap
    that may exist on bond issues.

        Senator Stevens. Lastly, when I was in Juneau, I was made
    aware of an issue there. The Juneau VA replaced a long-serving
    staff member there. And the replacement staffer has 25 years
    with the VA but is not authorized to approve medical treatment.
    It is now my understanding that--that a problem is near
    solution, but it is on your desk. Is that right?
        Secretary Principi. I have not seen it.
        Senator Stevens. Are you familiar with that?
        Secretary Principi. I have not seen that issue, but I will
    look for it as soon as I return.
        Senator Stevens. Well, I am sure you know that for someone
    who is in Southeastern Alaska to have to go either to Anchorage
    or Seattle for authorization, when there is a staffer that has
    25 years experience in VA but is not authorized to approve
    medical treatment, is a difficult situation.
        Secretary Principi. I will find out and I will report to
    your office.
                           Medical Services in Alaska
        The Alaska VA Healthcare System and Regional Office (AVHSRO)
    operates a one employee VA office within the federal building in
    Juneau, Alaska. A Contact Representative GS-11 employee staffs this
    office. Her duties include general health care and benefits information
    and assistance to veterans in southeast Alaska. One major customer
    service area for this position is support to the Fee Basis
    authorization program. Juneau, Alaska is 550 air miles from Anchorage
    and is not accessible by ground transportation. Juneau is the capital
    of Alaska and VA has a long history of providing a VA office there.
        The individual who currently is staffing the VA office in Juneau,
    Alaska reported for duty there December 4, 2001. The employee was
    previously on staff at our Anchorage facility working within the
    Veterans Benefits Administration (VBA) Regional Office component of our
    operation.
        The AVHRSO is currently addressing the training and technical
    support needs of our new VA representative. During the week of February
    11-15, 2002, the employee returned to Anchorage for training on the
    medical care authorization process. During this visit we also had a
    lengthy discussion of the computer problems she had been experiencing.
        As a result of this training visit to Anchorage it was determined
    that a visit by our Technology Management Service (TMS) staff was
    necessary to fix her computer and printer problems. These are necessary
    fixes in order for her to provide the level of service expected by our
    Juneau area veterans. The TMS staff traveled to Juneau during the week
    of February 25, 2002 to March 1, 2002. Computer related access issues
    were corrected during this visit to allow our employee to process
    medical authorizations.
        Throughout the training cycle and during periods of computer
    outage, staff in Anchorage is providing service regarding the
    authorization of medical claims. In fact our Coordinated Care
    Department has organized along regional boundaries and one team is
    dedicated to Southeast Alaska. Statewide veterans are able to reach VA
    by a toll free number and receive service via the Southeast Alaska
    Regional Team. Our Juneau representative will soon be an additional
    source of assistance for the Juneau area veterans.
        It is important to recognize that the employee on staff now in
    Juneau, Alaska has many years of VA experience; she spent the past ten
    years working in the VBA Regional Office. The authorization of a Fee
    Basis Medical Claim often requires a clinical decision. It was never
    intended that this employee would be able to independently authorize
    all the medical care that Juneau area veterans will need. However, when
    the decision can be made based upon reasonable judgment and the care
    will obviously be approved, the Juneau office is delegated authority to
    issue such an authorization. This is a local operational issue
    regarding support and training for a new employee. It does not
    represent a new process in Alaska and does not require action in VA
    headquarters. During the training and development process the amount of
    direct service provided in Juneau has been more limited than under her
    predecessor. This should improve quickly as the Contact Representative
    gains experience and familiarity with the authorization process.

        Senator Stevens. Thank you. Thank you for your courtesy.
        Senator Mikulski. Senator Johnson?

                           MEDICAL CARE SUPPLEMENTAL

        Senator Johnson. Thank you, Madam Chairwoman. And thank
    you, Secretary Principi and your staff, for joining us today. I
    am also very appreciative of your willingness to spend some
    time just the other day with me, talking through some of the
    budget issues that veterans in South Dakota have raised with
    me.
        Very quickly, again, you announced a $400 million shortfall
    for the current fiscal year last fall. Would you share with us,
    very briefly, the prospects for a supplemental appropriation
    and at what level you anticipate that supplemental might be
    requested for?
        Secretary Principi. Yes. I was prepared again to suspend
    enrollment for new priority 7s, because I felt that the funding
    was not adequate to maintain the quality that we desired. In
    the eleventh hour, so to speak, I received a commitment for
    supplemental funding of $142 million. And I believe that--
    supplemental is being worked on. It should be coming up to the
    Hill very, very shortly, possibly as part of the DOD
    supplemental that is being prepared. We expect the request for
    supplemental funding to be forthcoming very, very soon.
        We have taken management actions to offset the balance of
    the $400 million through efficiencies in centralized funding.
    We have recently distributed $162 million to the field, so the
    actions we are taking in conjunction with the $142 million
    supplemental will allow us to get through 2002 without
    eliminating enrollment to anyone who comes to us.
        Senator Johnson. If the shortfall is $400 million and the
    supplemental is $142 million, that is a significant difference.
    So what you will not be able to do that you would have done had
    you had the full $400 million?
        Secretary Principi. We re-estimated the impact of the new
    CHAMPVA for Life Program, a health care program for spouses of
    deceased service-connected men and women. We have re-estimated
    that program, and there is a $94 million saving there.
        There are certain information technology procurements that
    we felt we could defer to out-years. There are a number of
    centrally controlled programs, all of which have yielded
    resources that we have been able to distribute to the field to
    meet more high priority items.
        There is a combination of management actions, some of which
    do result in deferrals of information technology programs, but
    that yield resources we can apply to needed areas.

                         HOT SPRINGS, MSD SURGICAL UNIT

        Senator Johnson. With a budget shortfall within VISN-23, it
    is beginning to have a negative impact on patient care. For
    example, there are some discussions now regarding the surgical
    unit at the Hot Springs VA Medical Center in South Dakota. The
    Hot Springs surgical unit has had difficulty recruiting and
    retaining professional staff. And one of the proposals under
    consideration is to close that surgical unit to all but minor
    outpatient procedures and move the remaining surgeries to Fort
    Mead Medical Center.
        Can you update me at all on the current situation with the
    Hot Springs surgical unit? And are there any solutions to how
    we can keep the surgical unit fully operational?
        Dr. Murphy. Sir, we just received that proposal from the
    network in Headquarters. Our routine is that--that proposal
    would be reviewed by the surgical service. And we will look at
    not only their proposal but alternatives to maintain the
    services to veterans. And we will be happy to provide you
    information once we have had a chance to fully look at that
    proposal and all the alternatives.
        [The information follows:]
                           Hot Springs Surgical Unit
        The surgical unit at Hot Springs Medical Center is currently short
    two nurses; one operating room nurse and one nurse manager. The VA
    Black Hills Health Care System has developed a very aggressive and
    creative plan to fill these positions. In addition to the typical
    markets where the VA Medical Center in Hot Springs normally recruits
    nurses, the facility has expanded its search for nurses to wide ranging
    markets such as Sioux Falls, South Dakota; Omaha, Nebraska; Denver,
    Colorado; and Minneapolis, Minnesota. In addition, the VA Black Hills
    HCS is offering a $5,000 sign-on bonus for the nurse manager and a
    $2,000 sign-on bonus for the Operating Room nurses. VA Employees are
    being offered a $500 ``finders fee'' if they assist in the successful
    recruitment of operating room personnel at the VA Hot Springs medical
    facility. The community of Hot Springs has also been helpful in the
    search for VA staff. The Job Service office is engaged in local (Rapid
    City area) recruitment at no cost to VA. Every effort is being made to
    assure uninterrupted surgical service at the Hot Springs VA Medical
    Center. VA officials are optimistic that the positions will be
    successfully recruited.

                           $1,500 DEDUCTIBLE PROPOSAL

        Senator Johnson. Well, thank you. And I appreciate any
    effort you can do to retain full service wherever possible at
    our VA's.
        As we discuss priority 7s--and I share the concern
    expressed by my colleagues here this morning about the need for
    full services to all veterans. But one of the concerns I have,
    particularly one that we have in rural States, where assets,
    such as land, are included in the calculation of income, we
    have a lot of farmers and ranchers in my State who own land
    that, on paper, is worth a fair amount, but whose annual actual
    income, whose revenue flow, is far, far below the VA threshold.
        The administration's proposal to impose a $1,500 co-pay on
    category seven vets is going to be particularly onerous on
    these people who simply do not have a lot of cash income,
    despite the fact that they do have some land. Do you support
    changing the law regarding eligibility standards to address
    that problem, or do you have any ideas about how to address the
    people who fall under this circumstance?
        Secretary Principi. I know it is an issue in rural America,
    and I think it is an issue in urban America, too, where
    veterans own small businesses, and they have a lot of their
    assets tied up in a little shop or dry cleaners or whatever it
    might be. Those assets count toward their overall assets. It is
    a real problem.
        We could take a look at the income thresholds. Maybe they
    need to be revised; different thresholds at which certain co-
    payments would kick in or not. We could look at the percentage
    of reasonable charges as a way of keeping the co-payments and
    the deductible down.
        Again, if our costs, for example, for an outpatient visit
    are $100, we would go to the insurance company first for that
    $100 to be applied toward the deductible. If the veteran does
    not have insurance, then the deductible for which the veteran
    is responsible would be a percentage of that. We started at 45
    percent. We are looking at 20 percent. So it could be $20 or
    $45, which would be applied to the deductible.
        And many, many veterans would not come anywhere near the
    $1,500 limit, which would not be applied to the pharmacy
    benefit. Prescriptions would still be $7 each. And there would
    not be any further co-payment that would have to be paid.
        If veterans could not afford it, we would never turn them
    away. We would have a repayment plan. So we tried to take as
    many steps as possible, recognizing that people with incomes of
    $25,000 to $30,000, and maybe assets tied up in the ranch or
    the farm, do not have disposable income. Whether it be $10 a
    month, or whatever the veteran could afford, we would work out
    some kind of payment plan. The fact of the matter is that we
    need to address this growth.
        Senator Johnson. In the end, you would need better funding.
    But in the meantime----
        Secretary Principi. Oh, yes.
        Senator Johnson [continuing]. As long as you have these
    priority issues that you have to grapple with, I hope that you
    will be sensitive----
        Secretary Principi. Sure.
        Senator Johnson [continuing]. To the actual resources
    available to many of our veterans.
        Thank you, Mr. Secretary.
        Senator Mikulski. Senator Bond.
        Senator Bond. Thank you very much, Madam Chair. I would
    like to submit, for the record, the questions that Senator
    Domenici left for the Secretary.
        Senator Mikulski. Without objection.

                     OTHER FUNDING OPTIONS FOR MEDICAL CARE

        Senator Bond. Mr. Secretary, we congratulate you on the
    steps you have taken. I know that you are making real progress
    trying to tackle the claims benefit processing problem.
        You are addressing problems of homeless veterans. I think
    certainly veterans in my State are excited about your
    leadership. I congratulate you on this. There are problems,
    obviously, with funding. You have continually, the Department
    of Veterans Affairs continually, from year to year, has
    received the greatest increase in any budget from our
    subcommittee. And we are going to continue to do so, but we
    need to look at some of the other alternatives.
        VA, I guess, has sought the authority to bill private
    insurers and Medicare. And the tax-writing committees do not
    want to approve that. A lot of people have focused on the GAO
    reports that concluded, when compared to the private collection
    efforts, private sector collection efforts, the VA is not
    collecting enough money. We need to find out if there are ways
    that you can improve the collections.
        But beyond that, I look at the numbers on priority seven
    participants. And it is obvious that your suggestion of a
    $1,500 deductible was not well received, I think, might be a
    happy euphemism for the response it got. But if you look down
    the road, if the cost of medical coverage for priority 7s
    continues to grow from an increase of $1.1 billion this year to
    $5 billion on top of all the other needs, we are going to be
    very fortunate in this subcommittee if we can get anything like
    the allocations we would need to keep up with that.
        So I would ask what steps you are taking, first with
    respect to priority 7s. Are you meeting with the veterans'
    service organizations, the authorizers and others? Are there
    options that you can pursue that may not be as Draconian but
    might assist?
        Secretary Principi. Yes, I have met with the leaders of all
    of the service organizations. We have discussed this issue. I
    have explained the rationale. I have opened up the door to any
    recommendations they might have on how this deductible can be
    modified to address our needs, at the same time making sure
    that veterans can continue to access the system. I have engaged
    in high-level discussions with Secretary Tommy Thompson,
    talking about the issue of coordination of benefits, and
    Medicare subvention. We are working on that. I do not see that
    happening for the reasons you indicated. The tax-writing
    committees have been very, very reluctant to make any changes
    there.
        So yes. We will meet day or night, whenever, to sit down
    and address this important policy issue, because it is getting
    to crisis proportions. It really is. And we are failing
    veterans if we cannot provide care to them in a timely manner.
    I think some good decisions were made in the mid-1990's, but
    all were premised on additional funding outside of the
    appropriation process. Those decisions were premised on
    Medicare subvention and on increased MCCF collections.
        And guess what? It never happened. And we continue with
    open enrollment. We continued opening clinics. We continued
    giving people expectations. And we did not do too much about
    it. And now I find myself in the situation of having to tell
    veterans, ``I am sorry, there is no more room.''
        As I was telling Madam Chair, when a 100-percent service-
    connected veteran combatant takes a bullet to the spine and
    goes to Florida, he is treated just like any other veteran who
    is non-service-connected or who may be wealthy; but by law they
    are both equal. To me, that is wrong. And we need to do
    something about it. But that is the way the law is structured
    by the authorizing committees.
        It seems to me that we have to address this in such a way
    that gets people to understand and attempts to meet their
    expectations, but to put some management processes in place to
    take a look at this growth and manage it appropriately, like
    any private sector health care company would. They have the
    same challenges we do.
        With our MCCF, we are making progress, but I am to the
    point of being totally frustrated. I am looking to bring in
    loaned executives from the private sector to tell me how we
    should do our billing and collection. We struggle with it. We
    do it in 163 hospitals around the country and at some networks.
    It seems to me there is a better way to do our collections. And
    we just continue to do the same things and we just do not get
    there. I do not want to be critical, but we just do not get
    there.
        I am at the point now where I really need to bring in some
    experts from the private sector; not consultants, per se, but
    experts in business, to come here and tell me how to fix this
    problem once and for all. Then go from there.
        Senator Bond. Well, Mr. Secretary, my time has run out. But
    I commend you for your willingness to address the much broader
    problem. We are going to do everything we can in this
    committee. We have always done as much as we can. The forces
    from the outside who keep thinking there are unlimited funds
    are absolutely, you know, in the wrong ball park; they are on a
    different planet.
        We have to focus on the severely wounded, service-wounded
    veteran. We have to focus on those who are poorest. And I am
    concerned that, if we do not get a handle on some of the lower
    priority ones, we are going to hear stories today about lack of
    care or delayed care and inadequate care for veterans who
    really are needy, whom we are not treating as well as we should
    because the resources are too short. And this is a problem that
    the authorizing committees, as well as some of the other
    committees on the Hill, need to be aware of. They think they
    can offer more benefits to everybody without providing the
    resources.
        And we will work with you. And I commend you for carrying
    that message.
        Senator Mikulski. That was good, very good.
        Senator Kohl?

                              KENOSHA, WI, CLINIC

        Senator Kohl. I thank you, Madam Chairman.
        Mr. Secretary, the significant increase in the medical care
    spending proposed in your budget, I believe, is well justified.
    I must also say, however, that in addition to what you have
    heard from the other Senators, I have heard from veterans who
    are concerned over your proposed $1,500 deductible initiation
    for priority seven veterans. In seeking new funding sources, I
    know you would agree that the VA must be careful not to erect
    new barriers for veterans who are seeking VA care.
        Mr. Secretary, as you may know, the State of Wisconsin's VA
    facilities are part of Veterans Integrated Service Network 12,
    known as VISN-12, which is the first network to undergo the
    VA's CARES for structuring process. The realignment package for
    VISN-12 that you recently approved will include the
    establishment of several new community-based outpatient clinics
    in my State of Wisconsin. The timely construction of these
    clinics will be critical in the effort to bring VA health care
    closer to the rural areas, where many of Wisconsin's veterans
    live.
        Over the past year, the VA has had difficulty in finding
    the money to construct a clinic authorized to be built in
    Kenosha, Wisconsin. Can you walk me through the clinic funding
    process and assure me that, with the budget that you are
    proposing, the VA will have the funding to build these clinics
    on schedule in my State of Wisconsin?
        Secretary Principi. Yes. Dr. Murphy can talk about the
    specifics, but with regard to Kenosha, that decision has been
    made. That clinic will open; we made a commitment to open that
    clinic. Some later decisions seemed to run counter to that, but
    I felt that, in view of the commitment, we needed to move
    forward. The network director has been so informed, and steps
    are being taken to ensure that the funding will be there for
    the clinic.
        Dr. Murphy can talk about Green Bay and Wisconsin Rapids.
        Senator Kohl. Yes.
        Dr. Murphy. You are absolutely correct, sir, that there
    were two community-based outpatient clinics that were proposed
    by the contractor as part of the CARES process and that
    Secretary Principi has approved options. We are moving forward
    very aggressively to develop an implementation plan within the
    network to get all of the changes that were approved in place
    in the shortest time possible.
        Some of the major changes that will be implemented will be,
    you know, the closure of inpatient beds at Lakeside. We will
    need to renovate the West Side facility in Chicago in order to
    do that transfer. There will be significant savings in terms of
    personnel and other management efficiency that will result from
    that. And those resources will go back to delivery of health
    care services for services within Network 12, including those
    in Wisconsin.
        So we expect to be able to implement those changes as
    quickly as possible. The implementation plan should be
    delivered to headquarters within the next several months. We
    would be happy to brief you on that when it is available.
        [The information follows:]
                             Clinic Funding Process
        Funding for VA Community-Based Outpatient Clinics (CBOCs) comes out
    of the budget allocated to the VISN. Each medical center within the
    VISN is then provided with an annual operating budget to support the
    full range of services and staff they provide. Clinics under their
    jurisdiction must be funded out of their operating budgets. The
    directive governing the establishment of CBOCs has a provision that
    requires the VISN to have sufficient operating funds to open and manage
    the clinic. The original business plan for the Kenosha clinic is being
    updated to reflect workload projections based on utilization of
    surrounding clinics and medical centers that was not included in the
    original plan. The clinic is expected to open later this year. Based on
    the outcome of the business plan and sizing model, we anticipate that
    North Chicago VA Medical Center will have the funds necessary to
    activate the Kenosha clinic later this year and anticipate future
    budgets will support on-going operations. The other clinics in the
    CARES Implementation Plan are to be funded with the saving by the
    realignment of inpatient services from Lakeside to West Side and Hines.
    In addition there would be operating funds generated by the Enhanced
    Use Lease of the Lakeside property.

        Senator Kohl. I thank you and I am encouraged by what you
    said about Kenosha. I would like to hope I could also be
    encouraged with what you said as it reflects Green Bay and
    Wisconsin Rapids.
        Dr. Murphy. Yes.
        Senator Kohl. Thank you.

                               CLAIMS PROCESSING

        Mr. Secretary, one of the major commitments made to
    veterans by the President was the reform of the inefficient
    claims processing system. Veterans in Wisconsin and across the
    country continue to wait too long, I am sure you would agree,
    to receive decisions on their claims for benefits earned. In
    your statement, you have emphasized that it is your goal to
    reduce the current claims processing time to 100 days for
    compensation and pension claims by the summer of 2003.
        Too often, I hear complaints from Wisconsin veterans that
    new and reopened claims are often taking as much as a year to
    process. While 100 days is worthy goal, can you outline what
    you are doing to achieve this goal in such a short period of
    time?
        Secretary Principi. Senator, as you may know, shortly after
    coming on board I convened a claims processing task force to
    recommend practical hands-on solutions. And I was not
    interested in recommendations that would deal with changes in
    law to curtail benefits or abstract theories of veterans'
    benefits. I just wanted practical hands-on solutions of things
    we could do to reduce the backlog.
        I am proud that that group, including leaders of the
    veterans service organizations, gave me 34 very concrete
    recommendations, like triaging when claims come in. A group of
    people decide which ones can be decided immediately and which
    ones need more claims development work, so that those that can
    be decided immediately can be signed off, rather than sitting
    on somebody's desk for 6 months before the file is even opened.
    Other recommendations called for more specialization, more
    accountability and performance standards.
        I created a tiger team specifically to address the claims
    of veterans over the age of 70 years old, whose claims had been
    pending more than a year. Since the tiger team has been in
    existence about 4 months in Cleveland, Ohio, with 9 additional
    sites around the country, they have decided 13,000 of the most
    complex claims that have been sitting on someone's desk for a
    year or 2 to 3 years.
        I think the totality of these steps, including a lot more
    focus and discipline on what we have to do, has resulted in a
    dramatic increase in the number of decisions to 62,000 each at
    the past 2 months, compared to 29,000 per month a year ago. We
    need to continue to do that. We also need to keep our eye on
    quality to make sure we are not making a lot of mistakes in the
    process of expediting these claims.
        I really do think, that by staying the course, we are going
    to get claims processing time down to 100 days, maybe less,
    maybe a little bit more, but we are going to stay on that
    track.
        Senator Kohl. Well, I thank you. And I am much encouraged
    by what you have said this morning.
        Secretary Principi. Thank you, Senator.
        Senator Kohl. Thank you so much.
        Thank you, Madam Chair.
        Senator Mikulski. Thank you.
        Senator Shelby.
        Senator Shelby. Thank you.

                          DISCRETIONARY FUNDING NEEDS

        Mr. Secretary, we appreciate you coming here today. And I
    think you feel the environment here is one to help you. We know
    you have a lot of problems confronting you, mainly in
    resources, funding. For example, I have had a couple to come to
    my attention recently. In a meeting with members from the
    disabled American veterans in my office here, two examples of
    the problems that you have questioned surfaced. And I am sure
    you have them all over the country.
        One veteran from Birmingham had fallen and knocked one of
    his teeth out. He was told it would be 4 months to receive a
    new tooth. Another veteran from Athens, Alabama, made an
    appointment for a routine eye exam. That exam is 6 months away.
        I think a lot of it is inability to provide you the
    resources you need. Do you agree?
        Secretary Principi. Yes, sir, I do agree. Again, it is
    infinite demand, finite resources. So yes, part of it is, the
    dollars we have available. Part of it is how well we manage our
    system. It is a complicated issue. I think, in the final
    analysis, it is dollars that we request of you and that you
    give us. I think the Congress has been extremely generous to
    us, but the workload continues to grow.
        And I think there are unfunded mandates, too. And again, I
    am not trying to take a shot at the authorizing committees.
        Senator Shelby. I think you are being honest.
        Secretary Principi. I grew up on an authorizing committee
    as a staffer. But as was said yesterday in the House, I think
    it is my curse.
        Senator Shelby. Welcome to the appropriations world.
        Senator Mikulski. Very good.
        Secretary Principi. I think, when the authorizers mandate
    some programs with no increased funding specifically for those
    programs, we have to take the resources for the new programs
    from existing programs. And it makes it difficult, because
    there is only so much of the pie to divvy up.
        Senator Shelby. Absolutely.
        Secretary Principi. It becomes a problem we have to deal
    with.
        Senator Shelby. Well, I guess sometimes the authorizers
    want to be Santa Claus. And we certainly do not want to be the
    Grinch. You know we want to help you and you understand that.
    Some of us also grew up on some of the authorizing committees.
    But at the end of the day, the resources have to come out of
    this committee. And we know you have a tough job. I know our
    leaders on the committee do, too. I believe all of us want to
    help you solve this job, because we are committed to the
    veterans.
        But I think you point out a good example. I think maybe
    they are relative commitments, you know, to the disabled, to
    the people who are disabled and wounded in combat. I think we
    owe them first; I do.
        Secretary Principi. I agree. The service-connected disabled
    followed by the poor.
        Senator Shelby. Absolutely.
        Secretary Principi. The system was designed for them. And
    to a degree it has always historically been as long as I can
    remember, that the higher income, non-military medical
    condition veterans were always treated on a space available
    basis. Again, I hope we can treat as many veterans as possible.
    I do not think we can treat all 25 million. The system is not
    built for that. We are up to almost 5 million now, 20 percent
    of the total.
        We have to concentrate and make sure that the service-
    connected disabled and the poor have access to our system,
    because they are the ones that usually do not have other places
    to turn, either because they need the specialized programs of
    the VA, such as spinal cord injury, blind rehabilitation,
    mental health, and PTSD, or, of course, who are poor and who do
    not have insurance.

                        AVERAGE AGE OF WARTIME VETERANS

        Senator Shelby. Mr. Secretary, what is the average age of
    the Second World War veteran today, roughly?
        Secretary Principi. They are well into their 70's, I would
    think mid- to late 1970's.
        Senator Shelby. Towards the 1980's, are they not?
        Secretary Principi. Probably. Maybe even 1980's. Clearly,
    there are only 5 million remaining of the 16 million who
    fought.
        Senator Shelby. What is the average age of the Korean War
    veteran? I know it is a little below, but not much, is it?
        Secretary Principi. I think Korean has to be in the 65-to-
    70 range, as well.
        Senator Shelby. And how many would that be, roughly?
        Secretary Principi. I will have to provide it for the
    record.
        Senator Shelby. You furnish it.
        Secretary Principi. We have about eight to nine million
    Vietnam veterans, five million World War II veterans. I think
    Korea is in the neighborhood of four to five million.
        Senator Shelby. What is the average age of the Vietnam
    veteran?
        Secretary Principi. The average age is probably 57/58 years
    old.
        Senator Shelby. You are using your measurement, right? That
    is good.
        Secretary Principi. I think I am 1970 vintage from Vietnam.
    So yes, probably about in the mid- to late-50's.
        Senator Shelby. Okay.
        Madam Chairman, thank you.
        Senator Mikulski. Thank you, Senator Shelby. And thank you
    for your sentiments to the Secretary that, really, we are
    troubled about what the VA is facing. And we can just see
    today, you yourself seem so troubled. But you are not alone
    here. And the veterans are not alone. And we really have to
    solve these issues.
        Senator Craig?

                              PREPARED STATEMENTS

        Senator Craig. Thank you, Madam Chairman. Let me ask
    unanimous consent that my opening statement be a part of the
    record.
        Senator Mikulski. That is without objection and we will
    also include statements from Senator Bond and Senator Domenici.
        [The statements follow:]

                  Prepared statement of Senator Larry E. Craig

        Mr. Chairman, it is indeed a pleasure to welcome the VA Secretary
    Tony Principi and members of his staff. I applaud you and your team in
    your efforts to ensure our government honors our commitments to
    Veterans while implementing the most beneficial and cost effective
    programs. To do this, we must continually look for opportunities to
    reform the VA health care system, while maintaining as our number one
    priority, our combat veterans with disabilities and our veterans with
    low incomes who often rely exclusively on the VA for their care.
        The VA's Budget proposal totals $56.5 billion for Veterans'
    benefits and services, $30.1 billion for entitlement programs and
    includes $26.4 billion in discretionary spending, for medical care,
    burial services, and the administration of Veterans' benefits. This is
    an increase of almost $6 billion over last year's budget, and it
    clearly demonstrates the President's commitment to Veterans' Health
    Care.
        I strongly support a VA which is committed to providing accessible,
    high quality medical care and other Veterans benefits and services in a
    timely and effective manner. However, we must expand and improve the
    delivery of service and benefits so that all Veterans have equal access
    to high quality medical care, particularly in under served rural areas
    such as Idaho. I believe that a more localized care approach as opposed
    to a regionalized approach is most appropriate for areas of the country
    such as Idaho. Currently, the Veterans in Lewiston of my State have
    challenges getting appointments at facilities in Washington,
    specifically Walla Walla, and Spokane, as well as tremendous burdens
    trying to get to these facilities. I believe this area is a prime
    candidate for a Veterans Clinic. In the Southeast portion of my State I
    have major concerns with the doctor shortage we are currently
    experiencing in our Pocatello facility. It is of utmost importance that
    the long list of Veterans waiting to receive various services,
    especially medical care, are able to get it in a timely, courteous
    manner with a minimal amount of necessary travel time. In recent years
    there were tremendous staff reductions that resulted in reduced
    services. The necessary steps must be taken to reverse this trend. I
    invite the Secretary to come out to Idaho and discuss these issues with
    me and the Veterans of my State sometime soon.
        In closing, Mr. Chairman, there is no way to over emphasize the
    honor and respect this nation owes the military men and women who
    sacrificed so much to accomplish a strong national defense. I believe
    that this proposed budget is a good beginning for ensuring our Veterans
    will receive high-quality health care, that we keep our commitment to
    maintain Veterans' cemeteries as national shrines, and we have the
    resources to process Veteran Benefit claims in a more timely and
    accurate manner. I look forward to working with Secretary Principi to
    meet the many challenges that the VA will face in the coming years.
                                     ______

                   Prepared Statement of Christopher S. Bond

        Thank you, Madam Chair. I also welcome back Secretary Tony Principi
    to our subcommittee. I am pleased to have Secretary Principi here today
    to discuss the fiscal year 2003 budget for the Department of Veterans
    Affairs. Even though you have been in your position for a little over a
    year, saying that a lot has changed over the past year would probably
    be an understatement.
        As the Secretary of VA, you face a number of daunting challenges
    that have plagued the Department for several years. I applaud your
    efforts to tackle the claims benefits processing problems and address
    the problems of homeless veterans, to name a few.
        However, my statement focuses on two other major challenges: (1)
    addressing the escalating growth of the so-called Priority 7s and (2)
    transforming VA's medical care infrastructure and services to better
    meet the needs of veterans.
        As you know, the most pressing budgetary problem facing the
    Department and the Congress is the cost of maintaining an open
    enrollment policy for the Priority 7 veterans without compromising the
    quality of health care services for all veterans served by the VA
    system. The fastest growing veteran group are those that have incomes
    above $24,000 annually and have no service-connected disabilities.
    These are defined as ``Priority 7'' veterans. VA projects that if no
    change to current policy is enacted, the costs of providing medical
    care services to this category of veterans will rise from $2 billion in
    fiscal year 2002 to over $5 billion in fiscal year 2007--a 126 percent
    increase! Currently one-third of VA's six million enrollees are
    Priority 7s and if no change in policy is enacted, this percentage is
    projected to increase to 42 percent by 2010.
        We can all be proud that VA is successful in attracting so many
    veterans to its services due to the recent improvements made in its
    delivery system and its generous benefits packages. However, there are
    significant costs for operating VA's medical care system, which must be
    addressed or else the system may collapse and become a victim of its
    own success. To address this issue, the Administration has proposed a
    new deductible or cost-share arrangement where Priority 7 vets would be
    charged at a rate of 45 percent of the reasonable charges, up to $1,500
    annually. VA proposed this deductible to not only stem the rapid growth
    in Priority 7s, but to insure that timely, high quality care can be
    provided for VA's higher priority veterans--those that are low-income
    and those with service-connected disabilities--without having to stop
    enrolling Priority 7s.
        Mr. Secretary, I am sympathetic to the Department's dilemma and you
    have my commitment that I will work with you to protect the long-term
    viability of VA's health care system. But I realize that you have
    already heard from the veteran service organizations and the
    authorizing committees that they will not support your proposal. And to
    further box you in, they have demonstrated their objection to any
    attempt to stop enrolling Priority 7s.
        Where does that leave us? Clearly, at the appropriators' door step.
    VA estimates that it will need an additional $1.1 billion for fiscal
    year 2003 to maintain open enrollment for Priority 7s, but there is
    more than just this one year cost as I stated earlier. If we do not
    make a policy decision this year on Priority 7s, then we will be
    looking at an additional $5 billion by fiscal year 2007. I believe that
    it is too optimistic and risky to expect that the appropriators will
    come up with $1.1 billion this year. The VA medical care account has
    been and always will be the top funding priority for this subcommittee
    but it cannot be at the expense of gutting other critical programs for
    affordable housing and disaster relief.
        We must work constructively with the VSOs and the authorizers to
    come up with a fair, balanced approach to ensure that the VA health
    care system continues to provide quality care for all of our veterans.
    And, Mr. Secretary, we need your commitment to improve VA's efforts in
    collecting funds due to VA from other health insurance programs. Your
    budget request is projecting collections totaling $1.45 billion, but I
    have heard that VA has more than $700 million in outstanding
    receivables. VA can obviously do a better job.
        The other daunting challenge for VA that also has major cost
    implications is realigning the VA medical care infrastructure. I
    congratulate you, Mr. Secretary, for your leadership in moving forward
    the Capital Asset Realignment for Enhanced Services or ``CARES''
    program in network 12. I think I know as well as anybody that it was a
    difficult decision to implement CARES in that region but I cannot
    emphasize enough that it was the right thing to do.
        Many oppose CARES, including some members on Capitol Hill, but I am
    convinced that CARES is the right approach that is badly needed. CARES
    is critical in developing a long-term strategic plan to ensure that
    VA's capital infrastructure meets the healthcare needs of veterans in
    the most cost-effective manner while assuring the highest quality care
    system. For too many years, VA did not have a clear capital asset plan
    that would justify the need for new construction projects or address
    the massive excess infrastructure in the system. Before CARES, VA
    hospitals had been treated as trophies for members to bring home to
    their States or districts, built with too many beds and too much gold-
    plating. Not too many years ago, new VA hospitals were opening with
    entire floors empty because they were not needed.
        It is also troubling to me that some VA facilities seem to exist
    primarily to serve the research and financial interests of the medical
    schools. This is an important part for VA as both research sites and
    teaching schools. However, in too many cases, veterans' medical care
    has become a secondary concern in justifying those hospitals. I was
    frankly appalled by the efforts of Northwestern University to block
    CARES in Chicago. While I appreciate the medical research work done by
    fine institutions such as Northwestern and am a big supporter of VA
    medical research funding, we all know in this room that medical schools
    have more resources at their disposal than the veterans who need
    medical care. Your decision, Mr. Secretary, was important because it
    sent out a signal that VA's first and most important priority is
    meeting the needs of the veteran.
        You took a major step with implementing CARES in VISN 12 but I
    believe that we are at a critical juncture. Chicago was a pilot in some
    respects but now we must tackle the Bostons, New Yorks, and San
    Franciscos of the country. You have shared with me some details of your
    plan to complete CARES for the rest of the Nation but there are some
    important questions that we--the Department and this subcommittee--need
    to work out. For example, I am concerned about the availability of
    resources needed to perform the studies and the expertise of those
    staff performing the work. Further, it is important that the process be
    objective and independent. I am concerned that if a VISN director is in
    charge of his or her own CARES study, there may be a conflict-of-
    interest in carrying out the review. And, as demonstrated with Chicago,
    I am concerned about medical schools pressuring the network to retain
    facilities at the expense of the veterans and the taxpayer. In GAO's
    testimony to this subcommittee back in 1999, it reported that ``Medical
    schools' reluctance to change long-standing business relationships, for
    example, has sometimes been a major factor inhibiting VHA's asset
    management.''
        Lastly, we need to fund adequately CARES. We provided $100 million
    for fiscal year 2002 to fund CARES but your budget request for fiscal
    year 2003 only asks for $40 million. I do not understand why more CARES
    studies cannot be completed in fiscal year 2003. I am further puzzled
    by the budget request's inclusion of $94 million for seismic repairs at
    four California facilities, without any CARES review. You need to
    provide us a comprehensive, strategic plan on how CARES will be carried
    out in a timely, efficient manner and how we should fund the
    construction of new projects and disposal of old projects.
        Mr. Secretary, I look forward to our continued working relationship
    in addressing the needs of our veterans. Before I close, I want to
    express my sincere thanks for your visit to my State. The veterans in
    Missouri appreciate your hard work and efforts. Thank you.
                                     ______

                 Prepared statement of Senator Pete V. Domenici

        Mr. Secretary, it is a pleasure to see you again. Thank you for
    being here today to discuss the enormously important issues that are of
    concern to our nation's veterans.
        We all have a great responsibility to assure that the needs of
    veterans throughout this country are being met, and I want to
    compliment you for the job you are doing to meet this challenge.
        People from all walks of life in New Mexico have a long and proud
    tradition of answering our nation's call to duty.
        Just last week about 40 members of the 49th Communication Squadron
    from Holloman Air Force Base in Alamogordo, New Mexico shipped out as
    part of Operation Enduring Freedom.
        I am personally very proud of them, and I know all of New Mexico
    is, as well.
        At this time when our nation is actively engaged in conflict
    abroad, and we hear reports of the danger our troops face everyday, we
    come away with a real sense of the sacrifice our brave men and women in
    uniform are making.
        For me, and I am sure this is true for you, too, Secretary
    Principi, the conflict in Afghanistan also evokes memories of the great
    sacrifices that our military servicemen and women made throughout the
    last century in order to preserve our liberty.
        And so it is vitally important that we provide our patriots with
    the very best care available and I am committed to doing that.
        As I travel around New Mexico, no matter where I go, I always meet
    a veteran who says, ``Senator, I served my country as part of the
    military. I am so proud to have sacrificed for my country, and the VA
    has truly been a great provider for my health needs. But in a rural
    State like New Mexico, I am forced to travel great distances to access
    a VA facility for the care that I require. What can be done?''
        Mr. Secretary, I know you, too, have traveled all around this
    country to listen to veterans, including the rural parts of the country
    and heard similar concerns. In my questioning today, I will be
    interested to hear what steps the VA will take to address this problem.
        Another issue that is very important to all veterans is that of
    having a fitting resting place, where the memory of their service to
    country will be preserved in an honorable and dignified manner.
        In New Mexico, this issue is manifesting itself in the reality that
    by 2008, the Santa Fe National Cemetery will run out of sufficient plot
    space.
        Last year, I sought a solution to this problem by introducing
    legislation calling on the VA to initiate a planning study that would
    lead to the establishment of a National Cemetery in Albuquerque.
        I will continue to pursue this highly important issue because I
    believe it is a pressing problem that needs to be addressed soon in
    light of our aging veteran population. It is critical that they have a
    place where they can be laid to rest alongside their comrades.
        So I will seek your thoughts on this, as well, Mr. Secretary.
        And with that, I would, again, like to welcome you Secretary
    Principi, and thank you Chairman Mikulski for calling this hearing.
        Thank you.

                       PHYSICIAN FOR POCATELLO, ID CLINIC

        Senator Craig. Mr. Secretary, thanks for your passion. I
    think we all feel it here and appreciate it. I get sensitized
    by it on a regular basis, and I am sure some of my colleagues
    have the same experience. I had to call a mom and a dad in
    Idaho yesterday, because I was tracking their injured son in a
    hospital in Turkey, who was involved in that firefight last
    weekend and got beat up pretty badly. A young man from
    southeastern Idaho, who some day is probably going to need the
    help of the Department of Veterans Affairs, because he got beat
    up pretty badly.
        And I think about the time we think periods of population
    transition occur by age and reality. We just went through with
    Senator Shelby the litany of, of course, World War II and Korea
    and Vietnam. And while this current peace effort we are
    involved in is going to bring less veterans, too, I hope, that
    need care to the system, it is going to bring some.
        And many of my colleagues have covered the issues, the
    priority 7 issues, and how we deal with that medical
    deductibility. Yes, veterans in Idaho are reacting the same
    way. And I know you are trying to resolve that. With resources,
    it would be easier to do.
        Let me give you an example, though, of a problem that is
    current in southeastern Idaho. We, out West, ask our veterans
    to travel phenomenal miles. And when World War II veterans and
    Korean War veterans get in their cars and drive 300 miles to
    the clinic, over snow-covered roads, not to get the services
    they need, finding that they may need to stay overnight, to go
    back the next day, that kind of thing, often times is very
    frustrating.
        Pocatello, Idaho, a facility there, lost one of its doctors
    3 years ago; and, at that time, convinced me that--that doctor
    deficit could be dealt with through a nurse practitioner. That
    has simply proven not the case. Now those veterans, who were
    once serviced on that 250-mile drive from Salmon to Pocatello--
    or I guess it is about 200, now have to add another 150 miles
    to go on to Salt Lake.
        They are out recruiting. They say they cannot find at least
    someone to meet that. We have a residence program in the
    vicinity. And it appears there is ample supply of willing and
    able medical professionals. I think that is something we ought
    to focus on in the Pocatello facility. It is of need there.
        Secretary Principi. Yes. Dr. Murphy has some information
    specifically on that.
        Dr. Murphy. Senator Craig, I am happy to report that we
    have just hired a physician for the Pocatello clinic.
        Senator Craig. Hallelujah.
        Dr. Murphy. Pardon?
        Senator Craig. Hallelujah.
        Dr. Murphy. Hallelujah. That physician is scheduled to
    begin work in July of 2002. We are hoping that we will be able
    to bring them on board sooner than that. But that will--that
    will bring the staffing level up at Pocatello----
        Senator Craig. Good.
        Dr. Murphy [continuing]. And hopefully resolve some of the
    issues that are very important to veterans in Idaho.
        Senator Craig. Well, I try to get into all those facilities
    at least once or twice a year to see how they are doing. And it
    is very important that those clinics, outside the major
    facilities, service because of the distances involved. It is
    not just a drive across town. Back here it is a drive across
    several States to get to a facility, comparatively speaking.
    And that is something that is just very, very important.

                               CLAIMS PROCESSING

        You have walked through how you are approaching the claims
    issue. I will leave that question alone. I was--I just wondered
    why you chose 100 days. I think it is probably the conclusion
    of the group recommendation--when I would have suggested, gee,
    maybe 90 days or even 30 days, Tony, would have been the right
    way to go here. But maybe 165 days down to 90 days is in itself
    a substantial accomplishment.
        Secretary Principi. Indeed. I think that was done in
    consultation with the leadership of the Veterans Benefits
    Administration and the task force. And we felt 100 days was a
    very aggressive goal, to shoot for that. I certainly would like
    to see it 90 or 60 days.
        But, you know, sometimes it takes us so long to get the
    medical and military records from DOD, or the archives, and
    then to schedule exams. So you are building in a delay right at
    the outset. But we are taking steps to deal with that, too. And
    I am making progress in working out memorandums of
    understanding with the Records Processing Center in St. Louis
    to get those records much, much quicker. And we are making good
    progress.
        Senator Craig. Well, Madam Chairman, thank you very much. I
    have other questions I will submit for the record.
        We appreciate you being here. We are certainly going to do
    all we can do. And I know that it is the commitment of the
    chairman and our ranking member to make that happen within all
    of the allocation we can grab hold of. And your anticipated
    budget increase is certainly respectable. We hope we can get
    there. Thank you.
        Secretary Principi. Thank you, sir.
        Senator Mikulski. Thank you, Senator Craig. And, you know,
    we do not have mountains in Maryland like you have. And even
    though we welcome the President to Camp David, I do not know if
    he calls them mountains, but they are mountains to us. And our
    own veterans up there, when you know that you have got--you are
    old or you are sick and you have a colostomy bag and you are
    riding over these very rugged terrains somewhere, that we are
    very sympathetic to your situation.
        Senator Craig. I have had the privilege now of being to
    Camp David. It is a nice little rise in a flat place, you know.
        Senator Mikulski. I am being sympathetic to you. Do not----
        Senator Craig. Thank you.
        Senator Mikulski. Do not push it.

                             PRIORITY 7'S VETERANS

        Senator Mikulski. Mr. Secretary, first of all, what you
    hear from the Senators is that we are on your side. We know
    that when you took over the administration of VA that you
    faced, in some ways, an administrative brown field. It had been
    long neglected, and so we know that you have--that you are
    dealing with a very big job.
        And that would even be the usual and customary systems.
    Now, this demographic explosion that you are facing is just
    eclipsing everything. There are so many other questions that I
    would like to pursue today, like facilities, the issue of long-
    term care, home health care, the work force shortage--like,
    related to nursing, that I would like to be able to bring up.
        But the priority 7 issue, I think, is eclipsing everything.
    And your testimony on page 6, I think, is really a bombshell.
    When you talk about--since 1996 the priority 7 veterans
    increasing 500 percent when they were 33 percent earlier, now
    they are 33 percent of the workload. They are projected to
    increase to 42 percent by 2010 with an enormous increase of,
    well, between now and 2007 of $20 billion. That is almost
    doubling what we currently have, which would take us to about
    $45 billion. Now, this is no finger-pointing to the priority 7
    veterans. There is a reason that they are coming. And I am
    talking about the reasons. But before I do, I just want to
    alert the committee that it could get worse. Senator Bond and I
    represent industrial workers. You know we are facing a big
    crisis right now, with something called legacy cost.
        If that steel industry goes down the tube, we have over
    600,000 retirees in the steel industry. Okay? They will lose
    their health care. As you know, there were no draft counseling
    or draft dodging lines at the steel mills. You know that. The
    movie ``Deer Hunter,'' I think, told us and taught us a lot.
        Secretary Principi. Sure.
        Senator Mikulski. Just as between us. This all could come
    to the VA. These men who fought, if they lose their health
    care, they are going to find it another way. And this is not
    dire predictions. So let me go to the priority 7. I am a data
    driven--we have to be data driven here.

                   DEMOGRAPHIC PROFILE OF PRIORITY 7 VETERANS

        My question is: Have you, with the priority 7 coming in, do
    you have a demographic profile of the priority 7 veterans
    entering the system related to geography, age, income, and the
    reason they seek you out? Because my hypothesis is that the
    lack of a universal health care policy, lack of health
    insurance for some, the lack of a prescription drug benefit for
    the older veterans, and then also the lack of a national long-
    term care policy, which is quite piecemeal, could you--let us
    start with the demography. Do you have--because I think if they
    knew the age--first of all, the geography. Is this focused on
    particular geographic area?
        Second, what are their ages? And are they rich, or are they
    just kind of working stiffs who do not have the money or is--or
    do not have health insurance? Do you see where I am heading?
    That for the younger veteran it might be one reason; for the
    older it might be another.
        Dr. Murphy, do you have a demographic profile? You do not
    seem to have it handy.
        Dr. Murphy I am searching for it.
        Senator Mikulski. While you are looking----
        Secretary Principi. We will provide the precise information
    for the record.
        Senator Mikulski. But do you even have it now, in terms
    conceptually?
        Secretary Principi. I think it is fair to say first that,
    many priority 7s are coming to us for prescriptions only.
        Senator Mikulski. But is that like 60 percent, 70 percent,
    10 percent?
        Secretary Principi. I would be speculating, Madam Chair,
    and I apologize for that.
        Dr. Murphy, perhaps you can.
        Dr. Murphy. We do know that about 57 percent of the
    priority 7 veterans use less than $400 worth of health care.
    And that would be their primary care visits plus other
    medication or----
        Senator Mikulski. So 57 percent will come. But you see what
    I am getting at? Can you tell me why they are coming and how
    old they are? And is this the absence of other national
    policies? Again, we are not passing judgment here. We are
    trying to get the data.
        So, you are saying 57 percent use less than $400 worth of
    care?
        Secretary Principi. Yes.
        Senator Mikulski. But why do they come?
        Secretary Principi. I think they are----
        Senator Mikulski. And how old are they?
        Secretary Principi. I think they are older. I think they
    represent the veteran populations generally coming to us. I
    think they tend to be older, World War II veterans. This is
    based upon all the town hall meetings that I have attended over
    the past year. They are using our primary care facilities, our
    clinics, a great deal. I think they are in the age range of 65-
    70 years old.
        Their incomes tend to be a little bit higher than the
    threshold for priority 7, but I do not think they are rich
    people. We do have a few who are wealthy and come to VA for
    their prescriptions. They are eligible. And rather than paying
    $400 a month, they pay $7 a month.
        Senator Mikulski. Okay. Well, I understand that, but--go
    ahead. I am sorry. Go ahead.
        Secretary Principi. I think the vast majority of priority
    7s that come to us have incomes around $30,000. They are not
    making a lot of money. They are ordinary Joes, who are working
    in the factories and on the farms, who have lost their health
    care coverage or who do not or may not have it.
        Senator Mikulski. But do we have a natural demographic
    profile, Dr. Murphy?
        Dr. Murphy. We do. And I----
        Senator Mikulski. You do not have it with you.
        Dr. Murphy. I apologize, Madam Chairman. I thought I had
    that data with me. And I know that we can pull it. Some of the
    income data that we have is based on a survey that was done in
    1999. In my memory of the income profile of priority 7 veterans
    is that approximately 30 percent of them, about one-third, have
    incomes above $35,000 a year. So the majority----

                     INCOME PROFILE OF PRIORITY 7 VETERANS

        Senator Mikulski. Wait, wait, wait. Incomes above what?
        Dr. Murphy. Incomes above $35,000 a year. But I can get
    those specific statistics.
        Senator Mikulski. Well, let me tell you what the committee
    wants and--because, again, we need to be data driven to also
    help you parse out our recommendations, knowing that the
    recommendations are a stopgap. First of all, the $1,500 is a
    non-deductible, is a non-starter. And we will not do it unless
    the authorizers pass it.
        At the same time, we know that there is a crisis here. It
    is a crisis for the people who are turning to you, and it is
    therefore a crisis for those of us who have to provide the
    service and pay the bills. They are not coming to you because
    it is a leisure choice option. They are coming to you for a
    reason. Some, if they--they might like the--but most of all, I
    think it is the lack of policy in other areas.
        So we need data. We need a demographic profile, first of
    all, of geography. Is it concentrated in, say, the rural areas?
    This is going to help us get to our management solutions while
    we look to more long-term systemic. We need geography.
        Second, we need age. And I am really interested,
    particularly, under the age of 65, the whole issue of every 5
    years, if I could. One of the policies would be people,
    primarily men, who had jobs but are now not working after 60,
    either the collapse of an industry or whatever, but they are
    too young for Medicare, but they cannot get health care
    anywhere else.
        So, you see where I am heading in terms of the age? Or are
    young men coming, younger men, because of the lack of health
    insurance? So you see, one is the age; then, the other will be
    income, because I think we have to face it. If it is people
    with incomes over $70,000 coming to you for a prescription drug
    benefit, that is very different than somebody coming for
    $27,000 or $32,000, the combined pension maybe, et cetera. And
    then that would be the age-income.
        And then, if you could, even anecdotally, do a survey of
    why are they coming. Is it they like the Veterans--particularly
    now, when there seems to be longer waiting times, work force
    shortages, other challenges that you are facing in the system?
        So you see where we are heading?
        Secretary Principi. Yes.
        Senator Mikulski. Because that, I think, will tell us a lot
    about what we need to do. You know, do we do an age--and I am
    not talking about what is the methodology for containing this
    issue.
        Secretary Principi. Sure.
        [The information follows:]
                         Priority 7 Demographic Profile
        The following information is provided for the record (fiscal year
    2001 information is provided except as noted):
      --Priority 7 Enrollees and Users by VISN fiscal year 1999-fiscal year
            2001 with comparisons to growth rates for Enrollees and Users
            in Priorities 1-6
      --Priority 7 Enrollees and Users by VISN also shown as a Percentile
            of all Priority 1-7 Enrollees and Users, fiscal year 1999-
            fiscal year 2001
      --Average Ages of Priority 7 Enrollees and Users by VISN fiscal year
            1999-fiscal year 2001 with comparisons to the Average Ages of
            Enrollees and Enrolled Users in Priorities 1-6
      --Fiscal year 2001 Priority 7 Enrollees and Users by VISN and Age
            Group with comparisons to Priorities 1-6
      --Priority 7 Average Annual Cost Per User fiscal year 1999-fiscal
            year 2001 with comparisons to Average Annual Cost Per User for
            Priorities 1-6
      --Priority 7 Average Overall Cost Per User and Average Outpatient
            Pharmacy Cost Per User with Comparisons to Average Costs for
            Priorities 1-6
      --Priority 7 Average Cost of Users Under 65 Years Old compared to
            those Age 65 and Over with further comparisons to Average Costs
            for Priorities 1-6
      --Priority 7 Average Cost and Age comparisons with comparisons to
            Average Cost and Age for Priorities 1-6
      --Priority 7 Inpatient and Outpatient Reliance with comparisons to
            Inpatient and Outpatient Reliance for Priorities 1-6
      --Projections of Priority 7 Health Care Users (Unique Patients) by
            VISN and Age Group--fiscal year 2002-fiscal year 2010 with
            comparisons to Projections for Priorities 1-6
      --Projections of Priority 7 Enrollees by VISN and Age Group--fiscal
            year 2002-fiscal year 2010 with comparisons to Projections for
            Priorities 1-6
        VA will provide a more in-depth analysis by May 27, 2002, to
    include distributions of the above data by State and information on:
      --Average income by priority group and State
      --Employment status by priority group and State
      --Insurance status by priority group and VISN
      --Health status by priority group and VISN

        Senator Mikulski. Now my time is up, but--because I want to
    come back to the veterans' prescription drug benefit. I think
    we have a lot of lessons learned as we ponder what to do about
    Medicare. But let me turn to my colleague and I will come back
    to talk about a prescription drug benefit.
        Senator Bond. Thank you very much, Madam Chair. And I
    really appreciate your pursuing this line of questioning,
    because I think it is very important. And you were talking
    about steel workers being laid off. I have to tell you that
    heavy industry in Northeast Missouri, where I come from, used
    to be refractories. It is a high-quality ceramic products that
    line the furnaces of steel and for aluminum. They are all being
    shut down because of asbestos litigation; 300,000 asbestos
    claims. All of the plants, heavy industry plants, in Northeast
    Missouri are being shut; they are in bankruptcy. And they are
    going to move the industry to Canada or Mexico.
        And we are going to have an additional load on the
    Department of Veterans Affairs, because there are many veterans
    who have been employed in those industries. And they are--as I
    said, they are all in bankruptcy. So, we are getting it in a
    number of areas, as well.
        But we have a lot of things to cover. I am going to have to
    leave. And I am going to leave some questions. But, Mr.
    Secretary, there are a couple of things that are very important
    that I wanted to touch on.

                                     CARES

        First, I congratulate and I thank you for making the
    capital asset realignment for enhanced service, or CARES,
    program work. That is not the most popular thing especially
    worth a lot of folks on Capitol Hill. But I am convinced that
    CARES is the right approach. It is badly needed. There was no
    capital asset plan before CARES. VA hospital had been treated
    as trophies for members to bring home to their States or their
    districts, often built with too many beds, too much gold-
    plating. VA hospitals were opening with entire floors empty
    because they were not needed.
        Well, I think we are beginning to turn that around,
    although there is opposition here on the Hill. But one of the
    things that is really troubling me, and I want to lay it out on
    the table. Some VA facilities seem to exist primarily to serve
    the research and financial interests of medical schools. It is
    an important part of the VA to work as research sites and
    teaching schools. This works very well together.
        In too many cases, or in some cases at least, veterans'
    medical care has become a secondary concern in justifying those
    hospitals. I was frankly appalled by the efforts of
    Northwestern University to block CARES in Chicago. I appreciate
    the medical research work done by fine institutions such as
    Northwestern. And it is one of the very good ones. And I am
    very big supporter of VA medical research programs. But we all
    in this room know that medical schools have more resources at
    their disposal than the veterans, who need medical care, the
    ones that Senator Shelby mentioned, the examples you set out.
        Your decision, Mr. Secretary, was important because it sent
    out a signal that VA's first and most important priority is
    going to be meeting the needs of veterans. And for that, I give
    you sincerest thanks.
        Now, by closing this, you are going to construct a new $40
    million spinal cord and blind rehabilitation center and
    creating new community-based outpatient clinics. You are going
    to save money, adding these new facilities, because you were
    able to close one of the four VA hospitals in Chicago.
        Secretary Principi. Correct.
        Senator Bond. You are going to be able to provide more
    specialized care, open community clinics, and still save money?
    Could you tell us how that works?
        Secretary Principi. That is correct. It was the right
    decision. It was a difficult decision, and we were very
    sensitive to the concerns of our veterans and our employees. I
    appreciate the important role that medical schools play with
    the VA, but at the same time, our first mission is treatment of
    veterans in modalities that make sense for the 21st century.
        The Chicago CARES decision was the right decision for the
    veterans of that area. I intend to implement the decision
    aggressively, thoughtfully but aggressively. We need to get on
    with the modernization of the West Side facility, including an
    expansion of the number of beds, get Lake Side closed down and
    get an outpatient clinic built in the downtown area to address
    the outpatient needs of our veterans in that area.
        We are going to move forward and we are going to move
    forward with the next phase of CARES, because we need to
    rationalize the infrastructure of the VA system and make sure
    that we are properly structured for going forward and not back
    to the century gone by.

                                  CARES STUDY

        Senator Bond. A few questions about the next phase. Do you
    have the in-house expertise and staffing resources needed to
    perform the CARES study? And two, how will you ensure the
    studies are objective? Because on that second part I am worried
    that if the division directors who are in charge are conducting
    their own studies, there may be a conflict. If you bring it up
    to your level, Mr. Secretary, you are not going to have an
    outside consulting firm to blame it on. You are going to get
    the heat, all the heat, without being able to shuffle it off.
        Secretary Principi. That is correct. I sincerely believe
    that we have the talented people, the skills and the right
    disciplines to develop a national plan for the future. The VISN
    directors will play a role in providing data and input into the
    process, based upon a template, and upon a specified data call.
    But that plan will be developed with our team in Washington. We
    will rely upon outside experts on an as-needed basis.
        I do not want to spend $20 million to $40 million on a
    consultant, most of whom will contract with former VA
    employees. I think we can do it. But you are absolutely right
    that we need to ensure that the data is validated. The process
    and the data have to be absolutely perfect. People who do not
    want to see a facility closed or its mission changed will take
    shots at us. The data is so terribly important, and we are
    going to take great pains to ensure that the data are
    validated.
        I intend to keep the process objective. I intend to stay
    out of it until such time as the recommendations of the
    commission come to me. And then I will approve or disapprove
    those recommendations. We have an aggressive timetable. I think
    it can be done. And I think it is absolutely necessary to
    address the category seven problem, for example. There is an
    awful lot of money there that can be used to treat more
    patients.
        Senator Bond. Well, Madam Chair, if I might impose for one
    more question.

                              LEGISLATIVE MANDATES

        And I congratulate, Mr. Secretary, because you have to--we
    have to cover up the shortfalls in the care, in the health
    care, for the highest priority. And you have touched on it, but
    let me go back to it one more time.
        Based on new benefit requirements authorized over the last
    few years, I understand that--that has put a big hit on your
    budget. And I am concerned that we are still short of the money
    we need to provide health care. And I thought, maybe, you could
    outline for us some of the new mandates affecting veterans'
    health care services. What are the costly new requirements? And
    what impact do these have on the basic health care that you can
    provide that we discussed earlier?
        Secretary Principi. Clearly, there have been a number of
    mandates that we have been required to fulfill. For example the
    Millennium Health Care Benefits Act, placed a floor on VA
    nursing home beds. I agree we need to maintain a level of VA
    nursing home beds because they are much needed beds. But, we
    need to also rely upon our State veterans' homes and our
    community nursing homes, which are closer to where the veterans
    live, and to the non-institutional programs, which also are so
    beneficial to keeping veterans in their homes: hospital-based
    home care, adult day care, respite care.
        We could do so much more, treat so many more veterans that
    way, than we can by putting them into an institutional bed. The
    way the law is constructed, it requires me to have 13,400 VA
    nursing home beds. We are currently 1,200 beds short of that
    floor. We have requested that the floor include State veterans
    nursing home beds and community nursing home beds and the non-
    institutional care census. But the committees have been
    reluctant to do that.
        That means I have to find somewhere in the neighborhood of
    $150 million out of existing programs, maybe the State veterans
    home program or other programs, to achieve that floor, as set
    by statute.
        The wonderful provision about emergency room care, to allow
    veterans who are enrolled in the VA system to go to any private
    hospital for emergency room care, when fully implemented, will
    cost us $441 million. I do not know where the money will come
    from. It may have to come out of the community-based outpatient
    clinics, because it is a zero-sum game.
        We operate wonderful programs for the homeless. I think we
    are doing great things for the homeless. But the new bill that
    came out of the last session will cost hundreds of millions of
    dollars for new homeless programs. Again, where do I get the
    money from?
        I think it is that kind of laws that do, in fact, impede
    our ability to address some other programs.
        Senator Bond. Thank you, Madam Chair.

                  DEMOGRAPHICS PROFILE OF PRIORITY 7 VETERANS

        Senator Mikulski. Thank you, Senator Bond. You raised,
    again, very important questions.
        I want to come back now again, in terms of the demographic
    profiles that I have asked for; Dr. Murphy, we would like to
    have, really within 2 weeks, a demographic profile of the
    information you currently have. I do not know if you are
    keeping the data the way I have just said it, but we would like
    it to us the way we asked for it, in addition to any other way
    you want to get it to us. But I need to know the geography, the
    age, and the income. Okay? So, that is one thing.
        And then we would like to have another report around
    Memorial Day where you have had a chance to even take a better,
    more in-depth probing look. So, we want to have a first look-
    through. And then--and hopefully, Mr. Secretary, you will then
    keep these type of records, so that we can then get our handle.
    Because I think they are coming for different reasons and
    different age groups. And we should not have a one-strategy-
    fits-all.
        The failure to have a long-term--my dear dad died of
    Alzheimer's. We used geriatric evaluation. We did not use the
    veterans. Dad was not a veteran. He had 2 children when the war
    began. But we used geriatric evaluation to get appropriate care
    for him. We used adult day care that had a cognitive stretch-
    out program for an Alzheimer's person. Then we had to turn to
    long-term care.
        When we look at our aging population--and we had means.
    When we look at veterans, many of them do not have anything. So
    they are coming to you exactly for what you said. The
    prescription drug issue is another. The younger vet or the in-
    between vet, the 60-to-65 who has lost everything through no
    fault of his own, because of a factory closing or the loss of
    the family farm.

                           PRESCRIPTION DRUG BENEFIT

        So, this is what we are going to look for. But let us go to
    the prescription drug benefit. Because the long-range solution
    is national policies to address universal health care, a
    prescription drug benefit for our seniors, and a long-term care
    policy that does offer a continuum of care so you use it
    appropriately for the patient and appropriately for the person
    paying for the care.
        Now, according to December, 2000, the VA's Inspector
    General said the use of the prescription drug benefit was due
    to the fact that 90 percent really did not have a prescription
    drug benefit, either because they were on Medicare or because,
    if they were not on Medicare, their health insurance did not
    pay for a prescription drug benefit. And not only might they
    have a catastrophic situation needing drugs, but they might
    have a chronic situation that required--let us take diabetes.
    You have to buy the equipment, the daily testing, the
    medications, et cetera.
        So let me get to where I am getting. Could you tell me--
    could you give me a description of the veterans' prescription
    drug benefit? And what does that cost you every year? And who
    are most likely to use it?
        Secretary Principi. I will start out and then I will let
    Dr. Murphy add, if I err or if I am not complete. Any veteran
    enrolled in VA health care is entitled to have their
    prescriptions filled by VA for a cost of $7 per prescription
    per month. That has gone up from $2. It had not been increased
    since its enactment some 10 to 12 years ago, when the co-
    payment went into effect.
        We spend in the neighborhood of $2.5 billion for
    ingredients only and approximately another $600 million in a
    very large pharmacy program, the consolidated mail-out pharmacy
    program. Our pharmacy benefit is in the neighborhood of $3
    billion a year and growing. It was $750 million some years ago,
    and it is now up to $3 billion.
        I think we have done a tremendous job. Our country and HHS
    and others can learn much by the way we have managed our
    pharmacy program through our national formulary. Clinical
    judgment is always the overriding issue. We do sensitize our
    physicians to costs. I think it is important that they be
    sensitized, but that they make the clinical judgment about what
    they consider to be the right drug.
        I think we manage the pharmacy budget very well. We do a
    lot of national contracting. Our formulary lets us do that, so
    we can drive the prices down.
        Senator Mikulski. What does national contracting mean?
    Could you elaborate on that?
        Secretary Principi. It means that we will buy through a
    national contract, if you will. Through the large volume that
    we purchase, we command a discount off the price of the drug.
    Although we do very, well in our pricing, the law that was
    passed back when I was deputy secretary, and played a very
    small role in enacting, gave the VA very favorable pricing for
    pharmaceuticals, a 24-percent discount off of the manufacturers
    average drug price. In some cases, we negotiated even a greater
    discount off of manufacturers' average price, so we command
    excellent pricing in pharmaceuticals.
        We also procure pharmaceuticals for the Indian Health
    Service, the Public Health Service, and the Bureau of Prisons.
    In many cases, we are the procurer of pharmaceuticals for the
    Department of Defense, so our procurement activity is very
    large. Through that consolidated program, we are able to
    command even better pricing.
        I think we are also the model for the government in a
    pharmacy program that utilizes generic drugs.

                              PHARMACEUTICAL COSTS

        Senator Mikulski. Well, yes. First of all, I think the cost
    speaks for itself. And I am going to come back to how--what is
    the majority of the use, for what purpose? But the Nation has
    to consider a prescription drug benefit for its seniors; it
    just has to. When Medicare was invented under Lyndon Johnson,
    it was to deal with--but people were afraid that if you had a
    heart attack, you could lose everything. You would stay in the
    hospital for a month.
        Dr. Murphy, you remember, I am sure----
        Dr. Murphy. Yes.
        Senator Mikulski [continuing]. In your studies. You were
    not practicing then.
        Now, it is really--it is Part--B that is the big issue. And
    it is the management of chronic illness or the chronic
    progressive illness, whether it is the diabetic, the heart
    person, et cetera.
        Now, coming--so we are getting these kinds of estimates for
    a garden variety, okay, Chevy Lumina/Ford Taurus prescription
    drug benefit. They are talking about $400 billion a year over
    10 years. Looking at TRICARE, what TRICARE is spending; at the
    rate that it is going, it could be $720 billion. So, we are
    looking, but I believe that there are lessons learned. I
    believe that there are lessons learned from VA. I believe that
    there are lessons learned from TRICARE. I believe that there
    are lessons learned for what we Federal employees get. I have a
    prescription drug benefit.

                    MEDICAL SUPPLY COST CONTAINMENT MEASURES

        And the lessons learned, which is how do we do a formulary
    that also allows clinical flexibility--because it is not one
    drug fits all. That is why you see a doctor and not the coin-
    operated dispensers--and at the same time do cost containment.
    Now as I listen to you, the cost containment measures have been
    mail order and consolidated discounts and then an awareness on
    the part of the physician that, given 2 choices with the same
    safety and efficacy appropriate to the patient, that one might
    be a little bit cheaper than the other.
        But could you furnish, then, for the committee what your
    cost containment measures have been and how you regard them
    with success? For example, on mail order, what does it work
    best for? Because there are those who say sometimes this
    results in waste and inappropriate use. But I know, coming back
    to my own dear mother, who was a diabetic, it would have been
    very appropriate for her to get her diabetic testing strips in
    the mail, to get her lancets, in other words, but not if she
    had her--she was very susceptible to urinary tract infections,
    a well-known complication issue with diabetics.
        She needed to be able to go without a big surcharge on her,
    to really get her--when she had an infection usually related to
    the chronic situation. So you see where I am heading here?
        [The information follows:]
                              Pharmaceutical Costs
        A physician's ability to have access to necessary pharmaceuticals
    is unquestionably an essential component of any clinically sound
    formulary management process. There are at least four acceptable
    mechanisms that can be designed into a formulary system; (1)
    encouraging the appropriate use of drugs, (2) reducing the unit-cost of
    drugs, (3) streamlining distribution of bulk drugs, and (4) increasing
    prescription dispensing efficiency.
        Inappropriately restricting access to medically necessary drugs and
    unnecessarily shifting drugs costs to the patient are unacceptable cost
    containment practices that are unfortunately sometimes used. This is
    not to say that a properly administered tiered co-payment structure is
    unacceptable. On the contrary, if well designed and properly
    administered, a tiered co-payment system can be an effective formulary
    management tool that does not impose an unnecessary financial burden on
    the beneficiary.
        Encouraging the Appropriate Use of Drugs: By far, the cost
    containment strategy that has the potential to yield the most
    significant cost containment while assuring quality medication therapy
    is the use of evidence-based clinical guidance to encourage appropriate
    drug utilization. Guidance should be aimed at encouraging the cost
    effective and appropriate use of pharmaceuticals and discouraging their
    inappropriate or cost ineffective use. Such guidance should be
    evidence-based, relevant, up-to-date and easily accessible by
    prescribers. Providers should be actively encouraged to provide input
    into guidance development to ensure greater acceptance of the final
    documents. Further, efforts must be made to educate prescribers on the
    evidence-based criteria if it is to be accepted into their clinical
    practice. Regular feedback should be provided to prescribers regarding
    their prescribing patterns. Physician awareness of cost differences
    among alterative therapeutic regimens is also critically important. VA
    experienced this success when coupled with the plan to ensure the
    electronic medical record is available throughout the healthcare
    system. As the patient need changes from ambulatory care to acute care,
    home based primary care and nursing home care, the access to the
    electronic medical record provides a continuous medication history and
    the clinical reasoning for use of appropriate drugs.
        Reducing the Unit Cost of Drugs: In high-volume, high-cost drug
    classes where therapeutic interchange opportunities exist, significant
    cost containment can be achieved only by driving market share to a
    subset of all of the available products; therefore, limiting physician
    flexibility to some degree is unavoidable. While there are several ways
    to drive market share within a therapeutic class, and each has its own
    advantages and disadvantages, the most effective approaches require
    limiting access to pharmaceuticals within a drug class to some number
    of drugs less than all commercially available products and negotiating
    discounts with drug manufacturers in exchange for increased market
    share for their products. Regardless of which method of market share
    manipulation is employed, medically necessary clinical flexibility can
    be achieved by assuring that a non-formulary or waiver process is in
    place. A good non- formulary request process should be timely and final
    decisions should be based on medical evidence as opposed to prescriber
    ``preference'' (which can be highly influenced by pharmaceutical
    manufacturer's marketing practices) or the payer's cost containment
    goals.
        The use of generic products must be encouraged and should rely on
    Food and Drug Administration guidance regarding product acceptability.
    Mandatory contracts for generic products can also help ensure adequate
    product availability to meet the market share and inventory management
    goals. It is important to reduce the dispensing of multiple generic
    brands to the same patient, as this practice is likely to lead to
    patient confusion. A good formulary process allows for the prescribing
    of brand name products, when patients have any adverse drug events to
    generic products. Patients should not be charged a higher co-payment
    when a brand name product is deemed necessary to achieve a desired
    clinical outcome. A higher co-payment may reduce patient compliance and
    increase potential for a poor outcome.
        Streamlining the Distribution of Bulk Drugs: Opportunities exist
    for large integrated health care systems that purchase bulk drugs to
    reduce their distribution costs by contracting with a single
    Pharmaceutical Prime Vendor (PPV) for reduced distribution fees. The
    reduced fees are possible if the purchaser uses a ``prompt pay''
    mechanism whereby the PPV invests the purchaser's payments in short-
    term financial markets before it is required to pay the manufacturer
    for the goods delivered. In addition, it is possible to negotiate with
    the PPV to charge the purchaser contract prices, rather than commercial
    prices when the purchaser has contracts in place with pharmaceutical
    manufacturers. The PPV can then complete a ``charge-back'' to the
    manufacturer to recapture the difference in its wholesale cost of the
    drug versus the contract price. Lastly, contracting with a PPV reduces
    inventory carrying charges because the PPV can provide ``next-day''
    deliveries and there is no need to keep a large amount of product on
    the pharmacy shelves.
        Increasing Prescription Dispensing Efficiency: Improvements in
    prescription dispensing efficiency can be achieved through the use of
    automation, such as that seen in VA's Consolidated Mail Outpatient
    Pharmacies (CMOPs). In addition, automation of prescription dispensing
    has been demonstrated to positively impact quality by introducing
    significantly fewer dispensing errors than manual processes. For this
    discussion, it is important to differentiate between the mechanical
    aspects of prescription dispensing versus the clinical aspects of
    patient education and counseling. How the prescription is filled is not
    nearly as important clinically as is making sure the patient is
    thoroughly educated and knowledgeable about his or her drug therapy.
        When VA designed its CMOPs, it purposefully uncoupled the
    mechanical aspects of prescription dispensing from the provision of
    patient education and counseling so that each aspect of drug delivery
    could be optimized (i.e, make filling prescriptions as efficient as
    possible, and make sure patients have access to pharmacist counseling
    and education as part of a multidisciplinary, integrated health care
    delivery process). Medication counseling is best performed in person,
    by a pharmacist so that the pharmacist can gauge a patient's
    understanding of his or her medication therapy. Further, face-to-face
    interaction is important so that the pharmacist can ask probing
    questions about over the counter drugs use, use of dietary supplements,
    alternative medicine, etc. This type of patient-pharmacist encounter is
    critical to assure that drugs are used appropriately and effectively
    and to obtain information about side effects, intolerance, etc., which
    if not attended to can reduce the effectiveness of prescribed
    medications, or lead to drug induced morbidity.
        Systems which use automated prescription dispensing, with an
    appropriate level of patient education can reduce the overall costs of
    prescription dispensing. In addition, dispensing chronic medications
    for patients that are stabilized on them in multi-month quantities
    (i.e., up to 90 day supplies) can also reduce the cost of processing
    prescriptions. VA has conducted analyses which show the cost associated
    with unusable multi-month supplies (lost prescriptions, changes in drug
    therapy, patient death, etc.) are more than offset by reduced
    production costs. A carefully designed Medicare drug benefit, which
    uses a Federal CMOP could avoid a significant amount of necessary cost
    while increasing the quality of the dispensing process.
        A flexible formulary that incorporates cost containment should:
      --Be clinically rather than financially driven
      --Be developed with input from end user clinical staff
      --Be evidence-based
      --Rely on the use objective drug use criteria
      --Minimize the impact of marketing practices on clinical decision-
            making and prescribing patterns
      --Use generic drugs products whenever appropriate
      --Leverage purchasing power by using therapeutic interchange whenever
            clinically feasible
      --Leverage distribution by using PPV contracts and good inventory
            management practices
      --Optimize prescription dispensing efficiency by using automation.
      --Integrate patient education and drug therapy counseling to the
            greatest extent possible
      --Have a non-formulary waiver process
      --Measure outcomes and provide feedback to prescribers

        Secretary Principi. Absolutely.
        Senator Mikulski. So we are looking at mail order, but mail
    order does not solve everything, et cetera. So we are really
    want--I need you, and I believe the Nation--and I know the
    Nation needs you right now to tell us what works and, quite
    frankly, what has fizzled and flopped or that gives you yellow
    flashing lights around the efficacy of both patient care and
    cost containment. Sometimes they are like this. Sometimes
    exactly efficacy is good cost containment, because it manages
    the disease.
        Secretary Principi. I am half smiling. I am always a little
    concerned that we are so good it will ultimately drive our
    prices up somewhat at the VA, that if HHS replicates our model.
        Senator Mikulski. Maybe those priority 7 guys or gals--
    remember we cannot forget the China Beach women--that this
    might ultimately save money, because they are not coming to
    you.
        The second thing is that, also, the better access you have
    for the management of chronic disease that is systematic,
    regular, and monitored, ultimately saves that kidney failure
    and heart disease and all these other complications from
    chronic disease.
        Secretary Principi. I think the pharmacy management program
    is really one of the great success stories of the VA. They have
    done great work, but there are other things we can do. We need
    to export what they have done in the pharmacy program to
    medical-surgical supplies and high-tech equipment. That is the
    next avenue we are going to look at: why do we need 300
    different styles of surgical gloves? Surgical gloves are
    surgical gloves. And we do not command the best pricing because
    we just buy locally.
        We buy using credit cards. We need to do in med-surg and
    equipment what we have done in pharmacy. I think there are so
    many dollars there that we are leaving on the table.
        Senator Mikulski. Yes. And I believe some of our excellent
    academic centers of excellence can offer you a tremendous
    number of lessons learned. The reason I go to the academic
    centers is they face the variety of patients that you do, and
    very often, because they are academic centers, they are in
    urban areas serving a tremendous, often very poor, population
    that is uncompensated.
        In other words--and they cannot raise their rates or their
    fees. So I believe that they offer tremendous lessons for you.
        Secretary Principi. I think so.
        Senator Mikulski. And without--because they are academic
    centers of excellence, they do not sacrifice patient care or
    the worker safety issues. Which takes me to another issue. I am
    going to talk about workers.

                           RECRUITMENT AND RETENTION

        You know, I am so impressed with the dedication of the
    people who work for the VA, particularly in the health care
    area. And I remember when we had shut downs at all some years
    ago in the midst of ice storms. Those men and women were
    showing up at Baltimore VA and the clinics, even though they
    were told they were unnecessary, they were not getting paid.
    And you know what? They just showed up, even though they had
    child care and so on. So they were just fabulous.
        But I am concerned, how are we doing in being able to
    attract and retain particularly the nurses, the pharmacists,
    the others that are so important to the team? I am particularly
    worried about the nurses' shortage. And we are also facing a
    shortage in other health professionals that are critical to the
    team.
        Dr. Murphy?
        Dr. Murphy. I think that there is a national shortage of
    health care providers across the country. It is not a problem
    that is unique to VA as a department. And it starts with
    nurses, physicians, physicians' assistants, all mid-level
    providers, pharmacists, technicians of all kinds.
        One of the things that we have proposed is that a number of
    our professional groups that provide health care need to be
    switched from Title 5 to Title 38, to allow us to more
    effectively and quickly----
        Senator Mikulski. What is that? What is Title 5 and Title
    38?
        Dr. Murphy. Title 5 is the regular GS schedule. Title 38
    gives us more flexibility in recruitments and some additional
    flexibility in salary scale. And we think that--that would
    certainly help us with our recruitment.
        There was legislation passed last year that did give us
    some improvements in our nurse recruitments and our education
    programs for nurses, that we believe will allow us to better
    retain and give career progression to nurses in the VA.
        I think patient safety is an important issue. And I was
    recently talking with the dean of the School of Nursing at
    Johns Hopkins. And Sue said that she tells all of her graduates
    in the School of Nursing to go apply to VA. And the reason she
    does that is she believes that we are at the forefront of
    medical innovation; that the quality, the occupational health
    and safety, the patient safety programs that we have in the VA
    are second to none, that it is an exciting place to work.
        So, our focus on quality and safety have really positioned
    us to be able to recruit and retain the best health care
    professionals.
        Senator Mikulski. Well, what we would like, as part of our
    work--and I know I speak for Senators Rockefeller and Specter
    on authorizing, as well as Senator Bond. We, of course, believe
    that we rely upon our physicians, but the physicians rely upon
    a team. And if the team is not there, you cannot have--I mean,
    the doctor is not able to give the highest and best care that
    we want.
        So, we would welcome what we could do on the Appropriations
    Committee to be able to give you the tools to be able to both
    recruit and retain. Because the best way to recruit is through
    the people you have now, who are very satisfied, who tell their
    classmates, et cetera, to do this.
        The second thing is that, also speaking for the
    authorizers, because I know they are very keenly interested in
    this, is what other authorizing frameworks that we need--we
    need to do. And we are working on this in another committee.

                         GRANTS FOR VETERANS EMPLOYMENT

        Let me then switch gears, though, to the job training item
    in there. This is somewhat controversial. The move from the job
    training programs that you spoke of in your testimony from DOL
    back to VA or to VA, could you tell us what you are going to do
    and why you want to do it? And that will be our last question
    for today.
        Secretary Principi. I tried to articulate, Madam Chair, the
    deficiencies in the current program that have led to a high
    unemployment rate among veterans who are seeking employment. I
    think the Department of Labor has many missions. And they are
    responsible for labor programs for veterans and non-veterans
    alike. I am not sure that veterans receive the priority that
    they deserve.
        VA was established to address the needs of veterans. And
    just like our education programs, our health care programs
    could sit in other agencies, but they are consolidated in the
    VA because our focus is on veterans' issues. That priority is
    very, very important to everyone in VA.
        I want to create a short fuse commission to make
    recommendations to me on how we can adopt this program to the
    new century, to the new way of employing people, Internet-
    based, with outreach to Fortune 500 companies, not just to
    McDonald's and Burger King, where veterans can find jobs; but
    rather good, meaningful jobs in corporate America. I think that
    linkage needs to be there.
        But most importantly, Madam Chair, I would make it
    outcomes-based. The program is very process-oriented today.
    Congress appropriates $200 million; appropriations are divvied
    up and sent to the States. Whether they perform well or not,
    the following year another grant is going to be made. I would
    send a grant to the governor of the State and have the governor
    decide how that money should be allocated. It could be to the
    States' Department of Veterans Affairs or the States'
    Department of Labor. I would put performance standards on the
    grant to say that grant recipients are expected to find
    suitable employment for x percentage of the veteran population.
        Through establishing standards and accountability, I think
    we could improve the outcomes of the program.
        Senator Mikulski. Well, Mr. Principi, I think, first of
    all, in the President's budget he said he would send us
    legislation on this.
        Secretary Principi. Yes.
        Senator Mikulski. So, I know it will go to the authorizer.
    We, too, are troubled by the same issues that you are troubled.
    And I hope that we could see this as an opportunity for
    veterans for the new century. One of which I would like to just
    put on the table for discussion is lifetime learning, which is
    not use it or lose it, but if you do not use it--because many
    of our veterans come out, but they reach a point in their life
    where, in order to really be a viable member of the work force,
    that is when they go back to school.
        So--and I am not say let us do this. I am saying let us
    look at it----
        Secretary Principi. Sure.
        Senator Mikulski [continuing]. In the context of what we
    are doing.
        Secretary Principi. Absolutely.

                             JOB TRAINING VETERANS

        Senator Mikulski. And second, for those who need initial
    training, but also those who need retraining. So that, for
    example, the veteran who might have worked in a factory and
    that factory is closing, but who had--maybe he was an
    electrical technician, maybe this is the time that they can at
    a community college become a Microsoft engineer, which is a
    certificate program, not a degree program, and go into $65,000
    a year.
        Do you see how I want new thinking in this area? And we
    have this.
        The other thing is, I really--and I say this because I am a
    member of the Health, Education, Labor Committee--I do not have
    a lot of confidence in a lot of these job training programs. I
    do not. I think they were process driven. I do not think that
    they are related to the work force shortages in communities.
        And, you know, I am a big believer in the community
    college, not only for a degree program but for these
    certificate programs. And they welcome all ages, et cetera. So
    I think we need new thinking. And let us do it through the VA.
        Secretary Principi. Sure.
        Senator Mikulski. And let us view this as an empowerment
    initiative----
        Secretary Principi. Absolutely.
        Senator Mikulski [continuing]. For the veteran, where those
    who right now might not be able to make the highest and best
    use of the talents God gave them, but we really have an real
    opportunity matter. And I am ready to shake up the
    establishment on this.
        Secretary Principi. I am grateful for your position.
        Senator Mikulski. Really.
        Secretary Principi. Yes.
        Senator Mikulski. I am--you know, my own social work
    background says we have lessons learned from welfare reform,
    which you might be able to learn. But in welfare reform, for
    years it was very process-oriented. How many this, and the
    workshop, and did you comb your hair. I mean, these men are
    veterans. They already had authority training. What they need
    is real training----
        Secretary Principi. Sure.
        Senator Mikulski [continuing]. For real jobs where they are
    really needed. Let us look at the unions. Let us look at
    apprenticeship programs. We have a terrible work force shortage
    right now for plumbers, for electricians, and so on. And what
    about that? Because right now, if you are really a master
    electrician in Maryland, you can earn over $40,000 a year. And
    the ads are just all the way down.
        Secretary Principi. That is right.
        Senator Mikulski. So, you see, let us not just say, ``Oh,
    let us give it to a governor, let us give it to these
    agencies.'' I am not so sure the best job training programs are
    job training for the people wanting the job training. And they
    are going to be really upset when they hear what I am saying
    here. But we have new ways. Maybe we have to contract out to
    technical schools, but not the sham schools that ripped us off
    on the tuition benefit.
        So we have a lot of lessons learned. But at the end of the
    day, when a veteran walks into a job training program, I want
    them first to get the training and then get the job. And that
    is what the emphasis needs to be on. Are we on the same broad
    band here?
        Secretary Principi. Oh, we certainly are and look forward
    to working with you. I think it is very exciting. I am also
    thinking, as you were speaking, Madam Chair, about licensure
    and certification. We have so many skilled people in uniform.
    When they come out, there is the whole issue of their getting
    licensed in the State and getting certified so that they can
    get that job as an aviation mechanic or in the trades with the
    unions. There is just so much that needs to be done and should
    be done. And I welcome the opportunity to work with you on it.

                       VETERANS EMPLOYMENT OPPORTUNITIES

        Senator Mikulski. And I want to give you an idea today, as
    we wrap this up, right now, as you know the United States
    Government and its Federal aviation security is under a
    significant mandate to federalize airport security. For those
    veterans that are coming to you that are unemployed, who have
    already demonstrated their patriotism, already demonstrated
    their commitment to defend America and took an oath to do so,
    why do we not see if there can be a referral to the Department
    of Transportation where these veterans--we could use, one---
    first of all, we can use their patriotism. It deals with the
    citizen issue.
        But also, these are going to be Federal jobs. Think about
    that.
        Secretary Principi. To me, it is a no-brainer, Madam Chair.
    I cannot think of a better population, than skilled, motivated,
    team workers, a drug-free workforce:, people that would make
    better Federal security officers than the men and women who are
    leaving active duty. It is mind boggling to me that we do not
    take advantage of these highly trained individuals.
        Senator Mikulski. Well, why do you not look at that? Why do
    you not leave here and go call up Norm Mineta and see----
        Secretary Principi. I am going to be with him Friday night
    at a banquet honoring our Japanese-Americans. I am absolutely
    going to sit next to him and talk to him about this issue and
    tell him that we talked.
        Senator Mikulski. Yes; and there you go.
        Secretary Principi. I am going to do it.
        Senator Mikulski. Okay.
        Secretary Principi. I will be with him.
        Senator Mikulski. Okay. And when I am going through
    Baltimore-Washington Airport and somebody says, you know, I was
    Corporal So-and-So, thanks for this idea, I will look forward
    to shaking their hand.
        Secretary Principi. I am going to do it; we will do it.
        Senator Mikulski. Okay. This committee stands in recess----
        Secretary Principi. Thank you so much.
        [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 Barbara A. Mikulski

                         $400 million budget shortfall
        Question. Why is there a $400 million shortfall in VA Medical Care
    in 2002, even though the Subcommittee provided $350 million more than
    requested?
        Answer. The 2002 shortfall is the result of increased usage of VA's
    health care system, some of which we could not have anticipated. Some
    Medicare Health Maintenance Organizations (HMOs) have withdrawn from
    participation in the Medicare program, and VA is now treating some
    patients who previously relied on these HMOs for their health care
    needs. VA health care is now more accessible, due largely to the
    opening of many new community-based outpatient clinics. We are
    experiencing an increase in patients as a result of the Department's
    continual improvements in the quality of the care provided. Where
    comparable data exist, VA outperforms the private sector for all
    indicators in health promotion and disease prevention. It is notable
    that VA has been able to achieve these improvements in the quality of
    care while simultaneously achieving year-to-year decreases in the
    average costs per patients treated.
        In an effort to improve our workload projection capability, VA has
    enlisted the support of a well-known actuarial firm, Milliman USA, to
    provide us with assistance in making forecasts of the patient
    population. This has placed us in a much stronger position to evaluate,
    and account for, the impact of a variety of different factors on the
    size and distribution of our future patient population. The
    Department's fiscal year 2003 budget is the first to present workload
    projections that reflect the expert assistance of this actuarial firm.
        Question. Are you aware that the Statement of Administration Policy
    (SAP) for the 2002 VA-HUD Conference Report said that this increase was
    not necessary to ``optimize Federal resources?''
        Answer. Yes, I am aware that the SAP for the 2002 VA-HUD Conference
    Report said that the increase of $350 million was not necessary to
    ``optimize Federal resources.'' Subsequent to the SAP, the VA health
    care system experienced increased usage, some of which could not have
    been anticipated. We continue to experience increases at unexpected
    rates due to HMO withdrawals from the Medicare program; access to new
    community-based outpatient clinics; and improvements to the quality of
    care in the VA health care system.
        Question. Did the VA underestimate the number of veterans who would
    use the VA healthcare system? By how much?
        Answer. Yes. The fiscal year 2001 estimate used for the fiscal year
    2001 budget was 3,894,864 unique patients; the actual number was
    4,247,204 unique patients. The fiscal year 2002 estimate in the fiscal
    year 2002 budget submission was 4,118,565 unique patients. The current
    fiscal year 2002 estimate in the fiscal year 2003 budget submission is
    4,737,518. As mentioned above, among the factors responsible for the
    increase are the withdrawal of many Medicare HMOs, improved access to
    VA health care, and the Department's continual improvements of the
    quality of care provided.
        Question. The SAP also said that VA would get a $235 million
    savings because military retirees would move over to the DOD healthcare
    system. Was this savings realized?
        Answer. The TFL benefit became effective on October 1, 2001. It is
    still too early to determine the full impact on VA. We will be happy to
    share this information with Congress when we have analyzed the
    information.
        Question. How has VA made up for this shortfall? Specifically, what
    changes are included in the VA's 2003 operating plan to address this
    shortfall? Will VA have a Supplemental funding request?
        Answer. Based on the continuation of full enrollment, VHA
    determined there would be a shortage of about $441 million in fiscal
    year 2002. Approximately $300 million in management savings is
    anticipated in fiscal year 2002. We expect that these savings will be
    generated from a multi-year effort to improve standardization and
    compliance in the procurement of equipment, pharmacy, and medical
    supplies. Other savings are expected from program efficiencies related
    to new criteria to assess community-based outpatient clinics and
    centrally managed programs. The balance of the fiscal year 2002
    shortfall, $142 million, associated with the continued enrollment of
    new priority 7 veterans, is anticipated as an fiscal year 2002
    supplemental. The request for the supplemental was forwarded to
    Congress in on March 21, 2002.
        Answer. As previously stated, the Department's fiscal year 2003
    budget is the first to present workload projections that reflect the
    assistance of the actuarial firm, Milliman, U.S.A. The President's
    budget for fiscal year 2003 incorporates a ``Base Health Care Demand
    Adjustment'' initiative that identifies and requests the resources
    required to support an actuary estimate of the demand and case mix
    changes needed for all seven patient priorities in fiscal year 2003.
    Based on this initiative, the budget estimates should better account
    for the relationship of planned workload requirements and the full
    funding needed.
        Question. Are the VA's networks being asked to make staff cuts as a
    result of this shortfall?
        Answer. At this time, we are not aware of two any networks that are
    considering have performed reductions-in-force (RIFs) due to budgetary
    constraints. Based on the continuation of full enrollment, VA
    determined there would be a shortage of about $441 million in fiscal
    year 2002. Approximately $300 million in management savings is
    anticipated in fiscal year 2002. The balance of the fiscal year 2002
    shortfall, $142 million associated with the continued enrollment of new
    Priority Group 7 veterans, is anticipated as an fiscal year 2002
    supplemental.
        Question. How do VA's estimates about its workforce compare to
    reality?
        Answer. A comparison of the estimated and actual Medical Care full-
    time equivalent (FTE) employment for fiscal year 1999, fiscal year
    2000, fiscal year 2001, and fiscal year 2002 is provided below:

    ----------------------------------------------------------------------------------------------------------------
                                                                                Fiscal year
                    Medical Care FTE                 ---------------------------------------------------------------
                                                           1999            2000            2001            2002
    ----------------------------------------------------------------------------------------------------------------
    Estimate........................................         180,411         179,206         181,500         179,300
    Actual..........................................         182,661         179,520         182,946     \1\ 181,500
    Percent Change..................................             1.2             0.2             0.8            1.2
    ----------------------------------------------------------------------------------------------------------------
    \1\ Current Estimate.

        Question. How can the VA-HUD Subcommittee help VA get its estimates
    on target?
        Answer. In an effort to improve our workload projection capability,
    VA has enlisted the support of a well-known actuarial firm, Milliman
    USA, to provide us with assistance in making forecasts of the patient
    population. This has placed us in a much stronger position to evaluate,
    and account for, the impact of a variety of different factors on the
    size and distribution of our future patient population. The
    Department's fiscal year 2003 budget is the first to present workload
    projections that reflect the expert assistance of this actuarial firm.
                   $1,500 deductible for priority 7 veterans
        Question. Tell us about Priority 7 veterans--How many veterans are
    Priority 7? How old are they? What is their average income? Where do
    they live?
        Answer. The attached table shows the distribution of Priority 7
    veterans by State as projected for the end of fiscal year 2002.

    Priority 7 Veteran Population Projection by State as of 9/30/2002

            STATE                                                 Priority 7
    ALABAMA.................................................         238,715
    ALASKA..................................................          36,494
    ARIZONA.................................................         253,924
    ARKANSAS................................................         119,483
    CALIFORNIA..............................................       1,265,007
    COLORADO................................................         218,009
    CONNECTICUT.............................................         158,201
    DELAWARE................................................          44,777
    DISTRICT OF COLUMBIA....................................          23,635
    FLORIDA.................................................         883,266
    GEORGIA.................................................         394,607
    HAWAII..................................................          54,943
    IDAHO...................................................          57,864
    ILLINOIS................................................         502,354
    INDIANA.................................................         304,172
    IOWA....................................................         128,495
    KANSAS..................................................         115,323
    KENTUCKY................................................         189,955
    LOUISIANA...............................................         185,842
    MAINE...................................................          76,289
    MARYLAND................................................         296,798
    MASSACHUSETTS...........................................         280,784
    MICHIGAN................................................         488,031
    MINNESOTA...............................................         229,020
    MISSISSIPPI.............................................         106,360
    MISSOURI................................................         296,595
    MONTANA.................................................          45,363
    NEBRASKA................................................          70,768
    NEVADA..................................................         122,256
    NEW HAMPSHIRE...........................................          71,330
    NEW JERSEY..............................................         348,246
    NEW MEXICO..............................................          87,946
    NEW YORK................................................         672,474
    NORTH CAROLINA..........................................         376,443
    NORTH DAKOTA............................................          24,869
    OHIO....................................................         551,307
    OKLAHOMA................................................         162,889
    OREGON..................................................         181,727
    PENNSYLVANIA............................................         610,029
    RHODE ISLAND............................................          47,412
    SOUTH CAROLINA..........................................         214,241
    SOUTH DAKOTA............................................          36,322
    TENNESSEE...............................................         267,954
    TEXAS...................................................         866,942
    UTAH....................................................          72,624
    VERMONT.................................................          30,251
    VIRGINIA................................................         373,058
    WASHINGTON..............................................         313,182
    WEST VIRGINIA...........................................          92,669
    WISCONSIN...............................................         253,582
    WYOMING.................................................          24,412
    PUERTO RICO.............................................          70,328
                        --------------------------------------------------------
                        ____________________________________________________
        Total...............................................      12,937,564

                    household income of priority 7 enrollees
        In 1999, VHA Office of Policy and Planning conducted a survey of
    veteran enrollees, ``The 1999 Survey of Veteran Enrollees' Health and
    Reliance Upon VA''. The major purpose of the survey was to provide
    national and VISN level input into actuarial enrollment, utilization
    and expenditure projections for use in the Secretary's annual
    enrollment level decision analyses and other policy analyses. There
    were some 20,000 respondents to the telephone survey and results were
    weighted to be representative of all 3.6 million veterans who were
    enrolled as of February 1999. Surveyed veterans were asked to say which
    income group their total household income fell within: <$16k, $16,001-
    $25K, $25,001-$35K, or $35,001 or over, and most surveyed veterans
    provided a response.
        The following table shows the results from the 1999 Survey of
    Enrollees for Priority 7 enrollees responding to the question of total
    annual household income. This table does not include data on assets,
    which is also used to determine eligibility for Priority Level 7
    status.

                          TOTAL ANNUAL HOUSEHOLD INCOME
    ------------------------------------------------------------------------
                                                                Cumulative
                     Income                       Percent         Percent
    ------------------------------------------------------------------------
    <$16K...................................           14.11           14.11
    16K-25K.................................           24.28           38.39
    26K-35K.................................           23.01           61.40
    >35K....................................           38.60          100.00
    ------------------------------------------------------------------------

        NOTE: Generally, income of enrollees is self-reported to VA and has
    not been validated recently, and income reporting is only required of
    veterans who must be means tested. Priority 7 veterans do not have to
    report income if they agree to make copayments. Thus, surveys are often
    good sources for more complete and accurate data on veteran incomes.
        Question. VA tells us that the number of Priority 7 veterans in the
    VA system is skyrocketing. Do you think this is because of VA's
    Prescription Drug benefit?
        Answer. VA is currently looking at this issue and is also working
    with the General Accounting Office who is conducting an independent
    study of this issue. It is recognized that VA fills the gap by
    providing uncovered services such as prescriptions for many of our
    nation's veterans. For many Priority 7 enrollees, the VA health care
    system is a ``safety net'', costing nothing to enroll and paying for
    services as they are needed/used. VA has realized a tremendous increase
    in demand for health care services from veterans in recent years. The
    total number of patients has increased by over 11 percent from fiscal
    year 2000-2001. The growth rate for Priority 7 medical care users has
    averaged more than 30 percent annually for the last 6 years, and they
    now comprise 33 percent of enrollees in the VA health care system.
    Based on current law, this percentage is expected to increase to 42
    percent by 2010. These increases reflect the fact that very few
    Priority 7 veterans were treated before eligibility reform. In
    addition, many Priority 7 veterans rely on the VA for only a portion of
    their care and pharmacy accounts for a greater portion of their overall
    cost of care than that for all other priorities. VA's pharmacy benefit
    and co-payment structure remains an attractive choice for these
    veterans.
        Question. Do you think that VA is faced with absorbing this new
    demand because of a lack of national policies to address the aging of
    America and the collapse of many HMOs?
        Answer. We believe these are two of the significant factors
    affecting veteran's desire to access VA health care. VA health care
    integrates a full continuum of care for veterans of all ages, including
    mental health services and prescription drugs. VA also emphasizes
    preventive care and leads the nation in many measures of performance in
    this regard. VA also provides many services that are tailored to meet
    the needs of service-disabled veterans. So, in addition to the economic
    factors, we believe many patients come to VA because of the quality of
    care that we provide.
        Question. Does VA know how many Priority 7 veterans have other
    health insurance?
        Answer. Currently, we have identified that approximately 18 percent
    of all veteran users of VA health care have billable health insurance.
    This reflects the fact that VA is prohibited by law from billing
    Medicare and Medicaid. In addition, Health Maintenance Organizations
    (HMOs) and Preferred Provider Organizations (PPOs) do not recognize VA
    as preferred providers and consequently do not usually pay. Of the
    billable insurance identified, one-third is generated from Fee for
    Service policies and two-thirds from Medigap policies. This information
    reflects the findings from a national contracted survey. Although we do
    not have priority-specific information from this survey, based on the
    higher incomes of Priority 7 veterans, we suspect they have a higher
    percentage of billable insurance than average. We are examining ways to
    obtain more accurate information about insurance coverage by all
    veterans.
        Question. Are veterans required to tell the VA if they have other
    health insurance?
        Answer. Veterans are asked, but not legally required, to disclose
    health insurance information to VA. Legislation is under consideration
    within the Administration to require veterans to disclose health
    insurance information.
        Question. What authority does VA have to require this deductible?
        Answer. VA does not currently have authority to require this
    deductible and has thus proposed legislation that, if enacted, would
    authorize the deductible.
        Question. Does it require a specific change to the authorizing
    statutes?
        Answer. Yes, and VA has proposed legislation to make the change.
        Question. VA estimates that it will collect an additional $400
    million as a result of this new cost share proposal, and that this
    funding will go back into the system to pay for veterans' care. But VA
    couldn't accurately estimate its total number of patients for this
    year. How can we be sure that VA is able to accurately estimate this
    savings?
        Answer. In an effort to improve our workload projection capability,
    VA enlisted the support of a well-known actuarial firm, Milliman USA,
    to provide us with assistance in making forecasts of the patient
    population. This has placed us in a much stronger position to evaluate,
    and account for, the impact of a variety of different factors on the
    size and distribution of our future patient population. The
    Department's fiscal year 2003 budget is the first to present workload
    projections that reflect the expert assistance of this actuarial firm.
        Milliman USA projected the reduced workload usage associated with
    this cost sharing proposal. Approximately 10 percent fewer Priority 7
    patients will likely use VA health care services altogether. There will
    be an overall 31 percent reduction in workload expenditures, since many
    patients who remain will use fewer VA services when faced with this
    charge. We project $885 million in savings directly related to the 31
    percent workload reduction. Collections in fiscal year 2003 from the
    proposed cost sharing initiative are estimated at $260 million.
        Question. The VA also tells us that if Congress rejects the cost
    share proposal, we will have to appropriate an additional $1.1 billion.
    Again, if VA couldn't accurately estimate its total number of patients
    for this year, how can we be sure that VA is able to accurately
    estimate this cost?
        Answer. In an effort to improve our workload projection capability,
    VA enlisted the support of a well-known actuarial firm, Milliman USA,
    to provide us with assistance in making forecasts of the patient
    population. This has placed us in a much stronger position to evaluate,
    and account for, the impact of a variety of different factors on the
    size and distribution of our future patient population. The
    Department's fiscal year 2003 budget is the first to present workload
    projections that reflect the expert assistance of this actuarial firm.
    In addition, this budget does incorporate a ``Base Health Care Demand
    Adjustment'' initiative that identifies and requests the resources
    required to support an actuarial estimate of the demand and case mix
    changes needed for all seven patient priorities in fiscal year 2003.
    Because of this initiative, the fiscal year 2003 budget estimates
    should better account for the relationship of planned workload
    requirements and the full funding needed.
                               prescription drugs
        Question. Can the VA quantify how the lack of a Medicare benefit
    impacts the VA health system?
        Answer. As mentioned above, VA and the GAO are looking at the
    impact of the lack of a Medicare benefit for prescription drugs on VA
    health care. More than 50 percent of VA users are Medicare enrolled.
    Priority 7 Medicare enrollees increased 138 percent between fiscal year
    1999 and fiscal year 2001. Based on fiscal year 2000 data, age 65+
    Priority 7 pharmacy costs accounted for 29 percent of their total cost,
    compared to 13 percent of the total cost for Priority 1-6, age 65+.
        Question. What is the VA's Prescription Drug benefit? How does the
    VA's program work?
        Answer. VA provides medically necessary pharmaceuticals to enrolled
    veterans if prescribed by a VA authorized physician. This includes
    prescription and over-the-counter medications (OTC), as well as medical
    and surgical supplies. For over 50 years, VA has used drug formularies
    or drug lists. Over the years, the VA formulary has evolved from a
    static list of drugs that are available to VA physicians and patients
    to a dynamic process where the use of drugs is actively managed using
    the objective evidence culled from the medical literature.
        Today, drug use in VA is managed through the VA National Formulary
    (VANF) process. The VANF process has a centrally managed drug list
    which is considered its core formulary (i.e., drugs listed on the VANF
    must be made available at VA medical treatment facilities, however,
    each VISN has the option of establishing a VISN formulary which can be
    used expand the list of drugs available through the VANF to meet the
    unique needs of a VISN). The VANF also incorporates a non-formulary
    request or waiver process whereby medically necessary drugs which are
    not included on the VANF or on the VISN formularies may be requested by
    individual physicians to meet the needs of individual patients.
        Except for a very small number of exceptions, outpatient
    prescriptions are filled exclusively in VA operated pharmacies. Mail
    prescription service is provided through VA Consolidated Mail
    Outpatient Pharmacies (CMOPs), while in other cases, prescriptions are
    made available for pick-up at pharmacies located in VA medical
    treatment facilities. Maintenance medications are generally supplied in
    90-day quantities though the VA CMOPs.
        VA's pharmacy benefit also includes a co-pay system. In February
    2002, the co-pay was increased from $2 for each 30-day supply of
    medication to $7 for each 30-day supply. Medical and surgical supplies
    and any medications used to treat a service-connected condition are
    generally exempt from co-payment. In addition, some veterans are exempt
    from all prescription co-payments (i.e., veterans that fall below the
    means test threshold and veterans who are greater than 50 percent
    service connected.
        Question. How much does VA spend each year on pharmaceuticals?
        Answer. In fiscal year 2000 VA spent $2.2 billion on
    pharmaceuticals, and $2.5 billion in fiscal year 2001. The estimate for
    pharmaceutical expenditures in fiscal year 2002 is $2.9 billion and
    fiscal year 2003 is $3.3 billion. VA manages costs by utilizing generic
    drug products whenever possible, by encouraging the appropriate use of
    drugs through the VANF process, by lowering unit costs through
    standardization contracting, by decreasing the cost of the distribution
    of bulk drugs products through a Pharmaceutical Prime Vendor, by
    lowering the cost of dispensing prescriptions through the use of VA
    CMOPs, and by dispensing chronic medications in 90-day supplies.
        Question. In December 2000, VA's Inspector General (OIG)
    recommended changes to make VA's prescription benefit more efficient.
    One of the recommendations is for the VA to fill privately written
    prescriptions. The Inspector General estimated that this would save VA
    over $1 billion per year. What is VA's response to this recommendation?
        Answer. VA does not support the OIG's recommendation. OIG
    recommended that VA stop providing medical care and only provide
    pharmaceuticals. VA contends that this recommendation would lead to
    fragmentation of care and that it is not in the best interests of
    veterans. Additionally, if VA were required to fill privately written
    prescriptions for any veteran, the system would be overwhelmed due to
    insufficient infrastructure and resources to accommodate the additional
    workload. Using current expenditures, it is estimated that for each one
    million veterans who are provided the pharmacy benefit, VA's costs
    would increase by $1 billion annually. Further, VA would need to
    increase its staff of pharmacists by a very large number in an
    environment where they are in short supply and are able to command
    increasingly high salaries.
        Question. What mechanisms does VA use to manage: drug use?
    distribution of drugs? costs?
        Answer. To manage the appropriateness of drug therapy, the
    distribution of drugs, and the costs of drugs, VA uses a variety of
    formulary management mechanisms and techniques. VA created a Service
    Line call the Pharmacy Benefits Management (PBM) Strategic Health Care
    Group in 1995 to coordinate the VANF process and encourage the
    appropriate use of drugs by veterans. The VANF process involves several
    tools designed to encourage the appropriate use of medications and to
    positively impact the unit cost of drugs. Some of the tools include the
    development and dissemination of evidence-based clinical guidance [Drug
    Use Criteria, Pharmacologic Management Algorithms, Drug Monitoring
    Criteria, Drug Class Reviews and other clinical guidance documents,
    managing drug utilization data to impact prescribing behavior,
    performing national standardization contracting, encouraging
    improvements in inventory management, and engaging in pharmaceutical
    outcomes research.
        To manage the distribution of pharmaceuticals to VA treatment
    facilities, VA uses a Pharmaceutical Prime Vendor, which distributes
    products to VA facilities at prices that are negotiated with the drug
    manufacturers. The current contract results in savings of over $50
    million per year for VA below the VA contract price for
    pharmaceuticals. Distribution of drug products to individual veteran
    outpatients is accomplished by dispensing at VA treatment facilities
    and through VA mail prescription service. Over 50 percent of all VA
    prescriptions dispensed are mailed to veterans.
        As a result of these initiatives, the average cost of a 30-day
    supply of medication in VA has increased very little over the past 3
    years.
        Question. And VA is able to do this without compromising the
    quality of care for veterans?
        Answer. Yes, all indicators of care reflect improvements in
    veterans care. These include but are not limited to measures in the
    care of diabetes and blood cholesterol. In the Congressionally mandated
    study on the VA National Formulary, the Institute of Medicine concluded
    that there is no indication that the quality of care in VA has
    decreased as a result of the VANF process. Additionally, in its studies
    of the VA formulary management process, GAO concluded that the VA
    formulary process is clinically sound and that it meets the needs of
    veterans.
        Question. VA's formularies help contain cost, while still ensuring
    that veterans have access to the best medical care. How are these
    formularies developed?
        Answer. The foundation for formulary management decisions is a
    comprehensive review and analysis of the published medical literature.
    These reviews and analyses, performed by VA clinical staff, result in
    evidence-based decisions regarding which products should be included on
    the VANF, how those products should be used, and the place in therapy
    of those products relative to alternative drug therapies. The review
    processes focus primarily on a drug's safety and effectiveness, as well
    as on other measures of quality. Cost considerations, while important,
    are secondary to quality considerations when determining a drug's
    formulary status and place in therapy in VA.
        Final decisions on formulary management are made by two groups of
    field-based clinical staff in VA. These two groups are the VA Medical
    Advisory Panel (MAP) and the VISN Formulary Leaders Committee (VFL).
    The first group is comprised of 12 VA practicing physicians and one
    Department of Defense physician. This group provides physician
    oversight of the VANF process. The second group is comprised of 21
    pharmacist or physician representatives from each of the 21 VA VISNs,
    the Director of the VA CMOP program, a National Center for Patient
    Safety pharmacist representative, a pharmacist representative from VA's
    National Acquisition Center (NAC), and a pharmacist representative from
    the Department of Defense's Pharmacoeconomic Center (PEC). VA physician
    subspecialty representatives groups are often invited to provide input
    on issues of interest prior to MAP and VFL formulary decisions.
        VA offers one of the most generous pharmacy benefits and does so at
    an affordable cost, due to the managed formulary process. With rare
    exception, all available therapeutic drug classes of drugs available in
    the United States are represented on the VANF. The VA formulary
    management process provides a high level of access to pharmaceuticals
    for VA clinicians and veteran patients. VANF drugs comprise
    approximately 92 percent of all drug dispensing in VA, while VISN drugs
    comprise an additional 6 percent. Considering that VA provides medical/
    surgical items and OTC products, it is inarguable that the VA formulary
    process meets the needs of veteran patients and VA clinical staff.
        Question. In January 2001, GAO reported some networks were not
    applying the formularies in a standardized way. Some networks were
    adding and omitting drugs on an ad hoc basis. What is VA doing to
    ensure that there are national standards for all VA networks--so that
    all veterans have access to the same drugs--no matter where they are?
        Answer. VA has rewritten its policy on the national formulary
    process to address GAO's concerns, has made adherence to the VHA
    Directive on the VANF a topic for discussion in many forums with VA
    pharmacists and clinical leaders, and has made explicit requirements in
    the Directive for national, regional, and local clinical and
    administrative staff.
        VA has taken the following specific actions: development of a
    template for VISNS to use for considering drugs for inclusion on their
    VISN formularies; review of all formulary actions taken by VISNS and
    distribution of that information among VISNS, requiring a national
    review of all New Molecular Entities approved by the FDA before a VISN
    can add it to its formulary, and a requirement that if a medication is
    added to 10 or more VISN formularies, a national review and decision
    will occur. Additionally, VA has added a requirement that if a veteran
    has therapy initiated in one VISN and transfers his care to another
    VISN, that the therapy will not be changed due to any variations with
    VISN formularies. Lastly, VA has started to review access to
    pharmaceuticals (down to the individual facility level) where there
    could be potential problems (i.e., drugs which are high cost, under
    used, over used, etc.) and is reporting that data to VISNs on a regular
    basis with a request for follow-up.
        Question. How could VA's pharmacy benefits management initiatives
    serve as benchmarks for a future Medicare drug benefit?
        Answer. VA's comprehensive approach of addressing the contracting,
    distribution and clinical use of drugs clearly demonstrates that
    evidence-based formulary management can reduce cost while maintaining
    or improving the quality of care and access to pharmaceuticals.
        Evidence-based formulary decisions and contracting within a
    therapeutic class can manage cost and not compromise the quality of
    care. VA has been able to achieve high compliance to both the formulary
    and contracts. Utilization management through the use of disease and
    drug treatment guidelines also has application. Key to the success of
    either program is organizational buy-in. VA utilizes practicing
    physicians within the VA system as decision makers. Additionally, VA
    uses experts within the health care system when decisions are to be
    made in specific diseases, i.e., HIV/AIDS, diabetes.
        Additionally, the use of a Pharmaceutical Prime Vendor, a
    Consolidated Mail Outpatient Pharmacy and clinical pharmacists who can
    help manage individual patient care would positively impact the system.
    Of course, considerable opposition to the inclusion of some of these
    tools in a Medicare drug benefit by various stakeholder groups should
    be anticipated.
        Question. VA recently increased the Prescription Drug copayment
    from $2 to $7. How did the VA arrive at this amount?
        Answer. VA may not require a veteran to pay an amount in excess of
    the actual cost of the medication and the administrative costs related
    to the dispensing of the medication. VHA conducted a study of the
    pharmacy administrative costs relating to the dispensing of medication
    on an outpatient basis and found that VA incurred a cost of $7.28 to
    dispense an outpatient medication even without consideration of the
    actual cost of the medication. This amount covers the cost of
    consultation time, filling time, dispensing time, an appropriate share
    of the direct and indirect personnel costs, physical overhead and
    materials, and supply costs. It was thus determined that $7.00 would be
    an appropriate co-payment.
        Question. Does the VA plan further increases or adjustments to the
    co-pay? What process will be used to determine any future changes to
    the co-pay?
        Answer. The amount of the medication co-payment will be reviewed on
    an annual basis. Increases will be based on the Prescription Drug
    Component of the Medical Consumer Price Index.
                                nursing shortage
        Question. Does the VA agree that a quality work environment for VA
    nurses translates directly into quality of care for our veterans?
        Answer. VA agrees that a quality work environment for nurses
    translates into quality of care for our veterans. Research has shown a
    strong link between positive nursing work environments (including the
    involvement of nurses in decisions that can have impact on patient
    care) and enhanced patient outcomes.\1\
    ---------------------------------------------------------------------------
        \1\ Aiken, L. et al. ``Nurses' Reports on Hospital Care in Five
    Countries,'' Health Affairs, May/June 2001, 43-53.
        Havens, D. S., & Aiken, L. H. (1999). Shaping systems to promote
    desired outcomes: The Magnet Hospital Model. JONA, 29(2), 14-20.
    ---------------------------------------------------------------------------
        The American Nurses Credentialing Center's (ANCC) Magnet Hospital
    Recognition Program is designed to recognize excellence in nursing care
    based on a quality work environment.\2\ Research has shown that magnet
    hospitals demonstrate outstanding outcomes in patient and staff
    satisfaction, staff productivity, and reduced length of hospital stay
    for patients. The Tampa VA Medical Center is the first in VHA to have
    attained Magnet status.
    ---------------------------------------------------------------------------
        \2\ ANCC refers to Magnet status as representing a culture of
    excellence that includes: nurses who have the status needed to
    influence people and procure necessary resources; good collaboration
    between nurses, physicians, and administrators; and established systems
    needed to insure nurse participation in policy decisions.
    ---------------------------------------------------------------------------
        Question. More and more, VA nurses are asked to perform duties that
    are not directly related to the care of veterans--like administrative
    and janitorial duties. But the VA doesn't allow nurses to negotiate
    over these duties. How does this affect retention of VA nurses? The
    quality of care for our veterans?
        Answer. The Report of VHA's Nursing Workforce Planning Group
    states: ``In VA, nurses are routinely required to ``substitute'' for
    absent allied or ancillary staff, such as laboratory or clerical
    support, simply because in the past there have always been nurses
    present in the care environment to do so. This substitution for other
    workers diminishes nurses' capacity to provide nursing care and worsens
    the effect of the nursing shortage.''
        VA recognizes that while the quality of our veterans care remains
    high, such utilization takes nurses and other healthcare providers away
    from patient care processes and results in strong employment
    dissatisfaction that impedes both retention and recruitment of staff.
        Question. Would giving nurses collective bargaining authority
    provide a ``double value'' by both increasing the ``quality of life''
    for nurses, and ``quality of care'' for veterans?
        Answer. The Congress, in section 7422, title 38, U.S.C. extended
    collective bargaining rights to title 38 personnel to include nurses.
        VA nurses currently have and utilize all collective bargaining
    authorities available to Federal employment. In addition, VA nurses are
    active participants in partnership councils at all levels of the
    organization.
        Question. The VA Nurses Recruitment and Retention Act created a
    National Commission on VA Nursing. What is the status of this
    Commission?
        Answer. The membership of the Commission has been appointed. The
    Commission will hold its first meeting in May 2002.
        Question. Could the Commission look into the collective bargaining
    issue?
        Answer. Yes. The Commission has been charged to consider
    legislative and policy changes to enhance recruitment and retention of
    nurses, and to make recommendations in these areas as appropriate.
        Question. What other steps is the VA taking to recruit and retain
    nurses?
        Answer. Understanding the gravity of the future nursing shortage
    situation, VA recognized the need to bring together nursing and health
    care management experts to fully explore all issues that have an impact
    on VA's ability to maintain a highly qualified nursing workforce. As a
    result, the Future Nursing Workforce Planning Group (Planning Group)
    was established in August 2000.
        In January, VHA released A Call to Action--VA's Response to the
    National Nursing Shortage. The report is the product of VA's National
    Nursing Workforce Planning Group whose membership was made up of nurses
    from a variety of positions, labor partners, VA medical center
    administrators, and Human Resources experts. This group consulted with
    national experts in nursing, government and academe, conducted an
    extensive review of the literature and met with VA employees. What
    emerged as a result is a frank discussion of VA's ability to compete in
    today's nursing labor market and the barriers that impede nurse
    retention, recruitment and utilization. Recommendations for diminishing
    these barriers are presented; they range from the need for legislative
    initiatives to the need for flexibility and respect in the work
    environment.
        To disseminate the Report's content, VHA has held policy level
    briefings and produced a national broadcast for all employees using the
    VA Knowledge Network. The report and its recommendations will be the
    subject of national meetings and will be considered by the VA Workforce
    Task Force and the National Commission on VA Nursing.
        VA has placed significant emphasis on the education and training of
    its nurses. The National Nursing Education Initiative (NNEI),
    implemented in March 2000, is a VA established subcomponent of the
    Employee Incentive Scholarship Program (EISP) that supports educational
    opportunities for VA's registered nurses to expand their formal
    education. It helps ensure that VA nurses are educationally prepared to
    provide the highest quality of health care to veterans across the full
    range of clinical practice roles. Additionally, the NNEI will prepare
    nurses for their new and evolving roles as VA continues its
    transformation from a hospital-based system to one that focuses on
    primary care and care management in outpatient, home, and community
    settings. As of September 30, 2001, the NNEI accounted for nearly 90
    percent of all the EISP participants. Academic year 2000-2001 was the
    first full year of operation of the NNEIEISP. At the conclusion of
    fiscal year 2001, 2,087 VA employees had been awarded EISP
    scholarships, including 1,870 registered nurses under the NNEI
    subcomponent. The total cost of these scholarships, many of which are
    multi-year awards that in some cases continue into academic year 2005-
    2006, is approximately $23.3 million. The portion of the EISP funding
    that was specifically for the NNEI amounted to $21.3 million.
        Additionally VA has increased its emphasis on recruitment outreach
    for registered nurses. In fiscal year 2001, VA has more than doubled
    the number of the number nursing conventions, job fairs and other
    recruitment forums where it sponsors exhibits to promote VA as an
    employer of choice. Similarly, VA has increased its nationwide
    advertising which includes eye-catching display ads prominently placed
    in major newspapers and professional journals and internet advertising
    with links to VA's health care recruitment web site.
        VA is in the process of implementing the Education Debt Reduction
    Program (EDRP) that provides the authority to implement to help
    recently appointed health care employees such as nurses reduce the
    interest and principle on government and commercial loans that they
    obtained to fund their health care education. It appears that some
    concerns with the National Partnership Council have been resolved and
    that the award process will begin in the very near future. The EDRP is
    expected to be a highly effective tool for recruiting nurses.
        As another initiative, a senior VA nurse executive is now a member
    of the staff of the Healthcare Staff Development and Retention Office
    to facilitate the utilization of existing recruitment and retention
    programs and the creation of new programs.
        Question. What will the VA spend on these initiatives in 2003?
        Answer. Up to $10 million will be spent on the NNEI in fiscal year
    2003 and $1.7 million is in the budget for VA Learning Opportunities
    Residency Program (VALOR). About $5 million is available for the EDRP.
    The lion's share of the VA's national health care advertising budget,
    which totals about $1.5 million, will be shifted to nursing.
        Question. How can the VA-HUD Subcommittee help bolster these
    initiatives?
        Answer. It is critical that VA be a competitive employer of new
    nursing graduates. The VA Learning Opportunities Residency Program
    (VALOR) \3\, which has had a positive impact on nurse recruitment in
    the past and has won national acclaim, is a rich source of new nurses.
    VA will promote a positive work environment for nurses and all
    employees and will continue to develop recruitment and retention
    strategies that enable competitive employment of a qualified nursing
    workforce.
    ---------------------------------------------------------------------------
        \3\ The nationally acclaimed Veterans Affairs Learning
    Opportunities Residency Program (VALOR) is an honors program
    administered by local VA facilities but funded centrally. VALOR
    provides specialized summer educational and clinical experiences to
    nursing students with GPA's of 3.0 or higher. Participants are paid 80
    percent of RN pay and if they elect VA employment after graduation they
    are given special salary consideration. In fiscal year 2001 there are
    267 VALOR students being supported in 77 VA medical centers.
    ---------------------------------------------------------------------------
                                  collections
        Question. The 2003 budget assumes that VA will collect $1.4 billion
    in 2003, an increase of about $500 million above the 2002 level. How
    much of this amount does VA estimate would come from the proposed
    $1,500 deductible?
        Answer. An estimated $260 million revenue increase is expected to
    come from the $1,500 deductible proposal. This proposal is also
    expected to generate an overall net workload expenditure reduction of
    $885 million, for an overall reduction in the appropriation request of
    $1.145 billion for veterans' health services in fiscal year 2003.
        Question. Last month, the VA's Inspector General reported on missed
    billing opportunities, backlogs of claims worth a billion dollars, and
    poor follow-up on bills. GAO has found similar problems about VA's
    collections efforts. What is VA doing to collect what veterans and
    taxpayers are owed?
        Answer. For the past 4\1/2\ years VA has contracted with a private
    vendor to follow-up on third parties receivables over 90 days old. This
    contract has resulted in collections totaling $200 million at a cost of
    a little more than $4 million. This contract required the contractor to
    submit 5 additional follow-up letters to an insurance company for
    payment to VA for the service provided.
        Additionally, the VHA Revenue Office is in the process of
    ``testing'' the concept of outsourcing follow-up activities between one
    VISN and the Allied Interstate Company (a collection company). For a
    period of 120 days, the company will attempt to resolve aged billing
    claims while on location in a VISN facility. This test will provide
    insight into how well a private sector billing company can provide
    outsourcing for billing services.
        We have simultaneously encouraged VISNs to identify outsourcing
    opportunities, not only for follow-up activities, but also for coding
    and billing. A number of VISNs are in the process of developing
    statements of work for outsourcing and several others have issued
    solicitations.
        Question. How much does VA spend on its collections efforts? For
    example, for every dollar spent on collections, how much does VA
    actually collect?
        Answer. VA's cost to collect from third-parties is very difficult
    to compare with private industry's cost to collect. VA's measurement
    for this process is a cost to operate. VA's data systems cannot provide
    data for collections and costs to differentiate between first and
    third-parties. The cost accounting system records only total
    collections and cannot identify cost expenditures to the first and
    third-party level. There have been cost assessment studies done in
    prior years by contractors and one currently underway; both of which
    have shown (show) how the cost to collect/operate has declined over the
    past few years. This decrease in cost to operate can be attributed to a
    number of improvements in the process for billing and collecting of
    first and third-party receivables. These enhancements include the
    electronic generation of patient statements from one location, the
    receipt of payments for first party charges through a lock box bank,
    and the automatic posting of those payments to a patient's account.
    Additionally, improvements made to the third-party billing process
    include facilities using an Electronic Data Interchange (EDI) in the
    near future to submit bills to insurance companies electronically,
    centralization/consolidation of like collection functions, and
    outsourcing/contracting out follow-up activities.
        Systems Flow, Inc., has been contracted to study and develop annual
    reports to Congress on an assessment and an interim evaluation of
    alternative business models presented in VHA's Business Plan for
    Revenue Collection. Systems Flow, Inc. reviewed three VISNs on various
    subject matters including cost to collect data. A draft based on
    preliminary data results (using December 2001 data) was issued February
    12, 2002. The cost to operate on average for three VISNs for third-
    party collections averaged 22 cents to collect $1 and averaged 16 cents
    to collect $1 of total collections (first and third-party).
        Question. Does the VA know to what extent it is owed by deadbeat
    third parties? Is VA able to estimate how much?
        Answer. We are unable to systematically identify payers that
    routinely or frivolously deny payment of our claims. However, field
    staffs occasionally provide anecdotal information on the subject.
    Therefore, to provide an accurate response will require substantial
    systems development for monitoring and reporting on such occurrences.
    We anticipate a greater capacity to monitor such activity with advent
    of the Electronic Data Interchange (EDI).
        Question. Why has the VA chosen to keep billing in-house, rather
    than contracting it out to the private sector, which has more
    experience in billing issues?
        Answer. VA is in the unique situation of dealing with service
    connected and non-service connected veteran patients for billing
    purposes. Due to the various rules and regulations that deal with this
    situation, many private sector billing companies will have to modify
    their software in order to bill for VHA services. VHA's study of
    commercial-off-the-shelf billing products identified several vendors
    that could provide billing outsourcing with effective training and the
    upfront work with the VistA software to extract the episode of care
    information. To that end, the Office of Information's Software Design
    and Development section is in the process of making the VistA software
    ``billing aware'' so that it can be integrated with potential private
    sector billing companies. Another issue hindering the outsourcing of
    billing is obtaining security clearances for individuals performing
    billing work for a potential contractor. Security clearances must be
    obtained for each individual accessing the VHA computer systems.
    Further, the contractor must be physically located on VA property to
    stay within the VA computer systems firewall to preserve the security
    of the data. Another issue hindering the outsourcing of billing is the
    lack of consistent documentation and use of the Computerized Patient
    Medical Record System (CPRS) at all clinics within a medical center.
    These issues are being addressed by VHA management.
        The VHA Revenue Office is in the process of ``testing'' the concept
    of outsourcing follow-up activities between one VISN and the Allied
    Interstate Company (a collection company). For a period of 120 days,
    the company will attempt to resolve aged billing claims while on
    location in a VISN facility. This test will provide insight into how
    well a private sector billing company can provide outsourcing for
    billing services. The Revenue Office will be conducting weekly
    conference calls on the status of this initiative with VISN 12, as well
    as receive monthly progress reports on the amount collected by Allied
    Interstate Company.
        In addition, we have simultaneously encouraged VISNs to identify
    outsourcing opportunities, not only for billing, but also for coding
    and accounts receivable management. In fact, several VISNs have such
    outsourcing situations in progress and several others have issued
    solicitations. The VHA Revenue Office maintains a list of VISN/Medical
    Center contracts from across the country. This listing will be
    available to VISN/Medical Centers for information on contracts
    available.
        The foregoing activities indicate a desire and commitment within VA
    to outsourcing options.
        Question. Has VA been able to develop a list of ``lessons learned''
    to maximize collections?
        Answer. VHA has identified 24 action items to enhance revenue
    operations. Project Teams are pursuing the implementation of these
    action items in the areas of Billing, Coding, Insurance, Utilization
    Management and Accounts Receivable Management. These project teams will
    make recommendations for improvements to the Revenue program and
    develop training programs for facilities to implement best practices.
        We are consolidating information into a central resource vehicle to
    assist field revenue staffs in maximizing their collection efforts.
                                 waiting times
        Question. What can the VA tell us about current waiting times? How
    long do veterans wait to get a doctors appointment? How long do they
    sit in the waiting room?
        Answer. Eighty seven percent of primary care appointments and 83
    percent of specialty care appointments are scheduled within 30 days of
    desired date. This measure includes ALL patients seeking an
    appointment. For new non-emergent patients seeking an appointment to
    primary care, the current waiting times is 58.7 days. In addition, 71
    percent of patients reported that they waited 20 minutes or less to see
    their provider.
        VHA tracks and monitors other information on waiting time to
    provide a richer context for evaluating performance. Information on
    performance for February 2002 is included in the table below. VHA
    tracks performance on these monitors over time to assess the
    effectiveness of corrective actions as well as to monitor the effect of
    other factors, such as eligibility changes and budgetary impacts on
    waiting times. Attachment A provides data on general trends of
    nationwide improvements for VHA's average wait times for primary care
    and specialty clinics.

                 OTHER VHA WAITING TIME MONITORS--FEBRUARY 2002
    ------------------------------------------------------------------------
                                                                    Actual/
                Measure               Specialty Clinic  Plan/days     days
    ------------------------------------------------------------------------
    Average next available primary   (Primary)........         30         38
     care appointment.
    Average next available           Audiology........         30       31.8
     specialty appointment waiting   Cardiology.......         30       35.8
     time.                           Eye Care.........         30       61.7
                                     Orthopedics......         30       34.4
                                     Urology..........         30       41.1
    Average primary care new         (Primary)........         30       58.7
     appointment waiting time.
    Average specialty new            Audiology........         30       53.5
     appointment waiting time.       Cardiology.......         30       35.7
                                     Eye Care.........         30       77.4
                                     Orthopedics......         30       38.6
                                     Urology..........         30       45.5
    ------------------------------------------------------------------------

        Question. What are the goals for patient waiting time?
        Answer. The Department level goals for waiting time for fiscal year
    2003 are provided below.: The strategic goal for each of the
    performance measures below is 90 percent by 2006.
      --89 percent of primary care veterans appointments will be scheduled
            within 30 days of desired date (excludes new enrollees who are
            pending scheduling of their first appointment);
      --87 percent of specialist appointments will be scheduled within 30
            days of desired date (excludes new enrollees who are pending
            scheduling of their first appointment); and
      --72 percent of patients will report being seen within 20 minutes of
            their scheduled appointments at VA health care facilities.
        Note: pending scheduling is defined as a patient who has requested
    their first appointment and is waiting to be scheduled.
        Question. How were these goals developed?
        Answer. In 1995, a survey was conducted for actual wait times, by
    clinic. The data were analyzed to determine which clinics had the most
    problematic wait times. Measures were prioritized for those clinics
    with the highest wait times. Targets were set based on community
    expectations based on literature searches and discussions with other
    managed care groups.
        Question. What is the VA doing to develop a system to accurately
    quantify the current situation?
        Answer. VHA has identified some immediate issues that must be
    addressed:
      --The current ``30 days measures'' do not accurately reflect the
            experience of new patients.
      --The present data exclude the wait time experience of new enrollees
            whose application for enrollment has been received but not
            processed and new enrollees who indicate a desire for primary
            care appointment that has not been scheduled.
        VHA recognizes that data credibility is compromised as the current
    ``VHA-OMB 30 day wait measure'' appears to be far better than
    anecdotally reported wait experiences. Whether due to absence of
    available slot or other reasons, ``waiting lists'' of Veterans to be
    entered into the scheduling system are known to exist. ``Waiting
    times'' is an area of intense concern among facility and Network
    leadership.
        In January 2002, VHA's Policy Review Board recommended and VHA's
    (Acting) Under Secretary for Health approved the following proposed
    actions:
      --Improve construction and communication of current measures to
            better reveal wait experiences of both new and established
            patients in primary and specialty care.
      --Transition OMB/GPRA/VA Strategic Measures to either supplement or
            replace ``percent with 30 days'' with average wait times for
            primary or specialty care categorized by ``all patient'' and
            ``new patients''
      --Include new patient wait data in primary and specialty care in all
            VHA wait times performance reporting
      --Improve business processes to support improved data:
      --Standardize the entry process for new enrollees, building on
            processes developed in VISN 8. This should include standard
            ``pre-triage'' questions to determine basic preference and
            reveal urgency of clinical needs at the time of enrollment.
            Consider use of triage clinics, if primary care slots not
            available. Incorporate principles of advanced access, including
            recommendations for primary care panel size range into standard
            entry process design.
      --Formalize ``electronic wait list'' in VISTA to more consistently
            and accurately reflect demand across VHA, and reduce risk of
            enrollees lost to follow-up due to clerical error.
      --Conduct periodic survey of new enrollees at defined periods after
            enrollment to assess their experience with waiting times.
        Question. How much funding does VA anticipate devoting to quantify
    this problem in 2003?
        Answer. The fiscal year 2003 budget includes a request for $159
    million to improve access and service delivery.
                            claims processing times
        Question. What is the current processing time for claims?
        Answer. The current (through February 2002) average completion time
    for rating claims is 222 days.
        Question. What is the goal?
        Answer. The fiscal year 2002 goal is 208 days.
        Question. What lessons has the VA learned from past efforts to
    improve processing times?
        Answer. Because of concern over the increasing VBA workloads and
    the length of time veterans were waiting for decisions on their claims,
    the Secretary established the VA Claims Processing Task Force. The Task
    Force was charged with assessing VBA's current operations and the
    impact of efforts to improve claims processing. The Task Force was
    asked to recommend measures and actions that would increase the
    efficiency and productivity of VBA operations, shrink the backlog, and
    reduce the time it takes to decide a claim.
        The Task Force found that previous efforts to improve processing
    times had focused on the ``back end'' of the process--from preparation
    of the rating decision to award and decision notification. Nearly all
    clerical positions had been eliminated and replaced with additional
    ``decision makers.'' The Veterans Services Representative (VSR)
    position was created, which has been assessed to include over 10,900
    separate tasks (including clerical functions), any combination of which
    a VSR could be expected to perform on any given day.
        It was the assessment of the Task Force that the broad scope of
    duties coupled with the administrative ``clerical'' functions actually
    reduced the time available for the VSR and the Rating Veterans Services
    Representative (RVSR) to make decisions. Little attention was paid to
    assuring proper and complete evidence development. As a result, claims
    were delayed time and time again as essential evidence was not
    solicited until months after the claim had been received.
        We have learned that our attention must focus on the entire claims
    process, from the date the claim is received in the Regional Office to
    the time the final decision is made on the claim, including any appeals
    that might have been filed. The Task Force recommended specialization
    of claims processing in order to ensure complete and timely
    development, reduction of cycle time delays, improved quality of
    decisions and awards, and complete and understandable notification to
    claimants. In addition, the Task Force recommended re-establishment of
    a clerical position to handle the administrative function, thus freeing
    up more direct labor hours for the VSR and RVSR. We are confident that
    these actions will improve both the timeliness and quality of VBA
    decisions.
        Question. How much funding does VA anticipate devoting to improving
    claims processing time in 2003?
        Answer. For fiscal year 2003, $50 million has been budgeted for
    initiatives to improve claims processing. These initiatives focus not
    only on timeliness, but also on quality and other aspects of claims
    processing, and are not all short term initiatives. Examples are
    Virtual VA (VBA's imaging initiative), Systematic Individual
    Performance Assessment (SIPA), and Compensation and Pension Evaluation
    Redesign (CAPER).
        Question. How many new employees?
        Answer. These initiatives will require 106 additional FTE (20 for
    Virtual VA, 64 for SIPA, 6 for CAPER, and 16 for other VBA-wide
    initiatives).
        Question. How will VA train new employees so they will be able to
    make a real difference?
        Answer. Training programs have been created for delivery through a
    variety of media, but the cornerstone of training for both RVSRs and
    VSRs is the Compensation and Pension (C&P) Training and Performance
    Support System (TPSS). For RVSRs, formal training occurs over a period
    of 26 weeks. TPSS is supplemented with training by student and
    instructor guides that includes a variety of practical exercises. A
    great deal of time is also allotted for work with mentors, where
    students are expected to demonstrate application of the knowledge they
    have obtained through success with live cases. For VSRs, formal
    training is outlined in the ``VSR Field Guide''. The Field Guide to VSR
    training website contains 48 weeks of training materials including the
    course curriculum, schedules, and all materials for instruction. Last
    year's VSR course design called for 12 weeks of initial instructor-led
    training. The purpose was to deliver uniform training in a compressed
    timeframe with as little impact as possible to the resources of the
    individual Service Centers. Stations would then continue training the
    remainder of the 48-week curriculum as trainees became more productive.
        Question. How have the VA's new duty to assist requirements
    impacted processing times?
        Answer. The Veterans Claims Assistance Act (VCAA) required that VBA
    readjudicate more than 98,000 previously denied claims, as well as
    review the 230,000 claims in our pending inventory at the time VCAA was
    enacted to ensure compliance with the Act. This major increase in our
    workload had a significant impact on the average processing times.
        All VCAA claims have now been added to the inventory. At the same
    time, we have taken aggressive steps to increase rating production,
    which is the key to reducing the claims backlog and improving the
    timeliness of our decisions. From October 2001 through February 2002,
    VBA decided over 294,000 cases for a 5 month average of 58,800. This
    represents a 47 percent increase over fiscal year 2001 production
    levels. We expect our production to continue to increase as many of our
    recently hired employees gain additional experience and we begin to
    implement the recommendations of the Claims Processing Task Force.
        We believe our increased production levels and the Task Force
    initiatives will now enable us to make major inroads into the pending
    inventory. Our goal is to reduce the pending rating inventory to
    315,000 claims by the end of this year. Even though we project major
    reductions in our pending inventory, the average days to complete will
    continue to increase as we focus on completing the oldest claims in our
    inventory.
        Question. Is the VA developing safeguards to ensure times won't get
    worse as it does more to help veterans develop their claims?
        Answer. We have taken several steps to ensure our focus remains on
    timeliness and accuracy. We have developed output targets for each
    regional office, and established national standards for Veterans
    Service Representatives and Rating Veterans Service Representatives. We
    have established performance standards for regional office directors
    that include specific goals for improvement in the timeliness of rating
    claims, reduction in the pending inventory of claims, etc. These
    performance plans also state that if any goals are not met, the
    director must provide compelling mitigating reasons and identify
    actions being taken to improve the performance.
        Wellness plans have already been requested of some station
    directors who have thus far failed to achieve goals specified in the
    performance plan. The wellness plan is a detailed analysis of the
    current situation, causes for the non-performance, and development and
    implementation of countermeasures. If wellness plans do not result in
    performance improvements and no mitigating reasons exist, appropriate
    administrative action will be taken.
        We are currently piloting a recommendation from the Claims
    Processing Task Force to establish specialized teams within the claims
    processing functions of Triage, Pre-determination, Rating, Post-
    determination, Appeals, and Public Contact. The Triage team will assign
    work to the appropriate team or work the case in the Triage unit if an
    issue can be quickly resolved. The Pre-determination team will ensure
    complete and timely development of rating claims received from the
    Triage team. By addressing the current cycle time delays at the front
    end of both the rating and non-rating claims process, we expect
    significant improvement in the overall timeliness of claims processing.
    National implementation of this pilot will be complete by the end of
    this summer.
                                 long term care
        Question. What is the status of VA's implementation of long term
    care?
        Answer. VA has implemented a number of the major long-term care
    provisions of the Millennium Act. Section 101(a), Nursing Home Care
    Eligibility, as implemented in February 2000. Further guidance was
    provided in November 2000 with issuance of VHA Directive 2000-044.
    Section 101(c), Extended Care Services and Extended Care Copayments,
    has been partially implemented with issuance of VHA Directive 2001-061
    in October. This directive notes that VA will amend the regulations
    establishing the benefits package to include outpatient geriatric
    evaluation, adult day health care and home and community-based respite
    care. Home care, hospice/palliative care and inpatient respite were
    included in the benefits package under prior authority. The amended
    Medical Benefits Package, Copayments for Extended Care Services
    proposed regulation was published October 4, 2001. Final regulations
    were forwarded to OMB on March 14, 2002.
        Section 102--Long--Term Care Pilots-are in progress at three VA
    sites (Dayton, Columbia, SC, and Denver, CO). The first veterans were
    enrolled in the pilot in mid-2001 and the final report to Congress will
    be submitted in April 2005, 9 months following the conclusion of the
    pilots. Section 103--Assisted Living Pilot--is in progress in VISN 20,
    Pacific Northwest. The first veterans were enrolled in this pilot in
    January 2002 and the final report to Congress will be submitted in
    October 2004, 90 days prior to the conclusion of the pilot. Lastly,
    implementation of Section 207--State Home Construction Grants--is
    nearly completed. Proposed regulations were published June 26, 2001 and
    were utilized to establish the fiscal year 2002 State Home Construction
    Priority List. Publication of final regulations is expected in April
    2002.
        Question. How much will VA spend on long term care in 2003?
        Answer. VA projects that it will spend approximately $3.6 billion
    on long-term care in 2003. Of this amount, $3.2 billion is for
    institutional long-term care and $0.4 billion is for non-institutional
    long-term care.
        Question. What is the status of the assisted living pilots?
        Answer. VA's Assisted Living (AL) Pilot being conducted in Network
    20 (Washington, Oregon, Idaho, Alaska) started admitting veterans in
    the pilot study group to AL facilities in January 2002. Contract issues
    and Institutional Review Board issues delayed implementation of this
    pilot program from the planned start of mid-2001, but all of these
    issues have now been resolved. The pilot will be conducted for 3 years,
    and the report to Congress on the outcomes will be provided 90 days
    prior to the completion of the pilot as required in the Millennium Act.
    VA's Health Services Research Centers of Excellence are conducting the
    evaluation of this pilot.
                                  fort howard
        Question. Will the VA continue to move forward with the Mission
    Change and Enhanced Use project underway at Fort Howard?
        Answer. Yes. The Mission Change is currently in progress. The
    estimated date to complete the Mission Change is September 2002. In
    addition, the planning process for the revitalization of the Fort
    Howard campus into a ``Continuum of Care Retirement Community''
    utilizing Enhanced-Use legislation has been initiated. There is a lot
    of interest in the project. This community concept would be a first in
    the VA, and may likely prove to be a model for other VA sites
    nationally where aging buildings and abundant property are a capital
    burden on the VA system.
        Question. What changes can veterans, their families, and VA
    employees expect in the coming months?
        Answer. The changes that veterans, their families, and employees
    will see in the upcoming months will be the progressive relocation of
    inpatient programs and administrative functions to other VAMHCS sites
    where excess capacity exists. The planned relocations will provide a
    better environment and accessibility for serving the health care needs
    of Maryland's veterans. No current program offered at Fort Howard will
    be eliminated. As most of the program moves are dependent upon various
    construction projects, the estimated date to complete the Mission
    Change is September 2002. The 32-bed Substance Abuse and Residential
    Rehabilitation Treatment Program (SARRTP) was relocated to Perry Point
    in February 2001. The Medical Care Cost Fund (MCCF) Office, also known
    as the Revenue Office, was relocated to Perry Point in June 2001. The
    Ventilator/Respiratory Therapy beds (12-bed unit) were relocated to
    Perry Point in December 2001. Other planned relocations and
    construction projects will follow this spring and summer. When the last
    of the inpatient moves are completed, the current Fort Howard primary
    care outpatient clinic will be relocated from the main hospital
    building to Building 249, which is located behind the existing hospital
    building and adjacent to the main parking lot.
        Question. Will the outpatient services continue at the Fort Howard
    campus throughout the entire transition?
        Answer. Yes. As noted above, when the last of the inpatient moves
    are completed, the current primary care outpatient clinic will be
    relocated from the main hospital building to Building 249. Veterans who
    are currently receiving primary care outpatient services will continue
    to receive these services without interruption during the transition.
    Although Building 249, which was built in 1992, is the newest building
    located on the Fort Howard campus, construction is scheduled to begin
    in April 2002 to make the space more functional for the needs of the
    primary care outpatient clinic.
        Question. Veterans with inpatient needs will be referred to the
    Baltimore VAMC. What is the VA doing to prepare the Baltimore facility
    for its expected increase in workload? What facility improvements are
    being made? What is the VA doing to ensure that healthcare workers at
    the facility are able to provide quality customer service to an
    increased workload?
        Answer. There will be no increase in inpatient workload at the
    Baltimore facility as a result of the Fort Howard Mission Change. The
    Baltimore facility supports the acute and critical care needs of
    veterans for the entire VAMHCS. Fort Howard is a sub-acute care
    facility. Upon completion of the Mission Change, the Fort Howard
    inpatient programs will be relocated to more modern and comfortable
    accommodations at the Perry Point and Loch Raven facilities. Over $7
    million has been allocated for construction projects to accomplish the
    planned relocations (see attached list). The transfer of patient
    workload and staff from Fort Howard to the Perry Point and Loch Raven
    facilities will increase workload at these two locations; however, the
    overall system workload will not increase. Employees have been given
    the option to relocate with their programs, as appropriate. We believe
    that the veteran population will benefit from the planned relocations,
    and the current level of quality care and customer service will be
    maintained.

                 FORT HOWARD MISSION CHANGE PROJECT COST SUMMARY
    ------------------------------------------------------------------------
                                                                   Project
    Site         Project title              Project number           cost
    ------------------------------------------------------------------------
         Fiscal Year 2000 Funding:
      LR     Renovate BRECC1 For    512-00-166...............     $179,650
              Rehab Therapy
              (Design/
              Construction)
      PP     Relocate Cardiology    512-00-321...............      246,372
              To 19H
      LR     Rehab/Admin Bumpout    512-00-168...............       52,500
              Addition (Design)
      LR     Renovate Animal        512-00-167...............       83,000
              Facility For
              Orthotics (Design)
      PP     Renovate 22H For       512-00-320...............       44,843
              SARTP (Design)
      PP     Add Bathrooms 23A      512-00-322...............       27,880
              (Design)
      PP     Renovate 13H For       512-00-323...............            0
              Admin Svcs (Design)
                                                              --------------
               Subtotal             .........................  \1\ 634,245
      PP     Renovate 14A & B       512-319..................  \2\ 3,920,0
                                                                        00
                                                              --------------
               Fiscal Year 2000     .........................    4,554,245
                Total
         Fiscal Year 2001 Funding:
      PP     Add Bathrooms 23A      512-00-322...............      152,500
      FH     Renovate Bldg 249      512-00-120...............       51,500
              (Design)
                                                              --------------
               Subtotal             .........................      204,000
         Fiscal Year 2002 Funding:
      LR     Rehab/Admin Bumpout    512-00-168...............      378,854
              Addition
              (Construction)
      LR     Renovate Animal        512-00-167...............      400,000
              Facility For
              Orthotics
              (Construction)
      FH     Renovate Bldg 249      512-00-120...............      375,000
              (Construction)
      PP     Renovate 13H For       512-00-323...............      390,071
              Admin Svcs
              (Construction)
      PP     Renovate 22H For       512-00-320...............      379,222
              SARTP (Construction)
                                                              --------------
               Fiscal year 2001     .........................  \3\ 1,923,1
                and 2002 total                                          47
         Funding Pending:
      BT     Provide A&MMS Space    SB-01-104................      359,000
              in Warehouse
      BT     Renovate 2nd Floor     .........................       20,000
              Audiology
      LR     Renovate B-4 basement  .........................       75,000
              area for EMS Offices
              & Linen Carts
      LR     Convert EMS Linen      .........................       25,000
              Cart Rm In BRECC to
              Offices
      LR     Add Offices In B-4     .........................       75,000
              Near Security (w/o
              bathroom)
      LR     Expand Dental Suite @  SB-02-202................       80,000
              BRECC
                                                              --------------
               Funding pending      .........................      634,000
                total
               Grand Total          .........................    7,315,392
    ------------------------------------------------------------------------
         \1\ $486,000 received in FCP 073 in fiscal year 2000.
         \2\ $3,920,000 approved for 14H.
         \3\ $2.0M received in FCP 1934 in fiscal year 2002.

        Question. Will the VA stick to the current timetable that calls for
    the Mission Change to be complete by September 2002, and for the
    Enhanced Use to be complete by January 2003?
        Answer. The VAMHCS is doing everything possible to ensure the
    timelines presented to date are maintained. As most of the program
    moves are dependent on the completion of various construction projects,
    the estimated date to complete the Mission Change is September 2002.
    The Enhanced-Use portion of the project is a more complex and difficult
    process to forecast. A contract was awarded to a consultant to conduct
    an Environmental Assessment and the historical, marketing, land
    planning, and financial feasibility studies for the Enhanced-Use
    portion of the project. These studies are necessary to properly
    validate the proposed concept and identify any potential concerns. The
    marketing, land planning, and financial feasibility studies have been
    completed. The historical study is currently under final review by the
    Maryland Historical Trust and the Historic Preservation Officer, VA
    Central Office. At or near completion of the Environmental Assessment,
    a formal request to continue pursuit of the Enhanced-Use portion of the
    project will be forwarded to VA Central Office for review and approval.
    Based on current estimations by the Office of Asset Enterprise
    Management, VA Central Office, the Enhanced-Use process takes
    approximately 12 months to complete which results in the awarding of a
    contract to a developer. It is unlikely that the formal Enhanced-Use
    process will be completed by January 2003 as previously planned.
        Question. Has the VA bid the Enhanced Use portion of the project in
    January 2002 as planned? If so, was notice provided to the Committee?
    If not, what is the delay?
        Answer. No. The formal Enhanced-Use process of the project was
    expected to begin in January 2002 with the submission of a Business
    Plan. This Business/Concept plan is the first step in the formal
    process leading to execution of an Enhanced-Use project. Subsequent
    steps necessary prior to ``bidding'' include plan approval, conducting
    a public hearing, and notification to Congress of the Department's
    designation of the site for an Enhanced-Use lease. As noted in the
    response above, prior to submission of the Business Plan (formal
    request to continue pursuit of the Enhanced-Use project) there are
    several studies that must be completed to properly validate the
    proposed project and identify any potential concerns. Most of these
    studies have been completed with the exception of the Environmental
    Assessment. At or near completion of the Environmental Assessment, a
    formal request to continue pursuit of the Enhanced-Use process will be
    forwarded to VA Central Office.
        Question. If the State does not authorize a new State Veterans Home
    at Fort Howard, what impact will it have on the Enhanced Use plan?
        Answer. If the State of Maryland does not authorize a new State
    veterans Home at Fort Howard, there will be no impact on the enhanced-
    use plan. If the State does not build at Fort Howard, the land will be
    utilized to further enhance the retirement community, as appropriate.
                               major construction
        Question. The 2003 budget request includes 4 seismic projects in
    California totaling $94 million. While each of the 4 projects are on
    VA's priority list, the request skips over projects that are identified
    by VA as a higher priority--for example, projects in Cleveland and
    Anchorage are of higher priority to VA, yet they are not requested.
    What is the rationale for this?
        Answer. All of the mentioned projects are important to VA, however,
    when putting together recommendations for the President's fiscal year
    2003 budget request the concern for the life and safety risk associated
    with potential seismic related structural failure of the listed
    facilities outweighed the Cleveland and Anchorage projects.
        Question. What is the authorization status of each of the projects
    on the VA's fiscal year 2003 Priority Major Medical Construction
    Projects list? For each project that is authorized, please provide: the
    date the project was authorized, the legislative citation, and when the
    authorization expires. Please note each project that is not authorized.
    Please also note the CARES status of each project.
        Answer. The proposed SCI/Blind Rehabilitation Project for Hines is
    the only project on the List of 20, which is currently authorized for
    expenditure of funding. This is also the only project associated with a
    completed CARES study.
        Question. What are the VA's plans for the CARES process?
        Answer. The VA's current plans for Phase II of the CARES process
    will begin in Spring 2002. Phase II will call for all of the remaining
    Networks to develop CARES plans based on actuarial projections
    provided, space and facility assessments and other guidance and
    criteria provided to them by VACO. Preparations in VACO have begun to
    initiate this process. All studies and decisions should be completed
    within the next 2 years.
                               minor construction
        Question. The Committee has not yet received notification of the
    fiscal year 2002 minor construction projects. Please provide this list
    to the Committee.
        Answer. Attached are VHA minor projects that were approved by a
    Department wide workgroup (as required by the Committees) and included
    in the fiscal year 2002 operating plan. This plan may be revised as
    needed. VA will forward the operating plan to the Committees as
    revisions are made.

        Question. In fiscal year 2002, the Committee provided $32 million
    above the budget request for minor construction projects. Please
    identify the projects funded as a result of this increase.
        Answer. VHA received $17.2 million of the additional funds. Out of
    the $17.2 million, $6 million has been allocated to seismic projects
    and $11.2 million was distributed to the VISNs in support of their
    greatest minor construction needs. NCA received an additional $2.8
    million, VBA an additional $10 million, and Staff Offices obtained an
    additional $2 million over the original 2002 request.
        Question. What percentage of funding is for minor construction will
    support improvements to VA medical research facilities?
        Answer. Based on the fiscal year 2002 minor construction
    applications and operating plan, only one project was identified for
    research. That project totaled $3.7 million and equates to 2.3 percent
    of the appropriation of $161.5 million.
        Question. In fiscal year 2002, the Committee provided $25 million
    for CARES approved minor construction projects. How will VA allocate
    this funding?
        Answer. VISN 12 received $17.5 million in CARES funding with $1.5
    million set aside to fund design work for additional VISN 12 CARES
    projects. The remaining $6 million will be allocated to other approved
    CARES projects.
                               homeland security
        Question. VA's Fourth Mission is to serve as a backup to the DOD
    healthcare system in times of national emergency. What does VA propose
    to spend in 2003 to prepare for this mission?
        Answer. VA's Preparedness Review Working Group identified a need to
    provide direct interface and exchange of data with the DOD patient
    evacuation system to be better prepared to assess hospital capability
    and capacity, track active duty casualties transferred to VA, and
    maintain casualty data within VA's VISTA system while military active
    duty patients are receiving treatment within VA's healthcare system.
    The report also recommended providing 1-800 access capability for
    information and location of military patients.
                                   geriatrics
        Question. The fiscal year 2002 Senate VA-HUD Report directed VA to
    report on the feasibility of extending geriatric fellowships to 2
    years, and to make additional recommendations to make geriatric
    fellowship more competitive with the private sector. The Committee
    appreciates receiving this report.
        While the report noted that VA had created a specialized 2 year
    geriatric fellowship, but did not address the issue of making all
    geriatric fellowships 2 years. What is the VA's response to this
    specific issue?
        Answer. VA supports two programs for physician training in
    geriatrics. The first of these is geriatric medicine residency (or
    fellowship) positions in Accreditation Council for Graduate Medical
    Education (ACGME)-accredited subspecialty residency training programs.
    The second program that VA supports is its Post-residency Special
    Fellowship Program in Advanced Geriatrics. VA established this program
    when some VA and non-VA geriatric leaders expressed concerns that 1
    year of geriatric medicine subspecialty residency training was
    insufficient to educate leaders in geriatrics. They asked VA to
    continue its residency training and to develop advanced geriatric
    medicine training opportunities. VA agreed. Continuing to fund ACGME-
    accredited geriatric medicine and geriatric psychiatry residency
    training positions, it also established a 2 year VA Special Fellowship
    Program in Advanced Geriatrics.
        VA believes that it is important to support both of these programs
    to meet the clinical needs of geriatric patients as well as to develop
    leaders in geriatrics for academic centers and health systems. The 1
    year clinical residency programs accredited by the ACGME provide the
    credentials necessary for practice in the specialty of geriatrics. The
    program length is set by the accrediting agency. The 2 year, VA post
    residency Advanced Geriatrics Fellowship Program develops geriatrics
    leaders for VA and the Nation.
        Question. What is the VA doing to actually implement the
    recommendations of the report?
        Answer. VA established its Post-residency Special Fellowship
    Program in Advanced Geriatrics in 2000. This program is for post-
    residency physicians who have completed ACGME-accredited subspecialty
    residency training in geriatric medicine or geriatric psychiatry and
    want to lead geriatrics in academic centers and health systems. Fellows
    receive 2 years of additional training in geriatric research, advanced
    education, and advanced clinical care. Fellows spend approximately 75
    percent of their time in geriatrics research and education and 25
    percent in advanced clinical care. In 2000, VA competitively selected
    seven Geriatric Research, Education, and Clinical Center (GRECC) sites
    to implement the Advanced Geriatrics Fellowship Program. The West Los
    Angeles/Sepulveda GRECC was selected as the hub site to coordinate
    fellowship activities. The first fellows were selected in 2001, and the
    second cadre will begin in 2002. The Hub site has coordinated
    curriculum development, recruitment and evaluation at the selected
    sites. Accomplishments include:
      --A coordinated series of recruitment activities has been undertaken.
      --A cadre of fellows have been recruited and participated in a
            nationally coordinated curriculum of geriatrics education.
      --A series of two-way interactive videos has been initiated.
      --Fellows have been provided with travel and tuition assistance to
            attend at least one national geriatrics meeting a year.
      --As fellows enter their second year of fellowship training, special
            attention will be paid to mentoring in career development and
            leadership development.
      --A plan for evaluation of the program has been developed and is
            underway
                                medical research
        Question. The budget request is $394 million. What does that buy?
        Answer. The 2003 request of $409 million will allow VA to fund
    2,780 research and development projects and 2,907 full-time
    equivalents. After adjusting for the CSRS and FEHB accruals of $15
    million, the request is $394 million. This request consists of a
    program increase of $23 million. This program increase includes $12
    million for payroll and inflation adjustments and $11 million for new
    research initiatives. The new research initiatives include the
    following:
      --Two new Quality Enhancement Research Initiative Centers.
      --Chronic disease management for Myocardial Revascularization On and
            Off Cardiopulmonary Bypass and Open Versus Endovascular Surgery
            for Abdominal Aortic Aneurysms.
      --New studies focused on ensuring homeless and minority veterans in
            rural areas receive equal access to health care and ensuring
            quality of care outcomes for primary care for diseases of
            particular importance in woman.
      --Diseases of the brain (e.g., Alzheimer's and Parkinson's) to
            include the following initiatives:
        --New Parkinson's Disease projects include stem cell and fetal
                transplantation research in animal models, advances in
                neuroimaging technology to monitor the progression of the
                disease, the role of neurotransmitters other than dopamine
                in Parkinson's Disease, gene therapy, and mechanisms of
                damage to nerve cells.
        --Neurorehabilitation researchers continue to capitalize on new
                findings surrounding the brain and its ability to
                reorganize following injury-ischemic or traumatic. Initial
                success utilizing constraint-induced therapies for
                restoration of upper limb functions in hemiplegic patients
                requires evidence to assure optimal clinical
                implementation. In addition, premliminary research into
                motor therapy for lower limb function and speech-language
                recovery, although not as advanced, is showing cause for
                optimism in the neurorehab community. The coupling of
                pharmacotherapies with physical therapy remains a course
                towards recovery of function that is promising, although
                not yet fully understood. An additional adjunctive therapy
                with promise is functional electrical stimulation (FES),
                which has only begun to be explored. Although intensive
                physical therapy shows promise for recovery, it also
                requires inordinate and expensive clinical resources.
                Robotic technology is seen as a solution, not only in
                response to manpower issues, but to delivering precise and
                consistent therapy, thereby enhancing improvement.
                Technology for the upper limb is under development with VA
                sponsorship. Similar lower limb technology is not as
                advanced. Finally, application of neurorehab approaches has
                only just begun to be studies for Parkinson's Disease, ALS,
                and Alzheimer's Disease.
        Other important areas that may receive additional funding include
    aging, micro technology, stroke, multiple sclerosis, chronic viral
    diseases, and patient outcomes in rehabilitative care.
        In addition to the $409 million in the Medical and Prosthetic
    Research appropriation, the Medical and Prosthetic Research program is
    supported with $401 million from Medical Care and $656 million from
    other Federal and private medical research organizations such as the
    Department of Defense, National Institutes of Health, and
    pharmaceutical companies. The $1.5 billion in total funding will allow
    VA to maintain research centers in the areas of Gulf War illnesses,
    diabetes, heart disease, chronic viral diseases (e.g., HIV/AIDS),
    Parkinson's disease, spinal cord injury, prostate cancer, depression,
    environmental hazards, and women's issues, as well as rehabilitation
    and Health Services Research and Development field programs.
        Question. How does VA prioritize research?
        Answer. VA currently focuses more than 99 per cent of its Medical
    and Prosthetic Research budget on its nine designated research areas:
    Aging and Age Related Changes, Acute and Traumatic Injuries, Chronic
    Diseases, Health Services and Systems, Mental Health, Military
    Occupational and Environmental Exposures, Sensory Disorders and Loss,
    Special (Underserved, High Risk) Populations, Substance Abuse.
        The Office of Research and Development receives input from multiple
    sources to prioritize research that will best meet the needs of the
    veterans population: the National Research Advisory Council, veterans
    service organization, other VA and VHA offices.
        Question. The budget request supports 3,167 FTE, the same as the
    2002 level. Why is the current estimate significantly lower--2,983 FTE?
        Answer. VA submitted a fiscal year 2002 budget request of $360.2
    million and 3,167 full-time equivalents (FTE). The fiscal year 2002
    current estimate of $371.0 million and 2,983 FTE is the result of
    fiscal year 2002 Congressional action, which supports the proposed
    increase in the fiscal year 2002 pay raise from 3.6 to 4.6 percent. The
    reduction of 184 FTE reflects the staffing requirement to maintain the
    mix of projects estimated for fiscal year 2002.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

                                  collections
        Question. I believe that VA must improve its collections from
    veterans' private health insurers. GAO recently testified that ``long-
    standing problems in VA's revenue operations appear to persist, and
    when compared to private sector standards, VA's collections performance
    is poor.'' In fact, VA has over $700 million in outstanding
    receivables. First, how is VA improving its collection efforts? Second,
    what is VA doing to collect its outstanding receivables?
        Answer. For the past 4\1/2\ years VA has contracted with a private
    vendor to follow-up on third parties receivables over 90 days old. This
    contract has resulted in collections totaling $184 million at a cost of
    a little more than $4 million. The VHA Revenue Office is in the process
    of identifying requirements to develop a Request for Proposals (RFP) to
    outsource accounts receivable management of third-party accounts. We
    anticipate that multiple awards would be forthcoming from this effort
    and expect a September 2002 award. Several VISNs have outsourcing
    efforts in progress and others are in the process of soliciting bids.
        In addition, VHA has identified twenty-four action items to enhance
    revenue operations. Project Teams are currently implementing action
    items in the Billing, Coding, Insurance, Utilization Management and
    Accounts Receivable Management areas.
        Question. Some believe that VA should be able to collect more than
    $1.4 billion as projected in your budget request. Is this possible?
        Answer. The projected $1.4 billion includes $260 million for the
    proposed $1,500 deductible. If the $1,500 deductible is not
    implemented, the projected collection figure should be revised downward
    to $1.2 billion.

                                                  [Dollars in Millions]
    ----------------------------------------------------------------------------------------------------------------
                                                                                        Fiscal year     Fiscal year
                                                                    October-February  2002 projected  2003 projected
                                                                    fiscal year 2002    collections     collections
    ----------------------------------------------------------------------------------------------------------------
    MCCF..........................................................              380              805           1,084
    HSIF..........................................................                1              225             364
    Extended Care Revolving Fund..................................                0               20              40
                                                                   -------------------------------------------------
          Total...................................................              381            1,050           1,488
    ----------------------------------------------------------------------------------------------------------------

                         cares--visn 12 implementation
        Question. Last month, you made an announcement recommending the
    realignment of facilities in VISN 12. Your recommendation includes the
    closure of one of four Chicago medical centers and the construction of
    a new $40 million spinal cord and blind rehabilitation center at Hines.
    Your recommendation also includes other costs such as the creation of
    new community-based outpatient clinics. Do you have a cost estimate of
    the total amount of funds that VISN 12 will need to implement your
    recommendation?
        Answer. The costs for each option were identified in the VISN 12
    report. The three approved options have costs of: Option B--$71.4
    million, Option G--$33.8 million, and Option I--$7.6 million, for a
    total of $112.8 million. This figure reflects the order of magnitude
    costs for easily identifiable major capital needs. It will be upwardly
    adjusted as a result of the implementation plan. That plan will include
    the full spectrum of capital investment requirements to put into
    operation the approved options B, G, and I.
        Question. One of your press releases stated that VA expected to
    save an ``estimate $720 million over the next 20 years.'' Can you
    explain this cost savings estimate? How will the appropriations
    committee see the impact of these savings in future budget requests?
    Assuming no additional legislative mandates are enacted, can the
    appropriators expect the savings from CARES to translate into lower
    budget request needs?
        Answer. A substantial portion of the estimated savings will be
    generated through the eventual closure or substantial downsizing of the
    Lakeside VAMC facility. Operating costs for utilities and the buildings
    and grounds, salaries for in-direct patient care staffing, and clinical
    program efficiencies all contribute to the savings. In addition, there
    is a potential for a revenue income if VA can successfully identify an
    Enhanced Use Lease partner for the property. Other savings accrue
    through a comparison of the life cycle costs for each option over the
    20 year period calculated. Cost savings will be re-invested throughout
    the VISN 12 facilities and CBOCs in order to increase clinical staffing
    (reduction of waiting times) and provide otherwise limited or difficult
    to obtain services to veteran patients. Two new CBOC's are planned to
    be established in order to provide more accessibility to VA health care
    services for Veterans.
                               cares--next steps
        Question. With the completion of CARES in VISN 12, I would like to
    hear about the next phase of CARES. VA's original plan was to implement
    the CARES studies in three phases. VA's fiscal year 2003 budget
    justifications specifies that after completing VISN 12, Phase II would
    be carried out, covering 8 networks, and then complete CARES for the
    rest of the Nation. Are your current plans to still carry out CARES in
    these Phases? What are your expected timeframes in completing these
    Phases?
        Answer. VA's current plans are to complete the CARES planning
    process in all of the remaining Networks in Phase II. The current
    expected timeframes call for the planning process to be initiated in
    the Networks in 2002. Networks would develop their proposed plans under
    guidance from VACO and with actuarial and other data. At the end of
    October, their proposed plans would be sent to VACO. Following a period
    of review in VACO, a CARES commission would review the plans, hold
    public hearings, take public comment and ultimately provide final
    recommendations to the Secretary. The Secretary would then make
    decisions on those recommendations and announce them sometime in Summer
    2003.
        Question. I am concerned about VA's in-house ability to perform the
    studies. Two questions: one, do you have the in-house expertise and
    staffing resources to perform the CARES studies and two, how will you
    ensure that the studies are objective? I am worried that if the VISN
    directors are in charge of conducting their own studies, there will be
    a conflict-of-interest.
        Answer. The VA will contract for actuarial studies to project
    veteran enrollment for 20 years for each Network and facility. The VA
    has the in-house capability, which may in some specific situations or
    issues that arise, have to be supplemented by contractors in the other
    areas required for the CARES plans. Staffing in VACO has been approved
    by VA, and recruitment is underway.
        The studies will be objective for several reasons. First, the
    Networks will be given specific guidance and criteria which they must
    use in order to complete their plans. Secondly, the VA CARES Office
    will be reviewing Network plans to make sure that the guidance has been
    followed. Thirdly, VA is planning to use a CARES commission, which will
    also review all the plans, hold hearings and allow for public comment.
                               funding for cares
        Question. The last area of CARES that I would like to ask you about
    is funding. Your budget request only proposes $40 million to fund
    CARES. This is a $60 million reduction from the fiscal year 2002
    enacted level. I am concerned that when the CARES studies are
    completed, there will not be adequate funding available to pay for the
    realignment costs. Based on the small funding request for CARES, is it
    your expectation that very little if any at all CARES studies will be
    completed and implemented in fiscal year 2003? If you expect the
    studies to be completed in fiscal year 2004, can we expect a major
    budget request for CARES projects? Do we need to examine any changes in
    the funding process to take care of current and future CARES project
    needs?
        Answer. Implementation of the VISN 12 CARES study options will be
    fully underway in fiscal year 2003 and the requested funding is
    expected to be sufficient to cover any design or design and
    construction initiatives expected to be obligated during that fiscal
    year. The remaining CARES service delivery options are expected to be
    developed in fiscal year 2003 so only minimal design dollars for a few
    of those selections are expected to be needed. It is expected that
    fiscal year 2004 and future budget years will be when the major funding
    needs for CARES initiatives will result. There are no changes in the
    funding process for CARES needs known at this time. As always, ensuring
    that initiatives are both authorized and adequately funded will require
    clear and open communications between VA and both authorizing and
    appropriations committees.
                              construction funding
        Question. I am puzzled by the request for $94 million in the major
    construction account to fund four new seismic repair projects in
    California and another $130 million in the minor construction account
    to fund other projects. VA is proposing to rehabilitate these
    facilities without any CARES review. Further, in its February 2002 list
    of priority major medical construction projects, the four California
    facilities are ranked 1, 3, 5, and 8. (#2 is for an ambulatory care
    project in Cleveland and #4 is for general upgrades in Anchorage). To
    add to my confusion, VA justified the inclusion of these four seismic
    projects because they were ranked #1, #2, #3, and #7 on its list of 73
    identified ``Exceptionally High Risk'' facilities based upon a
    government-wide seismic review. Your staff has also indicated that,
    despite the expected decrease in patient population, visits, and bed
    needs at these four facilities, the main structures proposed to be
    upgraded will survive a CARES review.
        First of all, can you explain why VA continues to propose funding
    for capital improvements in Major and Minor Construction accounts while
    we are awaiting the restructuring plans from the CARES assessments? Why
    do we even have these separate priority lists instead of having one
    just based on CARES? Can you explain to me how these four projects were
    included in the budget request even though they do not all rank in the
    top four of any VA construction list I have seen? Second, what criteria
    are you using to make these exceptions to the CARES process? How big is
    this ``exceptions to CARES'' universe? Lastly, how do you plan to
    reconcile the funding of these exceptions with the planned CARES
    studies? Will an area such as San Francisco have any incentive to
    perform a legitimate CARES study if they believe that their projects
    will get funded outside the process?
        Answer. There are many large veteran population areas that are
    currently only served by single VA facilities. VA fully expects to
    maintain a viable presence in these areas even though the type of
    services may change over time as the veteran population ages and
    demands changing services. Infrastructure projects, like the seismic
    structural projects or projects that upgrade the electrical
    distribution system within an aged facility are meant to ensure a
    continued viable presence for whatever functional need is defined
    through the CARES process. The CARES process will assist in defining
    the types and quantities of services these facilities should be
    configured to house. In the case of a campus facility with a large main
    building and multiple smaller buildings, the expectation is that as the
    workload at those facilities decreases over the next 20 years, that
    services will be consolidated into the main facility structures, making
    many of the ``out buildings'' unneeded by VA. The `` incentive'' for a
    facility like San Francisco is that they will need future projects
    other than the seismic upgrade to reconfigure their internal spaces to
    efficiently meet the changing missions they will be assigned through
    the CARES ``enhanced services'' realignment.
                              va-dod cost-sharing
        Question. Another area that I believe needs some further
    exploration is cost-sharing arrangements with the Department of
    Defense. I am aware that VA and DOD have made some joint arrangements
    such as in the pharmaceutical area. GAO reported last year that VA and
    DOD saved more than $40 million in fiscal year 2000. I understand that
    you created your own internal task force to examine VA-DOD cost-
    sharing. Further, a Presidential Task Force was created last May by
    President Bush to improve coordination of health care delivery
    activities between VA and DOD in order to improve benefits and services
    for veterans. Could you elaborate on these cost-sharing efforts? What
    did your own internal task force accomplish? Also, I would like to hear
    your views on the Presidential Task Force and how you are supporting
    it.
        Answer. Section 3(e) of the VA-DOD Health Resources Sharing Act (38
    USC 8111) requires that ``any funds received through earnings in VA-DOD
    sharing agreements shall be credited to funds that have been allotted
    to the facility that provided the care or services.'' VA has followed
    this policy since the law was implemented. The law provides an
    incentive for VA facilities to enter into agreements with DOD and has
    benefited veterans by allowing facilities to provide services to
    veterans that would not otherwise have been available.
        While the primary focus of the law is to allow facilities to expand
    services for its beneficiaries, cost savings (cost avoidance) to the
    budget do occur, especially in the purchase of services. By spending
    less on goods and services facilities have more money available. VA
    purchased $22.6 million from DOD in sharing agreements in fiscal year
    2001 and estimates purchases of $22.9 million in fiscal year 2002 and
    $23.2 million in fiscal year 2002 and fiscal year 2003. VA provided
    reimbursement for VA/DOD sharing services of $38.6 million in fiscal
    year 2001 and estimates reimbursement of $39.6 million in fiscal year
    2002 and $41.3 in fiscal year 2003. However, VA purchases in facility-
    to-facility sharing are difficult to quantify and are quite small. For
    fiscal year 2001, VA purchased $20.4 million from DOD in local sharing
    agreements (about .09 percent of VA's fiscal year 2001 budget).
        VA-DOD cost savings can be documented through joint procurement
    efforts, primarily in pharmaceuticals. As of the end of February 2002,
    there were 54 joint VA/DOD joint contracts for pharmaceuticals; 37
    additional joint contracts are pending award. Sixteen joint contracts
    were not awarded due to the lack of cost savings to the government
    through their award. The total estimated cost savings in fiscal year
    2001 for both Departments from these contracts were $98 million ($80
    million for VA and $18 million for DOD.
        The VA/DOD Executive Council, co-chaired by the VA Under Secretary
    for Health and the Assistant Secretary of Defense for Health Affairs,
    serves as an umbrella organization for coordinating policy decisions
    between the two departments. Last year the Executive Council
    established a new Financial Management Work Group to review and make
    recommendations to reduce financial and billing practice barriers to
    interagency coordination. The Work Group meets regularly and has
    conducted a detailed review of reimbursement policies and practices
    between the VA and DOD. The Financial Management Work Group has
    identified those VA and DOD policies and practices requiring
    clarification or modification to remove reimbursement barriers and
    disincentives and developed recommendations for streamlined financial
    processes and practices.
        One of the identified barriers to increased Departmental
    collaboration, execution of agreements and contracts has been the
    negotiation process, more specifically pricing issues. During the
    1990's, flexibility was given to VA and DOD personnel to establish
    locally developed rates for medical sharing agreements. This resulted
    in the proliferation of rate setting mechanisms, as well as many
    independent rate structures for these agreements. To streamline
    practices between the two Departments the Financial Management Work
    Group is exploring development of a single payment schedule for
    exchange of services between the two departments. The discussions
    center on developing a national pricing methodology that would be
    regionally adjusted. The Work Group recently reported its progress to
    the VA/DOD Executive Council and the Joint Executive Councils meeting
    hosted by the VA Deputy Secretary and the DOD Under Secretary for
    Personnel and Readiness. A final recommendation on the policy and
    proposed methodology is anticipated in late 2002.
        As you know, President Bush established the President's Task Force
    to Improve Health Care Delivery for Our Nation's Veterans (PTF) by
    Executive Order 13214 on May 28, 2001. The PTF is comprised of 15
    commissioners led by two co-chairs. Support includes a professional
    staff headed by an Executive Director and the PTF has established seven
    work groups to review specific areas of interest. VA provides staff,
    administrative and budgetary support to the PTF, as well as requested
    briefings and information. Both VA and DOD have provided detailees as
    subject matter expert staff to the PTF.
        The PTF conducts monthly open meetings attended by the Task Force
    members and the public. VA and DOD have appeared before the PTF and
    have presented overview briefings on the VA and DOD health care
    delivery systems benefits packages and the DOD TRICARE program. The VA/
    DOD Executive Council Work Group Co-Chairs have provided the PTF staff
    with joint briefings on work group activities as requested. PTF members
    and/or staff have toured VA/DOD joint venture facilities in Alaska,
    Nevada, New Mexico, and Florida and plan multiple site visits around
    the country in the coming months.
                                  homelessness
        Question. I do not understand why there exists a significant
    population of homeless veterans on our streets. To address
    homelessness, I have been working with a number of my Senate
    colleagues, such as Senator Specter on the VA committee, to develop a
    more holistic Federal approach to prevent and end homelessness. One of
    the group's recommendations that was recently enacted was the
    reactivation and funding of the Interagency Council on the Homeless. I
    am please that Secretaries Martinez and Thompson are participating in
    this council but it is important that other agencies, including VA play
    a active role. Can you tell me how VA plans to participate in this
    Council? HUD Secretary Martinez is the current chair but the position
    rotates annually. Is this something that you would be interested in
    chairing?
        Answer. On December 21, 2002 President Bush signed the
    Comprehensive Homeless Assistance Act of 2001 into law (Public Law 107-
    95). Among the provisions this law calls upon VA, Housing and Urban
    Development (HUD) and the Department of Labor (DoL) to take cooperative
    actions to more fully address the problems of homelessness among
    veterans.
        Section 11 mandates that the Interagency Council on Homeless (ICH)
    ..''shall meet at the call of its Chairperson or a majority of members,
    but not less often than annually.'' The ICH held its first meeting and
    HUD Secretary Mel Martinez was elected Chair, Health and Human Services
    (HHS) Secretary Tommy Thompson was elected Vice Chair and Mr. Phillip
    Mangano was selected as ICH Executive Director. I look forward to
    working on the ICH and plan to both actively participate and will take
    a leadership role with its work.
        I would like to inform you that on April 9-11, 2002 VA-HHS and HUD
    co-sponsored a policy academy for State-level planning teams to improve
    coordination within State planning efforts to end chronic homelessness.
    This type of effort is exactly the kind of joint Federal and State
    coordination that will make meaningful progress toward ending chronic
    homelessness in America. VA will continue to support these types of
    activities that will improve coordination of service delivery.
        Public Law 107-95 also creates a fifteen member homeless advisory
    committee to provide recommendations to the Secretary of Veterans
    Affairs. I have appointed the committee members and we expect that
    committee to hold its first meeting in June, 2002. In addition, ex-
    officio members from the Departments of Defense, Labor, Housing and
    Urban Development, and Health and Human Services will actively
    participate. I am extremely pleased that these efforts, along with the
    tens of thousands that receive medical care and benefits from my
    Department is making a real difference in the lives of veterans and
    their family members.
               veterans equitable resource allocation (``vera'')
        Question. GAO recently reported that VA can make several
    improvements to its funding allocation to its networks. Although you
    concurred with GAO's findings and recommendations, it was unclear when
    you would make some of these improvements. Can you give me a sense of
    what changes to VERA you are considering and when they might go into
    effect? I would especially like to hear if you plan to include Priority
    7s in the formula and how you plan to address GAO's concerns about the
    use of the National Reserve Fund to supplement networks' funding
    allocation.
        Answer. The VERA Patient Classification Workgroup is currently
    reviewing the following potential VERA refinements for fiscal year 2003
    implementation and beyond:
      --Inclusion of Priority 7c veterans in the Basic Vested Care
            component of VERA,
      --Use of multiple pricing groups, expanding from 3 to 10 price
            groups,
      --Use most recent 1 year workload versus 3 years for Basic Care and 5
            years for Complex Care,
      --Update the fiscal year 1995 allocation split between Basic and
            Complex Care Price Groups to reflect changes in the
            distribution of actual costs between the two groups,
      --Use of reinsurance threshold for high cost patients, and
      --Use of Diagnostic Cost Groups with reinsurance threshold and
            Complex Care flags.
        The workgroup is expected to evaluate the above issues and complete
    its recommendations for refinements to the fiscal year 2003 VERA
    methodology for review by the VHA Policy Board by July 2002.
        Each year since fiscal year 1999, a supplemental funding process
    has adjusted VERA allocations. The need for adjustments to the VERA
    model does not necessarily mean that the model is flawed or that a
    particular VISN is inefficient or mismanaged. This does not mean that
    incentives to improve do not exist, however; a VISN could be very
    effectively managed but still require a VERA adjustment because of one
    or more factors. The reasons for the supplemental funding adjustments
    vary by network. However, some of the factors involved include: Amount
    of VHA budget relative to its workload; policy changes in the VERA
    model, workload changes in the VERA model, and variation in actual
    budget year execution from planning estimates for: (1) other revenue
    from 1st and 3rd party health insurance collections, (2) other
    anticipated reimbursements, (3) projected workload changes and
    estimated expenditure, and fixed infrastructure costs that cannot be
    changed in the short-term.
        Additionally, during the course of the fiscal year, VHA reviews the
    status of each network in terms of its projected workload and revenues;
    including VERA, 1st and 3rd party collections, and reimbursements;
    relative to actual and projected workload and expenses.
        Over the course of this year, and the next 5 years, the refinements
    to VERA should respond to various stakeholder concerns; be more
    consistent with enrollment policy; improve an existing system that is
    widely understood and independently validated; and continue to tie
    resources to clinical performance (i.e., patient workload). VHA is
    committed to ensuring that efficiently managed networks are not
    disadvantaged as a result of anticipated VERA changes and those that
    are not as efficiently managed will improve over time.
                               claims processing
        Question. Over the past 2 years, VA has hired hundreds of new staff
    to improve the processing of claims benefits. But, despite the new
    staff, VA still projects the average number of days to process claims
    to increase from 181 days in 2001 to 208 days in 2002. Can you explain
    why your projection is expected to increase?
        Answer. The primary reason for the increase in the average number
    of days to process claims is a significant increase in the volume of
    incoming work. The increased volume is attributed to the following
    factors:
      --The review of more than 98,000 previously-denied cases, as well as
            230,000 claims in our pending inventory to ensure compliance
            with the Veterans Claims Assistance Act (VCAA).
      --VA's expanded outreach efforts to separating service members
            (Benefits Delivery at Discharge initiative).
      --Receipt of 66,000 Type 2 diabetes claims based on exposure to Agent
            Orange.
      --The requirement to review 13,000 previously-adjudicated diabetes
            claims under the Nehmer stipulation. (In the case of Nehmer v.
            VA, plaintiffs' attorneys and VA agreed, in a 1991 Stipulation
            and Order, on a process for applying an earlier than usual
            effective date for certain claims for benefits based on Agent
            Orange exposure. As a result of court decisions in the Nehmer
            case, VA is required to re-adjudicate over 13,000 diabetes
            claims.)
        All of the VCAA claims have now been added to the inventory.
    Following the initial surge of Type 2 Diabetes claims, the incoming
    volume of Diabetes claims is expected to taper off. We have also
    completed a significant portion of the Nehmer reviews.
        At the same time, the aggressive steps we have taken to increase
    rating production have had a positive result. In the latter months of
    fiscal year 2001 and into this year, production of rating decisions
    significantly increased--which is the key to reducing the claims
    backlog and improving the timeliness of our decisions. From October
    2001 through February 2002, VBA decided over 294,000 cases for a 5-
    month average of 58,800. This represents a 47 percent increase over
    fiscal year 2001 production levels. We expect our production to
    continue to increase as many of our recently hired employees gain
    additional experience and we begin to implement the recommendations of
    the Claims Processing Task Force.
        We believe our increased production levels and the Task Force
    initiatives will now enable us to make major inroads into the pending
    inventory. Our goal is to reduce the pending rating inventory to
    315,000 claims by the end of this year. Even though we project major
    reductions in our pending inventory, the average days to complete will
    continue to increase as we focus on completing the oldest claims in our
    inventory.
        Question. Do you believe that VBA has enough staff or do you
    anticipate more hiring in the next few years?
        Answer. VBA secured funding during fiscal year 2001 to support the
    hiring and training of more than 1,000 new employees. The addition of
    this many employees in such a short period of time was critical to the
    Administration's ability to manage the increased workloads resulting
    from the Veterans Claims Assistance Act and the addition of Type 2
    diabetes to the list of Agent Orange presumptive conditions. A hiring
    initiative of this magnitude strains VBA's training infrastructure and
    places a burden on its core of senior-level field employees.
        VBA must now continue to focus on maximizing the impact of this
    hiring and ensure employee retention. As these recent hires are
    assimilated into the organization and gain experience, we fully expect
    these employees to make a significant contribution toward achievement
    of our claims processing goals. Essentially, this is a period of
    stabilization as VBA assesses the recent hiring and training of the new
    employees and implements the Task Force recommendations. Once we
    achieve a more stable situation, we will be able to make a reasoned
    assessment of our future staffing needs.
        However, we do know that our hiring and training will continue
    based on the large numbers of decision-makers eligible to retire over
    the next few years. Therefore, although our fiscal year 2002 and fiscal
    year 2003 budgets maintain relatively stable staffing levels, our plans
    call for significant hiring to replace losses due to retirement and
    other factors. Even with our aggressive hiring over the past 2 years,
    26 percent of VBA's current workforce (nearly 3,350 employees) are now
    eligible or will be eligible to retire in the next 3 years. Based on
    experience, we know that at least 25 percent of those eligible to
    retire will do so, and that a certain percentage of non-eligible
    personnel will leave the Department as well. These figures demonstrate
    how critical our succession planning efforts remain.
                 physicians pay and medical school affiliations
        Question. With changes being considered for physicians pay in order
    to recruit and retain these professionals to meet the health care needs
    of veterans, how does the dual compensation of many of these physicians
    by the VA and the universities affect the achievement of VA's health
    care mission? As you prepare a legislative proposal for physicians pay,
    are there any changes you are considering that might affect this
    relationship?
        Answer. The working relationship between the Department and our
    university affiliates is a close one, resulting in numerous benefits to
    VA and its veterans, as well as the universities. Among the advantages
    that VA derives are the exposure to and the availability of the latest
    developments and innovations in health care treatments, technology,
    medical research, and procedures. The compensation that physicians
    receive for their work as faculty appointments is fair compensation for
    their duties in resident education and supervision, and assists VA in
    offering competitive salaries, as well as a recruitment tool to attract
    those professionals with an interest in academic medicine and teaching.
        At the same time, VA is aware of the potential for divided
    loyalties, or at least the perception that VA's interests are not
    paramount. The affiliation relationship is indeed a matter for review
    and consideration in developing a legislative proposal. If physicians
    are not able to receive compensation from the universities, VA must be
    able to offer significantly higher salaries in order to recruit and
    retain high quality clinicians, teachers, and leaders in many
    locations.
                               homeland security
        Question. What preparedness initiatives are underway and how much
    do you expect VA to spend in fiscal year 2002 and 2003 for these
    initiatives? Do you expect to receive any funds from HHS or FEMA? How
    much money do you need to address adequately VA's homeland security
    needs?
        Answer. Based on recommendations contained in the Preparedness
    Review Working Group report, the Department is pursuing the following
    critical initiatives:
      --Pharmaceutical and medical supply caches
      --Personal Protective Equipment and training for VA medical centers
      --Education, training and exercises for staff to respond to WMD
            attack
      --Upgrade and train VA security forces
      --Establish a centralized Incident Reporting Center
      --Upgrade and test back up systems of Veterans Benefits
            Administration's three technical centers and upgrade
            communications
      --Establish mirror ITSS server farm to maintain mission readiness
      --Establish an Office of Operations, Security and Preparedness to
            coordinate Departmental emergency preparedness programs
      --Plan to replicate VBA IT infrastructure
      --Upgrade VA primary continuity of operations site
      --Develop web-based tracking system and establish 1-800 number for
            information on location of military patients
      --Develop web site or toll free number for referral of severely
            disabled service members to Vocational Rehab & Employment
            Services
        VA will be spending $54.54 million in fiscal year 2002. We have
    projected funding requirements of $92 million for fiscal year 2003.
    VA's fiscal year 2003 Budget Request includes $55 million for Emergency
    Preparedness in Medical Care. VA has been meeting with officials at HHS
    and will meet with FEMA officials to brief them on VA emergency
    preparedness capabilities.
                          intellectual property rights
        Question. What is the status of the agreements being reached with
    medical schools? How many are there? Are they in compliance with the
    law (Bayh-Dole Act)? Will these be put into place with all schools?
        Answer. VA continues to seek Cooperative Technology Administration
    Agreements (CTAA) with its affiliated universities. These agreements
    permit co-ownership between VA and its affiliates for inventions
    resulting from research that used VA assets (appropriated dollars,
    including grants to investigators; salaries; and laboratory
    facilities). VA has established CTAAs with 36 universities since it
    began this initiative less than 2 years ago. These agreements are
    consistent with the requirements of the Bayh-Dole Act. Inventions
    developed through NIH and VA funded research can be assigned jointly to
    VA and the affiliated university.
        VA would prefer to establish CTAAs with all affiliated universities
    because these agreements facilitate local cooperation, strengthen long-
    term affiliations, and recognize fairly the VA's role in research and
    innovation. However, these agreements on intellectual property are not
    a required component of the local VA and individual university
    affiliations. The Administration is considering legislation that would
    codify CTTAs between VA and its affiliate universities.
                                     ______

                   Questions Submitted by Senator Tom Harkin

        Question. Mr. Secretary, in the past year all the veterans
    hospitals and clinics in Iowa have either stopped taking new patients
    or had delays of several months in scheduling new appointments. Can you
    tell me the current wait for appointments for new (non-emergent)
    patients at each of Iowa's facilities, the current plans for improving
    the situation, and how long you anticipate waits will be when those
    plans are implemented?
        Answer. To date, the Iowa City VAMC has allocated resources to
    activate plans developed to meet the unprecedented veteran care demand.
    Additional exam room space has been created, providers have been hired,
    and other numerous actions are currently taking place to enable the
    Iowa City VAMC and its associated CBOCs to see the veterans on the
    waiting list as soon as possible. Existing providers have been able to
    absorb additional patients into their current panels. A New Patient
    Clinic at the Iowa City VAMC started seeing patients on January 28,
    2002, where two providers continue to see 16 new patients per day.
    Three new providers have been hired, and recruitment is currently
    ongoing for a fourth provider for Iowa City and/or the CBOCs.
    Contracting options are also being considered at some of the smaller
    CBOCs. We expect all veterans on the waiting list to have an initial
    appointment by the end of September 2002.
        The VA Central Iowa Health Care System Primary Care Service Line
    continues to clinically review new enrollees for emergent and non-
    emergent care at the Des Moines, Iowa division. Every effort is made to
    accommodate the veteran's choice for the primary site of care, i.e., a
    community based outpatient clinic (CBOC) or the VA medical facility in
    Des Moines or Knoxville, Iowa. The average wait time for non-emergent
    care at the Des Moines VAMC is 73 days; the Knoxville VAMC is 64 days;
    the Mason City CBOC is 67 days; and the Fort Dodge CBOC is 56 days.
    Primary care staff continues to manage unprecedented growth within
    appropriated funding by evaluating systematic approaches to reduce wait
    times using advanced clinic access' concepts to help predict and
    respond to daily demand for care and by maintaining adequate staffing
    levels through recruitment of employees as vacancies occur and the use
    of Locum Tenens staff when employee recruitment is not successful.
        Question. Can you also compare the waits for appointments for new
    non-emergent patients in each of the VISN's?
        Answer. The following information on new patients is provided for
    each VISN as of February 2002.

    ----------------------------------------------------------------------------------------------------------------
                                                                         COMBINED
                        VISN                     AUDIOLOGY  CARDIOLOGY  PRIM/CARE   EYE CARE  ORTHOPEDICS   UROLOGY
    ----------------------------------------------------------------------------------------------------------------
    1..........................................       55.2        27.3       53.8       64.1        38.3        34
    2..........................................       39.2        30         39.3       48.4        25          39.7
    3..........................................       47.5        52.6       57.3       66.4        24.4        36.6
    4..........................................       49.5        33.7       55.9      101.7        52          42.8
    5..........................................       26.8        27.7       39         43.1        27.6        27.6
    6..........................................       30.2        34.4       60.6       95.7        48          51.5
    7..........................................       34.2        33.3       65.9       61.8        30.9        36.2
    8..........................................      109.4        37.4       67.9       73.8        34.7        47.1
    9..........................................       56.8        30.7       81.7       78.8        39.8        49
    10.........................................       38.4        32.6       49.1       79.5        41.2        74
    11.........................................       43.5        36.4       64.2       72.2        38.1        37
    12.........................................       59.6        39.8       55        103.7        31.9        55.3
    15.........................................       57.2        30.6       63.3       91.4        50.5        40.5
    16.........................................       44          33.1       53.3       70.4        28.5        41
    17.........................................       19          38.4       52.8       64.5        58.3        54.4
    18.........................................       28.5        41.3       69.6       89.7        50.5        43.5
    19.........................................       47          36.1       61.1       57.1        54.2        40.8
    20.........................................       34.8        21.4       35         51.7        28.9        55.5
    21.........................................       37.2        32.4       55.4       66.4        61.7        40.1
    22.........................................       64.2        47.3       43.9       64.1        19.4        60.3
    23.........................................       37.6        35         76.8      161.1        45.4        41
    Nat'l......................................       53.4        35.7       58.7       77          38.6        45.5
    ----------------------------------------------------------------------------------------------------------------

        Question. A recent GAO report found that the VERA model is unfairly
    hurting several VISN's and examined the effects of including Priority 7
    patients, using more patient categories, and using more recent data to
    determine the distribution. A RAND study looked at other issues in the
    VERA model. Can you tell me what changes, if any, you plan to make to
    the VERA model in distributing fiscal year 2003 funds? Please also give
    me any analysis the VA has done on how changes to the VERA model would
    affect the distribution of health care funds.
        Answer. The VERA Patient Classification Workgroup is currently
    reviewing the following potential changes to VERA for fiscal year 2003
    that will address the issues raised in the recently completed (February
    2002) GAO evaluation of VERA. The workgroup is expected to finalize its
    recommendations for refinements to the VHA Policy Board by July 2002.
      --Inclusion of Priority 7c veterans in the Basic Vested Care
            component of VERA
      --Use of multiple VERA pricing groups, i.e., increase from three to
            10 pricing groups
      --Update the fiscal year 1995 allocation split between Basic and
            Complex Care Price Groups to reflect changes in the
            distribution of actual costs between the two groups
      --Change the basis for estimating VERA Basic and Complex Care
            workload to a 1 year actual compared to the current 3 year for
            Basic and 5 year forecast for Complex
      --Use of a re-insurance threshold in the VERA methodology for high
            cost patients
      --Use of Diagnostic Cost Groups (DCGs) with a reinsurance threshold
            and Complex Care flags
        In addition, the RAND Corporation's VERA study is in its second
    phase and is to be completed by September 2002. The Phase II VERA study
    is addressing a quantitative analysis of the VERA issues identified in
    its Phase I study to include: improved case-mix adjustment; geographic
    differences in prices paid for non-labor inputs and contract labor
    costs; the impact of teaching and research; and, the impact of the
    facilities' physical plants.
        Various VERA simulations for fiscal year 2003 are being estimated
    based on potential refinements. Definitive fiscal year 2003 VERA
    distributions will depend on the Medical Care appropriation passed by
    Congress and the VERA refinements approved by the VHA Policy Board.
        Question. I often hear reports that while the veterans' health
    facilities in Iowa and nearby States have severe shortfalls of funds,
    other areas have (and are keeping) large surpluses. Can you tell me
    what the shortfall or surplus was for each VISN in fiscal year 2001 and
    what is anticipated in fiscal year 2002?
        Answer. To determine whether a network has a shortfall or surplus,
    if any, VHA reviews each network's financial status in terms of
    projected revenues including VERA, 1st and 3rd party collections and
    reimbursements, relative to actual and projected workload and expenses.
    This analysis is what drives the VERA adjustment process. In fiscal
    year 2002, as a result of this process, the five networks received a
    VERA adjustment (supplemental): VISNs #1, #3, #12, #13 and #14 (VISN#
    13 and VISN #14 are now VISN #23).
        The ``Summary of the VERA Adjustments, fiscal year 1999-fiscal year
    2002'' table indicates Iowa's network (previously VISN #14; now VISN
    #23) received supplemental funding in each of the past 3 fiscal years.

       SUMMARY OF THE VERA ADJUSTMENTS, FISCAL YEAR 1999-FISCAL YEAR 2002
                              [Dollars in millions]
    ------------------------------------------------------------------------
                                                      Fiscal year
    VISN               Name              -----------------------------------
                                            1999     2000     2001     2002
    ------------------------------------------------------------------------
       8 Bay Pines, FL                     $4.0  .......  .......  .......
       9 Nashville, TN                      5.0  .......  .......  .......
       3 Bronx, NY                      .......    $66.2    $73.8   $128.5
      13 Minneapolis, MN                .......     14.7     44.7     43.9
      14 Lincoln, NE                    .......      9.8     48.3     32.9
       1 Boston, MA                     .......  .......     53.2     41.3
      12 Chicago, IL                    .......  .......  .......     20.8
                                       -------------------------------------
               Total                        9.0     90.7    220.0    267.4
                                       =====================================
         Percent of Total System-Wide       0.1      0.5      1.2      1.5
          Allocation
    ------------------------------------------------------------------------

        The VERA methodology is workload driven and networks receive
    funding allocations commensurate with three workload components, i.e.,
    Basic Vested Care, Basic Non-Vested Care, and Complex Care. A Network's
    total revenues include VERA distributions derived from the Medical Care
    appropriation, 1st and 3rd party health insurance collections, and
    other anticipated reimbursements. A network can retain all collections
    and reimbursements, and has the incentive to increase non-appropriated
    revenues each year. As shown in the fiscal year 1996-fiscal year 2002
    VERA Allocations with Adjustments and Estimated Receipts'' table, VISNs
    #13 and #14, now VISN #23, are rated at about the national average
    increase for the period fiscal year 1996-fiscal year 2002. The national
    average increase of VERA allocations with

    adjustments and estimated receipts for fiscal year 1996-fiscal year
    2002 is 32.89 percent; VISN 13 had a 32.78 percent increase and VISN 14
    had a 29.52 percent increase.

                                                  TABLE 20: FISCAL YEAR 1996--FISCAL YEAR 2002 VERA ALLOCATIONS WITH AdJUSTMENTS AND ESTIMATED RECEIPTS
                                                                                          [Dollars in millions]
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Fiscal year   Fiscal    Fiscal    Fiscal    Fiscal    Fiscal    Fiscal                                 Percent Changes
                                                    1996       year      year      year      year      year      year   ----------------------------------------------------------------------------
    VISN                 Network                Allocations    1997      1998      1999      2000      2001      2002      Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     Fiscal
                                                    And      VERA and  VERA and  VERA and  VERA and  VERA and  VERA and  year 1996- year 1997- year 1998- year 1999- year 2000- year 2001- year 1996-
                                                  Receipts   Receipts  Receipts  Receipts  Receipts  Receipts  Receipts     1997       1998       1999       2000       2001       2002       2002
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
       1Boston                                     $856        $848      $854      $821      $853      $936      $965     -1.02       0.78      -3.89       3.91       9.72       3.09      12.68
       2Albany                                      438         435       441       431       478       516       527     -0.68       1.32      -2.12      10.81       7.94       2.18      20.38
       3Bronx                                     1,024       1,019     1,021       994     1,010     1,038     1,094     -0.48       0.16      -2.61       1.57       2.84       5.38       6.87
       4Pittsburgh                                  776         781       819       828       901       988     1,004      0.53       4.85       1.21       8.72       9.71       1.61      29.31
       5Baltimore                                   426         444       484       489       527       575       590      4.21       9.00       1.15       7.74       9.17       2.48      38.48
       6Durham                                      687         713       749       754       828       893       924      3.68       5.12       0.67       9.77       7.88       3.50      34.49
       7Atlanta                                     781         819       896       922       983     1,057     1,113      4.54       9.83       2.88       6.62       7.49       5.27      42.52
       8Bay Pines                                   962       1,021     1,113     1,161     1,339     1,427     1,535      6.06       9.03       4.34      15.34       6.56       7.59      59.54
       9Nashville                                   691         703       741       746       811       857       897      1.76       5.37       0.69       8.74       5.58       4.76      29.86
      10Cincinnati                                  513         533       558       574       639       682       717      3.86       4.78       2.95      11.32       6.66       5.14      39.87
      11Ann Arbor                                   656         659       665       687       726       794       805      0.39       0.97       3.36       5.58       9.38       1.43      22.72
      12Chicago                                     839         832       840       820       868       928       948     -0.78       0.91      -2.38       5.87       6.95       2.13      13.02
      13Minneapolis                                 420         428       443       455       474       536       557      1.96       3.43       2.69       4.17      13.28       3.91      32.78
      14Lincoln                                     293         290       294       301       324       374       380     -1.18       1.35       2.59       7.64      15.50       1.39      29.52
      15Kansas City                                 587         618       645       635       669       717       760      5.25       4.41      -1.56       5.36       7.23       6.00      29.54
      16Jackson                                   1,077       1,139     1,245     1,283     1,434     1,497     1,555      5.76       9.30       3.08      11.73       4.39       3.90      44.40
      17Dallas                                      592         630       688       687       774       831       883      6.32       9.17      -0.13      12.72       7.39       6.21      49.04
      18Phoenix                                     495         528       579       597       715       752       766      6.58       9.67       3.16      19.64       5.25       1.84      54.62
      19Denver                                      368         386       412       407       449       488       512      4.82       6.79      -1.27      10.28       8.70       4.95      39.05
      20Portland                                    589         626       681       704       789       834       870      6.38       8.64       3.51      11.95       5.73       4.36      47.77
      21San Francisco                               690         724       755       773       850       929       977      4.93       4.29       2.29      10.00       9.35       5.13      41.54
      22Long Beach                                  903         921       966       957     1,000     1,076     1,106      2.00       4.88      -0.95       4.51       7.60       2.84      22.54
                                             -------------------------------------------------------------------------------------------------------------------------------------------------------
              VHA Totals                         14,664      15,092    15,886    16,028    17,439    18,726    19,487      2.92       5.27       0.89       8.81       7.38       4.06      32.89
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
        Note: The fiscal year 1998 MCCF totals include fiscal year 1997 4th quarter collections. The fiscal year 2002 MCCF and Reimbursement figures represent projected collections. The numbers
          may not add due to rounding. Fiscal year 1999 includes VERA plus 20 million earmarked by the Congressional Appropriations Conference Committee for Network 3. Fiscal year 1999 includes
          VERA plus adjustments for newly decentralized programs for networks which exceed the 5 percent limitation. Fiscal year 1998, fiscal year 1999, fiscal year 2000 and fiscal year 2001
          include supplemental funding adjustments. Fiscal year 2000 figures have been adjusted to reflect the centralized funding of Prosthetics for fiscal year 2001. Fiscal year 2002 includes
          the VERA adjustments for 5 networks. Fiscal year 2001 figures have also been adjusted to reflect the rescission (43 million).

        Question. According to press reports last year, the VA health care
    system was short $400 million for fiscal year 2002. President Bush
    reportedly promised to make up some of that shortfall, but has not sent
    us a request for additional funds or reprogramming of funds. Can you
    tell me how large is the current estimated shortfall, whether you will
    be requesting additional funds for fiscal year 2002, how those funds
    will be distributed, and how else you will make up the shortfall?
        Answer. Based on the continuation of full enrollment, VHA
    determined there would be a shortage of over $400 million in fiscal
    year 2002, after available resources were subtracted from projected
    expenditures. By taking additional management actions that will lessen
    expenditures, it is estimated that the shortage will be reduced to $142
    million, which is the amount related to the decision to continue
    enrolling new Priority 7 veterans. To make up the difference between
    any shortfall and the anticipated supplemental, VHA anticipates savings
    from a multi-year effort to improve standardization and compliance in
    the procurement of equipment, pharmacy, and medical supplies. Other
    savings are expected from program efficiencies related to new criteria
    to assess community-based outpatient clinics and centrally managed
    programs.
        VA made a request to the Administration for supplemental funding of
    $142 million that was forwarded to Congress in on March 21, 2002. VA
    can provide health care to an estimated 143,039 Priority 7 new
    enrollees during fiscal year 2002 with $142 million in supplemental
    funding. This will ensure VA has health care funding consistent with
    the President's decision to keep VA veterans' enrollment open for all
    veteran health care. The $142 million will be distributed based on each
    VISN's updated Priority 7 Basic Vested workload.
        Question. Many of our veterans seek care at VA hospitals because of
    the excellent pharmacy benefits, sometimes even if they have another
    primary care physician. As you know, our elderly on Medicare do not
    have coverage for prescription drugs. Would it relieve some of the
    burden on the VA if Congress passed a real prescription drug benefit in
    Medicare?
        Answer. Providing a prescription drug benefit for Medicare
    beneficiaries would certainly have some impact on the VA, however exact
    impact is currently unknown. Veterans come to the VA for a number of
    reasons besides the fact that VA provides services that aren't covered
    by Medicare. VA health care integrates a full continuum of care for
    veterans of all ages, including mental health services and prescription
    drugs. VA also emphasizes preventive care and leads the nation in many
    measures of performance in this regard. VA also provides many services
    that are tailored to meet the needs of service-disabled veterans. So,
    in addition to the economic factors, we believe many patients come to
    VA because of the quality of care that we provide.
                                     ______

                   Questions Submitted by Senator Ted Stevens

        Question. First, to qualify for the veterans home purchase rate
    reduction, a veteran must have left active duty military service prior
    to 1977. This provision cuts off many younger veterans who served in
    the Vietnam and Persian Gulf Wars and other conflicts such as Granada
    and Panama. In addition, I am told the provision will lapse in 2007 so
    that many veterans will no longer be eligible for the program after
    2007 unless they have been out of the service for more than 30 years.
    This 30-year limitation needs to be removed so that the five States
    currently participating in the program can serve more veterans and to
    end this discrimination against younger veterans. Can we get your
    support in trying to rectify this discriminatory treatment for younger
    veterans who need the one percent rate reduction allowed under the
    program to be able to afford homes?
        Answer. We are aware that the basic criteria for Alaska Housing
    Finance Corporation (AHFC) Veterans Mortgage Program (VMP) are that the
    veteran must have entered the service prior to 1977 and cannot have
    been discharged for more than 30 years. AHFC requires that when
    veterans apply to them for a loan, they submit a VA issued Certificate
    of Eligibility along with their DD214 so that it can be determined when
    they went into the military and what date they were discharged.
        However, this program is administered by AHFC, not VA. Therefore,
    we have no authority over the provisions of the program.
        Question. My next question deals more directly with Alaska. Alaska
    will soon reach the maximum amount it can bond for under the veterans
    rate reduction program based on both State and Federal law. We need the
    Federal cap lifted so that we can serve more veterans in our State.
    Alaska State officials tell me that the issue of the State's internal
    bonding limit will go before the voters of Alaska this fall as a bond
    vote to increase the State authorization level. However, we also need
    the overall Federal cap lifted. Alaska has the most veterans per capita
    of any State and we are competing with huge States like California and
    Texas for these limited dollars. Can we expect your support in trying
    to raise the amounts that can be bonded for under this program?
        Answer. VA has no knowledge of or authority with respect to a
    Federal cap that may exist on bond issues.
                                     ______

                   Questions Submitted by Senator Tim Johnson

        Question. There is growing concern in South Dakota about budget
    shortfalls in the VA for fiscal year 2002. While there have been
    attempts to address the budget shortfall through management
    efficiencies, it appears very unlikely these steps will be enough to
    address the budget deficit. With this in mind, will there be an
    Administration request for a VA health care supplemental for fiscal
    year 2002? If so, how much will the Administration request? Will this
    request cover the entire budget shortfall in States like South Dakota?
        Answer. When the President made the decision to continue open
    enrollment, it was understood that adequate funds would be made
    available to support his decision. Therefore, VA made a request to the
    Administration for supplemental funding of $142 million, which was
    forwarded to Congress in on March 21, 2002. VA can provide health care
    to an estimated 143,039 Priority 7 new enrollees during fiscal year
    2002 with $142 million in supplemental funding. This will ensure VA has
    health care funding consistent with the President's decision to keep VA
    veterans' enrollment open for all veteran health care. If received, the
    $142 million will be distributed based on each VISNs updated Priority
    7c Basic Vested workload.
        To make up the difference between any shortfall and the anticipated
    supplemental, VHA anticipates savings from a multi-year effort to
    improve standardization and compliance in the procurement of equipment,
    pharmacy, and medical supplies. Other savings are expected from program
    efficiencies related to new criteria to assess community-based
    outpatient clinics and centrally managed programs. In addition, on
    February 25, 2001, the Acting Under Secretary for Health approved the
    transfer of $162 million of centrally managed program funds for
    distribution to all VISNs. Of this amount, VISN #23 received $7.2
    million (of which old VISN #13 received $4.4 million and old VISN #14
    received $2.8 million in additional funds).
        Question. I am very concerned that efforts to address the budget
    shortfall within VISN 23 is starting to have a negative impact on
    patient care. For example, there are ongoing discussions regarding the
    surgical unit at the Hot Springs VA Medical Center. The Hot Springs
    surgical unit has had difficulty recruiting and retaining professional
    staff. One of the proposals under consideration is to close the Hot
    Springs surgical unit to all but minor, outpatient procedures and move
    the remaining surgeries to Ft. Meade VA Medical Center. Can you update
    me on the current situation with the Hot Springs VAMC surgical unit and
    can you offer solutions as to how we can keep the surgical unit fully
    operational?
        Answer. The surgical unit at the VA Black Hills Health Care System
    (BHHCS), Hot Springs division, is currently short two nurses; one
    operating room nurse and one nurse manager. The VA BHHCS has developed
    a very aggressive and creative plan to fill these positions. In
    addition to the typical markets where the VA Medical Center in Hot
    Springs normally recruits nurses, the facility has expanded its search
    for nurses to wide ranging markets such as Sioux Falls, South Dakota;
    Omaha, Nebraska; Denver, Colorado; and Minneapolis, Minnesota. In
    addition, the VA Black Hills HCS is offering a $5,000 sign-on bonus for
    the nurse manager and a $2,000 sign-on bonus for the OR nurses. VA
    Employees are being offered a $500 ``finders fee'' if they assist in
    the successful recruitment of operating room personnel at the VA Hot
    Springs medical facility. The community of Hot Springs has also been
    helpful in the search for VA staff. The Job Service office is engaged
    in local (Rapid City area) recruitment at no cost to VA. Every effort
    is being made to assure uninterrupted surgical service at the Hot
    Springs VAMC and VA officials are optimistic that the positions will be
    successfully recruited.
        Question. As you know, the Independent Budget for fiscal year 2003
    calls for approximately $1.7 billion more for VA health care needs than
    what is included in the President's request. Will the President's
    fiscal year 2003 request for VA health care be sufficient to fund all
    VA facilities and functions? If not, how much do you estimate the VA
    will be short for fiscal year 2003?
        Answer. There are many variables that impact health care in general
    (new diseases, new treatments, inflation changes, etc.) and that impact
    veterans use of VA health care (other health care alternatives,
    availability and accessibility of VA services, etc.)., it is very
    difficult to be certain that the fiscal year 2003 budget will be
    adequate to support the health care demand of all enrollees. However,
    this budget incorporates a ``Base Health Care Demand Adjustment''
    initiative that identifies and requests the resources required to
    support an actuary estimate of the demand and case mix changes needed
    for all seven patient priorities in fiscal year 2003. Based on this
    initiative, this year's budget estimates should better account for the
    relationship of planned workload requirements and the full funding
    needed.
        Question. As you and I have discussed, there have been several
    attempts to cap enrollment at South Dakota CBOCs in the last few
    months. Can you assure me these clinics will stay open and available to
    all veterans who need service?
        Answer. Since 1995, VA has activated over 700 new CBOCs to bring
    health care closer to veterans' homes. Recent evaluations show CBOCs
    provide high quality heath care and are effective in improving access
    to VA services. Since their inception CBOCs have been very popular with
    veterans. The number of CBOCs in VISN 23 totals 35 and to meet the
    growing number of veterans seeking care at a CBOC, VISN 23 has steadily
    increased capacity. However the number of new veterans seeking VA care
    at CBOCs in VISN 23 has exceeded expectations, which has resulted in
    some CBOCs reaching capacity. Following is a status on CBOC capacity in
    South Dakota, which is managed by the VA Black Hills Health Care System
    (BHHCS). CBOCs in Pierre, Winner, Rosebud, and Eagle Butte are open to
    new enrollments and will continue to enroll veterans as long as there
    is capacity. The CBOC in Rapid City, which is staffed by VA with two
    physician and two mid-level providers has approximately 2,615 veterans
    enrolled. One physician provider is not able to see patients at this
    time and this has resulted in the clinic being at capacity for new
    patients. Veterans interested in enrolling for VA care at the Rapid
    City CBOC are being referred to the Fort Meade or Hot Springs VA
    Medical Centers. VA BHHCS is working on plans to resolve the physician
    issue at the Rapid City CBOC so that enrollment can be resumed.
        Question. What was the purpose of the merger between VISN 13 and
    VISN 14? What will be the impact on patient care? Will there be any
    budgetary savings? If so, how much?
        Answer. The merger of the two networks should be transparent to
    veterans. Each medical facility within the Veterans Integrated Service
    Network (VISN 23) fulfills important missions for VA and there are no
    plans to reduce or eliminate VA programs or services in any of the
    States served by the network. The new Network will continue to face a
    number of challenges including managing unprecedented growth within
    appropriated funding; exercising stewardship of all resources;
    increasing market share; continuously improving quality of care and
    veteran satisfaction with that care; fully integrating administrative
    and clinical programs and processes; investing in capital improvements
    and information technology; and effectively communicating with veteran
    groups, labor partners, educational affiliates and other stakeholders.
    And when you look at the challenges faced by the two relatively small
    networks, it makes good sense to form one integrated health care
    delivery structure in order to enhance service and improve access
    across the Midwest. Individually the two VISNs excel in many areas;
    both rank high in patient satisfaction; both maintain excellent Joint
    Commission for Accreditation of Health Care Organizations (JCAHO)
    scores; and both are proven strong performers in quality measures.
    Together they share many commonalities. The two VISNs are in close
    geographic proximity and encompass veterans' populations residing in
    largely rural areas. Significant financial challenges and small,
    declining veterans' populations create urgency for improving
    coordination of care and collaboration between health care providers.
    Following are some examples of what we can expect to gain from
    integrating the two Networks.
        Improved Coordination and Collaboration.--The new VISN brings
    together a richer mix of experience and greater flexibility in
    allocating resources. Individually, VISNs 13 and 14 excelled in
    practices which, when shared, will enhance the performance of both
    Networks. For example, VISN 14 excels in the coordination and
    completion of compensation and pension exams. By sharing exemplary
    practices across the Midwest, it is expected that compensation and
    pension exams will be completed in a more timely manner. In mental
    health, we are seeing the benefits of integration by the two mental
    health staffs working together to develop a proposal for establishing a
    Mental Illness Research and Education Center (MIRECC) in VISN 23. In
    prior years, proposals submitted by former VISNs 13 & 14 were not
    approved. The new network, VISN 23, offers the opportunity to study and
    treat a larger veteran population and has improved chances for the
    Network to be selected as a MIRECC. Other areas benefiting from
    combining experience and resources are cardiac services, telephone
    triage, pharmacy formulary and pharmaceutical purchasing, laboratory
    contracting, and the exploration of opportunities for successfully
    managing the large rate of growth in our community based outpatient
    clinics.
        Budget Flexibility.--Combining the budgets of former VISN 13 and 14
    will give VISN 23 greater flexibility in allocating the estimated one
    billion dollars on VA programs and services. There will be
    opportunities to implement management efficiencies and exemplary
    practices by integrating fiscal services, consolidating business
    offices, and materiel service functions, such as contracting,
    logistics, supply, and warehouse functions. An integrated senior
    leadership team will work cooperatively to prioritize and coordinate
    health care programs in order to assure equitable access to care across
    the Midwest. While the merger, in and of itself, will not bring
    financial stability to the Networks, the merger is expected to generate
    cost savings through economies of scales and reduced administrative
    overhead. The estimated $1-6 million saved, over a period of time, will
    be redirected into expanding access and enhancing services for veterans
    throughout the Midwest.
        Quality.--VISNs 13 & 14 are strong performers in quality measures.
    Both demonstrated excellent performance in fiscal year 2001 and ranked
    exceptional within the Veterans Health Administration (VHA) in the
    areas of clinical practice guidelines and 30-day mental health follow-
    up scores. Overall inpatient and outpatient satisfaction scores for
    both Networks were among the best in VHA. Network leaders will build on
    these successes and seize opportunities for enhancing quality,
    expanding access, gaining efficiencies and improving veteran
    satisfaction in areas that are less than exceptional.
        Question. Veterans in my State are very concerned about the current
    eligibility standards for Priority 7 veterans. Priority 7 veterans are
    those who lack a disability related to their military service or whose
    income is higher than the current VA eligibility standards. The current
    income standard is $24,000 annually for a single, or $28,000 for a
    couple, and applies to 40 percent of the veterans in South Dakota.
    Assets, such as land, are included in the calculation of income. This
    is a concern for many farmers and ranchers in my State who may own land
    worth a considerable amount, but whose actual yearly income is well
    below the VA threshold. The Administration's proposal to impose a
    $1,500 co-pay on all Priority 7 veterans would be particularly onerous
    on these veterans. Do you support changing the law regarding
    eligibility standards for Priority 7 veterans to address this problem?
        Answer. We examined many options for implementing the deductible,
    including the cost impact on Priority 7 veterans. We believe the
    proposal in the President's Budget will ensure that VA will be able to
    provide high-quality care to our nation's veterans in the most cost-
    effective manner.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                    veterans department and dod coordination
        Question. According to the President's budget submission, the
    Veterans and Defense Departments historically has shown little
    cooperation between these departments. In the status report on selected
    programs for the Defense Department, DOD received an ``ineffective''
    rating in coordination with the Veteran's Affairs Department.
        Veterans switch back and forth between VA and DOD Hospitals with
    Doctors not informed as to what care the patient received at the other
    hospital. The president's budget submission suggests that
    communications between the VA and DOD Hospitals would improve the
    quality of care veterans receive.
        In what areas, other than medical care, would the two departments
    benefit from sharing resources? In areas where the VA & DOD has been
    sharing resources, what have the results been in terms of savings to
    the budget?
        Answer. Medical Care.--Section 3(e) of the VA-DOD Health Resources
    Sharing Act (38 USC 8111) requires that ``any funds received through
    earnings in VA-DOD sharing agreements shall be credited to funds that
    have been allotted to the facility that provided the care or
    services.'' VA has followed this policy since the law was implemented.
    The law provides an incentive for VA facilities to enter into
    agreements with DOD and has benefited veterans by allowing facilities
    to provide services to veterans that would not otherwise have been
    available.
        While the primary focus of the law is to allow facilities to expand
    services for its beneficiaries, cost savings (cost avoidance) to the
    budget do occur, especially in the purchase of services. By spending
    less on goods and services facilities have more money available.
    However, VA purchases in facility-to-facility sharing are difficult to
    quantify and are quite small. For fiscal year 2001, VA purchased $20.4
    million from DOD in local sharing agreements.
        VA-DOD cost savings can be documented through joint procurement
    efforts, primarily in pharmaceuticals. As of the end of February 2002,
    there were 54 joint VA-DOD joint contracts for pharmaceuticals; 37
    additional joint contracts are pending award. Sixteen joint contracts
    were not awarded due to the lack of cost savings to the government
    through their award. The total estimated cost savings in fiscal year
    2001 for both Departments from these contracts were $98.3 million
    ($80.1 million for VA and $18.2 million for DOD).
        Veterans Benefits Administration.--In an effort to explore
    opportunities and common areas of interest, the Acting Under Secretary
    for Benefits recently initiated dialogue with the Assistant Secretary
    of Defense for Force Management Policy to create a VA/DOD Joint
    Benefits Council. As planned, the council will foster a formal
    partnership between our respective departments and serve as a standing
    forum for expanding interagency collaboration to ultimately improve the
    delivery of benefit services to veterans and service members.
    Preliminarily, expanded data and information sharing, refinement of
    transition/separation procedures and protocols, and collaborative
    pursuit of improved access to military records have been identified as
    ``top tier'' objectives.
        There are no data presently available to quantify any budget
    savings which may have been realized by VBA as a result of our expanded
    partnership with DOD. We believe it would be extremely difficult, if
    not impossible, to identify and track such savings. However, we can
    assure you that efficiencies resulting from continued and enhanced
    collaboration between VA and DOD would be applied to further improve
    the claims process.
        National Cemetery Administration.--The National Cemetery
    Administration (NCA) purchases headstones and markers to mark the
    graves of veterans, not only in VA national cemeteries, but also in all
    other Federal national cemeteries, State veterans cemeteries, and when
    requested, in private cemeteries. NCA has an automated, on-line system
    for ordering headstones and markers. The Department of the Army's
    Arlington National Cemetery also orders its headstones and markers
    through this on-line, automated system. This sharing of resources has
    resulted in increased efficiencies in the ordering process.
        Question. What steps would need to be taken, with respect to
    information technology, in order to break down the wall that exists
    between the two departments?
        Answer. There are three principle areas where effective data
    exchange between the Department of Defense (DOD) and the Department of
    Veterans Affairs (VA) would significantly improve service for our
    nation's military personnel and our veterans:
      --Military personnel information provided to VA by DOD;
      --Military eligibility and enrollment data provided to VA by DOD;
            and,
      -- Exchange of medical information between VA and DOD.
        Efforts are underway between the two Departments to address these
    areas. Additionally, DOD and VA have established an Executive Steering
    Committee (ESC) co-chaired by the VA's Deputy Secretary and DOD's Under
    Secretary for Personnel and Readiness. This ESC is addressing not only
    those issues where information technology would help break down
    barriers, but also other areas where both Departments could achieve
    performance improvements, such as reduced cost for bulk purchasing of
    pharmaceuticals. With respect to the three areas where information
    technology could be an enabler, details of efforts that are underway
    are discussed below.
      --DOD is developing the Defense Integrated Military Human Resources
            System (DIMHRS) as a future replacement for legacy military
            personnel systems. The Veterans Benefits Administration (VBA)
            and the Veterans Health Administration (VHA) have provided DOD
            with functional requirements as part of the design phase of
            DIMHRS. We will continue to follow up with DOD to ensure data
            currently received by paper documents is received
            electronically in the future.
      --As part of the fiscal year 2004 budget formulation process, VA will
            sponsor a One-VA Eligibility and Enrollment initiative for
            obtaining necessary data from the DOD Eligibility and
            Enrollment system called DEERS/RAPIDS. An analysis of
            alternatives (AOA) will be conducted as part of the budget
            formulation process. Alternatives to be considered include
            reusing the DEERS/RAPIDS system to meet VA's eligibility and
            enrollment requirements, including VA requirements in the
            DEERS/RAPIDS system so that VA can obtain required data
            directly from DOD, implementing a Commercial Off the Shelf
            (COTS) Customer Relations Management (CRM) software package
            that would interface with DEERS/RAPIDS, as well as other
            potential alternatives. The results of the AOA will produce a
            recommended approach for the fiscal year 2004 budget.
      --VA and DOD have developed the Government Computer Patient Record
            (GCPR) system that allows VA to have access to clinical data
            from DOD hospitals. GCPR is in the final stages of testing and
            we anticipate full fielding of GCPR within VA during the next
            90 days. GCPR is a one-way interface from DOD to VA. VHA is
            working with DOD's Health Affairs to determine how to expand
            this capability for two-way data exchange. A key element of
            determining the way ahead is in establishing common data
            definitions between DOD and VA for health data. This work is in
            process.
        Additionally, VA and DOD have formed a close collaborative
    partnership, under the titles of the Federal Health Information
    Exchange (FHIE) and HealthePeople (Federal), to exchange data and
    develop a common health information infrastructure and architecture
    comprised of standardized data, communications, security, and high
    performance health information systems.
        This two phase effort will exchange patient data and will result in
    computerized health record systems that ensure interoperability with
    DOD's CHCS II and VA's HealtheVet strategy for VistA (HealtheVet-
    VistA). The first phase, FHIE, of this plan focuses on DOD providing
    information to VA clinicians and includes the Federal Health
    Information Exchange (FHIE, formerly Government Computer-Based Patient
    Record) effort, already in testing as of the end of calendar year 2001.
    The second phase, HealthePeople (Federal), is a joint VA and DOD effort
    to:
      --Improve sharing of health information,
      --Adopt common standards for architecture, data, communications,
            security, technology and software,
      --Seek joint procurements and/or building of systems,
      --Seek opportunities for sharing existing systems & technology, and
      --Explore convergence of VA & DOD health information applications
            consistent with mission requirements.
        Question. When veterans apply for benefits at the VA they must
    submit pages of information on paper, which in many cases are available
    on DOD computers, what steps should be taken so that this information
    would be available electronically to the VA?
        Veterans Health Administration.--When veterans apply for medical
    benefits from VHA, they only need to fill-out the Application for
    Health Benefits, VA Form 10-10EZ. An application can be completed at
    any VA health care facility, community based clinic or on-line at
    http://www.va.gov/. The electronic application has been very well
    received in the veteran community. While some of the information
    required, e.g., basic demographic data would be available from DOD,
    other information, e.g., income, eligibility status would not. In
    addition, VA is working with DOD to examine potential collaborative use
    of DEERS/RAPIDS for VA health, benefits, and other services.
        Veterans Benefits Administration.--Every effort should be made to
    fully leverage the data and technology capabilities of DOD to enhance
    delivery of services to veterans. The availability of accurate military
    service information is critical to accurate and timely VBA eligibility
    determinations and benefit decisions. Current data and information
    exchange processes between VBA and DOD are often fragmented. However,
    improvement efforts are underway. For example, to facilitate the
    automated collection of essential military information, VBA has entered
    into an interagency agreement with the Defense Manpower Data Center to
    establish an electronic exchange of demographic and military history
    data from the Defense Enrollment Eligibility Reporting System (DEERS).
    In addition, VA is working with DOD to examine potential collaborative
    use of DEERS/RAPIDS for VA health, benefits, and other services.
        Question. Of the 1.8 million persons in New Mexico's population,
    veterans make up nearly ten percent of all New Mexicans. We know that
    the average age of these veterans is rising sharply, and that despite
    the expansion program I initiated in 1999 for the use of flat markers
    at Santa Fe National Cemetery, given the current rate of interments,
    the Cemetery will run out of space by 2008.
        Could you provide an update on the planning study that my
    legislation directed the VA to undertake to determine the efficacy of
    establishing a National Cemetery for Veterans in Albuquerque?
        Answer. Section 613 of the Veterans Millennium Health Care and
    Benefits Act of 1999 (Public Law No. 106-117) required the Department
    of Veterans Affairs to contract for an independent demographic study to
    identify those areas of the country with the greatest number of
    veterans that will not have reasonable access to a burial option in a
    national or State veterans cemetery within 75 miles of their residence.
    The report will provide an assessment of the number of additional
    cemeteries needed to ensure that a national or State veterans cemetery
    is within 75 miles of the residence of 90 percent of veterans beginning
    in 2005 and projecting out to 2020.
        The study will address the concerns raised in the Conference Report
    accompanying the fiscal year 2002 appropriations bill for VA. The
    analysis will take into account the future burial needs of veterans
    throughout the United States, including the needs of veterans in the
    area of Albuquerque, as well as all of New Mexico's veterans. The
    Honorable Robin L. Higgins, Under Secretary for Memorial Affairs, has
    met with Congresswoman Heather Wilson regarding this study and will
    continue to work with members of Congress to ensure that the burial
    needs of veterans are met. We anticipate that the final report will be
    completed and delivered to Congress later this spring.
        Question. I have worked very hard to bring more VA clinics to New
    Mexico to meet the blooming health care needs of our veterans. Still,
    our veterans have many pressing health care concerns and they need
    better access to VA facilities. Indeed, the only VA hospital in the
    State is in Albuquerque, yet by land mass, New Mexico is the fifth
    largest State. Geographically, this makes it very difficult on veterans
    who need care.
        The reality is, we need more VA clinics in New Mexico, or a better
    delivery system for providing care to veterans. How will the VA
    approach this problem and enhance the ability of veterans who reside in
    rural areas to more easily access the care they need? Could you provide
    some suggestions specifically tailored to the needs of New Mexico
    veterans on this matter?
        Answer. VHA currently operates 13 Community Based Outpatient
    Clinics (CBOCs) in the State of New Mexico. Present locations include:
    Alamogordo, Artesia, Clovis, Espanola, Farmington, Gallup, Hobbs, Las
    Cruces, Las Vegas, Raton, Santa Fe, Silver City, and Truth or
    Consequences. In addition, two of these sites--Las Vegas and Espanola--
    provide services at an additional 10 access points through a
    contractual arrangement. These additional locations include: Chama,
    Coyote, Embudo, La Loma, Penasco, Roy, San Miguel, Springer, Truchas,
    and Wagon Mound. Thus, a total of 23 sites provide veterans in New
    Mexico with convenient, local access to VA outpatient services
    throughout the State. Later this fiscal year, the New Mexico VA Health
    Care System (NMVAHCS) plans to open an additional CBOC in Durango,
    Colorado that will expand service to approximately 1,800 veterans
    residing in Northwestern New Mexico and Southwestern Colorado.
        During the past 5 years, the number of veterans treated in New
    Mexico CBOCs has risen by over 40 percent, from 11,700 unique patients
    in fiscal year 1997 to over 16,500 in fiscal year 2001. The largest
    annual increase (12.1 percent) occurred between fiscal year 2000 and
    fiscal year 2001 with the opening of the Alamogordo and Truth or
    Consequences CBOCs.
        Although there are no plans to open additional CBOCs in fiscal year
    2003, the NMVAHCS has made specific plans to increase the number of
    veterans served in the Silver City CBOC (expanding services to
    accommodate 2,000 patients up from 1,600), in Raton (expanding services
    to accommodate 1,800 patients up from 1,000), and in Gallup (expanding
    services to accommodate 1,800 patients up from 1,000).
        Furthermore, plans are underway to expand the scope of mental
    health services provided in New Mexico CBOCs. Additional resources will
    initially be targeted initially for CBOCs that have an enrollment of at
    least 1,000 veterans and a veteran mental health penetration level of
    less than 10 percent. Mental health services will be expanded at
    Espanola, Gallup, Hobbs, Raton and Silver City. Counseling and
    psychiatric services will be increased to an appropriate level and the
    use of telemedicine and fee basis will also be increased where
    feasible. These actions will enable the network to increase the number
    of days per week that counseling, psycho-social services, and
    psychiatric medication services will be available to New Mexico
    veterans.
        Question. I regularly meet with veterans groups from New Mexico who
    tell me that they are facing a critical direct care shortage. They
    simply cannot find enough nurses or certified nursing assistants to
    meet health care demands. What is your assessment of the root cause of
    this problem?
        Answer. The national nursing shortage stems from a variety of
    factors. In its report of August 2001, VA's Future Nursing Workforce
    Workgroup cited the following factors that contribute to the shortage:
      --A decline in enrollment in schools of nursing.
      --Aging of the nursing workforce (average age nationally, 45.2 years,
            VA 46 years.).
      --Average age of a new graduate in nursing has climbed to 30.5 in
            1995--2000 versus 24.3 in 1995 or earlier.
      --Poor image of nursing as a career choice and more career choices
            for women.
      --Pay inequities.
      --Perceived negative work environments.
      --Inadequate numbers of qualified faculty to educate the numbers of
            nurses needed.
      --Projected increase in aging veterans who will require more complex
            care by increasingly greater-skilled nurses.
        While the New Mexico VA Health Care System did experience nursing
    shortages in 2000 and 2001, they currently have a nurse vacancy rate of
    4.4 percent, with only 11 positions unfilled (3 of which have been
    selected and are pending a start date). The health care system has been
    successful in recruiting and retaining enough nurses to adequately
    staff their operating beds and clinic operations in all areas except
    for the Spinal Cord Injury (SCI) Center.
        Question. Does the VA have a plan to address this shortage of
    nurses?
        Answer. Yes. To help recruit and retain nurses in general, the
    NMVAHCS has taken several actions:
      --On-site critical care courses are provided.
      --Reimbursement of past nursing education expenses is provided to
            qualifying nurses.
      --Tuition reimbursement is provided to staff seeking to obtain
            nursing degrees.
      --Participation in the Veterans Affairs Learning Opportunities
            Residency Program (VALOR).
      --Monthly advertisements in local newspapers for new nurses.
      --Attendance at Health Career Fairs
      --Attendance at Career Fairs for new graduates.
      --Advertisement on the VA Intranet for nurse transfers to the
            NMVAHCS.
        To help recruit nurses for the Spinal Cord Injury Center, the
    following additional actions have been taken:
      --Recruitment Bonuses are offered.
      --Through close collaboration with the University of New Mexico, a
            SCI nursing course has been developed and was offered at the
            University in November 2001. A second offering of the SCI
            nursing course will occur in April 2002.
                                     ______

                 Questions Submitted by Senator Larry E. Craig

        Question. Currently, your budget contemplates moving the VETS
    program from the Dept of Labor to VA. In my State there is some unrest
    about the potential ramifications to Veterans that may be harmed by
    such a move. The details I understand are still in process of being
    worked out; once the details are finalized I would appreciate your
    office coming over to brief my staff and I on the details of how this
    will impact the Veterans of Idaho.
        Answer. I will be happy to arrange for you and your staff to be
    fully briefed on the details of this initiative as soon as the
    Administration submits its bill to Congress.
        I want to share with you, however, two essential elements of the
    Administration's proposal that will be beneficial to all veterans. The
    new grant program will be competitive and performance-based. These are
    two essential components directly affecting grantee performance.
        First, VA intends to set clear, obtainable and easily measured
    outcome performance standards. Measures such as the number of veterans
    who obtain a job and duration of employment are examples of such
    outcome measures.
        Second, there must be something at risk for the grantees in order
    for VA's grant oversight to be effective. Simply stated--rewards for
    exceptionally high performance and a costs for failing to deliver
    agreed upon outcomes. Quite frankly, a new grant program that is not
    competitive in nature can only fare marginally better than the existing
    programs. This is not to suggest that the competition must be at the
    national level, competition within States can be just as effective.
        Question. Three years ago we lost one of our two doctors from our
    Pocatello facility. Initially VA informed me that they would be able to
    address the doctor deficit via nurse practioners. Over time it has
    become apparent that this is not sufficient. Over a year ago VA
    initiated a doctor search for the Pocatello facility. VA indicates to
    my staff that they can't find a willing doctor in the area, though
    there is a residency program in the vicinity with an ample supply of
    willing and able medical professionals. Currently, because of the
    doctor deficit there at Pocatello, we have some Veterans who commute
    from Salmon to Pocatello that now have to go to Salt Lake City which is
    a 5 hour drive in order to obtain treatment. When do you anticipate
    resolving the doctor deficit in Idaho?
        Answer. We have recently resolved this issue with the selection of
    Dr. Walaliyadda for the physician position. The selection of Dr.
    Walaliyadda is currently in the approval phase. Dr. Walaliyadda is
    expected to start in this position by July 1, 2002, or sooner if
    possible.
        Question. Your 2003 Budget proposes imposing a $1500 medical
    deductible for Priority 7 veterans. What other alternatives have you
    reviewed and dismissed before deciding on this approach?
        Answer. We also considered such alternatives as imposing an
    enrollment fee, a first-user fee, other deductible options, and
    limiting enrollment.
        Question. Could you provide me some details and background on the
    $1.5 billion in collections that you anticipate? How does this compare
    with what has been collected over the past 5 years? What do you
    anticipate collecting over the next 5 years, will it be collected at a
    comparable rate or will it increase or decrease?
        Answer. The projected fiscal year 2003 revenue collection is $1.488
    billion, which represents a 42 percent increase over the projected
    fiscal year 2002 revenue collection of $1.050 billion. The primary
    reasons for the increase in fiscal year 2003 to $1.488 billion are $260
    million projected as collections for the $1,500 deductible; a $364
    million full-year estimate for the $5 increase in medication co-payment
    (from $2 to $7); and $40 million representing a full-year estimate for
    the long-term care co-payment.

                       REVENUE COLLECTIONS BY FISCAL YEAR
                              [Dollars in Millions]
    ------------------------------------------------------------------------
                                                                    Percent
                        Fiscal year                       Amount      Inc.
    ------------------------------------------------------------------------
    Actuals:
        1997..........................................       $520  .........
        1998..........................................        560        7.7
        1999..........................................        574        2.5
        2000..........................................        573       -0.2
        2001..........................................        771       34.6
    Projected:
        2002..........................................      1,050       36.2
        2003..........................................      1,488       41.7
        2004..........................................      1,627        9.3
        2005..........................................      1,739        6.9
        2006..........................................      1,881        8.2
        2007..........................................      1,981        5.3
        2008..........................................      2,039        2.9
    ------------------------------------------------------------------------

        Question. In the recently submitted President's Budget, one of your
    goals is to reduce the process time of processing claims from 165 days
    down to 100 days. Why did you choose 100 days vs. say, 90 or even 30
    days? What is the comparable amount of time it takes for industry to
    process a claim?
        Answer. The goal of 100 days on average to process rating-related
    claims was chosen for several reasons. VA is required by Federal
    regulation and the Veterans Claims Assistance Act (VCAA) to afford
    veterans every opportunity to notify us of any evidence they feel is
    relevant to their claims. VA is obligated to exhaust all efforts to
    obtain that evidence, whether the evidence comes from within VA,
    another Federal agency, or a private source.
        When attempting to obtain evidence from private sources, VA must
    allow 60 days for a response before performing any action on the claim.
    Private sources are under no obligation to submit evidence to VA in a
    timely manner. Additionally, a physical examination is required in most
    cases to ascertain the extent of a disability and determine the
    veteran's overall disability compensation rating. While it is in the
    best interest of the veteran and VA to process the claim as quickly as
    possible, the reality is that most claims require some type of
    evidentiary development that adds to the time it takes to process the
    claim.
        VA is required to establish that the claimed disability was
    incurred in, aggravated by, or otherwise determined to be a result of
    military service. In addition, VA must determine the percentage at
    which a veteran's disability detracts from his or her overall ability
    to function. Finally, VA must determine the amount of compensation
    based on a combined disability rating evaluation, as well as processing
    any ancillary benefits to which the veteran may be entitled.
        Given these realities, the goal of 100 days is thought to be a
    challenging yet attainable goal.
        It is difficult to compare the VA's claims processing function to
    private industry. The closest comparison would probably be disability
    determinations that take place in the insurance industry. However, most
    disability determinations by the insurance industry are made without
    the requirement to establish a link between the claimant's disability
    and the working environment. Evidentiary requirements are also much
    more exhaustive for VA.
        Question. When do you anticipate eliminating the backlog?
        Answer. VA's goal is to reduce the inventory to approximately
    250,000 rating-related claims by the end of fiscal year 2003. Our
    interim goal for the end of this fiscal year is to reduce the rating
    inventory to approximately 315,000 pending claims.
        Our efforts to achieve these goals are showing positive results.
    VBA significantly increased its production of rating decisions in the
    latter months of fiscal year 2001 and into this year, which is the key
    to reducing the claims backlog. From October 2001 through February
    2002, VBA decided over 294,000 cases for a 5 month average of 58,800.
    This represents a 47 percent increase over fiscal year 2001 production
    levels. We expect our production to continue to increase as many of our
    recently hired employees gain additional experience and we begin to
    implement the recommendations of the Claims Processing Task Force.
        Even with the increased production, our current pending inventory
    remains unacceptably high. This is due to a significant increase in the
    volume of incoming claims, attributed to the following factors:
      --The review of more than 98,000 cases under the Veterans Claims
            Assistance Act (VCAA).
      --VA's expanded outreach efforts to separating service members
            (Benefits Delivery at Discharge initiative).
      --Receipt of 66,000 Type 2 diabetes claims based on exposure to Agent
            Orange.
      --The requirement to review 13,000 previously-adjudicated diabetes
            claims under the Nehmer stipulation. (In the case of Nehmer v.
            VA, plaintiffs' attorneys and VA agreed, in a 1991 Stipulation
            and Order, on a process for applying an earlier than usual
            effective date for certain claims for benefits based on Agent
            Orange exposure. As a result of court decisions in the Nehmer
            case, VA is required to re-adjudicate over 13,000 diabetes
            claims.)
        All of the 98,000 VCAA claims have now been added to the inventory.
    Following the initial surge of Type 2 diabetes claims, the incoming
    volume of diabetes claims is expected to taper off. We have also
    completed a significant portion of the Nehmer reviews. We therefore
    believe our increased production levels and the Task Force initiatives
    will now enable us to make major inroads into the pending inventory.
        Question. Under the Veterans Benefits Administration, specifically
    the Housing program, you are currently in the process of completing an
    A-76 study for potentially contracting out the property management
    function. How significant is this activity as far as dollars and
    people, and what is the breakdown by State?
        Answer. At the inception of this A-76 cost comparison the Property
    Management Operation involved 276 FTE at 46 regional offices around the
    country. There are currently 185 FTE at those offices. A breakdown of
    the 276 FTE and the current 185 FTE is provided below along with pre A-
    76 local program expenditures for management brokers, repair cost, and
    sales brokers. Unfortunately, final program modifications and savings
    cannot be determined until the A-76 award decision is rendered.

                                            VA PROPERTY MANAGEMENT ACTIVITIES
    ----------------------------------------------------------------------------------------------------------------
                                                                                                            Avg.
                        State                           VA Regional Office         1999 FTE    Jan-02   Expenditures
                                                                                                        Per Property
    ----------------------------------------------------------------------------------------------------------------
    Alabama.....................................  Montgomery....................          4          5       $4,113
    Alaska......................................  Anchorage.....................          1        0.5       11,020
    Arizona.....................................  Phoenix.......................         10          8        8,258
    Arkansas....................................  Little Rock...................          4          1        5,831
    California..................................  Los Angeles...................         24          8        8,222
    California..................................  Oakland.......................         13          7       12,364
    California..................................  San Diego.....................         14        3.5       11,477
    Colorado....................................  Denver........................          3          4        8,967
    Florida.....................................  St. Petersburg................         13         12        9,822
    Georgia.....................................  Atlanta.......................         16         14       10,960
    Hawaii......................................  Honolulu......................          1          0        6,308
    Idaho.......................................  Boise.........................          1          2       11,151
    Illinois....................................  Chicago.......................         11          4        7,854
    Indiana.....................................  Indianapolis..................          2          2        9,402
    Iowa........................................  Des Moines....................          2          2        5,703
    Kansas......................................  Wichita.......................          3          2       12,146
    Kentucky....................................  Louisville....................          2          1        6,271
    Louisiana...................................  New Orleans...................          6          4        6,788
    Maryland....................................  Baltimore.....................          4          3       17,474
    Michigan....................................  Detroit.......................         11        7.5        8,967
    Minnesota...................................  St. Paul......................          6          5        8,807
    Mississippi.................................  Jackson.......................          3          2        6,560
    Missouri....................................  St. Louis.....................          7          3        7,334
    Nebraska....................................  Lincoln.......................          1          1       10,205
    New Hampshire...............................  Manchester....................          4        4.5       16,663
    New Jersey..................................  Newark........................          3          5       10,816
    New Mexico..................................  Albuquerque...................          1          3       10,337
    New York....................................  Buffalo.......................          1          1        5,913
    New York....................................  New York......................          3          5        5,477
    North Carolina..............................  Winston-Salem.................         11       4.38       10,495
    Ohio........................................  Cleveland.....................          4          5        6,269
    Oklahoma....................................  Muskogee......................          5          1        4,034
    Oregon......................................  Portland......................          1          2        8,000
    Pennsylvania................................  Philadelphia..................          3          4        7,697
    Pennsylvania................................  Pittsburgh....................          2          2        8,109
    Puerto Rico.................................  San Juan......................          1          0        5,667
    South Carolina..............................  Columbia......................          7          1        6,263
    Tennessee...................................  Nashville.....................          5       1.25        5,522
    Texas.......................................  Houston.......................         17       13.1       12,852
    Texas.......................................  Waco..........................         13          4       12,133
    Utah........................................  Salt Lake City................          0          1       11,910
    Virginia....................................  Roanoke.......................         14         14        7,922
    Washington..................................  Seattle.......................          7          5       13,579
    Wisconsin...................................  Milwaukee.....................          3          0       10,865
                                                  Washington DC.................          9          7       14,037
                                                 -------------------------------------------------------------------
          National Total........................  ..............................        276     184.73  ............
    ----------------------------------------------------------------------------------------------------------------
    Note: Some stations have jurisdiction over other States.

                              SUBCOMMITTEE RECESS

        Senator Mikulski. The subcommittee stands in recess until
    next week when we will take the testimony of Housing and Urban
    Development.
        Secretary Principi. Thank you.
        Senator Mikulski. Thank you.
        [Whereupon, at 11:22 a.m., Wednesday, March 6, and the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                           WEDNESDAY, MARCH 13, 2002

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:35 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Barbara A. Mikulski (chairman)
    presiding.
        Present: Senators Mikulski, Bond, and Craig.

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    STATEMENT OF HON. MEL MARTINEZ, SECRETARY OF HOUSING
                AND URBAN DEVELOPMENT

                OPENING STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Good morning, everybody, to HUD; The
    subcommittee will come together.
        This morning we are taking the testimony from our
    Secretary, Mel Martinez. We look forward to hearing the
    Secretary present the administration's appropriations request
    and the priorities of the administration for the Department of
    Housing and Urban Development.
        I apologize for the Committee starting late. It took me an
    hour and 45 minutes to get here from Baltimore today. So we are
    going to move on quickly.
        Mr. Secretary, let me start by once again thanking you for
    the collegiality in which you have worked with the
    Subcommittee. I believe both Senator Bond and I feel that we
    have excellent response from you and your staff and that our
    conversations have been candid and focused on empowering people
    in neighborhoods. So we thank you for that and look forward to
    that.
        Secretary Martinez. Thank you.
        Senator Mikulski. Mr. Secretary, I have three goals this
    morning. I want to make sure that HUD continues to stay focused
    on its core program, housing programs. And it also that it has
    enough resources for them. I want to hear your views on how we
    can also help communities that are under stress.
        In terms of those communities that are under stress, it is
    those that have also been stressed both by age, demographic
    change, and the changing HUD programs. The stressed communities
    I am talking about are particularly in cities where parts of
    cities are what we call the ``middle ring'' of a city, that are
    often are like little suburbs within a city. They were not the
    inner core. They were not the neighborhoods under siege. But
    right now they are feeling older. Predatory practices are
    beginning to come, blight begins to come. But most of all,
    using FHA programs, we are concerned that people buying homes,
    cannot keep them up and keep them going.
        The other part is in the suburbs where public housing was
    not built. And there was the great thinking of using Section 8
    so that people would have choice and mobility. But they went
    into apartment buildings that then became public housing by
    proxy. You and I visited some of those in Prince George's
    County just a couple of weeks ago. By ``public housing by
    proxy,'' I mean a privately held complex that rented to the
    poor. That was a good idea. Then they abandoned their complex
    while renting to the poor. They either abdicated their mortgage
    requirements and certainly abdicated the service and
    maintenance requirements.
        And therefore, FHA subsidized, Section 8 subsidized by
    tenants, all have become public housing by proxy with none of
    the social services, none of the empowerment and, most of all,
    these apartments have become incubators for the distressed
    communities around them.
        HOPE VI is expiring, and we are very interested in your
    thoughts on HOPE VI and those issues, as well as issues related
    to management and oversight. Without good HUD oversight, we see
    HUD at its worst. Instead of helping poor and hard-working
    families to get to a better life, HUD ends up lining the
    pockets of scums so that they can have a better life.
        So, we want to really look at these neighborhoods. We are
    here to make sure that the poor have a way to a better life,
    not the scums having a better life. So, I think we are all in
    agreement on the priorities; and we look forward to working
    towards them.
        Some of the issues we are talking about are the $1 million
    for home-owner counseling. We are committed to the American
    dream. But often, people who are not prepared for home-
    ownership nor have the resources to sustain home-ownership end
    up not being able to fulfill their responsibilities. And it
    does not work. We really need pre-purchase counseling. I want
    to hear more about that.
        I am also concerned about what has happened in some
    community development corporations. The vast majority of CDC's
    are great engines of redevelopment in our communities. But some
    CDC's have now been created as almost faux corporations. Again,
    skimming off the bucks and then leaving very little to show
    results.
        A recent article in The Washington Post about some
    occurrences in the District of Columbia shows an example of
    this. And this is not finger-pointing at the District of
    Columbia or CDC's; I am a big believer in them. There was a guy
    who was the chief executive of the Anacostia Economic
    Development Corporation. He took $25,000 from the group and
    invested in raw gold in Mali, nothing to do with investing in
    the District of Columbia.
        And another has taken nearly $40 million in public and
    private funds and has yet completed 12 of its 37 projects in 10
    years. So, we need to look at how we can work with those CDC's
    and yet prevent waste, fraud, and abuse, so that the good ones
    can really be what we call those public/private partnerships.

                               PREPARED STATEMENT

        There is much more to be said in detail, as we go through
    the hearings, the capital management programs, the details, the
    budget, but those are my large area policy goals. And I am
    going to now conclude my remarks and ask unanimous consent that
    my full statement be in the record.
        [The statement follows:]
               Prepared Statement of Senator Barbara A. Mikulski
        I would like to welcome Secretary Martinez to his second budget
    hearing before this Subcommittee.
        I have three goals for the hearing today. The first is to make sure
    that HUD is committed to its core housing programs and has enough
    resources for them. Second, we want to hear the Secretary's views on
    how we can help communities that are under stress. I'd like to hear
    from the Secretary about how the HOPE VI program can best serve these
    communities, how we can help people who are ``aging in place'' stay in
    their neighborhoods, and, how we can prevent concentrations of poverty
    from destabilizing communities. Lastly, I'd like to address problems
    that I see in the oversight of HUD programs. We want HUD to be a good
    steward of the tax payer dollar and a good neighbor in our communities.
    This subcommittee wants to help HUD achieve these goals.
        The Administration's budget fully funds Section 8 renewals and
    requests modest increases to HOME and CDBG block grant programs.
    Unfortunately, the Administration proposes to cut the Public Housing
    Capital Fund by $400 million, even though public housing units have a
    $22 billion backlog in capital repairs.
        HUD programs are seeing an increase in demand, but they don't get
    increased resources in this budget. This is true for Elderly and
    Disabled Housing programs and for permanent housing for the homeless.
        And, there are still serious problems in the Section 8 program.
    Working families moving from welfare to work depend on this program,
    but some vouchers aren't being used, despite this high demand. Vouchers
    can't solve all of our problems. Senator Bond and I believe that we
    need to do more housing production; we'd like to hear your views on
    housing production.
        HOPE VI expires this year. In June HUD will submit a report to
    Congress on lessons learned in the HOPE VI program. In the meantime, we
    want to hear your thoughts on what the program has achieved. What
    works? And what doesn't? I know in Baltimore they're gearing up to
    start a new HOPE VI development, so they'd welcome guidance from the
    Department. It's also time to take inventory. We want to know if we've
    met the need out there for severely distressed housing. If we have, is
    it time to sunset HOPE VI?
        We have neighborhoods that are under stress. Oftentimes this is
    because government walked away, or the landlords walked away. We have a
    real problem of predatory lending in communities across the Nation. The
    poor are being gouged, the taxpayers are paying for it, and scam
    artists are profiting. And predatory lending has resulted in
    neighborhoods that were once stable turning into neighborhoods under
    stress.
        Secretary Martinez and I have formed the Prince George's County to
    combat the problems that we saw when we visited the inner beltway
    communities of the County. There, we saw the effects of absenteeism. We
    need to work together to build neighborhoods where people live, work,
    shop, worship and raise their families.
        Also of great concern to me are the needs of our aging population.
    Our senior citizens, particularly our frail elderly, have special
    needs. The housing stock for our elderly is out of date with today's
    needs; the elderly need services and affordable housing in communities,
    not just buildings.
        In order to have a strong HUD, we need to have a well-managed HUD.
    HUD must have good information technology systems, thorough oversight
    of programs, and tough enforcement. Without good oversight we see HUD
    at its worst: instead of helping poor and hardworking Americans to get
    a better life, HUD is lines the pockets of scum so that they can have a
    better life. HUD needs to turn this equation around.
        The GAO has found serious deficiencies in the IT systems at HUD's
    four Homeownership Centers. These deficiencies affect HUD's ability to
    target high risk lenders and to investigate cases of fraud. These
    deficiencies hurt the work we're doing on predatory lending with HUD.
        Around the country communities are being hurt by these schemes.
    Unscrupulous investors buy up foreclosed properties. They flip the
    properties to unsuspecting homebuyers. They inflate the costs of the
    houses, they hide fees and balloon payments. They gouge the poor, they
    rip off tax payers, and they destroy communities. I'm pleased that the
    budget includes $35 million for homeowner counseling.
        Clearly, better oversight of programs could have prevented the
    scandals being uncovered here in D.C. with Community Development
    Corporations. We know that the vast majority of CDCs are great engines
    of redevelopment in poor communities. But, these CDCs managed to scam
    the government, and hurt neighborhoods.
        We know that some of this money came from HUD programs. One of the
    groups profiled was the Asset Control Area receiver for the City. This
    is what the editorial board of the Washington Post has to say on
    February 28:
        ``The articles . . . show how CDCs, charged with bringing stability
    and development to scarred communities, have instead left a trail of
    sick business districts, boarded-up apartment buildings and weed-filled
    lots across the city . . . Albert R. ``Butch'' Hopkins Jr., chief
    executive of the Anacostia Economic Development Corp. in Southeast
    Washington, invested $25,000 from one of the group's for-profit
    subsidiaries to buy . . . raw gold in Mali . . .  Robert Moore's
    Development Corp. of Columbia Heights in Northwest Washington has taken
    in nearly $40 million in public and private funds, holds a large
    portfolio of properties--some of which it received free from the city
    and yet has completed only 12 of its 37 major construction projects in
    the past decade.''
        We know that Secretary Martinez shares these concerns with us. We
    look forward to working with Secretary Martinez to help HUD fulfill its
    mission and be a real partner to communities.
        We'll look forward to your testimony.

        Senator Mikulski. And I will turn to my colleague, Senator
    Bond.

                    STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you very much, Madam Chair. And I join
    with you in welcoming Secretary Martinez to testify on the
    budget request for 2003. Last year was the Secretary's first
    opportunity to testify before this subcommittee. And I found
    the Secretary's testimony frank and refreshing. But I look
    forward to the second year of testimony now that he has a full
    year of what I would call the ``HUD experience'' under his
    belt.
        About a quarter of a century ago, I lost a reelection race
    I was supposed to win. And one of the most consoling things
    that a friend of mine said was ``experience is what you get
    when you expected to get something else.''
        Senator Bond. And I have a feeling that Secretary Martinez
    has been having a lot of experience. I had a little experience
    yesterday, I just started to mention. There was a bill that, in
    flush times with big budgets, might have been very nice. There
    was the Murkowski-Daschle bill to create $100 million grant
    program for a rural access to electric infrastructure, $100
    million for a rural recovery community block grant program, $20
    million in a grant program from community electrification
    grants, all coming out of HUD.
        I put a hold on it, and it was passed yesterday afternoon
    by unanimous consent; and this is--it is just $220 million that
    we do not have in the budget. So, Mr. Secretary, we need to
    work with you on perhaps visiting that effort.
        But let us get on to the things that are before us. We have
    to do some tough battles in this subcommittee, balancing the
    affordable housing and economic development needs against
    priorities for veterans, environmental protection, continuing
    investment in science, technology, the expanding, greatly
    expanding, requirements of FEMA, particularly related to
    homeland defense.
        But there are special challenges in HUD. As we have said,
    HUD has been troubled and dysfunctional for a long time. Its
    primary program missions have some real questions about them,
    as the Chair has already mentioned. I know you have taken some
    steps to reform staffing requirements. You are following
    through on contracts for the development of new computer and IT
    systems. These are really not sexy, front-page stories. But I
    think it is only through basic reforms like this that you will
    be able to get a handle on the billions of dollars going
    through the department.
        I have a number of concerns with the budget. I understand
    the department has requested almost $2 billion to cover all
    renewing, expiring Section 8 contracts. But Section 8 is
    probably one of the most troubling programs. Every year the
    administration, be it Democrat or Republican, glosses over the
    way many Section 8 programs are administered, while the costs
    to the taxpayers continue to escalate.
        The programs lose over $1 billion annually due to fraud,
    neglect, and abuse. I think it is time to fix it so we ensure
    Section 8 assistance really goes to the low income families to
    find and obtain affordable housing. I am tired of the myth that
    Section 8 vouchers mean freedom to rent where you want to live.
    In too many parts of the country, that is a hollow promise.
    There are not available rental properties. And to give out
    vouchers in St. Louis County, for example, is a wasted effort.
        Yet instead of addressing the shortage of affordable
    housing, we continue to get OMB recommendations to convert
    project-based Section 8 assistance to tenant-based Section 8
    assistance, leaving low-income families without affordable
    housing in many areas with a shrinking stock of housing. I am
    especially concerned about the lack of affordable housing for
    the elderly and for persons with disabilities. But we need some
    support from OMB.
        And in addition, OMB is pushing to cut, again, the funding
    for public housing capital by over $400 million despite a
    backlog of some $22 billion in needed repairs. The OMB suggests
    capital resources can be made up through the borrowing of
    private capital, which would then be supported by Section 8
    project-based assistance. What HUD does not advertise is that
    the proposal is designed to convert this project-based
    assistance into vouchers and privatize the public housing
    units. That means that the highest quality public housing units
    will be lost to low-income use, without any guarantee that
    needed affordable housing units will be preserved for low-
    income families in tight rental markets.
        In addition, the cost of this public housing proposal would
    be carried by the Housing Certificate Fund, which already has
    costs of some $20 billion per year. I think it is a shell game
    especially shifting the costs from public housing capital to
    the Housing Certificate Fund. And I really--I have a long way
    to go before I can be sold on that turkey.
        There are a number of other issues that I think we need for
    HUD to address. I would like to thank OMB for proposing, once
    again, to eliminate the Rural Housing and Economic Development
    Program that I fought so hard to get established a few years
    ago. It may be because I have said bad things about OMB in the
    past. And I intend to continue.
        We also need the Administration's help in re-authorizing
    the HOPE VI program. It is slated for termination at the end of
    the year. I think we need a comprehensive review and
    reformulation of the program. But it is working. We want to
    make sure that we improve it and make it continue.
        Finally, real concerns about renewing expiring contracts
    under Shelter-Plus Care, Section 811 housing. I do not think
    the budgets for either are adequate. Shelter-Plus Care includes
    no funding for the cost of expiring contracts and that is not
    right.
        Well, having said that, Mr. Secretary, we have a lot of
    work to do. And I look forward to your testimony.
        And I thank the Chair.
        Senator Mikulski. Senator Craig, would you like to say
    something now?

                      STATEMENT OF SENATOR LARRY E. CRAIG

        Senator Craig. Thank you.
        Mr. Secretary, it is obvious that we all share passion as
    it relates to your agency. And I think you do, too. And we
    appreciate you being here this morning.
        Madam Chairman, I am sorry about your struggle to get here
    this morning. What has happened is that Marylanders have seen
    rain for the first time in, I guess, months. And it was such a
    surprising occurrence, they all stopped to look at it.
        Senator Mikulski. That is exactly right, instead of looking
    at the road.
        Senator Craig. Exactly. Now, you know what we who live in
    desert States experience when the rain comes; we all rejoice.
    And I think that is what folks in this area were doing this
    morning.
        Mr. Secretary, I share some of the same passions with some
    different focuses than do my colleagues, in part because I do
    not have some of the inner-city concerns that are expressed by
    the Chairman or by the ranking member. They have those, and I
    support their concerns. But let me thank you for the work you
    have done with the U.S. Department of Justice to restore HUD to
    what I think are some original goals and missions.
        I was more than a bit incensed by the former practice of
    reprogramming housing dollars for gun buy-back programs, funds
    that were originally dedicated for house construction and
    mortgage assistance programs. It was a detrimental and, I
    think, reckless public policy, especially to the poor and the
    under-served. It was a political statement made on the part of
    a former Secretary of HUD and Administration. I believe it
    served little value.
        I think it is also important that HUD no longer serves as a
    litigious tool against the manufacturers of firearms. Your
    dissolution of HUD's role as a police agency to attack the
    Second Amendment, I think, was a responsible, Constitutionally
    tenable policy decision, not to mention a victory for taxpayers
    who were wrongfully forced to unjustifiably subsidize an inter-
    governmental political agenda that I have mentioned.
        Next, I wholeheartedly acknowledge the necessity for access
    to affordable housing for the disabled, the infirm, and the
    elderly. HUD's effort to crack down on egregious violators and
    those who callously disregard the rules should be applauded,
    and I do it. And I know you are concerned about it.
        However, despite HUD's programs to educate developers and
    construction workers about the vague regulations and the
    ambiguous guidelines under the Federal Fair Housing
    Accessibility Standards, there are still incidents in my State
    of Idaho where scrupulous, honest home builders and developers
    are pursued in a manner that resembles bounty hunting. Now I
    know you have changed that. You have changed the incentive
    there. And that is the way it ought to be.
        We need to be in the business of educating. And we need to
    be in the business of searching for and evaluating compliance
    directives and doing that in a way that is responsible, both
    for those who would be subject to the directives and those for
    whom access is a problem, because they are disabled or elderly
    or infirm. We do not need to drive away responsible builders
    who want to provide that kind of housing and want to comply,
    only to find out that someone is going through their
    facilities, whispering under their breath: If we search long
    enough, we will find and file a violation.
        That has happened too many times. I know you are working to
    correct it; I appreciate it. HUD needs--has a responsibility
    and a mission that I think you have it headed toward. It has a
    lot of fine, responsible employees who want to do the right
    thing. And it can be done without a visible, high-profile
    political agenda.
        With that, I thank you for being here. There are a variety
    of questions that, if I stay long enough, we will visit about,
    or I will submit them for the record.
        Madam Chairman, let us proceed. Thank you.
        Senator Mikulski. Thank you. Excellent points, Senator.
        Yes, Mr. Martinez. Please go ahead.

                         STATEMENT OF HON. MEL MARTINEZ

        Secretary Martinez. Thank you, Madam Chair and Ranking
    Member Bond and Senator Craig. It is a pleasure to be back with
    you today. And I think, as Senator Bond said, we are all a year
    older and a year wiser, to be sure, Senator. But it has been an
    exciting opportunity to serve in a Department where I think we
    are at a very close heartbeat of what is the American dream for
    so many families.
        And so, Senator, I enjoyed our opportunity to visit in your
    State, to see some of the problems that you are dealing with.
    Amazingly enough, those very problems you are speaking of are
    what were the middle-class suburbs of the 1950's and 1960's
    that are now becoming areas under stress. It is something that
    I am very familiar with from my home community.
        But on to our budget, the 2003 budget, for the Department
    of Housing and Urban Development. It is a $31.5 billion budget,
    which represents a funding level increase of 7 percent over the
    fiscal year 2002. At a time when dollars are especially
    precious and the cost of homeland security is consuming many
    Federal resources, this shows the President's commitment to
    improving housing and communities.
        By helping Americans to become home owners, ensuring
    affordable housing opportunities for those who rent, and
    renewing communities, and preserving a safety net for the most
    vulnerable, this budget will enable HUD to make a tremendous
    difference in the lives of millions of Americans.
        The housing market in 2001 was extremely vigorous. And we
    enter a new year with home ownership rates at a record high.
    Because we know that home ownership gives families a stake in
    their communities and creates wealth, the HUD budget makes
    owning a home a viable option for even more Americans.
    President Bush and I are committed to expanding home ownership,
    especially among minority families.
        As a first step, our budget quadruples the American Dream
    Downpayment Fund to $200 million. This Presidential initiative
    will help an estimated 40,000 first-time home buyers with a
    high down payment and closing costs that are often a
    significant obstacle to home ownership.
        A tax credit for developers for single family affordable
    housing will promote home ownership opportunities among low-
    income households by supporting the rehabilitation or new
    construction of homes in low-income urban and rural
    neighborhoods.
        Our budget proposes tripling funding for the Self-Help
    Home-ownership Opportunity Program, the SHOP program, to $65
    million, as committed by the President last spring. That will
    make possible the construction of an additional 3,800 homes for
    many disadvantaged Americans. SHOP is an excellent example of
    Government maximizing its resources, working with the private
    sector partners and community organizations like ``Habitat for
    Humanity.''
        Another exciting home ownership initiative targeted at low-
    income families will allow them to put a year's worth of their
    Section 8 rental vouchers toward a home down payment. And
    because we consider it to be a invaluable tool for prospective
    home buyers and renters, the HUD Budget process proposes also
    making housing counseling a separate program. The increase in
    sub-prime lending has made financial literacy more important
    than ever; armed with the facts, a consumer is far less likely
    to be victimized by predatory lending. We are funding the
    Housing Counseling Program at $35 million, a $15 million
    increase over the previous fiscal year.
        While we consider home ownership to be an important goal,
    we recognize that it is not an option for everyone. Therefore,
    our Budget preserves HUD's commitment to expanding the
    availability of affordable housing for many of Americans who
    rent their homes. The Section 8 Tenant-Based Program, today,
    assists 2,000,000 families. Our Budget provides an additional
    34,000 housing vouchers. The Budget also dedicates $16.9
    billion to protect current residents by renewing all expiring
    Section 8 contracts.
        To encourage the production of moderate-income rental
    housing in under-served areas, the HUD Budget would reduce the
    mortgage insurance premium for the Federal Housing
    Administration multi family insurance. Three times over the
    last 8 years, HUD has been forced to shut down our multifamily
    mortgage insurance program because of a lack of credit subsidy.
        We made a commitment to a comprehensive review of the
    credit subsidy program. Through our review, we were able to
    lower premiums, create a self-sustaining program, provide the
    industry with stable financing at a much lower cost, and
    provide thousands of new opportunities for rental housing
    across the country.
        Today I am happy to report that our FHA business is strong,
    both for single family and multi family housing. In fact,
    business is so strong that if our insurance commitments
    continue at the current rate for the rest of the year, we will
    exceed our statutory limits for both MMI Fund and the GI Fund.
    If that continues, I will have to come back here and ask the
    Congress to raise the statutory ceilings enacted last October.
        I am particularly pleased with our multi family business
    this year. Through the first 5 months of the fiscal year, FHA
    has issued insurance commitments totaling close to $1.4
    billion, compared to $900 million for the same period a year
    ago; that is up 50 percent. Many in the industry and some in
    Congress were worried that raising the insurance premium would
    damage the multi family industry. Clearly, that has not
    happened.

                       FISCAL YEAR 2003 BUDGET HIGHLIGHTS

        The 2003 Budget gives HUD new resources to further our
    mission of supporting the Nation's most vulnerable. This
    includes low-income families, homeless men and women, the
    elderly, individuals with HIV/AIDS, victims of predatory
    lending practices, and families living in housing contaminated
    with lead-based paint. Let me highlight some of those
    proposals.
        To better coordinate the work of the many Federal agencies
    that reach out and provide continuum of care to homeless men,
    women, and families, the Budget calls for doubling HUD funding
    for the newly reactivated Interagency Council on the Homeless.
    Additionally, converting three competitive homeless assistance
    programs into one consolidated grant will eliminate the
    workload and expense of administering three separate programs.
    More importantly, it will give local jurisdictions new
    discretion in how dollars are spent.
        In addition to that, and something I really love, is that
    it will take from 18 months, the grant process, and compress
    that to 3 months before the money gets out the door.
        HUD's Lead Hazard Program is a central element of the
    President's effort to eradicate childhood lead poisoning in 10
    years or less. The HUD Budget will fund the program at $126
    million, a substantial increase over the previous year.
        The HUD budget also proposes spending $251 million under
    HUD's Section 811 program to improve access to affordable
    housing for persons with disabilities. Many of the additional
    34,000 Section 8 vouchers will be to assist non-elderly,
    disabled individuals.
        Initiatives, such as the HOME Investment Partnership
    Program and the CDBG program, address the Nation's critical
    housing needs and stimulate economic development and job
    growth. Combined, these two programs will distribute an
    additional $200 million formula dollars to State and local
    governments.
        We have increased the CDBG formula grants next year by $95
    million to $4.4 billion. In addition, we have proposed changing
    the distribution of CDBG formula funds by reducing the size of
    grants going to some of our wealthiest communities. This will
    help bring dollars into those areas where they can do the most
    good and where they are needed the most.
        I am also excited about our brand, new concept to address
    the large backlog of repair and modernization projects in
    public housing. The Public Housing Reinvestment Initiative
    represents a new way of leveraging the value of public housing
    by allowing Public Housing Authorities to borrow funds to make
    needed capital improvements. This will unlock the value of
    public housing assets by allowing PHA's to convert public
    housing units to project-based vouchers.
        Innovative thinking like this represents a departure from
    the way things were done so often in the past. But being
    effective does not mean spending more money, necessarily.
    Government works best by being a good steward and facilitator
    and looking for results.
        I am pleased that the President's budget reflects our
    commitment to efficiency, accountability, and the principles of
    excellence expressed through the President's management score
    card. When Government spends efficiently, the funds go much
    further; and we reach many more citizens.
        I am happy to tell you that, while virtually all agencies
    of the Federal Government were given a red listing on the
    President's score card, HUD already has moved out of the all
    red. And we already enjoy a number of yellows and even some
    greens. And so that is, Senator Bond, making us even more
    popular at OMB. So we are very excited with that.
        But let me just thank the committee for your cooperation
    and your help and your support through this past year. I find
    our interaction to be very positive in the bipartisan spirit in
    which it is done. And I look forward to your continued guidance
    as we go through this budget process.
        I would like to take a moment to introduce several people
    that are here with me today, because they might be important in
    answering some questions. I just want to tell you that I am
    extremely proud of the team we have assembled at HUD. In fact,
    we have a team that I think is the best that HUD has ever had.
        And I am proud to say we also have some additional members
    of our team that are awaiting Senate confirmation, including
    the very important Inspector General, which has, for several
    months, been awaiting Senate final action. And I would urge the
    Senators, if it is within your purview, to encourage the Senate
    to move forward on all of HUD's pending nominees; most
    specifically and most urgently the Inspector General.
        But let me say that these folks are doing a terrific job
    for the people of America. John Weicher, who is our Federal
    Housing Commissioner; Mayor Roy Bernardi, who is in Community
    Planning and Development; Michael Liu in Public and Indian
    housing; and, of course, Melody Fennel in Congressional
    Affairs, whom you know well.
        And not to diminish the folks to the right, but we will
    leave it at that. Anyway, these are the Assistant Secretaries,
    I should say. And, of course, Rob Woodson, who is my new Chief
    of Staff, and I am very proud to have him.
        So with that, I would be pleased to attempt to answer your
    questions.
        Senator Mikulski. Well, thank you very much, Mr. Secretary.
        [The statement follows:]

                       Prepared Statement of Mel Martinez

        Chairwoman Mikulski, Ranking Member Bond, Distinguished Members of
    the Committee:
        Thank you for the opportunity to join you this morning to outline
    the proposed fiscal year 2003 Budget for the Department of Housing and
    Urban Development (HUD).
        The $31.5 billion HUD budget represents a funding level increase of
    7 percent over fiscal year 2002. At a time when dollars are especially
    precious, and the cost of homeland security is consuming many Federal
    resources, this shows the President's commitment to improving housing
    and communities.
        By helping Americans become homeowners, ensuring affordable housing
    opportunities for those who rent, renewing communities, and preserving
    a safety net for the most vulnerable, this budget will enable HUD to
    make a tremendous difference in the lives of millions of Americans.
        The housing market in 2001 was extremely vigorous, and we entered
    the new year with homeownership at a record high. Because we know that
    homeownership gives families a stake in their communities and creates
    wealth, the HUD budget makes owning a home a viable option for even
    more Americans. President Bush and I are committed to expanding
    homeownership--especially among minorities.
        As a first step, our budget quadruples the American Dream
    Downpayment Fund, to $200 million. This Presidential initiative will
    help an estimated 40,000 first-time homebuyers a year overcome the high
    down payment and closing costs that are significant obstacles to
    homeownership.
        A new tax credit for developers of single-family affordable housing
    will promote homeownership opportunities among low-income households by
    supporting the rehabilitation or new construction of thousands of
    moderately priced homes in low-income urban and rural neighborhoods.
    This credit of $1.75 per capita matches in size the existing Low-Income
    Housing Tax Credit and like the existing Credit would be administered
    by the States. As these new homes are occupied by people who were
    previously renting, their old apartments will become available for
    others to rent, thereby effectively increasing the supply of affordable
    rental apartments in many locations.
        Our budget proposes tripling funding for the Self-Help
    Homeownership Opportunity Program (SHOP) to $65 million, as committed
    to by the President last spring. That will make possible the
    construction of an additional 3,800 homes for disadvantaged Americans.
    SHOP is an excellent example of government maximizing its resources by
    working with private-sector partners like Habitat for Humanity.
        Another exciting homeownership initiative targeted at low-income
    families will allow them to put up to a year's worth of their Section 8
    rental vouchers toward a home down payment. Because we consider housing
    counseling a valuable tool for prospective homebuyers and renters, we
    propose funding the program at $35 million--a $15 million increase over
    the previous fiscal year. The increase in sub-prime lending has made
    financial literacy more important than ever; armed with the facts, a
    consumer is far less likely to be victimized by predatory lending.
        While we consider homeownership to be an important goal, we
    recognize that it is not an option for everyone; therefore, our budget
    preserves HUD's commitment to expanding the availability of affordable
    housing for the millions of Americans who rent their homes.
        The Section 8 tenant-based program today assists nearly two million
    families. Our budget provides an additional 34,000 housing vouchers, an
    increase of one and one-half percent. The budget also dedicates $16.9
    billion to protect current residents by renewing all expiring Section 8
    contracts.
        To encourage the production of moderate-income rental housing in
    underserved areas, the HUD budget would reduce the mortgage insurance
    premium for Federal Housing Administration (FHA) multifamily insurance.
        Three times over the last 8 years, HUD has been forced to shut down
    our multifamily mortgage insurance programs because of lack of credit
    subsidy.
        We made a commitment to a comprehensive review of the credit
    subsidy program. Through our review, we were able to lower premiums,
    create a self-sustaining program, provide the industry with stable
    financing at a much lower cost, and provide thousands of new
    opportunities for rental housing across the country.
        Today, I am happy to report that our FHA business is strong, both
    for single family and multifamily housing. In fact, business is so
    strong that if our insurance commitments continue at the current rate
    for the rest of the year, we may exceed the currently appropriated
    limitations for both the MMI Fund and the GI Fund.
        If that continues, I will have to come back here and ask Congress
    to raise the statutory ceilings enacted last October.
        I am particularly pleased with our multifamily business this year.
    Through the first 5 months of the fiscal year, FHA has issued insurance
    commitments totaling close to $1.4 billion--compared to $900 million
    for the same period a year ago. That is up 50 percent.
        Many in the industry and some in Congress were worried that raising
    the insurance premium would damage the multifamily industry. Clearly,
    that has not happened.
        The 2003 budget gives HUD new resources to further our mission of
    supporting the Nation's most vulnerable. This includes low-income
    families, homeless men and women, the elderly, individuals with HIV/
    AIDS, victims of predatory lending practices, and families living in
    housing contaminated by lead-based paint.
        Let me highlight just a few of our proposals.
        To better coordinate the work of the many Federal agencies that
    reach out and provide a continuum of care to homeless men, women, and
    families, the budget calls for doubling HUD funding for the newly
    reactivated Interagency Council on the Homeless. Additionally,
    converting three competitive homeless assistance programs into a
    consolidated grant will eliminate the workload and expense of
    administering three separate programs. More importantly, it will give
    local jurisdictions new discretion in how those dollars are spent.
        HUD's Lead Hazard Control program is the central element of the
    President's effort to eradicate childhood lead poisoning in 10 years or
    less. The HUD budget will fund the program at $126 million, a
    substantial increase over the previous year.
        The budget also proposes spending $251 million under HUD's Section
    811 program to improve access to affordable housing for persons with
    disabilities. And many of the additional 34,000 Section 8 housing
    vouchers will aid non-elderly, disabled individuals.
        Initiatives such as the HOME Investment Partnerships Program and
    the Community Development Block Grant (CDBG) address the Nation's
    critical housing needs and stimulate economic development and job
    growth. Combined, these two programs will distribute an additional $200
    million in formula funding to State and local governments.
        We have increased CDBG formula grants next year by $95 million, to
    $4.4 billion. In addition, we have proposed changing the distribution
    of CDBG formula funds by reducing the size of grants going to the
    wealthiest communities. This will help bring dollars into those areas
    where they can do the most good.
        I am excited about a brand-new concept to address the large backlog
    of repair and modernization projects in public housing. The Public
    Housing Reinvestment Initiative represents a new way to leverage the
    value of public housing by allowing public housing authorities (PHAs)
    to borrow funds to make needed capital improvements. This will unlock
    the value of public housing assets by allowing PHAs to convert public
    housing units to project-based vouchers. The PHAs can obtain loans by
    borrowing against individual properties--similar to private-sector real
    estate financing.
        Innovative thinking like this represents a departure from the way
    things were done so often in the past--but being effective does not
    have to mean spending more money. Government works best when government
    serves as steward and facilitator, and measures success through
    results. By facilitating the involvement of new local partners, the
    Public Housing Reinvestment Initiative will breathe new life into
    public housing communities.
        I am proud of the HUD budget and the way it reflects the
    Administration's commitment to efficiency, accountability, and the
    principles of excellence expressed through the President's management
    scorecard. When government spends efficiently, the funds go much
    further. We reach more citizens. We help to change more lives.
        The people of HUD know that the American Dream is not some
    unattainable goal, because we see it achieved every day, so often by
    families who never imagined owning their own home or reaching economic
    self-sufficiency. Through our budget--and the continued commitment of
    President Bush--citizens will have tools and opportunities they can put
    to work improving both their lives and their communities . . . as they
    travel the road to achieving their own American Dream.
        I would like to thank each of you for your support of my efforts.
    The Subcommittee's guidance throughout the appropriations process last
    year was invaluable. I look forward to working with you in moving the
    fiscal year 2003 HUD budget forward, and I welcome your continued
    counsel as we work together on behalf of the American people.
        Thank you.

                               CORE HUD PROGRAMS

        Senator Mikulski. I know my colleague, Senator Bond, will
    ask in great detail the Section 8 questions. It is an issue in
    which we share identical concerns. And I know both of us are
    concerned with what is happening to the renewals, the whole
    issue of a database, and, most of all, the issues around
    production.
        Let me go to the core HUD programs. First of all, we know
    that there is a modest increase in CDBG, which we appreciate.
    But let me talk about the concerns I have in elderly, disabled,
    and Shelter-Plus. I note that in the administration's request,
    they did not fund Shelter-Plus Care. Estimates say that this is
    a need for about a $100 million program. This is viewed as one
    of the real effective programs to serve the homeless. Could you
    tell us the rationale behind it not being funded? And what then
    would be other alternatives to shelter-plus care?
        We were blessed this year with a mild winter. But still, if
    you are outside, no winter is mild.
        Secretary Martinez. No, I understand.
        Senator Mikulski. This was so much more comprehensive
    because it was service empowerment connected, as well as the
    temporary shelter one. Could you give us the thinking on that?
        Secretary Martinez. Well, Senator, first of all, let me say
    that I am, you know, very passionate about the homeless issue.
    And I have, since this summer, been saying that we should
    attempt to eradicate chronic homelessness in the next 10 years.
    And I think this is a dual goal, if we look at chronic
    homelessness as something that has much to do with problems
    that are ancillary to an issue of shelter, but more are really
    dealing with a person's mental state, or addiction issues, or
    other problems which is going to take this combined effort of
    the interagency council that we have put together to begin to
    bring to bear all of the resources of the Federal Government on
    this issue, so that we can make a difference and advance the
    issue forward.
        On the funding issue that you mentioned, though, what we
    have is a proposal that consolidates funding for cities,
    county, and State governments and would be based on a
    streamlined approach. No unit of government would be
    automatically entitled to these funds. Instead, eligible
    recipients would have to prove that their performance in
    expending funds met strong performance standards before a grant
    recipient is allowed to continue to receive the funds.
        But in terms of shelter care, the funding issue that you
    mentioned is that it was double-funded. And the Administration
    has had a policy of not forward funding. So the 2003 is funded
    through the appropriations in the year 2002. And we are now
    seeking to continue in that vein. But then, 2004 will present a
    new challenge, and we will deal with that at that time. So our
    goal is not to fund that, but simply to utilize the funding
    that was provided in prior appropriations and that should take
    care of 2003 expenditures.

                                  HOMELESSNESS

        Senator Mikulski. Well, Mr. Secretary, advocates for the
    homeless would dispute the OMB analysis. First of all, I think
    we are all agreed in a national goal. If we could work together
    to really have a foundation for eliminating chronic homeless in
    a decade, that would be a stunning achievement, because we have
    at so many of these programs for so many years, even going back
    to when----
        Secretary Martinez. Sure.
        Senator Mikulski [continuing]. Mr. McKinney slept on a
    grate, Congressman McKinney. So, I think we want to do that.
        The advocates for the homeless would dispute the whole
    issue of the double-funding, and then they would analyze it, et
    cetera. So why do we not just have our staffs get together----
        Secretary Martinez. Yes. We would do that.
        Senator Mikulski [continuing]. And talk about this----
        Secretary Martinez. I think we can walk through----
        Senator Mikulski [continuing]. So that we can assure that,
    number one, we work towards this national goal, that a core
    program in which there is experience and seasoning work. We
    know these are competitive grants. They are not micro-
    entitlements, which means it keeps everybody on their toes with
    fresh thinking and, yet, accountability.
        Secretary Martinez. If I might just assure you that the
    intent is the same. It is an issue of the mechanics of funding,
    but that there is no desire or intent to not continue to fund a
    Shelter Plus Care program.

                                ELDERLY HOUSING

        Senator Mikulski. Well, let us then go to the housing for
    the elderly. As we understand it, the elderly housing request
    is $783 million, the same as last year. And I believe that was
    pretty much the same as the year before. I am concerned about
    the whole issue of renewals and the increase in renewals.
        My staff says the renewals this year will cost $15 million,
    and that the renewal demand is growing. By their analysis of
    what the renewal cost will be the renewal costs are more than
    they were last year, which means----
        Secretary Martinez. Which program are we----
        Senator Mikulski. We are talking about elderly.
        Secretary Martinez. A voucher--elderly--I am sorry, I am
    not with you on this.
        Senator Mikulski. We are talking about the elderly
    vouchers; excuse me.
        Secretary Martinez. Okay. I am sorry. Okay. I wanted to
    make sure we are on the same page.
        We are fully funding, although it is a flat funding level,
    but it is fully funded from what it was in the prior year.
        Senator Mikulski. You think you are going to have enough
    money to meet the renewals and to also--they are nodding their
    heads. Why?
        Secretary Martinez. I believe--yes. We feel comfortable
    with what we are requesting, that we will be able to fund all
    renewals.
        Senator Mikulski. Well, again, the sole renewal of
    contracts, that is another area of concern that, I think,
    requires further conversation.
        Secretary Martinez. We should obviously----
        Senator Mikulski. And the way we say further conversation
    is that Senator Bond and I both have a very big amendment on
    the floor this year, this minute.

                                    HOPE VI

        Let me get off the renewals and go to HOPE VI. HOPE VI is
    scheduled to be re-authorized. Some people call it a big
    success. Some people call it too costly. Some people say that
    the poor have been displaced, not to be able to come back to
    the very community that was helped or rebuilt. And also, HOPE
    VI has now been here for a while. So the question is: Where are
    we on the future of the HOPE VI? My question will be: What is
    the Administration planning to do for analysis and
    recommendation for the re-authorization? Senator Sarbanes and
    I, Senator Bond, and I know Senator Graham want to work very
    closely on this.
        And then, is it really time to think totally different
    than--have we been? HOPE VI was created to deal with severely
    distressed public housing. It came out of a housing report more
    than a decade ago. Could you give us a navigational chart for
    where you want to go with getting us ready for re-
    authorization?
        Secretary Martinez. Well, first of all, we think----
        Senator Mikulski. And should we re-authorize it at all?
    Should it be sun seted?
        Secretary Martinez. No. First of all, we think it should be
    re-authorized. We think it is a very positive program and one
    that has done a lot of good across the country. We believe that
    there are some things that we should do, as we go forward with
    the program, and some improvements that we think would make it
    even better. I think that we need to be very cautious about the
    dislocation issue and the way in which we administer that, to
    ensure that people are treated with the best amount of not only
    good intentions, but also good outcomes in terms of their
    relocations.
        We need to also be aware of the number of units that are
    devoted to the people who are living in public housing. And it
    can be done. We have a project here in the District where 100
    percent of the residents of public housing are going to be
    coming back to the new project in a new, reconfigured
    development. And I think that is very positive.
        We believe that we need to even out the playing field,
    because I think that in the past there has been a great
    accumulation of HOPE VI grants in certain communities who have
    not the capacity to put out the projects because so much money
    has come to them. And we need to make sure that we are allowing
    other communities to participate in the HOPE VI program. In
    other words, I think it was focused on some of the most
    egregious mistakes of public housing. I think now we need to
    make that more available to more places around the country.
        Senator Mikulski. Well, are you doing an internal analysis?
        Secretary Martinez. Yes, we absolutely are. And we will be
    coming to you with recommendations. We believe a number of
    these things can be done within the existing statutory
    framework. But we want to have that discussion and present to
    you what our recommendations will be.
        Senator Mikulski. So you have an internal analysis going
    on? And then you are also, I presume, working with the Urban
    Institute, who has been conducting an almost ongoing
    longitudinal study of lessons learned from HOPE VI? Because
    what we wanted was not a real estate program. We did not want
    to do real estate development. We wanted to do community
    building----
        Secretary Martinez. Right.
        Senator Mikulski [continuing]. Both in terms of a fiscal
    infrastructure, but also a social infrastructure that took the
    people not only away from distressed public housing, but
    through empowerment, job training, stakes in the community, et
    cetera.
        Secretary Martinez. There are some terrific examples out
    there. And we are going to be working with the Institute. In
    fact, I can recall being in Jacksonville, Florida, where they
    have done not only a redevelopment of HOPE VI, but they have
    also incorporated in it Habitat for Humanity housing within the
    property of what was previously a public housing community.
        And so, the public housing residents can then progress into
    home ownership right there, in the same area as people who
    built the house and then move on to a nicer house. So they have
    a nice cycle of progression going on in the project in
    Jacksonville, which I think is noteworthy. But yes, we are
    definitely pursuing that and working with the Institute.
        Senator Mikulski. Well, I am going to turn to my colleague,
    Senator Bond. When do you think your analysis will be
    completed?
        Secretary Martinez. Well, I am told the Urban Institute
    draft is now complete. So we should have a report--the Congress
    had asked by June 15.
        Senator Mikulski. That is fine. Thank you.
        Secretary Martinez. I think that would be the target date
    that we should use.
        Senator Mikulski. Thank you very much.
        Senator Bond?
        Senator Bond. Thank you very much, Madam Chair.
        And thank you, Mr. Secretary, about your kind words about
    HOPE VI. As one of the fathers of the program----
        Secretary Martinez. Yes, sir.
        Senator Bond [continuing]. I am glad you did not trash it
    totally out of the----
        Secretary Martinez. You should be----
        Senator Bond. And we are very proud. Murphy Park in St.
    Louis, which really was the prototype, shows great promise. And
    we are working on Darts-Webby and some of the others. But
    having said that, we know that the costs are too great in many
    areas. And the Federal Government winds up with significant
    soft costs.
        So we are, while we think the program is going in the right
    direction, we really would like to reform it and make sure we
    get our money's worth out of it. Because it has the potential,
    it meets a great need, we want to make sure it does it in a
    responsible manner.

                       CONFIRMATION OF INSPECTOR GENERAL

        Turning now to your comment. I want to build on your
    comment about the need to get an inspector general confirmed.
    And I am very distressed with what is being held up. Because
    with the Department going through the kinds of changes that you
    are, you need a new broom to sweep clean. And I am very much
    concerned that a couple of my colleagues--and I say this for
    the record. And I will be more specific when I go to the
    floor--several of my colleagues are holding up the nomination
    of the HUD IG because HUD has refused to provide preferential
    treatment and funding for HUD projects in Pittsburgh and
    Indianapolis.
        I have very strong concerns about the proposed resolution
    of the issue, because it would hold a community group harmless
    upon default of a HUD debt on a project it owns and for which
    it has promised to maintain as low-income housing for some 30
    to 50 years. I understand these projects are in poor shape and
    may not be appropriate for where they are located. But I would
    really hate to see HUD end up rewarding the community group
    with future project funding arising from this very same
    transaction, despite the failure of the group to meet its legal
    obligations.
        I do not believe it is appropriate that HUD provide
    incentives for any number of owners to walk away from HUD
    projects when it suits their convenience. And I intend to
    provide support for HUD so it is not pushed into that position.
        Would you care to comment?
        Secretary Martinez. Well, Senator, I appreciate your
    comments. I believe that having a confirmed Inspector General
    is very, very important to HUD's work at a time when we are in
    the midst of serious investigations dealing with Anti-
    Deficiency Act violations by an agency under HUD tutelage,
    which has been of great concern. It is an issue where that
    Department, that agency, that entity needs the leadership of an
    Inspector General and has been languishing for months.
        The fact is that we have tried to be as flexible as we
    could to provide assistance to communities by working with
    them. And we have bent as far as we can bend in good
    conscience. We will not go beyond good conscience. And at some
    point the Senate, in its wisdom, will have to determine what
    happens to the nominees of HUD.
        The fact is that we are doing the best we can with the
    people we have there. It would be great to have the nominees,
    but at some point we have to do what we think is right for all
    the American people. And then others will have to search their
    conscience to do what they think is right.
        Senator Bond. Stay with it, Mr. Secretary. I hope Senate
    wisdom is not an oxymoron.

                                STAFFING ISSUES

        Turning to HUD staffing, over the last few years, the
    Department depended on community builders to administer most of
    the functions of the Department, without regard to program
    needs or staff expertise. You now issued a new realignment and
    redevelopment plan. I think it is extremely important. This is
    one of those non-sexy issues that is critical for the
    successful management of your Department.
        What is the status of it? Do you expect to have to hire
    additional staff? And what will the impact on HUD's Salaries
    and Expense account be?
        Secretary Martinez. Well, first of all, let me say that
    every function at HUD should be tied to a programmatic area.
    And so therefore, we took about 800-and-some-odd community
    builder positions and have redeployed them back within the HUD
    system. What we have done is we have done this with no layoffs
    and no firings. We have done it also with only a very minimal
    number of upper management changes in terms of locations. So it
    has been very, very little disruption to the work force, while
    at the same time bringing people into focus to a specific
    program area where they should be deployed. This is already
    well under way, pretty well taking place. And as a result of
    it, I think we will have some period of time to just see how it
    all shakes out in terms of the number of FTE's that we have.
        We had--last year, at the beginning of our budget process,
    we had about--a number of vacancies.
        How many vacancies? Several hundred?
        So, we believe that we do not need new positions at this
    point, because we are going to try to fill in those extra
    several hundred vacancies that we had. And as we do that,
    obviously in natural attrition taking place, we could not
    really handle bringing in more people than that anyway, not
    doing it prudently and judiciously.
        Something else we are doing, Senator, is we are retraining
    folks as we do this redeployment so that I do not hear the
    stories I heard when I first visited in some communities. And a
    HUD employee would tell me: I used to be in housing. Now I am
    in public housing. I do not know anything about public housing.
    So I do not know what to do on my job. Because there were no
    dollars for training. So we are making sure that work force is
    trained for the job to which they are assigned.
        Senator Bond. Sounds reasonable.
        If you would permit me, Madam Chair, I want to follow up--
    --
        Senator Mikulski. Senator, I know that you are the lead
    sponsor with Carl Levin on this amendment. And I will be
    joining you at that 11 o'clock meeting.
        Senator Bond. Okay.
        Senator Mikulski. But why do you not take your time, so you
    do not have to worry about a second round? And then I will do
    the wrap-up. Does that sound good?
        Senator Bond. I tell you what, let me just ask the public
    housing questions. I need to see a constituent outside. And I
    will come back and take one more, maybe take one more round.
        Senator Mikulski. Okay.

                          PUBLIC HOUSING CAPITAL FUNDS

        Senator Bond. But let me focus, Mr. Secretary, on the
    Public Housing Capital funds. A proposed $400 million reduction
    in Public Housing Capital Funds, I think that is very
    excessive. I would ask you how OMB justifies the reduction from
    public housing.
        Secretary Martinez. Well, first of all, Senator, I think we
    made some very substantial changes in the way that Capital Fund
    is utilized last year. And I think that the Congress ought to
    be commended for that. I think it will be very, very positive
    in the way that it assists the utilization of the dollars.
    But--and better management of them as well.
        I think the concept there was to try to initiate a new way
    in which we could allow project funding to obtain financing to
    redo these projects and allow them to be modernized by using
    private financing. To the extent that may be successful, and we
    think it can be successful, we believe it can advance the
    opportunity for projects within a public housing unit to be
    improved and modernized.
        If that were not to work, I did not intend, in any of our
    discussions with OMB, that there should be a penalty associated
    with a capital fund for public housing. So I would be prepared
    to come back to you and request additional funds, if, in fact,
    the private financing options did not work and did not prove to
    be successful.
        Senator Bond. Well, Mr. Secretary, I think you got my drift
    in my opening comments. What I see this as is a back door way--
    and there have been some in past administrations, apparently
    this administration, that want to voucher out public housing.
    So once you get private funding in, I see this as the camel's
    nose under the tent, that you take the best projects, you get
    private funding for them, then you just support them on
    vouchers. And you really change the nature. And you put the
    burden--you move the burden to the Section 8 program to keep
    these going, rather than funding them as public housing.
        I think you either see your costs go up with Section 8 and
    pay a lot more in Section 8 or, if you do not keep it filled
    with Section 8 people, you are going to lose some of the best
    quality public housing to market rate or to others.
        So, I see this as a proposal shifting the cost of public
    housing from the Public Housing Operating in Capital Funds to
    the Certificate Fund. And I see the best units in public
    housing converted to private housing with the inventory of
    affordable housing in many market places shrinking. Why am I
    wrong in that assumption?
        Secretary Martinez. I am sorry, Senator. I am----
        Senator Bond. What is wrong with my assumption? Can you
    allay my fears and suspicions?
        Secretary Martinez. Secretary Liu and I were just
    discussing it, because I wanted to have a chance to have the
    benefit of his thinking in how I should respond to your
    question. I think that----
        Senator Mikulski. His questions really express my
    sentiments completely. We are like twins on this.
        Secretary Martinez. I am going to ask Secretary Liu if he
    could touch on this a little bit.
        Mr. Liu. Senators, the proposal was by no means from HUD's
    view, a back door way, nor intended to be a way to voucher out
    the program. We clearly see this as another tool, similar to
    what we have developed under moving to work, where housing
    authorities have been very aggressive in utilizing that
    mechanism to go into the bond markets to get very sizeable
    investments from the private sector, as well as doing debt
    financing.
        But a key barrier that they have found is that our subsidy
    methodology, whereby we give capital funds in the aggregate,
    makes it much more difficult for them to target specific
    project sites in which they can then bring in at a much more
    reasonable time frame; i.e., in our lifetimes; the dollars to
    deal with the needed backlog, which was mentioned by the
    members in their opening comments.
        We also see, in fact, that this is a methodology that could
    possibly deal with the need to develop more affordable housing.
    By project-basing a building, initially, say if you have 100
    units, that does not mean that those 100 units need to be
    locked into that physical setting for all time. It allows--it
    gives the option. And again, this whole program is optional.
    This is not something that we would be mandating any housing
    authority to move into. It would allow a particular housing
    authority to move a segment of units, or the value of those
    units, to other properties that they might either acquire or
    want to develop to create even more affordable housing.
        So, we view this as another tool among many; not a panacea,
    but another tool to give housing authorities greater
    flexibility in which to attract their needed financing to deal
    with their major rehab or potentially new development needs. We
    have tremendous interest by a number of housing authorities. I
    was out in Fairfax just 2 weeks ago. They would love to be able
    to use this tool.
        We have had calls from ``Moving-to-Work'' cities that right
    now looked at the concept and felt that, boy, perhaps they
    could do it under ``Moving-to-Work'' right now. So, we have had
    very strong interest from housing authorities themselves, and
    from resident groups.
        Senator Bond. Well, obviously your objectives are similar
    to our objectives. But, boy, we really have some questions
    about that road. We really look forward to having further
    discussions.
        And, Madam Chair, I am going to turn the questions back to
    you. Thank you.
        Senator Mikulski. Well, thank you.

                             MILLENNIUM COMMISSION

        Of course, the whole issue of affordable housing and the
    best ways to do it, you know, are really also being addressed
    by the Millennium Commission.
        Secretary Martinez. Yes.
        Senator Mikulski. And while we are pondering this year's
    appropriation, from what I have heard from participants I know
    on the commission, they are really working very hard, can meet
    their deadlines. And it is this committee's intention to hold
    some type of either hearing or round-table with them for these
    discussions, because we know they are intractable.
        But let me come back to----
        Secretary Martinez. May I comment on that, Madam Chair----
        Senator Mikulski. Yes. Please go ahead, sir.
        Secretary Martinez [continuing]. Just to be sure you know
    that we have been very closely monitoring their work.
        Senator Mikulski. Yes.
        Secretary Martinez. Chairman Ravich and I have met on a
    number of occasions, and also Vice-Chair Molineri, or co-chair.
        Senator Mikulski. Yes.
        Secretary Martinez. And so we have been very much keeping
    up with her work. And we would look forward to that kind of a
    dialogue when it comes.
        Senator Mikulski. That is why I say we really look forward
    to that.
        Secretary Martinez. Fine.

                  MANAGEMENT INFRASTRUCTURE AT PUBLIC HOUSING

        Senator Mikulski. One of the things we talk about, though,
    the issues of the Capital Fund, the shrinking Capital Fund is
    troubling to me, the same as Senator Bond. What also, though,
    is troubling to me is management infrastructure at public
    housing. So whatever programs we do--and they go to the mayors
    or the county executives, as our able secretary once was and
    still thinks like one.
        Secretary Martinez. Right.
        Senator Mikulski. You know, from reports that I have
    gotten, there are 237 out of close to 2,000 public housing
    authorities that have been scored as ``troubled.'' I do not
    know what ``troubled'' means. But I am troubled, because so
    many of the public housing authorities do not seem to be able
    to keep track of their Section 8s. They do not seem to know
    what to recommend in terms of their backlogs. And I could go
    on.
        Could you tell us what, number one, HUD means when they say
    a public housing authority is ``troubled''; what is its
    criteria? And what is its plans to turn them around? Because so
    much money ultimately comes to them. And if they do not know
    what to do with the money, it certainly is not going to help
    the poor, the communities, et cetera.
        Secretary Martinez. Let me answer your question first in a
    large, global sense. And then I am going to ask Secretary Liu
    to answer in the more specific sense.
        One of the things that I find most distressing in my job is
    to get my morning clips and have my daily review of who has
    been indicted and who went to jail and who was fired because
    they were using HUD funds in the public housing arena.
        Unfortunately, that happens all too often. And I find it to
    be a number of issues with it that, I think, I should comment
    on. First of all, I believe that there has been sort of a
    ``boys will be boys''--or ``girls will be girls,'' but a sort
    of an understanding that--that is just part of what happens in
    public housing, that it just often times ends up that way, and
    so be it.
        This Administration has taken an attitude that this is not
    acceptable and that we have got to do better than that.
    Because, you know, at any time, as you very well mentioned,
    that a dollar is misused by a public housing agency and it is
    going to some person whom it does not belong to, that is being
    taken away from a single mother like we met that day at that
    new house that she was so proud to be the owner of, trying to
    raise a couple of young children. And it is about the way that
    people live in America in ways that they should not live.
        We recently have taken administrative action to completely
    manage--or completely take over the management of the New
    Orleans Housing Authority, a troubled housing authority for
    many, many years. I believe that, along with whatever we can
    tell you specifically as to what it means to be ``troubled''
    and how we bring a housing agency back into better management,
    that there is a tremendous amount of responsibility that rests
    with the Nation's mayors and city councils and governing boards
    of communities that ultimately have the responsibility for
    their public housing.
        And I want to make sure that we, as we go forward and do
    whatever we can from the Federal level, that we do not forget
    to put the responsibility where it certainly lies, which is
    with the Nation's mayors, who appoint the people to the boards
    of public housing, who in turn appoint their executive
    directors.
        So I think it has to be a shared responsibility, part of it
    Federal, but a huge part of it has to be an understanding that
    we will not put up with it and that the locals have got to do
    better.
        Now let me have Secretary Liu on the specifics.

                           PUBLIC HOUSING AUTHORITIES

        Mr. Liu. Madam Chair, there are two evaluations that we
    use, one specifically focused in on the management of the
    Section 8 program and another which looks at larger issues
    regarding performance for the public housing authorities. If
    they score below certain levels, they then are considered
    ``troubled.''
        Now even----
        Senator Mikulski. What are the top three criteria, Mr. Liu?
        Mr. Liu. Under Section 8, we have utilization rates, we
    have reporting requirements to report in a timely fashion. Are
    the vouchers that are issued actually issued in a timely
    fashioned? Are people actually placed?
        So, the main thrust of the measurement is the
    Administration getting the vouchers out. And then second, are
    they actually used? Those are the major items which we are
    focusing on. And to put into context, 237 is not insignificant,
    but there are close to 3,500 public housing authorities.
        We have allocated approximately $10 million for the
    provision of technical assistance to address those agencies
    which are troubled, technical assistance in most cases in the
    form of providing contractor help to the housing authority for
    the specific problems that they might have.
        Then within the categories of troubled agencies, there are,
    of course, varying levels. There are some which are border
    line, which might need just a little assistance. Perhaps they
    are just not good in reporting back to us in a timely fashion
    of what is going on. And then, of course, there are the more
    egregious situations, where they need a tremendous amount of
    assistance in providing counseling and providing education to
    home owners, et cetera, apartment owners, et cetera, who are
    involved in the program.
        So that, in a nutshell, is our approach to dealing with
    that and our plan to deal with that.
        Senator Mikulski. Well, first of all, I appreciate that.
    And I want to acknowledge what the Secretary said. Where there
    is fraud, that is totally unacceptable. And I believe that HUD,
    its Inspector General--and I believe we need one approved
    expeditiously. We have to really prosecute. And I mean it in
    the metaphorical sense, through the proper authorities.
        In addition to the overt fraud, there are the concerns that
    I have over incompetency. And then just complacency and being a
    laggard. First, I am going to salute any public housing
    authority that is doing a good job. It is really hard to work
    with the poor, in poor neighborhoods, with crack cocaine
    continuing to be an insidious virus in our communities.
        So for those who are doing a good job, God bless you. But
    for these others, there is this culture that you are talking
    about that is corrosive. And it goes at every staff level. So I
    believe that yes, the mayors or county execs, the local
    governing body, have to take initiatives. But I would hope that
    really what HUD does--and we need to look at this--is set
    national standards and then training of these housing
    authorities where they can also learn from their peers.
        Secretary Martinez. Absolutely.

                            UTILIZATION OF VOUCHERS

        Senator Mikulski. Because ``been there, kind of done
    that,'' knowing what the struggles and challenges are. And that
    is the training aspect.
        I am going to go to the criteria, though. It deals with the
    utilization of vouchers. That is one of the core aspects on
    which they should be judged. But our concern is, are they just
    dumping the vouchers? In other words, if they are measured by
    just getting them out, are they just dumping the vouchers?
        Number two, what are they dumping the vouchers on? A lot of
    the places that I have seen that get Section 8 are really
    dysfunctional housing units. Then we saw what the housing
    Section 8 does by taking over an apartment building and, where
    the poor have a voucher, and they think it means something, but
    it means nothing else than what they had lived in.
        And therefore, what is the criteria for the housing? I know
    landlords do not always want to take the poor. There have to be
    incentives. This is a really big issue about how public housing
    authorities, what is our criteria? What should our criteria be?
    And then also, it comes back to production.
        Now, Senator Bond and I have a big amendment on the floor.
    And we are going to be wrapping up in about 10 minutes. You see
    how all this is linked? I am troubled about us not being able
    to seem to get anywhere with this----
        Secretary Martinez. Well, Senator----
        Senator Mikulski [continuing]. Acknowledging your goodwill
    and your administrative talents. So----
        Secretary Martinez. Well, and let me say that we are
    focused on the issues. And you raise some very good points. I
    think, number one, we should give kudos to those good housing
    authorities. And I know that sometimes the people in the
    industry feel that I am always beating up on them because I
    talk about these problems. We have to talk about the--you know,
    unfortunately, it is the troubled ones that usually get our
    attention. There are many, many hundreds and thousands of them
    that are doing a great job.
        But as to those that are troubled, we have got to pay
    attention to them. You are absolutely right. We have dollars
    that go to training. We have dollars that go to training of the
    executives and the commissioners, as well. And we understand
    the need for us not only to deal with what might be fraud, what
    might be illegality, but also what might be just plain
    management problems. And I think those are important issues to
    focus on.
        In terms of the Section 8 dumping, can you address that?
        Mr. Liu. Madam Chair, as I mentioned, that is a concern, if
    that is going on. But we link not only the issuing of the
    vouchers, we also link the actual placement of people to get
    the right picture, hopefully, across the board.
        Senator Mikulski. I do not know what placement of people
    means, Mr. Liu.
        Mr. Liu. I mean, that once they get the voucher, they can
    actually get into an apartment, that they are actually----
        Senator Mikulski. A safe, sound apartment?
        Mr. Liu. Yes. But then, of course, they have to also follow
    inspection protocols. And they have to report to us on those
    inspection protocols.
        Senator Mikulski. I do not believe a lot of them do it.
        Mr. Liu. Well, we----
        Senator Mikulski. I do not believe they do it.
        Mr. Liu. We hope that we catch them within the numbers that
    you mentioned. And we will be taking the actions necessary,
    remedial in those cases where they are open to that and where
    that can happen, and, of course, prosecutorial, if in fact it
    is required. You are absolutely right.
        Senator Mikulski. Senator Bond. We could talk all day about
    this.
        Senator Bond. Thank you, Madam Chair.
        Let me just add--I'll try to make these questions quick.
    And I hope that the extensions can be for the record.

                                MARKET-TO-MARKET

        Market-to-Market is obviously something we have worked on
    for a long time, providing a mechanism to reduce the cost of
    over-subsidized, expiring Section 8 contracts while preserving
    the housing. I would like for you to supply for the record how
    much Section 8 funding has actually been saved by the program,
    how many projects have been preserved with Section 8, how many
    projects have been removed from Section 8 inventories, who
    opted out of their Section 8 project-based contracts.
        And I would just ask if you can comment generally on the
    program?
        Secretary Martinez. Sir, we will provide you with the
    information that you seek.
        Senator Bond. Thank you.
        Secretary Martinez. I think that we have--after a slow
    start, that program, I think, has been hitting its mark, if you
    will. And I think it is doing a good job of preserving the
    Section 8 contracts. So, we feel good about where it is today.
    We think it took a long time ramping up, but we do feel like it
    is beginning to bear some fruit. And we will get you some
    details.

                 OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT

        Senator Bond. Okay. Something this Committee has been
    working on for years is OFHEO. It took almost 10 years for the
    Office of Federal Housing Enterprise Oversight to issue risk-
    based capital standards for Fannie Mae and Freddie Mac, despite
    a requirement that they be issued within 18 months of the
    appointment of the director. I am very much concerned about a
    proposal that would remove funding for this office from the
    jurisdiction of the Appropriations Committee.
        We see no good reason provided for the recommendation.
    Frankly, it is because we have been on their case because they
    have failed to do their job. We ought to kick them and stomp
    them and make them do their job. And now somebody thinks that
    they would be better if they did not have our kind in general
    oversight.
        A number of groups that do business with the GSE's and who
    will be impacted by the regulation express concern that there
    will be little accountability of OFHEO for possible decisions
    that could damage financial markets. Do you have any views on
    where OFHEO ought to be and what is the best way to ensure its
    accountability?
        Secretary Martinez. I believe that it should be under your
    continued, gentle guidance. And I think that anything we can do
    to strengthen OFHEO, to improve its ability to do its
    regulatory work by having an OFHEO that is enhanced in its
    ability to do what it does, staffing and otherwise, I think it
    is to the good. I think that GSE oversight is a very, very
    important thing to our markets and to our economy. And I
    believe that the best place to do this is within the current
    OFHEO frame work but with a strong, viable OFHEO.

                      INTERAGENCY COUNCIL ON THE HOMELESS

        Senator Bond. And finally, a couple years ago, the
    Subcommittee reactivated the Interagency Council on the
    Homeless, because we were very much concerned that we needed
    much better coordination in the programs and activities to
    prevent and end the tragedy of homelessness. We made a number
    of important changes in the operation to ensure that it was not
    a HUD-driven process and that the council receives the support
    it needs from The White House.
        We are thrilled that Philip Mangano has been selected to
    head the Council. But I want to make sure the Administration is
    complying with the letter and intent of the legislation to
    ensure that we have full participation from the various
    agencies, and it is not solely a HUD-driven exercise.
        Would you care to comment on that?
        Secretary Martinez. Yes, sir. And let me assure you that is
    the case. It is intended to be a White House-driven initiative.
    Mr. Mangano was hired through The White House. He is going to
    be housed at HUD physically, but it is going--that inter-agency
    council, which had not convened since 1997, we are now bringing
    it into full activity. We are doubling the budget for it. And,
    in fact, the other departments that are asked to be
    participants in that are going to be asked to participate.
        Secretary Thompson and I have met on the issue of
    homelessness before. We both sent together our people to work
    together to try to come up with the kinds of interaction and
    conversation that would lead to better outcomes and not just
    bureaucratic turf protection. But I assure you that my intent
    is not to dominate this debate but to share that opportunity
    with my colleagues in the Cabinet.
        Senator Bond. Thank you very much, Mr. Secretary. I will
    have questions for the record on Section 8 fraud and abuse by
    non-profits in D.C. and some more on the homeless issues. There
    are so many things. Unfortunately, I have to leave. But I
    appreciate it, Madam Chair.
        Secretary Martinez. Thank you, Senator.
        Senator Bond. Thank you very much.
        Senator Mikulski. Senator Bond and I, along with Senators
    Allen, Stabenow, and others, have an amendment on the CAFE
    standards. And for us, it is a big job issue. And it is a
    pretty intense day.

                               PREDATORY LENDING

        Mr. Secretary, as we wrap up, I want to thank you for the
    ongoing engagement of HUD and your able staff on the predatory
    lending issues, both using Baltimore as the laboratory, and
    also--continuing to address these on a national level. I also
    note in the audience is Laurie Maggiano from HUD, and we want
    to thank her for her ongoing involvement. We really appreciate
    her professionalism and pragmatism in dealing with these
    issues. So, we want to thank you for that, as well as we get
    ready issues to work on the Prince George's issue.

                   NATURALLY OCCURRING RETIREMENT COMMUNITIES

        I was so pleased to hear you say that you are having
    ongoing conversations with Secretary Thompson, because another
    issue I know the Committee shares is what they call the NORC's,
    the Naturally Occurring Retirement Communities, that cannot be
    solved with housing and cannot be solved with social services
    by themselves.
        And I know HHS is embarking on some demonstration projects
    to look at how to deal with this. And I would ask your staff to
    liaison very assertively with those. Because I think this is a
    significant issue that is emerging. And with common sense and
    creativity, I think we can really be doing some very good
    things.

                       COMMUNITY DEVELOPMENT CORPORATIONS

        And the last issue is, and it comes back to what we
    discussed with public housing authorities, capacity building.
    We need to be looking at building housing and promoting home
    ownership. But the people issues, I think, are--not only the
    poor people, but those who administer programs. I would really
    encourage you to look at this for our public housing
    authorities but, also, how HUD can work with Neighborhood
    Reinvestment or some of the other groups can work to think
    about how we can think about capacity building for our CDC's.
        One of the things that is emerging in my own home town are
    even certificates and programs now for non-profit management.
    The non-profit sector is such a robust sector, as you know. And
    we are public/private partnership----
        Secretary Martinez. Sure.
        Senator Mikulski [continuing]. We are a public/private
    partnership group here. But CDC's are so uneven in terms of the
    executives' abilities, background, and training. Again, this is
    no fault.
        Secretary Martinez. Right.
        Senator Mikulski. And also, even their boards. You know, if
    you are in a private sector, you have board scrutiny and
    transparency and all those things; we are held accountable. But
    non-profit boards, very often it is volunteer work.
        Secretary Martinez. Right.
        Senator Mikulski. And some of the board members, a lot of
    the board membership are community-based people who have not
    had experiences with accountability. They want to do these
    things.
        And I think that this whole issue of capacity building is
    something that we need to think about. I am not looking to put
    a line-item in the bill; I am not looking to do this. But
    Neighborhood Reinvestment has done a lot of this thinking. And
    I would like HUD to think about it, too.
        I think we need to go over after the CDC types that really
    skim the system or game the system. I think they are few. So,
    should we have a CDC certification program, if you will? But I
    am interested in those CDC's where the executive director is
    either a bachelor of arts, maybe like in my own field of social
    work, that did not have business training, or it could be a
    community leader, who is charismatic, who is compelling, who
    knows how to save a neighborhood, but wants to operate it like
    out of a cigar box herself or himself and has not had that
    background.
        And things do not work out. And we want to be sure that
    they do work out. And I know this has to be solved at the local
    level. But I am looking, then, for creative ideas, because I
    truly believe the Community Development Corporation could have
    the same impact on communities as our small to mid-sized
    business. It is where the new ideas are. It is closest to the
    people. It should be governed in a way that reflects those
    local needs and so on.
        But I am really looking at ideas on how we can facilitate
    empowerment and training initiatives at the local level. And it
    might----
        Secretary Martinez. I was just going to say, Senator, I
    share your passion for that, because I think that is an engine
    of ingenuity and----
        Senator Mikulski. That is a great phrase.
        Secretary Martinez. But I think in addition to that, that
    HUD does a disservice to these organizations when we waive
    rules and facilitate them getting in over their heads. And
    clearly, that is what happened in the District of Columbia
    example that we have been talking about today. I think when HUD
    works best is when HUD forces the system to operate within the
    guidelines that have been well laid out by the Congress and by
    regulations, to ensure that the organizations receiving the
    funding or receiving the housing opportunities are
    organizations that have the capacity. And if they do not, we
    can work with them to build them to that level.
        But when we weigh the rules and pretend that is all going
    to work out okay for some more immediate purpose, frankly, that
    sometimes just does not work. And there was a tragic example
    here in the D.C.; example, where a number of rules were waived
    and they should not have been.
        Senator Mikulski. Well, I think that is a very good point.
    But again, along with that, because I think there is the
    criteria of getting rid of the fraud and focusing on those
    issues. But I really would hope you would also look within HUD,
    the non-profit sector that I know you have an excellent
    relationship with, and perhaps even--like Neighborhood
    Reinvestment. That is only a suggestion.

                         ADDITIONAL COMMITTEE QUESTIONS

        And it is this committee's intention to have a longer
    conversation with you on some of these priorities. And I really
    want to thank the President and your leadership. Because the
    stresses of homeland security are indeed there, both from a
    physical as well as a psychological standpoint in our
    communities. And the fact that we could stay the course is very
    good. And so we are going to look at how we can make even wiser
    use of the money, empower the poor, build neighborhoods, and
    build capacity.
        [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 Barbara A. Mikulski

                              incremental vouchers
        Question. The fiscal year 2003 budget request includes 34,000 new
    incremental vouchers. All of the vouchers requested are targeted to
    specific populations. What is the justification for targeting versus
    providing some of the vouchers on a fair share basis?
        The Administration's budget proposes to make $40 million for people
    with disabilities available from the request of $204 million for
    incremental vouchers. This would allow for funding of approximately
    7,900 vouchers for non-elderly people with disabilities that have lost
    (or are expected to lose) access to public and assisted housing as a
    result of projects being designated as ``elderly only.'' If Congress
    accepts this recommendation, it would bring the 7-year total for this
    effort to address the impact of ``elderly only'' designation to nearly
    $300 million. Can you update the Committee on HUD's efforts to
    implement and monitor this program?
        Answer. The proposed budget legislation indicates that of the $204
    million proposed for these vouchers, up to $40 million would be used
    for non-elderly disabled; up to $6 million would be used for
    initiatives related to the Olmstead decision, that allows the use of
    vouchers for persons currently living in institutions to live
    independently; and up to 500 units will be dedicated to homeless
    veterans pursuant to the Homeless Veterans Comprehensive Assistance Act
    of 2001. The rest would be split among the other uses including fair
    share with particular emphasis on downpayment assistance.
        Out of the $204 million designated for incremental vouchers, the
    Department proposes to make $40 million available for non-elderly
    persons with disabilities living in public housing units or other
    subsidized housing units that are now being designated for occupancy by
    ``elderly only''. This $40 million will support approximately 6,700
    vouchers.
        From fiscal years 1997 through 2001, approximately $210 million has
    been appropriated for non-elderly disabled vouchers under the Housing
    Certificate Fund. Of the total $210 million, approximately $150 million
    was used in connection with ``elderly only conversions'' based on the
    applications received by HUD for such funding. The remaining $60
    million was transferred to the mainstream program because HUD did not
    receive sufficient applications from Public Housing Agencies (PHA) for
    elderly only conversions to make full use of these funds. In fiscal
    year 2002, another $40 million was enacted that are expected to support
    additional 7,900 vouchers.
        Question. Specifically, can you provide additional information
    regarding: a) whether housing authorities receiving these vouchers are
    making them available exclusively to people with disabilities after
    their initial 1-year term,
        Answer. PHAs are advised in the Notice of Funding Availability
    (NOFA) that PHAs are required to initially make these vouchers
    available only to non-elderly disabled households even if it takes more
    than 1 year to initially issue these vouchers for this purpose.
    Furthermore, the NOFA also directs PHAs that if any of these vouchers
    are returned within the first year term of the annual contributions
    contract, the turnover voucher must be made available to another non-
    elderly disabled household. In the case of vouchers funded from Section
    811 appropriations these vouchers may only be used for elderly
    households with a disabled person, including the use of any turnover or
    renewals.
        HUD is in the process of developing the ability to track the actual
    number of vouchers used by households having a person with disabilities
    for which funding was specifically provided from the funds available
    for ``elderly only conversions.'' This is in the initial phases of
    development, and will be implemented within 1 year.
        The most recent data shows that 39 percent of the households that
    receive voucher assistance have at least one person with disabilities;
    more than half (22 percent of the total households receiving voucher
    assistance) are non-elderly households with a person with a disability.
        Question. Are housing authorities using turnover generated from
    these vouchers to serve non-disabled families?
        Answer. After the first year is up, these vouchers are renewed and
    the non-elderly disabled households under a lease continue to receive
    the benefit of the voucher assistance. However, after the first year,
    it is up to the PHA to continue the use of any turnover of these
    vouchers for non-elderly disabled households based on local housing
    needs. It is worth noting that once a disabled family uses its voucher
    to lease a unit, the turnover of such units is very low.
        Question. Is HUD providing protection from recapture of these
    disabilities vouchers similar to the protection provided to ``welfare-
    to-work'' vouchers?
        Answer. In appropriating funds for families affected by ``elderly
    only conversions'', the objective was to protect persons living in the
    projects, or on the owner's or PHA's waiting list, from any injury that
    would result in their loss of housing assistance as a result of the
    ``elderly only conversions.'' Once this initial protection was
    provided, any other household with a disabled person may apply and be
    placed on the waiting list for vouchers or public housing. Many PHAs
    give preference for admission to households having a person with
    disabilities.
        Question. Are housing authorities that have had ``Allocation
    Plans'' approved contingent on seeking vouchers under this program have
    actually followed up and applied for them?
        Answer. Welfare-to-Work (WtW) vouchers are afforded a longer
    ``protection'' in order for HUD to comply with the law. Specifically,
    the law authorizing the WtW program requires that HUD conduct research
    and evaluation concerning the effectiveness of this demonstration. In
    order to have sufficient vouchers on which to base its evaluation, HUD
    had to extend the protection given to households participating in the
    WtW program,
        HUD does not have this information at this time. We will conduct an
    analysis of plans approved to date to identify those with approvals
    contingent upon the receipt of designated housing vouchers. We will
    also determine whether these agencies have applied for and received
    designated housing vouchers through NOFAs.
                       community development block grants
        Question. The fiscal year 2003 budget makes a change in the CDBG
    formula in order to fund the $16 million Colonias Gateway initiative.
    How did the Department come up with the new CDBG formula? Was this a
    thorough review of the formula? Please detail the staff and outside
    groups consulted as well as the process the department undertook in
    recalculating the formula.
        Answer. The Department's proposed budget for fiscal year 2003
    requests $4.436 billion in budget authority for the formula CDBG
    program to address locally identified community and economic
    development needs. Although the CDBG program allocates funds by formula
    in a way that targets most funds to our neediest communities, the
    current formula distribution of these funds also provides grants to
    higher-income communities. Because of the great disparity in per capita
    income among our grantees, the budget proposal seeks to re-evaluate the
    method of allocating the limited resources of the CDBG program.
        A legislative change has been proposed for fiscal year 2003 to
    reduce, by 50 percent, the amount of the grant to communities with per
    capita income equal to, or greater than, two times the national
    average. It must be noted that this proposed legislative change is
    intended to further target limited CDBG funds to the neediest
    communities. If this proposal is enacted, the Department will use data
    on per capita income from the 2000 Census to identify the communities
    whose funding would be reduced.
        The funds captured by the 50 percent reduction would become
    available to other entitlement communities with lower per capita
    incomes and would not directly fund the Colonias Gateway Initiative.
    However, the savings achieved by this movement of funds to more needy
    communities would create room in the budget to provide resources for
    the Colonias Gateway Initiative, which is designed to serve some of the
    poorest communities in the Nation.
        The Department does not consider this a new formula for CDBG. The
    data from the 2000 census needed to do a professional and comprehensive
    analysis of the CDBG formula should be available this fall. We expect
    to do a study and present it to Congress for their consideration next
    spring so that consideration could be made for the 2004 allocation of
    funds. Rather than wait for the process and a full examination of the
    formula, we chose to propose this adjustment to move a limited amount
    of funds from very wealthy communities. The Administration did not do a
    formal consultation on this issue.
                               shelter plus care
        Question. The fiscal year 2003 HUD budget does not request funding
    for Shelter Plus Care renewals, but the Department has given assurances
    that these grants will be funded. Is the Department providing a
    guarantee to SPC providers that their grants will be renewed?
        Answer. Funding of renewals will be of the highest priority but
    remain dependant on adequate Appropriation. Grantees must meet certain
    capacity and threshold requirements in order to be eligible to have
    these grants renewed. Funds were provided for contracts that expire in
    fiscal year 2003 in the fiscal year 2002 Appropriations Act and were
    given a top priority. Therefore, the fiscal year 2003 Budget request
    did not include funds for contracts that will expire in fiscal year
    2003. The Department intends to fund contracts that expire in fiscal
    year 2004 from fiscal year 2004 Appropriations, reflecting both the
    expected streamlining of the Homeless Assistance Grants program and to
    be consistent with how renewals are handled in other HUD programs.
        Question. Will the Shelter Plus Care grantees still be required to
    compete and participate in the Continuum of Care?
        Answer. SPC grantees have always been required to participate in
    the Continuum of Care and must be included on the Continuum's project
    priority list. We anticipate that they will be listed at the bottom of
    the list, as they have in the past several competitions, and would be
    funded non-competitively.
        Question. If so, please provide an explanation of how the SNAPs
    office will award and administer the renewals in advance of knowing
    whether they've been funded.
        Answer. The Special Needs Assistance Programs office could not
    award renewals in advance of knowing whether they are funded. If funds
    are appropriated in fiscal year 2004, they should be available for
    award by the time the fiscal year 2003 competition is completed, which
    we anticipate will be in the first quarter of fiscal year 2004.
        Question. Why does HUD consider the SPC renewals to be ``forward
    funded'' by the fiscal year 2002 VA-HUD appropriations act, but does
    not consider the other expiring grants in the SHP program to be forward
    funded?
        Answer. Shelter Plus Care renewal grants have been funded over the
    last several years on a non-competitive basis for 1 year only.
    Supportive Housing Program (SHP) grants, on the other hand, are funded
    competitively, are awarded conditionally, require additional
    information before the grants may be executed, and may be multi-year
    awards. Due to the competitive nature of the process and the length of
    time it takes for a grant to be executed from the time the awards are
    announced, it is necessary to award the SHP grants with funds from the
    fiscal year prior to grant expiration.
        Question. Does the fiscal year 2002 bill also fund SHP grants that
    expire in fiscal year 2003?
        Answer. Yes, the fiscal year 2002 bill funds Supportive Housing
    Program grants that expire in fiscal year 2003.
                    empowerment zones/enterprise communities
        Question. The fiscal year 2003 budget eliminates funding for Round
    II empowerment zones, and justifies this cut by saying that ``current
    available balances as well as CDBG and HOME formula funds are
    sufficient to cover needs.'' What are the unexpended balances in the EZ
    accounts?
        Answer. Fiscal year 2002 awards of $3 million per EZ were just
    recently made. Based on funds awarded between fiscal years 1999 and
    2001, unexpended balances are:

    ----------------------------------------------------------------------------------------------------------------
                                                    Total Dollars                                           Percent
    State               Grantee Name               Awarded--Fiscal    Total Disbursed       Unexpended       Drawn
                                                   years 1999-2001      (Drawn Down)         Balance          Down
    ----------------------------------------------------------------------------------------------------------------
       MA Boston                                      $18,972,866      $1,550,249.00     $17,422,617.00       8.17
       OH Cincinnati                                   18,972,866       2,707,801.90      16,265,064.10      14.27
       SC Columbia                                     18,972,866       3,863,989.72      15,108,876.28      20.37
       OH Columbus                                     18,972,867       4,238,148.01      14,734,718.99      22.34
       NJ Cumberland                                   18,972,867       6,444,368.78      12,528,498.22      33.97
       TX El Paso                                      18,972,867       3,871,913.23      15,100,953.77      20.41
       IN Gary/Hammond/E. Chicago                      18,972,867       3,213,353.91      15,759,513.09      16.94
    WV/OH Huntington/Ironton                           18,972,867       9,073,969.86       9,898,897.14      47.83
       TN Knoxville                                    18,972,867       3,413,759.00      15,559,108.00      17.99
       FL Miami/Dade                                   18,972,867       2,431,148.00      16,541,719.00      12.81
       MN Minneapolis                                  18,972,866       3,975,735.53      14,997,130.47      20.95
       CT New Haven                                    18,972,867       2,982,801.67      15,990,065.33      15.72
       VA Norfolk/Portsmouth                           18,972,866       9,088,428.00       9,884,438.00      47.90
       CA Santa Ana                                    18,972,867       6,283,208.00      12,689,659.00      33.12
    MO/IL St. Louis/East St. Louis                     18,972,866       2,755,961.00      16,216,905.00      14.53
                                               ---------------------------------------------------------------------
                Total                                 284,592,999      65,894,835.61     218,698,163.39      23.15
    ----------------------------------------------------------------------------------------------------------------

        Question. Have any of the EZ's failed to spend funds in the
    allowable time frames?
        Answer. There is no statutory or regulatory timeframe for spend
    out. Thus, none of the grantees have strictly failed to spend money in
    the allowable time frame but both Congress and the Department have
    expressed concern with the pace of expenditures in the program. While
    it is only one of many factors, the efficient use of resources is an
    important one in evaluating a community's revitalization efforts. As
    part of its efforts to improve oversight, HUD is considering a
    timeliness policy for the Round II EZ grant modeled after other HUD
    programs. HUD has learned from over 25 years administering CDBG that
    timeliness of spend out is a risk factor in community and economic
    development programs and has proactively shared this experience with
    EZ/ECs in lieu of issuing a punitive policy. HUD is currently modifying
    its performance measurement system to track grant obligations and
    timely spend out so that the progress of the grantees can be better
    monitored.
                              asset control areas
        Question. The fiscal year 2001 VA-HUD Conference Report expressed
    the Committee's concerns over HUD's implementation of the ACA program.
    The report asked HUD to report on the disposition program by May 15,
    2001. Where is this report?
        Answer. This report was submitted to the Committees on May 31,
    2001. A copy of the report is attached for you convenience.

                          Letter From Sean G. Cassidy

                                                          May 31, 2001.
    Hon. Alan B. Molloban,
    Ranking Minority Member, Subcommittee on Veterans, HUD, and Independent
            Agencies, Committee on Appropriations, U.S. House of
            Representatives, Washington, DC 20515-6022.
        Dear Representative Mollohan: I am pleased to enclose a report on
    the implementation of the Single Family property disposition reforms
    enacted in Title VI of the Departments of Veterans Affairs and Housing
    and Urban Development, and Independent Agencies Appropriations Act,
    1999. The report is submitted in accordance with the requirements of
    Conference Report 106-988 accompanying the Departments of Veterans
    Affairs and Housing and Urban Development, and Independent Agencies
    Appropriations Act, 2001. The report describes actions taken by the
    Department to develop new Single Family claims payment and asset
    disposition procedures and to develop a reformed process for the
    disposition of Single Family HUD-owned properties in revitalization
    areas.
        If you need additional information, please let me know.
                Sincerely,
                                               Sean G. Cassidy,
        General Deputy Assistant Secretary for Housing, Deputy Federal
                                                  Housing Commissioner.
      Report on Implementation of FHA Single Family Property Disposition
                                    Program
    Background
        Title VI of the Departments of Veterans Affairs and Housing and
    Urban Development, and Independent Agencies Appropriations Act, 1999
    (the Act) made significant changes to the Federal Housing
    Administration (FHA). single family insurance program.
        Section 601 of the Act contained amendments to reform and make more
    effective the methods for paying insurance claims and, disposing of
    single family acquired notes, and properties: The section:
      --reorganized and updated existing statutory authority to eliminate
            obsolete or redundant provisions;
      --authorized a new claims payment procedure under which HUD would be
            authorized to pay a claim upon assignment of the mortgage
            rather than upon conveyance of the property;
      --authorized HUD to take assignment of notes and transfer them to
            private parties for servicing, foreclosure avoidance,
            foreclosure, property management and asset disposition; and
      --authorized HUD to be an equity participant with private entities in
            asset disposition.
        The changes to the claims and asset management and disposition
    procedures were intended to occur in the overall context of HUD's
    existing procedures for encouraging lenders to perform loss mitigation
    and for contracting to private entities the maintenance and management
    of the HUD owned single family property inventory. Section 601 also
    established certain enforcement mechanisms to ensure loss mitigation
    would continue to be performed so that as many families as possible
    would keep their homes.
        Section 602 of the Act established special procedures for FHA
    single family property disposition. These procedures were designed to
    ensure that the FHA single family property disposition program, in
    addition to providing returns to the insurance funds on an efficient
    basis, could assist the Department in identifying and improving local
    revitalization areas and in providing homeownership opportunities in
    these areas. To do this, section 602:
      --required the establishment of revitalization areas based on low
            income, a high number of troubled assets, and a relatively low
            rate of homeownership compared to the surrounding jurisdiction;
      --distinguished between preferred purchasers (local governments and
            non-profit organizations) and regular purchasers of assets
            within revitalization areas and established a preference for
            sale of properties to preferred purchasers;
      --established discounts for preferred purchasers designed, among
            other things, to facilitate upgrading or rehabilitating the
            housing; and
      --authorized the establishment of asset control areas (ACAs) within
            which preferred purchasers, with a plan for revitalizing and
            increasing homeownership in the area, would become responsible
            for purchasing all eligible assets.
                               report requirement
        The Conference Report (Report 106-988) accompanying the Departments
    of Veterans Affairs and Housing and Urban Development; and Independent
    Agencies Appropriation Bill, 2001, directs HUD to report to the
    Committee on the implementation of the single family property
    disposition program, enacted as part of the VA/HUD fiscal year 1999
    appropriations bill, including the status of the program and an
    analysis of all savings achieved to date and anticipated to be achieved
    over the first 5 years.
                    status of implementation of section 601
        Implementation of claims reform and asset disposition alternatives
    is overseen by HUD's FHA Comptroller with assistance from the Office of
    Single Family Asset Management. HUD secured expert help in structuring
    this alternative disposition program, which is being called the
    Accelerated Claims Disposition (ACD) Program.
    Delivery and Presentation on ACD Program Design--Completed
        In January 2000, HUD's program advisor, Federal Asset Advisory
    Corporation (FAAC) delivered the final Program Design which was
    subsequently reviewed and accepted by senior management. In May 2000,
    FAAC finalized the Internal Control and Accounting Report portion of
    the Program Design, which was subsequently reviewed and accepted.
    Development of Proposed Regulations--Ongoing
        In October 2000, HUD began developing regulations based on the ACD
    Program design. HUD anticipates that proposed regulations will be
    published by the end of September, 2001. The regulations will describe
    and seek comments on the procedures for determining the disposition
    alternative for individual high risk defaulted loans, and the
    eligibility requirements and other matters relating to the program
    framework. The disposition of individual loans will be determined in
    large part by the probability or improbability that loss mitigation
    will succeed. The disposition alternatives will include: (a) transfer
    to a joint venture, which may proceed to foreclosure but will have
    additional loss mitigation options to explore--such as partial write-
    off, recasting and securitization, (b) transfer to a servicer
    specializing in loss mitigation servicing, or (c) assignment of the
    note to HUD in order to use the Department's non judicial foreclosure
    authority.
    Engagement of Transaction Advisor--Ongoing
        In January 2001, HUD began the procurement process to hire a
    Transaction Advisor to assist in implementing the ACD Program. HUD
    anticipates having a Contractor engaged by June 30, 2001.
    ACD Program Demonstration Project--Imminent
        Before implementing the ACD Program, HUD will conduct a
    Demonstration Project. The Demonstration Project will be limited to the
    mortgage loans within the jurisdiction of the Philadelphia
    Homeownership Center and will initially target 5,000 assets to be
    transferred to a joint venture ``JV'' partnership. HUD's Transaction
    Advisor will assist in assessing the defaulted loan portfolio;
    developing procedures, guidance and quality assurance plans for the
    program; marketing to potential JV partners; evaluating JV bids; and
    assessing project results. HUD anticipates partnering in a joint
    venture by March 31, 2002.
                    status of implementation of section 602
    Revitalization Areas
        Under section 602 of the Act, revitalization areas are low and
    moderate income communities that are targeted by HUD, local
    governments, and non profits for special assistance through the
    property disposition program to effect stability in the community and
    provide homeownership opportunities for the residents. The law expanded
    the criteria for designation of a revitalization area, which required a
    reassessment of the current guidelines and a consultation process with
    stakeholders.
    Undertake Consultation Process--Completed
        The Office of Housing consulted with program participants,
    Homeownership Center Directors, HUD REO Specialists, and others to
    determine the guidelines which should be used in implementing the new
    criteria to make the ACA desigations. Stakeholders, including non-
    profits and local governments, worked, with HUD with the objective of
    developing clear guidelines that provide uniformity without being
    overly rigid.
    Develop Field Guidance on Revitalization Areas--Completed
        HUD developed and, on August 18, 2000, issued to the Field Housing
    Notice H-00-16 with criteria for reviewing, selecting, and designating
    revitalization areas. As of May 1, 2001, over 800 zip codes have been
    designated as revitalization areas. Within these areas, HUD will work
    with local governments and non-profit community partners to designate
    asset control areas, as described below.
                  asset control area (aca) partnership program
    Overview
        The ACA Partnership Program assists in the revitalization of
    designated neighborhoods by creating homeownership opportunities for
    the residents through the sale of HUD-owned single family homes. In an
    ACA Partnership, HUD sells 100 percent of its single family homes
    located in designated revitalization zones directly to either local
    governments or HUD-approved nonprofit organizations at discounts of as
    much as 50 percent of appraised value.
        The Local ACA partner selects an ACA territory and presents a
    revitalization plan to HUD for the proposed territory. The ACA Plan
    must demonstrate the local partner's ability to purchase, rehabilitate
    and resell all of the vacant HUD homes in the designated area. The Plan
    also must contain performance goals, rehabilitation standards, and
    supporting services such as homeownership counseling and mortgage loan
    financing. Once the ACA plan is approved, HUD and the local partner
    enter into a formal contract that outlines the terms and conditions for
    partnership.
        Through discounted direct sales, the Partner receives instant
    equity which is used to assist in the capitalization of the ACA. This
    equity can be used to rehabilitate homes and implement homeownership
    counseling programs that prepare potential purchasers for
    homeownership. Additionally, HUD offers 90-day interest free financing
    to the Partner on all of the homes purchased through an ACA Program.
    Once rehabilitated, the Partner resells the home to a qualified
    purchaser. All proceeds from the sale must be reinvested into the ACA
    program. The ACA program empowers the Partners as a driving force in
    the rehabilitation of their neighborhoods.
                         specific implementation steps
        HUD developed a comprehensive five-step process designed to
    implement pilot ACA Partnerships. The pilot partnerships create a
    fertile environment where procedures are developed and tested,
    operational processes are refined, lessons are learned, and best
    practices are implemented consistently throughout the country. The five
    steps are summarized below:
    Hire & Deploy REO Specialists--Completed
        HUD, identified REO Specialists to serve as the key coordinators
    for the program. The REO Specialists are deployed in strategic cities
    throughout the country and are assigned various territories. In this
    capacity, these specialists identify areas that qualify for the program
    and market the program to the potential partners. They assist the
    partners in developing their proposals and working through the issues
    of the contract. The specialists also present and gain approval of the
    ACA Partnership proposals and coordinate all aspects of implementing
    the partnerships with HUD's Homeownership Centers.
    Create Model ACA Contracts--Completed
        HUD created a model ACA contract for use in the program.
    Market the Program--Ongoing
        The REO Specialists performed a detailed analysis of HUD-owned
    single family properties and compared this with the revitalization
    criteria contained in the legislation. From this analysis, they
    identified and assigned priorities to targeted areas for pilot
    programs. The specialists built demand for the program by describing
    the economic benefits to potential partners at various forums such as
    neighborhood workshops and town meetings. Finally, potential partners
    are added after they contact HUD directly and express the desire to
    participate in the program.
    Negotiate & Execute ACA Contracts--Ongoing
        The REO Specialists serve as HUD's agents and negotiate all aspects
    of the agreements. They coordinate closely with the appropriate
    executive, legal and operational officials in Headquarters as well as
    the Directors and REO Division Directors of the Homeownership Centers.
    Monitor Implementation of ACA Partnership--Ongoing
        Working together, HUD Headquarters, the REO Specialists and the
    Homeownership Centers monitor the implementation of the ACA contracts.
    The ongoing challenges and issues are shared and resolved through
    appropriate workshops and forums.
        Based upon the results of the steps outlined above, HUD implemented
    the ACA Partnership Program, through Administrative means, in October,
    1999. This is to be followed by rule making; which is in process and is
    expected to be completed by November, 2001.
                                    results
        The three schedules below illustrate the Department's
    implementation of the ACA Partnership program. To date, HUD has
    implemented fourteen partnership agreements in major revitalization
    zones, vs. five a year ago (Schedule 1). We also have nine partnership
    agreements scheduled to begin within the next 150 days (Schedule 2).
    Finally, seventeen other potential partners have expressed interest in
    participating in this program (Schedule 3).

                                      SCHEDULE 1.--CURRENT ACA AGREEMENTS IN PLACE
    ----------------------------------------------------------------------------------------------------------------
                                                                                  NBR of
                                                                                  Prop.        NBR of     Number of
                Place (ACA Partner)                   Date of Agreement        Exected Per    Awaiting    Properties
                                                                                   Year       Closing        Sold
    ----------------------------------------------------------------------------------------------------------------
    San Bernardino, CA (County)...............  October 1999.................          450          130          352
    Miami-Dade, FL (County Housing Agency)....  December 1999................           60            6           53
    Rochester, NY (City)......................  April 2000...................          300          256          154
    Chicago, IL, (Hispanic Housing Develop./    May 2000.....................          200           35           78
     Neighborhood Housing).
    Fort Lauderdale, FL (City Housing           May 2000.....................           30            2           14
     Authority).
    Cleveland, OH (Cleveland Housing Network..  July 2000....................           75           35           82
    Reading, PA (City)........................  September 2000...............           75           24           20
    Washington, DC (Church Association of       October 2000.................          200           75            0
     Community Services).
    Burlington, VT (non-profit)...............  October 2000.................            5            1            1
    Denver, CO (City).........................  October 2000.................          100            9            1
    Los Angeles, CA (County)..................  December 2000................          500            6            0
    Rhode Island (State Housing Authority)....  April 2001...................           12            0            0
    Hartford & Manchester, CT (Corp. for        April 2001...................           50            0            0
     Independent Living).
    Bridgeport, CT (City).....................  April 2001...................           75            0            0
                                                                              --------------------------------------
          Total...............................  .............................        2,132          579          755
    ----------------------------------------------------------------------------------------------------------------

                  SCHEDULE 2.--ACA AGREEMENTS UNDER NEGOTIATION
    ------------------------------------------------------------------------
                                                                 Expected
                                          Date of Proposed       Number of
                   City                      Agreement        Properties Per
                                                                   Year
    ------------------------------------------------------------------------
    Prince Georges County, MD........  May 2001.............              60
    Lancaster, PA....................  June 2001............              20
    St Paul, MN......................  June 2001............              30
    Montgomery County, MD............  July 2001............              30
    Norfolk, VA......................  July 2001............              30
    Allentown, PA....................  July 2001............              40
    Bakersfield, CA..................  August 2001..........              35
    Ontario, CA......................  August 2001..........              30
    Springfield, MA..................  August, 2001.........              50
    ------------------------------------------------------------------------

                      Schedule 3.--Expressions of Interest
    Phoenix, AZ

    Compton, CA

    Fontana, CA

    Rialto, CA

    Riverside, CA

    Sacramento, CA

    Orlando, FL

    Palm Beach, FL

    Dekalb, County A

    Harvey, IL

    Yale/New Haven, MA

    Baltimore, MD

    Baltimore County, MD

    Hartford County, MD

    Detroit, MI

    Coatesville, PA

    York, PA

    Status of Savings
        HUD's Budget Request for fiscal year 1999 contained legislation for
    claims and asset disposition reform. The budget justification indicated
    that the proposal would allow FHA to maximize returns to the insurance
    funds as well as have benefits to homeowners. The Department also
    indicated that although the legislation was proposed for enactment in
    1999, the program would not take full effect until fiscal year 2002 and
    then phase in through fiscal year 2003. The time lag was to allow for
    full development of complicated financial and other procedures, changes
    in systems, and training both lenders and HUD staff. Savings were not
    anticipated to be available under the program until fiscal year 2002.
    At the time legislation was enacted, the present value of discretionary
    savings attributable to the reforms was scored at $400 million: This is
    included in HUD's baseline budget.

        Question. When will HUD issue the pending rule on the pricing
    structure of the ACA program?
        Answer. On April 5, 2002, the Department announced that it would be
    conducting a full review of the program, and that during the review
    period, existing Asset Control Areas (ACA) agreements would be allowed
    to expire. An important part of this review will be to accelerate
    program rulemaking during the next 4 to 6 months.
        Question. What are the Department's plans for this program?
        Answer. As described above, on April 5, 2002, the Department
    announced that it would be conducting a full review of the program, and
    that during the review period, existing ACA agreements would be allowed
    to expire.
                           accelerated claims process
        Question. The Department's fiscal year 2003 Budget Summary notes
    state that: ``In 2003 FHA will begin to move out of the single family
    property management business and accelerate the claims process by
    taking mortgage notes rather than requiring lenders to foreclose and
    transfer single-family properties to FHA. FHA will sell defaulted notes
    to the private sector for servicing and or disposition, thereby
    eliminating most of the real property that HUD currently acquires'' (p.
    3). Already HUD has proposed a new ``Accelerated Claim Disposition
    Demonstration'' program (Federal Register, Tuesday, February 5, 2002)
    to implement this policy. How will HUD ensure that these distressed
    communities do not again become land banks for speculators who prey on
    low-income families?
        Answer. The ``Accelerated Claim Disposition Demonstration'' program
    implements Section 601 of the fiscal year 1999 Appropriations Act as
    authorized by Congress. The best way to ensure that these distressed
    communities do not become land banks for speculators who prey on low-
    income families is to maintain/retain the existing tenure of the
    homeowner and financial investment/asset of the existing families. To
    address its objective of increasing recoveries on the sale of assets,
    the Accelerated Claims Disposition Demonstration will move more quickly
    to address the homeowner issues of default and exhaust all
    opportunities to reinstate the financial viability of the mortgage
    instrument and the homeownership tenure. The simple fact that a period
    of vacancy will be avoided in more cases than under the current process
    and that occupancy will be sustained in more cases will work to help
    fortify already distressed communities.
        Maintaining the initial homeownership tenure and the mortgage
    instrument most effectively thwarts any opportunity for speculators who
    prey on low-income families and preserves the financial investment of
    the asset of that community.
        If foreclosure is unavoidable, the Department plans to include in
    its Joint Venture Partnership Agreement a requirement to use servicing
    and lending best practices that mitigate the risks of predatory lending
    or unscrupulous speculation at the expense of low-income families.
        Even in the few worst cases when foreclosure does occur by the
    Joint Venture partner, it is anticipated that the results of Joint
    Venture decision making will be to invest prior to resale in the
    property making it more likely and suitable to be acquired directly by
    a homeowner rather than an investor.
        Question. What will happen to the ACA program if the Department
    implements the proposed Accelerated Claims Disposition Demo?
        Answer. The areas involved in the existing Asset Control Areas will
    be excluded from the Accelerated Claims Disposition Demonstration in
    2002.
                                    hope vi
        Question. How does HUD define ``severely distressed public
    housing?''
        Answer. HUD uses the definition set forth at section 24 (j)(2) of
    the U.S. Housing Act of 1937 (42 U.S.C. 1437v(j)(2)) to define
    ``severely distressed public housing.'' The Department has
    operationalized this definition by requiring PHA's who apply for HOPE
    VI to certify through a independent third party architect that the
    criteria identified in the statue have been met and that the subject
    development is indeed severely distressed.
        Question. How many units of severely distressed housing currently
    exist?
        Answer. The Department has over the past decade identified public
    housing units that meet various standards of severe distress and
    obsolescence through the implementation of Section 18, Section 202
    Mandatory Conversion and the HOPE VI program. As a result of this
    combined effort, public housing authorities and HUD have identified as
    of May 1, 2002, 142,392 units that meet the basic criteria for
    demolition. As of May 1, PHAs have demolished or disposed of 80,945
    units. Thus, 61,447 units have been approved for demolition and
    disposition that remain in inventory. In addition, the Department
    received 66 HOPE VI Revitalization applications in fiscal year 2001.
    Together, these applications certified the severe physical distress of
    approximately 18,000 public housing units. (Note that some of these
    18,000 units already received demolition approval and thus are included
    in the 61,447-unit figure.)
                          elderly and disabled housing
        Question. The Administration is requesting $251 million for the
    Section 811 program for people with disabilities for fiscal year 2003.
    This represents a $10 million increase over the fiscal year 2002
    funding. However, according to estimates included in the budget
    request, renewal of all expiring 811 ``mainstream'' tenant-based rent
    subsidies will cost $32 million in fiscal year 2003--consuming more
    than the entire proposed increase for the program--both tenant-based
    and capital advance/project-based. Similarly, the budget requests $783
    million for the elderly housing program, the same amount funded in
    fiscal year 2002, but a greater percentage is designated for renewal
    contracts. What are the estimated costs of renewing contracts in the
    elderly and disabled programs for the next 5 fiscal years?
        Answer. See tables below:

                                           OUTYEAR PRAC/PAC RENEWAL ESTIMATES
    ----------------------------------------------------------------------------------------------------------------
                                                           Unit                        Avg Per Unit    1-yr Renewal
                       Fiscal year                      Expirations    Unit Renewals       Cost          BA Costs
    ----------------------------------------------------------------------------------------------------------------
    2003............................................           4,037           6,360          $3,403     $21,641,140
    2004............................................           3,570           9,930           3,455      34,307,905
    2005............................................           4,429          14,359           3,512      50,435,756
    2006............................................           2,977          17,336           3,569      61,873,929
    2007............................................           2,236          19,572           3,704      71,122,000
    ----------------------------------------------------------------------------------------------------------------

                                      RENEWALS OF MAINSTREAM VOUCHERS (SECTION 811)
    ----------------------------------------------------------------------------------------------------------------
                                        First Time                    Total Units to   Avg Cost per       1-yr BA
               Fiscal year              Expirations    Unit Renewals       Renew           Unit        Renewal Cost
    ----------------------------------------------------------------------------------------------------------------
    2003............................           1,845           3,510           5,355          $6,005     $32,156,775
    2004............................           1,455           5,355           6,810           6,131      41,752,110
    2005............................           2,383           6,810           9,193           6,260      57,548,180
    2006............................           2,383           9,193          11,576           6,391      73,982,216
    2007............................           1,993          11,576          13,569           6,525      88,537,725
    ----------------------------------------------------------------------------------------------------------------

        Question. How is the Department planning for growing renewal needs?
        Answer. The full cost of renewing current rental assistance
    contracts are included in the Department's out-year budget estimates
    that are projected for 5 years beyond the budget year and are a part of
    our budget baseline.
                               housing counseling
        Question. I am pleased that the fiscal 2003 HUD budget includes
    increased funding for housing counseling assistance. The budget
    justification includes an estimate that 150,000 additional clients will
    be served by the increased funds. How many people will receive pre-
    homeownership counseling? How many will receive post-homeownership
    counseling? How many of the people assisted receive other?
        Answer. Although we cannot say definitively how many clients will
    request any specific type of counseling, recent past experience has
    shown us that a little over a third of counseling clients seek out pre-
    purchase counseling and a little under a third seek post-purchase
    counseling (the other third seek rental, homeless, HECM, and ``other''
    counseling assistance). However, we based our 2003 estimate on the
    assumption that counseling agencies will see an increased volume of
    customers seeking default/post-purchase counseling. The significant
    number of layoffs that resulted from the events of September 11 and
    some slowing of the economy over the past year suggest that more
    families will be seeking assistance with managing their household
    finances to prevent foreclosure. Even in the last few months, anecdotal
    evidence suggests this shift in counseling needs is already occurring.
    Therefore, we expect that the numbers of clients seeking pre-purchase
    counseling will be approximately 50,000 to 55,000 and the number
    seeking post-purchase counseling will be approximately 65,000 to
    75,000. The remaining 20,000 to 35,000 clients would be seeking
    ``other'' types of counseling.
                     home downpayment assistance initiative
        Question. If the HOME down payment assistance initiative is funded,
    will prospective homeowners assisted by this program be required to
    undergo homeownership counseling?
        Answer. Consistent with the block grant nature of the HOME Program,
    the decision as to whether prospective homeowners will be required to
    undergo homeownership counseling resides with the local agencies
    administering the program, and many communities do in fact require pre-
    and post-purchase counseling. Consequently, while counseling will not
    be required, homebuyers receiving assistance through the American Dream
    Downpayment Initiative will have the same opportunities to receive
    housing counseling as provided for those who currently receive
    downpayment assistance through the use of regular HOME funds. Should
    the local HOME program managers decide that a family being assisted to
    purchase a home requires or would benefit from pre- or post-purchase
    counseling, they may use some of their regular HOME allocation to pay
    for it or fund this counseling from other resources, including the
    separate assistance provided by HUD specifically for this purpose.
                     departmental grants management system
        Question. As you know, Congress has long had concerns over HUD's
    management information systems, specifically, its inability to assess
    program expenditures, outputs and outcomes. The Department recently
    cancelled its plans to implement the Departmental Grants Management
    System. What are your plans for implementing a department-wide grants
    management system? When can we expect to see such a system, and what do
    you estimate the cost of development will be?
        Answer. The Department of Health and Human Services has the lead
    for developing a common system to be used by all Federal agencies under
    the President's e-grants initiative. Under the e-grants effort, HUD has
    been working closely with the 26 other Federal grant making agencies to
    develop a system that would allow the public to find, apply for funding
    opportunities and then report progress in the implementation of its
    programs. The timetable for deployment of this system as agreed to by
    all the Federal agencies is October 2003.
        HUD has proposed that many of the elements developed for the
    Department's Grants Management System can be implemented as part of
    this larger governmentwide system and has been actively discussing this
    with HHS and other agencies. Under the e-grants, initiative every
    Federal agency would contribute to the effort. The full cost estimates
    for the e-grants system have not been determined at this time.
                                     ______

                    Questions Submitted by Senator Herb Kohl

                         downpayment assistance program
        Question. I am concerned that the set-aside for down payment
    assistance within the HOME program is not the best use of HOME funds.
    HOME currently gives States the flexibility to address the housing
    needs that are most pressing in their communities. I am always
    reluctant to endorse a one-size fits all approach because I usually
    find that Wisconsin loses out. Now, the goal of helping families own
    their own homes is laudable and the State of Wisconsin is already using
    about one-third of the funds it receives through the HOME program for
    homebuyers assistance, leveraging the Federal funds with State, local
    and private funds to get families into homes.
        While I realize this program has yet to be authorized, does the
    Administration propose that the set-aside for downpayment assistance be
    limited to communities with 20 percent poverty levels? I ask because I
    am concerned that this program could direct HOME funding away from
    those who may need it but are not clustered in poor communities. While
    Wisconsin has some significant numbers at the poverty level, our low
    income families are spread out across the State and are not in
    identifiable clusters or pockets in most cases.
        Answer. The concept of ``20 percent poverty communities'' is not
    one that is used in the HOME Program even though, as one might expect,
    a significant number of HOME Participating Jurisdictions (PJs) would
    meet this standard. Consequently, American Dream Downpayment (ADD)
    Initiative funds will not be limited to such communities.
        American Dream Downpayment Initiative funds would be allocated by a
    formula that considers both community need (i.e., the current HOME
    formula) and the past efforts of PJs in providing downpayment
    assistance through their regular HOME program funds. In addition, in
    order to maximize the number of PJs participating in the American Dream
    Initiative, no PJ would receive more than 2 percent of the ADD
    appropriation. Funds made available through use of this 2 percent cap
    would be reallocated to all uncapped PJs. In addition, since PJs that
    have not done homebuyer projects in the past 10 years would be unlikely
    to start now if their share of ADD funds is any less than $25,000, the
    final step of the allocation determination process is to zero out
    allocations for PJs where: (1) the adjusted formula allocation amount
    is less than $25,000; and (2) they have not undertaken any homebuyer
    activities using regular HOME funds during the life of their program.
        Implementing this allocation process for the $50 million fiscal
    year 2002 ADD appropriation will result in Wisconsin PJs receiving
    approximately 2.18 percent of the ADD funds available, while they
    receive about 1.88 percent of the regular 2002 HOME appropriation. The
    allocation process used under ADD actually works to Wisconsin's
    benefit.
        Question. How will the downpayment assistance program address the
    needs of these families?
        Answer. Obtaining the resources to meet upfront downpayment and
    closing costs is the most significant obstacle to homeownership among
    lower income groups. By providing a dedicated stream of funding for
    homebuyer assistance, the American Dream Downpayment Initiative would
    eliminate this obstacle for tens of thousands of additional families
    each year while enabling jurisdictions to increase homeownership rates,
    broaden their tax base, and stabilize neighborhoods.
        In a 2000 research report by the Local Initiatives Support
    Corporation (LISC) entitled Mind the Gap: Issues in Overcoming the
    Information, Income, Wealth, and Supply Gaps facing Potential Buyers of
    Affordable Homes, it was determined that 30 percent of low-income
    buyers cannot afford to buy a modestly priced home because they lack
    sufficient funds for the downpayment while under 3 percent could not do
    so because they could not afford the monthly payment. Since the average
    amount of cash needed for downpayment on a modestly priced home in 1999
    was approximately $3,500 according to the report, the American Dream
    Fund would be providing just the amount necessary at just the right
    point in the homebuying process to accomplish its goals. Like the
    successful Self-Help Homeownership Opportunities Program (SHOP) that
    targets assistance at the main obstacle to ``Habitat for Humanity''
    type development--land acquisition--by targeting assistance
    specifically at overcoming the downpayment hurdle, the American Dream
    Fund would complement the use of regular HOME funds and would result in
    a significant increase in the number of low-income homeowners.
        In regard to those who do need assistance with their monthly
    payment, ADD funds can be used as well to buy down the current interest
    rate available to the homebuyer or the principal loan balance, thus
    saving a considerable amount in interest costs over the life of the
    loan.
        Question. The downpayment assistance program you are proposing
    would direct $200 million from the HOME program to 40,000 families.
    That works out to $5,000 per family. While this is not an insignificant
    amount, given the cost of home ownership these days can this make a
    difference for most families? Even assuming that these families could
    get a 7 percent/30-year mortgage, $5,000 will only lower monthly
    payments $33/month. How is this an improvement as compared to what we
    are doing already under the HOME program?
        Answer. Again, citing the 2000 research report by the Local
    Initiatives Support Corporation (LISC) entitled Mind the Gap: Issues in
    Overcoming the Information, Income, Wealth, and Supply Gaps facing
    Potential Buyers of Affordable Homes, it was determined that 30 percent
    of low-income buyers cannot afford to buy a modestly priced home
    because they lack sufficient funds for the downpayment while under 3
    percent could not do so because they could not afford the monthly
    payment. Since the average amount of cash needed for downpayment on a
    modestly priced home in 1999 was approximately $3,500 according to the
    report, the American Dream Fund would be providing just the amount
    necessary at just the right point in the homebuying process to
    accomplish its goals.
                      elimination of chronic homelessness
        Question. According to a study released in December by the U.S.
    Conference of Mayors, 37 percent of requests from homeless people for
    emergency shelter went unmet in 2001. On average, people remained
    homeless for 6 months in the cities surveyed, an increase for 54
    percent of the cities surveyed. These numbers are disturbing. I
    understand that the Administration has made a commitment to end chronic
    homelessness in the next decade. This is an admirable goal, but there
    are some who work closely with the homeless who have questioned whether
    the modest increases in homeless programs are sufficient to meet this
    goal.
        If chronic homelessness is to be eliminated in the next 10 years,
    do you intend to devote significantly more funding for homeless
    programs in future years budgets?
        Answer. The Department is working with a variety of other Federal
    agencies to end chronic homelessness in the United States. In
    particular, we have undertaken several major initiatives with the
    Department of Health and Human Services (HHS) to not only coordinate
    activities but, most importantly, to open up the enormous resources
    tied to the HHS mainstream supportive service programs for use in
    meeting the critical supportive service needs of homeless persons. We
    are similarly working with the Department of Veterans Affairs (VA),
    which has joined the HUD/HHS Interagency Task Force, to better utilize
    the resources of that agency in eliminating chronic homelessness.
    Similar inter-Departmental coordination has been achieved in the
    development of Policy Academies jointly being sponsored by HHS, HUD and
    VA in which State governments are actively engaged in identifying and
    eliminating barriers that currently prevent homeless persons from
    accessing supportive service funding.
        In addition, HUD's efforts to coordinate access to Federal funds to
    end chronic homelessness are now being assisted by the Interagency
    Council for the Homeless (ICH). The Agency, with the new leadership of
    Executive Director Philip Mangano, is responsible for planning and
    coordinating the Federal Government's actions and programs to assist
    homeless people, and making or recommending policy changes to improve
    such assistance. ICH has committed to actively working with all its
    member agencies to aggressively promote the goal of ending chronic
    homelessness across the Nation.
        HUD believes that, with effective coordination of all relevant
    Federal and State Government agencies, improved targeting of all
    resources available for addressing homelessness, and the expanded
    active involvement of non-profit provider agencies so critical to this
    effort, the Nation can achieve the goal set out by Secretary Martinez
    last July.
        In addition, the HUD program that most directly works toward ending
    chronic homelessness is the Shelter Plus Care Program. This program
    provides rental assistance for permanent supportive housing for
    disabled homeless persons. HUD has committed to request additional
    funding above the current funding level to ensure that all otherwise
    eligible Shelter Plus Care renewal projects can be renewed. Although it
    is difficult to project exact renewal needs due to the flexible nature
    of the 5-year grants, based upon already approved 1-year renewals and
    projected renewals of 5-year grants, it is estimated that the renewal
    demand for Shelter Plus Care will be approximately $200 million in
    fiscal year 2004. The Department will carefully scrutinize the total
    amount of homeless substitute funds needed in our initial request to
    OMB and this request will certainly take into full consideration both
    renewals and regular program costs.
        HUD has moved aggressively to encourage our applicants to seek
    needed funding for supportive services from the mainstream supportive
    service programs of HHS, VA, the Social Security Administration, the
    Department of Agriculture and other agencies. As the transition to
    other sources continues, a growing percentage of HUD's funding is being
    freed up for use in developing housing. As a result, large additional
    increases in HUD's homeless appropriations, beyond the Shelter Plus
    Care renewal costs noted above, are not anticipated.
        Question. Also, are you leaving out those who might not be deemed
    chronically homeless but whose needs are also going unmet?
        Answer. HUD's initiative to end chronic homelessness will in no way
    ignore the needs of persons who are homeless but not chronically so. A
    large majority of the McKinney-Vento Act resources administered by HUD
    have traditionally addressed persons who are not chronically homeless.
    Under HUD's Continuum of Care process, these decisions are made by the
    community itself, not HUD. However, HUD's initiative to end chronic
    homelessness encourages communities to consider making additional
    efforts to especially address the needs of those homeless persons that
    are disabled and have been homeless for long periods of time. As a
    result, it is anticipated that a greater percentage of available
    resources will be used to fight chronic homelessness but the bulk of
    those resources will continue to be used to address the approximately
    80 per cent of homeless persons who are not considered chronic
    homeless.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

                public housing reinvestment and financial reform
        Question. HUD is proposing over $400 million less in Public Housing
    Capital funding for fiscal year 2003 than fiscal year 2002. In
    addition, the fiscal year 2002 funding is some $150 million less than
    the fiscal year 2001 level. These reductions seem excessive especially
    since public housing throughout the country has a capitalization
    backlog of some $22 billion. How does HUD justify this reduction from
    public housing?
        Answer. The proposed amount in the President's Budget is sufficient
    to cover the accrual of new Capital needs for fiscal year 2003. In
    addition, as of December 31, 2001, there were approximately $5.5
    billion in unexpended Capital grant funds that were provided to PHAs.
    Included within this amount there were approximately $3.2 billion in
    Capital grant funds that remained unobligated by the PHAs. These
    balances are significant. The Department will closely monitor
    obligations and expenditures and make appropriate budget proposals.
        Question.  In addition, the VA/HUD fiscal year 2002 Appropriations
    Act included requirements to ensure the timely use of these funds last
    year, including a reallocation of the capital funds where a PHA does
    not obligate its capital funds within a reasonable period of time. This
    change in the law was the result of HUD representing that a number of
    PHAs were not obligating their capital funds quickly enough and that
    these funds were sitting unused. I have no problem in requiring PHAs to
    address their capital needs to ensure that residents live in the best
    housing possible. However, in retrospect, how big a problem are
    unobligated Public Housing capital funds? Can you put a dollar number
    on this problem?
        Answer. HUD Initially identified 163 grants with approximately
    $212,608,002 in fiscal year 1998 and 1999 Capital Fund grants in PHAs
    that failed to obligate 90 percent (the Quality Housing and Work
    Responsibility Act of 1998 (QHWRA) standard) or more of their grant
    award by the 24-month obligation deadline in the QHWRA. We later
    subtracted 49 grants from the 163 grants that were found to be
    legitimate obligations, as described in the footnote \1\ As a result of
    this analysis, the Office of Public Housing identified a total of 117
    grants with $126,821,817 of unobligated Capital Funds for the 2 years
    in question.
    ---------------------------------------------------------------------------
        \1\ Forty-four of those 49 grants, were obligated by September 30,
    2001, but for a variety of reasons the PHA did not put the correct
    numbers in Line of Credit Control System (LOCCS). Four of the 49 grants
    were Moving to Work grantees (MTW) that totaled approximately $46
    million. One of the 49 grants originally identified was a $6 million
    grant for the Virgin Islands Housing Authority (VIHA). It was later
    determined that the $6 million was composed of an emergency loan/grant.
    Consequently, this grant was excluded from the analysis of recaptures
    because the 24-month obligation deadline in the statute applies to
    regular formula grants and not grants for disasters and emergencies.
    The total for the 49 grants that were excluded is $82,387,814. Finally,
    four PHAs misreported the amount of unobligated funds. This required a
    $3 million adjustment in the amount of unobligated funds. The
    department intends to carefully review the four misreported situations
    and will take corrective actions/sanctions against those PHAs if
    appropriate.
    ---------------------------------------------------------------------------
        For the 117 grants, the HUD Field Offices were asked to provide a
    justification and supporting documentation for each PHA that failed to
    obligate in a timely manner. The Department carefully reviewed each
    case and the justification proposed for compliance with the section
    9(j)(2)(A) of the 1937 Act, including cases where the Field Offices had
    given the PHA an original obligation deadline beyond September 30,
    2001, or the PHA had an extension granted by the field office or a
    self-granted extension.
        HUD identified a group of 24 grants that had unobligated balances
    as of September 30, 2001, that did not have either: (a) a PHA self-
    extension, or (b) a HUD Field Office approved time-extension in
    accordance with the Comprehensive Grant Guidebook, 7485.3 G, issued
    October 1996. PIH determined that these grants should be recaptured.
    PIH has recently directed the HUD Field Offices to recapture these
    funds.
        HUD identified a second group composed of two parts: (a) 53 grants
    that were 100 percent obligated as of March 22, 2002, and (b) 19 grants
    that had time extensions or an original obligation deadline dates after
    September 30, 2001, but were not known- to be 100 percent obligated by
    March 22, 2002. On March 22, 2002, the Department sent a letter to PHAs
    \2\ that managed 72 grants and requested that, within 5 days, they
    certify the amount of grant funds unobligated as of the date of the
    letter. Responses to HUD's March 22, 2002 letters, from the PHAs (Table
    2) were received and then tallied. As of April 3, 2002, the total funds
    unobligated from the 72 grants in Table 2 is $647,499 from 6 PHAs. (A
    copy of the table is attached.) The remainder of the PHAs obligated 90
    percent of their grant funds by March 22, 2002.
    ---------------------------------------------------------------------------
        \2\ There were a total of 67 PHAs that managed the 72 grants. Five
    of the PHAs had a grant from fiscal year 1998 as well as fiscal year
    1999.
    ---------------------------------------------------------------------------
        The combined total of funds unobligated as of March 22, 2002, is
    approximately $6.2 million, which the Department plans to recapture.
        The Department recognized that there have been differing
    interpretations as to the effect of QHWRA as they relate to previous
    HUD guidance given to PHAs regarding the obligation of fiscal years
    1998 and 1999 funds. However, the Department must still implement the
    law. In fairness to PHAs that have previously requested and received
    extensions that are not now valid under QHWRA, HUD decided to only
    recapture those funds that remain unobligated as of March 22, 2002,
    when the PHAs were directed to immediately cease obligating fiscal
    years 1998 and 1999 funds. On April 5, 2002, the Department sent
    letters to the 6 PHAs in the second group that had unobligated funds as
    of March 22, 2002, informing them that the funds will be recaptured. On
    April 11, 2002, HUD Field Offices were directed to take the appropriate
    steps to initiate the recapture of funds by amending the Annual
    Contributions Contract.
        Twenty-one of the 117 grants were found to have justifications for
    extensions that met the requirements of Section 9(j)(2)(A) of the Act,
    and have been recommended to the Deputy Secretary for time extensions.
    We anticipate publishing a Notice in the Federal Register shortly,
    which will identify grants by PHA where unobligated funds will be
    recaptured, as well as the 21 grants that have been recommended to the
    Deputy Secretary for time extensions. This action by the Deputy
    Secretary is pending. (The exact date of publication of the Federal
    Register Notice is not known at this time.)
        PIH plans to take strong measures to implement additional
    procedures to closely monitor obligations and expenditures.
    Specifically, PIH plans to require a new monthly obligation and
    expenditure report, which will replace the current quarterly reporting
    system. Implementing a monthly reporting system will enable the
    Department to implement section 9(j)(3) of the Act, Penalty for Slow
    Expenditure of Capital Funds, a 1/12-month penalty for failure to
    obligate Capital Funds within 24 months. We anticipate that the monthly
    reporting system will be implemented in LOCCS October 1, 2002 in time
    to address the fiscal year 2003 Capital Fund Formula Grant
    distribution.
        It is important to note that the question only related to the
    deadline for unobligated Capital Funds. The law provides for two
    deadlines, obligations and expenditures. Consequently, when looking at
    a PHA's capacity to obligate funds, the Department must take into
    account a PHA's unexpended funds that have already been obligated. The
    Department must closely monitor compliance with both deadlines. For
    example, as of December 30, 2001, there were approximately $5.5 billion
    in unexpended Capital Funds. Large unexpended balances may directly
    impact a PHA's ability to obligate current year funds.

     GRANTS 90 PERCENT-100 PERCENT OBLIGATED AS OF MARCH 22, 2002 AND GRANTS WITH TIME EXTENSIONS BUT NOT OBLIGATED
                                                    BY MARCH 22, 2002
    ----------------------------------------------------------------------------------------------------------------
                                                                          Fiscal         Grant          Authorized
               Field office name               Housing authority name      year       unobligated         amount
    ----------------------------------------------------------------------------------------------------------------
    ALBUQUERQUE PROGRAM CENTER.............  CHAMA HOUSING AUTHORITY,        1999        $75,217.00       $75,217.00
                                              NM.
    ALBUQUERQUE PROGRAM CENTER.............  SUNLAND PARK HA, NM......       1999         90,964.00        67,264.00
    ATLANTA HUB OFFICE.....................  BRUNSWICK HA, GA.........       1999        924,936.00       576,780.00
    ATLANTA HUB OFFICE.....................  GRIFFIN, GA..............       1998        430,342.00       251,899.00
    ATLANTA HUB OFFICE.....................  CORDELE HA, GA...........       1999        702,335.00       347,913.00
    ATLANTA HUB OFFICE.....................  QUITMAN, GA..............       1998      1,781,022.00     1,272,957.00
    ATLANTA HUB OFFICE.....................  TIFTON HOUSING AUTHORITY,       1999        525,836.00       172,726.00
                                              GA.
    ATLANTA HUB OFFICE.....................  LAFAYETTE HA, GA.........       1999        305,392.00       248,664.00
    BALTIMORE HUB OFFICE...................  ANNAPOLIS HOUSING               1999      1,838,764.00       581,973.00
                                              AUTHORITY, MD.
    BIRMINGHAM HUB OFFICE..................  BIRMINGHAM, AL...........       1998     10,932,880.00     1,270,836.00
    BIRMINGHAM HUB OFFICE..................  TALLASSEE, AL............       1998        150,000.00        45,649.00
    BIRMINGHAM HUB OFFICE..................  TALLASSEE HA, AL.........       1999        190,772.00       190,772.00
    BOSTON HUB OFFICE......................  PLYMOUTH HA, MA..........       1999        149,480.00       125,210.00
    BOSTON HUB OFFICE......................  WEBSTER HA, MA...........       1998        492,500.00       286,330.00
    BOSTON HUB OFFICE......................  WEBSTER HA, MA...........       1999         81,413.00        71,413.00
    BUFFALO HUB OFFICE.....................  WATERTOWN HA, NY.........       1999        977,389.00       173,848.00
    BUFFALO HUB OFFICE.....................  TROY HA, NY..............       1998      2,143,930.00       395,981.00
    BUFFALO HUB OFFICE.....................  TROY HA, NY..............       1999      2,499,166.00     1,192,993.00
    BUFFALO HUB OFFICE.....................  WATERVLIET HA, NY........       1999        471,295.00        70,222.00
    BUFFALO HUB OFFICE.....................  RENSSELAER HA, NY........       1999        292,562.00       149,049.00
    CHICAGO HUB OFFICE.....................  DECATUR HOUSING                 1999      1,865,509.00       520,193.00
                                              AUTHORITY, IL.
    CHICAGO HUB OFFICE.....................  MENARD COUNTY HOUSING           1999        410,257.00        71,830.00
                                              AUTHORITY, IL.
    CHICAGO HUB OFFICE.....................  KANKAKEE COUNTY HOUSING         1999        552,216.00       140,616.00
                                              AUTHORITY, IL.
    CHICAGO HUB OFFICE.....................  ADAMS COUNTY HOUSING            1999        182,727.00        69,200.00
                                              AUTHORITY, IL.
    CHICAGO HUB OFFICE.....................  LAKE COUNTY HOUSING             1999      1,415,393.00       310,677.00
                                              AUTHORITY, IL.
    CHICAGO HUB OFFICE.....................  WHITE COUNTY HOUSING            1999        194,818.00        55,676.00
                                              AUTHORITY, IL.
    CHICAGO HUB OFFICE.....................  OAK PARK HOUSING                1999        264,259.00       247,079.00
                                              AUTHORITY, IL.
    CINCINNATI COMMUNITY SERVICE CENTER....  CLINTON MHA, OH..........       1998        202,280.00       117,453.00
    CINCINNATI COMMUNITY SERVICE CENTER....  CLINTON MHA, OH..........       1999         61,177.00        24,611.00
    COLUMBIA PROGRAM CENTER................  GREENVILLE HA, SC........       1999      1,302,973.00       167,258.00
    COLUMBIA PROGRAM CENTER................  MYRTLE BEACH, SC.........       1999         41,404.00         4,767.00
    COLUMBIA PROGRAM CENTER................  YORK, SC.................       1999        227,128.00        41,606.00
    COLUMBIA PROGRAM CENTER................  CHARLESTON C0, SC........       1999        329,004.00        90,544.00
    DETROIT HUB OFFICE.....................  DETROIT HC, MI...........       1999     20,258,934.00     8,567,878.00
    DETROIT HUB OFFICE.....................  PONTIAC HC, MI...........       1999      1,178,664.00       247,375.00
    FORT WORTH HUB OFFICE..................  PARIS, TX................       1999        378,192.00        95,000.00
    FORT WORTH HUB OFFICE..................  GRAND SALINE HA, TX......       1999        162,364.00       107,667.00
    GRAND RAPIDS COMMUNITY SERVICE CENTER..  MUSKEGON HEIGHTS, MI.....       1999        891,694.00       751,030.00
    GRAND RAPIDS COMMUNITY SERVICE CENTER..  MUSKEGON, MI.............       1999        261,843.00       238,337.00
    GREENSBORO HUB OFFICE..................  HA LUMBERTON, NC.........       1999      1,196,802.00       705,931.00
    GREENSBORO HUB OFFICE..................  BENSON, NC...............       1999        776,516.00       611,024.00
    GREENSBORO HUB OFFICE..................  HA WADESBORO, NC.........       1999        329,388.00        55,193.00
    GREENSBORO HUB OFFICE..................  HA MIDEAST REGIONAL, NC..       1999        410,806.00       251,698.00
    HARTFORD PROGRAM CENTER................  MERIDEN HOUSING                 1999        858,546.00       333,399.00
                                              AUTHORITY, CT.
    HARTFORD PROGRAM CENTER................  GLASTONBURY HOUSING             1999        383,497.00       203,737.00
                                              AUTHORITY, CT.
    INDIANAPOLIS PROGRAM CENTER............  INDIANAPOLIS HA, IN......       1998      3,440,145.00       780,340.00
    INDIANAPOLIS PROGRAM CENTER............  INDIANAPOLIS HOUSING            1999      3,846,488.00     2,067,108.00
                                              AGENCY, IN.
    JACKSON PROGRAM CENTER.................  MCCOMB, MS...............       1999        615,301.00       268,532.30
    JACKSONVILLE HUB OFFICE................  ORLANDO, FL..............       1999      3,900,597.00       792,119.00
    JACKSONVILLE HUB OFFICE................  UNION COUNTY, FL.........       1999        214,967.00       214,967.00
    LOUISVILLE HUB OFFICE..................  HA LEXINGTON, KY.........       1999      2,728,620.00     1,822,626.00
    MILWAUKEE PROGRAM CENTER...............  CITY OF BELOIT, WI.......       1999        263,692.00       171,043.00
    NASHVILLE PROGRAM CENTER...............  MEMPHIS, TN..............       1998     12,314,347.00     3,066,870.00
    NASHVILLE PROGRAM CENTER...............  PULASKI, TN..............       1999        439,626.00       108,127.00
    NEW ORLEANS HUB OFFICE.................  CROWLEY HOUSING                 1999        708,324.00       687,074.00
                                              AUTHORITY, LA.
    NEW YORK CITY HUB OFFICE...............  WHITE PLAINS HA, NY......       1999      1,748,410.00       568,792.00
    NEW YORK CITY HUB OFFICE...............  NORTH HEMPSTEAD HA, NY...       1999        252,717.00       103,052.00
    NEWARK HUB OFFICE......................  TRENTON HOUSING                 1999      4,717,627.00     1,624,992.00
                                              AUTHORITY, NJ.
    NEWARK HUB OFFICE......................  BEVERLY HOUSING                 1998        939,257.00       385,249.00
                                              AUTHORITY, NJ.
    NEWARK HUB OFFICE......................  BEVERLY HOUSING                 1999        128,111.00        24,934.00
                                              AUTHORITY, NJ.
    PHILADELPHIA HUB OFFICE................  MONROE COUNTY HOUSING           1999        574,924.00       215,238.00
                                              AUTHORITY, PA.
    PHILADELPHIA HUB OFFICE................  LACKAWANNA COUNTY HA, PA.       1999      1,825,518.00       571,812.00
    PHILADELPHIA HUB OFFICE................  WILLIAMSPORT HOUSING            1999        372,544.00        45,755.00
                                              AUTHORITY, PA.
    PITTSBURGH HUB OFFICE..................  JEFFERSON COUNTY HOUSING        1999        448,655.00       210,008.00
                                              AUTHORITY, PA.
    SAN ANTONIO HUB OFFICE.................  DEL RIO HOUSING                 1998        411,901.00        96,138.19
                                              AUTHORITY, TX.
    SAN ANTONIO HUB OFFICE.................  DEL RIO HOUSING                 1999        483,059.00        77,860.16
                                              AUTHORITY, TX.
    SAN ANTONIO HUB OFFICE.................  EDCOUCH HOUSING                 1998        350,000.00       110,129.00
                                              AUTHORITY, TX.
    SAN ANTONIO HUB OFFICE.................  INGLESIDE HOUSING               1999        179,647.00        60,078.00
                                              AUTHORITY, TX.
    SAN ANTONIO HUB OFFICE.................  STARR COUNTY HOUSING            1999        163,288.00       157,063.00
                                              AUTHORITY, TX.
    SEATTLE HUB OFFICE.....................  TACOMA HOUSING AUTHORITY,       1999      4,571,296.00     1,366,829.00
                                              WA.
    SEATTLE HUB OFFICE.....................  SEDRO WOOLLEY HOUSING           1999        127,909.00        32,918.00
                                              AUTHORITY, WA.
    ST. LOUIS PROGRAM CENTER...............  WEST PLAINS HOUSING             1999        313,340.00        92,709.00
                                              AUTHORITY, MO.
                                                                       ---------------------------------------------
          TOTAL............................  .........................         72    105,272,796.00    37,319,837.65
    ----------------------------------------------------------------------------------------------------------------

        Question. In addition, the HUD fiscal year 2003 Budget requests
    authority for HUD to permit PHAs to borrow private capital as a way to
    fund needed capital improvements. These private funds would be repaid
    through the provision of Section 8 project-based assistance for these
    units. In turn, there is proposed authority to convert this Section 8
    project-based assistance to vouchers and allow this housing to be
    rented on the private market. This essentially means that the best
    units in public housing would be converted to private housing and the
    inventory of affordable housing in many marketplaces would shrink. How
    does the Administration justify the risk of losing this affordable
    housing, especially in tight marketplaces?
        Answer. HUD believes that the result of this proposal will be a
    substantial improvement in the current public housing stock that would
    not have been possible otherwise. The proposal is not designed to
    convert public housing to private housing, does not cover the best
    units in particular and would not result in shrinkage in the inventory
    of affordable housing.
        The assistance proposed is Section 8 project-based vouchers. The
    ability to convert public housing subsidy to project-based vouchers
    will enable PHAs to borrow funds for capital improvements on a
    development-by-development basis, just like other multifamily real
    estate. This will enable PHAs to leverage private dollars to help
    address the $22 billion backlog in capital needs.
        The proposal is not limited to the best public housing. All public
    housing is eligible. HUD only would approve transactions where
    significant enough capital work is needed to justify use of this
    financing tool. Where a development has higher capital needs than the
    amount that could be financed within program limits, PHAs would have
    the choice of supplementing the funding with Capital Fund or other
    money.
        The proposal does not assume private for-profit ownership in any
    fashion. It is a voluntary program in which PHAs may participate. PHAs
    may retain control of a participating development's ownership, through
    a PHA-controlled subsidiary where this will facilitate financing. If a
    PHA desires to dispose of the property to any owner that is not PHA-
    controlled, the public housing disposition rules would apply (as they
    would with any other public housing property).
        A participating development would have a continuing contract for
    project-based vouchers for all the units. The Administration proposal
    does allow renting of some units to unassisted tenants, up to one third
    of non-elderly or disabled units. To the extent this occurs, the PHA
    can use additional vouchers elsewhere, so that affordable housing
    opportunities are not lost. Even in that case, the project-based
    voucher contract would remain for all of the units in the development,
    so that the PHA later could again rent all the units at the development
    to assisted tenants (and reduce the number of extra vouchers used in
    the community accordingly). This proposal is designed to provide
    additional flexibility for producing mixed-income developments, and
    should not be confused with an effort to ``voucher out.''
        Question. If Congress does not provide this new authority to
    support the private financing of rehabilitation through Section 8
    funding, does Public Housing need the additional $400 million that the
    Administration is recommending be cut from the Public Housing Capital
    Fund?
        Answer. If that proposal is not enacted, the HUD-proposed amount is
    sufficient to cover the accrual of new capital needs during fiscal year
    2003. As of December 31, 2001, there were approximately $5.5 billion in
    unexpended Capital grant funds that were provided to PHAs. Included
    within this amount there were approximately $3.2 billion Capital grant
    funds that remained unobligated by the PHAs. These balances are
    significant. The Department will closely monitor obligations and
    expenditures and make appropriate budget proposals.
        Question. Doesn't this proposal just shift the cost of public
    housing from the Public Housing Operating and Capital Funds to the
    Certificate Fund?
        Answer. No, the proposal does not simply shift costs to the
    Certificate Fund. A different product is being funded--deteriorated
    public housing with significant capital needs is being replaced with
    renovated or new assisted housing. As a result, tenants will be able to
    live in decent conditions in the near future.
        This renovation or replacement otherwise could not be afforded for
    years with the resources available under historic patterns for Public
    Housing Capital Fund appropriations. At the same time, the developments
    will be managed and financed on a property-by-property basis, which
    should lead to more sound management practices.
                             project-based opt-outs
        Question. I remain concerned about the Administration's continuing
    emphasis on section 8 vouchers to the detriment of preserving section 8
    project-based housing especially in tight rental markets. Over the last
    3 years, how many projects and units have opted out of the section 8
    project-based program with the tenants converting to section 8 tenant-
    based assistance?
        Answer. The Department is in the process of updating and revising
    its systems for tracking opt-outs in its Real Estate Management System
    (REMS), including a specific effort to confirm actual opt-outs from the
    project-based inventory and reconciling this data with public housing
    records for issuances of tenant protection vouchers for projects that
    have filed an intent to opt-out. Difficulty has been experienced in
    tracking these actions because project owners sometimes give formal
    notice of an intent to opt-out, but are later persuaded to continue
    with project-based assistance. Another issue is that opt-out data has
    been combined with counts of Section 8 contracts that have been
    terminated by HUD because the property fails to meet program standards.
    Preliminary results, however, indicate that approximately 10,000 units
    in about 230 projects were removed from the project-based inventory in
    fiscal year 2001 by a decision by a property owner to opt-out of the
    Section 8 project-based program.
                                    opt-outs
        Question. How many of these projects have been elderly projects or
    designated for persons with disabilities?
        Answer. The Department does not have data that identifies whether
    projects with an elderly designation or primarily serving the disabled
    are among those to have opted-out from project-based assistance,
    however, it is unlikely that there are a significant number of projects
    in this category. Anecdotal evidence indicates that where there are
    opt-outs involving projects serving the elderly or disabled, the
    availability of tenant protection vouchers generally permits residents
    to remain in the project.
                              homeless assistance
        Question. HUD continues to fund over $1 billion per year in
    McKinney-Vento homeless assistance through State and local continuums
    of care. These funds generally are funded through the CDBG formula
    which includes no consideration of homelessness. What steps is HUD
    taking to ensure accountability that these funds are being used to
    assist the homeless.
        Answer. The CDBG formula is only applied to $150 million of the
    McKinney-Vento appropriation for allocating the Emergency Shelter Grant
    program. Funds for the remaining Homeless Assistance Grants are
    distributed based on competitions. HUD uses a variety of methods to
    ensure that funds awarded are being used to assist homeless people. On-
    site monitoring of HUD grant programs is a key responsibility of HUD's
    field staff. Monitoring is conducted using established standards and
    procedures, and includes interviews, examination of files, and visits
    to grantee and sub-grantee sites. Written monitoring findings and
    concerns are provided to the grantee, and resolution is required within
    a specific time frame. Grantees are also required to submit an Annual
    Progress Report for each year that funding is provided. The report
    includes financial and progress information.
        In the annual homeless assistance competition, all grantees,
    including those applying for renewal grants, must meet application
    threshold review standards that include applicant capacity, eligibility
    of the homeless participants, and cost-effectiveness. Many grant awards
    are conditioned, requiring the conditionally selected grantee to
    clarify or provide additional information before a final award is made.
    In some cases, the original award offer is reduced or withdrawn, if
    program requirements are not met, or funding amounts not justified.
        Question. How are these accountability requirements different from
    a year ago?
        Answer. Since last year, HUD has increased its efforts to further
    ensure accountability. The Annual Performance Report has been
    automated, and the database is currently being populated. The data will
    not only enable better tracking of individual projects, but will also
    generate a variety of reports which will assist HUD in developing
    policies and procedures to address any specific accountability issues
    demonstrated in APRs.
        The application for the 2002 competition includes stronger
    performance requirements for previous recipients applying for renewal
    grants. In addition, all applicants must demonstrate specific actions
    they have taken with regard to ensuring clients will be assisted to
    obtain benefits of mainstream programs for which they are eligible. The
    application also requires more budget detail to help applicants better
    plan projects and request appropriate funding amounts. To address HUD's
    goal of ending chronic homelessness in 10 years, applicants in the 2002
    competition are asked for information that will enable us to establish
    a baseline against which progress toward the goal can be measured.
                       emergency food and shelter program
        Question. The President's Budget recommends that the Emergency Food
    and Shelter program be transferred from FEMA to HUD. This has been a
    very successful program at FEMA and there are significant concerns that
    any transfer could reduce the effectiveness of this program. What are
    the advantages to this transfer?
        Answer. We agree that the Emergency Food and Shelter Program (EFSP)
    has been efficiently and effectively administered and we propose to
    operate it in the same fashion. Significant amounts of EFSP funds are
    provided for shelter resources, often to the same entities receiving
    HUD's Emergency Shelter Grants (ESG) funds and Continuum of Care
    competitive funds. Many of the same activities are eligible under EFSP
    and ESG. Given HUD's successful role in implementing the Continuum of
    Care, it is anticipated that EFSP can be administered in a manner that
    more effectively coordinates EFSP with the Continuum of Care planning
    concept. However, HUD has no plan to alter the basic method of EFSP
    formula allocation. Any efforts to better coordinate the programs will
    be done only after careful consultation with key stakeholders in the
    EFSP allocation process, local providers and program clients.
                             mark-to-market savings
        Question. The Section 8 Mark-to-Market program was enacted to
    provide a mechanism to reduce the cost of oversubsidized, expiring
    section 8 contracts to market rents while preserving this housing as
    affordable, low-income housing. How much section 8 funding has actually
    been saved since the beginning of the program? How many projects have
    been preserved with section 8 project-based contracts?
        Answer. Since inception of the Mark-to-Market (M2M) program through
    February 28, 2002, 1,354 properties, with a total of 105,834 units, of
    affordable housing have been preserved. The M2M reviews resulted in:
      --407 full debt restructurings, 32,870 units;
      --270 Actions Other Than Closing (AOTC), 17,686 units. AOTC
            transactions are comprised of those deals that are financially
            infeasible, or where the owner refuses to complete the closing,
            or where a bad owner/bad property is involved;
      --572 lites (reductions in contract rents that do not require debt
            restructuring), 47,932 units; and
      --105 comparability reviews, 7,346 units.
        Of the 1,354 properties completed as of February 28, 2002, 968
    properties with 80,584 units received reduced rents. The remainder were
    either still in process, have ultimately been determined to have rents
    at or below market, or are not eligible for the M2M program.
        In the fiscal year 2003 Budget request, approximately $135 million
    in savings has been assumed in Housing Certificate Fund for fiscal year
    2002.
                           market-to-market opt-outs
        Question. How many projects have been removed from the section 8
    inventory by owners who opted out of their section 8 project-based
    contracts?
        Answer. Since inception of the Mark-to-Market program, through
    February 28, 47 owners with 2,498 total units gave notice to the Office
    of Multifamily Housing Assistance Restructuring that they would opt-out
    of their project-based Section 8 contracts; 34 owners, accounting for
    1,382 total units, have actually done so.
                         preservation of assisted units
        Question. For fiscal year 2001 and 2002, the VA/HUD appropriations
    acts have required HUD to preserve section 8 project-based assistance
    for the elderly and disabled upon foreclosure by HUD, except under
    certain circumstances. How many projects have been preserved under this
    requirement? How many of these projects have been disposed by HUD
    without maintaining the section 8 project-based assistance?
        Answer. See table below.

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Number                        Preserved w/project-
              Property Name           of Units        Location         based Section 8?   Date Closed                         Comments
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Bethesda Manor II...............        12  Plainview, TX......  No Property was       10/20/2000  Vacant property sold to Wayland Manor University.
                                                                      vacant.
    Kenilworth Park Plaza...........        77  Portland, OR.......  Yes................   11/01/2000  Sold to City of Portland.
    Project Independence............        49  Arkansas City, KS..  No Other              11/01/2000  Sold to Arkansas City. The conditions of the sale
                                                                      preservation tools                were agreed to by HUD before the field was aware of
                                                                      used.                             the new statute regarding retention of project based
                                                                                                        Section 8. However, other preservation tools were
                                                                                                        used. All tenants were provided rental housing
                                                                                                        vouchers, and rents were required to be maintained
                                                                                                        as affordable for 20 years. Nearly all of the
                                                                                                        tenants remained in residence using their vouchers.
    NMARC...........................         6  Santa Fe, NM.......  No Property was       01/26/2001  Vacant property. Sold to the Santa Fe Civic Housing
                                                                      vacant.                           Authority without restrictions.
    Monastery.......................        24  Way Sitka, AK......  No Other              03/30/2001  The conditions of the sale were agreed to by HUD
                                                                      preservation tools                before the field was aware of the new statute
                                                                      used.                             regarding retention of project based Section 8.
                                                                                                        However, other preservation tools were used. All
                                                                                                        tenants were provided rental housing vouchers.
                                                                                                        Nearly all of the tenants remained in residence
                                                                                                        using their vouchers. Property sold to Baranof
                                                                                                        Island Housing Authority for elderly housing.
    Morningside Village.............        31  Alcester, SD.......  No Other              04/30/2001  The conditions of the sale were agreed to by HUD and
                                                                      preservation tools                the City of Alcester before the field was aware of
                                                                      used.                             the new statute regarding retention of project based
                                                                                                        Section 8. However, other preservation tools were
                                                                                                        used. All tenants were provided rental housing
                                                                                                        vouchers, and HUD created ``voucher ready units'' by
                                                                                                        requiring that rents cannot exceed the voucher
                                                                                                        payment standard. Nearly all of the tenants remained
                                                                                                        in residence using their vouchers.
    Elmwood Group Home..............        15  Ottumwa, IO........  No Property was       06/08/2001  Vacant property sold to the Area XV Multi-County
                                                                      vacant.                           Housing Agency.
    Edgewood/Eldercrest.............       147  Youngstown, OH.....  No Other              07/30/2001  The conditions of the sale were agreed to by HUD and
                                                                      preservation tools                the City of Youngstown before the field was aware of
                                                                      used.                             the new statute regarding retention of project based
                                                                                                        Section 8. However, other preservation tools were
                                                                                                        used. All tenants were provided rental housing
                                                                                                        vouchers. Nearly all of the tenants remained in
                                                                                                        residence using their vouchers.
    J.C. Progress...................       204  Chattanooga, TN....  No Other              08/24/2001  Property was only about 50 percent occupied by
                                                                      preservation tools                elderly. The conditions of the sale were agreed to
                                                                      used.                             by HUD and the City of Chattanooga before the field
                                                                                                        was aware of the new statute regarding retention of
                                                                                                        project based Section 8. However, other preservation
                                                                                                        tools were used. HUD required that the property be
                                                                                                        repaired and provided an Up Front Grant to pay for
                                                                                                        part of the rehabilitation and conversion of the
                                                                                                        efficiencies to one bedroom units to better meet
                                                                                                        market demand for affordable elderly and near-
                                                                                                        elderly housing. Occupancy is limited to the elderly
                                                                                                        and near-elderly. All tenants were provided rental
                                                                                                        housing vouchers, and HUD created ``voucher ready
                                                                                                        units'' by requiring that rents cannot exceed the
                                                                                                        voucher payment standard. Nearly all of the tenants
                                                                                                        remained in residence using their vouchers.
    Tiffin VOA......................        20  Tiffin, OH.........  No Property was       09/06/2001  Vacant property sold to Seneca County Commissioners
                                                                      vacant.                           to be used for public purpose.
    Pickwick/Royal Tower............       233  Kansas City, MO....  No Other              09/23/2001  Majority of residents were chronically mentally ill.
                                                                      preservation tools                Other preservation tools were used. All tenants were
                                                                      used.                             provided rental housing vouchers, and HUD created
                                                                                                        ``voucher ready units'' by requiring that rents
                                                                                                        cannot exceed the voucher payment standard. Nearly
                                                                                                        all of the tenants remained in residence using their
                                                                                                        vouchers.
    Gardner House...................         8  Gardner, MA........  Yes................   09/27/2001  Sold to North Central Human Services, Inc.
    Monadnock Workshop..............         8  Peterborough, NH...  No Property was       09/27/2001  This was a vacant 8-unit property in an old historic
                                                                      vacant.                           property not suited for the elderly as configured.
                                                                                                        HUD sold the property to the Contooncook Housing
                                                                                                        Trust who plans to convert it to 3 units of
                                                                                                        affordable housing.
    Sana............................       271  Hartford, CT.......  Yes................   02/01/2002  Sold to City of Hartford.
    --------------------------------------------------------------------------------------------------------------------------------------------------------

              hud assisted housing in foreclosure and in inventory
        Question. For the record, I would like a list of projects by State,
    including location and number of units.
        Answer. See lists below.

                                                       MULTIFAMILY PROPERTIES IN FORECLOSURE AS OF 4/4/02
                                      (Please note that most of the unsubsidized notes will be offered the next note sale)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                      No. of
                  FHA#                 Section of the Act                                        Property Name                                        Units
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    023-35269.......................  221D4...............  EAST CANTON STREET APARTMENTS, 79 E CANTON STREET, BOSTON, MA 02118-2328...............       80
    017-44076.......................  236.................  ST. CHRISTOPHER APTS., 360 MAIN STREET, HARTFORD, CT 06106.............................      100
    024-22007.......................  232.................  SEACOAST HEALTH CENTER, 777 LAFAYETTE RD., HAMPTON, NH 03842...........................      169
    024-22019.......................  232.................  FAMILY LIVING ADULT CARE, 24 HALL ST., SACO, ME 04072..................................       48
    024-EH078.......................  202.................  OSSIPEE HOUSE, 70 MOULTONVILLE RD., CENTER OSSIPEE, NH 03814...........................        8
    016-22006.......................  232.................  DESILETS NURSING HOME, 642 METACOM AVE., WARREN, RI 02885..............................       80
    016-43017.......................  232.................  ROSE COTTAGE NURSING FACILITY, 151 HUNT STREET, CENTRAL FALLS, RI 02863................      100
    016-43062.......................  232.................  EDMUND PLACE, 350 TAUNTON AVE., EAST PROVIDENCE, RI 02914..............................       79
    016-43071.......................  232.................  COVENTRY HEALTH CENTER, BROAD STREET, COVENTRY, RI.....................................      344
    012-43180.......................  232.................  TAPPAN ZEE MANOR, MOUNTAINVIEW RD, NYACK, NY 10960.....................................      100
    012-44159.......................  236.................  PLEASANT EAST APARTMENTS, 446 E 117TH ST, NEW YORK, NY 10035-5038......................      111
    012-57114.......................  221D4...............  HAROLD APTS, 437 MANHATTAN AVE., NEW YORK, NY 10026....................................       53
    012-57115.......................  221D4...............  DESCHLER APARTMENTS, 1871 7TH AVE., NEW YORK, NY 10026-2800............................       60
    012-57170.......................  221D4...............  PUEBLO DE MAYAGUEZ, 950 AVENUE SAINT JOHN, BRONX, NY 10455-3400........................       76
    013-35073.......................  221D4...............  WASHINGTON PARK APARTMENT, 212 THIRD STREET, TROY, NY 12180............................       34
    014-00002.......................  207.................  TROUT BROOK MOBILE HOME, 8 GARDNERVILLE RD., LE RAY, NY 13637..........................      100
    014-43009.......................  232.................  BEECHWOOD RESTORATIVE, 900 CULVER RD., ROCHESTER, NY 14609.............................       82
    014-43066.......................  232.................  LORETTO-UTICA HEALTH CARE, 1445 KEMBLE STREET, UTICA, NY 13501.........................      156
    014-EH182.......................  202.................  ALFRED SENIOR HOUSING, 34 GLEN ST, ALFRED, NY 14802....................................       40
    035-43049.......................  232.................  GREENBRIAR NURSING HOME, 191 N. EVERGREEN, WOODBURY, NJ 08096..........................      220
    052-43051.......................  232.................  ANNAPOLITAN SENIOR CARE, 84 NORTH OLD MILL BOTTOM RD., ANNAPOLIS, MD 21401-9003........       84
    052-43064.......................  232.................  NOBLE HOUSE NURSING HOME, 2327 NORTH CHARLES STREET, BALTIMORE, MD 21218...............      109
    052-44133.......................  236.................  UPLANDS A, 4625 EDMONDSON AVE, BALTIMORE, MD 21229-2554................................      495
    052-44143.......................  236.................  UPLANDS B, 4625 EDMONDSON AVE, BALTIMORE, MD 21229-2554................................      478
    052-44157.......................  236.................  FREEDOM APARTMENTS, 4665 FREEDOMWAY W, BALTIMORE, MD 21213-2609........................      308
    052-EH011.......................  202.................  APOSTOLIC TOWERS, 201 N. WASHINGTON ST, BALTIMORE, MD 21231............................      215
    052-EH081.......................  202.................  BEREA APOSTOLIC TOWERS, 1401 N. LAKEWOOD AVE, BALTIMORE, MD 21213......................      102
    034-35193.......................  221D4...............  NORTH QUEEN STREET APARTMENTS, 424 N QUEEN ST, LANCASTER, PA 17603-3055................        8
    034-SH016.......................  202.................  MOUNT OLIVET VILLAGE, 642 N 41ST STREET, PHILADELPHIA, PA 19104........................      220
    033-22003.......................  232.................  INDEPENDENCE COURT-OAKL, 4700 FIFTH AVENUE, PITTSBURGH, PA 15213.......................      128
    033-33501.......................  221D4...............  CORA STREET APTS, 525 CORA ST., PITTSBURGH, PA 15208...................................       22
    033-35159.......................  221D4...............  RENAISSANCE APARTMENTS, 308 N TAYLOR AVE, PITTSBURGH, PA 15212-4551....................       57
    033-44015.......................  236.................  BRADDEHANNA APARTMENTS, 7515 SUSQUEHANNA ST., PITTSBURGH, PA 15208.....................       45
    033-44028.......................  236.................  STERRETT-COLLIER APARTMENTS, 7335 HAMILTON AVE, PITTSBURGH, PA 15208-1937..............      145
    033-55008.......................  221D3...............  LIBERTY PARK APARTMENTS, 6209 BROAD STREET, PITTSBURGH, PA 15206.......................      332
    033-55018.......................  221D3...............  WESTGATE I, 287 VILLAGE RD, PITTSBURG, PA 15206-3702...................................      206
    033-55032.......................  221D3...............  WESTGATE II, 287 VILLAGE RD., PITTSBURGH, PA 15205-1938................................      230
    051-22001.......................  232.................  LAUREL MEADOWS NURSING HOME, RT. 1, BOX 181B, LAUREL FORK, VA 24352-9707...............       60
    051-43087.......................  232.................  HERITAGE HALL XIII, 400 W. STARSBURG RD., FRONT ROYAL, VA 22630........................       60
    051-43088.......................  232.................  HERITAGE HALL XV, 500 W. RIO RD., CHARLOTTESVILLE, VA 22901............................      120
    051-43109.......................  232.................  HERITAGE HALL XX, 633 COOK AVE., BROOKNEAL, VA 24528-3111..............................       60
    051-43110.......................  232.................  HERITAGE HALL XXII, 203 HOUSTON ST., LEXINGTON, VA 24450-2415..........................       60
    051-43113.......................  232.................  HERITAGE HALL XXIX, 5580 DANIEL SMITH RD., VIRGINIA BEACH, VA 23462-1104...............       90
    051-43116.......................  232.................  HERITAGE HALL XIV, ROUTE 5, BOX 104, GRUNDY, VA 24614-9504.............................      120
    051-43135.......................  232.................  VANGILDERS CARE CENTER, 1011 PENNSYLVANIA AVENUE, WINCHESTER, VA 22601.................       78
    051-43154.......................  232.................  DOGWOOD NORTH, 30 KINGS CREST DRIVE, STAFFORD, VA 22554................................       48
    051-44071.......................  236.................  CARRINGTON GARDENS APARTMENTS, 1125 DOVE ST, RICHMOND, VA 23222-4524...................       95
    000-44015.......................  236.................  SAYLES PLACE HOMES, INC, 2700-07 DOUGLAS PL SE, WASHINGTON, DC 20020...................       63
    000-94014.......................  207.................  GOOD HOPE APARTMENTS, 1667 GOOD HOPE RD SE, WASHINGTON, DC 20020.......................       41
    061-43113.......................  232.................  CAMPBELL-STONE ASSISTED L, 2911 SOUTH PHARR ROAD, NW, ATLANTA, GA 30305................       48
    062-11028.......................  223F................  PINERY TOWNHOUSE APTS, 4930 PARKTOWNE WAY, MONTGOMERY, AL 36116........................      202
    062-35087.......................  221D3...............  PARKSIDE APARTMENTS, 415 CUBA ST., MOBILE, AL 36603-5220...............................       48
    062-44065.......................  236.................  SARALAND APTS., 527 US HIGHWAY, 43 SOUTH, SARALAND, AL 36571...........................       60
    062-92002.......................  207.................  STONEGATE VILLAGE APTS., 1238 2ND ST., SW, DECATUR, AL 35601...........................      136
    056-35137.......................  221D4...............  THE PENTAGON APARTMENTS, 1919 PONCE DE LEON AVE., SANTURCE, PR 00916...................       50
    054-11038.......................  207.................  GREENWOOD PARK APARTMENTS, GREENWOOD PK, RT 3, TUBELLO CT, MARION, SC 29571-8040.......       32
    054-35593.......................  221D4...............  MAGNOLIA LANE APARTMENTS, DESTINY LANE, CONWAY, SC 29526...............................       48
    054-43070.......................  232.................  RIVERSIDE AT BELFAIR, 56 OAK FOREST ROAD, BLUFFTON, SC 29910...........................      101
    054-43073.......................  232.................  COLONY HOUSE, 1036 MAXWELL MILL, FORT MILL, SC 29715-7852..............................       92
    054-43077.......................  232.................  SEVEN OAKS ASSISTED LIVING, 119 CHESTERFIELD HWY, CHERAW, SC 29520.....................      114
    053-35005.......................  221D3...............  THOMASVILLE CHURCH HOMES, 904 DOAK CT., THOMASVILLE, NC 27360..........................      100
    053-94014.......................  207.................  FOUR SEASONS APTS, 3129 SPRING VALLEY DR., GASTONIA, NC 28052..........................       81
    063-22004.......................  232.................  SOUTHLAND SUITES, RR 2 BOX 1785, MAYO, FL 32066-9201...................................       22
    063-35196.......................  221D4...............  WARRINGTON VILLAGE APARTMENTS, 34 PATTON DR., PENSACOLA, FL 32507-3805.................      200
    066-43078.......................  232.................  MUNNE CENTER AKA THE OAKS, 17250 SW 137TH AVE., MIAMI, FL 33177........................       94
    067-35331.......................  221D4...............  ASHLEY CROSSINGS, 401 ROSERY ROAD EAST, LARGO, FL 33770................................      278
    067-43089.......................  232.................  PALM TERRACE RESIDENT CARE, 5121 E. SERENA DRIVE, TAMPA, FL 33617......................       73
    083-35211.......................  221D4...............  BEECHER HOUSE, 203 S MAIN ST., SOMERSET, KY 42501......................................       62
    083-35272.......................  221D4...............  CYPRESS POINT, 1101 BURLEW BLVD., OWENSBORO, KY 42303..................................      120
    083-35345.......................  221D4...............  TOWN BRANCH APARTMENTS, 221-A S HORD STREET, GRAYSON, KY 41143.........................       24
    083-35367.......................  221D4...............  DIXIE PARK HOMES, 219 HORD STREET, GRAYSON, KY 41143...................................        8
    083-35472.......................  221D3...............  KENTUCKY TOWERS, 514 S. FIFTH ST., LOUISVILLE, KY 40202................................      275
    083-35544.......................  221D4...............  HAVERFORD PLACE, COLONY BLVD. & STURBRIDGE DR., GEORGETOWN, KY.........................      160
    083-43087.......................  232.................  SHELBY MANOR HEALTH CARE, 100 CHURCH VIEW ST., SHELBYVILLE, KY 40065...................      153
    087-43046.......................  232.................  VERANDA AT HAMILTON PLACE, 7429 SHALLOWFORD RD., CHATTANOOGA, TN 37421.................       60
    081-15001.......................  232.................  FOX ACRES, 2180 MAGNUM RD., MEMPHIS, TN 38134..........................................       10
    081-22003.......................  232.................  MAPLE RIDGE MANOR, 705 LAKE ROAD, DYERSBURG, TN 38024..................................       43
    081-43021.......................  232.................  FOX ACRES, 2180 MAGNUM RD., MEMPHIS, TN 38134..........................................       10
    081-55002.......................  221D3...............  WATKINS MANOR APTS, 2623 N WATKINS ST, MEMPHIS, TN 38127-8500..........................      214
    071-94029.......................  223F................  CRESTVIEW VILLAGE APARTMENTS, 208 NORTH CRESTLANE DRIVE, KANKAKEE, IL 60901............      132
    072-35078.......................  ....................  SAINT NICHOLAS APARTMENTS, 400 E JEFFERSON STREET, SPRINGFIELD, IL 66666...............       94
    046-35605.......................  221D4...............  KINGS CROSSING, 4106 KINGS HIGHWAY, DAYTON, OH 45406...................................      298
    046-44089.......................  236.................  MORIANE APTS, 27 S LUDLOW ST, DAYTON, OH 45402-1832....................................      110
    046-44170.......................  236.................  GLENCOE-AUBURN APARTMENTS, 10 VIEW CT, COLUMBUS, OH 45219-1724.........................       90
    042-35195.......................  221D3...............  CARTER MANOR APTS., 1012 PROSPECT, CLEVELAND, OH 44115.................................      280
    042-35287.......................  221D4...............  PARK LANE VILLA, 10510 PARK LANE AVE, CLEVELAND, OH 44106-0000.........................      185
    042-35326.......................  221D4...............  BUCYRUS ESTATES APTS., 1730 MARION RD., BUCYRUS, OH 44820..............................       50
    042-35444.......................  221D3...............  THE NORTHWESTERLY, 1341 MARLOWE AVE., LAKEWOOD, OH 44107-0000..........................       92
    044-SH004.......................  202.................  ROCHDALE COURT APTS, 1584 E LAFAYETTE ST, DETROIT, MI 48207-2959.......................       70
    044-SH012.......................  202.................  FOUR FREEDOMS HOUSE, 1600 ANTIETAM ST, DETROIT, MI 48207...............................      320
    044-SH021.......................  202.................  INDEPENDENCE HALL, 1935 CHENE CT., DETROIT, MI 48207...................................      216
    073-11144.......................  223F................  VILLAGE PARK APTS., 2754 EAST PAULDING RD., FORT WAYNE, IN 46816.......................      484
    073-44360.......................  236.................  PARKSIDE TERRACE I, 2340 SUNBURST BLVD, EVANSVILLE, IN 47714-4610......................      202
    073-44457.......................  236.................  PARKSIDE TERRACE II, 2340 SUNBURST BLVD, EVANSVILLE, IN 47714-4610.....................      120
    075-EH251.......................  202.................  MONROE MANOR, 2403 MONROE STREET, NEW HOLSTEIN, WI 53061-0000..........................       12
    092-35133.......................  221D3...............  SOUTHGATE APTS. I, 3200 MAPLE AVE., SLAYTON, MN 56172-0000.............................       31
    112-35015.......................  221D3...............  SUNNYDALE APT., 125 SUNNYDALE ST., JACKSONVILLE, TX 75766-3388.........................       64
    112-35327.......................  221D4...............  PARK MANOR APTS., 2934 WEST PIONEER DRIVE, IRVING, TX 75061............................      210
    112-35380.......................  221D4...............  HIGHLAND COURT APARTMENTS, 3618 WHEELER, DALLAS, TX 75209..............................       85
    112-43065.......................  232.................  COUNTRY CLUB VILLAGE, 3400 NORTH COUNTRY CLUB RD., IRVING, TX 75062....................       38
    113-44065.......................  236.................  SABINE TERRACE, 600 WEST SADOSA STREET, EASTLAND, TX 76448-3343........................       70
    116-35121.......................  221D4...............  CUESTAS APTS., 2800 NORTH ROADRUNNER PKWY, LAS CRUCES, NM 88011........................      104
    114-35280.......................  221D4...............  SATSUMA GARDENS APTS., 2008 JENKINS RD, PASADENA, TX 77506.............................      232
    114-43032.......................  232.................  PARK CENTRAL NURSING HOME, 425 LAKE ARTHUR DRIVE, PORT ARTHUR, TX 77642-0000...........      120
    059-35229.......................  221D4...............  SNAP II APTS., PO BOX 84, SHREVEPORT, LA 71161-0000....................................       59
    059-35236.......................  221D4...............  GRAMBLING DEVELOPMENT, 200 EDITH ROSE LANE, GRAMBLING, LA 71254-0000...................       72
    117-35127.......................  221D3...............  WESTERN VILLAGE APTS., 120 N. EDWARDS STREET, HOLLIS, OK 73550.........................       48
    117-35185.......................  221D4...............  APACHE TRACE APARTMENTS, 1301 E HIGHWAY 3, GUYMON, OK 73942-5431.......................      144
    117-43028.......................  232.................  CARRIAGE INN APTS., 1300 EAST AYERS, EDMOND, OK 73034-0000.............................       94
    117-EH087.......................  202.................  REDBUD HOUSING, PO BOX 10, OAKS, OK 74359..............................................       24
    115-35205.......................  221D4...............  LASBY PARK TERRACE APTS., 120 TERRACE DR., SAN BENITO, TX 78586-5906...................       65
    115-43033.......................  232.................  VILLA SERENA ALZHEIMER'S, 4455 HORIZON HILL BLVD., SAN ANTONIO, TX 78229...............       36
    115-94015.......................  221D4...............  CAMELOT RETIREMENT COMMUN, 2015 S. CYNTHIA AVE., MCALLEN, TX 78503-2846................      120
    074-35162.......................  221D4...............  DAVENPORT MANOR APARTMENT, 7118 HILLANDALE RD, DAVENPORT, IA 52806-1049................      100
    074-44026.......................  236.................  COUNTRY MANOR APTS., 1010 N. 16TH ST., CLARINDA, IA 51632-0000.........................       48
    084-35252.......................  221D4...............  LOVETT PLACE, 2701-03 BENTON BLVD, KANSAS CITY, KS 64128...............................       48
    102-35139.......................  221D4...............  MULBERRY COURT APTS., 1500 N. CEDAR ST., ABILENE, KS 67410.............................       37
    102-35172.......................  221D4...............  FOX RUN APTS., 206 E. MIAMI, HIAWATHA, KS 66434-0000...................................       44
    102-35177.......................  221D4...............  FLEMING PLACE APARTMENTS, 2914 FLEMING ST, GARDEN CITY, KS 67846-7409..................       96
    102-43036.......................  232.................  MEADOWBROOK MANOR OF TOPE, 711 SW GARFIELD AVE., TOPEKA, KS 66606......................      168
    103-94006.......................  221D4...............  STREHLOW TERRACE APTS., 2007 N. 18TH ST., OHAHA, NE 68110..............................       70
    085-SH006.......................  202.................  COUNCIL HOUSE APTS., 300 S. GRAND BLVD., ST. LOUIS, MO 63103-2400......................      287
    091-35093.......................  221D3...............  FRIENDSHIP VILLAGE, 211 S. WILSON AVE., FLANDREAU, SD 57028............................       18
    101-35167.......................  221D3...............  LAMAR APARTMENTS, 708 SOUTH MULLEN, LAMAR, CO 81502....................................       48
    101-35296.......................  221D4...............  ROTELLA PARK APARTMENTS, 1620 CORONADA PKWY, THORNTON, CO 80229........................       82
    105-43038.......................  232.................  SERENITY RANCH ASSISTED L, 360 WEST 4200 NORTH, OAKLEY, UT 84055.......................       42
    123-43042.......................  232.................  PALM VALLEY REHAB. AND CA, 13575 WEST MCDOWELL RD., GOODYEAR, AZ 85338.................      155
    121-44082.......................  236.................  UNIVISTA APTS., 1340 TURK STREET, SAN FRANCISO, CA 94115...............................       24
    121-EH065.......................  202.................  HOMES NOW IN THE COMMUNITY, 1800 LINDEN STREET, OAKLAND, CA 94607......................       10
    127-35257.......................  221D4...............  RIVERSIDE APTS., 1109 ARTHUR ST., ABERDEEN, WA 98520...................................       20
    171-43034.......................  232.................  LOGANHURST HEALTH CARE, EAST 1515 ILLINOIS AVE, SPOKANE, WA 99207......................       45
                                                                                                                                                    --------
          TOTAL PROJECTS............  ....................  .......................................................................................      131
          TOTAL UNITS...............  ....................  .......................................................................................   14,750
                                                                                                                                                    ========
          Hud-Owned Multifamily
        Properties, As of 4/4/02
     023-35213.......................  221D3...............  FRANKLIN PARK I, 278 HUMBOLDT AVE, DORCHESTER, MA 02121-2234...........................      181
    023-35214.......................  221D3...............  THEROCH I, 107 ELM HILL AVE, DORCHESTER, MA 02121-2941.................................      106
    023-35216.......................  221D4...............  FRANKLIN PARK II, 278 HUMBOLDT AVE, DORCHESTER, MA 02121-2234..........................       97
    023-35218.......................  221D4...............  THEROCH II, 129 COLUMBIA RD, DORCHESTER, MA 02121-3106.................................      109
    023-35229.......................  221D4...............  FIELDSTONE APTS, 887 BLUE HILL AVE, DORCHESTER, MA 02124-2902..........................       84
    023-35292.......................  221D4...............  ACADEMY HOMES II, 2978 WASHINGTON ST, ROXBURY, MA 02119-1299...........................      316
    023-55027.......................  221D3...............  GENEVA APARTMENTS, 229 GENEVA AVE APT B, BOSTON, MA 02121-3848.........................       48
    023-55110.......................  221D3...............  CAMFIELD GARDENS, 115 LENOX ST, BOSTON, MA 02118-1051..................................      102
    023-55147.......................  221D3...............  ROXSE HOMES, 1070 TREMONT ST, ROXBURY, MA 02120-2119...................................      389
    023-99905.......................  221D3...............  BLUE HILL, BLUE HILL AVE, BOSTON, MA 02121.............................................       16
    023-99906.......................  221D3...............  CASTLEGATE, CASTLEGATE, BOSTON, MA 02121...............................................       54
    023-99907.......................  221D4...............  BLUE CASTLE GATE (DEMO), BLUE CASTLEGATE STREETS, BOSTON, MA 02121.....................       40
    023-99909.......................  221D3...............  SONOMA, SONOMA STREET, BOSTON, MA 02121................................................       22
    023-99910.......................  221D4...............  MAPLE, MAPLE STREET, BOSTON, MA 02121..................................................       66
    023-99911.......................  221D3...............  SCHUYLER, SCHUYLER STREET, BOSTON, MA 02121............................................       12
    023-99913.......................  221D4...............  WAUMBECK, WAUMBECK ST, BOSTON, MA 02116................................................       32
    023-99914.......................  221D3...............  HUMBOLT, HUMBOLT STREET, BOSTON, MA 02121..............................................       52
    023-99915.......................  221D3...............  CRAWFORD, CRAWFORD STREET, BOSTON, MA 02121............................................       89
    023-99916.......................  221D4...............  REGENT, REGENT STREET, BOSTON, MA 02121................................................       15
    017-11019.......................  223F................  WILLOW STREET APTS, 26-84 WILLOW ST, 111 PUTNAM ST., NEW BRITAIN, CT 06051.............       50
    016-35056.......................  221D4...............  MELROSE APARTMENTS, 50 PRAIRIE AVE, PROVIDENCE, RI 02905-2437, HUD New York............       42
    012-44033.......................  236.................  MEDGAR EVERS HOMES, 84 LIVINGSTON ST., BROOKLYN, NY 11201..............................      318
    012-44043.......................  236.................  JOSE DE DIEGO BEEKMAN I, 324 POWERS AVE, BRONX, NY 10454-1633..........................      103
    012-44051.......................  236.................  JOSE DE DIEGO BEEKMAN II, 328 BEEKMAN AVE, BRONX, NY 10454-1404........................      142
    012-44052.......................  236.................  JOSE DE DIEGO BEEKMAN III, 694 E 141 ST, BRONX, NY 10454-2431..........................      176
    012-44053.......................  236.................  JOSE DE DIEGO BEEKMAN IV, 597 E 138TH ST, BRONX, NY 10454-2727.........................      138
    012-44054.......................  236.................  JOSE DE DIEGO BEEKMAN V, 578 E 141ST ST, BRONX, NY 10454-2350..........................      150
    012-44134.......................  236.................  JOSE DE DIEGO BEEKMAN VI, 570 SAINT MARYS ST, BRONX, NY 10454-1428.....................      185
    012-44140.......................  236.................  JOSE DE DIEGO BEEKMAN VII, 615 E 141ST ST, BRONX, NY 10454-2317........................      165
    012-44160.......................  236.................  JOSE DE DIEGO BEEKMAN V III, 590 OAK TER, BRONX, NY 10454-1408.........................      172
    012-55183.......................  221D3...............  GATES AVENUE HOUSING, 650-700 GATES AVE, BROOKLYN, NY 11221-1701.......................      163
    012-57150.......................  221D4...............  EVENING STAR, 277 GATES AVENUE, BROOKLYN, NY 11238.....................................       35
    012-HH002.......................  202.................  BRONX INDEPENDENT LIVING, 1310 MORRIS AVE, BRONX, NY 10451.............................       21
    031-94002.......................  223F................  BRICK TOWERS, 685 MARTIN LUTHER KING JR BLVD, NEWARK, NJ 07102-1006....................      320
               HUD Baltimore
     052-35332.......................  221D4...............  KENSETT HOUSE, 1700 EUTAW PL., BALTIMORE, MD 21217.....................................       24
    052-35471.......................  221D3...............  SCHOOL 181, 1645 N CALHOUN ST, BALTIMORE, MD 21217-2800................................      100
             HUD Philadelphia
     034-35175.......................  221D4...............  MACLAY STREET I APARTMENT, 501 MACLAY STREET, HARRISBURG, PA 17110.....................      129
    034-35211.......................  223F................  MACLAY STREET II APARTMENT, 428 PEFFER STREET, HARRISBURG, PA 17102....................      172

            HUD Washington DC

    000-44123.......................  236.................  CAPITOL VIEW PLAZA, 5929 E CAPITOL ST SE STE 104, WASHINGTON, DC 20019-7237............      309

            HUD Jacksonville

    066-R4071.......................  236.................  HOLIDAY LAKES APARTMENTS, 973 N POWERLINE RD, POMPANO BEACH, FL 33069-2305.............      208

            HUD Indianapolis

    073-35475.......................  221D4...............  ORCHARD PARK APTS, 3102 BALTIMORE AVE, INDIANAPOLIS, IN 46218-2059.....................       94

             HUD New Orleans

    064-35040.......................  221D4...............  PECAN VILLA, 220 MARGARET ST, BREAUX BRIDGE, LA 70517-5942.............................      103

              HUD St. Louis

    085-58505.......................  236.................  JVL HOUSING CORP PACKAGE, 2754 BACON ST, SAINT LOUIS, MO 63106-1099....................       56
    085-58508.......................  236.................  JVL#14, 2754 BACON ST, SAINT LOUIS, MO 63106-1099......................................       65
                                                                                                                                                    --------
          TOTAL PROJECTS............  ....................  .......................................................................................       44
          TOTAL UNITS...............  ....................  .......................................................................................    5,270
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                   native american housing block grants fund
        Question. The Native American Housing Block Grant fund has been
    largely flat funded at some $650 million since its inception. How many
    low-income units have been preserved with these funds?
        Answer. On average, during the 5 years that funding has been
    appropriated for the Native American Housing Block Grant (NAHBG)
    program authorized by the Native American Housing Assistance and Self-
    Determination Act of 1996, as amended (NAHASDA), Indian tribes or their
    tribally designated housing entities (TDHE) have provided assistance
    designed to preserve the viability of 77,838 units each fiscal year.
    The unit count includes moderate or substantial rehabilitation, and
    modernization and operating assistance related to units currently in
    management. It does not include other eligible affordable housing
    activities under the NAHBG, such as down payment and buy down
    assistance, minor rehabilitation under $5,000, housing services,
    housing management services, crime prevention and safety, and model
    activities. The total does include Section 8 type programs operated by
    a tribe or TDHE. Figures are derived from Formula Current Assisted
    Stock (FCAS) data used to determine the FCAS allocation portion of the
    NAHBG formula.
        Question. How many new units are created each year with these
    funds?
        Answer. Using 4 years of Native American Indian Housing Block Grant
    (NAHBG) funding (fiscal year 1998 through fiscal year 2001), on
    average, 2,149 units have been created each year. Fiscal year 2002
    figures are incomplete as of this date. Data are derived from Annual
    Performance Reports and Indian Housing Plans, and in one instance, an
    Area Office of Native American Housing Programs (ONAP) in-house data
    report. In most instances, figures reflect dwelling units started and
    completed. Figures are reliable to the extent those reports contain
    accurate information.
        Figures are affected by the transition from the way in which
    housing development funds were awarded competitively under the United
    States Housing Act of 1937, and the formula block grant allocation
    method under the NAHBG authorized by the Native American Housing
    Assistance and Self-Determination Act of 1996, as amended. Numbers do
    not reflect ``phased projects,'' where it may be necessary for a tribe
    or tribally designated housing entity (TDHE) to complete several pre-
    construction steps, such as acquisition of land and development of
    infrastructure prior to actual construction of dwelling units. Phased
    pre-construction activities are necessary in most areas of Indian
    Country, but somewhat more common in the East, the Midwest and the
    Northwest, less common in the Plains States. Alaska's phased
    construction is more the result of limited weather-related building
    seasons, materials acquisition challenges and smaller project sizes.
                                    hope vi
        Question. The Public Housing HOPE VI program is scheduled to sunset
    at the end of fiscal year 2002. This program has been tremendously
    valuable in revitalizing both distressed public housing and distressed
    communities. Is the Administration going to seek an extension of this
    program?
        Answer. Yes, the Department submitted a reauthorization proposal.
        Question. What is the cost of this program per unit?
        Answer. The cost per unit of this program is $161,755. This amount
    represents the amount budgeted from all sources, such as HOPE VI funds,
    leveraged funds, and funding from other sources, as well as the hard
    and soft construction costs and supportive services. The sum is based
    on the number of units planned for participating in the HOPE VI
    program. This information is based on the HOPE VI Quarterly Report for
    the quarter ending December 31, 2001.
        Question. Please provide a breakdown of costs for all projects by
    unit with the soft costs identified as a separate breakout?
        Answer. Below is the breakdown of costs for all HOPE VI projects.
    Which is based on data from the HOPE VI Quarterly Report for the
    quarter ending December 31, 2001. Total costs represents the amount
    budgeted from all sources. Number of units represents all units planned
    (ACC and non-ACC as well as rental and homeownership).

                                                    All HOPE VI UNITS
    ----------------------------------------------------------------------------------------------------------------
                                                              Housing-Related
                                                                   Costs            Soft Costs           Total
    ----------------------------------------------------------------------------------------------------------------
    Total Costs............................................     $8,501,556,044     $3,159,331,262    $11,660,887,306
    Number of Units........................................  .................             72,090  .................
    Cost per Unit..........................................           $117,930            $43,825           $161,755
    ----------------------------------------------------------------------------------------------------------------

        Question. Please identify the reforms that should be considered
    before additional funds are appropriated?
        Answer. The Department has requested the reauthorization of HOPE
    VI. HUD is currently finalizing proposals for program reforms and
    believes that they are best discussed in the context of reauthorization
    legislation. At the request of the Appropriations Committees, the
    Department submitted a report on the HOPE VI programs on June 14, 2002.
    The report describes the lessons that have been learned during the
    first 10 years of the program's operation.
                           lack of affordable housing
        Question. There is a lack of affordable housing in many communities
    throughout the country, especially for extremely low-income families
    (those at or below 30 percent of median income). Vouchers do not work
    well in these communities and housing is too expensive to build to
    assist many of these low-income families. How do address this
    production problem, especially since tax credit production does not
    reach extremely low-income families?
        Answer. It is true that many Americans cannot afford the costs of
    rental housing and that affordability problems are most prevalent among
    extremely low-income families. The Department does not agree, however,
    that ``vouchers do not work well in these communities.'' A recent HUD
    study found that in 2000, roughly 7 out of 10 families who received
    vouchers in metropolitan areas nationwide succeeded in using them.
    Vouchers that are not used by the initial recipients are re-issued to
    other families, and most of these families are successful.
        With respect to the production of new rental housing, despite
    overall Federal budget limitations due to the war against terror and
    the weakened economy, HUD's fiscal year 2003 budget seeks to expand the
    number of households that can afford the costs of rental housing.
      --HUD is requesting 34,000 additional housing vouchers--most of which
            will be used to assist extremely low-income families.
      --HUD is proposing a $74 million increase in HOME, in addition to the
            $200 million proposed for the American Dream Downpayment Fund.
      --HUD continues its strong commitment to Section 202 for the elderly
            and Section 811 for the disabled.
      --HUD is adding $15 million to the Housing Opportunities for Persons
            with AIDS program--raising it from $277 million to $292
            million.
        Last year, HUD raised the loan limits for FHA multifamily
    insurance, a step that has led to a substantial increase in volume in
    that program. HUD is also reducing the mortgage insurance premium from
    80 basis points to 57 basis points, effective in October. Finally, it
    is important to note that in recent years, Congress has increased the
    Low-Income Housing Tax Credit by 40 percent and raised the caps on tax-
    exempt bond authority.
        Taken together, these changes will have a significant impact in
    expanding the availability of affordable rental housing.
        With respect to serving extremely low-income families, it is
    important to consider that housing vouchers can be combined with
    existing production programs to make units affordable to extremely low-
    income families. The Department would be happy to discuss how to
    improve the linkages of these various programs.
                           d.c. sfpd fraud and abuse
        Question. There have been a number of recent news stories about a
    church-sponsored group in the D.C area called the Church Association
    for Community Service which was identified as defrauding a HUD program
    whereby nonprofits rehabilitate and resell HUD housing. In this case,
    the nonprofit used a private entity to rehabilitate the housing and
    made some $100 thousand on average per house in violation of the rules.
    The news stories also indicated that this group did not qualify to
    participate in the program absent broad waivers by HUD under the last
    Administration. How big a problem is this type of fraud and what steps
    has HUD taken to ensure accountability of HUD's nonprofit partners in
    these types of programs?
        Answer. On April 5, 2002, the Department announced that it would be
    conducting a full review of the Asset Control Area (ACA) program, and
    that during the review period, existing ACA agreements would be allowed
    to expire. In part, this step was taken in response to the concerns
    raised above and raised by HUD's Inspector General in a report issued
    in February 2002. Two key components of this program review will be to
    determine if any additional fraud has taken place within the program,
    and what controls the Department must implement to prevent fraudulent
    activity.
             hud integrated information processing service (hiips)
        Question. HUD recently announced a re-competition of its HUD
    Integrated Information Processing Service (HIIPS) contract. This
    contract is key to HUD implementing a comprehensive IT system to track
    HUD programs and funding. When will this contract be awarded and when
    will HUD have a comprehensive IT system in place to track all HUD
    funding and programs?
        Answer. The service that will be the follow-on contract to HIIPS
    has been named the HUD Information Technology Service (HITS). HITS will
    be a 10-year IT infrastructure contract. The HITS contract is not a
    systems development contract and is not pivotal in the development of a
    system to track HUD programs and funding.
        The HITS contract is scheduled for award in November 2002.
    Implementation of the HITS contract is not directly related to a system
    to track HUD programs and funding.
        Question. What are the overall expected costs for full
    implementation?
        Answer. The existing HIIPS contract will transition to the next
    contract, HITS. There is a transition cost associated with the
    migration from HIIPS to HITS. The transition cost is considered source
    selection information and since this is an active procurement, Pursuant
    to the Official Federal Procurement Policies Act, 41 U.S.C. Section
    423, HUD employees may not disclose contractor proposal or source
    selection information.
        Question. Please describe what the IT system will do when complete?
        Answer. HITS includes all of the supplies and services required to
    support HUD's Information Technology (IT) infrastructure. It includes:
        Hardware Maintenance, Repair, Upgrade and Support
        Data Storage and Retrieval
        Database Management
        Facilities Management
        Telecommunications of Data and Video
        Software Support (For Systems Software), Help Desk Operations for
    all Commercial off the Shelf (COTS) and HUD Unique Software
        Electronic Data Interchange (EDI)
        Configuration Management
        Technology Assessment
        Integration & Test Integration
        Test Center Resources
        IT Accessibility Support
        Training
        Enterprise Engineering Document Library Services
        Nationwide IT including Telecommunications Disaster Recovery
                       fha multifamily premium reduction
        Question. HUD has proposed to reduce the mortgage insurance
    premiums for most of its FHA Multifamily Mortgage Insurance programs.
    When would these reductions go into effect and how many additional
    units does HUD anticipate will be funded under this change?
        Answer. The Department will soon publish a Notice in the Federal
    Register implementing the decreases in mortgage insurance premiums that
    will go into effect for FHA Firm Commitments issued on or after October
    1, 2002. The Department has not estimated any potential unit increases
    in FHA commitments attributable to the MIP decrease.
                       multifamily accelerated processing
        Question. In addition, I have concerns that FHA's Multifamily
    Accelerated Processing (MAP) does not have adequate protections against
    default since the owner/lender essentially self-certifies the
    underwriting. How does HUD protect against unreasonable risk of
    default?
        Answer. MAP does provide adequate protections against unreasonable
    risk of default through the HUD staff (architecture and cost,
    appraisal, mortgage credit) pre-commitment review of the lender's
    underwriting package. The appraisal is the key element of multifamily
    transactions and HUD appraisal staff are required to conduct a field
    review of the property and the comparable rental properties which
    support the proposed rental estimates. The HUD technical staff can
    recommend modifications or rejection of the application if the
    underwriting conclusions are not supportable. The HUD staff
    recommendation must specifically address major issues like the adequacy
    of the initial rent-up (operating deficit), escrow for new
    construction/substantial rehabilitation transactions, the adequacy of
    the reserve for replacement for existing transactions and any
    environmental concerns. The FHA supervisor in the field office who
    makes the decision on issuing a commitment has clear authority in the
    MAP Guide to modify or reject the lender's underwriting package. MAP
    has freed HUD staff from preparing much of the multifamily paperwork
    and allowed staff to concentrate their review on the essential parts
    and risk of the proposed transaction.
                                fha default rate
        Question. I am concerned that FHA single family mortgage insurance
    tends to take the highest risk of default despite currently exceeding
    actuarial requirements. What is the current rate of default on FHA
    single family mortgage insurance?
        Answer. As of the quarter ending December 31, 2001, the 90-day
    default rate, including loans in foreclosure, was 4.60 percent of all
    FHA loans in force.
                  default rate for conventional home mortgages
        Question. How does this compare to the private market?
        Answer. Using comparable data compiled by the Mortgage Bankers
    Association of America, the 90-day default rate for conventional
    mortgages, including loans in foreclosure, was 1.11 percent as of the
    quarter ending December 31, 2001.
                                  mmi reserves
        Question. At what point does a downturn in the economy put the
    Mutual Mortgage Insurance Fund at risk of failing to meet its actuarial
    floor?
        Answer. As of the end of fiscal year 2001, the Actuarial Review of
    Mutual Mortgage Insurance (MMI) Fund estimated the financial reserves
    of the Fund at approximately $18.5 billion, yielding a capital ratio of
    3.75 percent. Based on estimates of MMI activity for fiscal year 2002,
    the estimate of reserves was projected to increase to $22.5 billion by
    the end of the fiscal year, with a capital ratio of 4.24 percent.
    Actual program volume through the first half of this fiscal year
    indicates substantially increased performance over that projected in
    the Actuarial Review. Alternative economic scenarios analyzed in both
    the Actuarial Review and by the General Accounting Office indicate that
    it is very unlikely that this substantial reserve would be depleted to
    the extent of dropping below the currently mandated 2 percent capital
    ratio established in the Cranston-Gonzalez National Affordable Housing
    Act of 1990, however the prolonged and adverse economic circumstances
    that would yield such a result cannot be eliminated as a possibility.
                                  601 program
        Question. What is the status of HUD's implementation of the single
    family property disposition program--more specifically, the asset
    control areas or ACAs? The 1998 property disposition legislation
    directed HUD to sell these properties to local governments and
    qualified nonprofits at a price that allows their adequate
    rehabilitation and resale to low-income homebuyers, without the need
    for additional Federal subsidies.
        Answer. During the Accelerated Claims Disposition (Section 601)
    program demonstration phase, the initiative will have a limited scope
    and operate only in certain regions of the country. Further, in those
    16 communities that have signed Asset Control Area (ACA) agreements,
    properties in those revitalization areas will be excluded from the
    Section 601 Demonstration, even during the ACA program review period.
    In the initial demonstration phase of the Accelerated Claims
    Disposition program, the Department wants to learn if the profit-
    motivated Joint Venture Partner will team with high capacity nonprofit
    organizations in carrying out loss mitigation and asset disposition on
    notes in impacted revitalization areas to meet its recovery objectives.
    The Department wants to be able to evaluate and report conclusively at
    the end of the demonstration if the objectives of operationalizing the
    claim processing, increasing recoveries to the FHA fund and achieving
    budget savings have been addressed. The Department, upon publishing
    Regulations, will consider allowing nonprofits to purchase mortgages in
    the future.
                single family property disposition holding costs
        Question. Also, HUD is proposing to block sell many of the
    foreclosed FHA single family properties and get HUD primarily out of
    the business of selling individual houses. What are the current costs
    for HUD to hold foreclosed FHA houses, including the per unit cost of
    management and rehabilitation. This cost breakout should include the
    costs associated with HUD staff and overhead as well as the per unit
    cost for the use of management companies, including all associated
    costs.
        Answer. Daily per unit holding costs equal $36.75. This includes
    $4.00 for taxes, $30.84 for property management and marketing, $.63 for
    lost interest, and $1.28 for HUD staff costs. (This assumes 30,000 on-
    hand properties and 125 HUD staff. Management & marketing costs include
    actual management fees, maintenance expenses, and the costs for limited
    repairs completed to address health and safety concerns.)
                         puerto rico housing authority
        Question. What is the status of funding for PRPHA?
        Answer. Under the operating fund the Puerto Rico Housing Authority
    has received $73,822,415 and is scheduled to receive an additional
    $18,948,123 for a total of $92,770,538 for its fiscal year ending June
    30, 2002.
      per unit amount of operating subsidy for puerto rico public housing
                                   authority
        Question. How much funding does PRPHA receive per unit?
        Answer. Under the Operating Fund, the Puerto Rico Housing Authority
    will receive a subsidy of $1,652 per unit for its fiscal year ending
    June 30, 2002.
               comparison of per unit amount of operating subsidy
        Question. How does this compare to the funding received 3 years ago
    per unit and how does it compare to the funding received per unit by
    other PHAs such as Atlanta, New York City, Chicago and Los Angeles?
        Answer. The data below shows a comparison of annual per unit
    amounts for the Public Housing Authorities (PHAs) in question for
    operating subsidies received over a 3-year period based on the PHAs'
    fiscal years:

            Fiscal Year                                        Per Unit Cost
    PRPHA:
        6/30/2002.....................................................$1,652
        6/30/2001..................................................... 1,433
        6/30/2000..................................................... 1,987
    New York:
        12/31/2001.................................................... 4,687
        12/31/2000.................................................... 4,265
        12/31/1999.................................................... 3,724
    Chicago:
        12/31/2001.................................................... 5,863
        12/31/2000.................................................... 5,898
        12/31/1999.................................................... 5,277
    Los Angeles:
        12/31/2001.................................................... 3,507
        12/31/2000.................................................... 3,529
        12/31/1999.................................................... 3,244
    Atlanta:
        6/30/2002..................................................... 4,031
        6/30/2001..................................................... 2,813
        6/30/2000..................................................... 3,191

        As reflected by the above data, the per unit amount of subsidy
    received by an individual PHA can vary from year-to-year and there can
    be a significant variation in funding levels between PHAs. For its
    December 31, 2001 fiscal year, the Chicago Housing Authority received
    about 3.5 times the average funding per unit than the Puerto Rico
    Public Housing Authorities (PRPHA's) received for its June 30, 2002
    fiscal year and 1.7 times the December 31, 2001 fiscal year average
    funding per unit than the Los Angeles PHA. Using this gross type of
    average, however, masks the impact of several important factors that
    determine operating subsidy eligibility and would help explain why
    Chicago receives more funding than the Los Angeles PHA or the PRPHA.
        The amount of operating subsidy received by any particular PHA is
    determined by a formula that takes into account factors such as routine
    operating expenses, utility costs, add-ons permitted by HUD, audit
    expenses, and rents charged to residents. For example, heating costs
    are a major expense to Chicago, but less of an expense for the PRPHA.
    Another example where costs vary by PHAs is that of routine operating
    costs, which is represented by the Allowable Expense Level (AEL). The
    AEL is a formula factor intended to represent the costs of operating a
    well-managed PHA. For the PRPHA, routine operating costs are low, but
    these costs are relatively higher for Chicago. Finally, in terms of
    comparing per unit amounts of operating subsidies, Chicago has a
    significant number of units approved for demolition by HUD and, as a
    result, receives operating subsidy for phase down or transition funding
    as well as funds to preserve and protect the units until they are
    demolished. On the other hand, the Puerto Rico PHA is not undertaking
    major demolition actions.
                                     ______

                 Questions Submitted by Senator Larry E. Craig

                                 rural housing
        Question. I remain concerned over HUD's decision to not request
    funds for the rural Housing and Development Program. I am well aware
    other mechanisms exist within HUD to fund development block grants and
    sweat-equity programs; however, while that is encouraging, I find that
    HUD's rationale in shifting responsibility for the Rural Housing and
    Development Program onto the USDA, is questionable. What assurances are
    there that this is not a cut or elimination of services?
        Answer. The Rural Housing and Economic Development Program has a
    current portfolio of grantees that include rural nonprofit
    organizations, community development corporations, Indian tribes, State
    Housing Finance agencies, and State economic development and/or
    community development agencies. HUD has grant agreements for up to 36
    months with these entities to carryout the projects until they are
    completed, based on the organization's project timelines. The current
    projects will be administered by HUD through fiscal year 2003. The
    Administration's proposal to eliminate HUD's program reflects the much
    greater assistance provided by the U.S. Department of Agriculture and
    other agencies and presumes that there will not be a meaningful change
    in the overall Federal assistance to rural America.
        Question. What assurances can you give to me that at least the same
    level of services will be delivered, and that our government's helping
    hand in rural America would be made more effective by this change?
        Answer. The U.S. Department of Agriculture (USDA) continues to
    manage a substantial portfolio of rural housing grant programs and
    economic development grant programs, the service delivery will allow
    for a continuation of services provided to rural constituents. USDA's
    current rural development portfolio greatly exceeds HUD's Rural Housing
    and Economic Development Program in terms of programs and services from
    budgets to staffing.
                           housing counseling program
        Question. I've noted the Administration's proposal to restore
    funding for the Housing Counseling Program, which helps teach first-
    time home buyers with modest incomes about often-complicated things
    like mortgages, inspections, and predatory lending practices. The
    previous Administration cut this funding, and also succeeded in almost
    eliminating participation by State housing finance agencies (HFAs).
    This made no sense, because State HFAs have the expertise and resources
    to offer new home buyers the broadest possible range of services.
        In Idaho, for example, our Idaho HFA is launching a program to help
    overcome language barriers and reach out to the Hispanic population
    through its homebuyer education program.
        Am I correct in assuming the Administration proposal for increased
    funding reflects your plans to fully re-engage State HFAs in the
    Counseling program?
        Answer. Most Housing Finance Agencies (HFAs) that operate good
    programs, such as the Idaho HFA, should receive substantial awards with
    the funding proposed for fiscal year 2003. The overall funding for the
    Housing Counseling program was increased and then cut significantly
    between fiscal years 1998 and 2000. An increase from $15 million in
    fiscal year 1997 to $20 million in fiscal year 1998 permitted HUD to
    seek out and fund additional organizations providing counseling
    services. However, a cut back to $15 million in fiscal year 2000 forced
    HUD to make a decision regarding how to spread substantially less money
    among the same types of groups.
        Experience clearly demonstrated to HUD that many State HFAs were
    not able to provide counseling services directly nor suballocate the
    funds to other local groups. In fact, over the last few years, HUD has
    recaptured hundreds of thousands of unspent funds from State HFAs. This
    funding was reserved in the names of several HFAs for an entire year-
    long grant period, before HUD could recover it; clearly, it could have
    been well-used by other counseling agencies to serve many hundreds of
    clients in need. For this reason, HUD plans only a minimal increase in
    the amount of funding available for State HFAs for fiscal year 2003.
    However, HUD's decision to increase funding for this category only
    minimally should not affect high-performing HFAs such as Idaho's.
                    equal opportunity and access to housing
        Question. In the President's basic budget document, one of HUD's
    main strategic objectives was to Ensure equal opportunity and access to
    housing, in other words, promote fair housing. HUD's own Budget
    Summary, spent just over a page describing HUD's programs to enforce
    fair housing laws.
        I commend the Administration's emphasis in this year's budget of
    assessing performance and effectiveness. However, I didn't see
    assessments in the area of fair housing.
        Using the Administration's red-light, green-light approach, how
    would you assess HUD's effectiveness in its strategic objective to
    ensure equal opportunity and access to housing?
        I realize, of course that you have inherited programs that
    previously were not subject to performance measurement and that this
    Administration is still implementing its policy of conducting such
    reviews. HUD's programs include both education and enforcement
    components. I think we all agree that an effective fair housing agenda
    includes both, adequate education and fair enforcement. How would you
    assess HUD's effectiveness in each of these areas?
        Answer. HUD has made significant progress in accomplishing the
    Department's strategic objective to ensure equal opportunity and access
    to housing, but at the moment we would still have to give ourselves a
    red light in this area. While our enforcement efforts have contributed
    to the reduction of discrimination in America, significant problems
    persist. The effectiveness of HUD's enforcement efforts has been
    historically impaired by the excessive length of time it has taken to
    resolve discrimination complaints. Also, while knowledge of what
    constitutes illegal discrimination under the fair housing laws is
    generally high, research indicates that the public requires more
    education about some prohibited practices.
        HUD is completing several studies that provide quantitative
    measures of the level of discrimination against different groups in our
    society. The preliminary findings of the Department's nationwide
    Housing Discrimination Study (HDS), to be released shortly, show that
    the Nation has made progress on some measures of discrimination against
    African Americans and Hispanics over the last 10 years but some serious
    problems remain. Moreover, an examination of the actual instances of
    discrimination reveals that many real estate professionals blatantly
    disregard the law. For example, in many cases agents openly confess
    their racial prejudices while steering prospective renters and
    homebuyers to certain neighborhoods.
        In the area of mortgage lending, HUD will release a study this
    month that shows that generally Blacks and Hispanics in Chicago and Los
    Angeles are treated no worse than whites when they inquire about
    financing options. However, the data also indicates that Blacks and
    Hispanics are more likely to be quoted worse terms and conditions on
    loans than equally-qualified or less-qualified whites. For example, in
    Chicago, Whites were offered higher loan amounts than similarly-
    qualified Hispanics 51 percent of the time, while Hispanics were
    offered higher loans 19 percent of the time. In Los Angeles, the study
    showed that Blacks who were clearly qualified for conventional loans
    were steered to FHA loan products 31 percent of the time while Whites
    with comparable profiles were steered to FHA 8 percent of the time.
        The Department's research and other activities also reveal
    widespread non-compliance with the fair housing laws that require that
    new multifamily buildings be accessible to persons with disabilities.
    The Department will soon release a study that provides quantitative
    measures of the extent of such non-compliance. In many cases, the
    violations involve the failure to provide a basic level of
    accessibility (no ramped access, front doorways are too narrow, lack of
    access to common areas). HUD has made substantial progress in
    ameliorating these problems through its enforcement efforts and 14
    years of education, but substantial non-compliance remains.
        HUD has taken several steps to improve the effectiveness of its
    fair housing enforcement. The Bush Administration has made it a
    priority that fair housing complaints be processed in a timely manner.
    The Fair Housing Act requires that complaints be resolved in 100 days.
    Since President Bush took office, HUD has reduced by 29 percent the
    number of complaints remaining unresolved past 100 days. HUD
    accomplished this reduction through the commitment of additional staff
    and resources.
        Second, HUD is focusing more attention on particular communities
    and enforcement needs that weren't adequately addressed in the past.
    HUD has identified recent immigrants and persons living in Southwest
    Border ``colonias'' as populations who face significant barriers in the
    housing market, and have been traditionally underserved by HUD-funded
    fair housing programs. HUD's fiscal year 2002 Notice of Funding
    Availability (NOFA) and its fiscal year 2003 Budget emphasize fair
    housing projects that provide greater assistance to these communities.
    The NOFA also recognizes the need to be responsive to circumstances
    when they first arise, emphasizing projects that address national
    origin and religion discrimination that is on the rise since the
    September 11 terrorist attacks. HUD has also entered into an
    Interagency Agreement with the Department of State in furtherance of
    Executive Order 13166, ``Improving Access to Services for Persons with
    Limited English Proficiency,'' to translate FHEO publications into
    Arabic, Cambodian, Chinese, Korean and Vietnamese.
        As the Administration has become aware of enforcement needs
    requiring greater attention, HUD has committed additional resources to
    address them. For example, HUD has proposed reprogramming $1.95 million
    of fiscal year 2001 FHIP funds, originally planned for the third phase
    of HDS, to respond to immediate enforcement needs, including addressing
    the kind of discrimination HDS is uncovering. The reprogrammed funds
    will also support projects to combat lending discrimination, including
    predatory lending; post-terrorism discrimination; and fair housing
    issues in the colonias.
        HUD continues to aggressively enforce the fair housing laws on
    behalf of people with disabilities, seeking voluntary compliance where
    possible. As people with disabilities are disproportionately
    represented among low-income persons, HUD is responding to the lack of
    accessible housing units in public and assisted housing. HUD has
    recently signed Voluntary Compliance Agreements with the District of
    Columbia and the Boston Housing Authorities, which collectively will
    create more than a thousand new units of accessible housing. HUD has
    also developed a Web-based system that will assist its field offices in
    their review of non-compliant FHA-insured properties and in targeting
    their enforcement efforts. In addition, as the IRS-administered low-
    income housing tax credit program currently produces more units of
    affordable housing than any other Federal program, HUD has joined
    forces with the Department of Justice and the IRS to notify tax-credit
    beneficiaries that failure to comply with the law places their tax
    credits in jeopardy.
        Finally, HUD is moving toward more effective enforcement by making
    sure more States, localities, and private organizations have the tools
    and the resources they need to tackle the specific fair housing
    problems in their communities. HUD now reimburses 95 States and
    localities for their enforcement of substantially equivalent laws under
    the Fair Housing Assistance Program (FHAP). This includes 33 States
    plus the District of Columbia. Under FHIP this past year, HUD awarded a
    record-number, 90 grants to a diverse range of fair housing groups
    throughout the country. The Department is also providing a more
    continuous funding stream for FHIP enforcement projects by eliminating
    a policy that made successful applicants ineligible for new enforcement
    grants the following year.
        In the area of education, HUD's soon-to-be-released Fair Housing
    Act Awareness study indicates that while most people understand the
    most commonly discussed provisions of the Fair Housing Act, a majority
    are not aware of the full scope of the Act's prohibitions. Moreover, a
    significant minority of people remain ignorant even of the law's most
    basic provisions.
        The Department carries out much of its education activities through
    FHIP, for which the 2002 NOFA provides $6 million in grants (grantees
    may also use a portion of enforcement and new-organization grants for
    education purposes). A few representative successes include: the
    education project of the Colorado Coalition for the Homeless (CCH), who
    formed a statewide Fair Housing Task Force, which consists of rank-and-
    file citizens and State, local, and Federal Government representatives,
    delivering fair housing services to many communities throughout the
    State; Citizen Action of New Jersey's ``train-the-trainers'' sessions,
    whereby grassroots and faith-based organizations replicate trainings on
    predatory lending and other emerging fair housing issues to fulfill the
    needs of their individual communities; and the work of the State of
    Kentucky Fair Housing Commission, who have provided statewide
    translators and disseminated Spanish-language materials to educate
    Kentucky's growing Hispanic population of their fair housing rights.
        This year's FHIP NOFA provides funding for a national Predatory
    Lending Awareness campaign and greater outreach to underserved
    populations, including those persons living in the colonias. The NOFA
    also recognizes the historic role faith-based organizations have played
    in educating people on their civil rights by providing extra points for
    applicants who are either faith-based or grassroots organizations, or
    partnered with such organizations. Over the years, the Department has
    undertaken several education and outreach initiatives to ensure greater
    access to housing for people with disabilities. This has involved
    outreach to housing industry groups and to advocates. The Department
    continues to build on these efforts. Not only has HUD reprogramming
    proposed $1.7 million in Fair Housing Initiatives Program funds to
    continue a project that provides training and technical assistance in a
    manner that the housing industry advises works best for them, but HUD
    also has provided nearly $1 million to the International Codes Council,
    who are actively working with the National Association of Homebuilders
    and others to encourage States and localities to incorporate
    accessibility features into their building codes. This latter effort
    will help address these matters upfront, when builders seek permits.
        The Department believes that its retooled, more responsive
    enforcement program, combined with enhanced education and outreach
    projects, will bring the fair housing program closer to green-light
    status in the future.
                        fair housing initiatives program
        Question. In your proposed budget, how much is provided for each
    fair housing component education and enforcement?
        Answer. HUD's fiscal year 2002 budget includes $6,000,000 to fund
    the Fair Housing Initiatives (FHIP) Program education and outreach
    activities; $12,150,000 for private enforcement activities; and
    $2,100,000 to support the fair housing organizations initiative. To
    make additional funds available for education and outreach, HUD allows
    grantees to allocate a percentage of fair housing organization grants
    and private enforcement grants for these activities.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                       community development block grants
        Question. Secretary Martinez, according to the latest CBO estimate
    of the President's budget the funding level for the CDBG program drops
    about $300 million from its 2002 level after you take out the $2.0
    billion the program received in the Emergency Response Fund.
        Mr. Secretary could you please justify this cut to what many
    consider to be an immensely important program?
        Answer. The CDBG budget for fiscal year 2003 is a reduction from
    its 2002 level because it does not request funding for several set-
    aside programs. The request for the CDBG formula grants represents a 2
    percent increase of $95 million over 2002.
        Question. Mr. Secretary, the President's budget briefly discusses a
    legislative proposal that would reduce the number of grants made to the
    wealthiest 1 percent of eligible communities. The hope here, obviously,
    is to allocate more funds to those who need it the most.
        Could you please give this committee a bit more detail on this
    legislative proposal and the Department's rationale behind this
    proposal?
        Answer. The Department's proposed budget for fiscal year 2003
    requests $4.436 billion in budget authority for the formula CDBG
    program to address locally identified community and economic
    development needs. Although the CDBG program allocates funds by formula
    in a way that targets most funds to our neediest communities, the
    current formula distribution of these funds also provides grants to
    higher-income communities. Because of the great disparity in per capita
    income among our grantees, the budget proposal seeks to re-evaluate the
    method of allocating the limited resources of the CDBG program.
        A legislative change has been proposed for fiscal year 2003 to
    reduce, by 50 percent, the amount of the grant to the wealthiest one
    percent of eligible grantee communities. The wealthiest communities
    would be defined as those with per capita income equal to, or greater
    than, two times the national average. However, it must be noted that
    this proposed legislative change is intended to further target limited
    CDBG funds to the neediest communities. If this proposal is enacted,
    the Department will use data on per capita income from the 2000 Census
    to identify the communities whose funding would be reduced.
        The funds captured by the 50 percent reduction would become
    available to all the other entitlement communities with lower per
    capita incomes and would not directly fund the Colonias Gateway
    Initiative. However, the savings achieved by this movement of funds to
    more needy communities would create room in HUD's overall budget to
    provide resources for the Colonias Gateway Initiative, which is
    designed to serve some of the poorest communities in the Nation.
        The Department does not consider this a new formula for CDBG. The
    data from the 2000 census needed to do a comprehensive analysis of the
    CDBG formula should be available this fall. We expect to do a study and
    present it to Congress for their consideration next spring so that
    consideration could be made for the 2004 allocation of funds. Rather
    than wait for the process and a full examination of the formula, we
    choose to propose this adjustment to move a limited amount of funds
    from very wealthy communities.
        Question. Also can you give us a rough estimate of the percentage,
    or even better, a dollar value of the funding that went to these
    wealthier communities as you define them?
        Answer. Provided is a list of those high-income entitlement
    communities that exceed 200 percent of the Per Capita Income (PCI)
    national average based on 1990 census data and their 2002 CDBG
    allocations. This list, however, is only illustrative because the
    proposal would be based on 2000 census data, which will not be
    available until the spring. The list of the communities that would be
    affected based on 1990 census data is:

    ------------------------------------------------------------------------
                                                  Per capita
                                                   Income as
                                                  a multiple    Fiscal year
                      Community                       of         2002 CDBG
                                                   National        funds
                                                    Average
    ------------------------------------------------------------------------
    Greenwich, CT...............................        3.2       $1,157,000
    Newport Beach, CA...........................        3.2          490,000
    Lower Marion, PA............................        2.9        1,407,000
    Naples, FL..................................        2.9          149,000
    Palo Alto, CA...............................        2.3          808,000
    Westchester County, NY......................        2.1        7,004,000
    Santa Monica, CA............................        2.0        1,787,000
    Brookline, MA...............................        2.0        1,872,000
    Newton, MA..................................        2.0        2,663,000
    ------------------------------------------------------------------------

                  empowerment zones and enterprise communities
        Question. Mr. Secretary, for fiscal year 2003 the President's
    budget does not include any funding for Round 2 Urban Empowerment Zones
    and Enterprise Communities. In addition, a similar program but one that
    is funded through the Agriculture Subcommittee, the Rural Empowerment
    Zone, has also received no funding in the President's budget. I hasten
    to add that the word ``termination'' is never used in the President's
    budget in relation to these programs but in budget materials received
    from OMB no new budget authority is given to these programs over the
    next 10 years. I might also add that on page 176 of the President's
    budget it is explained how HUD has just designated communities for a
    Round 3 initiative.
        Can you explain the discrepancy I have just described and could you
    please explain what the future holds for these programs, or at the very
    least, the future of the Urban side of the EZ and EC initiative?
        Answer. The EZ initiative is not being terminated even if no grant
    funds are included for fiscal year 2003. HUD's efforts will henceforth
    concentrate on enabling the Empowerment Zones to develop the capacity
    to use the funds they've received over the remaining few years of the
    authorization. If successful, the Administration would consider
    additional grants, if appropriate. HUD will also be emphasizing tax
    incentives and leveraging funds in the Empowerment Zone program through
    greater attention to Tax Incentive Utilization Plans.
        Each of the Round III Empowerment Zone applications selected came
    with over 100 commitment letters from the private sector, non-profits
    and other public entities. One community remarked that it was
    refreshing to have partners come to the table with commitments to offer
    instead of an open hand asking for grant money. Rather than seeing the
    President's fiscal year 2003 budget as a threat to the Round II, we
    encourage them to see it as an opportunity to share the enthusiasm of
    the Round IIIs. For example, they can take advantage of the two point
    scoring bonus for HUD programs in our March 2002 SuperNOFA and bundle
    other Federal, State and local grant and incentive programs for a
    prosperous tomorrow. All Empowerment Zones will qualify for Federal tax
    incentives until December 31, 2009.
        Question. Is it your position that these programs have enough
    carryover from the previous fiscal year and this is why they have
    received no funding for this year?
        Answer. Yes. Funds were not requested for fiscal year 2003 because
    over $225 million in carryover remained. Collectively, the Empowerment
    Zones have only used 20 percent of the funds already appropriated. It
    would be more appropriate at this time for HUD to concentrate on
    enabling the Empowerment Zones to develop the capacity to use the funds
    they've received. HUD will also be emphasizing tax incentives and
    leveraging funds in the Empowerment Zone program through greater
    attention to Tax Incentive Utilization Plans.

                              SUBCOMMITTEE RECESS

        Senator Mikulski. This Subcommittee stands in recess. Next
    week we will take the testimony on the Environmental Protection
    Agency. We look forward to working with you.
        Secretary Martinez. Thank you.
        [Whereupon, at 10:55 a.m., Wednesday, March 13, the hearing
    was concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                           WEDNESDAY, MARCH 20, 2002

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:36 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Barbara A. Mikulski (chairman)
    presiding.
        Present: Senators Mikulski, Leahy, Kohl, Bond, Craig, and
    Domenici.

                        ENVIRONMENTAL PROTECTION AGENCY

    STATEMENT OF CHRISTINE TODD WHITMAN, ADMINISTRATOR
    ACCOMPANIED BY:
            LINDA FISHER, DEPUTY ADMINISTRATOR
            ROBERT BOSTOCK, CHIEF SENIOR ADVISOR TO THE ADMINISTRATOR
            MORRIS X. WINN, ASSISTANT ADMINISTRATOR, OFFICE OF
                ADMINISTRATION AND RESOURCES MANAGEMENT
            JEFFREY HOLMSTEAD, ASSISTANT ADMINISTRATOR, OFFICE OF AIR AND
                RADIATION
            SYLVIA K. LOWRANCE, ACTING ASSISTANT ADMINISTRATOR, OFFICE OF
                ENFORCEMENT AND COMPLIANCE ASSURANCE
            KIMBERLY T. NELSON, ASSISTANT ADMINISTRATOR, OFFICE OF
                ENVIRONMENTAL INFORMATION
             LINDA M. COMBS, CHIEF FINANCIAL OFFICER
            MICHAEL W.S. RYAN, DEPUTY CHIEF FINANCIAL OFFICER
            ROBERT FABRICANT, GENERAL COUNSEL, OFFICE OF GENERAL COUNSEL
            NIKKI TINSLEY, INSPECTOR GENERAL
            JUDITH AYRES, ASSISTANT ADMINISTRATOR, OFFICE OF INTERNATIONAL
                ACTIVITIES
            SUSIE HAZEN, DEPUTY ASSISTANT ADMINISTRATOR, OFFICE OF
                PREVENTION, PESTICIDES AND TOXIC SUBSTANCES
            HENRY L. LONGEST, II, ACTING ASSISTANT ADMINISTRATOR, OFFICE OF
                RESEARCH AND DEVELOPMENT
            MARIANNE HORINKO, ASSISTANT ADMINISTRATOR, OFFICE OF SOLID
                WASTE AND EMERGENCY RESPONSE
            DIANE REGAS, ACTING ASSISTANT ADMINISTRATOR, OFFICE OF WATER
            BENJAMIN GRUMBLES, DEPUTY ASSISTANT ADMINISTRATOR, OFFICE OF
                WATER
            THOMAS GIBSON, ASSOCIATE ADMINISTRATOR, OFFICE OF POLICY,
                ECONOMICS AND INNOVATION
            EDWARD D. KRENIK, ASSOCIATE ADMINISTRATOR, OFFICE OF
                CONGRESSIONAL AND INTERGOVERNMENTAL RELATIONS
            JOSEPH MARTYAK, ACTING ASSOCIATE ADMINISTRATOR, OFFICE OF
                COMMUNICATIONS, EDUCATION AND MEDIA RELATIONS
            JOSEPH L. DILLON, COMPTROLLER, OFFICE OF THE CHIEF FINANCIAL
                OFFICER
            NANCI E. GELB, DIRECTOR, ANNUAL PLANNING AND BUDGET DIVISION

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Good morning and welcome. The Subcommittee on
    VA, HUD, and Independent Agencies will come to order for the
    fiscal year 2003 appropriations for EPA.
        The Chair is tied up in traffic, as I gather several people
    were. I just went to the wrong room. So, I did not have an
    excuse.
        But, Madam Administrator, we are always delighted to
    welcome you to testify on the budget request.
        As we discussed last year, EPA, has one of the most
    difficult challenges of any Federal agencies, with the
    responsibilities for the clean-up of Superfund and brownfield
    sites and the funding of clean water and drinking water
    infrastructure to the enforcement of environmental laws to
    representing our Nation with regard to issues of climate
    change.
        On top of these important responsibilities, EPA, since
    September 11, has embraced the unfortunate new challenges posed
    by the threat of terrorism to our Nation's water supply, and
    has provided leadership within the Federal Government with
    regard to toxic biochemical agents and other hazards, such as
    Anthrax.
        This year, the Administration has requested some $7.7
    billion in budget authority; a reduction of about $283 million
    from the fiscal year 2002 funding level. However, assuming a
    number of adjustments, including the Administration's fantasy
    reduction of $488 million in Congressionally designated EPA
    water and sewer grants, the EPA funding level is approximately
    equivalent to the fiscal year 2002 level.
        Within these funding levels, the Administration is
    requesting $200 million for the brownfields grant program, an
    increase of $100 million from fiscal year 2002, $21 million for
    a new targeted watershed program, a repeat request for a new
    State Enforcements Grant Program at $15 million, and $124
    million for Homeland Security.
        I continue to have one primary area of concern, both in my
    role here on this committee and as a member of the committee on
    Environment and Public Works. The Administration is again
    recommending a reduction of the Clean Water State Revolving
    Fund, from $1.35 billion, for the current year, to $1.2 for the
    next year, while maintaining a level request of $850 million
    for the Drinking Water State Revolving Fund.
        I strongly support the continued funding of both these
    State Revolving Funds at the 2002 level, especially the Clean
    Water Revolving Fund at $1.35 billion. The need is especially
    relevant, since the EPA gap analysis is expected to indicate
    that the United States will need to spend over $350 billion
    over the next two decades on new and existing water
    infrastructure.
        Even more troubling, outside estimates have concluded that
    as much as $740 billion is needed over the next 20 years, with
    some $200 billion more in financing, and as much as $980
    billion for local governments to operate and maintain this
    water infrastructure.
        The programs must be maintained and increased, if possible.
    The huge funding estimates for water infrastructure needs also
    beg the question of how Congress and the EPA should prioritize
    and allocate the available funding to meet our most pressing
    needs.
        Now, Madam Administrator, I have places in my State, in
    rural Missouri, where they do not have adequate water
    treatment. And I can tell you that you do not have to get very
    close to them to tell they have got a problem. You can smell
    it. And if you are talking about cleaning up the environment
    and making sure we take care of public health, when we do not
    take care of the clean water needs, we are neglecting one of
    the most serious and real threats to our environment and to the
    health of our population, because with polluted water, comes
    significant health problems.
        In addition, the EPA faces significant challenges with
    regard to the new requirement for the total maximum daily load,
    or TMDL pollutants, the impact on public health and the
    environment by large animal feeding operations, increased
    public health risks attributable to combined sewer overflow
    problems, and statutory requirements for the protection of
    wetlands.
        I also am concerned about issues related to air quality
    standards on the Clean Air Act, including the implementation of
    the New Source Review provisions of the Clean Air Act, which
    authorize EPA to set standards for certain facilities for the
    installation of air pollution control equipment.
        It is an especially important issue, as we seek to maintain
    the economic viability of U.S. producers of energy all meeting
    the air quality standards.
        I applaud EPA's attention and commitment to homeland
    security. As a follow-up to the $175.6 million Congress
    appropriated for EPA's investment in 2002 emergency
    supplemental, the Administration is asking for an additional
    $124 million in follow-up funding to protect the Nation's water
    supply, for continued security upgrades to EPA facilities, and
    to continue to operate the West Coast Emergency Response Team.
        There is one other issue I am compelled to raise at this
    time. On March 8, the Wall Street Journal printed an editorial
    regarding the awarding of EPA funds to non-profit groups that
    have used the funds primarily for lobbying or litigating on EPA
    issues, and that these funds may have totaled as much as $2
    billion from 1993 to 2001. The editorial goes on to indicate
    that EPA's top six non-profits that have received these funds
    were not environmental organizations, but senior citizens'
    groups. AARP received some $99 million. There are even
    allegations that EPA officials have erased hard drives and
    destroyed e-mail tapes.
        These, Madam Administrator, are very troubling allegations
    that need to be addressed, especially since the VA/HUD
    Appropriations Act prohibits the use of agency funds for
    lobbying or litigation, and requires the Chief Executive
    Officer to certify that no funds have been used to lobby or
    litigate on EPA issues. I trust you and the Inspector General
    will pursue these allegations and report back to us on what you
    found, and if there, in fact, has been such a problem, and the
    definitive steps that you are going to undertake to make sure
    it never happens again.
        Finally, I am very glad that EPA is focusing on meeting its
    primary program and legal obligations, rather than creating a
    new series of programs and responsibilities. You have got
    enough work to do with what you have. In the past, we have seen
    lots of side efforts going off in different directions that
    took away from the main responsibility. We are delighted that
    you are going to stick with the very important primary
    responsibilities you have.
        With that, I am going to turn to a distinguished member of
    the committee, Chairman of the Budget Committee, in whose good
    graces we all seek to be. And he can speak as long as he wants.
    At least until the Chair arrives.

                     STATEMENT OF SENATOR PETE V. DOMENICI

        Senator Domenici. I will not be long. I thank you very
    much, Senator Bond. And let me open the discussion with you by
    telling you that I understand that the nomination of Mr. Paul
    Gilman, who has been selected by the President to work with you
    to be your Science Director, was being held up. I did want to
    tell you that there was a hold on his nomination but last
    night, it was released. At least, the Senator that suggested
    the hold, when I went to talk with him, said he would release
    it sometime yesterday. So, perhaps it is ready to go through.
        Senator Bond. Thank you.
        Senator Domenici. We look forward to his being confirmed,
    and I compliment you on getting a very talented science
    advisor, who also understands a lot about the way things are
    done up here. I might say that he used to work for me. He was
    my Administrative Assistant or Chief of Staff, but he is a
    great scientist. I look forward to his being at EPA, so we can
    work science issues with him. He will be a very big asset.
        Now, I am going to talk about just one subject, and I will
    do it as quickly as I can. I think if I said to you, write down
    the subject that Domenici is going to talk about, you could
    write it down, because it is arsenic and the new arsenic
    standard in communities and cities in my State, the State of
    Nevada, the State of Arizona, and many others.
        As an example, the City of Albuquerque has briefed us,
    Madam Administrator, and told us that their estimate now is
    $150 million to fix their system so it is in compliance. With
    that, we think we have an estimate for the State of New Mexico,
    from the largest, which is Albuquerque, down to some very small
    ones that if they have to put in an arsenic treatment system,
    they will have to go back to individual wells, because they
    will not be able to afford the water. Between $400 million and
    $700 million will be the cost in New Mexico. We are told that
    Arizona is very similar. So, they are between $400 million and
    $700 million. When we were discussing this issue on the floor,
    that last time, several Senators, including Senator Mikulski,
    who chairs this committee, Senator Boxer, Senator Clinton,
    Reed, Bingaman, Hagel, Hutchison, happened to be on the floor,
    and each, in turn, stood up and said they would like to be
    helpful in the passage of a bill that would grant assistance to
    these cities that have to make these changes that you know,
    they never would have made on their own. Many of them would
    have fought to convince anyone that their water was not
    dangerous. We now have a standard that for many out in the
    Southwest is a ludicrous standard. I think you know how we feel
    about it, but it is the standard.
        I have two questions. One, if we were to pursue some kind
    of assistance, by way of grants or the like to communities so
    that they might be able to afford the equipment and changes
    that are required, would you be supportive of that?
        Ms. Whitman. Would you like me to answer that now, Senator?
        Senator Domenici. Yes, please.
        Ms. Whitman. We would certainly look very closely.
        Senator Domenici. I am going to be leaving, so I cannot
    stay long.
        Ms. Whitman. Okay. I would be happy to answer that. We have
    identified $20 million in our budget to begin this process. One
    of the things we are looking at very closely is how we can aid
    these communities with new technologies that will help bring
    down the cost. We would look very closely at any legislation
    you propose, because we are very sensitive to this being an
    enormous issue for those States where you have a lot of
    naturally occurring arsenic.
        Senator Domenici. And the second issue has to do with one
    that you touched on, that has to do with research and
    development of technology. I gather, from looking at your
    budget, you have up to $20 million for research and development
    in this area.
        I am going to give you a hypothetical question. If, in
    fact, we had a technology, and it was close, not quite there,
    but close, and if in fact some kind of a certification could be
    obtained that will be ready, but not exactly on time, will you
    have an open mind to considering, with these communities, some
    way of alleviating the enormous cost, as long as they are ready
    to go, thereafter, with new technology?
        Ms. Whitman. We are certainly going to do everything we can
    to make sure that they have time to comply with the new arsenic
    in drinking water standard, so it does not put them into
    bankruptcy and does not force people to drill their own wells,
    because that is one of the issues that was of concern at the
    very beginning. Then we have the ability to protect them
    against actually getting water that has much higher levels of
    arsenic----
        Senator Domenici. Right.
        Ms. Whitman [continuing]. Than is acceptable. So, we would
    certainly look forward to working with you and the communities
    to see what we can do to make this a feasible standard, an
    achievable standard. We already have, in the rule, exemptions
    for which communities can apply.
        Senator Domenici. I thank you so much. I will not be able
    to stay. We are starting the budget mark-up, but I thank you
    for your consideration. And we will be working with you and
    those in your department who are experts in this field, because
    we have to solve this. So, I will be dedicating time to this is
    my number one--let us solve the problem issue.
        I think my friend would vouch that if I do that, we are
    probably going to find a solution.
        Senator Bond. Senator Domenici, you have made a very
    compelling case.
        And I work with you, not always successfully, to try to
    find a modus vivendi, but certainly, Madam Administrator, with
    research dollars, with assistance, and where appropriate, if
    there are specific actions you need to take or need legislative
    provisions, we would like to work with you, because my great
    fear is that in seeking the perfect, we will be the enemy of
    the good, and force many small communities to go back to
    untreated wells. And by trying to do something that is beyond
    our grasp, we could actually put people in greater harm.
        Senator Domenici. Thank you.
        Senator Bond. So, with that, Madam Administrator, I know
    the Chair--I am sure the Chair is avidly reading your opening
    statement as she comes in. She has asked that if you would go
    ahead and present your comments, and then we will continue
    until she is able to get here until traffic lets up, so she can
    be here.
        So, Madam Administrator.
        Ms. Whitman. Thank you very much, Senator. It is a pleasure
    to appear before you, once again. It is always a pleasure to be
    able to see you and to present the President's budget for the
    Environmental Protection Agency for fiscal year 2003.
        This budget request provides the funds that EPA needs to
    complete its mission efficiently and effectively. As you know,
    the President's total request for fiscal year 2003 is $7.7
    billion, which is more than a $200 million increase over last
    year's request.
        Overall, our proposed budget reflects the goal that
    President Bush and I have of leaving America's air cleaner,
    it's water purer, and it's land better protected.
        I should also point out that EPA's proposed budget is part
    of the Administration's record overall request of $44.1 billion
    for the environment and natural resources; the highest ever
    such request, representing a $1.1 billion increase over the
    enacted levels of the current fiscal year.
        If I may, I would like to discuss some of the highlights of
    our proposal.
        Madam Chair, good morning.
        Senator Mikulski. Good morning.
        Ms. Whitman. And submit a somewhat more detailed statement
    for the record, if that is all right.
        Senator Bond. We would be happy to have it. Thank you.
        Ms. Whitman. I would defer to the Chair, if she wants to
    make some comments, now.
        Senator Mikulski. I apologize to the Administrator. It has
    taken me 2 hours to get here this morning from Baltimore. Why
    do you not go ahead with your testimony? And then, when I get
    ready to ask you questions, I will do it that way. Let us keep
    our momentum going. We both have to be at a hearing. And thank
    you for----
        Ms. Whitman. Thank you.
        Senator Mikulski [continuing]. Starting, please.
        Ms. Whitman. All right. First, as you know, almost half our
    budget is in grants to State, local and tribal governments.
    This is reflective of our experience that many innovative,
    creative and effective environmental achievements are being
    made at the State, local and county levels.
        As I have traveled around the country during the past year,
    I have seen some very exciting work in action. The Chair and I
    actually spent some time with the Alliance for Chesapeake Bay
    last summer, and saw just how much strong partnerships can
    accomplish. Good work like this is taking place in countless
    communities across the country, and the results speak for
    themselves.
        In this budget, we are going to build on those results to
    achieve even greater environmental progress, recognizing that
    not all wisdom resides in Washington.
        Next, this budget more than doubles the funds available for
    brownfields reclamation, as you pointed out, Senator, providing
    $200 million. This money will lead to thousands of acres of
    better protected land in the years ahead.
        The success that so many communities have had already in
    cleaning our less challenging brownfields will be replicated at
    thousands more difficult sites across the country.
        We have also continued to ask for steady funding for the
    Superfund Program at $1.3 billion. At a time of national
    crisis, this commitment to the continuity of Superfund
    reaffirms its significance to this Administration.
        Third, this budget provides important funding for a new
    watershed initiative. As you mentioned, we are requesting $21
    million for a program that will allow us to build an effective
    public-private partnership to help restore and protect 20 of
    the Nation's most precious watersheds.
        This initiative is another opportunity to show the real
    results that partnerships can achieve and how such partnerships
    can bring together existing programs in a unified approach,
    including the Nonpoint Source Grant program, which we propose
    funding at $238.5 million. As a result, this budget will help
    improve water quality for drinking, boating, swimming and
    fishing, in those watersheds that we target.
        There are numerous other important initiatives in our
    proposed budget. They include funding to increase the
    development of new technologies for environmental progress,
    funding for research that could lead to the significant
    reduction or curtailing of animal testing by building on the
    discoveries of the human genome project, and funding to
    increase our knowledge base about our air quality challenges,
    so that we can save lives and prevent illnesses, such as
    asthma, among America's children.
        In addition, the funding we propose for the Drinking Water
    and the Clean Water State Revolving Funds is the largest such
    combined request. Of course, our budget request also includes
    significant new money to help EPA meet its homeland security
    responsibilities. The $124 million in new funding we are
    requesting, will support such important efforts as protecting
    the Nation's water infrastructure by funding vulnerability
    assessments at the Nation's drinking water utilities, and
    wastewater facilities securing additional personnel and
    equipment to expand our ability to respond to biological
    attacks, and investing in research designed to enable the
    Nation to better detect and respond to chemical or biological
    attacks.

                               PREPARED STATEMENT

        I am pleased to say, Madam Chair, that taken together, the
    President's proposed EPA budget for fiscal year 2003 fully
    supports the work of this Agency. It will enable us to
    transform the Agency's 30-year mission to meet the challenges
    of the twenty-first century, and it brings us that much closer
    to realizing that goal of cleaner air, purer water, and better
    protected land.
        I look forward to answering any questions that you might
    have.
        [The statement follows:]

                  Prepared Statement of Christine Todd Whitman

        Madam Chair and Members of the Committee, I am pleased to be here
    to discuss President Bush's budget request for the Environmental
    Protection Agency (EPA). The President's budget provides the necessary
    funds for the Agency to carry out our mission efficiently and
    effectively to protect human health and safeguard the environment. The
    fiscal year 2003 request is $7.7 billion, which includes more than a
    100 percent increase in funding for Brownfields, and significant
    increases for watershed protection.
        I would like to begin, Madam Chair, by emphasizing that the
    President's budget request for EPA reflects the Agency's strong
    commitment to leaving America's air cleaner, its water purer, and its
    land better protected than it was when we took office. It promotes that
    goal in a manner consistent with our commitment to fiscal
    responsibility; by further strengthening our partnerships with State,
    local and tribal governments; by funding innovative new programs, and
    by strengthening existing programs that work.
        I'd like to touch on a few of the highlights: nearly half of EPA's
    budget request provides funding for State and tribal programs,
    including almost $3.5 billion in assistance to States, tribes and other
    partners. The President and I both believe that much of the innovative,
    creative, and effective environmental progress being made comes from
    State, county and local governments and our budget request supports
    that.
        As I have traveled around the country during the past year, I've
    seen some really exciting programs in action. From the people of
    Kentucky PRIDE to the members of the Paiute Tribe in Nevada, and in
    countless other communities across America, the EPA is building strong
    partnerships for environmental progress and the results speak for
    themselves. In this budget, we will build on those results to achieve
    even greater environmental progress.
    Homeland Security
        I would like to thank the appropriators for recognizing the
    important role EPA plays in homeland security by providing $176 million
    in the fiscal year 2002 supplemental. Since September 11, we have seen
    the traditional mission of our Agency safeguarding the environment and
    protecting the public health take on new meaning. We now play a
    critical role in preparing for and responding to terrorist incidents
    because of our unique expertise and experience in emergency
    preparedness and response to hazardous material releases. Our new role
    of supervising the decontamination of anthrax infected buildings has
    shown us that better information and new technologies are needed. To
    continue to do our part to ensure that the nation is prepared to
    respond to terrorist incidents, we are investing an additional $124
    million for homeland security.
        Included in this figure is $75 million for research in technologies
    for decontaminating buildings affected by bioterrorists attacks. We
    will provide guidance, technical expertise and support to Federal,
    State and local governments in building contamination prevention,
    treatment and cleanup capabilities. Combined with resources provided in
    the Emergency Supplemental Appropriation Act of 2002, this represents a
    two-year total of $300 million in new resources. Also included in this
    figure is $20 million to address threats to the nation's drinking water
    supply. We, at EPA, play a significant role in working with State
    Governments and local utilities to protect drinking water supplies. We
    have already begun working with states and local utilities to assess
    this vulnerability. The additional $20 million being requested in
    fiscal year 2003 will augment $88 million appropriated as part of the
    Emergency Supplemental Appropriation Act of 2002. Together, these funds
    will ensure that utilities have developed a comprehensive assessment of
    these vulnerabilities and emergency operations plans using the most
    current methods and technologies.
    Brownfields
        Our fiscal year 2003 budget more than doubles the funds available
    for brownfields reclamation by providing $200 million. This money will
    allow states, tribes, and local governments to build on the work
    they've already done in turning thousands of neighborhood eyesores into
    community assets. Despite that progress, thousands of brownfields still
    mar America's landscape. That is going to change. Thanks to President
    Bush's commitment to brownfields, this money will help us get at some
    of the most difficult brownfields challenges that remain. Those
    reclaimed brownfields will provide their communities with new jobs, new
    places to play, and a new sense of optimism for the future.
    Watershed Projects
        By providing $21 million for a new watershed initiative, our budget
    will target up to 20 watersheds around the country for improvement
    funding that will lead to millions of gallons of purer water in the
    years ahead. This initiative will allow us to build on existing public-
    private partnerships to restore and protect up to 20 of America's most
    threatened watersheds. When I visited Boston last year and saw first-
    hand the excellent work done by the Charles River Initiative, I knew we
    could use that effort as a model for other communities. I've heard a
    watershed defined as ``communities connected by water.'' Well, with
    this initiative, we are connecting EPA with local watershed protection
    through the flow of Federal dollars. As a result, we will help improve
    water quality for drinking, boating, swimming, and fishing.
    National Environmental Technology Competition
        Of course, underlying everything we do is our commitment to
    partnership. One of the most exciting new partnerships this budget
    seeks to build upon is our proposed National Environmental Technology
    Competition. Over the past 30 years, advances in technology have helped
    us address some of our most pressing environmental challenges. I
    believe technology can play an even greater role as we seek to achieve
    the next generation of environmental progress. That is why we are
    proposing $10 million for our National Environmental Technology
    Competition. This program will use competition to foster technological
    innovation through public-private partnerships. It will promote the
    development of new, cost-effective environmental technologies that will
    help clean the air, water, and land. For example, in fiscal year 2003
    EPA will solicit proposals related to arsenic removal in drinking
    water. This work will help further EPA's commitment to help fund,
    through research and development, cost effective methods of arsenic
    removal for small systems.
    Cleaner Air
        Under the Clean Air Act, we continue work to make the air cleaner
    and healthier to breathe by setting standards for ambient air quality,
    toxic air pollutant emissions, new pollution sources, and mobile
    sources. In fiscal year 2003, we will assist states, tribes and local
    governments in devising additional stationary and mobile source
    strategies to reduce ozone and particulate matter, and other
    pollutants. A key component to achieving the Clean Air Goal for all
    citizens is the request for over $232 million for air grants to states
    and tribes. In addition, EPA will continue to build upon its voluntary
    government/industry partnership efforts to achieve pollution reductions
    and energy savings. For example, as we continue our Energy Star
    Labeling and Building Program efforts, our goal is to reduce the
    emissions of greenhouse gases by more than 40 million metric tons
    annually, by 2010, while saving consumers and businesses an estimated
    $14 billion in net energy bill savings when using energy-efficient
    products.
    Purer Water
        Over the past three decades, our nation has made significant
    progress in water pollution prevention and cleanup. While we have
    substantially cleaned up many of our most polluted waterways, and
    provided safer drinking water for millions of U.S. residents,
    significant challenges remain. This budget request addresses the
    challenge to provide clean and safe water in every American community.
        Protection from Drinking Water Contaminants.--The fiscal year 2003
    request supports our coordinated efforts with the states and tribes to
    implement new health-based standards to control for microbial
    contaminants, disinfectants and their byproducts, and other
    contaminants.
        Drinking Water State Revolving Fund.--The Drinking Water State
    Revolving Fund (DWSRF) request of $850 million will provide substantial
    funding to states and tribes to upgrade and modernize their drinking
    water systems. At this funding level, EPA will eventually meet its goal
    of providing an average of $500 million annually in assistance.
        BEACHES Grants.--This budget includes $10 million to support our
    implementation of the ``Beaches Environmental Assessment and Coastal
    Health Act of 2000.'' The money will be provided in the form of grants
    to states to develop local monitoring and notification programs for
    coastal recreation waters.
        New Watershed Investments.--Our $21 million Targeted Watershed
    Program is designed to support the need for additional funding for
    priority watershed restoration efforts. This request supports a range
    of water quality restoration tools to assist local communities in
    restoring their waterways. This Program would provide direct grants to
    watershed stakeholders to implement comprehensive restoration actions.
        Helping States Address Run-off and Restore Polluted Waters.--The
    President's fiscal year 2003 Budget provides significant resources to
    states to build on successes we have achieved in protecting the
    nation's waters, by providing states and tribes with grants to address
    polluted run-off, protect valuable wetlands, and restore polluted
    waterways.
        Clean Water State Revolving Fund.--Our budget request includes
    $1.212 billion for states and tribes for the Clean Water State
    Revolving Fund (CWSRF). States receive capitalization grants, which
    enable them to provide low interest loans to communities to construct
    wastewater treatment infrastructure and fund other projects to enhance
    water quality. This investment allows our Agency to meet the goal for
    the CWSRF to provide $2 billion average in annual financial assistance
    over the long-term.
        Protecting Human Health along the U.S.-Mexico Border.--This budget
    includes $75 million for water and wastewater projects along the U.S.-
    Mexico Border. These resources help our Agency to address the serious
    environmental and human health problems associated with untreated and
    industrial and municipal sewage on the U.S.-Mexico border.
    Strong Science
        The fiscal year 2003 budget supports our efforts to further
    strengthen the role of science in decision-making by using scientific
    information and analysis to help direct policy and establish
    priorities. EPA will achieve maximum environmental and health
    protections through our request of $627 million for the Office of
    Research and Development to address both current and future
    environmental challenges. This Administration is committed to the
    incorporation of science into regulatory decisions by having scientists
    participate early and often in the regulatory development process. The
    budget request supports a balanced research and development program
    that addresses Administration and Agency priorities, as well as meets
    the challenges of the Clean Air Act (CAA), the Safe Drinking Water Act
    (SDWA), the Federal Insecticide, Fungicide, and Rodenticide Act
    (FIFRA), the Food Quality Protection Act (FQPA), and other
    environmental statutes.
    Environmental Information
        In fiscal year 2003, we will further our commitment to providing
    assistance to states and tribes to develop and implement the National
    Environmental Information Exchange Network. The goal of this program is
    to advance collaborative efforts to integrate environmental data
    between and among EPA, states and the Agency's other partners. The
    ability to easily exchange up-to-date, accurate information is critical
    to meet today's increasingly complex environmental challenges. The
    grant program has several components, each of which is aimed at
    building on the growing success of states and tribes in finding smarter
    alternatives to the current approaches for exchanging environmental
    data. The grants being offered include grants to enable states and
    tribes to re-engineer their environmental reporting; grants to
    demonstrate progress in developing a joint EPA/state National
    Environmental Information Exchange Network, and grants that challenge
    State or multi-state or tribal efforts to integrate environmental
    information.
        As EPA works with states and tribes to develop the National
    Environmental Information Exchange Network, we will also continue to
    build and institutionalize a Central Data Exchange (CDX) which will be
    EPA's focal point for securely receiving, translating, and forwarding
    data to EPA's data systems. In fiscal year 2003, the CDX will service
    45 States and an assemblage of 25,000 facilities, companies, and
    laboratories. By widely implementing an electronic reporting
    infrastructure, this infrastructure will reduce reliance on less
    efficient paper-based processes, thereby improving data quality,
    reducing reporting burden, and simplifying the reporting process.
                           enforcement grant programs
        Most of our nation's environmental laws envision a strong role for
    State Governments in implementing and managing environmental programs.
    The fiscal year 2003 request includes $15 million in a new grant
    program to continue to support State agencies implementing authorized,
    delegated, or approved environmental enforcement programs. These funds
    will continue to afford states a greater role in the enforcement of
    environmental laws and regulations.
        This budget request will allow our Agency to continue to support
    the regulated community's compliance with environmental requirements
    through voluntary compliance incentives and assistance programs. We
    will provide information and technical assistance to the regulated
    community through the compliance assistance program to increase its
    understanding of all statutory or regulatory environmental
    requirements. The program will also continue to develop strategies and
    compliance assistance tools that will support initiatives targeted
    toward improving compliance in specific industrial and commercial
    sectors or with certain regulatory requirements.
    Safe Food
        The fiscal year 2003 request includes $142.3 million to help meet
    the multiple challenges of the implementation of the Food Quality
    Protection Act (FQPA) of 1996 so that all Americans will continue to
    enjoy one of the safest, most abundant, and most affordable food
    supplies in the world. FQPA provides for the expedited registration of
    reduced risk pesticides to introduce alternatives to the older versions
    on the market. EPA implements its various authorities in a manner to
    ensure that farmers are able to transition with a minimal disruption in
    production to safer substitutes and alternative farming practices.
    Expanded support for tolerance reassessments will reduce the potential
    risks to public health from older pesticides. Reassessing existing
    tolerances promotes food safety, especially for infants and children,
    while ensuring that pesticides meet the most current health and safety
    standards. This budget request also supports FQPA-related science
    through scientific assessments of cumulative risk, including funds for
    validation of testing components of the Endocrine Disruptor Screening
    Program.
    Summary
        Taken together, the President's proposed EPA budget for fiscal year
    2003 fully supports the work of our Agency. It will enable us to
    transform the Agency's 30-year mission to meet the challenges of the
    21st century. It brings us that much closer to realizing our goals of
    cleaner air for all Americans to breathe, purer water for all Americans
    to drink, swim and fish in, as well as safeguarding public health.
        This concludes my prepared statement. I would be pleased to answer
    any questions that you may have.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Well, thank you very much, Administrator
    Whitman. And sorry I was late. It was just rolling accidents
    this morning. But we want to welcome you to your third hearing
    before this subcommittee. You came last year for the EPA's
    regular appropriations hearing, and then you testified in
    November about EPA's role in helping with the Anthrax
    decontamination, particularly in the Hart Building. And we have
    worked together on many issues.
        Before I go into my comments about the President's request
    and questions that I will be following, I really want to thank
    you, personally, and your entire team, for their dedication in
    helping us come to grips with the Anthrax situation in the Hart
    Building, at Brentwood, in our postal facilities, and also in
    the Nation. I know that they were tireless. I know that they
    were dedicated.
        And I just want to on behalf of our colleagues here and
    also postal employees, again, thank you for that. It was a very
    tough time for our country. I have a saying that when we face
    tough times, the tough have to get going. We want to talk more
    about the threats to the Nation and the role of EPA and
    homeland security, but let me go on to some of the other
    basics, and then get to my questions.
        I want to note that as we get ready to look at next year's
    appropriation, we are at somewhat of a disadvantage, because we
    have not received EPA's operating plan. I am not finger-
    pointing you about this, Madam Administrator. I know that you
    sent the operating plan to OMB some time ago. But it is the
    only agency for which we have not received an operating plan.
    And we would like you to really use your good office, as we
    believe you have developed an operating plan. We know you have.
    We would like to see it. We would just like to see it, so we
    can start operating on the plan. So, we really do need that.
        I am going to ask unanimous consent that my full statement
    go into the record.
        EPA serves this very important issue of protecting human
    health and the environment. And I am so pleased where the
    appropriations request is strong in several key areas. I really
    acknowledge the fact that doubling the brownfields program to
    $200 million will create new jobs and increase the tax base in
    the communities. And we want to work with you on, not only
    adequate funding, but really robust implementation.
        As a former governor of New Jersey, a former governor of
    Missouri, we know that brownfields are a cornucopia of
    opportunity to clean up the environment, but turn them into
    greenfields of economic opportunity.
        We also know that you have a request in here for the cost
    of dealing with the Anthrax both here and at Brentwood--and we
    will be talking more about that.
        I want to talk about the enforcement of the environmental
    laws. I am concerned that this year's budget proposes to cut
    100 ``environmental cops on the beat,'' and move more of our
    efforts into State enforcement programs. I know that there has
    to be a partnership with the State, but in doing so, I do not
    believe we should weaken Federal enforcement capabilities. And
    in our question and answer, I would like to probe that in more
    detail.
        I know that, right now, there are 130 unfilled positions at
    EPA. And these have been jobs that have been vacant since 2001.
    So, let us have a conversation about that.
        Enforcement will be a big issue. Water infrastructure is
    another very big issue. I am very pleased that the
    appropriations request fully funds the Drinking Water State
    Revolving Loan Fund. This is absolutely crucial to our
    communities. But I am puzzled by the $140 million cut in the
    Clean Water State Revolving Fund. Communities in Maryland and
    across the Nation are really challenged by the enormous cost of
    upgrading old and failing sewer systems.
        In Maryland, these projects, of course, are critical to the
    Bay. Now, water and sewer are just not sexy issues. We do not
    have a ``Save the Sewer'' group, like we have a ``Save the
    Whale'' group, but it is a whale of a job trying to save the
    sewers.
        Everywhere I go in my State and I think Senator Bond can
    speak to this as well--when I go in my State to every county,
    they ask me for two things for the--to help them cope with
    twenty-first century demands. They want a fiberoptic system for
    schools, business, and economic development. And they either
    want a new sewer grant or a new waste water treatment facility.
    And just the cost of modernizing, replacing, or even building,
    is just really overwhelming.
        We cannot be skimpy on this priority. EPA is currently
    negotiating with Mayor O'Malley on this issue. I am not going
    to get into the negotiations. It is not appropriate at the
    hearing. But it could cost us $1 billion to comply with what we
    ought to comply with, but where is the $1 billion? It is not
    that kind of stalemate.
        The State of Maryland has recently done a survey through a
    task force process. We have got $3.5 billion that we could
    spend in Maryland.
        I know that OMB is critical of what we call our
    ``earmarks.'' We call them ``Congressionally-designated
    projects,'' probably, the biggest demand that we get are from
    our colleagues, really, on waste water and sewer replacement.
    And I feel that if we could give every one of the states $1
    billion, that they would spend it wisely, going on your own
    excellent criteria for State plans.
        So, this is an area where I think we are really in a
    national crisis, here. And vigorous enforcement to communities
    who do not have the power to pay to comply, when they want to
    comply--this is not stonewalling you and pushing you aside and,
    you know, the way we sometimes run into. They want to comply
    with you. And when I say, ``with you,'' comply with the law and
    the regs. But it is really just a tremendous economic issue.
        So, we--I think we need a new national plan for this, and a
    national plan that would really modernize our sewers and waste
    water treatment. And at the same time, this would really be
    creating jobs in the private sector and laying the groundwork.
        Now, another area that is very troublesome is the air
    quality power plant issue. I am concerned about the impact of
    the recent decision to revisit the section of the Clean Air Act
    called the New Source Review, and replace it with something
    called the Clear Skies Initiatives. I understand that there is
    a desire to find ways to increase domestic utility and refinery
    capacity, but at the same time, taking what is a mandated
    proposal and turning it into a voluntary proposal. We need to
    hear more about that.
        Also, I believe Senator Bond and I want to work very
    closely with you and our colleagues in the House. We really do
    not want riders this year, as we have resisted every year. But
    I am concerned that in the power plant issue, we could end up
    with the committee being caught in the middle, between those
    who want to stay the current course and those who want to
    follow the new course. And we become the authorizers by proxy.
        The other is the issue of homeland security. And I know you
    have a request in here on the role you want EPA to play in
    Anthrax research. We would like to know how you want to do this
    and how this coordinates with CDC and the other Federal--even
    DOD, in working on this, because one agency cannot do this by
    itself. And we saw that here and at Brentwood.

                               PREPARED STATEMENT

        And then the other is, particularly, when protecting
    America's water supply. And I know that mayors and governors
    have spoken to Senator Bond and I about this. They are very
    concerned. And yet, local government cannot do this on its--on
    its own. So, we look forward to hearing your comments on that.
        So, that is my opening statement.
        [The statement follows:]

               Prepared Statement of Senator Barbara A. Mikulski

        I welcome Administrator Whitman to her third hearing before the
    Subcommittee. She appeared before us last year for EPA's regular budget
    hearing, and also testified in November about EPA's role in anthrax
    decontamination. We have worked with her through arsenic and anthrax,
    and I thank her for the very productive relationship we have with her
    and her team.
    Where is the Operating Plan?
        Unfortunately, the Subcommittee is at a disadvantage right now
    because we still have not received EPA's 2002 Operating Plan. The
    Operating Plan is required within 30 days after our bill is finalized.
    So I am puzzled why, over 3 months after the VA-HUD bill was signed
    into law, we still have not gotten the plan. In fact, EPA is the only
    Agency within our jurisdiction that we haven't heard from yet.
        It's not a question of fault. I know that EPA sent the Operating
    Plan to OMB some time ago. But it is really unacceptable that we are
    beginning the 2003 budget cycle without knowing how the funding we
    provided last year is being prioritized. I know Administrator Whitman's
    staff has been willing to provide some details. But in order for the
    Subcommittee to give EPA the resources it needs, we really need to see
    the entire big picture.
    Overall Budget
        The 2003 budget request for EPA totals $7.7 billion, a $,175
    million decrease from the 2002 level. But the request includes over
    $100 million for retirement funding that the budget shifts government
    wide. When we exclude this shift of mandatory funding to the
    discretionary side, the 2003 EPA budget is $7.6 billion, or about $300
    million below the 2002 level.
        Every Administration responds to cuts in EPA by saying that the
    budget eliminates earmarks. Each year, the Administration tells us that
    many of the Committee's priorities are not important enough to be
    carried in the budget. This is troubling because it implies that our
    decisions are inferior or not an appropriate use of limited resources.
    But we know that what it really means is cuts in programs to protect
    water quality, infrastructure, clean air, and scientific analysis.
        EPA serves the very important mission of protecting human health
    and the environment, so I am pleased that the budget is strong in
    several key areas. The budget proposes to double the Brownfields
    program to $200 million. This will create new jobs and increase the tax
    base in our communities, and I thank Administrator Whitman for her
    support of this important program. The budget also proposes to spend
    $75 million researching ways to cleanup contaminated buildings. This
    will help ensure that places like the Brentwood postal facility are
    cleaned up and safe for employees. The budget also increases funding
    for State air programs to help manage and reduce pollution from
    factories and traffic congestion.
        But I am also puzzled about many areas of this budget proposal. I
    know that EPA didn't get everything it wanted from OMB, but I really
    question some of the priorities here.
        For example, once again, the budget seeks to reduce Federal
    enforcement capacity. It also cuts critical water infrastructure
    funding at a time when many communities--large and small, urban and
    rural--are facing enormous challenges in getting their facilities to
    comply with the law.
    Enforcement of Environmental Laws
        Once again, the budget proposes to shift enforcement resources from
    the Federal government to the states. The Committee had serious
    concerns about a similar proposal last year, and we rejected it. We
    were troubled that cuts in Federal enforcers would result in more
    polluters ignoring the law. So I am perturbed that this year's budget
    proposes to cut another 100 ``environmental cops on the beat.''
        Instead, most of the resources freed by these cuts would go to the
    states in the form of a new enforcement grant program. I know that we
    need to do more to help enhance State enforcement programs, but in
    doing so we should not weaken our Federal enforcement capabilities. We
    need both a strong Federal and strong State enforcement presence to
    achieve compliance with our environmental laws not one or the other.
    The Committee was clear on this last year, and we will be clear again.
    So I am very interested in hearing more about this proposal and how it
    differs from the proposal we rejected last year.
        I also want to know how priorities are being set within the
    enforcement funding this Committee provided in 2002. Last year, we told
    EPA to fund Federal enforcement at no less than the 2001 level--about
    $465 million. I understand that EPA met that goal by eliminating about
    130 unfilled positions. These were jobs that had been vacant even prior
    to 2001. Administrations--current and past--failed to fill them. Nobody
    lost their job, and I know that even under this year's proposal there
    wouldn't be any layoffs.
        I also know that OMB sets artificial personnel ``ceilings'' that
    Agencies never meet. But at the same time, there are currently over 100
    unfilled enforcement jobs at EPA. So it's not just a question of
    funding--this Subcommittee has really emphasized Federal enforcement.
    This is really a question of management, and the Administration's
    priority in recruiting and retaining the experts it needs to enforce
    environmental laws. We're not talking about building bureaucracies or
    empires, just about giving the Agency the resources and staff it needs.
        We have ``cut all the fat'' that we can, and this year we don't
    want to hear that there are vacancies that should be eliminated. These
    are real jobs that provide real expertise to get polluters to comply
    with the law. The Subcommittee doesn't want to take the position of
    micromanaging staff positions. But if we have to this year, we are
    prepared to do so. So I want to know why EPA isn't doing more to fill
    these slots and how can the Subcommittee be helpful in this area.
    Water Infrastructure
        Water and sewer are not sexy issues. We don't have ``Save the
    Sewer'' groups like we have ``Save the Trees'' or ``Save the Whales.''
    But water funding means just as much to the environment. Water
    infrastructure funding gives us ``double value'' for the taxpayer
    dollar. It helps keep our waterways clean and safe. And for every $1
    billion spent, about 19,000 jobs are created.
        But Baltimore City can't hold a cocktail party to raise money to
    fix its crumbling sewer system. And Albuquerque can't have bingo night
    to raise dough to get arsenic out of its drinking water. We just cannot
    skimp on this priority. We can't expect communities to comply with
    numerous regulations--arsenic, radon, discharges, just to name a few--
    without giving them the money to do so.
        So while I am pleased that the budget fully funds the Drinking
    Water State Revolving Loan Fund (SRF) at $850 million, I am puzzled by
    the $140 million cut to the Clean Water SRF. Communities in Maryland
    and all across the nation are challenged by the enormous costs of
    upgrading old and failing sewer systems. In Maryland, these projects
    are critical to protecting the Chesapeake Bay.
        In fact, Maryland recently identified over $3.5 billion in
    immediate needs. Nationwide, it is estimated that we will need to
    invest over $20 billion each year for the next 20 years in wastewater
    infrastructure.
        This budget does not acknowledge these needs. It cuts the Clean
    Water SRF from $1.35 billion to $1.2 billion. And those who have not
    read the finer print in the budget will be startled to know that it
    ZEROES out the Clean Water SRF program in 2006 and beyond. I have to
    believe that this is just a budgeting gimmick by OMB to make the
    numbers add up. But the Committee is really paying attention to the
    commitments made in this area, and we're not pleased.
        I know that our authorizing committee is working to reauthorize
    these critical programs at much higher levels in the future. While I
    have serious concerns about the new formula they are proposing, I
    applaud Senator Jeffords' leadership in seeking additional resources
    for critical water infrastructure improvements. This is even more
    important now that water utilities must take steps to safeguard their
    facilities, and the chemicals they use, from possible threats.
    Anthrax Decontamination
        Again, I am pleased that the budget proposes $75 million to
    research ways to decontaminate buildings from chemical and biological
    agents. We need better science in this area. I have several hundred of
    constituents who worked out of the Brentwood postal facility, which
    remains closed. So I am interested in hearing how EPA plans to move
    forward with this research, and how the Agency will be involved at
    Brentwood.
        I really want to thank EPA for its outstanding work at the Capitol
    complex, including the Hart building. I know many employees worked
    around the clock to get us back up and running safely.
        The Subcommittee provided some $21 million in last year's
    Supplemental Appropriations bill for decontamination, including $12.5
    million in Superfund funding to ensure that EPA didn't have to divert
    regular cleanup resources to pay for the Hart building. This was based
    on EPA's best estimates at the time, and we know now that the cleanup
    actually cost much more. So we'd like to know how much in anticipation
    of another Supplemental. We want to be sure that EPA, and the Superfund
    program, are made whole for their efforts. I also look forward to
    hearing what progress EPA has made since our hearing last fall.
    Environmental Education
        For many years, EPA has run an environmental education program
    called the STAR fellowship program. The budget proposes to shift this
    modestly funded program--just $10 million per year--to the National
    Science Foundation. I have heard from many graduate students who are
    concerned that this means their funding will be canceled. So I would
    like to know why this shift has been suggested, and what this proposal
    will mean for students who are specializing in the environmental
    sciences and engineering.
    Regulations and Riders
        I am concerned about the impact of the recent decision to revisit
    the section of the Clean Air Act called ``New Source Review,'' and to
    replace it with the proposed ``Clear Skies Initiative.''
        I understand the desire to find ways to increase domestic utility
    and refinery capacity. But we must have certainty and reliability in
    the program for industry and the environment. I want to be sure that
    we're not changing the rules midstream. We can't have an open-ended
    dodge ball situation on this.
        We need to protect children and the elderly, who are most
    vulnerable to the health effects of air pollution. We have record-high
    levels of childhood asthma, and a recent study has confirmed that air
    pollution contributes to lung cancer. Many water quality problems in
    the Chesapeake Bay and other waterways are due to air pollution. So we
    want to be sure that we continue the public health and environmental
    gains made under the Clean Air Act.
        Finally, Senator Bond and I have always taken the position that the
    VA-HUD bill should not be a vehicle for environmental riders--good or
    bad ones. And I hope that as we move a bill through the Committee this
    year, we can continue this policy.
    Ouster Study Thank You
        In closing, I want to personally thank Administrator Whitman for
    working quickly to help fund a study by the National Academies of
    Sciences on the possibility of introducing a new oyster species into
    the Bay. I understand that EPA was able to dedicate $90,000 of existing
    resources for this study--more than any other Federal agency that is
    involved. The environmental groups and watermen who are working so hard
    to bring oysters back to the Bay really appreciate your efforts, and so
    do I.

        Senator Mikulski. Do you want to kick off the questioning
    part by going right to this whole issue of enforcement? And we
    understand that the budget cuts $10 million from enforcement,
    100 ``environmental cops on the beat.'' And I wonder, what are
    the consequences of this policy shift? What will be the
    consequences to the environment? And then, you want to do a
    State program, and do we need authorizing? So, why do I not
    just offer some broad questions and--but let us go for it.
        And, again, thank you.
        Ms. Whitman. Certainly, Senator. First, let me say that the
    budget that we have proposed for enforcement, represents the
    highest funding level in that part.
        Okay. In that part of the Agency, it is the largest
    commitment to vigorous enforcement. We expect to hire up
    another 100 in the coming months. We are looking forward to it.
        We have just come off one of the most successful years ever
    in enforcement. We had outstanding results. Last year, alone,
    it was nearly record-setting. It was not quite record-setting,
    but nearly record-setting expenditure for violators of
    pollution controls and environmental clean-up.
        As you know, states typically do about 90 percent of the
    enforcement and compliance work. And what we are seeking to do
    with this budget is to enhance that. Again, that is the $15
    million program that we have in this budget. But we are very
    comfortable that the levels proposed for enforcement in this
    budget proposal will enable us to continue the very successful
    track record that we established last year. And we do not see
    any reduction in enforcement focus. There is going to be no
    reduction in the kind of dedication that we commit to
    enforcement.
        What we are doing and what you are seeing reflected in
    numbers, is a reduction of the overhead. But as you pointed
    out, we have about 130 vacant positions. And that has been
    somewhat traditional for the Agency. I think we have lapsed
    about 120 each year. It is a question of getting people in and
    keep training them, keeping them in, and people leaving. The
    normal attrition.
        So, we do not feel that this reduction in the overhead is
    actually going to be detrimental to the enforcement efforts of
    the Agency, particularly if we are able to help the States some
    more.
        Senator Mikulski. So, I just want to be clear. The request
    is to cut $10 million from enforcement. You have 100-and-some
    vacancies. Then you are saying you are going to hire 100
    people. Is that correct?
        Ms. Whitman. Right. We anticipate hiring 100.
        Senator Mikulski. Now, is that 100 to fill the vacancies?
        Ms. Whitman. That will--yes. It is part of the normal----
        Senator Mikulski. Or is that in addition to, and therefore,
    you would have 200 people----
        Ms. Whitman. No. It will be----
        Senator Mikulski [continuing]. To fill the vacancies, plus
    the 100?
        Ms. Whitman. They--it will be to fill the vacancies.
        Senator Mikulski. Fill the vacancies. And then you are
    saying the $10 million cut would have no consequence on
    enforcement.
        Ms. Whitman. It is not coming out of those people who are
    doing the actual enforcement and inspections. It is coming from
    other parts within the Agency. The actual personnel of the
    enforcement division represents about a fifth of the overall
    personnel of the Agency. And that will continue to be true.
        Senator Mikulski. Well, I think we want to see how that
    really works, in terms of this, and ask your staff to be able
    to follow-up.
        Ms. Whitman. I would be happy to give you a more detailed
    breakdown for the record, if you would like it.

                        ENFORCEMENT: STATE GRANT PROGRAM

        Senator Mikulski. Now, you are requesting a $15 million for
    a new State Enforcement Program. I would like you to describe
    that. And, also, do you need authorizing legislation to be able
    to create this, or do you want us to create it by a line item?
        So--but tell us, now, what this $15 million would buy to
    protect the environment, if it protects it at all?
        Ms. Whitman. Well, as I indicated to you before, the States
    now do 90 percent of the compliance and 90 percent of the
    inspections. What we want to do is leverage that, to make it as
    effective as it can possibly be.
        They are the ones on the ground. They know where the
    problems are. They know who they have to go after. Some States
    are more sophisticated in their enforcement than others. What
    we are proposing, it would be a competitive program that States
    would submit to us what they would do with those dollars;
    whether they would use it to enhance--some States, for
    instance, may be very good on water enforcement; they may have
    all the technology and trained personnel, but not as good in
    air. And with a little bit more money, particularly, now, when
    they are facing budget squeezes, they could use that to enhance
    their ability to do the air monitoring. Others might see it as
    an ability to make a commitment that they have not made before
    to enforcement.
        And so, it would be a competitive program, but it is
    reflective of the fact that they already do a great deal of the
    work. And it makes sense that they do a great deal of the
    compliance and enforcement work, because they are there full-
    time.
        Senator Mikulski. Do you need an authorization to do this?
        Ms. Whitman. No, we do not.
        Senator Mikulski. But it does create a new enforcement
    program. You think you can do it through an executive
    direction.
        Ms. Whitman. It is a current--I mean, we----
        Senator Mikulski. That is not a confrontational question.
        Ms. Whitman. Yes. We have current grant authority in this
    area. This is an enhancement. It is a change, in that we have
    current grant authority but are proposing to expand the current
    grant authority.
        Senator Mikulski. I see. Senator Bond? Thank you. We will
    come back----

                              CLEAN WATER FUNDING

        Senator Bond. Thank you very much, Madam Chair.
        Pursuing the line that you and I both mentioned in our
    opening statements, I am very disappointed that the EPA did--or
    the OMB, for EPA, requested a $138 million reduction from the
    O2 level for clean water fund. As I mentioned in my statement,
    the--there are tremendous needs. And we see it in each State.
        I would like your views on what a reasonable level of
    funding should be. How do we prioritize it? We have got aging
    and obsolete water infrastructure of concern to many cities in
    the East and Midwest, and yet, we just heard Senator Domenici
    talk about the huge new capital costs that the arsenic standard
    is going to pay require is going to require in the West, and
    yet, we see, with the needs going up, the money coming down.
    How do we balance it?
        Ms. Whitman. Well, Senator, first of all, I would repeat
    what I said in my opening statement; that, in fact, the
    combined monies for the two programs, $1.2 billion for the
    Clean Water State Revolving Loan Fund, and $850 million for the
    State Revolving Loan Fund for the Drinking Water, is the
    highest request that has been made before.
        But the issue that you are talking about is one where had a
    little bit of this discussion last year. And it is becoming
    even more important. I honestly, believe that water is going to
    be the major environmental challenge of the twenty-first
    century; both in quantity and quality.
        Obviously, our responsibility, here, is not quantity. But
    the numbers that we are talking about are going to require that
    we engage very closely with Congress; that we reach out and
    work with States, and with local water authorities. Whether you
    take our projections or you take the gap analysis or you take
    the utilities' projections, we are talking about literally
    billions and billions,--upwards of a trillion dollars in
    infrastructure needs. This is far beyond the ability of any one
    branch of government to satisfy.
        We are putting money into a great deal of research, to see
    if there are new technologies out there, to look at new
    technologies that can help address the needs. We are working
    closely with the water utility organizations to see what we can
    do to support the kind of work they are doing; to see how, in
    fact, we can help lower the cost for this enormous challenge
    that we have in both drinking water and sewer, as well as
    septic systems.
        But this is something that is going to be far beyond any
    one budget cycle. And we really do need to work closely with
    you.

               HOMELAND SECURITY: TECHNOLOGIES AND METHODOLOGIES

        Senator Bond. We very much appreciate your attention to it,
    because I really think that the problems are big and they are
    getting bigger. And I would just note, parenthetically, I have
    had discussions with high Administration officials, who do not
    think that members of Congress should be able to provide
    funding for high-priority needs in their States.
        I assure you that we see those needs. We are going to
    continue to do it. I know the Executive Branch does not like
    it. You have lots of authority, but we also are living with and
    listening to our people. We are going to continue to provide a
    very small portion where the needs are greatest. And just--my
    only suggestion is just relax and enjoy it, because we are
    going to help where we think the needs are most pressing in our
    State.
        Let me turn to the matter that Senator Mikulski was
    discussing, and that is--well, first, let me turn to some
    problems in counter-terrorism. There are many, many challenges
    that you have faced. And we congratulate you and the agencies
    who worked with them, but you had to coordinate with FEMA at
    the World Trade Center site, and with the Department of
    Justice. You have a special role to play in researching
    technologies and methodologies. How are you coordinating with
    other Federal agencies?
        Ms. Whitman. We are coordinating very well. Most of it is
    done through the Office of Homeland Security, as a
    clearinghouse, but we also do it directly.
        For instance, in the situation of the World Trade Center
    and up in lower Manhattan, I have put together a task force of
    the other Federal agencies, as well as the State and the city,
    to look at the issue of indoor air. If there is a gap in
    response, that is where we have it. I believe determining who
    is responsible for the indoor air and the clean-up is required
    after something as catastrophic as what we saw September 11.
        We are working directly with drinking water systems to
    ensure the safety of drinking water supplies. We have been
    working since September 11 with the various water companies.
    There are 165,000 independent, individual, municipal, and State
    water systems nationwide. We have worked with them. We work
    closely with Sandia Labs and the Department of Defense in
    enhancing our knowledge of what kind of chemical or biological
    attack could be expected; best ways to detect contaminants; and
    what is the most current technology available to deal with
    that.
        We also, obviously, are working with the chemical industry
    to ensure that they have done vulnerability assessments, as
    well. We have done the same thing with the water systems, to
    make sure that they know what their vulnerabilities are. We
    have worked with the FBI and conducted outreach to every single
    local law enforcement agency right after September 11 to help
    expand their knowledge of what to look for around reservoirs
    and what kind of vulnerabilities water systems have, so that
    they could, in fact, help us. They need to help the systems.
        We have been working very closely, as an agency, with the
    individual groups for which we have a responsibility, and then
    reaching out to our Federal counterparts. We work closely with
    ATSDR, the CDC, the Department of Defense, on a regular basis.

                 SMALL AND RURAL WATER SYSTEMS VULNERABILITIES

        Senator Bond. Madam Chair, if I may just finish up on that,
    without asking a question.
        I would ask that you submit it for the record, Madam
    Administrator, but we have a number of small businesses in our
    State, working on decontamination processes, remediation
    processes. One of them was working with the Department of
    Defense on a electrostatic decontamination. I want to make sure
    that those technologies are reviewed by the appropriate
    scientists in EPA to see what works, because we have got a new
    challenge. And our small businesses are very mobile. They may
    be coming up with something. We would like to be able to work
    that.
        The other thing, for the record, I would like to know how
    you are planning to help small and rural water systems prepare
    for and reduce their vulnerabilities. I have been very
    impressed. The large water systems are very sophisticated.
        And just for the record, if you would let us know what you
    can do to help the small systems, because a water system attack
    in a small community could be very deadly, because they do not
    have the protections built in that the large systems have.
        And thank you, Madam Chairman.
        Ms. Whitman. I can give you a little bit of that answer
    right now, Senator, if you would like. We are doing a great
    deal of work with the small and mid-sized water systems. We are
    conducting training for them in the use of vulnerability
    assessments and in the development of emergency operations
    plans. As I indicated before, we worked with Sandia Labs, and
    enabled them to move ahead in much more rapid fashion with a
    vulnerability study and training manuals and a disk that we are
    adapting that methodology to supply the small water systems.
        To support them, there is $3 million that we are putting
    toward working with the small and medium water systems to train
    them on the use of vulnerability assessments and the
    development of emergency response plans. So that they know what
    they need to look for and how they need to better protect
    themselves.
        We are very sensitive to that. Our focus is on making the
    most, the safest, fastest. That is how we have been guiding--
    how we have gone forward with the overall process of protecting
    the Nation's drinking water supply. As far as research is
    concerned, we are constantly getting applications for approval
    as new technologies to deal with contaminants, such as Anthrax
    and other types of biological and chemical weapons. We are
    reviewing those as quickly as we can. We have an expedited
    process that we are undergoing, but, obviously, we have to make
    sure they do what they claim.
        Senator Mikulski. Thank you very much. I am going to do a--
    kind of a next-come/next-serve, if you would proceed--Senator
    Craig and then Senator Kohl.

                       COEUR D'ALENE BASIN SUPERFUND SITE

        Senator Craig. Well, Madam Chairman, thank you. I will be
    very brief.
        And I apologize for running late, Director Whitman, and
    missing your opening comments. I will read your testimony. The
    EPA is very important to all of us and the work you do and the
    work you are doing is critical. And I thank you for it.
        I have got a brief statement that will probably only
    require a brief comment from you, that is of great concern to
    the Idaho delegation and our governor. And I am quite sure
    that, by now, you are aware of it. We have a Superfund site in
    north Idaho, in the Coeur d'Alene Basin area. Most know it is
    an old lead and silver mining area that has been in operation
    for nearly 100 years. And we are in what I hope are the final
    days of that effort. A great deal of work has been done. A
    great deal of time and money has been spent, but the
    communities involved are still in limbo as the site continues
    to work its will.
        You are probably also aware that the citizens of north
    Idaho are profoundly concerned, as are we, about EPA's proposal
    for a 30-year, $1.3 billion clean-up in the basin. That is
    currently a proposal that is out there. I must tell you, in as
    blunt a term as I can, it does not make any damn sense.
        Now, having said that, and that is probably as blunt as I
    will get, EPA's proposal plan is so aggressive and so far-
    reaching, that I do not believe that it can be effectively
    implemented. It will allow EPA staff a generational opportunity
    to live in one of the most beautiful areas in the world, which
    is a prime vacation site for most of the inland empire.
        No, Madam Chairman, we are talking about a Superfund site.
    No, we are talking about one of the prime vacation sites in the
    United States. That is why, Director Whitman, I think it is so
    important that you come to the ground and see this.
        Anything that is going to ask of you to find $1.3 billion
    and dedicate your Agency for 30 years in a place that has one
    of the premier golf courses of the world, one of the top
    destinational resorts of the world, and some of the most
    beautiful glacierly gouged lakes in the northern tier of our
    country, deserves your attention.
        Now, having said that, our frustration is multiple. We know
    that EPA has spent a good deal of time and a lot of money. It
    is a 21-square-mile site. There are recommendations that it be
    expanded to over 1,200 square miles. Now, if you think you have
    got management problems, now, try to manage a 1,200-square-mile
    Superfund site. That is bigger than some of the eastern States.
        Senator Mikulski. How big is that?

     COEUR D'ALENE BASIN: NATIONAL ACADEMY OF SCIENCE STUDY OF CHILDREN'S
                                     HEALTH

        Senator Craig. 1,200 square miles is what some EPA people
    are proposing be a new Superfund site. It is watershed upon
    watershed, mountain range upon mountain range. It is time we
    all get real. The bureaucracy has run amok.
        And here is what I am proposing we do: While the State of
    Idaho would like to manage this, because they think they can do
    it with so much more efficiency, less bureaucracy, and get a
    good deal more done in a shorter period of time--what I am
    proposing is that we ask the National Academy of Science to
    come in and look at the science.
        While there is physical work to be done here and there, and
    hot spots left, what is driving all of this are blood-level
    measurements of the children of the area. There is, in my
    opinion, ample evidence to demonstrate that those blood levels
    have plummeted dramatically over the course of the last two
    decades. We have taken all of the top soil away and replaced
    it. We have torn down all of the old buildings and buried them.
    We are reconstituting the area, totally. The streams now run
    clear. They are swimmable and fishable. And yet, somehow, the
    old science lingers on and drives the bureaucracy forward, in
    my opinion.
        Even the website of EPA on this issue has the old science.
    It is one of the fastest growing economic areas in Idaho,
    outside the edge. And yet, we had a company with 300 new jobs,
    less than 6 months ago, look at the website and look at the old
    science in a final decision-making process whether to come and
    locate in that area, and they left. And it was devastating to
    the opportunity of the economy of that area.
        It really, I believe, demands our attention. Now, what I am
    proposing, Madam Chairman, is that we get the National Academy
    of Science in to look at the science, to peer review it, to
    give it an objective second- or third-party view. It has had
    none of that. It has been in-house science. And I believe it is
    obsolete science today. And to do that, I am going to be asking
    this committee to help me find some money to direct them. I
    would like your support, Director Whitman. But most
    importantly, we need your attention to resolve this issue.
        I hold a golf tournament in the middle of a proposed
    Superfund site each year, along the shores of this beautiful
    lake that is full of boats and vacation homes and all of that,
    and people say, ``Larry, they are talking about this being a
    Superfund site?'' And I say, ``Uh-huh.''
        It just does not stand the test. Therefore, it does, I
    believe, require your attention, and ours, to resolve this
    issue, to bring some closure to it and some permanency and some
    direction. It should not allow 30 years and $1.3 billion,
    because this committee and this Congress and America's
    taxpayers do not have that kind of money to waste, when, I
    believe, for a less than a third of that, you can clean up the
    remaining hot spots and let Mother Nature help to finish the
    rest.
        That is all I have to say, but I hope I have gained your
    attention and that we can work together to resolve this. I know
    that you are aware of it, and we chatted about it. It is time,
    now, for us to lead on this issue and bring some finality to
    it.
        Thank you, Madam Chairman.
        Senator Mikulski. Thank you, Senator Craig.
        And the Idaho situation has--I think, first of all, its
    enormity and significance is most compelling for, really, your
    personal attention, I believe, Madam Administrator.
        And I know Senator Murray also wanted to be at the hearing,
    because of its impact also on Washington State, and would ask
    that whatever dialog occurs and problem-solving, that Senator
    Murray be included. But there is no doubt that this is a big
    issue and it is a big buck issue, and its consequences are
    significant to Idaho, Washington State.

                            SPOKANE RIVER HOT SPOTS

        Senator Craig. Thank you, Madam Chairman. That is well put,
    because these drainages do flow into the State of Washington.
    And we have done work in that area to know that there are hot
    spots along the Spokane River that deserve our attention--the
    Coeur d'Alene River.
        Senator Mikulski. Senator Craig, I think Senator Murray
    wanted to talk, but I--I think, right now, let us really make
    this a really top priority with EPA, and perhaps could make it
    really an--a real model for cleaning up this. But when you are
    talking about cleaning up mountain ranges and so on, this is--
    this is something.
        So, let us turn, then, to Senator Kohl. I hope you have
    some easier problems.
        Senator Craig. Madam Chairman.
        Senator Mikulski. Yes, sir. I just----
        Senator Craig. Could we give the Director an opportunity to
    make a comment on that?
        Senator Mikulski. Oh, I am sorry. I am sorry. Go ahead.
        Ms. Whitman. No. That's all right. I just wanted----
        Senator Mikulski. Please. I apologize, Senator Craig.
        Ms. Whitman. I wanted to assure the Senator that his
    eloquent plea has not gone unheard. I have had the opportunity
    to talk to Governor Kempthorne on a number of occasions. We
    have sent the Regional Administrator for Region 10 there to sit
    down and see if we cannot bring a resolution to this issue.
        The National Academy of Science remains a very real
    potential possibility. I know there are some proposals that
    would clean up at least the residential area, within 5 years,
    at a much lower cost than had originally been proposed by the
    Agency. We are looking at all of those things.
        I also believe that they are trying to set up a trip for me
    to be able to go out there and see it and take advantage of the
    beautiful park.
        Senator Craig. Well, we would like to have you. We will--we
    will show you a good time. And what is most important about
    that is to look, Madam Chairman, in its whole perspective. A
    lot of work has been done. A lot of good work has been done. An
    awful lot of money has been spent, and a phenomenal amount of
    time.
        It is not a showcase of efficiency, but it has solved a lot
    of problems. And I am not condemning the work of the past. What
    I am condemning is the perspective of the past lurking in
    future proposals.
        Thank you.
        Ms. Whitman. I look forward to working with you on this,
    Senator.
        Senator Craig. Thank you very much. Thank you, Madam
    Chairman.
        Senator Mikulski. Senator Kohl.

                         STATEMENT OF SENATOR HERB KOHL

        Senator Kohl. Thank you, Senator Mikulski. Governor
    Whitman.
        Ms. Whitman. Senator.
        Senator Kohl. Lord Alfred Tennyson wrote, and I quote, ``In
    the spring, a livelier iris changes on the burnished dove. And
    in the spring, a young man's fancy lightly turns to thoughts of
    love.''
        Senator Kohl. However, Governor Whitman, in Wisconsin----
        Ms. Whitman. I do not think that is what is happening.

                        REFORMULATED GAS PRICE INCREASE

        Senator Kohl [continuing]. We worry about whether gasoline
    prices are going to go through the roof, again. I can assure
    you, as my constituents start to defrost this year, we--you and
    I are going to be grilled, and rightly so, over what we are
    doing to make sure that regional gas prices do not go through
    the roof again, like they did last year.
        We do appreciate, very much, the new regulations that EPA
    has put forth, allowing refiners some flexibility in making the
    shift from winter to summer fuel. And we are hopeful that will
    be enough to solve the problem; however, if it is not, and if
    we see another gas price spike unique to our region, will the
    EPA be prepared with some additional policy or response? Can we
    get your commitment that if gas prices skyrocket again, solely,
    in the Chicago-Milwaukee area, EPA will engage immediately and
    actively to fix the problem?
        Ms. Whitman. We will certainly work with you to determine,
    first of all, what is causing that problem and if we need to
    take some action to help alleviate it, as we did last year.
        As you point out, we have made some regulatory changes that
    should ease the burden. And we do not believe that with the
    flexibility we have given to the refineries on the blended
    stock and the flexibility we have given on the 2 percent, that
    there is no reason to assume, unless there is a major
    catastrophe at one of the refineries, that there should be any
    price spike due to the reformulated gas. But we certainly will
    watch that very carefully and work with you on that.

                           FOX RIVER CLEANUP PROJECT

        Senator Kohl. I thank you. Governor Whitman, EPA has issued
    a new guidance for river clean-up or sediment management. You
    recommend a so-called iterative process, that is being used on
    the Hudson River clean-up. As I understand, it means that the
    EPA will clean up large river sites in phases, starting
    upstream and moving downstream, so that you can learn from the
    work and modify the remedy as the work is done.
        For us, in Wisconsin, what could this mean for the Fox
    River Clean-Up Project?
        Ms. Whitman. Well, Senator, we are moving forward,
    obviously, with Fox River. We are very focused on it. Fox River
    is larger and there are more contaminants to be taken out of
    the river there. At this point, it appears to be a much less
    expensive program, but that is because of the way that the
    sediments will be handled once they are taken out of the river.
        There is not a transportation issue, because of some of the
    willingness of the responsible parties and agreements that have
    been reached that settle--the sediment will be taken care of
    closer to the site. And that vastly reduces the cost.
        I believe, as we go forward on any of these major
    undertakings, that we should constantly be looking at the
    science, looking at the results, to determine whether or not
    what we project is going to happen is happening, and be
    willing, as we look at these, to change, if we see we are
    having an adverse impact; if something--if we are resuspending
    more than we thought we were resuspending, and it becomes a
    bigger threat to the health and the environment of the river,
    then we ought to stop and take another look and go back at it
    in the right way.
        These are large undertakings. The Hudson River and the Fox
    River Project are both enormous. They are very important. They
    need to get done, but they need to get done right. We believe
    we have the science. We believe we have the appropriate
    approach, but I do not think there is anything wrong with
    checking yourself as you go along.
        There have been some allegations that have said that if you
    do that, you are really just looking for a way out. I do not
    see it that way at all. I see it as a way of doing it better,
    making sure we are getting it right, making sure we are doing
    exactly what we said we would do for the river and for people
    who live in those areas.

             FOX RIVER CLEANUP PROJECT: COST AND PUBLIC ACCEPTANCE

        Senator Kohl. Okay. In the case of the Fox River, there is
    a great deal of uncertainty about the cost of the clean-up,
    because people are concerned that the disposal site identified
    in the plan is not practical. Local disposal sites for dredge
    sediments are an important part of any clean-up effort, as we
    know. The disposal site influences costs and public acceptance
    of the clean-up plan, as we know.
        Should EPA try to identify and tell the public about
    potential disposal sites before the clean-up plan is proposed
    for public comment?
        Ms. Whitman. Well, we are in the process of reviewing the
    comments. As far as the actual work on the river goes, as you
    may know, we did a demonstration project that we did with the
    State of Wisconsin, and were able to meet all the goals.
        Once we have proposed the solution, we go through the
    comment period and the proposed plan, and that will obviously
    include the concerns raised by citizens as for ultimate
    disposal. And that will be part of our response to the citizens
    and to the concerns that they raise.
        Senator Kohl. As I understand it, the disposal site permit
    has not been granted, and there is some considerable question
    as to whether or not it is going to be granted.
        Ms. Whitman. I am not as up-to-date with that.
        Senator Kohl. I will, perhaps, work with your office on
    that in greater detail.
        Ms. Whitman. Certainly.

        ENVIRONMENTAL EDUCATION: TRANSFER TO NATIONAL SCIENCE FOUNDATION

        Senator Kohl. One other question, Governor Whitman. I have
    been told that the Office of Management and Budget has proposed
    a transfer of the EPA's Office of Environmental Education to
    the National Science Foundation. OMB claims that the transfer
    was made because the Environmental Education Program was
    ineffective; however, supporters of the program think this is
    only an attempt to de-fund Environmental Education. And I have
    heard nothing but good things about the work that the EPA is
    doing.
        Was EPA unhappy with the way Environmental Education was
    working? As an Administrator of EPA, did you recommend that the
    Environmental Education Program be transferred to the National
    Science Foundation? Does the EPA agree with OMB's evaluation of
    the Office of Environmental Education, or was this an attempt
    to cut the budget for Environmental Education?
        Ms. Whitman. Senator, I do not believe this was an attempt
    to cut the budget for the Environmental Education. When I
    talked to those who were concerned about it and making the
    recommendation, it was more an effort to consolidate
    Environmental Education at the National Science Foundation.
    There was a finding that, in fact, their work had not been
    recognized enough in previous budgets and they need to and
    deserved to continue to broaden the scope of their work, and
    that they, in fact, have the ability to administer this very
    well.
        We did keep, as you know, a part of our research fellowship
    program, our work with minority universities. I think we were
    doing a pretty good job on the Environmental Education program,
    but I can understand the desire to consolidate Environmental
    Education in one place, if that allows you to maximize your
    dollars and make sure you are having the most effect that you
    possibly can.
        Senator Kohl. It was my understanding that this was a $9
    million program, and when it was transferred to the National
    Science Foundation, the funding did not go along. So, the
    inference was at least given that the program was going to be
    de-funded, which, to most people, means it is going to be,
    basically, eliminated.
        I do not know whether or not you are aware of those
    details, but----
        Ms. Whitman. No.
        Senator Kohl [continuing]. But that is the information that
    I got. And it is in that connection that I bring the question
    to you today.
        Ms. Whitman. I can appreciate that. I am not aware of the
    National Science Foundation's budget, as it reflects
    environmental education.
        Senator Kohl. I thank you very much. And I thank you, Madam
    Chairman.
        Senator Mikulski. Senator, you have raised some very
    important questions. And the questions that you raised
    regarding environmental education, really, very much paralleled
    my own. And I want you to know, as we look at NSF, which is
    funded at this committee, that I would encourage you and your
    very able staff to also look at it.
        I am concerned about the transfer. Everyone who seems to
    work with the small but obviously very effective program, and
    the EPA is quite satisfied. The Chesapeake Bay Foundation,
    which is a premier environmental advocacy and education agency
    just speaks so highly of it, and their networks with their
    counterparts around the country speak about this. And this is
    really where we teach the stewardship of the environment, where
    the young people get hands-on experience and so on.
        So, I think we need to look at it. Senator Bond and I need
    to talk about it. And we welcome your input. Just rearrange--
    the question is: What is the objective we seek? If it is really
    to have a really outstanding environmental education program,
    it is where is the best place to put it, and where should we be
    putting our money?
        So, we thank you for that.

                  CHESAPEAKE BAY RESEARCH PROGRAM: RECRUITMENT

        Administrator Whitman, I am going to come back to the--
    speaking of the Bay, before I go on to clean water. How are we
    on getting a permanent head of the Chesapeake Bay Foundation
    Research--I mean, the Chesapeake Bay Research Program?
        Ms. Whitman. We have a number of outstanding candidates. We
    have winnowed the list down from seventy. We had seventy
    applications. We have gotten that down now to a number where we
    are going to start to do the interviewing and hope to be able
    to appoint somebody very quickly.

                       CLEAN WATER REVOLVING LOAN PROGRAM

        Senator Mikulski. Yes. Because we have been without one
    since Mr. Murkowski retired. And so, we really think it needs
    the--needs a permanent appointment. So, we look forward to
    hearing about this.
        Let us go on, back to the Clean Water State Revolving Loan
    Program. In the budget, it really does cut it from $1.35
    billion to $1.2, and also, when we read the fine print, it
    startled us, because the fine print indicated to myself and my
    staff that it will zero out the Clean Water State Revolving
    Loan Program when we get to 2006, just at the same time when--I
    think if the committee had its way, we would make this a $3
    billion or even $5 billion program.
        Have we read this wrong, or is this OMB? We do not want to
    put you in a difficult situation with OMB, but we--and I know
    they are trying to cope with how to achieve the budget,
    homeland security, and Nonpoint source. I mean, this is not the
    committee that is going to debate that. But we will debate that
    this program cannot be phased out and we cannot use budget
    gimmickery with it.
        Ms. Whitman. Senator, I think the important thing here is
    that the fund has enough money and will continue to have enough
    money to revolve at more than $2 billion a year. It has been at
    least for the last few years. It is revolving at almost $4
    billion now, because it is a fund that gets repaid and
    replenished by those who are using it.
        It is really at a very healthy stage. Now, this gets back
    to the broader question that both you and Senator Bond have
    been talking about this morning, which is that the needs are
    far, far greater than that. And that is why we need to have
    vigorous support of Congress in the discussion of how we
    address these issues. But as far as the actual dollars going
    in, the fund will be able to continue to revolve. Congress
    initially had supported a $2 billion revolving loan fund. It
    will certainly be at that, even if no more money is provided.
    Right now, it is revolving at closer to $4 billion.
        Senator Mikulski. Well, I am troubled about this. I am
    troubled by the whole Clean Water SRF and its lack of funds. I
    know our colleague, Senator Jeffords, is leading an effort to
    re-authorize this program. I am concerned about the formulas.
    And we do not want to get into an East Coast-Midwest-Western
    struggle. Under the current proposal, I lose out. What I do
    think, when they are--I just heard, ``Me, too.''
        So, you can understand. The appropriators are not going to
    lose out to the authorizers.
        Ms. Whitman. You never do.
        Senator Mikulski. No. We just will not but I think that
    this is the time where, really, you and your team have to
    really get in it with the efforts that are being made by the
    Environmental Public Works Committee. They are the authorizers.
    We respect them. We value them, but not necessarily their
    formula changes.
        But really, this is a great opportunity for us to create a
    21st century Clean Water State Revolving Loan Fund and to be
    serious about what we need to do and the amount that it is
    going to take, and then the best way to do it.
        We really would encourage your very strong hands-on
    involvement with the committee. You know it as a governor, you
    know it now as an Administrator; you--you were very active, of
    course, with the National Governors Association. I mean, you
    have kind of been there, too. And you know what it is like
    passing water weights along to those--like those older
    communities in New Jersey. And we could go to--we could go to
    Wisconsin, we could--you heard Senator Craig talk about
    arsenic. Anyway----
        Ms. Whitman. Senator, there is no question that there is a
    gap developing between the existing level of water and waste
    water infrastructure investment and the growing need. There is
    just no question about that. Just to reassure you that, while
    the planning assumptions of the President's budget do recognize
    a ramp-down, that is nothing new. It does not reflect any
    policy decisions.
        This is the way the formula was set up in the beginning,
    and it will not affect any of the decisions that we are making,
    but we do need to address what is a very serious growing gap.
    When I say I think water, both its quality and its quantity is
    the environmental challenge for the Twenty-first Century, I
    mean it. And this discussion is part of it. We do need an
    investment in water infrastructure, but we are going to have to
    work together. We need to work very closely with you to try to
    identify the best way.
        Senator Mikulski. Well, are you actively involved with the
    efforts of the Environmental Public Works Authorizing Committee
    on this topic, and their legislative initiatives?
        Ms. Whitman. Yes. Yes.

                 U.S. GEOLOGICAL SURVEY: CONTAMINENTS IN WATER

        Senator Mikulski. And so, we--we do need to be talking
    about it. My time has expired, and I want to go to Senator
    Bond, but one other question about water. I was very troubled
    to read about the U.S. Geological Survey recently identifying
    that there is a number of contaminants showing up in water,
    from birth-control pills to steroids to pesticides to--et
    cetera. As a result of the recent study, FDA said it was going
    to take a look at its effects on the environment.
        Where do you come in, with this startling report of the
    U.S. Geological Survey? Again, validating your belief and mine,
    that water is the big issue.
        Ms. Whitman. We're working very closely with all of the
    other Federal agencies that are addressing this issue, to get
    an understanding of what this means. This is reflective of
    something that we have seen coming and, I think, all of us have
    seen coming for some time. As science gets more sophisticated,
    it is able to identify more substances. It is not, at the same
    time, able to tell us exactly what the impact of those
    substances are on the human body or on the environment, in
    general. That is where we need to turn our attention, now that
    we are beginning to identify that, in fact, these things are
    appearing in water.
        We need to get a better understanding of what levels do
    they affect humans or at what levels do they affect the
    environment? We need a lot of scientific research here. We are
    putting our scientific focus on this. And we are working very
    closely with all those who are involved in it in the Federal
    Government.
        Senator Mikulski. Are you working with FDA----
        Ms. Whitman. Yes.
        Senator Mikulski [continuing]. And the Geological Survey?
        Ms. Whitman. Yes.
        Senator Mikulski. Well, again, I would like to come back to
    that, probably, even, maybe, at another hearing, because it
    is--the question is: Where--how did this get into the water?
    And now that it is in, what--what is the effect, but also, what
    is the synergistic effect? But that is a little bit more than
    for this appropriations hearing. But I really welcome your
    staff paying very close attention to this. And your own
    commitment to science, I think, will help us be able to get
    in--get into this and solve it.
        Senator Bond?

                               NEW SOURCE REVIEW

        Senator Bond. Thank you very much, Madam Chair. I am going
    to have to ask you a couple of quick questions, because we have
    got a long way to go and a short time to get there. And the
    Chair and I both have other hearings we are supposed to be in.
        Number one, I commend you on your emphasis on water. We
    look forward to working with you. I commend you for having the
    largest request in history for the SRFs. It is not enough. This
    committee criticized previous Administrations, because they
    provided even less. So, we look forward to working with you on
    that.
        New Source Review--this is going to be a real challenge to
    balance the environmental goals, the energy policy, without
    driving up costs. Give a quick thought on how you balance those
    two compelling needs.
        Ms. Whitman. Well, New Source Review is a part of the Clean
    Air Act that has been subject to a lot of attention and the
    subject of a lot of concerns particularly from the utility
    industry. Some of the concerns are the lack of clarity in some
    of the definitions, what was routine maintenance, repair and
    replacement; what triggered New Source Review. There is some
    compelling evidence that, in fact, initiatives that might have
    cleaned up some emissions from power plants were not
    undertaken, because of concern of triggering New Source Review,
    but it is always hard to prove the negatives. So, it is
    something that has been very contentious.
        The New Source Review reform was first undertaken by the
    previous Administration, back in 1996. We are looking very
    closely at what was proposed there. It was also a plea from the
    National Governors Association that we look at how we can
    reform New Source Review, in order to ensure that we protect
    the environment. We need to make it more efficient and more
    effective. And, we are looking at doing that.

             INSPECTOR GENERAL DRAFT REPORT: POLLUTION ENFORCEMENT

        Senator Bond. I will be looking forward to working with you
    in the EPW Committee, there, as well.
        In addition, EPA IG issued a draft report out, criticizing
    the EPA for failing to monitor and enforce pollution levels.
    Only 64 percent of the major sources apparently have obtained
    permits. The New England region and the States near and dear to
    us are at the bottom of the list.
        How does the EPA plan to address the problem?
        Ms. Whitman. We are continuing to focus on that. We have
    done a great deal, even since the draft report was issued, to
    address the failings that they found and the concerns that they
    raised, to ensure that we continue to enforce the laws. And we
    are enforcing the laws. As I said, last year, we had almost the
    best year ever as far as enforcement actions that were
    undertaken against those who had violated permits. We have
    required them to spend a great deal of money because we believe
    in polluter-pays to rectify the situation. And we will continue
    to enhance the enforcement efforts of the Agency.

                 WALL STREET JOURNAL ARTICLE: NON-PROFIT GRANTS

        Senator Bond. I mentioned, in my opening statement, the
    allegations in the Wall Street Journal editorial about EPA
    funds being used by not-for-profits.
        What steps has the EPA taken to ensure that--that this has
    not occurred? Have--have you done any preliminary
    investigations? What steps can you take to make sure these
    allegations do not, in fact, occur in the future?
        Ms. Whitman. The first and most important thing is we are
    going to move to a competitive basis for non-profit grants.
    That, I think, is a very important commitment. And that is the
    way we are going to move those non-profits grants to a
    competitive funding source.
        We are also going to ensure that we are focusing on the
    kind of compliance that is required of the grantees; those that
    get these awards. We are going to ensure that we are doing
    everything possible to have them submit to us, in a timely
    fashion, the kind of data that would ensure that what was
    alleged has not gone on or does not go on in the future. And we
    will look at what has been done.
        Senator Bond. We would like you to advise us when you find
    out what has happened or has not happened--
        Ms. Whitman. Certainly.
        Senator Bond [continuing]. We would like to know, because
    the--the allegations are very serious. If they are untrue, we
    need to put them to rest.
        Ms. Whitman. Yes.

                HOMESTAKE MINES IN SOUTH DAKOTA: INDEMNIFICATION

        Senator Bond. If they are true, then we also need to know
    about it.
        The final issue I am going to have time to ask about today,
    I would like just your quick response, Homestake Mine in South
    Dakota. We are very much concerned about that. This is a
    potential multi-billion dollar project. We are going to have to
    ask the NSF about it. There are environmental reviews required,
    but I have a specific question about indemnification.
        A January 29th Associated Press article said the Mining
    Committee was unhappy, because the legislation did not protect
    the company from litigation regarding environmental hazards.
    The article mentioned that some kind of side letter would be,
    essentially, developed as a memorandum of understanding to
    outline that the Department of Justice and EPA would implement
    indemnification measures.
        This is a very major project, with some very serious
    implications for funding, as well as remediation.
        Is there any truth to the report, or where does that
    process stand?
        Ms. Whitman. Right now, Region 8 is working very closely
    with South Dakota Department of Environment to address this
    issue. We intend to continue to work together and to try to
    work with the company to see if we cannot get resolution as
    quickly as possible. We are in the process of consultation and
    due diligence, and public participation to meet the
    requirements of the time tables and the legislation.
        Senator Bond. Well, if you would keep us involved, because
    this committee is in the middle of this thing. And this could
    be an extremely expensive effort. We need to know what your
    take is on it.
        Thank you, Madam Chair.
        Madam Administrator, always a pleasure.
        Senator Mikulski. Thank you, Senator Bond, for those
    insights and also calling to the attention the excellent work
    of the IG. In fact, perhaps, while you are here, would you,
    would Ms. Tinsley come up, please, for a minute?
        Ms. Tinsley. Yes, ma'am.

          WALL STREET JOURNAL ARTICLE: INSPECTOR GENERAL DRAFT REPORT

        Senator Mikulski. First of all, this committee really
    appreciates the role of the Inspector General. And though
    they--we sometimes do not extend our hearings, et cetera, and
    we are not going to ask the IG to testify, but we want to
    express the--really, the outstanding work that IGs perform in
    all of the agencies and bring them to our attention.
        And we are going to ask Ms. Tinsley to brief both of our
    staffs on, kind of, what you consider some of the flashing
    yellow lights in the Agency.
        But Senator Bond raised something, and then I am going to
    come back, in my round of questioning, to--to the issues over
    the Clear Skies Initiative. The--The Journal, on March 12th--
    and I ask unanimous consent that it go into the record--says
    that you concluded that efforts to monitor and enforce
    pollution levels have fallen behind, and asserts that EPA has
    not realized the benefits from Congress--that Congress intended
    in the 1990 Clean Air Act, and that it should give us pause,
    because of the tremendous backlogs, bureaucratic confusion, and
    so on.
        [The information follows:]

                 [From The Wall Street Journal, March 12, 2002]

       Report Says Many Major Polluters Operate Without Required Permits

        A third of the nation's major polluters operate without permits and
    monitoring systems that Congress had required by 1997 because of a
    chronic lack of resources and bureaucratic confusion in State agencies,
    according to a draft report by regulators.
        The report from the Environmental Protection Agency's inspector
    general's office concludes that efforts to monitor and enforce
    pollution levels have fallen behind, and asserts that the EPA has ``not
    realized'' benefits that Congress intended in 1990, when it made the
    last major changes to the Clean Air Act.
        The latest report is likely to give Congress pause as it considers
    deeper cuts in pollution levels being pressed by both Democrats and the
    Bush administration.
        In 1990, Congress required each major industrial polluter to obtain
    one permit that holds their emissions on regulated pollutants to
    specific levels and requires monitoring. The permit was to be issued by
    state agencies paid through fees charged to polluters based on
    emissions.
        The report states that by last July, only 63 percent of the 19,025
    major sources of industrial pollution in the U.S. had obtained permits,
    although the law imposed a deadline of 1997. The most delinquent
    region, according to the report, is New England, where on average only
    37 percent of the permits had been issued. Among states, the most
    delinquent region is New Jersey, where only 30 percent have been
    issued.
        Kyla Bennett, director of the Boston office of Public Employees for
    Environmental Responsibility, which had obtained a copy of the internal
    report, said the ``poor track record'' of industrial states ``should be
    setting off alarm bells.'' The largest polluters, such as power plants,
    are generally the ones lacking permits, according to PEER, which
    represents employees in some of the 112 State and local agencies that
    implement the program.
        EPA spokesman Joe Martyak acknowledged the program has had problems
    and blamed some of the delays on lawsuits by industries. ``We've given
    the message to our offices in various regions to focus on things that
    really matter and to get these permits in place and correctly in
    place.'' The final version of the report is expected to be released in
    April.
        Bradley Campbell, named last week as commissioner of New Jersey's
    Department of Environmental Protection, said, ``I share the concerns
    that are raised in the report.'' He has launched an investigation on
    the permit backlog and how to deal with it.
        The report noted that several states in the EPA sample lacked
    sufficient resources to run the program and that many states had
    difficulties getting EPA guidance on how the agency's regulations
    should be applied to a specific polluter.
        One big problem is a so-called new source review section of the
    Clean Air Act that applies to power plants and other complex
    facilities. John D. Walke, a lawyer who formerly oversaw the program
    for the EPA, said that industries often pressured State legislatures to
    ``low ball'' the fees charged to operate the program. Legislatures in
    states that had collected adequate fees sometimes shifted the money to
    other purposes. ``These were two of the dirty secrets we had to deal
    with,'' Mr. Walke said.

        Senator Mikulski. Again, this is not meant to be a debate
    or a confrontation. It is meant to--how do we get a cleaner
    environment?
        Could you share with us--essentially, is what was reported
    in The Journal your position? And could you then share with the
    committee your concerns, as the Inspector General, about the
    pollution control efforts that are hit by bureaucratic concerns
    and the lack of funds?
        And I think Senator Bond would like to hear this. And we
    work together on these kinds of issues. So----
        Ms. Tinsley. The comments in the Wall Street Journal were
    actually premature. The Wall Street Journal got a copy of a
    report that was a draft document. We have not issued that
    report, in final, yet. We hope to have it out by the end of
    March. We have a revised draft that the Office of Air and
    Radiation is looking at now.
        And so, I would really rather wait until we have a final
    report to give you to talk about that in detail, because the
    comment process is very important to us on draft documents.
        Senator Mikulski. No. I am not asking you to comment here.
        Ms. Tinsley. Right. And so----
        Senator Mikulski. No. We believe that you are supposed to
    find things, and then the agencies are supposed to tell you if
    they think you really did find them.
        Senator Mikulski. I mean, is that not right?
        Ms. Tinsley. Well, yes. I probably would not say it exactly
    that way, but, yes, we value the agencies' comments, because we
    want to make sure that what we do report is as accurate as
    possible.
        Senator Mikulski. Well, Ms. Tinsley, this is what The
    Journal reported prematurely still is of concern. We recognize
    the appropriateness that we discuss this after the final report
    is issued, which is in a matter of weeks--a matter of a week.
    And we really invite you, then, to come and brief our staffs
    and, perhaps, if appropriate, then--or necessary, to come back
    and discuss this with Senator Bond and myself.
        But before I turn back to Ms. Whitman, are there any other
    flashing yellow lights that you want to tell us about at EPA?
    And then--or did I catch you by surprise, here?
        Ms. Tinsley. Yes. Well, you caught me by surprise, but I am
    trying to be responsive. We have a lot of issues around the
    management challenges. And, in fact, the President's Management
    Score Card, that we are working closely with the Agency on. And
    these are important to help this Administration better manage
    Agency activities and make better decisions about how to spend
    the limited resources that it does have.
        Senator Mikulski. Well, why do we not take a look at the
    report? And I know--first of all, Administrator Whitman,
    everything I know about her and everything I believe about her
    is she really--really sound management and good management is
    really kind of one of her--in--in terms of being the way--one
    of her signature issues.
        So, we did not mean to catch you by surprise or--or
    whatever, but you never know what we are going to do here.
        Ms. Tinsley. No. No. That is fine. I am happy to speak to
    you about that.

                  CLEAR SKIES INITIATIVE AND NEW SOURCE REVIEW

        Senator Mikulski. Well, let us get that report, and then
    let us look at this report, because whether it is--whether it
    is the Clear Skies Initiatives or the New Source Review, again,
    if it is not working at the State level and so on, all we are
    doing is top-down rearrangement.
        [The information follows:]
        [Clerk's Note.--The Office of Inspector General Evaluation
    Report on Air EPA and State Progress In Issuing Title V
    Permits, can be found at the following website www.epa.gov/
    oigearth.]
        Senator Mikulski. So, let me say thank you. And I am going
    to turn, now, to Administrator Whitman.
        Senator Bond raised issues about the Clear Skies
    Initiative. And as you know, Administrator Whitman, they have
    become enormously controversial. There are ads about you by
    TomPayne.com and a variety of things.
        My questions goes, I think, to the core. How will replacing
    this mandatory review with a voluntary program, be better to
    protect the environment and public health, when the mandatory
    program, in and of itself, had so many problems? And why would
    volunteer be good? And is this not just a loophole for
    community--for polluters to squeeze-out, fade-out, loophole-
    out?
        Ms. Whitman. Well, Senator, I am glad you asked that
    question, because there is nothing voluntary about the Clear
    Skies proposal. It is mandatory. It proposes mandatory caps. It
    is based on what I think was a very prescient piece of
    legislation enacted by the Congress when they did their reforms
    to the Clean Air Act, which was the Acid Rain Trading Program,
    which has been enormously successful.
        The proposal, here, is to establish mandatory caps on three
    of the most onerous emissions from power plants:
    SO2, NOX, and mercury. Under the
    proposal, what we would do is set those standards up front, so
    that the utilities understand exactly what those standards are.
    Under the current Clean Air Act, we have at least five
    different regulatory proceedings that are either in place or
    about to be in place, but they come at different time frames,
    and they are subject to litigation.
        They are subject to a lot of back and forth. They do not
    result in the environmental benefits that we necessarily seek
    in the time frame that we want to seek it.
        What we are proposing is, to have Congress set out, now,
    standards for SO2 emissions, for emissions of
    NOX for emissions of mercury. The utilities will
    know what they are. We establish a cap and trade program. And
    as with the Acid Rain Program, we feel, and all our models
    show, this will be faster; we will get deeper cuts, deeper
    reductions.
        In fact, from our modeling, at the numbers that the
    President has proposed in the Clear Skies Program, we should
    get 25 million tons better reductions in sulfur dioxides over
    the next 10 years, than under the Clean Air Act; 10 million
    tons better reduction in nitrogen oxides over the next 10
    years, than under the current Clean Air Act; and 20 tons better
    reduction in mercury over the next 6 years, than under the
    current Clean Air Act.
        That is because you make it simpler. We are not proposing
    to roll back the Clean Air Act. We are not proposing to do away
    with New Source Review, until we know what those numbers are.
    But if the numbers are what the President proposed, we are
    actually getting, as I indicated, better reductions than under
    the current regulatory process, which is very complicated and
    convoluted, takes a long time, and costs a lot of money. Then
    New Source Review as it applies to utilities, would become
    redundant, and there would not be a need for it. But that is
    not something that we could do. That is something that Congress
    would have to consider, as they consider the legislation.
        The reform of New Source Review was first seriously
    undertaken by the previous Administration. And with the support
    of governors and State environmental commissioners, we are
    looking at again, subject to a lot of misinformation, shall we
    say--looking at finalizing, over the next few months some parts
    of those original proposals that were put out in 1996 and have
    been subject to the full comment period. Then moving it on to
    the White House.
        Along with that, we would make other recommendations for
    anything else that we thought would improve the program.
    Anything else would have to be subject to the regular rule-
    making process, which is at least a 3-year process.
        Clear Skies is totally separate from New Source Review;
    however, in our minds, as we look at the numbers, if the Clear
    Skies mandatory cap on these emissions is set in accordance
    with what the President recommended, then New Source Review
    becomes redundant and, in fact, could be a deterrent to moving
    forward and reaching these goals.

          CARBON DIOXIDE EMISSIONS: VOLUNTARY VS. MANDATORY REGULATION

        Senator Mikulski. Well, I want to just take a minute to
    talk about carbon dioxide. As you talked about the voluntary--
    that it is not a voluntary program; that it is a mandatory
    program.
        Ms. Whitman. Right. For those three emissions.
        Senator Mikulski. My--what staff has shared with me, as we
    looked at this, is that, yes, the carbon dioxide, though--the
    carbon dioxide pollutant is--would be a voluntary one, and the
    other three would stay--would be a mandatory effort. And my----
        Ms. Whitman. Clear skies it does not deal with carbon
    dioxide.
        Senator Mikulski. Tell me about carbon dioxide.
        Ms. Whitman. It does not deal with carbon dioxide. It talks
    about sulfur dioxide, nitrogen oxides, and mercury. Carbon
    dioxide is an issue that I know will be subject to a very broad
    and thorough and in-depth discussion. But these three emissions
    are the ones that have the most immediate impact on public
    health, on asthma, bronchitis, heart disease. They are the ones
    that contribute to smog. They are the ones that impact on our
    visibility at national parks. And we feel it is important to
    move forward with these three, but carbon dioxide is not part
    of the President's proposal.
        Senator Mikulski. Well, during President Bush's campaign,
    he said that carbon dioxide emissions should be regulated as a
    pollutant, and that--because the CO2 is a greenhouse
    gas, a great contributor to global warming, and spoke from
    there.
        You even spoke in support of the Kyoto Protocol, which
    would talk about the CO2. Now--and I am not trying
    to re-hash things. I know it was a very awkward time as the--
    last year, when the Administration--but what is the
    Administration's position on carbon dioxide? Does it want it
    regulated? And how does it want it regulated? And when does it
    want it regulated?
        Ms. Whitman. Well, Senator, first of all, let me just say
    that even as a governor, I was opposed to the Kyoto Protocol.
    The issue of carbon dioxide is something else, again. And as
    you know, last year, the President indicated, given the overall
    concerns he had about energy demands and energy self-
    sufficiency for this country, he did not feel it was
    appropriate, along with the additional science that he had
    received, to mandate a cap on carbon dioxide.
        He did propose, at the same time that he proposed Clear
    Skies, a separate program to address global climate change.
    What he has done for the first time is to set a target for the
    United States of an 18-percent reduction in intensity of
    greenhouse emissions over the next 10 years. It is with a
    proviso that if the science justifies, at the end of that time,
    to not just reduce the intensity, but to stop the production of
    greenhouse gases entirely, and then to reverse the trend. But
    that is if science justifies it.
        The proposal also calls for a program of technology
    transfer to bring in some of the developing countries by
    provide a structure, such that they could continue to grow
    their economies, but not committing the same kind of mistakes
    that we did when we went through the Industrial Revolution and
    all the harm that we caused to the environment. China is the
    second largest emitter of greenhouse gases and India in the top
    five.
        We have come too far in environmental technology not to be
    able to provide them with alternatives to some of the
    development that we see occurring now. The argument has been
    that you cannot involve the developing Nations, until their
    economies reach the same plateau or are equal with the
    developed Nations. The President--and I concur, believes that
    this just does not make any sense, because for the overall
    environment, that is very harmful.
        In this program, he has provided a baseline protection for
    any company that wants to take early action to start reducing
    their greenhouse gas emissions. He has called for the
    Environmental Protection Agency to work with the Department of
    Energy to enhance their reporting model, so that companies can
    come in and report their greenhouse gas emissions. We will have
    the appropriate base and know where we are coming from; and
    companies have some kind of protection, should there be a
    regulatory change in the future that would put a cap on carbon
    dioxide.
        The program also has a great deal of money focused on
    technology and science, because there is an understanding that
    while we recognize that global climate change is occurring, the
    science is not nearly as precise as to all that goes into that
    as you would like it to be.
        What is the role of black soot? If we are going to make
    these enormous investments in addressing global climate change,
    then let us make sure we are absolutely certain of where to
    make them. But the President said, at the same time, he does
    not believe that that means we should sit back and do nothing,
    which is why he set that carbon intensity target, which links
    our greenhouse gas emission to the economy and allows for
    economic growth at the same time that we are decoupling the
    same rate of greenhouse gas emissions.
        Senator Mikulski. Well, I think that as we move on,
    eventually, to our mark-up, this is--the--the Clear Skies
    issue, the carbon dioxide issue, will be a controversial issue.
    And, again, we, as appropriators, do not want to become the
    Conflict Resolution Committee, though----
        Ms. Whitman. That is a good role.
        Senator Mikulski [continuing]. You know, we are prepared to
    do it. It is a very good role and--and so on, but, first of
    all, you--you explained the Administration's position quite
    well. I think we do need further conversation on it, but my
    time is complete.
        And I would like to turn to Senator Leahy.

              NEW SOURCE REVIEW: AGENCY RELAXATION OF ENFORCEMENT

        Senator Leahy. Thank you, Madam Chair.
        Administrator Whitman, everybody is talking about
    terrorism. And sometimes we forget that you actually have one
    of the most difficult jobs in Washington, because it is so
    important to each and every American.
        The EPA's mission to safeguard our Nation's land and air,
    water, to protect the health of our children, our citizens--
    especially, our children--from environmental pollutants. And
    you have got to balance all of the major health and
    environmental issues we face today, and do it with increasingly
    limited resources.
        Now, I have appreciated the work the EPA--in my home State
    of Vermont, EPA has been instrumental in helping Vermont's
    citizens restore the health of Lake Champlain and the
    Connecticut River watersheds. You have worked with local
    communities. You made a commitment to cleaning up two Superfund
    sites, and including the Elizabeth Mine. Vermonters, over the
    years, thought of the EPA as one of our greatest protectors and
    best friends.
        So, with that as a backdrop, I have got to tell you, I do
    not know when I have been so disappointed in you or your
    Agency. I think of how vigorously the Administration has worked
    to undermine enforcement of the Clean Air Act, which was
    enacted with strong bipartisan support. My predecessor, Senator
    Bob Stafford, was actively involved in that.
        So, you have--careful balancing is required to protect
    public health, but now that balance has been unbalanced,
    because special interests have been permitted to put their
    thumb on the scales. And I am talking about the New Source
    Review regulations that the EPA is on the verge of announcing.
    And I know Senator Mikulski and others may have talked about
    this, but I look at months of meetings with the energy industry
    lobbyists, and the Administration came up with a wish list of
    items for power companies that we can--New Source Review, that
    is right at the top.
        From a cold financial perspective, I can see why power
    companies want a special interest provision that gives them
    immunity from a Federal law. They just simply look at dollars
    and cents. Of course they want that.
        The New Source Review requires the oldest and dirtiest
    power plants comply with clean air requirements, when they make
    upgrades of these facilities. It is a core provision that is
    supposed to gradually eliminate--but everybody knew there was a
    loophole in the Clean Air Act, but a loophole that was allowed,
    because it was going to be eliminated over time. A loophole
    that lets power plants emit thousands of tons of pollutants
    into our Nation's air and into our children's lungs and
    everybody else's.
        A lot of years, power companies ignored the requirement.
    Their oldest plants add controls. Your immediate predecessor,
    Administrator Browner, made it a priority to enforce, not
    undermine, the New Source Review regulations. She followed up
    on Agency investigations and found energy companies illegally
    exploiting a loophole in the Clean Air Act. She found those
    irresponsible power producers that chose to put the money back
    into the profits, rather than cleaning our air, and she said,
    ``Enough is enough.'' And she went to the Department of Justice
    in November of 1999. She filed lawsuits against the facilities
    with these egregious violations.
        And guess what happened? When the violators actually
    believed somebody was going to call them on it and actually
    bring them to court on it, they started lining up, and said,
    ``Okay. How do we settle all of this?''
        And the settlements, of course, meant cleaning the air of
    millions of tons of pollutants. It also meant billions of
    dollars in fines that would go into our--the coffers for--to
    help the taxpayers of this country.
        One settlement, alone, resulted in, I think, about $1
    billion in fines and reduced about 200,000 tons of pollutants.
    Another recent settlement had around $350 billion in fines and
    over 50,000 tons of pollutants.
        So, it is fulfilling EPA's mission to enforce the Clean Air
    Act, and it also said we are serious about it.
        Then the new Administration came to town. First major
    energy proposal by the Bush Administration was that the New
    Source Review enforcement should be undermined by
    administrative debt. And guess what? Two major companies who
    had previously announced agreements in principle to settle
    said, ``Oh, boy, new sheriff in town. We do not have to do it.
    We can back off.''
        Even though their settlements would have reduced pollution
    by over 750,000 tons and would have given $3 billion back to
    our Nation's taxpayers. They said, ``Heck. If we are not going
    to be enforced, you know, if it is going to be,' go ahead and
    pollute, we do not give a hoot,' that is a great symbol, and
    let us go for it.''
        And so, the pollution still goes on. The polluters do not
    pay for the crime.
        As a matter of public record, the energy companies wanted
    this relaxation of New Source Review. Many were already under
    the gun and knew that they were going to have to pay up and
    actually obey the law. But your Administration, suggest EPA,
    chose to listen to these people, actually act upon their
    request, and roll back the Clean Air Act, It just baffles me,
    because we had already proven--all you have to do is enforce
    it, and they will show up.
        A lot of us in the Northeast asked you about it. In
    January, the Department of Justice found that all current New
    Source Review cases were legally justified and the violators
    were right to be prosecuted. I mean, this is during Attorney
    General Ashcroft's Justice Department. But you continue to
    follow the requests of the energy industry.
        Two weeks ago, one of your experts of the Clean Air law
    resigned in dismay at the handling of the matter at your
    Agency. Monday, the Washington Post reports you are continuing
    to follow their requests.
        I have heard you say that the Administration's legislation
    to cut emissions from power plants, your Clear Skies Initiative
    is a replacement for the New Source Review. Well, that is not
    true at all. The New Source Review is specific to individual
    facilities. It is also mandatory.
        The Clear Skies Initiative is about voluntary lowering of
    emissions. It does nothing for the communities stuck next to a
    1950s coal-fired power plant.
        I will tell you, right now, anybody in the Justice
    Department--I see you shaking your head, but I disagree. The
    relaxation in New Source Review regulation would cover far more
    than 1,100 coal-fired power plants that are under your Clear
    Skies Initiative. New Source Review applies to more than 15,000
    industrial facilities or refineries--pulp, paper mills.
        Also, New Source Review is in the--in the law right now.
    Why not enact it right now? When I was a prosecutor, I believe
    if you had a law on the books, you enforce it. If the
    legislature or, in this case, the Congress wants to change the
    law, let them do it. But this idea of saying, ``We do not like
    that a lot. We do not want to protect the environment. We do
    not want to stop pollutants coming down into the waters and the
    streams of Vermont or anywhere else in the Northeast.''
        Heck, when you were governor of the great Garden State, you
    strongly supported the strongest clean air regulations,
    including enforcement under the New Source Review.
        I--the Administration is--if you tell people we are not
    going to enforce the law, none of these companies--I mean, they
    have already shown that when the law is being enforced, then
    they start--they pay the fines, they start cleaning up. You
    tell them the law is not going to be enforced, they say,
    ``Okay. Good-bye. See you.''
        It is like having a speed limit somewhere. You have got one
    where you have got the radar----
        Senator Mikulski. Excuse me, Senator. I have to get to
    another mark-up. Do you want to continue for an extended line
    of questioning and----
        Senator Leahy. If I could.
        Senator Mikulski. I would ask you, then, to close out the
    hearing.
        Senator Leahy. Certainly.
        Senator Mikulski. It is a mark-up on the pension bill. So,
    I did not mean to interrupt your train----
        Senator Leahy. I appreciate that.
        Senator Mikulski. I am going to, then, yield the gavel to
    Senator Leahy.
        Senator Leahy. I am only going to be a few more minutes,
    anyway, but thank you.
        Senator Mikulski. And--and then, Senator--and then,
    Administrator Whitman, we look forward to working with you.
        Senator Leahy. I would have been here earlier, but we had a
    closed meeting with the intelligence agencies on another mark-
    up. So, I had to be at that. Thank you.
        Senator Mikulski. Yes. And I have got to get to the
    pension----
        Senator Leahy. Thank you.
        Senator Mikulski. So, please, continue. And--and then I
    will ask you to, then, conclude the hearing.
        Senator Leahy. Yes. And--okay. I have--and that is also
    fair. Then I will give you time to respond. But, I tell you, in
    Vermont, we look at this--well, we take a bipartisan attitude
    toward the environment. And I hear it from just as many
    Republicans as I do Democrats, saying, ``What in heaven's name
    is going on at the EPA?''
        Ms. Whitman. Well, Senator, if all I did was read the
    papers, I would probably ask the same question. As a person in
    public life, and as I certainly found as a governor of the
    State of New Jersey, I learned to have a little bit of
    skepticism about everything I read in the paper. I, too,
    believe that our NSR cases are strong. We continue to urge
    companies to come to the table. In fact, one of the two
    settlements that you talked about was with, a New Jersey
    company, PSE&G, and was concluded just recently. It was part of
    the work that we have done. We have gone forward.
        We continue to enforce New Source Review. In fact, in the
    last year, we made approximately 87 information requests to
    power plants, refineries, and other facilities. We issued about
    22 notices of violation. We have concluded at least seven
    cases. We are still vigorous in our pursuit of New Source
    Review.
        Senator Leahy. Are you--are you going to prosecute
    violations of it? Are you going to----
        Ms. Whitman. We are going to continue to prosecute
    violations.
        Senator Leahy [continuing]. Prosecute as aggressively as
    the last Administration did?
        Ms. Whitman. Absolutely. We are going to continue to
    prosecute.
        What we are talking about in reform of New Source Review is
    what was proposed by the previous Administration back in 1996.
    We will make some proposals to the White House within the next
    couple of months that would be based on what was proposed by
    the Clinton Administration in 1996, subject to full public
    review.
        Any additional comments that we make, as far as how to
    streamline and make New Source Review more efficient and more
    effective, would be subject to the full public process, which
    is about a 3-year process.
        Senator Leahy. Do you have any companies that announced
    agreements in principle, who have now changed their mind?
        Ms. Whitman. We are in negotiations with a number of
    companies. And some are more active than others. We continue to
    have settlement agreements every week. But as you well know, as
    a former prosecutor, not all cases have a very smooth road to
    completion and that people go forward and they move back and
    they go forward and they move back. But we are continuing. We
    have negotiations going on for settlement every week.
        Senator Leahy. Well, did we talk about what is in the--did
    the energy companies want--did any energy companies want
    relaxation of New Source Review?
        Ms. Whitman. Oh, I am sure there are a number of them that
    would love it.
        Senator Leahy. Are there any that came to you or met with
    you and asked you to do that? You or your Agency?
        Ms. Whitman. There have been discussions of what is going
    on, but no, I have not been individually lobbied.
        Senator Leahy. No energy companies have come to the EPA and
    asked for relaxation of New Source Review?
        Ms. Whitman. No. They have asked us to look at changes and
    how we could make it more efficient. But they have not asked me
    to relax it. They have not asked me--I have not been personally
    lobbied by anyone asking me to change New Source Review.
        Senator Leahy. Are you aware--are you aware of----
        Ms. Whitman. They have certainly indicated their
    displeasure with it.
        Senator Leahy. Are you aware of anybody in the
    Administration who has been lobbied for--by any energy
    companies for relaxation of New Source Review?
        Ms. Whitman. I am not, personally. I would not be
    surprised, because, certainly, this has been something that has
    gone on for a long time. It is why the National Governors
    Association unanimously asked that the Agency look at
    streamlining New Source Review.
        Senator Leahy. But you are not aware of any energy
    companies--you are not aware.
        Ms. Whitman. Not personally. No, sir.
        Senator Leahy. Well, what do you mean, ``not personally''?
    I mean, you are either aware of it or you are not aware of it.
        Ms. Whitman. I do not know whether there have been
    meetings. I am not aware of them.
        Senator Leahy. I am not asking you about--you are not aware
    of it. Okay.
        Ms. Whitman. No.
        Senator Leahy. Would you be amazed to hear that some have
    come to the Administration to ask for that?
        Ms. Whitman. Would I be amazed if what? I am sorry.
        Senator Leahy. To hear that some have come to the
    Administration--some energy companies--asking for relaxation of
    New Source Review?
        Ms. Whitman. No. Not at all. And any meetings, by the way,
    Senator, that we have, will be part of the record.
        Senator Leahy. And no one in the Administration has asked
    you to.
        Ms. Whitman. I am sorry, Senator.
        Senator Leahy. No one in the Administration has asked you
    to relax New Source Review.
        Ms. Whitman. I have been asked, as you know, under the
    auspices of the energy policy, to conduct a review of New
    Source Review. I have had numerous meetings with energy
    companies, with environmentalists, with the States' Attorneys
    General, on the issue of New Source Review and on the issue of
    enforcement, but I have not been specifically requested by
    anyone to make any particular changes to New Source Review.
        Senator Leahy. No one has asked you to relax the issue of--
    on enforcement.
        Ms. Whitman. No. They may complain, but they do not ask.

                              ENFORCEMENT PROGRAM

        Senator Leahy. Years ago, we had a predecessor--yours--who
    took the enforcement department, and about every 6 weeks she
    would reorganize it, so nobody could ever get started on
    enforcement. I mention that only because some worry that--and
    just administratively, you can have a law on the books, but
    make sure it is not being enforced.
        It is something that we--I imagine many will--many will
    watch, because, frankly, I do not see this--well, let me ask
    you this: Is EPA's enforcement budget--your proposal, is it the
    same this year as last year? More or less? What?
        Ms. Whitman. The overall request for enforcement is higher
    than last year. And, Senator, if I might, if you look at last
    year's record, when ``this new boy in town,'' as you said, or
    the new gang in town was there, our----
        Senator Leahy. I did not say ``this new boy in town.''
        Ms. Whitman. Well, I am sorry. Whatever. The new--the new
    sheriff.
        Senator Leahy. I would not be that disrespectful. I would
    not be----
        Ms. Whitman. I think you said ``new sheriff in town.''
        Senator Leahy. I would not be--I would not call any
    President----
        Ms. Whitman. I--I apologize.
        Senator Leahy [continuing]. A boy.
        Ms. Whitman. New sheriff in town. But our enforcement
    program achieved outstanding results. It was almost a record-
    setting amount of penalties.
        Senator Leahy. And these are all----
        Ms. Whitman. Almost----
        Senator Leahy. These are all actions that your
    Administration began. None of them were left over from the
    past----
        Ms. Whitman. Oh, no. Some of them were left over, but we
    had to----
        Senator Leahy. Ah.
        Ms. Whitman. We had to finish enforcing them. If we were
    not interested in enforcing them, it is just as easy to walk
    away from an ongoing negotiation.
        Senator Leahy. No. It is not, actually. Actually, it is
    not, because if you had some----
        Ms. Whitman. Well----
        Senator Leahy [continuing]. Enforcement that was
    successfully going forward, the political cost would have been
    enormous to walk away from them.
        Ms. Whitman. Well, Senator, I would be very happy to give
    you a complete breakdown of all the cases that we have brought
    in this year; that we have brought----
        Senator Leahy. I would appreciate that.
        Ms. Whitman [continuing]. And all the actions that we
    concluded. And suffice it to say that maybe we would not have
    walked away from ongoing cases, but the fact that the penalties
    we got were almost record level and the time served by people
    we were able to convict, were almost record level, I believe,
    indicates a commitment to enforcement that belies some of what
    you have been reading in the press about a hidden agenda to
    walk away from what is important to this country.

                       ENFORCEMENT PROGRAM: FTE REDUCTION

        Senator Leahy. Well, and please supply that for the record,
    because I--I do not want to----
        Ms. Whitman. I would be happy to.
        [The information follows:]

              Clean Air Act/New Source Review Enforcement Activity

        EPA's enforcement activities under the Clean Air Act to address New
    Source Review (NSR) violations continue to be vigorous. Beginning with
    investigations, of which we have over 100 under way, and concluding
    with a filed case or settlement, EPA aims to reduce harmful air
    pollution caused by refineries, power plants and other industrial
    processes, such as paper mills.\1\
    ---------------------------------------------------------------------------
        \1\ These activities reflect EPA's approach to enforcement
    generally, which includes the following steps:
        Investigate possible violations by gathering information, e.g.,
    through information. requests, citizen complaints, inspections or other
    reports;
        Review collected information to determine compliance
        Issue ``Notices of Violation'' or other formal notification to the
    violator to alert them to the violations detected and give them an
    opportunity to correct those violations
        Enter into negotiations with the violator in an attempt to reach an
    agreed upon settlement to resolve the violations
        Proceed with formal enforcement by filing a case for litigation if
    no resolution of the violations could be achieved.
    ---------------------------------------------------------------------------
        Our current data shows that--between January 2001 and March 2002--
    EPA made 115 information requests; issued 23 Notices of Violation;
    filed and settled 15 cases, concluding 7 of them (i.e., they were
    entered by the appropriate court); and engaged in numerous other
    enforcement activities such as depositions, motion practice and on-
    going settlement discussions--all to enforce the Clean Air Act's NSR
    requirements.
        Since the start of NSR initiative in 1997, EPA has, through settled
    cases alone, reduced nitrogen oxides (NOX) and sulfur
    dioxide (SO2) emissions by approximately 329,000 tons per
    year; ordered nearly $3 billion in injunctive relief aimed to rectify
    the violations; required that nearly $43 million be spent on
    environmental mitigation projects; and ordered over $57 million in
    civil penalties to be paid.
        Further pollutant reductions and reparations are expected from
    cases in which we have a settlement agreement in principle: a reduction
    in nitrogen oxides (NOX) and sulfur dioxide (SO2)
    emissions by approximately 591,000 tons per year; $3 billion in
    injunctive relief; over $35 million in environmental mitigation
    projects; and almost $14 million in civil penalties.\2\
    ---------------------------------------------------------------------------
        \2\ Current data as of April 19, 2002.
    ---------------------------------------------------------------------------
        SO2 and NOX are significant contributors to
    acid rain and fine particulates. NOX also contributes to the
    formation of ground level ozone, which is a component of smog. Fine
    particulate matter

        Senator Leahy. I do not want you to, in any way, feel that
    you were not given a chance to answer these questions. And I
    will make sure they are part of the record. And--because, you
    know, I have a great deal of respect for you, personally. And I
    want to make sure that you have a full opportunity to answer.
        I am concerned that, as I read the EPA enforcement budget,
    I see it as a cut. The--when I have asked questions about this,
    I have been told that it was simply allocating more power to
    the States. But I find most States, especially small States, do
    not want that. They want you to do it, because they do not have
    the ability to. Is there a dichotomy that I am missing here?
        Ms. Whitman. There are two different things, here, Senator.
        Senator Leahy. Oh.
        Ms. Whitman. The fiscal year 2003 request for enforcement
    and compliance is, in fact, higher than last year's. It totals
    $482 million, which is the highest ever for the program. That
    is over $16 million higher than fiscal year 2001 and $7 million
    higher than last year's request.
        But what we are also showing as part of the overall effort
    as--one of the things that Congress requested of us a couple of
    years ago or last year was to continue to tighten our overhead.
    And so, what we are showing is a reduction of full-time
    equivalents of 100 or 113.
        We are also in a position where we have unfilled positions.
    We lapse about 120 positions a year. We anticipate hiring 100
    new people into the enforcement program in the coming year, to
    fill those that have left.
        Our program, essentially, will be pretty close to what it
    is--what it is now, in terms of bodies. About one-fifth of the
    overall personnel of the Agency resides in that office.
        And we believe, because of the success we had last year,
    that we are not going to see any kind of backing away from
    that. The $15 million program for the States is first of all,
    in recognition, that the States do 90 percent of the compliance
    and enforcement work. And we want to be able to enhance that;
    particularly at a time when States are facing tighter budgets.
        There are some States that have very sophisticated
    enforcement programs. But they may not be consistently
    sophisticated. They may--for instance, be very good at air
    monitoring and not water, and with some extra money, they would
    be able to bring it all up. They are on the ground. They know
    where the bad actors are. They know where to target the
    resources.
        And we believe that combined with the strong emphasis on
    enforcement at the Federal level, leveraging the States'
    abilities can only enhance enforcement, overall.

                     ENFORCEMENT: COMPETITIVE GRANT PROGRAM

        Senator Leahy. But this is not a case of putting unwanted
    enforcement on the--on the States. In other words, every State
    that will ask EPA for help in enforcing will still get the same
    help today that they would have a couple of years ago.
        Ms. Whitman. This would be a largely competitive program.
    Any State that would be interested in putting in a proposal to
    access these dollars, it would be done on a competitive basis.
        Senator Leahy. Enjoying the job?
        Ms. Whitman. It is a challenge.
        Senator Leahy. Do you miss being governor?
        Ms. Whitman. Oh, yes.
        Senator Leahy. The--well, you have an interesting job. I am
    curious. With all your knowledge of the politics in New Jersey,
    did Mr. Ray talk to you about running for the Senate prior to
    leaving his office?
        Ms. Whitman. He did not talk to me about running--his
    personal running. He talked about whether or not the Senate
    race--well, no. Actually, I take it back. What he did was say
    he might have an interest in it, but he did not ask for my
    support or get into any particulars as to how you would run a
    Senate race.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Leahy. Well, that is not a matter for this thing
    anyway. I was just curious.
        Thank you very much.
        Ms. Whitman. Thank you, Senator.
        Senator Leahy. And we will leave the record open for
    further questions.
        Ms. Whitman. Certainly.
        [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 Barbara A. Mikulski

               enforcement of environmental laws: budget proposal
        Question. Once again, EPA's budget proposes a fundamental shift in
    policy. It shifts enforcement resources from the Federal to State
    governments. How does the budget proposal differ from last year's
    request?
        Answer. Last year when the President's fiscal year 2002 Budget
    proposed a $25 million enforcement grant program, EPA worked
    extensively with States and Tribes to solicit and consider their
    comments and suggestions. The design for the proposed $15 million
    program in the President's fiscal year 2003 Budget will build on the
    comments and suggestions received previously to create a program that
    is effective and responsive to State priorities.
        In terms of a shift in resources, it should be noted that the
    President's request for the enforcement office at EPA represents the
    highest funding level in that office's history. The proposed State
    grant program will help ensure that states have the resources they need
    to be effective partners with EPA in enforcing our environmental laws.
      enforcement of environmental laws: budget cuts affect on enforcing
                               environmental laws
        Question. The budget cuts $10 million from enforcement, and 100
    environmental ``cops on the beat.'' How will this affect EPA's ability
    to carry out its responsibilities to enforce environmental laws?
        Answer. As noted, the President's request for EPA's enforcement
    office represents the highest funding level in that office's history.
    The fiscal year 2003 budget provides EPA's enforcement and compliance
    assurance program sufficient resources to carry out the appropriate
    Federal role, focusing on Federal cases involving multi-state or multi-
    facility corporations, environmental programs which cannot be delegated
    to states due to statutory prohibition, or issues for which EPA can
    provide specialized expertise. The shift of some resources to the
    states tracks what has happened on a national level. ECOS has
    documented a substantial increase in programs delegated to the states
    over the last decade.''
    enforcement of environmental laws: consequences of budget reduction on
                         catching prosecuting polluters
        Question. What are the consequences of this reduction? How many
    fewer polluters will be caught and prosecuted?
        Answer. We expect performance results in the national Enforcement
    and Compliance Assurance program to remain the same, with states
    picking up an additional increment of that work. EPA and the states
    have different, but complementary roles when it comes to enforcement of
    our Nation's environmental laws. States have primary responsibility for
    implementing and enforcing most environmental programs through
    delegated authority from the EPA. In addition to ensuring a presence in
    the regulated universe, and identifying violations that need to be
    corrected, the EPA's Federal role is to implement and enforce programs
    that cannot be delegated to states, to handle more complex cases
    involving multiple states or corporations with multiple facilities, to
    deal with issues that require expertise or resources that only EPA can
    provide, and to enforce when states are unable or unwilling to. Given
    the interplay between the State and Federal programs, we believe the
    State and tribal enforcement grant program will enhance both State and
    EPA efforts to increase compliance with environmental laws.
     enforcement of environmental laws: new state grant enforcement program
        Question. The budget requests $15 million for a new State
    enforcement grant program. How does EPA plan to award the new State
    grants?
        Answer. Though details of the proposed enforcement grant program
    have not been finalized we anticipate that funds will be awarded
    through a combination of one or more of the following mechanisms:
    competitive grants available to states and tribes, base-share grants
    available to states, and a competitive set-aside available only to
    tribes. Options for allocating grant funds identified during the
    outreach process are outlined below.
        Options for Allocating Funds to States and Tribes (One or a
    combination of options may be used)
      --Competitive Awards: funds will be awarded based on the merits of
            the proposal; not all states and tribes would receive funds.
      --Base Share Grants: each State receives a minimum amount, plus
            additional funds are available through the competitive award
            process.
      --Tribal Set-Aside: Recognizing that Tribal environmental programs
            may not compete well with states, it may be necessary to set
            aside a portion of the funds for Tribal grants.
    enforcement of environmental laws: special or new authority legislation
        Question. Does EPA need special authority or new authorizing
    legislation to create a new State enforcement grant program?
        Answer. While we believe we have existing authority, we are
    proposing an expansion of that authority to accommodate the multimedia
    context in which the grants will be administered. Accordingly,
    authorizing language in the appropriations bill that funds the program
    would facilitate the administration of the grants.
      enforcement of environmental laws: gao report on state enforcement
                                   weaknesses
        Question. GAO has reported weaknesses in State enforcement
    programs. Will states with good enforcement records be given
    preference? Or will the grants go to states with poor records?
        Answer. Based on comments received, and draft guidance prepared for
    the grant program proposed in the President's 2002 budget, we
    anticipate that the grant program will have base-share and competitive
    components. Competitive grants will be awarded to those states whose
    proposals address significant environmental problems, and have the
    greatest potential for achieving measurable environmental results.
    Base-share grants will be available to all states that submit an
    acceptable proposal that implements a problem-based strategy or program
    improvement.
     enforcement of environmental laws: work with states with poor records
        Question. How will EPA work with states that have poor records?
        Answer. With respect to the proposed grant program, we expect that
    most of the base-share grants would be used by states to bolster
    existing programs, or address specific state program deficiencies.
    Implementation of competitive grant proposals will also help to improve
    State program performance.
        In general, EPA helps to improve the capacity of states, local, and
    tribal government compliance and enforcement programs through the
    delivery of training and other capacity building activities. In fiscal
    year 2001 EPA delivered 128 training courses, reaching over 4,700
    students; and conducted approximately 900 EPA assisted inspections to
    help build capacity of State, local, and tribal governments. EPA
    provides environmental management, planning, funding, and regulatory
    information to local governments through the Local Government
    Environmental Assistance Network (LGEAN). Additionally, when requested,
    EPA assists states with specific enforcement and compliance
    initiatives.
       enforcement of environmental laws: monitoring states' use of funds
        Question. How will EPA monitor states' use of these funds?
        Answer. States will be approved for grant funding only if their
    grant proposal includes specific plans to measure and report on their
    performance in achieving results. For example, states will need to
    define performance measures for determining whether they are having an
    impact on the environmental risk or noncompliance pattern they are
    addressing with the grant funds. EPA will establish required reporting
    intervals for states to provide performance information that can be
    reviewed by EPA on a regular basis.
    enforcement of environmental laws: states' use of funds for enforcement
                         activities vs other activities
        Question. Will EPA require that these funds be used solely for
    enforcement activities, or will states be able to use the grants for
    other activities?
        Answer. States and tribes will be required to use grant funds for
    enforcement and compliance assurance activities. We anticipate states
    will use the funds for general enforcement capacity building or to
    implement problem-based strategies to address a specific risk or non-
    compliance pattern.
                  water infrastructure: infrastructure funding
        Question. The budget cuts $138 million from the Clean Water SRF and
    $340 million in targeted water projects. What are the consequences of
    this cut? How many water projects won't be funded as a result of these
    cuts? How many jobs won't be created?
        Answer. For fiscal year 2003 the President has requested
    $1,212,000,000 for the Clean Water State Revolving Fund (CWSRF), the
    largest request since fiscal year 1997. At the $1,212,000,000 funding
    level, and without further capitalization, the CWSRF would revolve at
    an average of $2.22 billion annually between 2010 and 2035. The CWSRF
    long-term revolving level, which includes loan repayments, is the
    projected average annual amount of funds available to states for clean
    water infrastructure. Because the CWSRF has been well-capitalized over
    the years, changes in the appropriated level do not significantly
    affect the revolving level.
               water infrastructure: watery security improvement
        Question. Water utilities are facing enormous burdens in meeting
    water regulations and upgrading aging infrastructure. Now, they're also
    facing needs to improve security. What is EPA doing to help wastewater
    and drinking water utilities improve security
      --of their physical infrastructure?
      --of the chemicals they use?
        Answer. EPA is working with other Federal agencies, states, tribes
    and utilities to improve water security with the goal of ``making the
    most systems safest soonest.'' To achieve this goal, the Agency and its
    partners are working to: (1) accelerate the development and testing of
    counter terrorism tools, such as vulnerability assessment methods; (2)
    train utilities in the development of vulnerability assessments and
    emergency operations plans; (3) provide needed technical and financial
    assistance to utilities conducting vulnerability assessments and other
    security-related work; (4) identify research needs and conduct research
    on topics such as detection technologies, potential contaminants, and
    treatment effectiveness for water collection and treatment systems; and
    (5) test new technologies and disseminate information on their
    application.
        EPA currently is reviewing grant applications to conduct
    vulnerability assessments at the approximately 400 largest drinking
    water systems nationwide, and plans to award $53 million for these
    assessments by the end of July 2002. EPA also is working with its
    partners to support assessments at the Nation's small and medium-sized
    drinking water systems. Vulnerability assessments are designed not only
    to identify weaknesses in the physical infrastructure of water systems,
    but also in the protocols for safeguarding the chemicals used in water
    treatment processes. In subsequent years, EPA will revise the training
    and tools it provides to utilities based on (1) the new monitoring and
    detection technologies under development, and (2) new approaches to
    continuously improve water security as a result of utilities'
    experience conducting vulnerability assessments.
        water infrastructure: methods for detecting security violations
        Question. What is EPA doing to help water systems develop methods
    for detecting security violations like contaminants in the drinking
    water?
        Answer. Through $2 million of the fiscal year 2002 Supplemental
    Appropriation, and $500,000 in fiscal year 2002 earmarked funds, the
    Agency currently is supporting the development of water security-
    related detection, monitoring and treatment tools. There are several
    initiatives underway or in the planning phase for fiscal year 2002.
    Specifically, EPA is:
        Supporting research by the University of North Carolina at
    Greensboro to research real-time detection methods for pathogens.
        Co-sponsoring a detection technologies conference at Rutgers
    University in June. This was a forum where water utilities, regulatory
    agencies and scientific researchers could discuss needs and solutions
    to issues in water safety and security related to real-time monitoring
    and modeling.
        Developing a water security technology verification and outreach
    program to verify the performance of innovative technical solutions to
    intentional contamination that threatens human health or the
    environment. This program is designed to accelerate the entrance of new
    environmental technologies into the domestic and international
    marketplace.
        homeland security: status of funding for homeland security and
                             activities undertaken
        Question. Congress provided $176 million in the 2002 Supplemental
    for EPA Homeland Security efforts. What is the status of this funding?
    What specific activities has EPA undertaken?
        Answer. Of the $176 million EPA received the Emergency
    Supplemental, $12.5 million was for partial reimbursement for the
    Capitol Hill anthrax cleanup. An additional $5.5 million was allocated
    to establish a western branch of the Environmental Response Team in Las
    Vegas, NV improving our ability to provide timely technical expertise
    to emergency situations nationwide. $23 million has been primarily
    allocated to our ten regional emergency response centers, to provide
    response staff, equipment and contract support, with the goal of
    developing sustained response capability throughout the country. EPA
    also received $1.5 million and 2 FTE as part of the fiscal year 2002
    Emergency Supplemental for Homeland Security research. EPA has used
    these resources to: (1) evaluate the performance of drinking water
    treatment systems for their ability to cost-effectively remove inactive
    biological and chemical agents; (2) work with State and Federal
    agencies to coordinate research efforts and (3) prepare for the
    implementation of the proposed Homeland Security research in 2003.
        EPA's Office of Administration and Resources Management (OARM) is
    responsible for leading and managing physical security efforts at EPA's
    facilities nationwide. Under the President's Supplemental Counter
    Terrorism Budget, OARM is being appropriated $30 million for physical
    security improvements, including vulnerability risk assessments, guard
    services, equipment, communications systems, and window enhancements.
    OARM has obligated 6 percent of the $30 million as of May 20, 2002.
    These funds were used for conducting vulnerability risk assessments at
    EPA facilities nationwide, procuring additional security guard services
    nationwide, purchasing and installing a smart card system at EPA's
    Region 2 Office in New York City, and purchasing and installing an
    integrated emergency communications system at EPA's Federal Triangle
    Complex in Washington, DC.
        The Acute Exposure Guideline Levels (AEGL) Program was established
    to develop short-term exposure limits applicable to the general
    population for a wide range of extremely hazardous substances for
    purposes of chemical emergency response, planning, and prevention
    related to chemical terrorism and chemical accidents. EPA would use
    Supplemental Homeland Security funding to accelerate the development of
    guidelines in 2002 and beyond.
        EPA's Office of Pollution Prevention and Toxics (OPPT) is
    participating in national and international efforts to develop one
    standardized set of scientifically sound short-term exposure values.
    EPA also planning to use Supplemental Homeland Security funding to
    initiate work in concert with the International Chemical Weapons
    Convention (CWC) to identify and fill analytical gaps in the assessment
    of potential risks of chemicals potentially used in the manufacture of
    chemical weapons. EPA would offer Structure Activity Relationship
    expertise to assist in expanding the information available on CWC-
    listed chemicals to include chronic toxicity and ecotoxity aspects,
    would expand its work in the Green Chemistry program to include CWC-
    listed chemicals in tools (e.g., expert systems), and broaden the Green
    Chemistry Challenge program to identify alternatives to CWC-listed
    chemicals.
        $89 million in supplemental appropriations was provided for water
    infrastructure protection. It has been allocated as follows.
        $53 million for water security planning grants for the largest
    drinking water utilities that regularly serve populations over 100,000.
    Collectively, these large systems provide drinking water to nearly half
    of Americans served by public water systems. Over 380 applications from
    publicly owned drinking water utilities were received. EPA plans to
    approve all eligible grants by the end of July.
        $23 million to address the needs of small and medium-size
    utilities. EPA is working with the industry, environmental groups, and
    the states to define the best approach for providing these utility
    systems with awareness training, technical assistance, vulnerability
    assessment tools, and capacity building.
        $5 million in grants to support State, tribal, and territorial
    counter-terrorism coordination (from State/Territorial Assistance
    Grants). EPA Regions are now working with states to award these funds.
        $2 million for investigation of security-related detection,
    monitoring and treatment tools.
        $3 million for wastewater tool development, training on
    vulnerability assessments and emergency operations, technical
    assistance, and investigation of treatment and detection tools.
        Nearly $2 million for additional needs, including training of
    public health officials, local government, law enforcement, and support
    for the information sharing and analysis center.
          homeland security: progress for improving homeland security
        Question. What progress has been made in improving homeland
    security with this spending?
        Answer. The Environmental Response Team (ERT) is EPA's premier
    technical support group for emergency response operations;
    historically, the team has been based in Edison, NJ, with a small annex
    in Cincinnati. We are nearing the completion of establishing a western
    ERT branch in Las Vegas, NV, which will improve EPA's coverage of the
    western half of the country, as well as build staff capacity in
    specific technical areas, such as bio-hazard assessment and
    remediation.
        One of the lessons we learned from the 9/11 events and the anthrax
    incidents was that our response capacity was dangerously low; we were
    forced to draw on resources from all ten of our regional emergency
    response programs and curtail other time-critical response work. The
    fiscal year 2002 supplemental budget provides each region with an
    additional five response personnel and approximately $1.6 million in
    funds for equipment and contract support, increasing our overall
    response capacity by 20 percent.
        The resources received in fiscal year 2002 for Homeland Security
    research also helped EPA to prepare for the efficient use of the $75
    million requested in fiscal year 2003 for Homeland Security research.
    This preparation will allow for quicker and more effective development
    and certification of new methods as well as techniques for detecting,
    treating, disposing, and understanding how best to manage buildings
    contaminated with biological or chemical agents.
        Office of Administration and Resources Management (OARM) is in the
    process of conducting vulnerability risk assessments at EPA's 146
    facilities nationwide. These assessments will provide EPA with the
    current physical security conditions at its facilities, including
    identifying and documenting vulnerabilities and risks, assessing human
    threat, and determining the overall qualitative risks as it relates to
    perimeter security, entrance and exit security, interior security, and
    security planning. Based on the findings from the assessments, OARM
    will develop recommendations and cost estimates to mitigate the risks,
    and implement mitigation and countermeasure efforts, where appropriate.
        OARM is using a phased approach in conducting these assessments,
    where our more critical facilities are assessed first and the less
    critical facilities are assessed last. To date, we have completed site
    visits at 50 facilities and laboratories nationwide, and completed 25
    reports of findings. We are currently in the process of ranking and
    prioritizing the risks associated with our most critical facilities,
    and expect to make funding decisions in June 2002. This funding will be
    used to purchase additional guard services, equipment, and
    communications systems. OARM plans to continue this process until we
    complete the assessments and mitigate the vulnerabilities at all our
    facilities nationwide.
        EPA's Water Protection Task Force and Regional Offices, working
    with many partnering organizations, are taking actions to improve the
    security of the nation's drinking water and wastewater infrastructure.
    The actions underway:
        To date, the Task Force has:
      --Supported development of vulnerability assessment tools (developed
            by Sandia/AWWA, and AMSA) and released emergency operations
            planning guidance;
      --Trained thousands of water utility personnel on security planning
            and vulnerability assessment methodologies;
      --Completed an assessment of the State of knowledge on technologies
            to detect contaminants, monitoring protocols and techniques,
            and treatment effectiveness.
        On-going actions include:
      --Providing technical assistance, training, and capacity building
            tailored to the needs of small and medium drinking water, and
            wastewater utilities;
      --Supporting information sharing between government organizations and
            industry by funding start-up of a secure Information Sharing
            and Analysis Center;
      --Supporting research to improve treatment and detection methods.
     homeland security: development of outcome-based measures and specific
                                 spending plans
        Question. Has EPA developed outcome-based measures and specific
    plans to assure that this spending will improve the security of our
    homeland?
        Answer. Prior to the events of last fall, EPA had undertaken a
    comprehensive review of the agency's Emergency Response Program,
    developing standards and measures to ensure a high degree of
    consistency and responsiveness in regional response operations.
    Subsequent to the terrorist responses, we took the lessons learned from
    those actions and integrated them into the overall response program
    framework. This effort will be reflected in the Agency's GPRA measures
    for the fiscal year 2003 enacted budget, as well as the fiscal year
    2004 President's Budget.
        EPA has also developed goals and measures to support all aspects of
    the draft Agency Homeland Security Strategy to help ensure efficient
    and effective spending.
        EPA's goal for water infrastructure security is to get the most
    systems as secure as possible as soon as possible. EPA works closely
    with utility organizations, the states, and security experts to
    identify the most effective approaches and tools needed to improve the
    security of the nation's critical water infrastructure.
        EPA has developed a new Annual Performance Goal in its fiscal year
    2003 President's Budget request to track development of Acute Exposure
    Guideline levels (AEGL) for additional chemicals. The measures are
    quantitative, so they will clearly identify the additional numbers of
    chemicals and guidelines developed each year. Additionally, EPA is
    continuing to review the program activities and has identified areas
    for improvement, including development of health and safety plans for
    select agent, developing occupational and medical monitoring plans,
    addressing containment issues, securing laboratory space and
    identifying and tracking samples.
                               homeland security
        Question. How does EPA plan to spend the additional $124 million
    requested in fiscal year 2003?
        Answer. EPA Superfund plans to continue to improve the emergency
    response program by insuring that the additional capacity and technical
    capability that were first funded in fiscal year 2002 will be
    maintained in fiscal year 2003 and beyond(including both the ERT-West
    operation and regional and HQ response program improvements).
        EPA requested $75 million for Homeland Security research. Work will
    focus on five main areas: detection of contaminants, containment of
    contaminants, decontamination of indoor materials, disposal of
    contaminated clean-up equipment and supplies, and risk communication
    including the transfer of improved methods to users. Before initiating
    efforts in any of these areas EPA will survey the private sector and
    other agencies and organizations to assess existing capabilities and
    where possible work to bring that technology, information or process to
    those who need it. Where others have already established a lead in a
    given area, EPA can defer to that organization. In other cases, a
    collaborative working relationship may be best suited. A leadership
    role may also be appropriate for EPA.
        EPA has requested $22 million in fiscal year 2003 for critical
    water infrastructure protection. $17 million of the request will
    support continued work to: develop tools and training for small and
    medium drinking water utilities to complete vulnerability assessments;
    develop and enhance emergency response plans, and; develop and
    disseminate detection, monitoring and treatment technologies. $5
    million of the request will be directed to states to support state-
    level coordination of homeland security activities with EPA and
    drinking water utilities.
              homeland security: anthrax decontamination spending
        Question. How much did EPA spend on this effort? Did this funding
    come from the Superfund program?
        Answer. EPA has expended over $28 million for Capitol Hill response
    out of its Superfund removal program.
        In general, the USPS, other government agencies and privately owned
    facilities, such as the America Media, Inc. site in Florida, are
    funding their own cleanups. EPA is providing technical assistance from
    our On-Scene Coordinators, our Environmental Response Team, and other
    personnel. EPA estimates that it has spent approximately $2 million for
    anthrax cleanup and technical assistance at sites other than the
    Capitol Hill Complex.
        Estimated costs for OPPT in fiscal year 2002 are approximately
    $900,000. These funds were not provided from the Superfund program,
    they are being paid by the pesticides program.
         homeland security: anthrax decontamination full reimbursement
        Question. How much more does EPA need in order to be fully
    reimbursed?
        Answer. EPA has expended over $28 million for Capitol Hill response
    out of its Superfund removal program. The fiscal year 2002 Supplemental
    Appropriations bill reimbursed EPA for $12.5 million of that. The
    Administration has requested an additional $12.5 million in
    reimbursement.
    homeland security: lessons learned from the anthrax decontamination at
                               the hart building
        Question. What ``lessons learned'' can EPA provide about the
    anthrax decontamination at the Hart building?
        Answer. We verified that our basic response infrastructure and
    authorities are sound, and that our regional response programs are up
    to the task of mitigating new and unique threats to public health. We
    also learned that we need to enhance and develop our short term
    assessment and mitigation methods.
     homeland security: progress made assuring clarity of roles and safety
        Question. What progress has EPA made in assuring clarity in: Who is
    in charge?
        Answer. We believe the basic roles and responsibilities defined by
    the Federal Response Plan, the National Contingency Plan and PDDs 39
    and 62 are clear and do not need further amendment. However, the
    execution of these authorities may be compromised by inconsistent
    application in different situations; we have discussed this with the
    Office of Homeland Security and are hopeful that clarifying guidance
    will be forthcoming.
        The National Response Team has established an ad hoc committee,
    which includes EPA, CDC, OSHA, USCG and other agencies, to consolidate
    and coordinate civilian and military expertise on detecting and
    cleaning up anthrax contamination. This committee is close to
    completing an interim final technical assistance document that begins
    to address this issue for anthrax. Lessons learned by this group will
    be applied to broader efforts to address risk-based decision making in
    other scenarios involving chemical or biological terrorism. We believe
    the continuing dialogs and related improvements in cross-agency
    coordination in this area will improve our ability to make definitive
    cleanup decisions in the future.
        Question. How clean is safe?
        Answer. The risk-based response protocols established by the
    Superfund program provide a solid foundation for making site-specific
    cleanup decisions, but these decisions must be informed by improved
    government-wide understanding of the nature of biological risks. We
    believe the continuing dialogs involving EPA, CDC and other agencies
    will improve our ability to make definitive cleanup decisions in the
    future.
                     pharmaceutical pollution of waterways
        Question. A recent study by the USGS found trace pharmaceuticals in
    80 percent of streams analyzed. What is EPA's role in looking at the
    possible effects of drug wastes on the environment? Is EPA looking at
    how these contaminants affect drinking water?
        Answer. EPA has statutory responsibilities under the Clean Water
    Act and the Safe Drinking Water Act to evaluate the environmental and
    human health risks of pollutants, including pharmaceuticals and
    personal care products (PPCPs) , and to determine whether ambient water
    quality criteria or drinking water standards are needed. In response to
    this mandate, EPA is focusing on collecting and evaluating occurrence
    data in water sources to assess potential ecological and human health
    risks. Based upon the risk assessments, EPA will develop intra- and
    inter-agency research strategies for future research. EPA has been
    exploring the effect of chlorination (which is commonly used to treat
    both waste water and drinking water) on selected pharmaceuticals to
    determine if the process is effective at removing the compounds from
    the water, as well as what by-products are formed. This data was
    presented at the Society of Environmental Toxicology and Chemistry
    (SETAC) annual meeting in November 2000, and is currently being
    summarized for publication in fiscal year 2002. In addition, EPA has
    previously funded several PPCP-related research projects, including
    aquatic effects studies through the Sceince to Acheive Results (STAR)
    program. Information on these projects is available at: http://
    www.epa.gov/nerlesd1/chemistry/pharma/star.htm The EPA also hosts the
    world's only web site devoted to environmental issues associated with
    PPCPs (http://www.epa.gov/nerlesd1/chemistry/pharma/index.htm.
        Question. As a result of the recent study, FDA said it would take a
    closer look at the effects on the environment. Is EPA working with FDA
    on this issue?
        Answer. EPA and FDA staff interactions have resulted from joint
    participation in organizing a scientific session devoted to PPCPs (the
    2000 American College of Toxicology Annual Meeting) and from FDA review
    of EPA PPCP-related presentation materials. EPA plans to engage FDA in
    the development of an inter-agency research strategy to establish risk-
    based research priorities and opportunities for inter-agency
    collaborations.
        Question. The U.S. Geological Survey is also looking at how these
    contaminants might affect drinking water. Is EPA working with USGS?
        Answer. EPA has collaborated and co-authored published papers with
    USGS on a Neuse River Basin, North Carolina, field study to develop
    better measurement methods and to collect occurrence data for
    antibiotic and endocrine disrupting compounds near animal feeding
    operations. EPA is currently collaborating with USGS on a project using
    pharmaceuticals, as well as other chemicals found in human waste
    streams (e.g, detergents, surfactants), as tracers of human fecal
    contamination. As part of this work, samples will be taken upstream, at
    the point of discharge, and at two points downstream of waste water
    discharges. This data should provide information about the lifetime of
    pharmaceuticals in the environment (i.e, are they found one mile
    downstream from the discharge point, or are they removed/reduced due to
    effects such as photo- or bio-degradation, sedimentation, and
    dilution), which will be useful for exposure assessment. The EPA and
    USGS staff have also been collaborating by exchanging information,
    reviewing each other's documents, and collaborating on research. EPA-
    USGS collaborated on the research project: ``Analytical Chemistry for
    Mapping Trends of Pharmaceutical and Personal Care Product Pollution
    from Personal Use: Some Current Research and Future Needs.''
        Question. Is EPA developing technologies for ways to remove these
    contaminants from drinking water?
        Answer. EPA is evaluating the removal of steroid hormone compounds
    by various drinking water treatment processes. In the future, a group
    of nonylphenolic compounds and additional pharmaceuticals will also be
    added. Analytical methods to identify and quantify the steroid hormones
    will be developed, and a reporter gene assay, the MVLN assay, will
    evaluate the removal of estrogenic activity from the water samples.
    Once the analytical and MVLN assays are in place, bench, pilot, and
    field-scale evaluations of various drinking water treatment processes
    will be conducted. Of special interest are technologies amenable to
    small systems. To reduce the need for treatment, EPA also is
    considering ways to minimize the occurrence of PPCPs in drinking water
    sources, such as encouraging safer disposal of discarded
    pharmaceuticals.
        Question. Is there any funding in the budget related to these
    efforts?
        Answer. In the fiscal year 2003 President's Budget, EPA requested
    approximately $1.2 million and 11 FTE for PPCP research. This includes
    work focusing on collecting and evaluating occurrence data in water
    sources to assess potential ecological and human health risks,
    developing intra- and inter-agency research strategies to determine
    risk-based priorities for future research, the effects of chlorination
    on selected pharmaceuticals to determine if the process is effective at
    removing the compounds from the water as well as evaluating the removal
    of steroid hormone compounds by various drinking water treatment
    processes.
      environmental education: rationale for elimination of approximately
                     $10m from k-12 environmental education
        Question. The budget proposes to eliminate approximately $10
    million for K-12 environmental education. What is the rationale for
    this cut?
        Answer. The President's fiscal year 2003 budget transfers the
    Agency's Environmental Education Grant program to the National Science
    Foundation's (NSF) math and science program. The functions of the EPA's
    grant program will continue at NSF.
        Consolidation of the EPA's Environmental Education program with
    those of NSF will combine similar programs, improve the services
    delivered to environmental institutions, and reduce costs. The function
    of Environmental Education is better served by one agency and NSF is
    fully capable of administering the requirements of S. 876.
              star fellowship: rationale for shift from epa to nsf
        Question. The budget proposes to shift the STAR fellowship program
    from EPA to NSF. What is the rationale for this shift?
        Answer. The President's Budget proposes to strengthen math and
    science education in the United States by improving the quality of math
    and science education in grades K-12 and by attracting the most
    promising U. S. students into graduate level science and engineering by
    providing more competitive stipends. The President's K-12 math and
    science initiative and the higher graduate stipends are being funded
    through the National Science Foundation's (NSF) budget. NSF is noted
    for its expertise and success in funding competitive programs in math
    and science. Funding for EPA's STAR Fellowship Program was shifted to
    NSF in fiscal year 2003 as part of the Federal initiative to strengthen
    math and science programs.
        EPA will continue funding its Minority Academic Institutions (MAI)
    Fellowships program at $1.5 million in 2003. The Minority Academic
    Institution (MAI) fellowship program offers undergraduate and graduate
    fellowships in academic disciplines relating to environmental research,
    and are intended to help defray costs associated with environmentally-
    oriented study leading to the bachelor's, master's or doctoral degree.
    Undergraduate fellows agree to participate for up to 12 weeks at an EPA
    laboratory/center as a summer intern. Eligible students in both the
    undergraduate and graduate programs must attend a 4-year U.S. Minority
    Academic Institution, defined as Historically Black Colleges or
    Universities (HBCUs), Hispanic Serving Institutions (HSIs), and Tribal
    Colleges (TCs).
           star fellowship: graduate students completing fellowships?
        Question. How would this affect graduate students who are
    completing their fellowships? Will their funding be canceled?
        Answer. No, the STAR fellows funding will not be canceled. EPA
    presently supports about 200 STAR fellows. The terms of those
    agreements provide funding for the next 1 or 2 years. EPA plans to
    fully fund the present fellows for the intended duration of their
    fellowships. EPA will use fiscal year 2002 resources to fund students
    presently in the STAR fellowship program through the completion of
    their fellowships.
                       star fellowship: the star program?
        Question. How does EPA propose to spend 2002 funding provided for
    the STAR fellowship program?
        Answer. EPA will use fiscal year 2002 resources to fund students
    presently in the STAR fellowship program for the duration of their
    fellowships.
                           star fellowship: citation
        Question. Please provide the citation within the NSF budget where
    this program is proposed to be funded in 2003.
        Answer. Resources for the STAR Fellowship Program, previously
    funded by EPA, were redirected to the National Science Foundation
    (NSF), though the program itself was not transferred. No funding exists
    within the NSF Budget for the STAR Fellowship program. Funding to
    graduate students pursuing studies in some of the environmental
    sciences supported by EPA is available through existing well-
    established graduate research fellowship and traineeship programs in
    NSF. These programs are discussed on pages 285-286 of NSF's fiscal year
    2003 Budget Justification to Congress.
                                star fellowship
        Question. If NSF takes over this program, would it remain as a
    separate program focusing on the environmental sciences, or would it be
    folded into NSF's other science education programs?
        Answer. As mentioned above, EPA's STAR Fellowship Program was not
    transferred to NSF. However, NSF does provide financial assistance to
    graduate students across the nation studying scientific disciplines
    through existing well-established graduate research fellowship and
    traineeship programs. Graduate students pursuing degrees in a subset of
    the environmental sciences who previously sought EPA's financial
    assistance may apply to these NSF programs.
       brownfields: questions raised concerning effective use of funding
        Question. Recent reports by the House Energy and Commerce Committee
    (Nov. 2000) as well as GAO (Dec. 2000) and the EPA Inspector General
    (Sept. 2000) all raised serious questions about whether past funding
    for the program had been effectively used. Specifically, few cleanup
    loans had been made, and EPA could not demonstrate what tangible
    results had been achieved with the funding that had been provided. Have
    these past problems been corrected? If so, how?
        Answer. EPA has responded to the recommendations in numerous ways.
    EPA has clarified certain critical requirements and streamlined them.
    Currently 143 Brownfields Cleanup Revolving Loan Funds Pilots (BCRLF)
    have been selected. In addition, EPA has deobligated eleven BCRLF where
    progress has not been made by the recipient in making loans. Recent
    improvements to the BCRLF program include the development of model
    documents and a marketing guide.
        In the past year, the number of loans being made by BCRLF pilots
    has more than doubled to 17 loans with an additional three expected
    within the next quarter and more under discussion with EPA regions. We
    attribute the lag in community participation in this program to a
    number of factors, including lack of familiarity with the program
    requirements and the limited competitiveness of Federal funds that
    require recipients to comply with all Superfund requirements. Improved
    outreach on the part of the EPA Brownfields program, increased
    understanding of this program, and the increasing competitiveness of
    these funds has increased the rate of loans being made in the last
    year. We anticipate that communities will continue to find the BCRLF
    funds attractive when combined with other public and private resources.
        Most importantly however, the new legislation signed by President
    Bush on January 11, 2002, the Small Business Liability and Brownfields
    Revitalization Act, provided significant relief to the program from its
    current regulatory burdens. The new Act provides that the EPA may
    determine which specific provisions of the Superfund National
    Contingency Plan are applicable to the brownfields program and thus use
    only provisions which are needed in implementing the program. EPA's
    Legislative Implementation work group is developing a transition
    guidance to outline the requirements of the new law. This will assist
    grant recipients in determining whether to choose to take advantage of
    the new statutory provisions. We anticipate that many grant recipients
    will take advantage of the new statutory provisions and a substantial
    increase in loans and/or cleanup subgrants will result from the
    transition.
             brownfields: increase in funding for fiscal year 2003
        Question. How will the large increase in funding for fiscal year
    2003 be used effectively?
        Answer. Increased funding will be focused upon several significant
    areas. These areas include increasing the number of grants, and
    supplemental funding for existing grantees for assessment and
    brownfields cleanup revolving loan funds. New grant categories are also
    created by the legislation including direct and indirect grants for
    cleanup and funding for assessment and cleanup of petroleum-
    contaminated properties. In addition, funding to the fully authorized
    ceiling has been requested for State and tribal response programs.
        roles and responsibilities of epa's regional offices: workforce
                            analysis and projections
        Question. Different regions do their jobs in different ways, in
    terms of the levels of effort they apply to enforcement actions,
    technical compliance assistance, community outreach efforts, and so
    forth. OMB has asked all agencies, including EPA, to provide workforce
    statistics now and as they would see their workforces changing over the
    next 5 years. What is the status of EPA's workforce analysis for OMB,
    and what do the workforce projections show?
        Answer. The Agency submitted the Workforce Analysis to OMB on June
    29, 2001 in response to OMB Bulletin 01-07. Projections included in
    that report show a changing workforce in age and other demographics. By
    2005, 25.6 percent of the workforce will be eligible for voluntary,
    FERS 10-year, or Law Enforcement Officer retirement.
        roles and responsibilities of epa's regional offices: analysis
                performed to determine size of regional offices
        Question. Has EPA performed an analysis to determine the
    appropriate size of the regional offices? If not, will such an analysis
    be done?
        Answer. The Agency has not completed an analysis to determine the
    appropriate size of regional offices, and does not plan such a specific
    study. However, EPA is undertaking an Agency study to determine the
    competencies necessary to meet mission needs in the future which may in
    turn have organizational impacts. The resultant workforce planning
    system from this study is to be available for EPA line manager's use
    second quarter of fiscal year 2004.
             roles and responsibilities of epa's regional offices:
        Question. Has or will the issue of different regional approaches to
    carrying out EPA's responsibilities be addressed?
        Answer. The Agency has not completed an analysis of various
    regional approaches. The Agency will, however, continue to examine how
    to best perform EPA's responsibilities.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

        compliance assistance: list of rules for developing compliance
                                assistance tools
        Question. List the rules currently considered economically
    significant for the purposes of developing compliance assistance tools?
    Provide the rule finalization date and the status of any tools
    development for rules finalized or to be finalized by December 2002.
        Answer. EPA develops compliance assistance tools for rules that
    have an economic impact of $100 million or more on companies and/or
    government facilities or other rules, as appropriate. EPA also develops
    compliance tools for rules that have a significant economic impact on a
    substantial number of small entities as defined under the Small
    Business Regulatory Enforcement Fairness Act.
        The potential universe of regulations for which compliance guides
    may be developed is continually changing based on changes to specific
    provisions of a regulation and subsequent economic analysis. Also,
    changes in rule finalization dates alter the compliance tool schedule.
    Extensions in developing compliance tools are allowed because of
    factors such as resource constraints, providing for greater stakeholder
    involvement, or demands of other work.
        For the purposes of this response, Attachment A contains
    information, as of May 22, 2002, on the three economically significant
    rules finalized or expected to be finalized by December 2002.

                     COMPLIANCE ASSISTANCE--LIST OF RULES FOR DEVELOPING COMPLIANCE ASSISTANCE TOOLS
    ----------------------------------------------------------------------------------------------------------------
                                                                        Projected/Actual
                  Regulation                Projected/Actual Final      Compliance Tool        Estimated Compliance
                                               Publication Date         Completion Date             Tool Cost
    ----------------------------------------------------------------------------------------------------------------
    Office of Air and Radiation:
        Emissions from Nonroad Spark-      September 2002.........  December 2002..........  Uncertain \1\
         Ignition Engines and Standards
         for Recreational Spark Engines
         (Contact: A. Stout, 734-214-
         4805).
    Office of Prevention, Pesticides and
     Toxic Substances:
        Groundwater and Pesticides         September 2002 \2\.....  December 2002..........  Not Applicable. See
         Management and Plan Rule                                                             Note 2
         (Contact: A. Williams, 703-305-
         5239).
    Office of Water:
        National Primary Drinking Water    January 2001...........  June 2002..............  $52,000
         Regulations: Arsenic and
         Clarifications to Compliance and
         New Source Containment
         Monitoring (Contact: A.
         Bielanski, 202-564-3824).
    ----------------------------------------------------------------------------------------------------------------
    \1\ EPA will work with the regulated community to develop the appropriate compliance assistance tool. EPA
      expects to use in-house resources to complete the tool.
    \2\ The Projected Final Publication date is delayed until the end of fiscal year 2002. The delay is allowing EPA
      to explore potential modifications to the proposed final regulation to address issues raised by the regulated
      community and co-regulators.

         compliance assistance: estimate of cost to develop compliance
                                assistance tools
        Question. Provide an estimate of the cost of developing compliance
    assistance tools for each economically significant rule finalized or to
    be finalized in 2002?
        Answer. The costs associated with developing compliance assistance
    tools for economically significant rules vary significantly. Cost
    variations are based on the type of technical issues associated with
    the substantive requirements of a rule, the degree of experience that
    the regulated community has in dealing with environmental rules, and
    the diversity of the regulated community (e.g., need for bilingual
    assistance materials). In addition, cost variations arise because of
    the multiple ways in which information exchanges occur with the
    regulated community, including face-to-face training and delivery of
    information via computer-based technology. Cost variations are also
    associated with whether EPA develops a compliance guide within the
    agency or uses contractor assistance to develop the guide. Attachment A
    contains information on the cost associated with each completed
    compliance guide for economically significant rules or estimated costs
    for upcoming compliance guides.

                     COMPLIANCE ASSISTANCE--ESTIMATE OF COST TO DEVELOP COMPLIANCE ASSISTANCE TOOLS
    ----------------------------------------------------------------------------------------------------------------
                                                                        Projected/Actual
                  Regulation                Projected/Actual Final      Compliance Tool        Estimated Compliance
                                               Publication Date         Completion Date             Tool Cost
    ----------------------------------------------------------------------------------------------------------------
    Office of Air and Radiation:
        Emissions from Nonroad Spark-      September 2002.........  December 2002..........  Uncertain \1\
         Ignition Engines and Standards
         for Recreational Spark Engines
         (Contact: A. Stout, 734-214-
         4805).
    Office of Prevention, Pesticides and
     Toxic Substances:
        Groundwater and Pesticides         September 2002.........  December 2002..........  Not Applicable. See
         Management and Plan Rule                                                             Note 2
         (Contact: A. Williams, 703-305-
         5239).
    Office of Water:
        National Primary Drinking Water    January 2001...........  June 2002..............  $52,000
         Regulations: Arsenic and
         Clarifications to Compliance and
         New Source Containment
         Monitoring (Contact: A.
         Bielanski, 202-564-3824).
    ----------------------------------------------------------------------------------------------------------------
    \1\ EPA will work with the regulated community to develop the appropriate compliance assistance tool. EPA
      expects to use in-house resources to complete the tool.
    \2\ The Projected Final Publication date is delayed until the end of fiscal year 2002. The delay is allowing EPA
      to explore potential modifications to the proposed final regulation to address issues raised by the regulated
      community and co-regulators.

     compliance assistance: ranking of top ten compliance assistance needs
        Question. Provide a ranking of the top 10 compliance assistance
    needs and identify the criteria used for the ranking such as risk of
    environmental damage or susceptibility of the problem to compliance
    assistance techniques.
        Answer. EPA integrates compliance assistance as appropriate when
    addressing national enforcement and compliance assurance priorities,
    newly promulgated regulations, and special needs of specific industry
    sectors. OECA has also developed guidelines for staff to use in
    reviewing the regulatory agenda to determine whether new or upcoming
    rules would be good candidates for compliance assistance. Attachment A
    contains these guidelines for determining rules which are good
    candidates for compliance assistance.
        National priorities are environmental risks or noncompliance
    patterns that can often be addressed using compliance assistance in
    combination with compliance incentives, inspections and investigations,
    and enforcement actions. Decisions about whether to use assistance to
    address specific national priorities are based on the nature and
    complexity of the regulatory requirement, the compliance history of the
    industry sector(s) to which the requirement applies, the capacity of
    the sector to receive and utilize assistance, and whether assistance
    can be effective (by itself or in combination with other tools) in
    increasing compliance or reducing risks associated with a specific
    priority.
        Compliance assistance needs are also identified through
    consultation with industry sectors about the compliance challenges
    confronting these sectors. This consultation can result in development
    of tailored compliance guides and creation of sector-based online
    compliance assistance centers.
          guidelines for screening new rules for compliance assistance
    Screening Guidance
        As you are reviewing the list of Tier I, Tier II and Tier III
    proposed rules, consider the following factors in determining whether
    the proposed regulations are good candidates for compliance assistance.
    Compliance Assistance Required
        Is the rule an ``economically significant rule?'' (impact of 100M
    or more on regulated community. See RFA (Regulatory Flexibility Act)/
    SBREFA tracking report in RAPIDS (Rule and policy Information
    Development System) or the Rule Tiering Forms.)
      --Compliance guide, fact sheet or expert system required by Aiming
            for Excellence Report
        Is the rule a ``SBREFA rule?'' (rule has a significant impact on
    substantial number of small entities. See RFA/SBREFA tracking report in
    RAPIDS or Rule Tiering Forms)
      --Compliance guide required under Small Business Regulatory
            Enforcement Fairness Act (SBREFA))
    Possible Candidate for Compliance Assistance
        Does the rule impact a sector with a large number of small
    businesses who may lack the resources/ability to obtain compliance
    assistance on their own? (See RAPIDS for list of rules that impact
    small businesses but don't meet SBREFA threshold or check SBA guidance
    on definition of small business)
      --May be candidate for compliance assistance
        Does the proposed rule impact a larger number of entities with
    varying degrees of prior regulatory experience and access to compliance
    assistance resources?
      --May be candidate for compliance assistance
        Does the proposed rule embody new or novel concepts to which
    existing compliance assistance concepts or activities are inappropriate
    or ineffective?
      --May be candidate for compliance assistance
        Is the regulated community willing and able to assist EPA in
    developing compliance assistance tools?
      --May be candidate for compliance assistance
        Is the sector(s) impacted by the proposed rule on the ``emerging
    sector'' list?
      --May be a candidate for compliance assistance
        Does the rule address an Agency initiative, priority in the
    Strategic Plan or OECA or program office MOA priority?
      --May be a candidate for compliance assistance
    Less Likely Candidate for Compliance Assistance
        Is the proposed rule concise and easily understood by the regulated
    community? Does it mirror existing, familiar regulatory approaches that
    apply to the same regulated community?
      --Compliance assistance may not be needed
        Does the proposed rule impact a small number of regulated entities
    that are reasonably expected to be familiar with the regulatory
    environment and/or have access to existing compliance assistance
    resources?
      --Compliance assistance may not be needed
        Does a large proportion of the industry sector(s) affected by the
    rule belong to a trade association?
      --Compliance assistance may not be needed
                      compliance assistance: activity plan
        Question. Describe how does the Compliance Assistance Activity Plan
    direct EPA actions and resources to meet these priority needs?
        Answer. The Compliance Assistance Activity Plan is helpful in
    guiding EPA toward the best opportunities for using compliance
    assistance. The Plan reflects EPA's continuing efforts to better
    identify the priority needs for compliance assistance, improve the
    process for obtaining stakeholder input, engage in dialogue on how best
    to meet the identified needs, and provide guidance on how to direct
    resources to the highest priority needs.
      compliance assistance: analysis of new regulatory requirements and
                compliance assistance tools in fiscal year 2003
        Question. In fiscal year 2003, how will EPA comprehensively analyze
    its upcoming new regulatory requirements and determine the compliance
    assistance tools most likely to help bring about compliance with those
    requirements?
        Answer. EPA will continue to utilize the mechanisms developed in
    prior years for determining needed compliance assistance tools to
    address upcoming regulatory requirements. One mechanism EPA uses for
    continuing the compliance assistance needs discussions with its
    partners is the National Compliance Assistance Forum. Discussions and
    information provided at the Forum have been used to identify compliance
    assistance needs and provide input on EPA's National Compliance
    Assistance Activity Clearinghouse (Clearinghouse) and the Annual
    Compliance Assistance Activity Plan. Another vehicle for assessing
    compliance assistance needs comes from EPA's work with the Compliance
    Assistance Advisory Committee (CAAC) which is a component of the
    National Advisory Council for Environmental Policy and Technology
    (NACEPT). These efforts not only support the development of compliance
    assistance tools, but they also provide a forum to assess the
    effectiveness of EPA's compliance assistance efforts. Through all of
    these activities EPA is comprehensively analyzing forthcoming
    regulatory requirements to identify which are best suited to compliance
    assistance.
        Based on discussions with stakeholders, EPA has also decided to
    identify, through the rule development process, rules that have an
    ``economically significant'' impact on the regulated community, defined
    as $100 million or more, and EPA may develop compliance guides for
    those rules as appropriate. Similarly, as mandated by the Small
    Business Regulatory Enforcement Fairness Act (SBREFA), based on the
    regulatory flexibility analysis conducted early in the rule development
    process, EPA develops plain English compliance assistance guides for
    all SBREFA rules. OECA has also developed guidelines for staff to use
    in reviewing the Regulatory Agenda to assess whether regulations would
    be good candidates for compliance assistance. Attachment A contains
    these guidelines for identifying compliance assistance candidates.
          guidelines for screening new rules for compliance assistance
    Screening Guidance
        As you are reviewing the list of Tier I, Tier II and Tier III
    proposed rules, consider the following factors in determining whether
    the proposed regulations are good candidates for compliance assistance.
    Compliance Assistance Required
        Is the rule an ``economically significant rule?'' (impact of 100M
    or more on regulated community. See RFA (Regulatory Flexibility Act)/
    SBREFA tracking report in RAPIDS (Rule and policy Information
    Development System) or the Rule Tiering Forms.)
      --Compliance guide, fact sheet or expert system required by Aiming
            for Excellence Report
        Is the rule a ``SBREFA rule?'' (rule has a significant impact on
    substantial number of small entities. See RFA/SBREFA tracking report in
    RAPIDS or Rule Tiering Forms)
      --Compliance guide required under Small Business Regulatory
            Enforcement Fairness Act (SBREFA))
    Possible Candidate for Compliance Assistance
        Does the rule impact a sector with a large number of small
    businesses who may lack the resources/ability to obtain compliance
    assistance on their own? (See RAPIDS for list of rules that impact
    small businesses but don't meet SBREFA threshold or check SBA guidance
    on definition of small business)
      --May be candidate for compliance assistance
        Does the proposed rule impact a larger number of entities with
    varying degrees of prior regulatory experience and access to compliance
    assistance resources?
      --May be candidate for compliance assistance
        Does the proposed rule embody new or novel concepts to which
    existing compliance assistance concepts or activities are inappropriate
    or ineffective?
      --May be candidate for compliance assistance
        Is the regulated community willing and able to assist EPA in
    developing compliance assistance tools?
      --May be candidate for compliance assistance
        Is the sector(s) impacted by the proposed rule on the ``emerging
    sector'' list?
      --May be a candidate for compliance assistance
        Does the rule address an Agency initiative, priority in the
    Strategic Plan or OECA or program office MOA priority?
      --May be a candidate for compliance assistance
    Less Likely Candidate for Compliance Assistance
        Is the proposed rule concise and easily understood by the regulated
    community? Does it mirror existing, familiar regulatory approaches that
    apply to the same regulated community?
      --Compliance assistance may not be needed
        Does the proposed rule impact a small number of regulated entities
    that are reasonably expected to be familiar with the regulatory
    environment and/or have access to existing compliance assistance
    resources?
      --Compliance assistance may not be needed
        Does a large proportion of the industry sector(s) affected by the
    rule belong to a trade association?
      --Compliance assistance may not be needed
     compliance assistance: analysis of prospective enforcement activities
                              in fiscal year 2003
        Question. In fiscal year 2003, how will EPA analyze its prospective
    enforcement activities to determine where compliance assistance might
    fill the gaps where the enforcement program does not currently reach?
        Answer. EPA will continue to use a problem-solving approach that
    applies integrated strategies tailored to address specific
    environmental risks and noncompliance patterns. For some of these
    problems a period of assistance designed to increase compliance is the
    best approach. For other problems, assistance combined with incentives
    for self-policing works best. In other instances, bringing enforcement
    actions can be used as a tool with compliance assistance. Assistance
    will be used with inspections, incentive policies, and enforcement
    actions in combinations appropriate to the problem.
        compliance assistance: documenting and measuring environmental
                                  improvements
        Question. How is EPA documenting and measuring environmental
    improvements from compliance assistance activities? Provide the results
    of these efforts.
        Answer. EPA is advancing management of environmental improvements
    from its compliance assistance activities through tracking of outcomes
    from specific compliance assistance initiatives, surveys of compliance
    assistance recipients, and by providing grants to states for
    measurement of assistance outcomes. Beginning in fiscal year 2003, all
    regional offices are being required to report on the outcomes of
    compliance assistance projects. These results will be compiled in a
    national database and analyzed to learn more about the results of
    assistance. The database will capture outcome measures in three broad
    areas: (1) understanding of regulatory requirements; (2) changes within
    the regulatory community to improve environmental performance; and, (3)
    direct reduction of emissions/discharges.
        In 2001, the Compliance Assistance Centers conducted a survey of
    their users. Ninety percent of the regulated survey respondents
    reported the Centers helped them understand applicable environmental
    requirements. Survey respondents indicate that Center information is
    well used. In fact, 73 percent of the regulated entity respondents took
    one or more actions as a result of Center use. Actions ranged from
    contacting a regulatory agency, changing a process or practice, to
    conducting a self audit. Additionally, 69 percent of the survey
    respondents indicated a cost savings from actions taken as a result of
    using a Center. Furthermore, 85 percent of respondents indicated an
    environmental improvement from actions taken as a result of using a
    Center. In addition to the survey results, annual usage of the Centers
    by the target audience has increased three fold since 1998.
        To encourage State programs to measure compliance assistance
    outcomes EPA has awarded approximately $2.3 million in grants to states
    in the last 2 years. A limited amount of funds are available in fiscal
    year 2002 for this purpose.
    compliance assistance: status of total resources devoted to compliance
                                   assistance
        Question. What is the status of EPA's efforts to determine total
    resources devoted across the agency to compliance assistance
    activities?
        Answer. EPA has completed its efforts to determine total resources
    devoted across the agency to compliance assistance programs. A
    Compliance Assistance key program was created to track planned
    resources and FTE for this activity across the Agency.
       compliance assistance: compliance assistance analysis in analytic
               blueprint for new regulations in fiscal year 2003
        Question. In fiscal year 2003, how will EPA ensure that the
    analytic blueprint for each new regulation includes a compliance
    assistance analysis?
        Answer. Pursuant to the Small Business Regulatory Enforcement
    Fairness Act (SBREFA), EPA has committed to develop compliance guides
    for Federal regulations that have a ``significant economic impact on a
    substantial number of small entities.'' The Agency also develops either
    a compliance guide or a self-audit checklist for Federal regulations
    with an ``economically significant'' impact of $100 million or more on
    companies and/or government facilities. As of April 5, 2002, there are
    seven rules for which EPA expects to develop a guide or checklist in
    calendar year 2002.
        Further, Agency guidance requires program offices responsible for
    ``Tier 1 and Tier 2'' regulatory actions (i.e., those that require
    participation of the Administrator's office and those that need cross-
    media or Assistant Administrator-level involvement) to develop an
    ``analytic blueprint'' as an initial step in the regulatory development
    process. An analytic blueprint is a plan for development of the rule.
    It identifies the significant issues in the rule and discusses the
    methodologies that will be used to resolve them. This includes the
    economic, scientific, technical and intergovernmental information that
    will be developed; the analyses that are required by law and Executive
    Order; and, the significant policy issues, including implementation
    issues, that need to be addressed.
        An Agency-wide Task Force on the EPA Regulatory Development Process
    has reaffirmed the importance of preparing an analytic blueprint. EPA
    is updating its internal guidance on the preparation of an analytic
    blueprint, a process which is scheduled to be completed this year. The
    revised guidance will address implementation issues such as whether the
    proposed rule will likely require the preparation of a compliance guide
    or whether other types of compliance assistance tools should be
    developed.
        The analytic blueprint is prepared by the lead Program Office for
    the rule. As a result of the Task Force recommendations, EPA's Office
    of Enforcement and Compliance Assurance (OECA) now has the opportunity
    to review blueprints for, among other things, the analysis of
    compliance assistance opportunities.
    compliance assistance: resources for implementation and performance and
                                  assessments
        Question. In fiscal year 2003, how will EPA ensure that each
    rulemaking working group performs an assessment of the compliance
    assistance needs associated with the various regulatory options,
    including an assessment of the resources needed for implementation?
        Answer. EPA examines the need for compliance assistance through
    several different mechanisms throughout the rule development process.
    The Small Business Regulatory Enforcement Fairness Act (SBREFA)
    requires EPA to develop compliance guides for Federal regulations that
    have a ``significant economic impact on a substantial number of small
    entities.'' The Agency also has decided to prepare either a compliance
    guide or a self-audit checklist for Federal regulations with an
    ``economically significant'' impact of $100M or more on companies and/
    or government facilities. The Agency's ``1999 Revised Interim Guidance
    for EPA Rulewriters: Regulatory Flexibility Act as Amended by the Small
    Business Regulatory Enforcement Fairness Act,'' directs regulatory
    workgroups to begin developing compliance assistance guides as early in
    the process as there is enough information to do so, with a goal to
    publish the guides within 2 months of promulgation of the rules. This
    helps ensure timely consideration of resources necessary to implement
    the guide. The guidance further states that ``[i]t remains EPA policy
    that program offices should assess the direct impact of every rule on
    small entities and minimize any adverse impact to the extent feasible,
    regardless of the magnitude of the impact or number of small entities
    affected.''
        In addition, the recent Agency-wide Task Force report on the EPA
    Regulatory Development Process mandates that EPA improve consideration
    of implementation issues, including the provision of compliance guides,
    throughout the regulatory development process. This report reaffirms
    the importance of preparing an analytic blueprint for ``Tier 1 and Tier
    2'' regulatory actions (i.e., those that require participation of the
    Administrator's office and those that need cross-media or Assistant
    Administrator-level involvement). An analytic blueprint is a plan for
    development of the rule. It identifies the significant issues in the
    rule and discusses the methodologies that will be used to resolve them.
    This includes the economic, scientific, technical and intergovernmental
    information that will be developed; the analyses that are required by
    law and Executive Order; and, the significant policy issues, including
    implementation issues, that need to be addressed. Revised Agency
    guidance on the analytic blueprint is scheduled for completion this
    year. The revised guidance will address implementation issues such as
    whether the proposed rule will likely require the preparation of a
    compliance guide or whether other types of compliance assistance tools
    should be developed and the resources necessary to provide that
    assistance.
           compliance assistance: targeting compliance assistance to
                       constituencies in fiscal year 2003
        Question. In fiscal year 2003, how will EPA better target
    compliance assistance to constituencies which have not traditionally
    participated in compliance assistance activities?
        Answer. EPA is taking numerous steps to draw more diverse
    constituents into compliance assistance activities. In particular, EPA
    is soliciting more input from our stakeholders. The Office of
    Enforcement and Compliance Assurance (OECA) sponsors the Compliance
    Assistance Advisory Committee (CAAC), a multi-stakeholder working group
    of the National Advisory Council for Environmental Policy and
    Technology to provide input and guidance into the national compliance
    assistance program. OECA also broadly solicits input into its
    compliance assurance priorities by holding stakeholder meetings and
    issuing a Federal Register Notice prior to its selection of priorities.
    EPA also seeks out new constituents through the annual Compliance
    Assistance Providers Forum which brings together an array of compliance
    and environmental assistance providers and industry to collaborate and
    identify compliance assistance priorities.
       compliance assistance: dollars and fte for compliance assistance
                     activities within and outside of oeca
        Question. Provide the dollars and FTE for compliance assistance
    activities, within and outside OECA. In meeting this request, provide
    resource levels from the fiscal year 2002 enacted, fiscal year 2002
    actuals, and fiscal year 2003 request. Organize the information by
    Appropriation, Office or Region, and Activity.
        Answer. Provided below are resource and FTE for Agency-wide
    compliance assistance activities from the enacted fiscal year 2002
    operating plan and the fiscal year 2003 President's request by
    Appropriation and Office. The Agency does not track key programs,
    including Compliance Assistance, by Activity or by actual obligations.

    ----------------------------------------------------------------------------------------------------------------
                                                                                       Fiscal year
                         Appropriation/Office                      -------------------------------------------------
                                                                      2002 Enacted Op Plan   2003 President's Budget
    ----------------------------------------------------------------------------------------------------------------
    EPM...........................................................      $60,376.3/465.9 FTE      $60,579.2/455.1 FTE
        Office of Air and Radiation...............................          1,003.4/5.2 FTE          1,005.6/5.2 FTE
        Office of Water...........................................       23,940.7/161.2 FTE       24,684.8/162.3 FTE
        Office and Pesticides & Toxic Sub.........................          1,257.2/0.0 FTE          1,257.0/0.0 FTE
        Office of Solid Waste/Emerg. Resp.........................         7,168.3/75.0 FTE         7,168.3/75.0 FTE
        Office of Enforcement & Compliance Assistance.............       25,706.7/206.1 FTE       25,103.5/194.2 FTE
        Office of the Administrator...............................         1,300.0/18.4 FTE         1,300.0/18.4 FTE
    S & T.........................................................        $5,340.6/54.0 FTE        $6,315.0/54.0 FTE
        Office of Air and Radiation...............................         5,340.6/54.0 FTE         6,315.0/54.0 FTE
    STAG..........................................................         $2,459.3/0.0 FTE         $2,459.3/0.0 FTE
        Office and Pesticides & Toxic Sub.........................            250.0/0.0 FTE            250.0/0.0 FTE
        Office of Enforcement and Compliance Assurance............          2,209.3/0.0 FTE          2,209.3/0.0 FTE
    LUST..........................................................           $670.0/5.5 FTE           $689.8/5.5 FTE
        Office of Enforcement and Compliance Assurance............            670.0/5.5 FTE            689.8/5.5 FTE
    OIL...........................................................           $264.8/1.8 FTE           $271.4/1.8 FTE
        Office of Enforcement and Compliance Assurance............            264.8/1.8 FTE            271.4/1.8 FTE
                                                                   -------------------------------------------------
          TOTAL...................................................       69,111.0/527.2 FTE       70,314.7/516.4 FTE
    ----------------------------------------------------------------------------------------------------------------

     compliance assistance: cuts proposed by fiscal year 2003--president's
            budget for compliance assistance and centers key program
        Question. Provide a detailed explanation of the cuts proposed in
    the fiscal year 2003 President's Budget for the Compliance Assistance
    and Centers key program.
        Answer. In fiscal year 2003, EPA is requesting a total of
    $26,067,900 and 201.5 workyears for the Compliance Assistance and
    Centers key program. This represents a total reduction of 11.9
    workyears and $602,300 from fiscal year 2002. This reduction is part of
    the Agency's efforts to redirect resources from Federal to State
    enforcement and compliance programs. The Office of Enforcement and
    Compliance Assurance (OECA) will reduce development of guidance and
    policies, and assistance tools by about 3 FTE. The remaining 9 FTE
    reduces general assistance provided to the regulated community. We
    expect that the states will use their increased funding to increase the
    assistance provided to the regulated community on the environmental
    programs delegated to their states.
     enforcement: fte ceiling and on-board levels as of october 1, january
                        1, march 1, and july 1 for oeca
        Question. Provide the FTE ceiling and on-board levels as of October
    1, January 1, March 1, and July 1 in each of the last 3 years for OECA,
    the Office of Regulatory Enforcement, the Office of Compliance, and the
    Office of Criminal Enforcement, Forensics, and Training.
        Answer. The following tables provide the FTE and on-board levels
    for the Office of Enforcement and Compliance Assurance (OECA), Office
    of Regulatory Enforcement, Office of Compliance, and the Office of
    Criminal Enforcement, Forensics, and Training. The workyear ceiling is
    allocated at the beginning of the fiscal year and did not change during
    the year. The on-board levels reflect the total number of full and part
    time employees at the beginning of the pay period close to the dates
    listed below. It is important to note that the Office of Regulatory
    Enforcement, Office of Compliance, and the Office of Criminal
    Enforcement, Forensics, and Training include headquarters FTE only.
    Regional and headquarters FTE are included in the OECA chart.

                                  OFFICE OF ENFORCEMENT AND COMPLIANCE ASSURANCE (OECA)
    ----------------------------------------------------------------------------------------------------------------
                                                                            On-Board Employees
               Fiscal year                  FTE      ---------------------------------------------------------------
                                                           Oct 1           Jan 1          March 1         July 1
    ----------------------------------------------------------------------------------------------------------------
    1999............................         3,645.6           3,060           3,380           3,368           3,463
    2000............................         3,565.0           3,505           3,449           3,459           3,463
    2001............................         3,536.8           3,404           3,411           3,401           3,420
    2002............................     \1\ 3,456.8           3,383           3,304           3,303           3,335
                                                                                                            (May 17)
    2003............................        3,311.3
    ----------------------------------------------------------------------------------------------------------------
    \1\ Fiscal year 2002 includes 50.0 FTE from the emergency supplemental for Homeland Security.

                                         OFFICE OF REGULATORY ENFORCEMENT (ORE)
    ----------------------------------------------------------------------------------------------------------------
                                                                            On-Board Employees
               Fiscal year                  FTE      ---------------------------------------------------------------
                                                           Oct 1           Jan 1          March 1         July 1
    ----------------------------------------------------------------------------------------------------------------
    1999............................           148.1             150             151             151             148
    2000............................           138.9             147             146             145             142
    2001............................           143.5             141             140             143             145
    2002............................           136.8             144             144             144             145
                                                                                                            (May 17)
    2003............................           127.8
    ----------------------------------------------------------------------------------------------------------------

                                                OFFICE OF COMPLIANCE (OC)
    ----------------------------------------------------------------------------------------------------------------
                                                                            On-Board Employees
               Fiscal year                  FTE      ---------------------------------------------------------------
                                                           Oct 1           Jan 1          March 1         July 1
    ----------------------------------------------------------------------------------------------------------------
    1999............................           168.0             169             167             170             173
    2000............................           158.7             171             170             166             158
    2001............................           155.9             158             151             148             144
    2002............................           145.5             145             145             146             148
                                                                                                            (May 17)
    2003............................           135.5
    ----------------------------------------------------------------------------------------------------------------

                             OFFICE OF CRIMINAL ENFORCEMENT, FORENSICS, AND TRAINING (OCEFT)
    ----------------------------------------------------------------------------------------------------------------
                                                                            On-Board Employees
               Fiscal year                  FTE      ---------------------------------------------------------------
                                                           Oct 1           Jan 1          March 1         July 1
    ----------------------------------------------------------------------------------------------------------------
    1999............................           394.4             404             401             399             399
    2000............................           386.1             390             384             379             370
    2001............................           385.8             364             360             361             360
    2002............................       \1\ 454.3             361             363             367             397
                                                                                                            (May 17)
    2003............................          399.8
    ----------------------------------------------------------------------------------------------------------------
    \1\ Includes 50.0 FTE from emergency supplemental for Homeland Security.

     enforcement: federal inspections to areas that pose greatest risk to
              human health or the environment in fiscal year 2003
        Question. In fiscal year 2003, how will EPA target Federal
    inspections to the areas that pose the greatest risk to human health or
    the environment? Discuss the technical tools as well as management
    attention necessary to ensure inspections focus on the greatest risks
    to human health or the environment.
        Answer. EPA targets Federal inspections for three elements of the
    national enforcement and compliance assurance program: national
    priorities, core program areas, and special initiatives.
        National priorities are selected as a result of reviewing Agency
    compliance data systems, feedback from field inspectors, discussions
    with EPA program offices and State environmental agencies, and comments
    from external stakeholders. Through this process EPA selects the most
    important environmental risks and noncompliance patterns. In developing
    strategies for each of these priorities EPA determines the need for
    inspections and investigations that will help reduce risks and improve
    compliance. The priorities for fiscal year 2003 are:
      --Clean Water Act--Wet Weather
      --Safe Drinking Water ActMicrobial Rules
      --Clean Air Act--New Source Review/Prevention of Significant
      --Deterioration
      --Clean Air Act--Air Toxics
      --Resource Conservation and Recovery Act (RCRA)--Permit Evaders
      --Petroleum Refining
        Core program areas under the 14 Federal laws for which EPA has
    enforcement authority also receive inspection coverage as part of EPA's
    national enforcement and compliance assurance program. For example, EPA
    conducts inspections under the Clean Air Act and Clean Water Act to
    ensure an appropriate level of compliance monitoring for basic
    provisions of these laws.
        Inspections are also conducted as part of special initiatives that
    EPA develops to address specific risks or noncompliance patterns
    associated with economic sectors, geographic areas, pollutants, or
    particular regulatory requirements. These initiatives are sometimes
    developed using tools such as the On-line Targeting System (OTIS), a
    multi-media database that contains information on approximately one
    million facilities nationwide. This internal database contains
    information such as basic facility and permit data, Federal and State
    enforcement and compliance data (inspections, enforcement actions,
    significant violations), environmental justice data, and pollutant
    release information. The data base can be accessed by EPA and State
    employees, and it helps inspectors identify facilities that
    consistently pose a threat to human health and the environment by
    allowing them to review patterns of noncompliance and pollutant
    emissions by industry sector and geographic location.
       enforcement: civil enforcement activities to areas that pose the
      greatest risk to human health or the environment in fiscal year 2003
        Question. In fiscal year 2003, how will EPA target its civil
    enforcement activities to areas that pose the greatest risk to human
    health or the environment? Discuss specifically the role of OECA
    management in ensuring that OECA civil enforcement efforts remain
    focused on the greatest risks to human health or the environment.
        Answer. For fiscal year 2002/2003, OECA management collaborated
    with the Headquarters' Program Offices, Regional offices, and State and
    Tribal agencies in developing national priorities, as delineated in the
    Office of Enforcement and Compliance Assurance's Memorandum of
    Agreement (MOA) 2002/2003 guidance. National priorities are selected
    for a two year cycle. In selecting the national priorities for fiscal
    year 2002/2003, stakeholders were asked to consider three criteria in
    their decision making. These three criteria were: (1) risk reduction--
    program areas or sectors where significant reductions in risks to human
    health or the environment may be made through concerted Federal
    attention; (2) noncompliance--consistent patterns of noncompliance in
    particular programs or sectors where concentrated Federal effort will
    result in improvement; and, (3) EPA responsibility--identified problem
    areas or programs that can better be addressed by EPA nationally due to
    a lack of delegation or State capacity/performance issues.
        The six priorities that the Agency selected for the fiscal year
    2002/2003 MOA cycle are:
      --Clean Water Act--Wet Weather
      --Safe Drinking Water Act--Microbial Rules
      --Clean Air Act--New Source Review/Prevention of Significant
      --Deterioration
      --Clean Air Act--Air Toxics
      --Resource Conservation and Recovery Act (RCRA)--Permit Evaders
      --Petroleum Refining
        In addition, much of the Agency's core enforcement and compliance
    program focuses resources, through long standing enforcement response
    policies and program guidance, on those violations that present the
    greatest risk to the environment and human health. As directed by the
    OECA MOA guidance, each Region develops and submits their MOA work plan
    each Fall to OECA. OECA management and staff review the activities in
    each of the Regional work plans to ensure that Regional work supports
    the national priorities, thereby ensuring that the work of the Regions
    is focused on the greatest risks to human health or the environment.
    Division Directors in OECA must concur on each Region's final MOA
    workplan.
    enforcement: epa's inherent conflict between desire to meet inspection
                and case output performance goals and strategies
        Question. Given that in certain circumstances or sectors regulatory
    or non-enforcement initiatives or incentives may produce greater
    benefits to the environment or reductions in pollution than traditional
    enforcement actions, how will OECA avoid the inherent conflict between
    its desire to meet inspection and case output performance goals and
    strategies which may prove more beneficial to the environment?
        Answer. EPA takes a problem-solving approach to identifying
    environmental problems and devising the best strategies to deal with
    them, focusing on the most effective and efficient ways to use our
    resources to achieve the best possible environmental results. EPA uses
    an integrated approach to strategically mix our available tools
    incentives, compliance assistance, inspections, investigations,
    settlements in a manner targeted and tailored to particular problems
    and situations, to produce the most benefit to the public and the
    environment.
        One example of a recent successful integrated approach is the
    Federal Lead Paint Program, in which EPA identified the significant
    environmental and public health problem of childhood lead poisoning (48
    million homes contain lead-based paint and nearly 890,000 children have
    elevated lead levels) and partnered with states and HUD to implement a
    solution in cities across the nation. The strategy uses a mix of tools
    including dedicated compliance assistance, audit incentives, and
    focused enforcement to combat the problem.
        Specifically, EPA has partnered with State and local agencies to
    deliver compliance assistance by providing members of the real estate
    community with compliance assistance packages, sample disclosure forms
    and information on how to achieve compliance. We have conducted
    seminars for local State and real estate associations and provided
    mailings and TV/radio public service announcements. EPA and HUD have
    taken advantage of the existing framework of EPA's Audit Policy, which
    allows the disclosure and correction of violations at a substantially
    reduced penalty, to reach out to landlords in 11 cities across the
    nation and return them to compliance. EPA, HUD and the Department of
    Justice have focused their enforcement actions in four major cities Los
    Angeles, Chicago, New York, and the District of Columbia on large
    management companies responsible for buildings which were covered by
    the disclosure rule and had multiple incidents of children with
    elevated blood levels.
        EPA sets annual performance goals for inspections, but not for
    cases. By setting an annual goal for inspections EPA ensures a presence
    in the regulated universe, and identifies violations that need to be
    corrected. There are no performance goals set for cases, as this would
    establish a quota that might lead to less serious cases taken for the
    sake of meeting an annual target.
       enforcement: process used to choose and employ the most effective
                                regulatory tool
        Question. In fiscal year 2003, what process will EPA management use
    to choose and employ the most effective regulatory tool in a given
    sector or circumstance--albeit traditional enforcement by OECA, or
    other approach by OECA or another EPA office including regulatory
    flexibility, compliance assistance or incentive--to produce the
    greatest benefit to health of the environment?
        Answer. The Office of Enforcement and Compliance Assurance (OECA)
    uses a problem-solving approach to identify and address environmental
    risks and noncompliance patterns, and to devise the best ways to deal
    with them. OECA strategically combines our available tools compliance
    assistance, inspections and investigations, enforcement and innovative
    settlements using Supplemental Environmental Projects, and incentives
    provided by the Agency's self disclosure policies to achieve the
    desired environmental results. OECA works with other EPA Program and
    Regional offices, states, the regulated community and public interest
    groups, as appropriate, to identify and analyze the cause of compliance
    problems and develop strategies integrating use of all appropriate
    compliance and enforcement tools to address problems.
        OECA currently has four efforts underway to improve and refine
    identification of environmental problems and development of strategies
    to address them. First, a pilot project is underway that has
    established a problem identification and analysis team to review data
    bases and other information sources for noncompliance patterns. Second,
    an analysis of industry sectors is being conducted to determine whether
    there are particular sectors with new or emerging compliance problems.
    Third, a mechanism for gathering feedback more systematically from
    field inspectors is being developed to ensure that their experience
    informs the selection of national priorities and initiatives. Fourth, a
    work group of senior managers is currently reviewing ways to improve
    the development and implementation of strategies that integrate
    assistance, inspections, incentives, and enforcement.
     enforcement: appropriate balance, roles, and responsibilities between
                     state and federal enforcement agencies
        Question. What is the appropriate balance, roles and
    responsibilities between State and Federal enforcement agencies?
        Answer. Enforcement of environmental programs is done in
    cooperation with states and Indian tribes. States have the primary
    authority for implementing and enforcing most environmental programs
    through authorization or delegated authority from the EPA. The EPA's
    Federal role is to implement and enforce programs that cannot be
    delegated to States and Indian tribes, to handle more complex cases
    involving multiple states or corporations with multiple facilities, to
    deal with issues that require expertise or resources which only EPA can
    provide, and to enforce when states are unable or unwilling to do so.
      enforcement: impact of reduction of enforcement ftes and additional
               state enforcement resources on enforcement output
        Question. How will the proposed reduction of enforcement FTE and
    additional State enforcement resources impact enforcement outputs--
    Federal, State and total?
        Answer. We expect performance results in the national Enforcement
    and Compliance Assurance program to remain the same, with states
    picking up an additional increment of that work. EPA and the states
    have different, but complementary roles when it comes to enforcement of
    our Nation's environmental laws. States have primary responsibility for
    implementing and enforcing most environmental programs through
    delegated authority from the EPA. The EPA's Federal role is to
    implement and enforce programs that cannot be delegated to states, to
    handle more complex cases involving multiple states or corporations
    with multiple facilities, to deal with issues that require expertise or
    resources that only EPA can provide, and to enforce when states are
    unable or unwilling to. Given the interplay between the State and
    Federal programs, we believe the State and tribal enforcement grant
    program will enhance both State and EPA efforts to increase compliance
    with environmental laws.
        States will be approved for grant funding only if their grant
    proposal includes specific plans to measure and report on their
    performance in achieving results. For example, for environmental risks
    or noncompliance patterns they are addressing with the grant funds,
    states will need to define performance measures for determining whether
    they are having an impact (e.g., pollution reductions, improved
    environmental practices at facilities or within an industry, increased
    compliance rates). EPA will establish required reporting intervals for
    states to provide performance information which can be reviewed on a
    regular basis by EPA.
      enforcement: impact of reduction of enforcement ftes and additional
        state enforcement resources on national environmental indicators
        Question. How will the proposed reduction of Federal enforcement
    FTE and additional State enforcement resources impact national
    environmental indicators, such as clean air and clean water?
        Answer. National environmental indicators such as clean air and
    clean water are affected by a number of factors such as land usage,
    stress from population, economic and financial considerations,
    compliance rates, and the severity of violations. We expect that the
    proposed resource shift will result in a national level of enforcement
    activity that is equal to or greater than baseline levels.
         enforcement: geographic areas subject to decrease in federal
        enforcement fte realize increase in state enforcement resources
        Question. How will EPA ensure that geographic areas subject to a
    decrease in Federal enforcement FTE personnel realize an increase in
    State enforcement resources?
        Answer. The President's fiscal year 2003 budget proposes a
    reduction of 100 workyears from EPA's enforcement and compliance
    assurance program to help fund the proposed State and tribal
    enforcement grant program. states will use the grant funds to address
    important environmental risks and noncompliance patterns. In addition,
    the fiscal year 2003 budget provides EPA's enforcement and compliance
    assurance program sufficient resources to carry out the appropriate
    Federal role, focusing on more complex cases involving multi-state or
    multi-facility corporations, dealing with issues that require expertise
    or resources that only EPA can provide, ensuring compliance with
    environmental programs that cannot be delegated to states due to
    statutory prohibition, and to enforce when states are unable or
    unwilling to do so.
       enforcement: acceptance of multiple proposals from states for new
                               enforcement grants
        Question. Will EPA accept multiple proposals from states for the
    $15 million in new enforcement grants and thereby reward states which
    have the resources to submit numerous high quality proposals?
        Answer. Based on feedback from states and tribes EPA will likely
    require a lead agency within a State or tribe to submit a single,
    consolidated proposal. Agencies other than the lead agency will remain
    eligible to receive grants funds if they are included in the proposal.
     enforcement: new enforcement grant program grants award to states and/
                                 or used by epa
        Question. Will states receive the entire $15 million from the new
    enforcement grant program or will EPA use some of that money?
        Answer. EPA will distribute the entire $15 million to states,
    tribes, and other eligible entities.
      enforcement: information obtained from states measuring outputs or
                 outcomes from usage of new enforcement grants
        Question. How will EPA obtain information from states measuring
    their outputs and outcomes from usage of the new $15 million?
        Answer. States will be approved for grant funding only if their
    grant proposal includes specific plans to measure and report on their
    performance in achieving results. For example, states will need to
    define performance measures for determining whether they are having an
    impact on the environmental risk or noncompliance pattern they are
    addressing with the grant funds. EPA will establish required reporting
    intervals for states to provide performance information that can be
    reviewed by EPA on a regular basis.
    enforcement: determining impact on environment by enforcement fte cuts
                          from information from states
        Question. Will the information EPA obtains from states on their use
    of the $15 million be sufficient for EPA to determine whether the
    environment was hurt by the enforcement FTE cuts?
        Answer. Information gathered from states and tribes on their use of
    grant funds will allow the Agency determine the impact they are having
    on the environmental problems they chose to address. In addition, EPA
    will continue oversight of State enforcement programs, reviewing not
    just what is being achieved with grant funds, but the overall
    performance of the enforcement program of each State.
        EPA will continue to collect and analyze performance information
    about its own programmatic outputs and outcomes to ensure we are
    focusing on important problems, and achieving the right results and
    outcomes. By monitoring the use of the grant funds, providing oversight
    of State programs, and analyzing the performance of the Federal
    enforcement effort, EPA believes it can provide a credible deterrent to
    pollution while maximizing compliance.
    enforcement: verification and validation of actual accomplishments from
                             enforcement activities
        Question. In fiscal year 2003, how will EPA verify and validate
    that actual accomplishments resulted from EPA activities?
        Answer. EPA's attorneys and technical staff analyze completed
    enforcement actions and report an estimated, predicted outcome in terms
    of reduced emissions, preventive management of potential pollutants,
    treatment of contaminated materials, and industrial modifications.
    These estimates are produced using technical guidance EPA revised and
    issued in fiscal year 2001. The guidance was developed in consultation
    with engineers, environmental management practitioners, and experienced
    environmental attorneys and administrators. EPA is currently completing
    detailed training on this guidance in all of its regional offices and
    in headquarters, for hundreds of EPA staff. As a result of the guidance
    and training, EPA expects that there will be an improvement in the
    quality of the estimates, and an increase in the number of concluded
    enforcement actions that report such estimates.
        The Agency can and does, in conjunction with the Department of
    Justice and under the supervision of the Courts, confirm that the terms
    of court imposed settlement agreements are adhered to by Defendants.
    Additionally, in a memorandum dated February 8, 2001, EPA's Office of
    Regulatory Enforcement and Office of Site Remediation and Enforcement,
    in response to recommendations from the EPA's Inspector General,
    reemphasized to regional offices that progress towards meeting the
    terms of compliance in Federal judicial settlements must be monitored,
    documented and tracked in a data system from which reports can be
    issued quarterly. This will help ensure that EPA will monitor, and take
    further action if necessary, to ensure required steps are taken to
    achieve the environmental progress required for compliance in orders
    and settlements.
       grants: number of non-profit recipients of non-construction grant
                           awards in last three years
        Question. How many different non-profit recipients received non-
    construction grant awards in each of the last 3 years?
        Answer. EPA awarded grants to 846 different non-profit recipients
    in fiscal year 1999, 759 in fiscal year 2000, and 772 in fiscal year
    2001.
      grants: dollars of non-profit recipients of non-construction grant
                           awards in last three years
        Question. How many dollars did the Agency award to non-profit
    recipients in non-construction grants in each of the last 3 years?
        Answer. EPA awarded $249,983,517 to non-profit recipients in fiscal
    year 1999, $264,898,545 in fiscal year 2000, and $349,978,246 in fiscal
    year 2001.
     grants: top twenty non-profit grant recipients by number of awards in
                                fiscal year 2002
        Question. List the top twenty non-profit EPA grant recipients by
    number of awards in fiscal year 2002. Provide also the number of awards
    and total dollar amount awarded.
        Answer.

        FISCAL YEAR 2001--TOP 20 NON-PROFIT GRANTEES BY NUMBER OF AWARDS
    ------------------------------------------------------------------------
                                                 Number of
                                                  awards          Amount
    ------------------------------------------------------------------------
    NATIONAL OLDER WORKER CAREER CENTER,                  75     $20,805,037
     WASHINGTON, DC.........................
    NATIONAL CAUCUS & CENTER ON BLACK AGED,               74      10,285,948
     WASHINGTON, DC.........................
    NATIONAL SENIOR CITIZENS ED & RSCH CTR,               61      11,544,270
     SILVER SPRING, MD......................
    NATL ASIAN PACIFIC CENTER FOR AGING,                  48       6,330,332
     SEATTLE, WA............................
    NATIONAL ACADEMY OF SCIENCE, WASHINGTON,              36       6,816,253
     DC.....................................
    THE ENVIRONMENTAL CAREERS ORGANIZATION,               30       5,833,801
     BOSTON, MA.............................
    NATIONAL COUNCIL ON AGING, WASHINGTON,                28       4,415,772
     DC.....................................
    NATIONAL ASSOCIATION FOR HISPANIC ELDE,               24       5,700,429
     PASADENA, CA...........................
    INTERNATIONAL CITY/COUNTY MGMT. ASSOC.,               16       2,716,184
     WASHINGTON, DC.........................
    NORTHEAST STATES FOR COORDINATED AIR U,               10       3,313,275
     BOSTON, MA.............................
    NATL CONFERENCE OF STATE LEGISLATURES,                 9         749,532
     DENVER, CO.............................
    ENVIRONMENTAL LAW INSTITUTE, WASHINGTON,               8         689,272
     DC.....................................
    CENTER FOR CLEAN AIR POLICY, WASHINGTON,               8       1,055,224
     DC.....................................
    NATIONAL ASSOCIATION OF COUNTIES,                      8         870,300
     WASHINGTON, DC.........................
    INTER TRIBAL COUNCIL OF ARIZONA INC.,                  8       1,352,277
     PHOENIX, AZ............................
    ENVIRONMENTAL COUNCIL OF THE STATES,                   7         805,488
     WASHINGTON, DC.........................
    NATIONAL CENTER FOR MANUFACTURING SCIE,                7       1,319,615
     ANN ARBOR, MI..........................
    WV UNIVERSITY RESEARCH CORPORATION,                    7       5,515,808
     MORGANTOWN, WV.........................
    RESEARCH TRIANGLE INSTITUTE RESEARCH,                  7       2,354,288
     TRIANGLE, NC...........................
    WESTERN GOVERNORS' ASSOCIATION, DENVER,                7       3,200,806
     CO.....................................
    ------------------------------------------------------------------------
    This data is for fiscal year 2001. Fiscal year 2002 data can be provided
      at end of fiscal year.

    grants: top twenty non-profit grant recipients by total amount of funds
                          awarded in fiscal year 2002
        Question. List the top twenty non-profit EPA grant recipients by
    total amount of funds awarded in fiscal year 2002. Provide also the
    number of awards and total dollar amount awarded.
        Answer:

         FISCAL YEAR 2001--TOP 20 NON-PROFIT GRANTEES BY DOLLARS AWARDED
    ------------------------------------------------------------------------
                                                 Number of
                                                  awards          Amount
    ------------------------------------------------------------------------
    NORTH AMERICAN DEVELOPMENT BANK, SAN                   1     $84,000,000
     ANTONIO, TX............................
    NATIONAL OLDER WORKER CAREER CENTER,                  75      20,805,037
     WASHINGTON, DC.........................
    NATIONAL SENIOR CITIZENS ED & RSCH CTR,               61      11,544,270
     SILVER SPRING, MD......................
    NATIONAL RURAL WATER ASSOCIATION,                      5      10,631,100
     DUNCAN, OK.............................
    NATIONAL CAUCUS & CENTER ON BLACK AGED,               74      10,285,948
     WASHINGTON, DC.........................
    BORDER ENVIRONMENTAL COOPERATION COMM.,                5       8,192,000
     EL PASO, TX............................
    HEALTH EFFECTS INSTITUTE, CAMBRIDGE, MA.               2       7,500,000
    NATIONAL ACADEMY OF SCIENCE, WASHINGTON,              36       6,816,253
     DC.....................................
    NATL ASIAN PACIFIC CENTER FOR AGING,                  48       6,330,332
     SEATTLE, WA............................
    THE ENVIRONMENTAL CAREERS ORGANIZATION,               30       5,833,801
     BOSTON, MA.............................
    NATIONAL ASSOCIATION FOR HISPANIC ELDE,               24       5,700,429
     PASADENA, CA...........................
    WV UNIVERSITY RESEARCH CORPORATION,                    7       5,515,808
     MORGANTOWN, WV.........................
    AMERICA'S CLEAN WATER FOUNDATION,                      3       5,080,000
     WASHINGTON, DC.........................
    GAS TECHNOLOGY INSTITUTE, DES PLAINES,                 1       4,989,000
     IL.....................................
    THREE RIVERS WET WEATHER INC.,                         1       4,845,000
     PITTSBURGH, PA.........................
    NATIONAL COUNCIL ON AGING, WASHINGTON,                28       4,415,772
     DC.....................................
    CANAAN VALLEY INSTITUTE, DAVIS, WV......               4       4,194,800
    WATER ENVIRONMENT RESEARCH FOUNDATION,                 2       3,966,400
     ALEXANDRIA, VA.........................
    NORTHEAST STATES FOR COORDINATED AIR U,               10       3,313,275
     BOSTON, MA.............................
    WESTERN GOVERNORS' ASSOCIATION, DENVER,                7      3,200,806
     CO.....................................
    ------------------------------------------------------------------------
    This data is for fiscal year 2001. Fiscal year 2002 data can be provided
      at end of fiscal year.

          grants: number of bench reviews conducted of non-profit non-
      construction grantees from fiscal year 2000 to fiscal year 2002--by
                                     region
        Question. How many bench reviews did EPA conduct of non-profit non-
    construction grantees in fiscal year 2000, fiscal year 2001 and fiscal
    year 2002? List by Region.
        Answer.

    ----------------------------------------------------------------------------------------------------------------
                                                                            Bench Reviews Fiscal Year
                                                            --------------------------------------------------------
               Regional Grants Management Office                                                    2002 as of 5/25/
                                                                    2000               2001               2002
    ----------------------------------------------------------------------------------------------------------------
    I......................................................                  0                  0                  0
    II.....................................................                  0                  2                  1
    III....................................................                  3                  0                  0
    IV.....................................................                  0                 22                 18
    V......................................................                  0                  0                  0
    VI.....................................................                  2                  4                  4
    VII....................................................                  0                  0                  1
    VIII...................................................                  0                  2                 10
    IX.....................................................                  0                  0                  0
    X......................................................                  0                  0                  1
    HQ.....................................................                 15                 21                 10
                                                            --------------------------------------------------------
          Total............................................                 20                 51                 45
    ----------------------------------------------------------------------------------------------------------------

         grants: number of on-site reviews conducted of non-profit non-
    construction grantees in fiscal year 2000 to fiscal year 2002 by region
        Question. How many on-site reviews did EPA conduct of non-profit
    non-construction grantees in fiscal year 2000, fiscal year 2001 and
    fiscal year 2002? List by Region.
        Answer.

    ----------------------------------------------------------------------------------------------------------------
                                                                           On Site Reviewz Fiscal Year
                                                            --------------------------------------------------------
               Regional Grants Management Offices                                                   2002 as of 5/25/
                                                                    2000               2001          2002 (to date)
    ----------------------------------------------------------------------------------------------------------------
    I......................................................                  2                  1                  0
    II.....................................................                  3                  3                  4
    III....................................................                  1                  2                  2
    IV.....................................................                  0                  0                  0
    V......................................................                  2                  2                  1
    VI.....................................................                  0                  0                  0
    VII....................................................                  0                  1                  1
    VIII...................................................                  0                  2                  0
    IX.....................................................                  5                  3                  1
    X......................................................                  0                  0                  2
    HQ.....................................................                 13                 22                 23
                                                            --------------------------------------------------------
          Total............................................                 26                 36                 34
    ----------------------------------------------------------------------------------------------------------------

       grants: number of ftes and on-board personnel conducting on-site
          reviews of grantees in fiscal year 2002 and fiscal year 2003
        Question. How many FTEs and on-board personnel are and will be
    devoted to conducting on-site reviews of grantees in fiscal year 2002
    and fiscal year 2003?
        Answer. To date, Headquarters and Regional Grants Management
    Offices devoted approximately 4 FTEs to conducting on-site reviews in
    fiscal year 2002. In addition, EPA awarded three contracts to perform
    eleven evaluative on-site reviews of non-profit grantees.
        In fiscal year 2003, EPA plans to devote a minimum of 4 FTEs to
    conducting on-site reviews and continue to procure additional
    contractor support to perform reviews of non-profit grantees.
       grants: number of hours of paperwork burden imposed on businesses
        Question. How many hours of paperwork burden did EPA impose on
    businesses in the last reporting year and each of the previous 3 years?
        Answer. Total EPA burden hours (including both business and State
    burden) at the end of each of the last four fiscal years are listed
    below:

                                  [In millions]

            Fiscal year                                         Burden hours
    2001..............................................................   131
    2000..............................................................   129
    1999..............................................................   119
    1998..............................................................   115
       grants: number of hours of paperwork burden imposed on businesses
        Question. In fiscal year 2003, how will EPA reduce the paperwork
    burden it imposes on businesses?
        Answer. Many EPA programs are taking the initiative to reduce
    reporting and record-keeping burden. Although EPA does not have
    quantified burden reductions estimates for these initiatives, these
    efforts include:
        Resource Conservation and Recovery Act (RCRA) Burden Reduction
    Initiative (Office of Solid Waste and Emergency Response), a broad-
    based initiative aimed at streamlining paperwork and regulations
    associated with RCRA .
        Reg-in-a-Box Expert Advisors (Office of Prevention, Pesticides, and
    Toxic Substances), an expert software system which can aid the public
    in understanding if and how regulations affect them.
        Toxic Release Inventory (TRI) Made Easy (Office of Environmental
    Information), an expert software system that assists facilities in
    reporting their TRI data.
        Central Data Exchange (CDX) (Office of Environmental Information),
    a single Agency portal enabling the submission of data via the Internet
    and aimed at improving the collection, management, and sharing of
    environmental information among the states, Tribes, and EPA.
        Performance Track (Office of Policy, Economics, and Innovation), an
    initiative designed to motivate and reward top environmental performers
    that take a systematic approach to managing environmental
    responsibilities and are leading the way to environmental excellence
    while saving money and improving productivity.
      grants: oei work with program offices to tailor new rules to impose
                             less paperwork burden
        Question. In fiscal year 2003, how is the Office of Environmental
    Information working with program offices to tailor new rules to impose
    less paperwork burden?
        Answer. The Office of Environmental Information (OEI) is working on
    the following initiatives which are aimed at helping program offices
    decrease the amount of paperwork burden imposed on the public.
    Guidelines on Minimizing Burden and Ensuring Sound Burden Estimates
        OEI is working on several guidelines to assist program offices in
    developing information collections which minimize the burden imposed on
    regulated entities. These guidelines highlight examples of successful
    streamlining efforts in program offices and offers numerous suggestions
    for areas where burden may potentially be decreased. The guidelines
    currently under development are:
      --Guidelines on Streamlining Existing Collections
      --Guidelines on Streamlining New Collections
      --Guidelines for Estimating the Burden Impacts of Electronic
            Reporting
      --Guidelines for Preparing Sound Burden Estimates
    Effort to Increase Electronic Reporting and the Integration of
            Information
        The National Environmental Information Exchange Network (Network)
    is a partnership program with the states and Tribes aimed at developing
    an integrated, electronic environmental data exchange. It includes
    efforts to: build a single point of exchange for electronic reporting
    through EPA's CDX portal; propose alegal framework for electronic
    reporting; and apply specific data standards across information
    systems. CDX currently offers electronic reporting options in four
    program areas, and is testing two new programs for implementation by
    the end of fiscal year 2002. As EPA's point of exchange or ``Node'' on
    the Network, CDX completed the first Node test with six states in early
    fiscal year 2002 and plans to expand Node testing this year.
                          standardizing data elements
        EPA has a very active environmental data standards program and has
    finalized seven standards in cooperation with states and tribes. Three
    additional standards are near completion and are anticipated to be
    adopted within fiscal year 2002. Three others are being considered;
    most of these more fully define program specific information that
    complements existing standards. One of the benefits of expanding
    environmental data standards is that programs are better able to
    compare the content of various information systems, thereby reducing
    duplicative applications. This, in turn, results in the elimination of
    some sub-applications and an increase in savings to the states, Tribes,
    and EPA. Yet another benefit of promoting environmental data standards
    is the identification of similar data shared by multiple programs. This
    provides an opportunity to develop registries that contain commonly
    used data that programs can rely on as an authoritative source, which
    can result in the removal of duplicative requests for information
    collection. One example of this is the reliance on facility
    identification information from the Facility Registry System by OSWER,
    rather than requesting the collection of this information continually
    from the facilities.
      grants: program offices review of current paperwork requirements to
                reduce burden on businesses in fiscal year 2002
        Question. In fiscal year 2003, how will the program offices, either
    with or without the help of OEI, review current paperwork requirements
    to reduce their burden on businesses?
        Answer. EPA will reduce burden on businesses in the following ways:
        Program Initiated Efforts.--Several programs have taken the
    initiative to reduce burden by throughly analyzing their collections to
    identify requirements which can be streamlined. For example, in fiscal
    year 2003, the Office of Solid Waste (OSW) will publish a final rule
    that incorporates many burden reduction components into RCRA
    requirements. OSW initiated a two-phase burden reduction initiative
    that first examines reporting requirements and then proposed a rule
    that will streamline the collection. To reduce reporting burdens to
    facilities, OSW first evaluated all of EPA's current RCRA reporting
    requirements. As a result, OSW drafted a proposed rule that was
    published in February 2002 in the Federal Register. OSW estimates that
    this proposed rule will eliminate nearly 1 million burden hours from
    the total RCRA paperwork burden (which is currently nearly 8 million
    hours). This is a 12 percent reduction from current burden hours. The
    proposed rule is also estimated to have annual cost savings of $120
    million, mostly from the Land Disposal Restrictions changes. In fiscal
    year 2003, OSW will continue work on a second phase of the Burden
    Reduction Initiative (BRI), which focuses on the RCRA Biennial Report.
    Currently, all large quantity generators of hazardous waste and all
    treatment, storage, and disposal facilities have to complete a Biennial
    Report. The second phase of the BRI will propose alternatives such as
    conducting a survey of facilities rather than requiring the completion
    of a report by every facility. OSW will publish their findings in a
    Notice of Data Availability in fiscal year 2003.
        Supporting Environmental Performance.--The Office of Policy,
    Economics, and Innovation continues to develop and expand the
    Performance Track program to motivate and reward facilities that
    achieve better environmental performance than is required under
    existing regulations. This program enhances the current regulatory
    system by offering recognition and other incentives to facilities that
    have shown a commitment to going beyond basic compliance with
    environmental regulations. EPA is developing a rule to propose specific
    regulatory changes as incentives for participation in Performance
    Track. These incentives would offer a reduction in the reporting and
    other operating costs of the current regulatory system and would be
    implemented nationally.
        Encouraging Non-Traditional Burden Reduction Efforts.--EPA
    continues to encourage a number of innovative activities which are not
    typically counted in burden reduction estimates. These include web-
    based Compliance Assistance Centers, the promotion of internal facility
    audit policies to detect violations, and options for regulatory
    compliance such as emissions trading. EPA continues to implement easier
    to understand regulatory language and continues providing reporting and
    compliance assistance to small businesses through the Office of the
    Small Business Ombudsman.
        Supporting Streamlining Collections.--Preparers of new regulations,
    as well as those involved in the development of Information Collection
    Requests are required to verify that no other similar collections exist
    as part of the development process entailed in these activities. OEI
    will also be working to make the newly developed streamlining
    guidelines available to the rest of the Agency, which provide step-by-
    step guidance on how to reduce burden in both new and existing
    collections, in addition to estimating burden reductions associated
    with the use of electronic reporting. Finally, OEI held a ``Burden
    Reduction Workshop'' in the Fall of 2001, highlighting seven major
    efforts to decrease burden through streamlining existing collections,
    consolidating collections, and using innovative technologies. OEI is
    committed to continuing to recognize and promote these types of program
    efforts which are aimed at decreasing burden, in both traditional and
    non-traditional ways.
     npdes permitting: status of efforts to reduce federal and state npdes
                                permits backlog
        Question. What is the status of EPA's efforts to reduce the backlog
    of Federal and State NPDES permits? Provide a breakdown by region and
    state.
        Answer. Although EPA did not meet the 2001 target of 10 percent
    backlog for major permits, EPA has made substantial progress in
    reducing the NPDES permit backlog. Currently, EPA's backlog of major
    permits is 16 percent, down from about 48 percent in January 2000. EPA
    is continuing its effort to reduce this backlog of major permits, while
    also focusing on the 2004 goal of 10 percent backlog for all permits.
    EPA currently has a significant backlog of minor permits (67 percent
    expired) and is addressing it through a streamlining effort and the
    release of several permitting tools.
        The authorized states, as a whole, have shown improvement in
    reducing their backlog. Currently, the major permits backlog for
    authorized states is 19 percent, down from about 26 percent in January
    2000. Authorized states are making strides through both permit issuance
    and data clean-up and are on target to meet the 2004 backlog reduction
    goal of 10 percent backlog for all permits.
        The attached charts provide data on state and Regional progress
    toward meeting backlog reduction goals.

                                                                 BACKLOG STATUS REPORT FOR MINORS (INDIVIDUALS PERMITS ONLY)--APRIL 2002
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              August 2000                                                Actual for April 2002
                                           ------------------------------------------------ Goal for April ------------------------------------------------     On target to meet     Permit Deficit
                                                 Total                          Backlog          2002            Total                          Backlog      December 2004 Goal \2\         \3\
                                              facilities      Expired \1\      (percent)                      facilities      Expired \1\      (percent)
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 1:
        CT................................             129              98            76.0            50.6              97              43            44.3  YES.....................               0
        GB \4\............................              14              14           100.0            65.4         ( \5\ )         ( \5\ )         ( \5\ )  ( \5\ ).................         ( \5\ )
        MA \4\............................             521             423            81.2            53.8             439             357            81.3  Unlikely................          120.78
        ME................................             261             182            69.7            46.8             258             140            54.3  Possible................           19.36
        NH \4\............................             186             161            86.6            57.1             121             100            82.6  Unlikely................           30.89
        RI................................             109              87            79.8            53.0             103              87            84.5  Unlikely................           32.45
        VT................................             108              20            18.5            15.2             115              12            10.4  YES.....................               0
                                           =========================================================================================================================================================
    EPA Issued............................             982             780            79.4            52.7             560             457            81.6  Unlikely................          161.73
    State Issued..........................             346             205            59.2            40.3             573             282            49.2  Possible................           51.04
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           1,328             985            74.2            49.5           1,133             739            65.2  Unlikely................          178.28
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 2:
        AT \4\............................               6               6           100.0            65.4               7               7           100.0  Possible................            2.42
        NJ................................           2,664             263             9.9             9.9           2,755             353            12.8  Possible................           81.02
        NY................................           1,761             305            17.3            14.5           1,449              61             4.2  YES.....................               0
        PR \4\............................             197             100            50.8            35.1             200             109            54.5  Unlikely................           38.83
        VI................................              77              44            57.1            39.0              80              46            57.5  Unlikely................           14.79
                                           =========================================================================================================================================================
    EPA Issued............................             203             106            52.2            36.0             207             116            56.0  Unlikely................           41.52
    State Issued..........................           4,502             612            13.6            12.2           4,284             460            10.7  YES.....................               0
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           4,705             718            15.3            13.2           4,491             576            12.8  YES.....................               0
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 3:
        DC \4\............................              12               3            25.0            19.2              12               3            25.0  Possible................            0.69
        DE................................              41               2             4.9             4.9              39               3             7.7  YES \6\.................               0
        MD................................             564             229            40.6            28.8             499             215            43.1  Unlikely................           71.13
        PA................................           3,952             508            12.9            11.8           4,008             595            14.8  Possible................          123.80
        VA................................           2,835           1,943            68.5            46.0           1,119              61             5.5  YES.....................               0
        WV................................           1,459             647            44.3            31.1           1,189             455            38.3  Possible................           84.80
                                           =========================================================================================================================================================
    EPA Issued............................              12               3            25.0            19.2              12               3            25.0  Possible................             .69
    State Issued..........................           8,851           3,329            37.6            27.0           6,854           1,329            19.4  YES.....................               0
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           8,863           3,332            37.6            27.0           6,866           1,332            19.4  YES.....................               0
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 4:
        AL................................           1,385             140            10.1            10.1           1,388              61             4.4  YES.....................               0
        FL................................             348              69            19.8            16.0             300              25             8.3  YES.....................               0
        GA................................             784               0             0.0             0.0             658               0             0.0  YES.....................               0
        KY................................           1,860              84             4.5             4.5           1,788              78             4.4  YES.....................               0
        MS................................           1,841             326            17.7            14.7           1,788             404            22.6  Possible................          140.39
        NC................................           1,344             192            14.3            12.6           1,237             166            13.4  Possible................            9.68
        SC................................             495              73            14.7            12.9             450              71            15.8  Possible................           12.85
        TN................................           1,321             224            17.0            14.3           1,295              45             3.5  YES.....................               0
                                           =========================================================================================================================================================
    EPA Issued............................              NA              NA              NA              NA              NA              NA              NA  NA......................              NA
    State Issued..........................           9,378           1,108            11.8            11.1           8,904             850             9.5  YES.....................               0
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           9,378           1,108            11.8            11.1           8,904             850             9.5  YES.....................               0
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 5:
        IL................................           1,787             373            20.9            16.7           1,774             460            25.9  Possible................          163.90
        IN................................           1,174             150            12.8            11.7           1,140              78             6.8  YES.....................               0
        MI................................             532              57            10.7            10.4             500              53            10.6  YES.....................               0
        MN................................           1,019             509            50.0            34.6           1,010             419            41.5  Possible................           69.69
    OH....................................           2,571             680            26.4            20.1           2,716             417            15.4  YES.....................               0
        WI................................             859             165            19.2            15.7             798              77             9.6  YES.....................               0
                                           =========================================================================================================================================================
    EPA Issued............................              NA              NA              NA              NA              NA              NA              NA  NA......................              NA
    State Issued..........................           7,942           1,934            24.4            18.8           7,938           1,504            18.9  Possible................            9.14
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           7,942           1,934            24.4            18.8           7,938           1,504            18.9  Possible................            9.14
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 6:
        AR................................             729              56             7.7             7.7             721              31             4.3  YES.....................               0
        LA................................           3,640           2,910            79.9            53.0           3,476           2,507            72.1  Unlikely................          663.22
        NM \4\............................             221             203            91.9            60.4             111              44            39.6  YES.....................               0
        OK................................             560             176            31.4            23.2             476              96            20.2  YES.....................               0
        TX................................           2,666             719            27.0            20.4           2,567             400            15.6  YES.....................               0
                                           =========================================================================================================================================================
    EPA Issued............................             221             203            91.9            60.4             111              44            39.6  YES.....................               0
    State Issued..........................           7,595           3,861            50.8            35.1           7,240           3,034            41.9  Possible................          490.60
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           7,816           4,064            52.0            35.8           7,351           3,078            41.9  Possible................          443.13
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 7:
        IA................................           1,660             568            34.2            24.9           1,342             199            14.8  YES.....................               0
        KS................................           1,161             753            64.9            43.8           1,171             129            11.0  YES.....................               0
        MO................................           3,015             972            32.2            23.7           3,139             826            26.3  Possible................           82.51
        NE................................           1,184             806            68.1            45.7             835             422            50.5  Possible................           40.09
                                           =========================================================================================================================================================
    EPA Issued............................              NA              NA              NA              NA              NA              NA              NA  NA......................              NA
    State Issued..........................           7,020           3,099            44.1            31.0           6,487           1,576            24.3  YES.....................               0
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           7,020           3,099            44.1            31.0           6,487           1,576            24.3  YES.....................               0
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 8:
        CO................................             418             212            50.7            35.1             378             180            47.6  Unlikely................           47.48
        MT................................             147              45            30.6            22.7             149              62            41.6  Unlikely................           28.20
        ND................................             127              16            12.6            11.6             116               1              .9  YES.....................               0
        SD................................             380              82            21.6            17.1             377              99            26.3  Possible................           34.44
        UT................................              84               4             4.8             4.8              84               3             3.6  YES.....................               0
        WY................................           1,149              87             7.6             7.6           1,325              51             3.8  YES.....................               0
                                           =========================================================================================================================================================
    EPA Issued............................              NA              NA              NA              NA              NA              NA              NA  NA......................              NA
    State Issued..........................           2,305             446            19.3            15.8           2,429             396            16.3  Possible................           13.35
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           2,305             446            19.3            15.8           2,429             396            16.3  Possible................           13.35
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 9:
        AS \4\............................               3               0             0.0             0.0               3               0             0.0  YES.....................               0
        AZ \4\............................             144              49            34.0            24.8             143              29            20.3  YES.....................               0
        CA................................             686             245            35.7            25.8             652             245            37.6  Unlikely................           76.63
        GU \4\............................              11               5            45.5            31.8              14               1             7.1  YES.....................               0
        HI................................              40               7            17.5            14.6              42               2             4.8  YES.....................               0
        JA \4\............................               1               0             0.0             0.0               1               0             0.0  YES.....................               0
        MW \4\............................               1               1           100.0            65.4         ( \5\ )         ( \5\ )         ( \5\ )  ( \5\ ).................         ( \5\ )
        NI \4\............................               3               3           100.0            65.4         ( \5\ )         ( \5\ )         ( \5\ )  ( \5\ ).................         ( \5\ )
        NV................................              70              18            25.7            19.7              70              25            35.7  Unlikely................           11.23
                                           =========================================================================================================================================================
    EPA Issued............................             163              58            35.6            25.7             161              30            18.6  YES.....................               0
    State Issued..........................             796             270            33.9            24.7             764             272            35.6  Unlikely................           83.14
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................             959             328            34.2            24.9             925             302            32.6  Possible................           71.73
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 10:
        AK \4\............................             282             262            92.9            61.0             159             143            89.9  Unlikely................           45.98
        ID \4\............................             277             262            94.6            62.1             174             138            79.3  Unlikely................           30.03
        OR................................             283             180            63.6            43.0             301             219            72.8  Unlikely................           89.61
        WA................................             654             519            79.4            52.7             618             476            77.0  Unlikely................          150.43
    EPA Issued............................             559             524            93.7            61.5             333             281            84.4  Unlikely................           76.10
                                           =========================================================================================================================================================
    State Issued..........................             937             699            74.6            49.8             919             695            75.6  Unlikely................          237.76
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
          Region Total....................           1,496           1,223            81.8            54.2           1,252             976            78.0  Unlikely................          297.98
                                           ---------------------------------------------------------------------------------------------------------------------------------------------------------
    All Minors............................          51,812          17,237            33.3            24.3          47,776          11,329            23.7  YES.....................               0
    EPA Issued............................           2,140           1,674            78.2            52.0           1,384             931            67.3  Unlikely................          211.54
    State Issued..........................          49,672          15,563            31.3            23.1          46,392          10,398            22.4  YES.....................               0
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Includes no date facilities.
    \2\ Possible indicates that permit deficit is within 10of the monthly target to meet the 2004 goal or is of 5 permits or less.
    \3\ The number of permits that needed to be issued through the reporting period to remain on target to meet the December 2004 goal.
    \4\ Indicates EPA is the permitting authority.
    \5\ Based on 9/30/2000 download, there are no individually permitted facilities in the Midway Islands. Based on 1/31/2001 download, there are no individually permitted minor facilities in the
      Northern Mariannas. Based on 3/31/2001 download, there are no individually permitted minor facilities in the Georges Banks.
    \6\ Although the State is below the 10 percent goal, the State's backlog is beginning to trend upwards.

                                                          BACKLOG STATUS REPORT FOR MAJORS--APRIL 2002
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Actual For April 2002
                                                        --------------------------------     Backlog     At 10 percent Goal?   3-Month Trend  Permit Deficit
                                       Backlog Percent        Total                          Percent             \2\                \3\             \4\
                                                           Facilities      Expired \1\
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    EPA Region 1:
        CT..........................               10.0             113              14            12.4  NO \6\.............               +            1.68
        MA \5\......................               10.0             138              33            23.9  NO.................               +           17.96
        ME..........................               10.0              87              23            26.4  NO.................               +           13.52
        NH \5\......................               10.0              60               8            13.3  NO \6\.............               -            1.46
        RI..........................               10.0              25               2             8.0  YES................               0            0.00
        VT..........................               10.0              33               0             0.0  YES................               -            0.00
                                     =======================================================================================================================
    EPA Issued......................               10.0             198              41            20.7  NO.................               -           19.42
    State Issued....................               10.0             258              39            15.1  NO.................               +           10.88
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0             456              80            17.5  NO.................               +           30.30
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 2:
        NJ..........................               10.0             160              48            30.0  NO.................               -           30.56
        NY..........................               10.0             355              11             3.1  YES................               0            0.00
        PR \5\......................               10.0              84              27            32.1  NO.................               -           17.84
        VI..........................               10.0               6               4            66.7  NO.................               +            3.35
                                     =======================================================================================================================
    EPA Issued......................               10.0              84              27            32.1  NO.................               -           17.84
    State Issued....................               10.0             521              63            12.1  NO \6\.............               -            6.21
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0             605              90            14.9  NO \6\.............               -           24.06
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 3:
        DC \5\......................               10.0               4               2            50.0  NO.................               0            1.56
        DE..........................               10.0              23               6            26.1  NO.................               0            3.49
        MD..........................               10.0              97              12            12.4  NO \6\.............               -            1.43
        PA..........................               10.0             382              76            19.9  NO.................               +           34.36
        VA..........................               10.0             140              19            13.6  NO \6\.............               -            3.74
        WV..........................               10.0              93              28            30.1  NO.................               -           17.86
                                     =======================================================================================================================
    EPA Issued......................               10.0               4               2            50.0  NO.................               0            1.56
    State Issued....................               10.0             735             141            19.2  NO.................               +           60.89
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0             739             143            19.4  NO.................               +           62.45
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 4:
        AL..........................               10.0             194               6             3.1  YES................               -            0.00
        FL..........................               10.0             255              28            11.0  YES................               +            0.21
        GA..........................               10.0             171               1             0.6  YES................               -            0.00
        KY..........................               10.0             132               2             1.5  YES................               +            0.00
        MS..........................               10.0              98              10            10.2  YES................               +            0.00
        NC..........................               10.0             231              68            29.4  NO.................               +           42.82
        SC..........................               10.0             185              45            24.3  NO.................               +           24.84
        TN..........................               10.0             156               9             5.8  YES................               -            0.00
                                     =======================================================================================================================
    EPA Issued......................  .................              NA              NA              NA  NA.................              NA              NA
    State Issued....................               10.0           1,422             169            11.9  NO \6\.............               +           14.00
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0           1,422             169            11.9  NO \6\.............               +           14.00
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 5:
        IL..........................               10.0             278              36            12.9  NO \6\.............               0            5.70
        IN..........................               10.0             185              78            42.2  NO.................               +           57.84
        MI..........................               10.0             184              25            13.6  NO \6\.............               +            4.94
        MN..........................               10.0              86              40            46.5  NO.................               +           30.63
        OH..........................               10.0             294              73            24.8  NO.................               +           40.95
        WI..........................               10.0             134              10             7.5  YES................               -            0.00
                                     =======================================================================================================================
    EPA Issued......................  .................              NA              NA              NA  NA.................              NA              NA
    State Issued....................               10.0           1,161             262            22.6  NO.................               +          135.45
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0           1,161             262            22.6  NO.................               +          135.45
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 6:
        AR..........................               10.0             109              13            11.9  NO \6\.............               -            1.12
        LA..........................               10.0             250             119            47.6  NO.................               -           91.75
        NM \2\......................               10.0              35               3             8.6  YES................               0            0.00
        OK..........................               10.0              95               5             5.3  YES................               0            0.00
        TX..........................               10.0             565              96            17.0  NO.................               -           34.42
                                     =======================================================================================================================
    EPA Issued......................               10.0              35               3             8.6  YES................               0            0.00
    State Issued....................               10.0           1,019             233            22.9  NO.................               -          121.93
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0           1,054             236            22.4  NO.................               -          121.11
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 7:
        IA..........................               10.0             129              18            14.0  NO \6\.............               +            3.94
        KS..........................               10.0              58               0             0.0  YES................               -            0.00
        MO..........................               10.0             148              40            27.0  NO.................               +           23.87
        NE..........................               10.0              55              30            54.5  NO.................               +           24.01
                                     =======================================================================================================================
    EPA Issued......................  .................              NA              NA              NA  NA.................              NA              NA
    State Issued....................               10.0             390              88            22.6  NO.................               +           45.49
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0             390              88            22.6  NO.................               +           45.49
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 8:
        CO..........................               10.0             112              33            29.5  NO.................               +           20.79
        MT..........................               10.0              43              16            37.2  NO.................               +           11.31
        ND..........................               10.0              26               0             0.0  YES................               0            0.00
        SD..........................               10.0              29               4            13.8  YES................               +            0.84
        UT..........................               10.0              33               0             0.0  YES................               0            0.00
        WY..........................               10.0              26               0             0.0  YES................               -            0.00
                                     =======================================================================================================================
    EPA Issued......................  .................              NA              NA              NA  NA.................              NA              NA
    State Issued....................               10.0             269              53            19.7  NO.................               +           23.68
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0             269              53            19.7  NO.................               +           23.68
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 9:
        AS \5\......................               10.0               4               0             0.0  YES................               0            0.00
        AZ \5\......................               10.0              50               0             0.0  YES................               0            0.00
        CA..........................               10.0             239              48            20.1  NO.................               +           21.95
        GU \5\......................               10.0               6               2            33.3  NO.................               0            1.35
        HI..........................               10.0              22               2             9.1  YES................               -            0.00
        NI \5\......................               10.0              20             0.0             YES  0..................            0.00
        NV..........................               10.0              10               2            20.0  YES................               -            0.91
                                     =======================================================================================================================
    EPA Issued......................               10.0              62               2             3.2  YES................               0            0.00
    State Issued....................               10.0             271              52            19.2  NO.................               -           22.46
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0             333              54            16.2  NO.................               -           17.70
                                     -----------------------------------------------------------------------------------------------------------------------
    EPA Region 10:
        AK \5\......................               10.0              75               4             5.3  YES................               -            0.00
        ID \5\......................               10.0              57               5             8.8  YES................               0            0.00
        OR..........................               10.0              78              51            65.4  NO.................               0           42.50
        WA..........................               10.0              86              33            38.4  NO.................               -           23.63
                                     =======================================================================================================================
    EPA Issued......................               10.0             132               9             6.8  YES................               -            0.00
    State Issued....................               10.0             164              84            51.2  NO.................               -           66.12
                                     -----------------------------------------------------------------------------------------------------------------------
          Region Total..............               10.0             296              93            31.4  NO.................               -           60.74
    All Majors......................               10.0           6,725           1,268            18.9  NO.................               +          534.98
    EPA Issued......................               10.0             515              84            16.3  NO.................               -           27.87
    State Issued....................               10.0           6,210           1,184            19.1  NO.................               +          507.11
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Includes no data facilities.
    \2\ YES indicates that the State is meeting or has met the December 31, 2001 backlog reduction goal of 10 OR is within 1 permit.
    \3\ - indicates that the backlog percent has gone down over the last 3 months (since January 31, 2002) + It has gone up; 0 Stayed the same.
    \4\ The number of permits that needed to be issued (in addition to ones that will be expiring) to achieve a 10 percent backlog reduction.
    \5\ Indicates EPA is the permitting authority.
    \6\ A NO indicates that the State is within 5 percent of the backlog reduction goal.

     npdes permitting: level of resources devoted to reduce npdes backlog
               from fiscal year 2002 and fiscal year 2003 request
        Question. Provide the level of resources EPA is devoting to reduce
    the NPDES backlog from fiscal year 2002 and in the fiscal year 2003
    request.
        Answer. Both EPA and state permitting agencies have developed
    strategies that affirm permit issuance as a high priority task and in
    many cases, have reorganized staff to reduce permit backlog.
        NPDES permit issuance is a substantial undertaking in EPA Regional
    Water Divisions and in state water pollution control agencies. To help
    reverse the trend in rising backlogged permits, EPA is devoting about
    $300,000 for permit issuance in fiscal year 2002, and we anticipate
    making the same level of assistance available in fiscal year 2003.
    Additionally, in fiscal year 2002, EPA is spending approximately
    $340,000 to help reduce the backlog by tracking the NPDES permit
    backlog and developing tools, such as an electronic permit application
    and an electronic water quality based permit writing tool. A similar
    level of spending is anticipated for fiscal year 2003.
        In fiscal year 2002, EPA established Blanket Purchase Agreements
    (BPAs) under GSA contracts. These agreements will support the
    permitting efforts of EPA as well as the states, if they so request,
    through in-kind assistance, as part of their Section 106 grant. A user
    guidance web page is being developed also. This will assist states with
    permit issuance, data clean up, and other water program work that will
    lead to appropriate permits being issued. States have begun to use this
    support, and EPA anticipates continuing this process in fiscal year
    2003.
             reinvention: status of review of reinvention programs
        Question. What is the status of EPA's review of its reinvention
    programs?
        Answer. On April 10, 2001, Administrator Whitman issued a
    memorandum charging EPA's Innovation Action Council (IAC) to formulate
    recommendations for updating EPA's innovation strategy. In considering
    strategic application of innovation, the IAC looked at both the
    challenges (environmental, regulatory or programmatic) facing the
    Agency, and the innovative approaches and tools needed to meet those
    challenges. The IAC consulted with state environmental commissioners
    and key stakeholders (e.g., states, industry, and the NGO's) as it
    developed its recommendations.
        On April 24, 2002, Administrator Whitman released EPA's new
    innovation strategy, Innovating for Better Environmental Results: A
    Strategy to Guide the Next Generation of Innovation at EPA at the 2002
    ECOS meeting. The strategy provides a framework for using innovation to
    move the Agency toward a system of environmental protection in which
    we:
      --focus on environmental performance and results;
      --emphasize comprehensive environmental responsibility, not just
            pollution control;
      --integrate environmental management across facilities, problems and
            media;
      --use market-based incentives and the full range of available tools
            to achieve ambitious environmental goals; and
      --foster partnerships with others who can contribute to environmental
            solutions.
        The strategy presents four ways we plan to move toward results-
    based environmental protection through innovation: (1) strengthen our
    innovation partnerships with states and Tribes; (2) focus our
    innovation efforts on priority environmental problems B reducing
    greenhouse gases and smog, improving water quality, and reducing the
    cost of water and wastewater infrastructure; (3) make fuller use of a
    diverse range of tools such as information and environmental
    technology, market-based incentives, environmental management systems,
    and measurable performance goals; and (4) make EPA's culture and
    management systems more Ainnovation friendly.
        We are currently moving into the implementation phase of the
    strategy, promoting innovation in all parts of EPA. We have drafted an
    implementation plan that represents an initial set of activities that
    will support our innovations work through both ongoing projects and
    some Presidential 2003 budget initiatives. Along with the four
    mentioned above, these key actions also include:
      --expanding Brownfields economic redevelopment,
      --forging stronger partnerships with the agriculture community,
      --promoting better environmental information,
      --promoting innovative technology, using incentives,
      --expanding use of environmental management systems,
      --testing, evaluating and deploying innovative approaches,
      --ensuring support for innovation through planning and budgeting, and
      --fostering a more innovation friendly culture within EPA.
        A synopsis of these activities are located on our website, http://
    www.epa.gov/opei/strategy.
       reinvention: spreading the culture of reinvention by limiting its
                                  application
        Question. While EPA states a desire to spread the culture of
    reinvention efforts to all program areas, the agency is currently
    limiting reinvention activities to a few specific activities. Please
    explain how EPA will spread the culture of reinvention by limiting its
    application?
        Answer. EPA's new innovation strategy draws on our experience and
    the experience of our business, state and NGO partners and numerous
    policy and academic cementers who have been working together for over a
    decade to foster innovation in environmental protection. A critical
    lesson communicated across the spectrum is that one of the keys to
    unleashing innovation on a broad scale is to set clear and ambitious
    goals for solving important problems. That is what EPA's new innovation
    strategy does. By focusing innovation on key problems, we will make the
    most progress toward the most important goals.
        While EPA is focusing its Agency-wide innovation efforts, it is not
    limiting innovation in other areas. In fact, the Office of Solid Waste
    and Emergency Response is supporting an intensive focus on innovation
    in several areas not mentioned in the strategy, but which are important
    to improving waste management and disposal systems.
        While a key to the strategy's effectiveness is its clear focus, EPA
    will draw on and foster the broadest possible participation in
    innovating to solve these problems. Within EPA, every program and
    region will be undertaking significant actions toward these goals. EPA
    has also made it a top priority to strengthen the burgeoning innovation
    partnerships with states and tribes by aligning goals and actions
    through partnership agreements.
        EPA's innovation strategy also commits to fostering innovation at
    the very core of EPA's culture through actions that address both
    cultural and administrative barriers to innovation.
     reinvention: examples of directing program offices and oeca to reduce
     barriers, transaction costs and approval time for reinvention projects
        Question. Provide examples of how EPA is directing the program
    offices and OECA to reduce barriers, transaction costs and approval
    time for reinvention projects?
        Answer. In the development of regulatory flexibility agreements and
    supporting legal documents, EPA program offices and OECA provide
    valuable expertise that ensures the viability of the agreement if
    challenged. However, EPA is continuing to explore ways to reduce
    transaction costs and approval time and, in particular, EPA will
    continue to streamline internal review and decision-making where
    appropriate.
        For its programs that rely on voluntary participation in exchange
    for flexibility or recognition, EPA has continually worked to reduce
    the transaction costs. For example, in a mid-course re-engineering, the
    XL program cut approval and negotiation times significantly. We were
    able to do so by clarifying program elements, helping sponsors develop
    better projects and proposals, improving stakeholder involvement
    processes, and streamlining internal review and decision-making. EPA
    will continue to place a high priority on reducing transaction costs
    for participants, co-regulators, stakeholders and itself. Because the
    innovations agenda may affect some of these programs, specific actions
    cannot be initiated until the innovations agenda is established.
        The program offices and OECA are significantly involved in
    expanding the application of successful innovations tested under
    reinvention projects. For example, the Environmental Results Program
    (ERP) was designed by the Massachusetts Department of Environmental
    Protection. ERP is a self-certification program that replaces
    individual facility permits for small sources with a set of multi-media
    industry-wide performance standards and a facility-derived annual
    certification of compliance. Using a combination of compliance
    assurance tools, ERP has improved performance for small business
    sectors and resulted in savings for these businesses, thereby allowing
    regulators to focus resources on more pressing environmental problems.
        EPA, in partnership with the State of Massachusetts, is working to
    disseminate the successful elements of ERP to other states facing
    environmental issues in small business sectors. EPA program offices and
    OECA are providing technical and financial assistance to identify areas
    and problems that ERP could solve to the District of Columbia, Florida
    and Maryland.
       reinvention: environmental benefits of regulatory flexibility vs.
                         status quo regulatory schemes
        Question. Describe the ways EPA can further articulate the
    environmental benefits of regulatory flexibility v. status quo
    regulatory schemes.
        Answer. EPA is at an important juncture in the cycle of testing and
    broadening the application of innovative approaches. EPA has recently
    issued its first Innovation Strategy, which explicitly charges the
    Agency to establish a system to move innovative approaches from testing
    to broader application. Critical to this system is the evaluation of
    new approaches to establish their effectiveness relative to the status
    quo regulatory system. EPA recognizes this and has been collecting the
    data necessary for those analyses as it implements its innovations
    programs.
        EPA routinely measures and makes public the environmental benefits
    of the regulatory flexibility granted in its innovations programs. In
    developing the flexibility in a pilot project, EPA establishes the
    expected environmental performance baseline of the status quo and also
    characterizes the expected environmental benefits of the new approach.
    Second, EPA tracks and measures the environmental results of the pilot
    and reports results against the baseline annually.
        The goal of these assessments is to identify new ideas and
    approaches that work and then put them to use on a broader scale so
    that the environment, industry, and communities can benefit. As these
    projects have had time to demonstrate whether the approaches are
    effective or not, EPA will evaluate their appropriateness for further
    application. For example, significant data were collected from early
    tests of the Environmental Results Program, a program developed by the
    State of Massachusetts and tested by EPA, that clearly demonstrate the
    environmental benefits of the self-certification approach for small
    businesses. Based on that information, EPA is working with
    Massachusetts to demonstrate the value of the approach to other states.
    This approach has been very successful with several states in the
    process of adopting the approach.
        As part of managing the full cycle of the innovations process, EPA
    will regularly review innovations being tested for their potential for
    broader application. Those that are will be evaluated for their
    environmental benefits relative to the status quo regulatory system.
      small business: examples of program offices tailoring analysis and
         regulatory proposals to realities of given industrial sectors
        Question. Provide examples of how incorporation of small business
    concerns are enabling program offices to more closely tailor their
    analysis and regulatory proposals to the realties of given industrial
    sectors?
        Answer. The impact of the Small Business Regulatory Enforcement
    Fairness Act on EPA's regulatory analysis and proposals has been far-
    reaching, and consideration of small-business concerns is now prominent
    in many sectoral actions. For example, when regulating engine
    emissions, the Office of Transportation and Air Quality typically
    considers modified requirements or even exclusions for certain engine
    families or a set quantity of units in order to reduce burden on small-
    quantity manufacturers. When issuing Maximum Attainable Control
    Technology standards for a given industry under the Clean Air Act, the
    Office of Air Quality Planning and Standards typically excludes area
    sources or low-capacity sources defined otherwise to reduce the number
    of small businesses likely to be subject to technology requirements.
    Likewise, the Office of Science and Technology in the Office of Water
    typically writes Effluent Limitation Guidelines by excluding low-flow
    systems in order to avoid regulatory costs for small businesses that
    typically operate under low-flow conditions. By its nature, the Safe
    Drinking Water Act governs the water-supply sector, and EPA typically
    accommodates small systems by granting delayed implementation
    schedules, reduced monitoring requirements, and alternative
    technologies. We are also investing in alternatives to regulations,
    such as Environmental Management Systems and the Environmental Results
    Program. Mechanisms such as these hold high promise of relieving small
    businesses of costly requirements.
    small business: increase knowledge of impact of regulatory requirements
                              in fiscal year 2003
        Question. In fiscal year 2003, how will EPA further increase its
    knowledge of the impacts of its regulatory requirements on small
    business?
        Answer. It continues the Agency's policy that program offices
    should assess the direct impact of every rule on small entities and
    minimize any impact to the extent feasible, regardless of the magnitude
    of the impact or number of small entities affected. This ``any-any''
    policy, which goes beyond the requirements of the Regulatory
    Flexibility Act, has been the Agency's policy since before the
    inception of the Small Business Regulatory Enforcement Fairness Act and
    will continue to be so in the future. To build upon this important
    policy, the Agency will increase its knowledge of its regulatory
    requirements on small business by:
        Greater Utilization of the Small Business Division (SBD).--EPA's
    SBD assists the program offices by helping identify and characterize
    small businesses affected by Agency actions, sharing insights on
    regulatory impacts, and encouraging innovative approaches to regulatory
    development. In fiscal year 2003, the SBD will enhance its outreach
    efforts with the program offices by recommending small businesses for
    consultation activities, participating on workgroups to provide early
    guidance on rules, and developing training materials to promote better
    understanding of small business issues during the rulemaking process.
        Training.--The Agency's Regulatory Steering Committee (RSC) is
    currently developing a training curriculum to implement the Agency's
    2001 EPA Task Force on Regulatory Development recommendations. The
    initial training will be for Assistant Administrators; however, the
    goal is to eventually provide training for all decision-makers and rule
    writers. The initial training for Assistant Administrators will include
    an overview of the importance and necessity of small business outreach
    to understand and mitigate adverse impacts. The training will include
    guidance on how to address this important responsibility.
        Guidance.--The RSC is also revising its ``Analytical Blueprint''
    (Blueprint) guidance. The Blueprint is a planning document that is
    developed early in the process to guide the analytic support developed
    for priority regulations. The guidance will include small business
    considerations so that potential impacts may be analyzed, as
    appropriate.
        Outreach.--Program offices are encouraged to attend briefings,
    interact with stakeholders, and participate in conferences and other
    events to help increase knowledge of the impacts of its regulatory
    requirements on small businesses. One such example is the annual Small
    Business Ombudsman (SBO)/Small Business Assistance Program (SBAP)
    National Conference. This year's conference is hosted by the Illinois
    Department of Commerce and Community Affairs and will be held in
    Chicago on June 29-July 3. These conferences provide an opportunity for
    the state small business programs and EPA to share information about
    small business needs across the country. The conference provides
    training and interactive opportunities for all that attend. Each year,
    representatives from EPA program offices and regions participate and
    learn about small business characteristics, impacts, and needs. In
    addition, the Agency will continue to facilitate meetings between the
    Deputy Administrator and small business groups to ensure that small
    businesses have an opportunity to share their issues and concerns with
    the Agency's senior management. Finally, the Agency's Small Business
    Advocacy Chair will continue to work with the Small Business
    Administration, the Office of Management and Budget, and small business
    stakeholders, as appropriate.
        Improved Access.--The Agency is providing better ways for small
    businesses to share their views on proposed regulations and policies.
    The Agency has created EDOCKET, an electronic public docket and on-line
    comment system designed to expand access to documents in EPA's major
    dockets. EDOCKET will enable small businesses to participate in the
    rule-making process and access electronic docket materials more easily
    and more efficiently by using the Internet. This system was developed
    to process and manage public information, including rule making
    documents, supporting documentation, and Federal Register notices. It
    will also help small businesses view, retrieve, and submit comments
    online. Such improved access will help the Agency increase its
    knowledge of the impacts of its regulatory requirements on small
    businesses.
        Innovative Approaches.--In April, the Agency released its
    Innovation Strategy. This strategy reflects EPA's commitment to explore
    new and creative ways of achieving cleaner air, purer water, and better
    protected land. The strategy provides the Agency with a practical
    framework for encouraging innovative solutions to environmental
    challenges. Key actions in this framework include strengthening
    environmental partnerships, targeting priorities, expanding the current
    collection of tools, and creating a more innovative culture to
    effectively address challenging problems. Small businesses will be an
    integral component of the Agency's innovative approach.
     small business: increase knowledge of impact of rulemaking in fiscal
                                   year 2003
        Question. In fiscal year 2003, how will EPA increase its knowledge
    of the impacts on small business of rulemakings under consideration?
        Answer. Understanding the impacts on small business is a critical
    component of the Agency's rulemaking process. In fiscal year 2003, the
    Agency will continue to implement recommendations from the Task Force
    on Regulatory Development to strengthen the analysis of policy issues,
    including the impact on small businesses. Small business considerations
    will be specifically addressed in the Analytic Blueprints for priority
    actions. In addition, the Agency will continue to solicit the input of
    small businesses during public comment periods for proposed rules, as
    well as outreach to small business stakeholders under the Agency's
    ``any/any'' policy. Finally, the Agency's Small Business Advocacy Chair
    will continue to work with the Small Business Administration, the
    Office of Management and Budget, and small business stakeholders, as
    appropriate.
        In fiscal year 2003, the Agency's Small Business Division will
    continue to work with the program offices to ensure that rulemakings
    that are under consideration adequately address small business issues.
    Such activities include participating on current workgroups, as well as
    helping program offices identify and consult with affected small
    business sectors. The Agency will increase its knowledge of impacts on
    small business by:
        Greater Utilization of the Small Business Division (SBD).--EPA's
    SBD assists the program offices by helping identify and characterize
    small businesses affected by Agency actions, sharing insights on
    regulatory impacts, and encouraging innovative approaches to regulatory
    development. In fiscal year 2003, the SBD will enhance its outreach
    efforts with the program offices by recommending small businesses for
    consultation activities, participating on workgroups to provide early
    guidance on rules, and developing training materials to promote better
    understanding of small business issues during the rulemaking process.
        Training.--The Agency's Regulatory Steering Committee (RSC) is
    currently developing a training curriculum to implement the Agency's
    2001 EPA Task Force on Regulatory Development recommendations. The
    initial training will be for Assistant Administrators; however, the
    goal is to eventually provide training for all decision-makers and rule
    writers. The initial training for Assistant Administrators will include
    an overview of the importance and necessity of small business outreach
    to understand and mitigate adverse impacts. The training will include
    guidance on how to address this important responsibility.
        Guidance.--The RSC is also revising its ``Analytical Blueprint''
    (Blueprint) guidance. The Blueprint is a planning document that is
    developed early in the process to guide the analytic support developed
    for priority regulations. The guidance will include small business
    considerations so that potential impacts may be analyzed, as
    appropriate.
        Outreach.--Program offices are encouraged to attend briefings,
    interact with stakeholders, and participate in conferences and other
    events to help increase knowledge of the impacts of its regulatory
    requirements on small businesses. One such example is the annual Small
    Business Ombudsman (SBO)/Small Business Assistance Program (SBAP)
    National Conference. This year's conference is hosted by the Illinois
    Department of Commerce and Community Affairs and will be held in
    Chicago on June 29-July 3. These conferences provide an opportunity for
    the state small business programs and EPA to share information about
    small business needs across the country. The conference provides
    training and interactive opportunities for all that attend. Each year,
    representatives from EPA program offices and regions participate and
    learn about small business characteristics, impacts, and needs. In
    addition, the Agency will continue to facilitate meetings between the
    Deputy Administrator and small business groups to ensure that small
    businesses have an opportunity to share their issues and concerns with
    the Agency's senior management. Finally, the Agency's Small Business
    Advocacy Chair will continue to work with the Small Business
    Administration, the Office of Management and Budget, and small business
    stakeholders, as appropriate.
        Improved Access.--The Agency is providing better ways for small
    businesses to share their views on proposed regulations and policies.
    The Agency has created EDOCKET, an electronic public docket and on-line
    comment system designed to expand access to documents in EPA's major
    dockets. EDOCKET will enable small businesses to participate in the
    rule-making process and access electronic docket materials more easily
    and more efficiently by using the Internet. This system was developed
    to process and manage public information, including rule making
    documents, supporting documentation, and Federal Register notices. It
    will also help small businesses view, retrieve, and submit comments
    online. Such improved access will help the Agency increase its
    knowledge of the impacts of its regulatory requirements on small
    businesses.
        Innovative Approaches.--In April, the Agency released its
    Innovation Strategy. This strategy reflects EPA's commitment to explore
    new and creative ways of achieving cleaner air, purer water, and better
    protected land. The strategy provides the Agency with a practical
    framework for encouraging innovative solutions to environmental
    challenges. Key actions in this framework include strengthening
    environmental partnerships, targeting priorities, expanding the current
    collection of tools, and creating a more innovative culture to
    effectively address challenging problems. Small businesses will be an
    integral component of the Agency's innovative approach.
      small business: increase knowledge of delivery of information about
                  regulatory requirements in fiscal year 2003
        Question. In fiscal year 2003, how will EPA increase delivery of
    information about its regulatory requirements to small businesses?
        Answer. The Agency is committed to working with small businesses to
    ensure that they are aware of, and understand, their environmental
    regulatory responsibilities. While the Agency has made great strides to
    reach out to small businesses, it continues to look for new
    opportunities to address this key component of the regulatory system.
    In fiscal year 2003, the Agency will build upon its progress by:
        Greater Utilization of the Small Business Division (SBD).--The SBD
    hosts a toll-free hotline to answer small businesses' questions about
    environmental regulations. The hotline receives over 1,000 calls a
    month. The hotline will continue to be promoted as it provides one-
    stop' assistance to help America's small businesses find answers to
    their environmental questions. In addition, program offices will
    continue to use the SBD's vast network of small business contacts to
    distribute notices, announcements and other relevant compliance
    information to small business groups. The SBD will continue to publish
    a newsletter twice a year that reports on important Agency activities.
    In addition, the new Small Business Environmental Assistance Providers
    Directory will be distributed to small business groups. The directory
    is an easy-to-use quick reference of the key Federal, State and private
    programs that can address small business environmental compliance,
    pollution prevention and other related questions and concerns. It
    provides all of the relevant environmental contacts a small business
    needs in one convenient location. The SBD will continue to keep the
    small business community updated on Agency regulatory activities by
    distributing EPA's weekly press releases and the Small Business
    Quarterly Alert to its comprehensive e-mail network.
        Outreach.--The Agency will continue to support access to regulatory
    assistance via comprehensive websites. These resources include the EPA
    websites targeting small businesses (www.epa.gov/smallbusiness;
    www.epa/sbrefa; the small business regulatory library (http://
    yosemite1.epa.gov/OPEI/smallbus/nsf)) and EPA-supported sites such as
    one dedicated to small business issues (www.smallbiz-enviroweb.org). In
    addition, the Agency has initiated over 100 activities designed to help
    small businesses fulfill their environmental responsibilities.
        In fiscal year 2003, the Agency will continue to build upon these
    activities, including promoting the successful compliance assistance
    centers (http://www.epa.gov/compliance/assistance/centers/index.html)
    and sector resources, developing expert systems to help specific
    industries address compliance questions, holding workshops in the
    regions to educate small businesses on new rules, and developing fact
    sheets to help simplify small business obligations. Lastly, the Agency
    will continue to work with small business stakeholders throughout the
    rulemaking process to identify effective approaches to deliver
    information to small businesses. Specific examples include Small
    Business Advisory Chair outreach, early consultation with small
    business representatives, Small Business Regulatory Enforcement
    Fairness Act (SBREFA) panels, and SBREFA Compliance Guides, as
    appropriate.
        Partnerships.--The Agency will continue to work with the regions,
    states, and compliance assistance providers such as the State Small
    Business Assistance Program to deliver information to small businesses.
    Partnering with these stakeholders will help amplify EPA's message and
    ensure that information is reaching the small business community.
      small business: program offices considering rulemakings determining
             impact on potential small business in fiscal year 2003
        Question. In fiscal year 2003, how will EPA further ensure that
    program offices considering rulemakings determine potential small
    business impacts in areas which they may not already be aware?
        Answer. For Agency rules to be effective, the rule writers must
    understand the industry being regulated. EPA's current regulatory
    process requires rule writers to identify rules that will affect small
    businesses and investigate options that could minimize adverse burden.
    EPA will continue to support this important step in the regulatory
    process. In fiscal year 2003, the program offices will continue to work
    with the Small Business Advocacy Chair, the Small Business Regulatory
    Enforcement Fairness Act (SBREFA) Team, and the Small Business Division
    to identify and consult with affected small business entities. With
    additional emphasis on Analytic Blueprints and on early planning,
    consideration of small business issues should improve. To further
    support these efforts, EPA is improving the guidance and training
    associated with its Action Development Process, as well as maintaining
    information on its SBREFA website (www.epa.gov/sbrefa).
        Furthermore, the Agency will complete the revision to its Small
    Business Strategy in fiscal year 2003. Significant research has been
    conducted to investigate what is working at the Agency and what
    activities need to amended to effectively address small business
    issues. The intent of the strategy will be to better integrate Agency
    activities that support small businesses, including technical
    assistance and outreach, regulations that minimize burden, and
    participation in EPA's voluntary programs. A primary goal of the
    strategy will be to ensure that program offices have the tools and
    information needed to understand the small business sector and, thus,
    appropriately regulate the selected industry. The Agency will determine
    potential small business impacts by:
        Greater Utilization of the Small Business Division (SBD).--EPA's
    SBD assists the program offices by helping identify and characterize
    small businesses affected by Agency actions, sharing insights on
    regulatory impacts, and encouraging innovative approaches to regulatory
    development. In fiscal year 2003, the SBD will enhance its outreach
    efforts with the program offices by recommending small businesses for
    consultation activities, participating on workgroups to provide early
    guidance on rules, and developing training materials to promote better
    understanding of small business issues during the rulemaking process.
        Training.--The Agency's Regulatory Steering Committee (RSC) is
    currently developing a training curriculum to implement the Agency's
    2001 EPA Task Force on Regulatory Development recommendations. The
    initial training will be for Assistant Administrators; however, the
    goal is to eventually provide training for all decision-makers and rule
    writers. The initial training for Assistant Administrators will include
    an overview of the importance and necessity of small business outreach
    to understand and mitigate adverse impacts. The training will include
    guidance on how to address this important responsibility.
        Guidance.--The RSC is also revising its ``Analytical Blueprint''
    (Blueprint) guidance. The Blueprint is a planning document that is
    developed early in the process to guide the analytic support developed
    for priority regulations. The guidance will include small business
    considerations so that potential impacts may be analyzed, as
    appropriate.
        Outreach.--Program offices are encouraged to attend briefings,
    interact with stakeholders, and participate in conferences and other
    events to help increase knowledge of the impacts of its regulatory
    requirements on small businesses. One such example is the annual Small
    Business Ombudsman (SBO)/Small Business Assistance Program (SBAP)
    National Conference. This year's conference is hosted by the Illinois
    Department of Commerce and Community Affairs and will be held in
    Chicago on June 29-July 3 These conferences provide an opportunity for
    the state small business programs and EPA to share information about
    small business needs across the country. The conference provides
    training and interactive opportunities for all that attend. Each year,
    representatives from EPA program offices and regions participate and
    learn about small business characteristics, impacts, and needs. In
    addition, the Agency will continue to facilitate meetings between the
    Deputy Administrator and small business groups to ensure that small
    businesses have an opportunity to share their issues and concerns with
    the Agency's senior management. Finally, the Agency's Small Business
    Advocacy Chair will continue to work with the Small Business
    Administration, the Office of Management and Budget, and small business
    stakeholders, as appropriate.
        Improved Access.--The Agency is providing better ways for small
    businesses to share their views on proposed regulations and policies.
    The Agency has created EDOCKET, an electronic public docket and on-line
    comment system designed to expand access to documents in EPA's major
    dockets. EDOCKET will enable small businesses to participate in the
    rule-making process and access electronic docket materials more easily
    and more efficiently by using the Internet. This system was developed
    to process and manage public information, including rule making
    documents, supporting documentation, and Federal Register notices. It
    will also help small businesses view, retrieve, and submit comments
    online. Such improved access will help the Agency increase its
    knowledge of the impacts of its regulatory requirements on small
    businesses.
        Innovative Approaches.--In April, the Agency released its
    Innovation Strategy. This strategy reflects EPA's commitment to explore
    new and creative ways of achieving cleaner air, purer water, and better
    protected land. The strategy provides the Agency with a practical
    framework for encouraging innovative solutions to environmental
    challenges. Key actions in this framework include strengthening
    environmental partnerships, targeting priorities, expanding the current
    collection of tools, and creating a more innovative culture to
    effectively address challenging problems. Small businesses will be an
    integral component of the Agency's innovative approach.
      small business: ensure program offices' economic analysis of small
      business impacts do not omit small business or industry sectors in
                                fiscal year 2003
        Question. In fiscal year 2003, how will EPA further ensure that
    program office economic analysis of small business impacts do not omit
    small businesses or industry sectors it believes may be impacted by the
    rulemaking but on which the agency does not currently possess impact
    information?
        Answer. The Agency will continue to stress the importance of
    outreach to small business sectors to ensure that its rules accurately
    represent the industry that is being regulated. Mechanisms for ensuring
    consideration of small business issues include: attention during the
    analytic blueprint development stage; continued implementation of the
    Agency's ``any/any'' policy; RFA/SBREFA guidance, including assistance
    to rule writers on completing Initial Regulatory Flexibility Analysis
    (IRFA) and Final Regulatory Flexibility Analysis (FRFA); and
    implementation of the Agency's Guidelines for Preparing Economic
    Analyses, which includes a section on addressing small businesses.
        In fiscal year 2003, the Agency will also continue to improve
    communications with small business groups and trade associations by
    preparing newsletters for small business stakeholders and holding
    meetings with trade association representatives. Such activity will
    help educate the small business community about upcoming regulations
    and provide opportunities for small businesses to participate in the
    process.
        Furthermore, EPA will continue to publish and distribute, via
    mechanisms including the Small Business Division (SBD), the semi-annual
    Regulatory Agenda to small business contacts, which serves as an
    effective alert on upcoming regulatory actions. The SBD will continue
    to be the lead conduit to receive information from small business
    groups on upcoming rules, and is charged with alerting the program
    offices accordingly.
                               new source review
        Question. There are roughly 20,000 sources in this country subject
    to the Clean Air Act, and EPA may take the position that any repair or
    replacement work at these sources (other than minor maintenance that
    occurs frequently at an individual facility) triggers an analysis under
    the new sources review (NSR) modification rule. How many NSR
    applicability determinations do you estimate will be required annually
    for those 20,000 sources? Has this question been part of your review of
    NSR?
        Answer. The impact of EPA's ``routine maintenance'' policies is a
    question that we examined during the NSR review. Many commenters
    expressed concern about the potential impact of EPA's policy.
    Commenters did not provide sufficient data to estimate the number of
    NSR applicability determinations undertaken annually. EPA does not
    consider routine maintenance, repair or replacement work to trigger NSR
    rules.
        Question. A nationwide census of coal-fired boilers indicates that
    each existing coal-fired boiler, on average, repairs or replaces the
    types of equipment that EPA has identified in its NSR enforcement
    actions at least once per year. Assuming that this is correct, how many
    additional NSR permits would such repair and replacement activity
    entail each year?
        Answer. EPA's enforcement records do not support the assumption
    presented by this question. If a utility undertakes non-routine types
    of changes on an annual basis, which would be uncommon, only those
    changes that result in significant net emissions increases would
    trigger NSR. Simply performing a non-routine repair or replacement does
    not necessarily lead to NSR.
        As to the number of NSR permits needed, EPA's records indicate that
    utility companies have about 1,100 coal-fired boilers currently in use,
    but we would need more specific information about the types of changes
    and their effect on emissions increases before determining which ones
    may require permits.
        Question. An EPA NSR expert has testified that, if a motor in a
    factory broke down and had to be replaced, the factory could not reopen
    for up to 2 years while the company processed paperwork and obtained an
    NSR permit. Even then, the facility could not resume operations until
    it retrofit new sources control technologies. Is this correct? Have you
    performed an analysis of what this means for the nation's energy
    supply?
        Answer. We are unable to ascertain whether this is a correct
    interpretation of testimony provided by an EPA expert. It is important
    to note that only non-routine changes that significantly increase
    emissions are required to undergo major NSR permitting. The
    determination of whether a change is routine, and if not, its effect on
    emissions, are based on case-specific facts, and the question does not
    provide enough information to draw a conclusion for the case described.
    In cases where unexpected equipment failure has occurred in the past,
    the Agency has consistently worked with industry and state and local
    permitting authorities to allow the facility to get the unit back in
    operation quickly. Moreover, it is unlikely that the replacement of a
    minor factory component would require major NSR permitting.
        EPA reviewed the impacts of NSR on investment in new utility and
    refinery generation capacity, energy efficiency, and environmental
    protection, as recommended in the National Energy Policy. The report
    examined among other things, the impact of delays associated with NSR.
    We reported to the President on our findings on June 13, 2002.
        Question. Over the last 30 years, EPA's regulations and practices
    have excluded from NSR all ``routine maintenance, repair and
    replacement'' and that EPA's regulations specifically exclude any
    increases in emissions associated with operating a facility more hours,
    unless such an increase is prohibited by a federally enforceable permit
    condition. So if all of this is correct, then how can it be explained
    that emissions are down under the CAA?
        Answer. Under the Clean Air Act, NSR is only one tool to manage and
    reduce emissions. In addition, there are several other significant
    Clean Air Act programs working to provide substantial emissions
    reductions. For example, the Title IV Acid Rain Program has reduced
    SO2 emissions from the electric utility industry by more
    than 7 million tons per year. The Tier 2 motor vehicle emissions
    standards and gasoline sulfur control requirements will ultimately
    achieve NOX reductions of 2.8 million tons per year.
    Standards for highway heavy-duty vehicles and engines will reduce
    NOX emissions by 2.6 million tons per year. Standards for
    non-road diesel engines are anticipated to reduce NOX
    emissions by about 1.5 million tons per year. The NOX ``SIP
    Call'' will reduce NOX emissions by over 1 million tons per
    year. These reductions, together with NSR's minimization of increases
    from new sources and modifications that increase emissions, have worked
    together to ensure that emissions have continued to decrease as the
    economy has grown.
        Question. Owners of electric generating units may be able to avoid
    NSR by surrendering voluntarily available capacity through ``minor
    source'' permit proceedings. Under these procedures capacity, whose
    construction states have authorized and which ratepayers have paid for,
    could not be used. What are the potential impacts on the national and
    state economies of this potential loss of generation capacity?
        Answer. The NSR program does not require a utility making a change
    that results in an emissions increase potentially subject to NSR to
    surrender generation capacity in order to avoid major NSR permitting.
    In the limited cases where NSR potentially applies, the source has
    options for how to assure that its emissions do not increase as a
    result of the change. While some options may involve limiting operation
    to historic levels, others include reducing the emissions rate at the
    unit or at other units at the plant. Nevertheless, the EPA examined the
    extent to which generation capacity may be affected by NSR as part of
    its review and reported to the President on June 13, 2002.
        Question. As the summer electric peak season draws near, the
    operators of our nation's electric generating fleet are still waiting
    for published guidelines on how your agency will view maintenance and
    repair under the NSR program. These guidelines have been promised for
    months. Without these EPA guidelines for plant operators to follow,
    this reliability and the ability to meet the summer peak demands could
    be threatened. When will these guidelines be published?
        Answer. As noted previously, the EPA has been looking closely at
    this question as part of its review of NSR and is proceeding as
    expeditiously as possible to determine how best to respond to concerns
    raised by operators of electric generators and other stakeholders. We
    reported to the President on June 13, 2002 on our review of the NSR
    program. In that report, EPA proposed to initiate a rulemaking and
    public comment process on routine maintenance, repair and replacement.
    As has been done in the past, EPA will continue to work closely with
    generators and regulators alike to ensure that electric generation
    needs are met in harmony with the nation's clean air goals.
          toxics release inventory (tri) program and the tri lead rule
        Question. The newly enacted Information Quality Act requires
    agencies to ensure and maximize the quality, objectivity, utility, and
    integrity of data disseminated by the agencies. How does EPA plan to
    meet these goals with regard to the reporting data generated under the
    TRI lead rule?
        Answer. Section 313 of the Emergency Planning and Community Right-
    to-Know Act (EPCRA) of 1986 and section 6607 of the Pollution
    Prevention Act (PPA) of 1990 requires EPA to annually collect releases
    and other waste management quantities of listed toxic chemicals from
    covered facilities. EPCRA section 313 also requires EPA to make this
    information available to the Federal, State, and local governments,
    researchers, and the public. EPCRA section 313 is very clear that EPA
    should not require facilities to conduct any additional monitoring or
    testing to comply, but that facilities should use readily available
    information, such as monitoring data collected pursuant to other laws,
    or make a reasonable estimate of their release information. Therefore,
    the quality of the TRI data is dependent upon the information submitted
    by each facility.
        To assist facilities in developing their release and other waste
    management estimates, the TRI Program provides extensive compliance
    assistance, such as:
      --industry-specific or chemical-specific guidance documents;
      --annual industry training workshops;
      --user-friendly software such as the TRI Made Easy (TRI-ME). TRI-ME
            is an interactive, intelligent software tool that guides
            facilities through the TRI reporting experience;
      --annual updates of the Reporting Forms and Instructions;
      --TRI User Support: a mechanism by which individuals with questions
            or need assistance can contact EPA's TRI Program directly to
            the EPA headquarters TRI staff;
      --EPCRA Call Center is a toll free number industry may call to obtain
            answers and guidance to questions about completing the TRI
            (EPCRA section 313) forms. The EPCRA Call Center number is
            (800) 424-9346. For callers in the Washington, DC area the
            number is (703) 412-9810. The TDD is (800) 553-7672; and
      --facilities are also encouraged to write to the TRI Program
            directly, asking site specific questions relating to TRI
            reporting requirements. The TRI program will respond directly
            to the facility in writing.
        In addition to the above compliance assistance activities, the TRI
    Program has a number of procedures in place to ensure the quality of
    the data. Below are some examples of the types of procedures
    implemented by the program:
        EPA's Data Entry Process is virtually (99.9 percent) error free. A
    key component of this process is double key entry.
        Once a facility's data is entered into the EPA database, EPA prints
    out the entered data in a ``facility data profile'' (FDP) that is sent
    back to the facility to check. The FDP automatically checks for data
    errors and notes those on the FDP that is sent back to the facility.
    Facilities can then make revisions to their data if needed.
        Independent of the ``FDP process,'' EPA has a process for
    facilities to revise or withdraw their chemical reports if they
    discover they have made an error in reporting. For the 2000 reporting
    year, EPA evaluated approximately 350 such requests from facilities to
    withdraw reported data from the TRI database and about 10,000 requests
    for revisions to data.
        EPA sends each state a list of all the facilities that submitted a
    TRI report to EPA and all the chemicals that they reported so that the
    states can check this against the TRI reports they directly receive.
        EPA sends each state a list of the 100 facilities with the largest
    releases in that state. EPA asks the state to make sure that there are
    no facilities included or excluded that should not be. EPA follows up
    with telephone calls to the states.
        Once all the data has been entered into the TRI database, EPA calls
    facilities that may have an error in reporting, e.g., those facilities
    that reported very large increases or decreases in their releases from
    1 year to the next and facilities with very large quantities of
    releases and total production-related waste. EPA called more than 200
    facilities this year that met that criteria. Approximately 27 of the
    facilities called had significant errors that needed to be corrected.
        This year, for the newly-reported persistent bioaccumulative and
    toxic (PBT) data, EPA identified 560 facilities to be called regarding
    their PBT chemical reports. As a result of these calls, approximately
    130 facilities revised their reported release and other waste
    management data for PBT chemicals. For example, facilities revised
    their total release quantity of dioxin and dioxin-like compounds to
    95,910 grams from the 750,226 grams originally reported.
        Lastly, with regard to the Information Quality Guidelines, EPA is
    developing Information Quality Guidelines to be issued by October 1,
    2002, as specified in the guidelines published by the Office of
    Management and Budget (OMB). EPA's guidelines will build upon ongoing
    efforts to improve the quality of the information used to support
    Agency policy and regulatory decisions. Given existing Agency-wide
    systems and procedures and the TRI Program methods, EPA is confident
    that the TRI Program will be consistent with OMB's Information Quality
    Guidelines.
              agency's response to incorrect data in tri database
        Question. How does EPA plan to identify information contained in
    the database that does not meet the data quality standards, to correct
    or remove it, and educate citizens that the TRI database contains such
    information?
        Answer. EPA currently provides information to the public on its
    website that explains the benefits and limitations of the TRI data. In
    a document called ``The Toxics Release Inventory (TRI) and Factors to
    Consider When Using the TRI Data'' EPA explains that facilities may
    report estimated data to the TRI Program and that the program does not
    require them to conduct additional monitoring. This document also
    explains that various estimation techniques may be used by facilities
    when monitoring data are not available. EPA intends to continue to make
    this type of information available to TRI data users and provide
    context about the TRI data.
        EPA is currently in the process of drafting its Information Quality
    Guidelines. As part of this effort, EPA is reviewing its existing
    procedures for correcting information the Agency disseminates to the
    public. EPA's guidelines, which are due to be issued October 1, 2002,
    will address the identification and correction of information that does
    not comply with the guidelines.
                           tri lead rule data quality
        Question. What measures has EPA instituted to ensure that data
    collected under the rule requiring TRI reporting for lead and lead
    compounds are of high quality?
        Answer. EPA does not require facilities to conduct any monitoring
    or testing solely for the purpose of TRI reporting. The TRI data
    reported by facilities represent facility estimates based on monitoring
    data required by other provisions of law, or if not available, on the
    best available information. Therefore, the quality of the TRI data is
    dependent upon each facility.
        The Agency has been very active in publicizing the new EPCRA
    section 313 reporting requirements for lead and lead compounds, and in
    providing compliance assistance. A primary purpose of EPA's compliance
    assistance is to help those facilities that may need to comply with the
    new TRI reporting requirements make more accurate threshold
    determinations and more accurate estimates of releases and other waste
    management quantities of lead and lead compounds.
               small business concerns with data tri data quality
        Question. In view of concerns raised by small business associations
    in their February 21, 2002, letter to EPA Administrator Whitman about
    implementation problems with this rule, how confident is the Agency in
    the quality of the data that it will receive in the first reporting
    cycle under the lowered thresholds for lead and lead compounds?
        Answer. The Agency has been very active in publicizing the new
    EPCRA section 313 reporting requirements for lead and lead compounds,
    and in providing compliance assistance. A primary purpose of EPA's
    compliance assistance is to help those facilities that may need to
    comply with the new TRI reporting requirements make more accurate
    threshold determinations and more accurate estimates of releases and
    other waste management quantities of lead and lead compounds. The TRI
    Program has a number of procedures in place to improve the quality of
    the data. The TRI Program believes that, collectively, these practices
    plus the compliance assistance activities help to ensure the quality of
    the TRI data. The Agency recognizes that the first year data is
    inevitably for many a trial year and, therefore, not as reliable as
    subsequent years. However, it believes that the data will not be any
    worse than would normally be expected in a first reporting year.
       identification of business required to report under tri lead rule
        Question. How will EPA identify the businesses required to report
    under the TRI lead rule, especially the numerous small businesses that
    are newly subject to TRI reporting requirements under the rule? What
    outreach efforts has EPA made to ensure that each of them is aware of
    the new reporting requirements?
        Answer. EPA has been very active with outreach efforts during the
    entire development of the lead rule. This includes three public
    meetings that EPA conducted with special emphasis on potential small
    business impacts of the lead rule in Los Angeles, Chicago, and
    Washington, DC. The notices announcing the meeting were reviewed by the
    Small Business Association (SBA). The meeting was also announced in a
    targeted mailing. EPA has been very active in announcing the final TRI
    lead rule, and informing those who may have to comply with the new
    reporting requirements for lead and lead compounds. In addition to the
    Federal Register notice (April 17, 2002) and subsequent press releases,
    and extensive media coverage announcing the final lead rule, EPA's TRI
    Program has conducted extensive outreach efforts to inform those who
    may need to comply with the TRI lead rule of the new reporting
    requirements, and to provide compliance assistance, especially to those
    who are not familiar with TRI reporting. These outreach efforts are
    described briefly below.
        Fact Sheet.--In August of 2001, the TRI Program developed a ``Fact
    Sheet'' that announces: 1) the new TRI lead rule; 2) the development of
    a guidance document to provide technical assistance for complying with
    the lead rule; and 3) compliance assistance workshops. This Fact Sheet
    was distributed electronically by EPA's Small Business Office to many
    individuals and organizations (i.e., businesses, including small
    businesses and trade associations) that may be affected by the new
    rule.
        Guidance Document.--The TRI Program developed a technical guidance
    document through a public notice and comment process. A draft version
    was released on September 10, 2001, within 5 months after the lead rule
    became effective. A public (stakeholder) meeting was held on September
    24, 2001, to discuss the draft version. A final version was released at
    the beginning of January 2002.
        Lead Rule Training Workshops.--The TRI Program conducted nine lead
    rule workshops that were held throughout the various regions of the
    country in the fall of 2001. Approximately 730 people registered for
    the fall 2001 workshops. In general, the feedback received by the TRI
    Program from the participants was positive.
        EPA's Small Business Ombudsman Office sent out e-mail announcements
    to trade organizations and interested parties, including the SBA,
    announcing the lead rule workshops.
        EPA published a Federal Register notice announcing the lead rule
    workshops and sent flyers directly to interested parties via e-mail.
        EPA spoke at conferences, attended meetings, and assisted in the
    development of outreach materials for trade associations upon the
    request.
        EPA posted announcements of all of these efforts on the TRI
    Program's internet homepage, and EPA Regional offices sent out mass
    mailing announcements to regulated entities and states.
        In addition to the above-mentioned special assistance for the lead
    rule, the TRI Program has established an extensive compliance
    assistance program to all those who need to comply with TRI reporting
    requirements (including the lead rule), including those in small
    businesses. The TRI Program provides this assistance through the:
      --TRI hotline;
      --TRI Industry Workshops.--TRI Program sponsors compliance assistance
            workshops which are offered every spring in each EPA Region
            (approximately 3,000 attendees for the spring 2001 workshops).
            Currently, the TRI Program is conducting forty-two workshops
            across the country. These workshops cover the new reporting
            requirements for lead and lead compounds (the training
            materials for the 2002 spring workshops are available from the
            TRI Program's internet homepage);
      --TRI User Support.--A mechanism by which individuals with questions
            who need assistance can contact EPA's TRI Program; and
      --TRI-ME: TRI-ME is an interactive, intelligent, user-friendly
            software tool that guides facilities through the TRI reporting
            requirements.
        EPA believes that its outreach efforts to reach small businesses
    have been effective; this is supported by the fact that every year TRI-
    training workshops are well attended, and that the Agency has received
    many compliance-related questions from individuals from different types
    of facilities, sizes, and industry sectors. Also, during the public
    comment period of the proposed lead rule (published August 3, 1999),
    the Agency received many comments from small and large businesses and
    trade associations that represent diverse industry sectors. In
    addition, since promulgation of the final rule, the Agency has received
    many inquiries from: trade associations that represent small businesses
    and large businesses; the SBA; and individuals (e.g., presidents, CEOs)
    from businesses.
                small business unaware of reporting requirements
        Question. Are there still small businesses that are unaware of
    their reporting requirements, and if so, how will EPA educate them and
    require them to submit reports?
        Answer. EPA does not have a listing of the number of small
    businesses that are unaware of and not in compliance with the new
    reporting requirements. EPA will continue with its compliance
    assistance and outreach efforts and work with trade associations to
    assist businesses in complying with the TRI lead rule.
      general awareness of reporting requirements among those required to
                                     report
        Question. How confident is EPA that the entire population of those
    required to report under the new TRI lead rule are aware that they must
    report? What steps is EPA taking to ensure that all those who must
    report have received reporting forms, including those who will be
    reporting for the first time?
        Answer. EPA is confident that those facilities who may have to
    comply with the new TRI lead should be aware of it by now. This
    confidence is based on: (1) the attention that this rule has drawn from
    businesses and other entities during the public comment period of the
    proposed rule, and after the rule became final; (2) the mass
    announcements of the rule and new reporting requirements, training
    workshops, and a technical guidance document made by EPA via Federal
    Register notices, electronic mailings, flyers, and postings on the TRI
    Program's internet site; (3) notifications sent to the trade
    associations of activities related to the workshops and guidance
    documents; (4) attendance at the fall and spring training workshops;
    and (5) the many inquiries received by EPA from small and large
    businesses; trade associations; the SBA; and others regarding the new
    rule.
        EPA announces the availability and how to obtain the TRI reporting
    forms and instructions through a variety of mechanisms. These include:
    the TRI internet home page, the technical guidance manual for lead and
    lead compounds; the training workshops and the materials distributed at
    the workshops; TRI User Support (a mechanism by which individuals with
    questions or need assistance can contact EPA's TRI Program; and the TRI
    Hotline. Businesses may also obtain details regarding TRI Reporting
    forms from their trade associations.
       president's directive for technical assistance to small business
                            regarding tri lead rule
        Question. In his press release dated April 17, 2001, the President
    asked Administrator Whitman to provide technical assistance to affected
    small businesses to help them prepare their first reports under the TRI
    lead rule. What has been done to meet the President's directive? Have
    these efforts been adequate to ensure that these small businesses can
    provide high quality data?
        Answer. Subsequent to the decision to move forward with the final
    lead rule, the President specifically directed the EPA to provide
    compliance assistance to affected businesses, especially small
    businesses, to help them prepare their first release reports which are
    due by July 1, 2002.
        EPA has worked hard to provide this assistance. The Agency issued a
    technical guidance document on how to comply with the new lead rule and
    held nine workshops throughout the country last fall on the new rule.
    More than 700 individuals attended the workshops. These workshops and
    the availability of the draft and final versions of the guidance
    document were extensively publicized. This information was made
    available through announcements and notices published in the Federal
    Register, the Agency's TRI web page, and e-mail announcements sent out
    by EPA's Small Business Ombudsman Office to trade organizations and
    interested parties, including the SBA. In addition, TRI user support
    and access to TRI experts have been available through the TRI web page
    and interactive software link, as well as through the Agency's TRI
    telephone hotline.
        The Agency continues to work hard to provide compliance assistance.
    More than forty EPA workshops on compliance with the TRI reporting
    requirements are being held this spring in various areas of the
    country, and these workshops will be especially helpful to those who
    will be responsible for reporting lead and lead compounds for the first
    time. Also, the training materials used at these workshops are
    available on the Internet through the TRI web page.
        EPA's outreach to the small business community and compliance
    assistance efforts to help small businesses comply with the new lead
    reporting requirements have been unusually extensive and robust. The
    Agency will continue to be diligent in its contacts with affected
    businesses to give them the assistance necessary to comply with the new
    regulation.
        While EPA has been diligent in providing assistance to small
    businesses, the quality of the data is dependent on facilities because
    they have the best knowledge of their processes and the quantities of
    the chemicals that they use or manufacture.
         assistance to small business with compliance to tri lead rule
        Question. In my March 7, 2002 letter to Administrator Whitman, I
    raised concerns over EPA's failure to assist small businesses with
    compliance on the TRI lead rule. Does EPA plan to enforce the reporting
    requirements of the TRI lead rule during this first year when small
    businesses still have not received adequate guidance to assist in their
    compliance?
        Answer. As with any new TRI rule, EPA emphasizes compliance
    assistance during the first year of implementation rather than
    enforcement. In fact, the compliance assistance provided by the TRI
    Program regarding the new reporting requirements for lead and lead
    compounds has been unusually extensive and robust, and we believe
    sufficient to achieve compliance for the 2001 reporting year. EPA
    intends to continue promoting compliance by providing assistance with
    lead and lead compound reporting to TRI. Should a small business
    discover a violation after taking advantage of compliance assistance,
    either that provided by EPA or by another compliance assistance
    provider, it may be eligible for the Agency's Small Business Compliance
    Policy. This policy provides for the elimination or significant
    reduction of penalties for small businesses (those with 100 or fewer
    employees) if the company discovers, discloses, and promptly corrects
    the violations. Those businesses with greater than 100 employees may be
    eligible for similar penalty elimination or reduction through the
    Agency's Incentives for Self-Policing: Discovery, Disclosure,
    Correction and Prevention of Violations.
                          small business tri reporting
        Question. What materials are EPA making available to educate small
    businesses on how to report accurately under the TRI lead rule?
        Answer. The Agency's outreach to the small business community and
    compliance assistance efforts to help small businesses comply with the
    new lead reporting requirements have been unusually extensive and
    robust. A primary purpose of EPA's compliance assistance is to help
    those facilities that may need to comply with the new TRI reporting
    requirements make more accurate threshold determinations and estimates
    of releases and other waste management quantities for lead and lead
    compounds. One example of a product the Agency has made available to
    educate small businesses on how to report accurately is the lead
    guidance document, which is a technical document that offers assistance
    in complying with the new rule. In addition, TRI user support (a
    mechanism by which individuals with questions or need assistance can
    contact EPA's TRI Program and access to TRI experts are available
    through the TRI web page and interactive software link, as well as
    through the Agency's TRI telephone hotline). The training materials
    used at the spring 2002 training workshops are available on the
    Internet through the TRI web page. The TRI Program has recently
    developed TRI-ME: TRI-ME is an interactive, intelligent, user-friendly
    software tool that guides facilities through the TRI reporting
    requirements.
                 small business tri reporting without computers
        Question. How does EPA intend to educate small businesses required
    to report under the rule that do not have access to a computer or the
    Internet?
        Answer. There are many means (other than the internet) by which
    anyone can obtain information on how to comply with any TRI-related
    regulation, including the lead rule. One example includes the TRI
    Program's annual training workshops. These workshops are publicized in
    several different ways, such as through mailing announcements and
    Federal Register Notices. EPA has also established various other
    mechanisms for facilities to receive information or assistance. For
    example, facilities can contact the TRI Program directly by submitting
    written questions about site specific questions, and the TRI Program
    will respond in writing. Also, questions about the implementation of
    the TRI reporting requirements may be directed to the TRI User Support
    telephone line at 202-566-0250. Calls received will be forwarded
    directly to TRI Program staff. Upon request, the TRI Program will send
    out hard copies of the lead rule guidance document. The TRI Program has
    also established a hotline, the EPCRA Call Center, which is a toll-free
    number facilities may call to obtain answers and guidance to questions
    about completing the TRI Form R reporting form. The EPCRA Call Center
    number is (800) 424-9346. Callers in the Washington, DC area should
    call (703) 412-9810. The TDD is (800) 553-7672. This contact
    information is available through a variety of EPA publications. In
    addition, many trade associations have this information. EPA plans to
    continue these and other outreach and assistance efforts.
       tri: how has the guidance document received by the small business
                                   community
        Question. How has the guidance document for the rule, which is over
    200 pages and was not finalized until after the first reporting period
    was complete, been received by the small business community? To the
    extent concerns have been raised, how does EPA plan to address them?
        Answer. The TRI Program developed the guidance document through a
    public notice and comment process. A draft version was released on
    September 10, 2001 (which is within 5 months after the lead rule became
    effective). A public (stakeholder) meeting was held on September 24,
    2001. This meeting provided the TRI Program with the opportunity to
    discuss the draft version with stakeholders, and listen to comments
    offered by stakeholders. The final version of the document was
    developed from consideration of the comments submitted to EPA in
    writing during the public comment period, and comments raised at the
    public meeting. The final version was released at the beginning of
    January 2002: nearly 7 months before the deadline for submitting the
    first year release reports.
        The actual body of the lead rule guidance document is only 65 pages
    long. The remaining sections are appendices. The appendices contain
    extensive and valuable information such as emission factors, thereby
    minimizing the time for facilities to search for this information
    elsewhere (e.g., saves facilities time from having to search for the
    factors on the Internet or elsewhere). The guidance document is well
    organized and easy to use: it contains a table of contents, a list of
    figures, a list of tables, and an index. The guidance document contains
    many real-world examples of scenarios likely to be encountered at
    facilities. Detailed explanations are provided on how facilities should
    deal with these scenarios with regard to the new reporting requirements
    for lead and lead compounds. In addition, Appendix B of the document
    ``Selected Questions and Answers,'' provides EPA's answers to commonly
    asked questions regarding the new reporting requirements for lead and
    lead compounds.
        The TRI Program has a policy for revising its guidance documents.
    Guidance documents will be revised as appropriate, based on changes in
    information, rules, or TRI Program policies and practices. The TRI
    Program always welcomes comments and additional information for all of
    its guidance documents, from all stakeholders. The Agency may choose to
    revise the lead guidance document at a future date if the Agency
    believes that such revision is needed based on constructive comments
    received.
                   tri: unusual aspects of the tri lead rule
        Question. Because the TRI lead rule has aspects that are unique or
    unusual, such as the retroactive reporting obligation and the
    elimination of the de minimis reporting exemption, what specific
    guidance has the Agency developed to address these issues?
        Answer. The TRI lead rule does not impose a retroactive reporting
    obligation because it does not alter the past legal consequences of
    past actions. This rule does not affect a facility's liability for past
    conduct.
        In addition, no reporting obligation was placed on affected
    facilities prior to the rule's effective date. Reports are not required
    to be filed until July 1, 2002. Nor does the rule require facilities to
    have developed or kept records for any period predating the effective
    date of the rule; facilities are not required to conduct any testing or
    monitoring in order to report. EPCRA section 313(g)(2) only requires
    facilities to use ``readily available data'' or to make reasonable
    estimates based on whatever information they have, to develop their
    report.
        EPA's 1999 persistent, PBT chemicals rule eliminated the de minimis
    exemption for TRI reporting of PBT chemicals. In the TRI lead rule, EPA
    determined that lead and lead compounds are PBT chemicals. EPA has
    provided facilities with guidance in the lead guidance document, as
    well as in the training workshops, to aid facilities in meeting their
    reporting obligations in the absence of the de minimis exemption.
                       tri: assistance to small companies
        Question. Will EPA assist small companies in dealing with the
    retroactive effect of the rule by allowing them to estimate their lead
    usage during the months of January through April by extrapolating from
    data concerning their lead usage after the rule was made effective?
        Answer. EPCRA only requires facilities to use ``readily available
    data (including monitoring data) collected pursuant to other provisions
    of law, or, where such data are not readily available, reasonable
    estimates of the amounts involved.'' The lead rule does not alter this
    requirement. Thus, if facilities only have information concerning their
    lead use and/or ``releases'' after April 17, 2001 (the date the rule
    became effective) they may extrapolate from that to make reasonable
    estimates of the amount of lead ``released'' during the reporting year.
    However, to the extent that facilities have records of their use and
    releases of lead and lead compounds for other reasons, such as to
    demonstrate compliance with air or water permits, or for tax purposes,
    they would be required to consider that information in developing their
    threshold and release calculations.
                tri: small business and the 100-pound threshold
        Question. With regard to the deletion of the de minimis exemption,
    how are small businesses to determine if they meet the 100-pound
    threshold for reporting under the rule?
        Answer. EPCRA section 313 is very clear that EPA should not require
    facilities to conduct any additional monitoring or testing to comply,
    but that facilities should use readily available information, such as
    monitoring data collected pursuant to other laws, or make a reasonable
    estimate of their release information. Guidance for determining whether
    a facility exceeds the 100-pound threshold for manufacturing,
    processing, or otherwise using lead or lead compounds is presented: in
    the lead guidance document; at the training workshops; in materials
    distributed at the workshops and currently available from the TRI
    Program's internet home page (http://www.epa.gov/tri/report/training/
    index.htm); and directly from the TRI Program.
       tri: small business reporting responsibility in the case of ``no
                                  knowledge''
        Question. What responsibility does a small business have for
    reporting under the TRI lead rule if it has no knowledge that it
    manufactures, processes, or otherwise uses lead above 100 pounds per
    year?
        Answer. If a small business has no actual or constructive knowledge
    that it manufacturers, processes, or otherwise uses lead above the
    threshold (100 pounds per year), then it has no reporting
    responsibility for lead under the TRI lead rule.
                 tri: knowledge in the context of tri reporting
        Question. What constitutes knowledge in the context of TRI
    reporting?
        Answer. In this context, knowledge concerns both knowledge of the
    facts at a facility and knowledge of the law. It has been EPA's
    experience that facilities have knowledge, at a minimum, of the
    following: the facility's processes, EPA reporting instructions, EPA
    guidance documents, supplier notifications, trade association
    documents, the facility's air and water permits, and hazardous waste
    manifests. Regarding the issue of what constitutes a business'
    knowledge of the law, courts have long held that everyone possesses
    constructive knowledge of the laws passed by Congress and implementing
    rules and regulations published in the Federal Register.\1\
    ---------------------------------------------------------------------------
        \1\ See, e.g., U.S.C. 41507; Federal Crop Ins. Corp. v.
    Merrill, 332 U.S. 380 (1947).
    ---------------------------------------------------------------------------
        However, EPA has engaged in outreach efforts to promote awareness
    among those required to report, including a robust compliance
    assistance program. These efforts include: a technical guidance
    document devoted specifically to assisting businesses to comply with
    the lead rule (developed through public notice and comment), and nine
    lead rule workshops that were held throughout the various regions of
    the country in the fall of 2001. EPA estimates that more than 700
    individuals participated in the fall 2001 workshops. The Agency
    announced these workshops through several channels, including: e-mail
    announcements to trade organizations and interested parties, including
    the SBA; a Federal Register notice; flyers sent directly to interested
    parties via e-mail; announcements posted on the TRI Program's internet
    homepage; and mass mailings conducted to states and regulated entities.
        In addition to this special assistance for the lead rule, EPA has
    an extensive compliance assistance program for all those subject to
    basic TRI reporting requirements. The TRI Program provides ongoing
    assistance through: a toll-free hotline staffed with individuals
    trained to answer TRI-related questions; workshops which are offered
    every spring in each EPA Region (approximately 3000 attendees for the
    spring 2001 workshops); TRI User Support, which is a mechanism by which
    individuals can directly contact EPA headquarters TRI staff; and TRI-
    ME, an interactive, intelligent, user-friendly software tool that
    guides facilities through the TRI reporting requirements.
    distinction between ``having no knowledge'' and ``not reporting'' under
                                 tri lead rule
        Question. What is the difference between ``having no knowledge''
    and ``not reporting'' under the TRI Lead rule?
        Answer. Knowledge raises the issue of whether an entity has an
    obligation to report. ``Reporting'' or ``not reporting'' is a solely an
    issue of whether an entity subject to the requirements has submitted
    reports or not. An entity ``having no knowledge'' would not report, but
    ``not reporting'' does not imply that a TRI reporting threshold has not
    been exceeded.
                    tri: knowledge in an enforcement context
        Question. What is the difference in an enforcement context?
        Answer. The extent of an entity's knowledge about a regulatory
    obligation is one factor in determining the level and type of
    enforcement response.
                 tri: burden of proof in an enforcement context
        Question. Who has the burden of proof in an enforcement context?
        Answer. In enforcement proceedings, the EPA has the burden of proof
    that the violation occurred as set forth in a complaint. Following
    EPA's presentation of a prima facie case, a respondent has the burden
    of proof as to any defenses.
                         iris/residual risk rulemaking
        Question. In fiscal year 2002, the Committee provided an additional
    $5,000,000 above the budgeted request to accelerate the development of
    new and update current Integrated Risk Information System (IRIS)
    values. The Committee continues to be concerned that EPA is not meeting
    its goals and, more importantly, is not making the systemic
    improvements in its IRIS program to achieve the primary goals of A)
    updating existing risk values to reflect the current best available
    science and B) generating new values to meet growing demands by state,
    Federal, and even international users of IRIS. What plan is ORD
    following in spending the $5M?
        Answer. The new funds are available for extramural support to EPA's
    program offices through the Environmental Program Management (EPM)
    account. This support will be directed towards the scientific
    development and peer review of IRIS assessments. The Administrator has
    stated that developing options for the updating and improvement of IRIS
    is a key function of ORD's Assistant Administrator in his new capacity
    as EPA Science Advisor. ORD has convened an intra-Agency group and is
    coordinating development of a plan among the program offices for
    spending the $5M designated by Congress in fiscal year 2002 for
    updating and adding assessments to IRIS.
        Question. What systemic improvements will ORD achieve through its
    expenditures that will (A) lead to a steady, sustainable update of
    existing IRIS values, and (B) lead to a quicker rate of throughput for
    new IRIS risk values?
        Answer. EPA has a system in place for the generation and review of
    IRIS assessments across the Agency. ORD is coordinating a plan by which
    EPA program offices will expend the fiscal year 2002 additional funds.
    The new extramural funds will help in the scientific development and
    peer review of IRIS assessments during fiscal year 2002-2003, thereby
    increasing both the number of existing IRIS values that are up-to-date
    and the number of new assessments added to the database.
        Question. How is ORD working with external experts toward achieving
    the primary IRIS improvement goals for which the Committee provided
    additional funding?
        Answer. ORD recognizes that significant expertise exists outside of
    EPA that can assist in developing and peer reviewing IRIS assessments.
    This expertise can contribute to the primary improvement goals of
    updating IRIS and adding new assessments. ORD is coordinating a plan by
    which EPA program offices will expend the fiscal year 2002 additional
    funds by engaging external experts in IRIS improvement through
    contractual mechanisms. The funds will be used to access EPA
    contractors to help with the scientific development and peer review of
    IRIS assessments.
        Question. The Agency is now facing a series of deadlines to
    promulgate residual risk standards under Section 112(f) of the Clean
    Air Act. An important element of this process is the selection of
    health benchmark values that represent for each major air toxic the
    best available, updated information on potential health effects.
    Unfortunately, IRIS includes many values for which new, more accurate
    data is available. How many IRIS updates does the Agency expect to
    complete in fiscal year 2002? How many do you plan to complete in
    fiscal year 2003?
        Answer. EPA is aware of the requirements to promulgate residual
    risk standards under the Clean Air Act. The Agency has identified 53
    air toxics that are important to early residual risk assessments.
    Twenty-seven of these air toxics were determined to be highest priority
    for assessment or reassessment and are in progress in the IRIS program.
    Four assessments of the high priority air toxic chemicals will be
    completed in fiscal year 2002 and seventeen are scheduled for
    completion in fiscal year 2003.
        Question. What criteria did the Agency use to determine the values
    that would be updated in fiscal year 2002 and fiscal year 2003?
        Answer. For fiscal year 2002, EPA's approach to developing the
    annual IRIS agenda was to compile nominations for priority chemicals
    for new assessments and reassessments, and to apply a general set of
    criteria to determine which to undertake. The criteria were, (1) Agency
    statutory, regulatory, or program implementation need; (2) the
    availability of new scientific information or methodology that might
    significantly change current IRIS information; (3) interest to other
    levels of government or the public; (4) completion of most of the
    scientific assessment work while meeting other Agency requirements such
    that only a modest additional effort is needed to complete the review
    and documentation for IRIS. The priorities that emerged from the
    application of these criteria were then considered in light of
    available Agency staff to manage assessments and available extramural
    resources. Application of these criteria are standard practice for the
    IRIS program. Similar or identical criteria will be applied to develop
    the agenda for fiscal year 2003.
        Question. What is the process for incorporating the 2002 and 2003
    updates into the 112(f) rules, which are due beginning in 2003, or
    alternatively, what process will be employed to incorporate these
    values into the residual risk rule if IRIS updates are not completed?
        Answer. OAR has identified those substances which it believes will
    play a significant role in the early 112(f) assessments and thus
    require updated assessments via the IRIS process. These are under
    development for completion in 2002 and 2003. As these IRIS assessments
    are available, they will be relied upon in risk assessments completed
    under 112(f). As information is available regarding pending changes to
    IRIS assessments, it will be used to supplement 112(f) risk assessments
    and to inform 112(f) rule development as feasible and where
    scientifically appropriate. Our general policy is that any dose-
    response (or health) assessment that would significantly affect a
    regulatory decision should be peer reviewed prior to finalization of
    that decision.
        Question. In response to questions submitted last year on your
    fiscal year 2002 budget proposal, EPA stated that the primary
    determinant of how many new assessments can be undertaken in fiscal
    year 2002 is the ``availability of scientific staff to lead or oversee
    the work.'' Please provide the number of scientific staff EPA dedicated
    to IRIS updates over the past four fiscal years and the Agency's plans
    for fiscal year 2003.
        Answer. Availability of scientific staff to lead or oversee
    assessment development and review is key to the IRIS process of
    generating Agency consensus documents. Over the past 4 years, an
    average of 40 ``IRIS chemical managers'' have been involved across the
    Agency. In addition, 16 ``consensus reviewers'' and many other internal
    peer reviewers have contributed to the scientific process. Most have
    multiple responsibilities in addition to participating in the IRIS
    program. A central IRIS staff also contributes to scientific quality
    assurance. In fiscal year 2003, EPA staffing is likely to continue at
    approximately the same level.
        Question. One way to accelerate IRIS updates is to make greater use
    of external entities in helping to conduct risk assessments, subject to
    EPA review and approval. In response to questions on your fiscal year
    2002 budget submittal, your Agency stated that it has 6 pilot
    assessments underway which involve collaborative efforts to develop
    assessments with other Agencies and the private sector, and ``that the
    Agency will have sufficient experience with these efforts to evaluate
    them in terms of quality and timeliness of products in fiscal year
    2002.'' What were the results of this review and what are the Agency's
    plans to expand the use of outside entities?
        Answer. EPA has been interested in the possibilities for
    accelerating IRIS updates by making greater use of health assessments
    generated by external entities. The Agency undertook six pilot
    assessments in fiscal year 2000 whereby EPA could engage in a dialogue
    with and provide feedback to external parties developing health
    assessments which could then be used as supporting documents for EPA's
    IRIS assessments. Other IRIS assessments in progress also engage
    external entities in various aspects of data or model development and
    review, but the aforementioned pilots test whether a full health
    assessment generated externally can be useful for EPA. Two of these
    pilots have since been discontinued, and the remaining four are still
    in progress. The need for sustained engagement of EPA chemical managers
    to interact with external entities is one important aspect of ensuring
    usable, timely products. Expansion of this effort to engage external
    entities in the development of assessments useful to EPA for IRIS will
    depend in part on availability of staff and evaluation of the four
    remaining pilot assessments when they are completed.
        Question. As noted in previous correspondence to the Agency, EPA
    committed in an August 26, 1994, Air Office Guidance on the Use of
    integrated Risk Information System to incorporate new toxicological
    information during rulemakings. This commitment was repeated by
    Administrator Whitman on September 7, 2001 (66 FR 46929) when she
    stated that ``IRIS values are not legally binding and are not entitled
    to conclusive weight in any rulemaking.'' To make this commitment a
    reality during the development of residual risk standards, how many
    FTEs with scientific background does the air program office have to
    evaluate new toxicological data?
        Answer. Different program offices within EPA participate in the
    IRIS process in different ways. Some program offices have an in depth
    expertise in toxicology and thus update and/or develop most of their
    IRIS assessments. OAR has limited expertise in this area and thus has
    relied to a large extent on the Agency's Office of Research and
    Development (ORD)/National Center for Environmental Assessment (NCEA)
    offices to update reference concentrations (RfCs) for priority
    chemicals. This support is critical to our regulatory program. ORD
    assists OAR in the air toxics residual risk program by reviewing
    toxicological data and in the consultative review of other residual
    risk assessments. ORD devotes approximately 9 FTE per year to assist
    OAR with IRIS. In addition, OAR has 2 FTEs with the requisite
    scientific knowledge to evaluate new toxicological data. The air
    program currently has 0.2 FTE of these FTEs available in OAR to do this
    kind of work. Discussions are currently in progress to determine how
    OAR can begin to develop IRIS files for chemicals that are not high
    priorities for other program offices and to help the Agency speed up
    the process of evaluating new toxicological data.
        Question. If EPA expects ORD to conduct any review, please describe
    the process by which this data will be reviewed to ensure a timely
    evaluation, especially in instances where there is inadequate time for
    a full fledged IRIS value review and update? How many FTEs in ORD will
    be devoted to reviewing toxicological data submitted during or in
    anticipation of rulemakings?
        Answer. ORD will continue to assist the Office of Air and Radiation
    (OAR) in the air toxics residual risk program. ORD reviews
    toxicological data in the standard process for developing air toxics
    assessments for IRIS. Where there is inadequate time or priority for
    developing an IRIS assessment, ORD recommends other sources for dose-
    response values. ORD also assists in the consultative review of other
    residual risk assessments for OAR. ORD devotes approximately 8 FTE per
    year to the development of assessments for chemicals of priority to the
    residual risk program, and less than 1 FTE per year for consultative
    review.
                             mact standard setting
        Question. How many MACT standards have yet to be promulgated?
    Please provide an updated list of the remaining MACT source categories
    and the Agency's current schedule for when the Agency will promulgate
    standards for these source categories.
        Answer. There are 36 10-year Maximum Achievable Control Technology
    (MACT) standards that are yet to be promulgated; three of the
    promulgations represent a combination of 2 standards from the original
    list of categories subject to MACT. These were efficiently combined
    because they addressed the same industry. The updated list of remaining
    MACT standards and the draft schedule for completion are:
    Signature by June 30, 2002
        Large Appliances
        Polyvinyl Chloride & Co-polymer Production
    Signature by November 30, 2002
        Municipal Solid Waste Landfills
        Friction
        Paper & Other Web Coating
    Signature by February 28, 2003
        Flexible Polyurethane Foam Fabrication Operations
        Coke Ovens; pushing, quenching & battery stacks
        Reinforced Plastics
        Semiconductors
        Miscellaneous Metal Parts & Products (Surface Coating) (&Asphalt/
    Coal Tar Application on Metal Pipes)
        Refractories Manufacturing
        Brick, Structural Clay Products & Clay Ceramics Manufacturing \1\
    ---------------------------------------------------------------------------
        \1\ These promulgations represent a combination of 2 standards from
    the original list of categories subject to MACT. These were combined
    because they addressed the same industry.
    ---------------------------------------------------------------------------
        Asphalt Roofing/Asphalt Processing
        Integrated Iron & Steel
        Hydrochloric Acid Production Industry/Fumed Silica \1\
        Engine Test Cells/Stands
        Metal Furniture
        Fabric Printing, Coating & Dyeing
    Signature by August 30, 2003
        Combustion Turbines
        Wood Building Products
        Lime Manufacturing
        Site Remediation
        Iron Foundries
        Taconite
        Miscellaneous Organic Chemical Products & Processes (MON)
        Organic Liquids Distribution
        Primary Magnesium
        Metal Can
        Plastic Parts (Surface Coating)
    Bin 5 Signature by February 28, 2004
        Industrial, Commercial & Institutional Boilers & Process Heaters
    \1\
        Plywood & Composite Wood Products
        Reciprocating Internal Combustion Engines (RICE)
        Auto & Light Duty Truck Manufacturing (Surface Coating)
                             mact standard setting
        Question. Under the Section 112(j) of the Clean Air Act, if the
    Administration fails to promulgate a MACT standard within 18 months of
    the statutory deadline--May 15, 2001--owners and operators must file a
    permit application with their state and local permitting authorities
    that includes a source-specific MACT determination--a very burdensome
    requirement on sources. Part I of this application is due on May 15,
    2001. How many individual sources does EPA estimate will have to submit
    Part I applications? When will the Part II applications be required?
        Answer. As of May 15, 2002, the Part I permit application deadline,
    we had not promulgated 36 MACT standards covering 62 source categories.
    We roughly estimate that there are over 84,000 emitting facilities
    located at major sources subject to the Part 1 submittal requirements.
    The actual number of Part 1 applications will be significantly less
    because many major sources contain multiple emitting facilities
    contained in the source categories. However, each application will
    cover as many of the emitting facilities as are located at that source.
        In the recent rule amendments which created the two-part
    application process, we made it clear that the Part 2 application must
    include certain source-specific information needed to make a MACT
    determination, but the application itself need not include a ``source-
    specific MACT determination.'' Although the current regulation
    specifies that sources have 24 months to submit the Part 2 application
    after submitting the Part 1 application, a national environmental group
    has filed a petition for judicial review to challenge this provision.
    We are currently engaged in settlement discussions in that case, and
    these discussions will most likely lead to a proposed change in this
    timetable. If we fail to reach a settlement an adverse judicial
    determination in that case could also change the timetable.
        Question. If EPA has yet to promulgate standards by this date, what
    additional information will have to be included in the Part II permit
    application?
        Answer. Part 2 of the permit application requires:
      --The anticipated date of startup of operation of any new affected
            source.
      --The hazardous air pollutants emitted by each affected source in the
            relevant source category and an estimated total uncontrolled
            and controlled emission rate for hazardous air pollutants from
            the affected source.
      --Any existing Federal, State, or local limitations or requirements
            applicable to the affected source.
      --For each affected emission point or group of affected emission
            points, an identification of control technology in place.
      --Information relevant to establishing the MACT floor.
      --Any other information reasonably needed by the permitting authority
            including at the discretion of the permitting authority,
            information required pursuant to Subpart A [the general
            provisions] of this part.
        Question. How many individual sources does EPA anticipate under
    best and worst case scenarios will have to submit a Part II
    application?
        Answer. We estimate that anywhere from 0 to over 84,000 emitting
    facilities at major sources could be subject to the Part 2 application
    requirements. We are currently engaged in settlement discussions with
    an environmental group to establish a fairly tight schedule to
    promulgate the remaining MACT standards. Under the 24 month timetable
    in the current promulgated section 112(j) rule, we would expect to
    promulgate all MACT standards before any Part 2 applications are due,
    so that no sources would be affected. However, if the timetable is
    changed as a result of the legal challenge to the rule that has been
    filed, a significant number of Part 2 applications could be required.
    The number of affected facilities is greatest for the MACT standards
    that we expect to promulgate last. Of the 84,000 facilities,
    approximately 79,000 are in source categories for which we expect to
    issue a final standard more than 1 year after the submission of Part 1
    applications.
        Question. EPA's current failure to meet the May 15, 2002 ``hammer''
    deadline is perplexing to the Committee given the Agency's previous
    public comments that assured state regulators and sources that the
    deadlines would be met. For instance in a May 19, 1999 letter, Ms.
    Sally L. Shaver, Director of the Emission Standards Division, wrote a
    letter to STAPPA and ALAPCO stating that ``EPA intends to promulgate
    all standards by the hammer date.'' Why now, less than 2 years later,
    is EPA saying that it will miss the hammer date for many source
    categories? What has happened to change this picture so dramatically
    that was not foreseen in May 1999?
        Answer. In May 1999, when the letter was written, the Agency was
    being realistic about the completion of the 10-year MACT standards. We
    did intend to promulgate all standards by the ``hammer date.'' We
    continued reinvention approaches such as consolidating rules,
    partnerships with states in making presumptive MACT determinations,
    generic MACT approach where rulemakings for source categories with four
    or fewer major facilities would be developed as a broad-based rule, and
    working with partners to reduce cost of rules to help with our goal to
    meet the ``hammer date.'' We had less information on the 10-yr MACT
    sources categories than we had on earlier MACT source categories,
    therefore we needed information from industry as we developed the
    standards. We did not anticipate the amount of information we received
    on these source categories, and in some cases the information was not
    received in a timely manner, so additional time was required to analyze
    the information. There were also procedural changes in our review
    process for the standards.
        Question. Even as recent as last year, the Agency's budget
    justification for fiscal year 2002 stated that: ``EPA plans to have all
    the 10-year MACT standards proposed and completed in fiscal year
    2002.'' Will EPA meet even this deadline and, if not, why not?
        Answer. No, but we plan to have all the 10-year MACT proposed by
    November 2002. We fully intended to have the 10-year MACT standards
    completed by the ``hammer date,'' but due to reasons mentioned in the
    previous response, we will still have 36 standards to promulgate.
        EPA's failure to meet the hammer date is all the more troubling
    when considering EPA's repeated decisions to ``retarget'' resources
    away from MACT standard setting activities. For instance:
        Fiscal year 2000 budget justification.--``(+$6,600,000) The Agency
    proposes to retarget resources from setting MACT and residual risk
    standards to better characterize total environmental toxic risk,
    particularly in urban areas.'' (Page I-47)
        Fiscal year 2001 budget justification.--(+$10,600,000) The Agency
    continues to retarget resources from setting MACT and residual risk
    standards to better characterize the total environmental toxic risk,
    particularly in urban areas.'' (Page I-52)
        Fiscal year 2002 budget justification.--(-$2,030,300) This
    reduction reflects that resources have been decreased for MACT standard
    development since EPA plans to have all the 10-year standards proposed
    and completed in fiscal year 2002. Some resources have been
    reprogrammed from MACT development for modeling and emission inventory
    efforts to characterize air toxics risk and exposure and for residual
    risk assessments on implemented MACT standards. In addition, resources
    were reduced for the one year effort to ensure all stakeholders have
    the latest information about air pollution control technologies and
    full access to RACT/BACT/LEAR Clearinghouse for Control Technologies.''
    (Page I-62)
        Question. Why did the EPA repeatedly propose to redirect resources
    away from MACT standard setting given the costly and onerous
    consequences for states and sources if the Agency fails to meet the
    statutory deadlines?
        Answer. Section 112 of the Clean Air Act has many requirements.
    Title III of the Amendments, which contains major stationary and area
    source requirements, lists 188 HAPs and requires EPA to develop
    standards for major stationary sources of these pollutants. Within 8
    years after promulgating these MACT standards, EPA must evaluate the
    residual risk posed by these sources and promulgate risk-based
    standards, if needed, to provide an ample margin of safety to protect
    public health or the environment.
        As part of its ongoing efforts to protect public health in urban
    areas, and in response to the requirements of sections 112(c)(3), (k)
    and 202(l), EPA released the Integrated Urban Air Toxics Strategy which
    builds on the substantial emission reductions already achieved from the
    larger industrial stationary sources. While the Strategy is not a rule,
    additional regulations are required to establish emission standards for
    additional categories of area sources, and may be needed to fully
    address remaining risks posed by the combination of emissions from
    mobile, major stationary, and area sources. The goals of the Strategy
    are to reduce by 75 percent the risk of cancer associated with air
    toxics from large and small industrial/commercial sources, to
    substantially reduce noncancer health risks (such as birth defects and
    reproductive effects) from small industrial/commercial sources known as
    areas sources, and to address disproportionate impacts such as those in
    ``hot spots,'' highly exposed population subgroups such as children and
    the elderly, and predominately minority and low income communities.
        Because of these requirements, we started retargeting resources to
    meet these goals. In addition, some of the MACT resources were
    allocated to address litigation on the 2-, 4-, and 7-year MACT
    standards, which we continue to be sued on. Our focus continues to be
    the completion of the 10-year MACT standards, but because of new
    industry information, procedural changes and other issues mentioned in
    previous responses, we did not meet the MACT standard deadlines.
        Question. Why did the Agency believe that other activities, such as
    obtaining more information on the nature of the air toxics problem, was
    more important than assuring that Congressional deadlines are met?
        Answer. As mentioned in prior response, EPA was trying to meet the
    many requirements of Section 112 of the Clean Air Act. We intended to
    meet the goal of completing the 10-year MACT standards and started
    shifting resources into risk-based activities and balance funding
    between residual risk and national, urban, and community assessment
    activities. Also, inventories are an integral part of the risk-based
    program and are needed to meet the residual risk requirements with
    technically-credible assessments.
        Question. What is the Agency doing now to avoid the mistakes of the
    past and assure that sufficient resources are now being dedicated to
    assure that all of the MACT standards will be issued before the Part II
    applications are due?
        Answer. We are doing our best to develop and promulgate the
    remaining MACT standards. We believe that the resources are adequate,
    but the critical resource is time. Many of these standards are very
    involved and cannot be sped up, while adhering to the Agency's internal
    review process and quality control procedures and allowing for
    appropriate stakeholder involvement as the standards are developed. We
    cannot assure with certainty that all remaining MACT standards will be
    promulgated before the Part 2 applications are due, especially if
    litigation settlement discussions result in a change in the timetable
    for submitting Part 2 applications.
        Question. Please provide the Committee with yearly estimates of the
    number of FTEs and budget resources that have been dedicated to MACT
    standard development for fiscal years 1999 to 2002 and your current
    proposal for fiscal year 2003.
        Answer. The following are the yearly estimates of the FTEs and
    budget resources that have been dedicated to MACT standard development:

    ----------------------------------------------------------------------------------------------------------------
                                           1999            2000            2001            2002        2003 request
    ----------------------------------------------------------------------------------------------------------------
    FTE.............................           102.1            92.8            88.4            63.7            61.4
    Contract........................       $10,890.0        $8,286.0       $10,700.0        $8,237.0        $8,162.0
    ----------------------------------------------------------------------------------------------------------------

        Question. The existing 112(j) MACT rule states that the Part 1
    application must include an identification of the ``types of sources''
    that belong to the source category. Please explain to the Committee
    whether this requires sources to identify and list specific equipment
    or emission points at the source.
        Answer. The Part 1 application is designed to be relatively general
    in nature and not require specific information. The more detailed,
    specific information is intended to be supplied in Part 2 of the
    application. We do not intend sources to identify and list specific
    equipment or emission points when identifying the ``types of sources''
    that belong in a source category. Instead, the source should generally
    describe what types of emission points are included by the source
    category at the source. For example, an asphalt processing facility
    (covered under the asphalt processing source category) would be
    composed of asphalt flux storage tanks, oxidized asphalt storage tanks,
    one or more blowing stills, and oxidized asphalt loading racks.
                        hydraulic fracturing: timetable
        Question. Provide a timetable describing EPA's review of questions
    surrounding hydraulic fracturing and study to review this issue.
        Answer. EPA's coalbed methane hydraulic fracturing study grows out
    of issues concerning the scope of EPA's Underground Injection Control
    authorities. In August 1997, the 11th Circuit Court of Appeals (the
    Court) ruled that either Alabama must regulate hydraulic fracturing in
    coalbed methane wells or EPA must take over Alabama's program and
    regulate the process under the SDWA as underground injection (LEAF v.
    EPA, 118 F. 3d 1467). In 1998, the Court issued a writ of mandamus
    ordering EPA to withdraw Alabama's UIC program or approve a revised
    program by December 1999.
        EPA worked with Alabama to modify the state's program consistent
    with the Court's decision, and published approval to a revised UIC
    program for Alabama in January 2000. Concurrent with the Agency's
    efforts to modify the state's program, members of Congress began to
    contact the Agency in March 1999 to recommend that EPA collect more
    information on the possible contamination of aquifers, and the
    Administrator responded within weeks to inform the Congress of the
    Agency's intentions to conduct a study. In April 2000, EPA launched a
    process to develop a study to evaluate the impacts to underground
    sources of drinking water (USDWs) from hydraulic fracturing of coalbed
    methane wells.
        In addition to requesting written comments on its draft study
    design, in August 2000 EPA held a public meeting in Washington, DC to
    receive stakeholder input on the scope of the study and the process EPA
    would follow in completing the study. After considering the extensive
    written and oral comments from a wide variety of stakeholders,
    including industry, state oil and gas agencies, public interest groups,
    and concerned citizens, EPA proposed its final design in the Federal
    Register in July 2001.
        Question. Why has the study taken so long to complete and why it is
    so far behind the original schedule?
        Answer. The study was designed to have three possible phases, and
    at the completion of each phase, EPA must determine whether the
    findings to-date warrant continuation into the next phase. The Agency
    is currently engaged in Phase I, a limited assessment designed to
    enable the Agency to determine whether hydraulic fracturing of coalbed
    methane wells clearly poses a threat to USDWs. If EPA decides further
    investigation is warranted, the study will continue into Phase II.
    Phase II would consist of additional data collection and the completion
    of a risk assessment. Phase III would be a review of existing
    regulations and a regulatory determination.
        Early in the implementation of Phase I of the study, EPA proposed
    the initial schedule with the expectation that we would find no
    hazardous constituents in the fracturing fluids. We have identified
    several constituents of concern, however, including diesel fuel.
    Further, the Agency intends to thoroughly investigate the economic as
    well as environmental implications identified in the process of
    implementing the study.
        EPA is taking the time necessary to ensure that the study is
    thorough and accurate before publishing a draft for stakeholder
    comment. And because the study results could have a great impact on
    many stakeholders, including states, industry, and other Federal
    agencies, the Agency is attempting to engage all affected interests at
    an appropriate level to collaborate on the data collection.
                   hydraulic fracturing: peer review process
        Question. Could you please explain the peer review process for this
    study?
        Answer. The hydraulic fracturing study is carefully designed to
    ensure extensive peer review by experts in industry, academia, and
    state and Federal agencies of the study's data sources, analytical
    approaches, and conclusions. The peer review process has been conducted
    in four stages: (1) internal Agency review by headquarters offices and
    EPA Regions; (2) inter-agency review by the U.S. Department of Energy,
    U.S. Geological Survey, and state agencies dealing with ongoing
    hydraulic fracturing issues; (3) independent peer review by an EPA-
    convened scientific panel of experts from industry, academia, and state
    and Federal agencies; and (4) stakeholder review.
        All supporting documentation and data from the study are part of
    the project files, and all reviewer comments are preserved as a part of
    the public record.
                    hydraulic fracturing: peer review panel
        Question. In correspondence with members of the peer review panel
    on the study, EPA apparently indicated that the panel would have a
    final review prior to the public release of the study. More recent
    correspondence with the peer review panel has indicated that the panel
    will not see the study again until it is released publicly, at which
    time the panel would be invited to comment as part of the public
    comment process. This seems to violate the Agency's commitment to peer
    review studies to produce the best possible science. Why was the peer
    review panel denied the opportunity to again review the study prior to
    its public release and doesn't this weaken the study and throw into
    question its scientific validity?
        Answer. EPA's Peer Review Policy establishes the criteria and
    requirements for independent evaluation of scientific and technical
    studies and documents. The Agency has conducted the peer review for the
    hydraulic fracturing study consistent with that policy, and assembled
    an expert panel with representation from industry, academia, and State
    and Federal agencies. The charge to the peer review committee was to
    review the report to determine if (1) the report is complete, thorough,
    and accurate and (2) the scientific/technical studies reviewed are
    applied in a sound, unbiased manner. The peer review panel has provided
    extensive and useful comments. After addressing the panel's comments,
    EPA determined that no additional review was necessary from the panel.
    The peer review panel members will have additional opportunities to
    comment once the study is released.
                hydraulic fracturing: state oil and gas agencies
        Question. States in the United States have for decades regulated
    hydraulic fracturing in the United States. Were State Oil and Gas
    agencies contacted directly by the authors of the study to determine if
    and how states regulate hydraulic fracturing? If so, please document
    those contacts. If not, why not?
        Answer. An initial investigation by the Ground Water Protection
    Council (GWPC) into state regulation of hydraulic fracturing raised
    questions about whether technical requirements regulating the practice
    of hydraulic fracturing exist. In its investigation, GWPC contacted
    state oil and gas agencies for information related to complaints on the
    impacts of hydraulic fracturing.
        EPA did contact state oil and gas agency officials during Phase I
    to determine how they were responding to citizen complaints, to
    understand states' unique geologic conditions, and to learn more about
    hydraulic fracturing industry practices in individual states. The
    Agency is close to completing the final draft report for Phase I of the
    study; if it necessary to continue on to Phase III of the study, EPA
    will contact state oil and gas agencies again specifically to determine
    how states regulate hydraulic fracturing.
                        hydraulic fracturing: landowners
        Question. Were landowners contacted directly by the authors of the
    study in an attempt to determine if any landowner's wells were damaged
    by hydraulic fracturing? If so, please document those contacts. If not,
    why not?
        Answer. In the implementation of Phase I of the study, landowners
    contacted EPA, concerned that coalbed methane development had impacted
    their drinking water wells. Landowners voiced their concerns to EPA
    through electronic mail, letters, telephone interviews, and local
    meetings. The Agency responded to these concerns by conducting follow-
    up phone interviews with nine individuals. Through these conversations,
    EPA has heard from citizens in all of the most active coalbed methane
    production basins: Black Warrior (Alabama), San Juan (Colorado and New
    Mexico), Powder River (Montana and Wyoming), and the Central
    Appalachian (Virginia). In response, the Agency contacted more than 30
    employees at state and local agencies to better understand ground water
    issues, investigations, and any actions taken in response to citizens'
    concerns.
        A few citizens reported that they believed their drinking water
    wells were impacted from hydraulic fracturing of coalbed methane wells;
    others expressed concern about the risks associated with hydraulic
    fracturing. Most of the citizens reporting problems did not specify
    hydraulic fracturing, but noticed that their problems started after
    coalbed methane production began. Citizens and county agency employees
    also reported that the ``dewatering'' of coal seams that occurs during
    production creates several environmental problems, such as: (1)
    contamination of wells with methane, hydrogen sulfide, and bacteria;
    (2) explosive levels of methane and toxic levels of hydrogen sulfide
    accumulating under buildings and in living spaces; (3) spontaneous
    combustion and continued burning of completely dewatered coalbeds; and,
    (4) flooding from water pumped to the surface.
        Based on its discussions with landowners, coalbed methane
    production may be negatively impacting drinking water wells. In two of
    the most active basins (San Juan and Powder River), drinking water
    wells appear to have been negatively impacted because large amounts of
    ground water are removed from coalbed formations in order to release
    the methane in coal seams. The hydraulic fracturing study conducted by
    EPA's UIC Program, however, is narrowly focused on hydraulic fracturing
    in coalbed methane wells, and does not address the potential impacts of
    ground water removal and subsequent discharge.
        Subsequent to these conversations, in July 2001 EPA published a
    notice in the Federal Register requesting further information from the
    general public. The Agency then sent copies of the notice to nearly 500
    local agencies to ensure that communities with aquifers that may have
    been impacted by coalbed methane development would contact EPA. EPA
    received four responses from counties it had not heard from previously,
    but none of these contacts produced information confirming that
    drinking water wells had been impacted from hydraulic fracturing
    activities. EPA heard from only two county agencies representing
    citizens that had contacted EPA to express concern that coalbed methane
    development had impacted their drinking water. This low response rate
    was not unexpected, however, since each of the Federal Register notices
    was accompanied by a cover note explaining our project and a request
    that agencies not contact EPA if they had already provided information
    to the Agency.
             lead: bio-availability of lead sulfides vs lead oxides
        Question. What is the bioavailability of lead sulfides as opposed
    to lead oxides?
        Answer. ``Bioavailability'' is a simple term used to describe a
    complex concept. Aside from chemical influences, bioavailability is
    also very dependent on particle matrix (micro structure of the
    particles) and particle diameter (particle size) as well as
    physiological status (pregnancy, age, nutritional status, etc) of the
    receptor. It is dependent upon the solubility/availability (both
    intensity and capacity) of the compound in an exposure matrix and its
    transport (active and passive) across a biological barrier. One
    suggested definition is ``that fraction of the total amount of material
    in contact with a body portal-of-entry (lung, gut, skin) that enters
    the central compartment (blood).'' This is the definition used in the
    comparison described below.
        EPA Region 8 has evaluated in vivo (swine) bioavailability for a
    number of lead contaminated soils as well as soil spiked with lead
    minerals. Additionally, the soils have been evaluated by in vitro
    bioavailability techniques. Both techniques have illustrated that lead
    mineralogy influences bioavailability. Galena (lead sulfide) has low
    bioavailability (0-5 percent in vivo Relative Bioavailability) whereas
    litharge (lead oxide) has high bioavailability (80-100 percent in vivo
    Relative Bioavailability). The Agency considers these bioavailability
    factors and other factors, such as particle size and timing of soil/
    dust ingestion relative to meals, in making adjustments to the IEUBK
    model default value.
    lead: lead sulfide in galena form vs lead in oxide form affect on human
                                      body
        Question. Does lead sulfide, as it is found in its natural state of
    galena and mined to obtain lead, taken up and affect the human body
    differently than lead in the oxide form as found in lead-based paint or
    emissions from smelting?
        Answer. It is reasonable to assume that, all other factors being
    the same, lead oxide would dissolve more quickly than equal amounts of
    lead sulfide, in an acidic environment. However, small amounts of
    either form of lead might completely dissolve, or nearly so, in the
    stomach environment over a period of hours. The total amount of dust
    and the residence time in the stomach are key factors in this. The
    combination of the warm, chemically acidic environment, the constant
    agitation, and the 2-3 hour time period virtually assures the
    dissolution of the 80-130 mg of small particles ingested per day, which
    is the default range of age-related ingestion rates in the Integrated
    Exposure Uptake Biokinetic (IEUBK) model (discussed in the following
    question). However, as this gastric solution is passed into the
    duodenum, a sudden change to a basic pH occurs which, in the presence
    of normal amounts of phosphate, causes a precipitation of all lead to
    the highly insoluble form of lead pyrophosphate. From this point on,
    only about 1 percent of the pyrophosphate lead is available for
    absorption in the small intestine at any given time. If larger
    particles were ingested that didn't totally dissolve in the stomach,
    some of this lead, whether in the sulfide or oxide form, would continue
    to be slowly dissolved in the small intestine at different rates and
    made available for absorption at different times from ingestion. As the
    small amount of soluble lead from both the pyrophosphate and the
    partially dissolved particles is absorbed, more lead is dissolved, and
    during the total residence time in the small intestine, about eight
    hours, about 30 percent of the total amount of lead would be absorbed.
    In the IEUBK model, the default absorption percentage is 30 percent
    (regardless if ingested as lead sulfide or lead oxide) for lead in both
    soil and dust, based on the assumptions discussed here.
    lead: potential risk of different forms of lead to regulatory decisions
        Question. What information does EPA have on this issue and how does
    it analyze and apply the varying potential risk of different forms of
    lead to its regulatory decisions?
        Answer. EPA has access to the published literature on the topic as
    well as knowledge of ongoing work and unpublished data. In performing
    risk assessments for childhood exposure to lead (Pb) in support of
    regulatory decisions, U.S. EPA routinely uses the Integrated Exposure
    Uptake Biokinetic (IEUBK) Model for Lead in children. This model
    developed by U.S. EPA's National Center for Environmental Assessment
    (NCEA), considers all normal sources of lead in its various chemical
    forms. Under current guidance, ``total'' contaminant concentration in
    soils is used to establish risk based clean-up levels. In the case of
    Pb, the IEUBK model is used to establish acceptable levels of soil Pb.
    The IEUBK is designed to predict the probable blood Pb concentration
    (PbB) for children between 6 months and 7 years of age who are exposed
    to Pb through multiple environmental media (e.g., air, water, soil,
    dust, and diet). Using an assumed (30 percent) absolute bioavailability
    of soil Pb, the PbB level is estimated by the model.
        In the case where there is evidence for a percentage other than the
    default 30 percent absorption, the model permits the risk assessor to
    make such an adjustment to this parameter, either more or less than the
    default 30 percent. Risk assessors are always encouraged to use non-
    default parameters in the IEUBK model whenever they can present
    scientific evidence to support their use.
        EPA Region 8 has encouraged exposure-based monitoring aimed at
    quantitative evaluation of site-specific risk. The use of an immature
    swine model to estimate site-specific oral Pb bioavailability in
    children who are exposed to Pb has been used. Approximately 20
    different Pb contaminated soils on 10 different hazardous waste sites
    have been analyzed. Preliminary site-specific estimates of relative
    soil Pb absorption (relative bioavailability) range from 6 percent to
    greater than 85 percent when compared to soluble Pb acetate. These
    values translate to 3 percent to 42.5 percent absolute bioavailability,
    as used in the IEUBK model. The use of these values in the IEUBK model
    rather than the 30 percent default value results in different cleanup
    values. For example, a site-specific bioavailability study of Bingham
    Creek Utah (costing approximately $100K) provided a bioavailability
    factor of 19 percent. The use of the site-specific bioavailability of
    19 percent rather than the assumed default value (30 percent) resulted
    in reductions in estimated remedial costs on the order of $4 million.
     water infrastructure funding: reasonable level of funding to preserve
                            existing infrastructure
        I consider the status of our Nation's water infrastructure as the
    most pressing issue facing the EPA, and one of the most important
    issues for the Nation, both for quality of life and public health. In
    particular, while I support the funding of $850 million for the
    Drinking Water State Revolving Fund, I am extremely disappointed that
    EPA has requested only $1.212 billion for the Clean Water State
    Revolving Fund, a reduction of $138 million from the fiscal year 2002
    level.
        This is especially troubling since the next EPA Gap Analysis is
    expected to confirm the need for some $350 billion in water
    infrastructure needs over the next 2 decades. Moreover, outside groups
    have indicated that the need could be as high as some $740 billion over
    the next 20 years, with $200 billion more in financing and another $980
    billion for local governments to maintain and operate this
    infrastructure. These additional costs are intended to include the cost
    to replace aging and failing infrastructure, activities which are not
    currently eligible.
        Question. These funding estimates are far in excess of any current
    level of funding and likely far in excess of any funding proposed at
    least in the foreseeable future. What is a reasonable level of funding
    needed to preserve the existing infrastructure?
        Answer. The financial demands that communities face in providing
    clean and safe water to all Americans are substantial, and the
    Administration is committed to helping find ways to meet those demands.
    The Federal government has provided more than $80 billion in wastewater
    assistance since passage of the Clean Water Act, which has dramatically
    increased the number of Americans enjoying better water quality. This
    includes replacement of aging and failing infrastructure, which is
    certainly an eligible use of the Clean Water State Revolving Fund
    (CWSRF) under Section 212 of the Clean Water Act in fact, the CWSRF has
    provided some $5.8 billion to repair aging and failing wastewater
    collection systems alone.
        For fiscal year 2003, the President's requests of $850,000,000 for
    the Drinking Water State Revolving Fund and $1,212,000,000 for the
    Clean Water State Revolving Fund, for a total of $2,062,000,000, is the
    largest-ever combined request for the State Revolving Funds.
        EPA's most recent Drinking Water and Clean Water Needs Surveys have
    identified $150.9 billion and $150.5 billion, respectively (both in
    1999 dollars), in documented needs eligible for SRF assistance in the
    coming decades. More recent estimates associated with correcting
    sanitary sewer overflows may increase the estimated total Clean Water
    needs, and the Agency expects to release a new Clean Water Needs Survey
    in August 2002.
        Over the past year or so, several stakeholder groups have issued
    reports estimating water infrastructure needs that are substantially
    higher, based on different methodologies and definitions. With that in
    mind, the Agency is actively working to improve information about long-
    term infrastructure needs, assess different analytical approaches to
    estimating those needs, and estimate the gap between needs and
    spending. We expect to release the Agency's Gap Analysis this summer.
        While the Agency's Gap Analysis can help quantify the Nation's
    infrastructure challenges, the numbers themselves do not take into
    consideration how the various roles of Federal, State and local
    governments should be balanced. For the last 30 years, Federal, State
    and local governments have shared responsibility for infrastructure
    financing. Under any funding arrangement, therefore, the vast majority
    of future funds likely will come from local sources. It is also
    important to reduce capital, operation and maintenance costs through
    better management and more efficient service delivery, and by capturing
    productivity gains through innovations.
            water infrastructure funding: prioritizing funding needs
        Question. How should we prioritize the funding needs in the Nation?
    For example, what do we do about the aging and obsolete water
    infrastructure which is the concern of many cities and communities in
    the East and Midwest? How do prioritize these funding needs with new
    infrastructure requirements which have been created by the new arsenic
    standards?
        Answer. EPA recognizes the challenges facing America's communities.
    The Agency believes that the touchstone of our strategy to meet these
    challenges should be building fiscal sustainability. In particular,
    several basic principles should guide our pursuit of clean and safe
    water through fiscal sustainability:
        Utilizing the private sector and existing programs.--Fostering
    greater private sector involvement and encouraging integrated use of
    all local, State, and Federal sources for infrastructure financing.
        Promoting sustainable systems.--Ensuring the technical, financial,
    and managerial capacity of water and wastewater systems, and creating
    incentives for service providers to avoid future gaps by adopting best
    management practices to improve efficiency and economies of scale, and
    reducing the average cost of service for providers.
        Encouraging cost-based and affordable rates.--Encouraging rate
    structures that cover costs and more fully reflect the cost of service,
    while fostering affordable water and wastewater service for low-income
    families.
        Promoting technology innovation.--Creating incentives to support
    research, development, and the use of innovative technologies for
    improved services at lower life-cycle costs.
        Promoting smart water use.--Encouraging states and service
    providers to adopt holistic strategies to manage water on a sustainable
    basis, including a greater emphasis on options for reuse and
    conservation, efficient nonstructural approaches, and coordination with
    state, regional, and local planning.
        Promoting watershed-based decision-making.--Encouraging states and
    local communities to look at water quality problems and drinking water
    source water protection on a watershed scale and to direct funding to
    the highest priority projects needed to protect public health and the
    environment.
        The Agency has developed a comprehensive strategy to help drinking
    water systems that are affected by the new arsenic in drinking water
    standard. As described in its Report to Congress entitled ``Small
    System Arsenic Implementation Issues,'' beginning in fiscal year 2002
    the Agency will engage in three major activities: (1) a review EPA's
    small system affordability criteria to address affordability concerns
    raised by stakeholders and small communities; (2) develop and implement
    a small community drinking water assistance plan, which will enhance
    small systems' access to financial assistance and expand technical
    assistance and training; and (3) spend $20 million over fiscal year
    2002 and fiscal year 2003 for research, development, testing and
    implementation of effective, practical, and affordable treatment
    technologies to reduce compliance costs for drinking water systems
    affected by the new arsenic in drinking water standard.
        In addition, the Agency will continue its ongoing work with states
    to take full advantage of the suite of tools the SDWA provides to help
    small systems achieve compliance not only with the arsenic standard,
    but with other drinking water standards, including those for microbial
    contaminants, disinfectants, and disinfection byproducts, and for radon
    and radionuclides. A key component of this work is to maximize the
    availability of financial assistance to small systems under the
    Drinking Water State Revolving Fund (DWSRF). Finally, EPA and the U.S.
    Department of Agriculture (USDA) have signed a Memorandum of Agreement
    (MOA), under which USDA's Rural Utilities Service (RUS) commits to
    assigning high funding priority to projects that assist small
    communities in complying with the new arsenic in drinking water
    standard. The Agency further commits to enhance coordination of EPA and
    USDA programs to ensure that the maximum possible assistance is
    available to small communities for compliance with the new arsenic in
    drinking water standard.
                  superfund cleanup: pace of superfund cleanup
        Question. What is the pace of Superfund cleanup compared to recent
    years and what can we do to ensure that the cleanup of SF sites are
    expedited to the extent possible?
        Answer. Conducting cleanups and achieving construction completions
    are Agency priorities. The amount of cleanup work the Agency has been
    performing during the last few years has been relatively stable.
    However, with nearly two thirds of the sites on the NPL cleaned, the
    remaining sites are lager and more difficult. (We are enclosing below a
    chart that explains Superfund cleanup compared to recent years).
        To make sure Agency resources are properly focused to achieve
    maximum results, we have initiated a Pipeline Management Review of
    Superfund sites that will result in a multi-year, site-specific
    strategy to ensure construction progress. Additionally, we are working
    to further enhance the ``enforcement first'' approach to increase early
    Potentially Responsible Party (PRP) involvement and maximize our use of
    PRP-funded special cleanup accounts.
        Question. I understand that some states are pushing for greater
    control over the SF program. To what extent do you support this
    approach and what are the pluses and minuses to greater state control?
        Answer. The Superfund program over the past several years has
    sought to ensure greater State involvement in the program. We have
    worked with states to support the development of State programs, such
    as voluntary cleanup programs, with a goal of getting more sites
    cleaned up by more people. The maturing of State programs, coupled with
    personnel and funding ceilings at the State level, in most cases has
    led to mutually agreed upon worksharing, where states and EPA strive to
    do the work each is best suited for. Let me provide a few examples.
        Since 1996, Superfund has followed a State concurrence policy that
    requests State or governor concurrence in decisions to place sites on
    the National Priorities List. This builds on fiscal year 1995 and 1996
    appropriations language. There has only been one exception to this
    policy since 1996. That site remains proposed to the NPL and EPA is
    working with the State (Wisconsin) in an effort to address the site
    without the need to finalize. Further, states frequently work with EPA
    in workshare arrangements where sites are assigned to EPA or the State
    for study and possible cleanup.
        In March 1998 Superfund published a Plan to Enhance the Role of
    States and Tribes in the Superfund Program. This allowed states to
    pilot activities that would establish new areas of involvement in the
    Superfund program. There were eight State pilots, most centering on the
    cleanup part of the process. As a result of the plan, Superfund
    developed an internal workgroup to continually explore ways of
    enhancing State and tribal roles, and is working with the Association
    of State and Territorial Solid Waste Management Officials towards this
    end.
        Both Superfund and RCRA management are working with State managers
    on the Senior Cleanup Council to increase understanding and cooperation
    across waste remediation programs. This is an issue that has long been
    of concern to states. Finally, the recently-signed Brownfields
    legislation requires extensive interaction between EPA and States in an
    effort to develop guidance and criteria for implementing the
    legislation. States are on a number of workgroups related to
    Brownfields legislation needs, limited by the requirements of the
    Federal Advisory Committee Act. We anticipate that the opportunity for
    states to continue to build and expand their own programs will continue
    to have Federal and State programs complement each other.
        EPA has been and will continue to be supportive of greater State
    involvement because it reduces duplication of effort and makes better
    use of resources.

    Number of Superfund sites cleaned up each year, 1990 to present

                                                  Number of sites cleaned up
            Year
    1990..............................................................     8
    1991..............................................................    12
    1992..............................................................    88
    1993..............................................................    68
    1994..............................................................    61
    1995..............................................................    68
    1996..............................................................    64
    1997..............................................................    88
    1998..............................................................    87
    1999..............................................................    85
    2000..............................................................    87
    2001..............................................................    47
    2002 target.......................................................    40
    2003 target.......................................................    40
        superfund cleanup: adequate funds to continue superfund cleanups
        Question. How do we ensure there are adequate funds in the future
    to continue Superfund cleanups?
        Answer. For fiscal year 2002, the President requested $1.3 billion
    for the Superfund program, excluding post 9/11 supplemental resource
    requests, consistent with the previous year's budget. For fiscal year
    2003, the Administration requested a similar budget to enable a
    comparable level of activity, while increasing the request for homeland
    security resources. The fiscal year 2003 budget will allow Superfund to
    continue to make cleanup progress at sites. We are currently
    considering what level of funding to request for fiscal year 2004 to
    ensure maximum Superfund performance and balance with other
    Administration priorities.
                          climate change kyoto accord
        Question. The United States has made it clear that it would not be
    bound to the Kyoto Protocol until developing nations are subject to
    binding emission targets. This is a key economic concern as well as a
    fairness issue. Nevertheless, sound science on global climate change
    issues also is key to both the United States domestic policy decisions
    on climate change and international agreements. While the EPA is not
    the primary Federal agency with regard to U.S. policy on international
    climate change issues, the EPA is an important partner in developing
    the environmental modeling and scientific research that will be
    critical to the continued evolution of U.S. policy. From your
    perspective as Administrator of EPA, what is the current status of the
    United States' international policy on climate change issues and what
    are the key issues and challenges facing the United States?
        Answer. Climate change is a complex, long-term challenge that will
    require a sustained effort over the long term. The Administration is
    opposed to the Kyoto Protocol because it exempts many countries from
    its requirements and could cause serious harm to the U.S. economy.
    However, America is committed to the United Nations Framework
    Convention and its central goal to stabilize atmospheric greenhouse gas
    concentrations at a level that will prevent dangerous human
    interference with the climate, though, as the President has noted, we
    do not yet know what that level is.
        The Administration's immediate goal, announced by President Bush on
    February 14, is to reduce the greenhouse gas intensity of the U.S.
    economy by 18 percent in the next 10 years, thereby slowing the growth
    of net emissions as they relate to economic output. While we have yet
    to determine what level of ghg concentrations would be dangerous, the
    Administration recognizes that achieving long-term stabilization of
    atmospheric greenhouse gas concentrations will require as the science
    justifies stopping and reversing greenhouse gas emissions growth.
    Slowing the growth of these emissions through expanded use of voluntary
    initiatives and proposed tax incentives will enable the development of
    technology to substantially reduce greenhouse gas emissions in the long
    term without the risk of harming the economy in the short term. The
    President has also committed that if progress is not sufficient by 2012
    and sound science justifies further action, the United States will
    respond with additional measures that may include a broad, market-based
    program, as well as additional incentives and voluntary measures
    designed to accelerate technology development and deployment.
        EPA is working to accomplish the President's commitment though
    reducing greenhouse gas emissions in partnership with businesses and
    consumers through our voluntary programs. We have found that these
    programs, such as Energy Star and Natural Gas STAR, can be incredibly
    effective, and we have every confidence that they will be able to lead
    us toward our goals for emissions reductions. We have also launched new
    programs such as Climate Leaders, which enables companies to
    voluntarily evaluate their impact on the environment and then act to
    change for the better in order to build on the successes of these
    voluntary programs.
        We are also looking beyond our borders to address this challenge.
    The United States has recently reached agreements with Australia and
    Canada which will focus on practical and economically efficient
    solutions to the climate issue, such as common approaches for emissions
    measurement, climate change science, technology development, and
    market-based approaches. We have also identified similar areas for
    cooperation with Japan and Italy specifically on the development of
    climate science and technology. Finally, we have formed Working Groups
    on climate change with China and India. The struggle to halt the
    effects of climate change does not recognize political boundaries, and
    we must work together with interested partners from around the world if
    we are going to effectively to address this long term, global issue.
                  global and cross-border environmental risks
        Question. What is EPA doing to minimize pollution in the United
    States from pollution hazards originating outside the United States,
    such as from Mexico or Canada?
        Answer. EPA is actively engaged in a range of activities intended
    to reduce, prevent or otherwise minimize the impacts on the U.S.
    environment and public health from sources of pollution originating
    outside of our borders. The broad responses address a wide range of the
    contaminants of concern, a diversity of pollution source types and
    media transport mechanisms. EPA's activities include working along our
    borders with Canada and Mexico and cooperation with a substantial
    number of other countries across a wide area of the globe, for example
    by participating in multi-lateral agreements to address identified
    regional and global transboundary pollution threats. Many of EPA's
    major program offices, regional offices and laboratories are involved
    in these efforts, and in many of its endeavors the Agency also
    cooperates with other Federal and State agencies, non-governmental
    organizations and multilateral/international bodies.
        EPA's international efforts include environmental protection
    capacity building, technical assistance, technical information
    exchange, international monitoring and assessment, cooperative research
    and development, and negotiation of international agreements. However,
    the specific responses are a function of the particular pollutant's
    chemical behavior, media transport mode, nature of the source types and
    circumstances of the foreign involvement.
        The Agency is also concerned with conducting research and
    assessments of new or unaddressed risks, and improving the scientific
    basis of our general understanding of the known transboundary
    environmental threats, such as the global flows of mercury. EPA has
    both internal and international cooperative efforts aimed at improving
    our understanding of the problems, including research into the chemical
    and physical processes involved in long-range transport and
    transformation of pollutants, such as the global flows of mercury. The
    Agency also engages in technology development addressing the
    international problems.
        EPA's major efforts in addressing transboundary pollution impacting
    the U.S. mostly fall into the following four broad categories:
      --the U.S. border areas with Mexico and Canada and general
            cooperation with these immediate U.S. neighbors on
            transboundary contamination problems,
      --efforts addressing regional Arctic contamination and threats to
            Alaska and indigenous populations, mostly from pollution
            sources in Russia,
      --international cooperation and agreements addressing global sources
            of persistent organic pollutants (POPs) and other toxic
            substances, and
      --very long-range air transport of a variety of pollutants and the
            problem of global cycling of mercury
                               program specifics
        U.S. border Areas with Mexico and Canada and General Transboundary
    Contamination Cooperation with these Immediate U.S. Neighbors:
    U.S.-Mexico
        The U.S. and Mexico cooperate on a number of programs to protect
    the U.S. from transboundary pollution. Formal cooperation dates back to
    1983, when the U.S. and Mexico signed the La Paz Agreement to promote
    cooperation for the protection and improvement of the environment in
    the border region. This agreement serves as the basis for joint
    activities to protect public health and the environment in both the
    U.S. and Mexico. Two formal ``environmental plans'' have been
    implemented by EPA and its Mexican counterpart, SEMARNAT, and we are
    currently working on a plan that will cover the next 10 years. Detailed
    information on these activities is available in the U.S.-Mexico Border
    XXI Program: Framework Document and the U.S.-Mexico Border XXI Program-
    Progress Report 1996-2000. Examples have some of these activities are
    provided below:
    Air
        Binational air quality planning and management activities have been
    conducted in the sister cities of San Diego-Tijuana; Imperial Valley-
    Mexicali; Nogales-Nogales; and Douglas-Agua Prieta. Recent efforts have
    concentrated on establishing and operating air quality monitoring
    networks in Tijuana and Mexicali, similar to those operating in San
    Diego and Imperial Valley.
        A Joint Advisory Council for the Improvement of Air Quality in the
    Ciudad Juarez/El Paso/Doa Ana County Air Basin (JAC) was created to
    provide locally-based recommendations to the Air Workgroup on how to
    manage air quality in the region. The JAC, completed a strategic plan
    in May 1999 that includes 26 priorities for improving air quality.
        Hazardous Wastes.--The EPA and Mexico's National Ecology Institute
    (Instituto Nacional deEcologRa, or INE) have operated the Hazardous
    Waste Tracking System (Haztraks) for several years. In 1998, Haztraks
    was replaced in Mexico with INE's version of a hazardous waste tracking
    system, known as SIRREP (Sistema de Rastreo de Residuos Peligrosos).
    The use of both systems has considerably improved the ability to
    monitor transboundary hazardous waste shipments in the U.S.-Mexico
    border region. It is worth noting that a 1999 study carried by the
    Texas Natural Resources Conservation Commission (TNRCC) determined that
    the operation of SIRREP and the Haztraks systems is the most effective
    way of tracking the movement of hazardous wastes between the two
    countries.
        A Consultative Mechanism for the Exchange of Information on New and
    Existing Facilities for the Management of Hazardous and Radioactive
    Waste within 100 Kilometers of the U.S.-Mexico Border has been
    developed. This mechanism serves to address public concern on both
    sides of the border as it relates to the siting and operation of
    hazardous and radioactive waste facilities in the border region. The
    agreement will allow for both countries to exchange data and other
    information on new and existing treatment, storage, and disposal
    facilities for these types of waste in the border region.
        In addition to the activities under the border plan, two binational
    institutions were set up between the U.S. and Mexico under a
    supplemental agreement to the North American Free Trade Agreement
    (NAFTA). These institutions are the North American Development Bank
    (NADB) and the Border Environment Cooperation Commission (BECC), which
    were established to develop and finance solid waste, waste water and
    drinking water infrastructure in the border area to reduce the
    possibility of cross border pollution. To date, 55 projects have been
    certified and more than 30 are either operational or under
    construction. When all 55 projects are completed they will serve more
    than 9 million people. In Juarez, Mexico a city of over 1 million, the
    first wastewater treatment systems are now operational.
        The EPA Office of Pesticides Programs (OPP) has a number of
    programs and activities concerned with the transport of agricultural
    products across the border. These actions have contributed to the
    reduction of pesticide residues on the imported agricultural products.
    U.S.-Canada
        The U.S. and Canada cooperate extensively on monitoring,
    assessment, reporting and control and prevention of chemical, physical,
    and biological pollution, including increasing their focus and
    cooperation on biological pollution (e.g., invasive species of
    concern). A great deal of this cooperation includes overarching goals
    to better protect many, diverse, shared ecosystems and the public
    health of populations (including indigenous peoples) particularly along
    the shared extensive border areas, but also in the inland areas of both
    countries. In addition, binational cooperation has been underway since
    the early 1990s to better protect U.S.-Canada marine regions such as
    the Gulf of Maine.
        The U.S. and Canada have a long history of working together to
    control, reduce, and prevent cross border pollution. The Boundary Water
    Treaty of 1909 , which applies along the entire 5,500-mile inland
    border area, was in part designed to protect transboundary waters and
    U.S.-Canada watersheds, including protecting the public health of
    populations in both countries from the adverse effects of water
    pollution. Many major projects and activities addressing actual or
    potential pollution of transboundary waters continue to be conducted
    under the water pollution control and prevention requirements of the
    1909 treaty.
        Specifically, binational cooperation is underway to fulfill the
    treaty requirements for binational surface waters: e.g., St. Croix
    River, Lake Champlain, Great Lakes Basin including the Upper St.
    Lawrence River, Rainy River, Red and Souris Rivers system, Poplar
    River, Flathead River, Columbia River, Puget Sound-Georgia Basin, Taku
    River, and the Yukon River. The U.S.-Canada International Joint
    Commission (IJC) assists both countries with boundary waters management
    and protection for a number of the listed watersheds. 1909 Treaty
    cooperative efforts protect the U.S. portions of many shared U.S.-
    Canada watersheds.
        Since the 1970's up to the present, the U.S. and Canada have
    steadily increased their binational cooperative frameworks and
    attendant activities along the common border area.. These activities
    concerned with improved management and prevention of transboundary
    pollution, have been conducted between Federal, provincial, state,
    tribal, and some local governments, and frequently include involvement
    of the NGO community, the private sector and the general public as
    well.
        Cooperation with Canada under the Great Lakes Water Quality
    Agreement, beginning in 1972, has resulted in substantial progress in
    restoring the quality of these important natural resources. Lake Erie,
    once considered an ecological wasteland, is now substantially restored,
    with fish eating birds, like eagles and ospreys, having made strong
    recoveries. DDT and PCB contamination has been reduced by 80 or 90
    percent. U.S.-Canada cooperation to protect and restore the Great Lakes
    Basin ecosystem includes many goals that serve to better protect U.S.
    public health and the U.S. parts of the shared aquatic ecosystems.
        EPA Region 5 has the lead on Great Lakes water quality issues, with
    many activities conducted or coordinated by the Great Lakes National
    Program Office (GLNPO). In addition, Regions 2 and 3, the Office of
    Water (OW), the Office of Prevention, Pesticides and Toxic Substances
    (OPPTS), as well as the Offices of Research and International Affairs
    (ORD and OIA) have all been active in these activities.
        Unfortunately, although a lot of progress has occurred, many large
    Great Lakes fish are still unsafe to eat due to their accumulating
    burden of toxic pollutants. Also, the Great Lakes basin ecosystem is
    being subjected to harmful changes due to the effects of a substantial
    number of foreign alien invasive species, so that the two countries
    continue to address new challenges.
        Under the 1991 U.S.-Canada Air Quality Agreement, emissions of
    sulphur dioxide and nitrogen oxides (key contributors to acid rain)
    have been substantially reduced, benefitting the Northeastern United
    States. A recently negotiated annex to the Agreement, signed in
    December 2000, will lead to reductions in ground level ozone pollution.
    Priority cooperation under the Agreement also covers particulate
    matter, ensuring certain existing or proposed point sources of air
    pollution along the common area do not cause significant transboundary
    air pollution which can harm one side or the other. Efforts are also
    underway to protect visibility in natural areas along the border. On
    air quality activities, EPA's Office of Air and Radiation (OAR) leads;
    other EPA offices involved include ORD and EPA Regions 1,2, 5, 8 and
    10.
        EPA also is furthering the existing bilateral agreements concerning
    mercury and other toxic substances, such as the1997 Great Lakes
    Binational Strategy, with the goal of 50 percent reduction in use and
    emissions of mercury by 2006. The Northeast Mercury Study of the U.S.
    Northeast States and Eastern Canadian Provinces, has focused on
    reduction of uses and emissions of mercury and safe management of the
    mercury life cycle. In 1997, Canada and the United States signed an
    agreement for the Virtual Elimination of Persistent Toxic Substances
    (PBTs) in the Great Lakes. The strategy sets long-term goals to promote
    emissions reductions of these toxic substances. EPA coordinates the
    U.S. activities by engaging all relevant stakeholders, developing
    action plans, coordinating reduction activities and reporting on
    progress. OPPTS and OSWER in EPA have major involvement in matters
    concerning PBTs and other hazardous substances.
        The two national governments have established three binational
    agreements that cover preparedness and response to pollution release
    accidents/emergencies which could arise along the border. These
    agreements could also be used by one country, in certain emergency
    instances, to call upon the other country to assist with a response to
    an emergency which may occur inland away from the binational border.
    One of the three agreements covers the four U.S.-Canada marine water
    regions and Great Lakes waters for oil and hazardous materials. Another
    one covers the rest of the inland border for oil and hazardous
    materials. The more recent third one covers radiological emergencies.
    Since September 11 , 2001, the two national governments are also
    carrying out special cooperation on security issues along the border
    and on related domestic issues of common concern related to homeland
    security.
    North American Trilateral Cooperation between the U.S., Mexico and
            Canada
        In the 1990s, co-led by the U.S. and Canadian Federal governments,
    the U.S. and Canada developed new trilateral cooperation with Mexico to
    increase multilateral cooperation on major issues such as persistent
    bioaccumulative toxic (PBT) pollutants, their sources, air transport,
    fate and deposition. Long-standing shared goals by the U.S. and Canada
    under their Great Lakes Water Quality Agreement on PBTs helped catalyze
    and focus larger trilateral efforts. The three countries are focusing
    together on PBTs and other pollutants, their environmental transport
    and other pathways. The U.S. , Canada and Mexico have increased their
    consultations and cooperation on the northward migration, or
    introduction, of animals, plants, and pathogens not native to North
    America (i.e., invasive species), with the shared goal of improving
    protection of the biological integrity of many North American
    ecosystems, and in the case of some invasive species, to protect the
    public health of populations of North America.
        In 1993, Canada, Mexico, and the United States established the
    Commission for Environmental Cooperation (CEC) under the North American
    Agreement on Environmental Cooperation (the NAAEC) to address regional
    environmental concerns. The NAAEC complements the environmental
    provisions of the North American Free Trade Agreement (NAFTA). The CEC
    is facilitating tri-national coordination and cooperation on matters of
    cross-border flows of air pollutants, as well as invasive biological
    species. Capacity building, public participation, and facilitation of
    risk management actions through pollution prevention, market-based
    incentives, and technological controls are priorities.
        In 2001, two meetings of air quality experts were sponsored by the
    CEC to address the exchange of emissions information for criteria air
    pollutants and greenhouse gases and to address air quality impacts of
    transboundary trade and transport corridors. To support environmental
    capacity building, a Mexican association of air quality experts has
    been established and a newsletter has been created to inform
    stakeholders in Mexico about the air quality program. The CEC is also
    providing funding for Mexican participation in the meetings of North
    American air quality experts addressing problems common to the three
    countries.
        Under the auspices of the NAAEC, in 1995, Mexico, Canada and the
    United States have developed a regional initiative on the sound
    management of chemicals. Under this initiative, CEC has already
    established regional action plans for PCBs, DDT, and chlordane and is
    developing an action plan for dioxins, furans and hexachlorobenzene.
    U.S.EPA provides technical input to these plans and coordinates
    relevant capacity building activities, such as providing support for
    dioxin measurements, and assisting Mexico with obtaining international
    funding to address DDT stockpiles.
        In 2001, the CEC air program collaborated with the Sound Management
    of Chemicals (SMOC) program and developed a national mercury air
    emissions inventory in Mexico. It is being combined with the national
    inventories in Canada and the United States to give a continental
    perspective for the globally cycling pollutant. Data comparability and
    information access are key to its success.
        In addition to mercury, air quality experts in the three countries
    are developing inventories for sulfur dioxide, nitrogen oxides, carbon
    monoxide, volatile organic compounds, particulate aerosols, and
    greenhouse gases. They are also developing plans to obtain the needed
    information through monitoring and other implementation tools for any
    significant data gaps that may be identified.
        Under SMOC, the North American Regional Action Plan (NARAP) on
    monitoring and assessment of persistent toxic substances, with a
    leading effort addressing mercury, is being carried out through a tri-
    national task force of experts, with peer reviewed and published
    results. The monitoring effort is being coordinated with the
    development of EPA's routine monitoring strategy, and another important
    component is focusing on family and child environmental health
    indicators and monitoring parameters for mercury and other PBTs.
    Workshops facilitate the progress in the assessments and capacity
    building, and a leveraging of funds supports the implementation for
    phase 2 of the mercury NARAP, and those for DDT and PCBs, dioxins,
    furans and hexachlorobenzene. These are all being examined to ensure
    that objectives are met.
        Consideration also is being given to how the CEC, and particularly
    SMOC, could facilitate the regional implementation by the Parties to
    the 2001 Stockholm Convention on Persistent Organic Pollutants. The
    effects of persistent toxics on wildlife are being monitored as well as
    human health endpoints. A North American Pollutant Release and Transfer
    Register project addresses the sources, handling and stewardship of
    toxic chemicals from industrial activities in North America, and allows
    for better management of these transboundary pollutants.
        EPA's Office of International Affairs has the overall Agency lead
    on environmental issues concerning the U.S.-Mexico border. There is
    also major participation by EPA's Office of Water (OW), OPPTs and most
    EPA Regions. Other EPA program offices are also involved to varying
    degrees.
        Regional Cooperation Addressing Contamination Threats to Alaska and
    the Arctic, Including Indigenous Populations:
        The fragile Arctic environment and ecosystems, Alaska and
    indigenous populations are threatened by transboundary contamination
    mostly from sources in Russia. Transboundary transport mechanisms
    include atmospheric and ocean circulation and biological transmission
    through the Arctic food chain. The Russian contaminant sources are
    largely a legacy of the Soviet Union's armaments and military
    activities in the far North, the Cold War era industrial/agricultural
    infrastructure and practices, and related un-managed waste. The
    principal contaminant sources of concern include radioactive waste and
    spent nuclear fuel, PCBs mostly from the power grid system, dioxins/
    furans from incinerators and industrial sources, obsolete pesticides
    from huge collective farm era stockpiles, and heavy metals such as lead
    and mercury from industrial activities.
        In the 1990's Russia had the highest concentrations of unsecured
    Cold War legacy radioactive waste in the world, and very little waste
    management infrastructure to address the deteriorating situation. The
    problems mounted rapidly as the nuclear submarine dismantlement program
    obligatory under the START treaty continued to generate large amounts
    of radioactive waste and unsecured spent nuclear fuel. Russia dumped
    the low-level liquid radioactive waste produced in the submarine
    decommissioning and dismantlement process in the Arctic, while the
    spent nuclear fuel accumulated in unsecured circumstance at Arctic
    coastal sites in Northwest Russia.
        Under an EPA initiative responding to a Russian request for
    assistance, the U.S. (EPA, DOS/AID, DOD, and DOE) undertook in 1994 a
    multilateral project with Russia and Norway to upgrade and expand
    Russia's only operational radioactive liquid waste processing facility
    (originally developed for the Russian nuclear icebreaker fleet) to
    process the low-level liquid waste from the nuclear submarine
    disarmament program. The facility is now undergoing final operational
    testing and Russia terminated all ocean dumping of radioactive liquid
    waste since the start of the project.
        The unsecured spent nuclear fuel in the Russian Northwest
    constitutes 95 percent of the high level radioactive waste threat to
    the Arctic environment. EPA proposed the development of a prototype
    transportable spent nuclear fuel dry storage cask as a means of
    securing Russia's inventory of spent nuclear fuel arising from the
    decommissioning and dismantlement of large portions of their strategic
    submarine fleet under START. The U.S. nuclear power industry had
    pioneered dry cask storage, and the EPA proposal was to develop a low-
    cost prototype transportable storage cask for use in Russia, based on a
    unique Russian concrete-metal cask concept.
        The Transportable Spent Nuclear Fuel Storage Cask Project was
    organized as a trilateral effort between the U.S., Russia and Norway
    under a military environmental cooperation declaration involving the
    three countries and lead by their respective defense establishments.
    For the U.S., the effort has involved cooperation among DOD, EPA, DOE
    and DOS. The successful testing of the prototype cask has caused serial
    production to start under separate programs within Russia and,
    bilaterally, as part of the cooperative threat reduction efforts
    between Russia and the U.S. A prototype concrete storage pad was
    proposed by EPA to hold the loaded casks. This portion of the
    cooperative program is also nearing completion.
        Since 1998, the EPA multilateral strategy on Arctic contamination
    has been shifting emphasis to the problem of non-radioactive chemical
    threats to the Arctic environment and Alaska emanating from Russia's
    Cold war era legacy. The U.S. proposed a three phased project to the
    Arctic Council to assist Russia in addressing its PCB problems: (1)
    development of a PCB inventory for the Russian Federation, with
    emphasis on sources potentially impacting the Arctic, (2) assessment/
    feasibility of available technologies to address the particular major
    source problems identified by Russia, (3) selection and demonstration
    of at least one technology addressing one or more major source
    categories.
        The Russian PCB Project was endorsed as an official project of the
    Council's new Arctic Council Action Plan and EPA was asked to provide
    the project technical lead. The project has received funding from EPA
    and DOS plus all other Arctic nations and the Netherlands. The first
    (inventory) phase is now completed and the second phase is nearing
    completion, with the focus on PCB destruction technologies and
    alternative dielectric fluids. The project model is being applied under
    the Arctic Council to ``Russian Sources of Dioxin/Furans'' under
    Swedish project lead and U.S./EPA co-lead and to ``Obsolete Pesticides
    in Russia'' under U.S./EPA project lead.
        International Cooperation and Agreements Addressing Global Sources
    of Persistent Organic Pollutants (POPs) and Other Toxic Substances:
        Many Persistent Organic Pollutants (POPs) are subject to long-range
    transport processes, and consequently pose a common threat to human
    health and the environment ( particularly sensitive ecosystems), all
    over the world. The United States has taken a leading role to reduce
    and/or eliminate POPs and their releases on a regional and global
    basis. In 2001, the U.S. signed the Stockholm Convention on POPs and is
    working to ratify the treaty. The 1997 Canada-U.S. agreement for the
    Virtual Elimination of Persistent Toxic Substances in the Great Lakes
    and the and the 1993 tri-national NAAEC agreement between the U.S.,
    Mexico and Canada and establishment of the CEC have all been discussed
    previously.
        Since the early 1990's, EPA has been involved with activities
    concerned with identifying and quantifying sources of contamination
    impacting the Arctic environment, ecosystems and populations under the
    Arctic Environmental Protection Strategy (AEPS). Subsequently, the AEPS
    was subsumed under the Arctic Council, a consultative mechanism whereby
    the eight Arctic nations collaborate and, for example, provide
    assistance to Russia in meeting environmental goals.
        In 1998, the United States signed the legally binding regional
    protocol with other members nations of the United Nations Economic
    commission for Europe (UNECE) on POPs under the Convention on Long-
    Range Transboundary Air Pollution. This agreement seeks to eliminate
    production and reduce emissions of POPs in the UNECE region and
    addresses the 12 Stockholm Convention POPs and 4 additional chemicals
    (hexachlorocyclohexanes, hexabromobiphenyl, chlordecone, and polycyclic
    aromatic hydrocarbons). U.S. EPA is involved in ensuring the U.S. meets
    the obligations of the protocol and is actively engaged in the
    scientific assessment of potential additional chemicals. The EPA also
    continues activities under the Convention on Long-Range Transboundary
    Air Pollutants (LRTAP Convention) Heavy Metals Protocol, signed by the
    U.S. in June 1998 and ratified in January 2001, whereby nations of the
    UN Economic Commission for Europe agree to control emissions of
    mercury, lead and cadmium.
        EPA has initiated activities (previously described) under the
    Arctic Council/Arctic Council Action Plan (ACAP) intended to assist
    Russia in accepting and implementing the LRTAP protocols, as well as
    the Stockholm Convention. Russia has now signed the Stockholm
    Convention. The United States has also provided technical and financial
    assistance for POPs-related activities to a variety of countries
    besides Russia and regions other than the Arctic, including Mexico,
    Central and South America, Asia, and Africa. Examples of this
    assistance include projects led by the U.S.EPA on the development of
    dioxin and furan release inventories in Russia and Asia, the Chemicals
    Information Exchange and Networking Project for chemical managers in
    targeted countries in Africa and Central America, the destruction of
    pesticide stockpiles in Africa and Russia, and the reduction of PCB
    sources in Russia and the Philippines.
        Other international work has addressed trade in hazardous
    substances, some of which are POPs. The United States, along with 71
    other countries and the European Community, have signed the Rotterdam
    Convention on the Prior Informed Consent (PIC) Procedure for Certain
    Hazardous Chemicals and Pesticides in International Trade, building on
    a 10-year-old voluntary program. The PIC Convention identifies
    pesticides and industrial chemicals of concern, facilitates information
    sharing about their risks, and provides countries with an opportunity
    to make informed decisions about whether they should be imported. U.S.
    EPA has been actively involved in the voluntary program by engaging in
    the development and implementation of the PIC procedure.
        The following two successful projects, are examples of efforts
    involving EPA that the U.S. has supported within a regional context, in
    cooperation with other organizations and countries:
    Connecting POPs Managers Via the Internet: the Chemicals Information
            Exchange Network (CIEN)
        In a partnership with the United Nations Environment Programme
    (UNEP), and funding from the U.S. State Department, U.S.EPA is
    providing Internet access and training to chemical management officials
    and other stakeholders in Africa. Africa was chosen for initial focus
    because it is the continent with the lowest Internet connectivity and
    the greatest need. It is planned that the project will be expanded to
    Central America in the near future, and beyond that as resources become
    available. Internet access will assist implementation of the Stockholm
    Convention by providing POPs chemical information to decision-makers.
    Internet access also will enable chemical and pesticide regulators, as
    well as health and safety ministries, to access information on best
    practices and funding opportunities, and will allow them to promote
    regional cooperation and action plan development. EPA is also
    participating in the information Exchange Network on Capacity Building
    for Sound Management of Chemicals (INFOCAP) under the auspices of the
    Intergovernmental Forum on Chemical Safety.
    PCBs in Russia
        The U.S. State Department has funded and U.S.EPA is implementing a
    project in Russia to address environmental problems resulting from the
    manufacture and industrial use of PCBs. Partners in this effort include
    Norway, Denmark, Sweden, the United Nations Environment Programme
    (UNEP), and the Arctic Council. The project aims to reduce emissions of
    PCBs and enable Russia to meet the requirements of both the Stockholm
    Convention and the LRTAP POPs Protocol. The project involved conducting
    a PCB inventory, the results of which were presented at an official
    ceremony at the Norwegian Embassy in Moscow in September 2000. It will
    also entail a demonstration project to evaluate and showcase a selected
    PCB destruction technology.
        Very Long-Range Air Transport of Pollutants and Global Cycling of
    Mercury:
        Very long-range air transport of pollutants and the global cycling
    of mercury is a rapidly growing area of attention for the U.S. and
    other countries. At the present time these matters, are heavily
    concerned with research, monitoring and development. EPA has taken many
    steps to better understand the sources and mechanisms of long-range
    transport of persistent bioaccumulative toxic (PBT) substances and
    other air pollutants, as well as undertaking some initial steps in
    developing co-benefit technologies for emissions control, promoting
    pollution prevention.
        In May 2000, the EPA Office of International Affairs (OIA) and the
    Office of Air (OAR) initiated an agency-wide workgroup on the
    International Transport of Air Pollutants (ITAP). The first year was
    devoted to developing an appreciation for all the activities ongoing
    within the Agency related to long-range transboundary transport,
    including monitoring, modeling, emissions inventory development,
    control technology development, technology and information transfer,
    and analysis related to international policy development.
        In July 2000, OIA, with support funding from OAR and the Office of
    Research and Development (ORD), co-sponsored the First International
    Conference on Trans-Pacific Transport of Atmospheric Contaminants,
    involving scientists from both sides of the Pacific Basin, including
    China, Japan, Russia, South Korea, Canada, and the U.S. The conference
    discussed the state of science on long-range atmospheric transport in
    the North Pacific region, identified uncertainties and gaps in our
    knowledge, and promoted a network of individuals and organizations
    interested in these issues to further international collaboration.
        In June 2001, OAR co-sponsored a workshop with Environment Canada
    entitled ``Photo-oxidants, Particles, and Haze Across the Arctic and
    North Atlantic: Transport Observations and Models.'' This conference
    was conducted as part of the U.S. participation in the Convention on
    Long Range Transboundary Air Pollution (LRTAP Convention) and the
    Arctic Monitoring and Assessment Program (AMAP) under the Arctic
    Council. The meeting focused on identifying the research needed to
    quantify the sources-receptor relationships for ozone and fine particle
    transport across the North Atlantic and Arctic.
        EPA is currently shaping a PBT routine monitoring strategy,
    coordinating with other agencies, states, tribes, intergovernmental
    organizations and the private sector, which will incorporate the
    international dimension. Such a strategy will help establish trends for
    long-range transport, and also help us evaluate effectiveness of our
    risk management actions.
        For mercury specifically, the Agency priority pollutant which
    cycles globally, ORD was instrumental in developing new methods for
    measuring the various species to assess long-range transport
    mechanisms. EPA is developing state-of-the-art knowledge about
    transformation of mercury into various species in the atmosphere and
    the transport consequences. The species determines distance traveled
    and ultimate fate. Research utilizing these new analytical methods has
    been ongoing in South Florida, Cheeka Peak, Washington; Barrow, Alaska;
    and Mauna Loa, Hawaii to distinguish local sources of mercury from
    external sources. These studies have involved the first aerial
    measurements and studies at elevation as well as at ground level.
        In regard to pollution emissions minimization abroad, OIA is
    sponsoring a mercury-SO2 co-benefit demonstration project at
    a small coal-fired facility in Russia, in order to evaluate the
    effectiveness of emissions reduction using an electrostatic
    precipitator (ESP) add-on system. If the expected minimum of 50 percent
    reduction in mercury is achieved, it will be possible to utilize this
    low-technology approach in many countries where similar Russian ESP
    systems are in place. Additionally, a higher technology, although
    higher cost, approach has also been identified which is expected to
    reduce mercury by 99 percent in conjunction with SO2
    reduction, is being considered for application in China.
        In conjunction with the Department of State Cooperative Threat
    Reduction Program, OIA has initiated development of a proposal for
    mercury bioremediation at a former chloralkali facility in Kazakhstan,
    and in preparation for this project, sponsored a meeting in May 2002 of
    all scientists engaged in mercury research and pollution prevention in
    Kazakhstan and the neighboring countries of Kyrgystan, Azerbaijan, and
    Russia.
        The Office of International Affairs also played an instrumental
    role with Department of State during the UNEP Governing Council session
    in February 2002, at which UNEP launched a global mercury assessment,
    with a technical report and set of alternatives for decisions to be
    presented to the February 2003 UNEP Governing Council.
                                   pesticides
        Question. The administration is again proposing to replace
    appropriations to fund the pesticides reregistration program with a
    fee-based system. Many small businesses believe that a fee registration
    program would hurt their economic viability and place them at an unfair
    business disadvantage to larger businesses. How would the EPA address
    these concerns?
        Answer. There are a few different fee programs in the pesticide
    program. All of the programs have provisions for reduced fees or
    waivers for companies that are small businesses or can demonstrate
    economic hardship. The various fees are discussed below.
        Registration Fees.--These fees were originally enacted in 1988 and
    immediately suspended by amendments to the Federal Insecticide,
    Fungicide and Rodenticide Act (FIFRA) in 1988. However, that
    prohibition expired in September 2001 and was renewed for 1 year by the
    Congress. These fees could not be used for pesticide reregistration,
    since they are based on recovering costs of the registration program.
    The fees are currently set up to go directly into the Environmental
    Services account at Treasury. While the receipts could be separately
    appropriated to the Agency, generally such fees are deposited to
    Treasury and are not available to the Agency. When last in effect, the
    registration fee rule provided for fee waivers or refunds in whole or
    in part for minor uses, if the action was in the public interest, or
    upon request by the applicant if they can demonstrate severe economic
    impact.
        Reregistration/Maintenance Fee.--Reregistration/maintenance fees
    were first introduced in FIFRA 1988 and re-authorized in Food Quality
    Protection Act (FQPA). This fee will expire on September 30, 2002. The
    maintenance fee addresses small business concerns in two ways. First,
    the per product fee for each registrant's first product is discounted
    by 50 percent. In fiscal year 2002, the fee structure was $1,225 for
    the first product and $2,550 for each subsequent product. Second, the
    fee structure includes caps. No registrant pays more than $55,000 for
    their first 50 products and $95,000 total. For small businesses these
    caps are set at $38,500 for the first 50 products and $66,500 total.
    Although all companies not paying at one of the caps benefit from this
    discount, it especially helps the nearly 800 companies that pay for
    only one product.
        Tolerance Fees.--The proposed fee is authorized by FQPA 1996
    amendments to FIFRA and Federal Food, Drug and Cosmetic Act (FFDCA).
    The proposed rule essentially updates the existing tolerance fees. This
    fee is intended to recover all costs for processing tolerance actions,
    including petitions and reassessed tolerances. The fee is structured so
    that the first tolerance of an active ingredient (a single ingredient
    may have many tolerances) would be assessed the highest fee, then
    quickly diminish per each successive tolerance relating to the active
    ingredient. The proposed rule was published in the Federal Register on
    June 6, 1999 (OPP-30115), however in 2000, 2001 and 2002, Congress
    prohibited EPA from promulgating a final tolerance fee rule.
        The proposed rule provides that the Administrator may grant a
    waiver on a case by case basis when requested in writing by the
    petitioner or registrant, for an application for a tolerance or a
    tolerance reassessment action that meet the criteria for safer
    products, products that are in the public interest, and registrants who
    can demonstrate an economic hardship. The concerns of small business
    would be one of the Agency's priorities in reviewing the requests.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

        environmental air quality: contribution to public health burden
        Question. In the environmental air quality arena, most of the
    Agency's research effort is being directed toward understanding the
    health effects of fine particles. This effort responds to congressional
    direction and current public concerns, and is based on the
    epidemiological evidence that airborne particles are statistically
    associated with death and illness. Yet, all recent studies that examine
    the effects of multiple air pollutants indicate that not only
    particles, but also other air pollutants are associated with death and
    illness. Is it not true that many air pollutants are likely to
    contribute to the public health burden?
        Answer. We agree that many air pollutants are likely to contribute
    to the public health burden of air pollution. For example, recent
    National Scale Assessment of air toxics based on 1996 data revealed
    several pollutants with health risks to the American population. The
    third external review draft of the Air Quality Criteria Document for
    Particulate Matter summarizes the body of science associating fine
    particles (and other air pollutants) with death and illness. This draft
    has recently been released and will be undergoing review by the EPA's
    Science Advisory Boards CASAC Committee. The document evaluates the
    strength and coherence of the statistical associations between health
    effects and particulate matter (PM). The extent that the associations
    with PM also apply or are confounded by other pollutants is a matter of
    much debate and continued research. In general, associations of health
    effects with air pollutants seem to be dominated by PM, with occasional
    emergence of other pollutants as co-factors or appearing as an equal
    determinant. These co-pollutants have ranged from nitrogen dioxide to
    sulfur dioxide to carbon monoxide depending on study venue. But these
    co-pollutants have been of inconsistent importance, suggesting that
    they may indeed be important considerations but are likely of secondary
    contribution. The extent to which toxicological evidence has provided
    biological plausibility to the findings regarding PM supports this
    contention.
      environmental air quality: effect of air pollutants and contaminants
        Question. What is the Agency doing to determine how the mixtures of
    air pollutants that people actually breathe affect health, and which of
    the hundreds of air contaminants are most important?
        Answer. Several of the Agency's current research efforts relate to
    understanding how complex air pollutant mixtures affect health.
    Particulate matter (PM) is itself a complex mixture of components
    contributed by various air shed sources and secondary transformations.
    The health effects research under EPA's PM research program will help
    our understanding of the observed excess mortality and morbidity
    associated with particulate air pollution. This research is evaluating
    the contributions of individual constituents as well source-attributed
    mixtures in both epidemiological and toxicological studies. Results
    from these studies will help: (1) determine the biological mechanisms
    underlying PM-related effects; (2) identify which PM components (or
    sources) are most responsible for health effects; and (3) quantify the
    factors affecting susceptibility in the population. In addition,
    research to elucidate whether, and to what extent, the effects
    attributed to PM exposures are confounded by other commonly occurring
    pollutants such as SO2 and ozone will be performed to
    improve interpretation of the epidemiological studies on which the
    NAAQS are based.
        The Agency also has additional efforts underway to understand and
    quantify air pollution risks in the air toxics program. Air toxics
    research covered by the draft Air Toxics Research Strategy (ATRS) and
    the draft Air Toxics Multi-Year Plan (MYP) have grouped and prioritized
    air toxics to aid in determining risk across multiple scales and from
    stationary (residual risk), mobile, and indoor air sources. The ATRS
    also identifies key research directions for mixtures including
    identification of those not following the default assumption of
    additive toxicity and identification of the constituent interactions of
    mixtures.
        environmental air quality: incorporating national environmental
    respiratory center research strategy into agency's assessment of public
                 health burden and future regulatory strategies
        Question. In New Mexico, the National Environmental Respiratory
    Center (NERC) is pursuing a strong research strategy aimed at
    dissecting the contributions of many different classes of air
    pollutants to the death and illness associated statistically with
    airborne particles and the few other pollutants that are measured
    routinely. How does the Agency plan to incorporate this program into
    its assessment of the public health burden from air pollution, and the
    future regulatory strategies that may be required to address multi-
    pollutant effects?
        Answer. EPA believes the research approach taken by the NERC will
    eventually provide important insights into appropriate approaches to
    addressing multiple air pollutants. One way we are involved in NERC is
    our active representation on the Scientific Advisory Committee of the
    NERC, which meets twice a year to advise the program on its strategic
    plan as well as to review program progress. This involvement
    incorporates the Agency view and communicates program status back to
    the Agency.
        As the NERC recognizes, the assessment of the health effects of air
    pollution is complicated by its complex nature. The regulatory
    approaches taken by EPA have focused both on single pollutant classes
    as in the National Ambient Air Quality Standards (NAAQS; e.g., ozone,
    lead, SO2, etc.) as well as control of complex mixtures that
    are emitted from a number of regulated source categories. Even the
    NAAQS regulations often result in multiple pollutant control, and at
    least one NAAQS pollutant, particulate matter, is itself a complex
    mixture. Reductions of multiple pollutants in these programs has
    undoubtedly benefitted public health, but we need more information on
    pollutant and source combinations to improve both the effectiveness and
    efficiency of such programs. As the approach of the NERC to the study
    of air pollutants, which is inclusive of the complex emissions of
    sources, is complicated by design, analyses of the findings is also
    complicated. However, there is growing interest in the integrated
    control of air pollution by source,' and when paired with new
    statistical applications (e.g., principal component analyses) to both
    epidemiological and toxicological studies of complex mixture exposures,
    we anticipated that the more complete understanding of source
    contributions to health rather than individual pollutants will lead to
    significant advances in public health protection.
        EPA is paying close attention to how these research developments
    can inform and improve air quality management. At present there is no
    clear best method' for incorporating the health impacts of complex
    source emissions, since often multiple sources emit the same pollutants
    in varying quantities and under various conditions of operation.
    Appreciating how source emissions affects health is also complicated by
    factors such as aging of the atmosphere, photochemical processes, and
    multiple source contributions. Yet, it is clear that health will be
    better protected if the entire matrix of a polluted air shed can be
    considered in developing control strategies and our understanding of
    source-based health impacts will allow the Agency to target pollutant
    control with greater efficacy and reduced overall cost to governments
    and the economy.
        One non-regulatory area in which we would like to consider multiple
    pollutants is the system for providing air quality information to the
    public. Currently, public notices on daily air quality are usually
    driven by an individual pollutants, reported to the media as an Air
    Quality Index that can be better appreciated by the lay community. We
    are currently examining research from NERC, EPA's internal research
    program and other programs to determine whether and how the current
    index might be modified to differentiate the message when multiple as
    opposed to single pollutants are elevated. This examination will help
    us formulate additional research questions for NERC and others to
    facilitate improved public health communication in the future.
        environmental air quality: research to understand health effects
        Question. The Agency's air pollution research tends to focus on a
    few classes of pollutants, such as particles, that are reviewed,
    debated, and regulated one-at-a-time. Although the single-pollutant
    approach stems from the language of the Clean Air Act, which has
    certainly helped to clean up the air, epidemiological studies have now
    made it clear that all routinely measured air pollutants are associated
    to some degree with death and illness. These are signals that the
    single-pollutant approach may not continue to serve us well in the
    future. What research is the Agency supporting to understand the health
    effects of the much larger number of air pollutants that people
    actually breathe every day?
        Answer. The Agency supports both single pollutant and multiple
    pollutant research. Epidemiology studies, by their very nature, include
    multiple pollutants in their analyses of health outcomes. By and large,
    a single pollutant (usually PM or ozone) dominate the responses, but
    other pollutants also have an impact on the outcomes and the importance
    of these multiple factors is widely appreciated and considered in the
    risk assessments. Additionally, both panel/field (human) and laboratory
    toxicological studies (both human and animal) that incorporate mixture
    approaches are supported with the view that complex air pollution
    exposure scenarios are the reality. The Agency's involvement with the
    National Environmental Respiratory Center in New Mexico provides one
    example where this ``top-down'' approach to the study of emission
    mixtures is currently be employed. Analogous and complementary studies
    with fuel oil and coal emissions are being studied intramurally by EPA.
    There is growing appreciation of the potential for source-based
    analyses of exposures in the field and the laboratory (e.g.,
    concentrated air particulate exposure units) to improve understanding
    of health effects and control opportunities. These analyses are gaining
    in importance in study design and assessments.
        In addition the draft Air Toxics Research Strategy and draft Multi-
    Year Plan have grouped and prioritized the 188 air toxics listed in the
    Clean Air Act Amendments of 1990 as a way that allows health effects
    research to focus on those associated with the likely worst health
    effects. For example, research in the areas of mode of action, shape of
    dose response curves, irritancy of the respiratory system, and
    physiologically-based pharmacokinetic models have potentially broad
    application across several air pollutants.
     environmental air quality: national environmental respiratory center
       incorporated into agency's strategy for understanding effects of
                         complex air pollutant mixtures
        Question. How does the Agency propose to incorporate the forward-
    looking multi-pollutant research of the National Environmental
    Respiratory Center in New Mexico into its strategy for understanding
    the effects of complex air pollution mixtures?--And evaluating how
    regulatory strategies may need to evolve in the future?
        Answer. The NERC recognizes that the assessment of the health
    effects of air pollution is complicated by its complex nature. As
    stated in Question 3 above, EPA believes the research approach taken by
    the NERC will yield insights into appropriate approaches to managing
    multiple air pollutants as well as information on pollutant and source
    combinations that can improve both the effectiveness and efficiency of
    our regulatory programs. There is growing interest in the integrated
    control of air pollution by source', and when paired with new
    statistical applications (e.g., principal component analyses) to both
    epidemiological and toxicological studies of complex mixture exposures,
    we anticipate that a more complete understanding of source
    contributions to health rather than individual pollutants will lead to
    significant advances in public health protection.
        EPA is paying close attention to how these research developments
    can inform and improve air quality management. At present there is no
    clear best method' for incorporating the health impacts of complex
    source emissions, since often multiple sources emit the same pollutants
    in varying quantities and under various conditions of operation.
    Understanding how source emissions affect health is also complicated by
    factors such as aging of the atmosphere, photochemical processes, and
    multiple source contributions. Yet, it is clear that health will be
    better protected if the entire matrix of a polluted air shed can be
    considered in developing control strategies, and our understanding of
    source-based health impacts will allow the Agency to target pollutant
    control with greater efficacy and reduced overall cost to governments
    and the economy.
                                     ______

                   Questions Submitted by Senator Patty Murray

              coeur d'alene basin: final record of decision (rod)
        Question. Is the EPA still planning to issue the final Record of
    Decision (ROD) for the Coeur d'Alene Basin this summer? Has EPA
    responded to the Idaho delegation's request for an NAS study on EPA's
    proposed ROD and for a delay in the final ROD? If not, when does EPA
    expect to respond? If so, what was EPA's response?
        Answer. EPA Region 10 still intends to issue the Record of Decision
    (ROD) for the Coeur d'Alene Basin this summer. In letters dated April
    15, 2002, Regional Administrator John Iani replied to the Idaho
    congressional delegation's requests for a ROD delay and an NAS study.
    The reply assured the delegation that EPA is working closely with the
    State of Idaho regarding their concerns on the ROD, and is also
    supportive of the State's recently formed Coeur d'Alene Basin
    Improvement Environmental Project Commission. EPA welcomes an
    independent review by the NAS but would like to move forward with the
    ROD with a commitment to modify the ROD in the future based on any new
    information or findings.
        In addition, EPA is working with the Federal trustees, tribes,
    local communities, the State of Washington and other stakeholders.
        superfund tax: administration's opposition to tax chemical and
                              petroleum industries
        Question. Is the Administration still opposed to reinstating the
    Superfund tax on the chemical and petroleum industries?
        Answer. A number of years have passed since the Superfund taxes
    expired. Although the Superfund taxes expired, the annual
    appropriations for the program have remained relatively steady. It is
    important to note, that the expiration of the taxes has not affected
    the appropriated funding for the Superfund program. I am confident that
    Congress and the Administration will continue to work together to
    provide appropriate funding for the Superfund program.
        The Administration continues its strong commitment to the polluter
    pays principle. In fiscal year 2001 EPA successfully managed the
    Superfund enforcement program whereby 70 percent of Superfund long-term
    cleanups at non-Federal facility sites are performed or paid for by
    parties responsible for the contamination (PRPs). Last year (fiscal
    year 2001), EPA produced a near record amount in private party cleanup
    commitments for cleanup and cost recovery--$1.7 billion--an increase
    from the previous year of almost $300 million. Of the $1.7 billion, EPA
    obtained commitments from PRPs to reimburse EPA $413 million in past
    cleanup costs--a large increase from the $145 million achieved in the
    previous year.
    superfund cleanup: adequate funding in fiscal year 2003 for washington
                            state superfund cleanups
        Question. I am concerned that the Administration has not requested
    enough funding for Superfund to keep cleanups in Washington state (and
    throughout the nation) on schedule--I am especially concerned about
    potential slowdowns at the Asarco site in Tacoma, Washington, and the
    Midnight Mine site on the Spokane Reservation. Will the
    Administration's request of $1.29 billion for Superfund in fiscal year
    2003 provide enough additional funds to ensure that Superfund cleanups
    in Washington state are not delayed because of insufficient funding?
        Answer. Status of Asarco.--Based on the current schedule,
    approximately $60 million in work is scheduled in the next 3 years.
    This includes completion of excavation and filling the onsite landfill,
    armoring the shoreline, completion of cleanup of approximately 500
    yards, and beginning offshore sediment remediation. Asarco has been
    identified as the Potentially Responsible Party (PRP), and the Agency
    is working to have Asarco as the fund lead for this site. However,
    Asarco currently does not have funds to do more than a fraction of the
    work. Due to the financial situation of the PRP, the burden of
    completing the cleanup may, at some point in the future, fall on the
    Superfund program.
        Status of Midnight Mine.--Contaminated water emerging from the
    Midnight mine is currently captured for treatment in an on-site
    treatment system; however, a long-term solution is needed to address
    the site as a whole. Data evaluation, hydrologic modeling and
    preparation of the remedial investigation report are currently
    underway. Human and ecological risk assessments and a feasibility study
    of cleanup alternatives will be initiated in fiscal year 2003. The
    schedule for completion of the study and selection of a remedy will be
    based on EPA regional funding allocations and priorities for fiscal
    year 2003 and beyond. EPA continues to work with the Spokane Tribe on
    the issues surrounding this complex site. The Agency is also attempting
    identify PRPs to conduct the cleanup.
                   asbestos: libby, montana asbestos clean-up
        Question. What is the Administration's request for funding in
    fiscal year 2003 to clean up contaminant asbestos from Libby, Montana?
    What is the Administration's request to address broader issues
    surrounding asbestos, such as implementing recommendations from the
    EPA's Inspector General (for example, creating the Blue Ribbon Panel on
    Asbestos, updating EPA's IRIS for asbestos, developing a NESHAP for
    contaminant asbestos etc.).
        Answer. EPA has committed more than $60 million in fiscal years
    2000 through 2002 for environmental investigations, cleanup actions and
    medical investigations in Libby. Current estimates place fiscal year
    2003 needs at approximately $21 million. These projections include many
    assumptions about the number of homes or additional properties which
    may require clean up, and may be subject to significant revision as
    field work progresses.
        In addition to the Administration's request for funding in fiscal
    year 2003 to clean up contaminant asbestos from Libby, Montana, EPA's
    fiscal year 2003 request also addresses the broader issues surrounding
    asbestos, which includes funding for implementing recommendations from
    the EPA Inspector General's report and recommendations to be developed
    in 2002 by a Blue Ribbon Panel, and funding for other actions to reduce
    potential asbestos risks, such as lung cancer, asbestosis, and
    mesothelioma.
        EPA recently signed a cooperative agreement with former EPA Deputy
    Administrator Hank Habicht and the Global Environment Technology
    Foundation to convene a Blue Ribbon Panel (formerly the Asbestos Focus
    Group) of national experts to provide the Agency with guidance on how
    best to respond . Discussions are currently underway to identify the
    team of national experts that will comprise the Panel. The panel is
    expected to meet several times over the course of the next several
    months.
        In response to the Inspector General's report EPA also created an
    Asbestos Coordination Team (ACT) to facilitate internal and external
    communications and information sharing on asbestos issues. EPA is also
    a member of the OMNE committee (consisting of the Occupational Safe and
    Health Agency [OSHA], the Mine Safety and Health Administraion [MSHA],
    the National Institute for Occupational Safety and Health [NIOSH] and
    the Environmental Protection Agency [EPA]) within the Department of
    Labor to coordinate on asbestos and other worker chemical safety
    issues.
        Other actions EPA has already taken or will take in 2002 and 2003
    to reduce asbestos risks include updating lists of producers and
    processors of vermiculite, reviewing and updating other pertinent
    documents and studies, and developing a product sampling and analysis
    plan for gardening products and home attic insulation. EPA published
    its horticultural study of vermiculite products in August, 2000. The
    results indicated that, in general, the use of these products poses
    minimal risk to recreational gardeners, but there may be cause for
    concern for occupational exposures. EPA's study of asbestos
    contaminated vermiculite home attic insulation began in January 2001,
    is being peer reviewed in July and August 2002, and is expected to be
    published in September 2002.
          asbestos: broadening and changing the definition of asbestos
        Question. Does EPA have any plans at this time to look into
    broadening and/or changing the definition of asbestos to include
    nonasbestiform varieties and/or additional minerals which may pose
    health threats?
        Answer. EPA's Office of Research and Development is updating the
    Agency's Integrated Risk Information System (IRIS) file on asbestos,
    which may address expanding the definition of asbestos, but the Agency
    is awaiting the deliberations of the Asbestos Focus Group (formally
    called the asbestos Blue Ribbon Panel) before coming to any conclusions
    regarding future actions on this issue. The Asbestos Focus Group
    assists the Agency with recommendations on how best to use its
    resources for the oversight of Asbestos in use in products and in
    buildings and its manufacture, processing and distribution in commerce.
    Final recommendations will be provided to the Agency in early 2003.

                              SUBCOMMITTEE RECESS

        Senator Leahy. With that, let us have a recess.
        [Whereupon, at 11:30 a.m., Wednesday, March 20, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

    DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                           WEDNESDAY, APRIL 17, 2002

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:30 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Barbara A. Mikulski (chairman)
    presiding.
        Present: Senators Mikulski, Johnson, Bond, and Domenici.

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

    STATEMENT OF LESLIE LENKOWSKY, CHIEF EXECUTIVE OFFICER

                OPENING STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Good morning. The Subcommittee on VA-HUD
    appropriations will come to order. This hearing will focus on
    the appropriations request for the Corporation for National and
    Community Service. I want to warmly welcome the National
    Service CEO, Dr. Leslie Lenkowsky.
        I was pleased to hear from him last week at the Health
    Committee, where we were authorizing the service and working
    with the President of the United States in his review, and
    invigorated call for service. I'm glad to have you here today
    before this subcommittee, because this is where the so-called
    rubber meets the road here. We operationalized those good
    intentions that are envisioned in authorizing with, of course,
    our own perspective.
        Dr. Lenkowsky comes to us with a great deal of experience.
    His long history of national service is going to make him, I
    believe, the right man at the right time. Appointed by
    President Bush I to serve on the original commission to
    establish the Commission on National Service, National and
    Community Service, but when it was meant to be a demonstration
    project, then President Clinton as part of a bipartisan effort
    appointed him as one of the founding Directors of the
    corporation.
        So he knows the whole history, he knows the story, he knows
    the intent, so as well as coming with an incredible background
    from the academic community, where really his career has been
    focused on the role of philanthropy and its intersection with
    public policy, but how to stimulate innovation, creativity,
    accountability without big bureaucracy, so you are the kind of
    guy this committee likes.
        So we look forward to working with you and to bringing all
    of this experience to bear, because National Service is in a
    new century, and we need to meet the new challenges of our
    country while at the same time retaining that very important
    value base of neighbor helping neighbor.
        Last week, the President released his principles for
    National Service reauthorization. We are pleased the President
    has embraced National Service, and look forward to working with
    him in a bipartisan way to foster those objectives.
        Some of my goals in this hearing are going to be twofold,
    one a continuation of last week's hearings to have a better
    opportunity to look at the President's principles, and then how
    that would be put into the appropriations. Second, how to work
    with this Director as a part of our appropriations to see how
    we can take National Service into the new century, continuing
    to create the habits of the heart that make our Nation great,
    but at the same time providing qualitative and quantifiable
    service to the communities, reducing student debt, and
    maintaining proper fiscal management.
        Volunteerism is our Nation's trademark. It highlights what
    is best about America. It is the backbone of our communities.
    Preserving safety nets for seniors, keeping communities safe,
    and getting kids ready to learn. The idea behind National
    Service was to link values to public policy, and to help young
    people with an opportunity to serve their communities while
    helping to pay for higher education, either to reduce their
    debt or to have like a nugget, particularly for poor kids to be
    able to go on to higher education.
        It was also to link responsibility to opportunity, and we
    must remember that, so that for every opportunity there is an
    obligation, whether it is a legal one, or one that you feel in
    your heart for being a citizen of the greatest Nation in the
    world.
        But while we're looking at the noble aspects of community
    service, we really have to be accountable to the taxpayer and
    financial management, which has not been one of the National
    Corporation's strong suits. We want to commend the corporation
    for a clean audit two years in a row, with no material
    weaknesses and only one reportable condition, and we will be
    discussing that with you.
        We have come a long way since 1996, when accountants were
    unable to audit the corporation's financial statements because
    they were in such a mess. The reportable condition is in grants
    management, which is crucial, but we have every faith, Doctor,
    in your ability, both your programmatic ability as well as your
    management ability. This is not about how do we get the
    accounting right. It's how do we get the corporation right.
        In the budget review, the President asked for $638 million.
    This is the biggest request that we've gotten in a long time.
    It is in addition to $397 million requested under Labor-HHS,
    and also in addition to what is asked for in FEMA. The 2003
    request asked for $403 million for AmeriCorps State and
    national programs, $162 million more than last year. The
    President wants to add 25,000 new AmeriCorps volunteers for a
    total of 75,000 volunteers. Twenty-three thousand of these
    would be AmeriCorps State and national programs.
        Second, the request would be to expand the National
    Civilian Conservation Corps $10 million over last year for 35,
    opening two new campuses and adding 500 members responding
    primarily to public safety. Also, $57 million for the National
    Service Trust to pay for AmeriCorps education awards. In 2002
    we did not appropriate into the trust because there simply was
    not enough funding. This year, we want to make sure we have the
    figure right.
        The budget eliminates $11.5 million designated by this
    subcommittee for national organizations, and as I have
    discussed with you privately, and I want to say publicly, we've
    got to look at how we support those national programs.
        Those large corporations are like large caps. They are the
    blue chips of volunteerism in our country. We know what
    dividends they can pay, and we have to see how we are going to
    be a public investor as a part of their efforts.
        The Challenge Grants offer an opportunity to discuss this.
    We look forward to working with the President in his
    reauthorization, his new ideas for the Freedom Corps, and we
    are pleased that at this juncture, both a new century and after
    September 11 a new call to duty, that we work with him. We
    believe that this President himself is a duty-driven kind of
    guy, and he wants the rest of America to embrace those values
    of honor and duty and a call to citizenship.
        So we look forward to working with you, and I would turn to
    my colleague, Senator Kit Bond, who as the chairman of the
    subcommittee over the years has played an absolutely critical
    role in sustaining National Service when those in the other
    body wanted to terminate it.
        Senator Bond.

                    STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you, Madam Chair. It is a pleasure to
    join you in welcoming Dr. Les Lenkowsky as Chief Executive
    Officer of CNCS.
        Les, my sincere thanks to you and the Director of USA
    Freedom Corps, Josh Bridgeland, for a very constructive meeting
    on Monday, and as I told you then, not only is our chair really
    the godmother of AmeriCorps and National Service, she has been
    the greatest champion, and it is with great excitement that
    together we look at the new reinvigorated budget request, the
    spirit that the CNCS has, because really--I guess it was de
    Tocqueville who said that the real spirit of America comes from
    the volunteer sector, that great fire that burns in the
    churches and the voluntary organizations.
        We look to you to nurture that fire and to provide the
    fuel, because along with--and I stop to compliment you on the
    progress you have made on turning the corner on the management
    problems and now we can start addressing the performance of the
    corporation's program, because along with the Peace Corps, the
    CNCS does play a unique and leading role in volunteer
    activities.
        We saw out of the tragedy of the terrorist attacks on
    September 11 a public cry for citizens to become more involved
    in public service and help communities respond to the new
    threats. As I told you, I have never seen more people in my
    home State wanting to volunteer. As I travel across Missouri,
    people from all walks of life, college graduates, high school
    students, senior citizens have all come up and said they want
    to help.
        Retired health care professionals want to be able to
    participate if there is another tragedy. I have had World War
    II veterans who want to sign up and go back to war, and I said,
    maybe we can use your enthusiasm and your training, but
    probably we are not going to send you to the mountains of
    Afghanistan.
        Really, the events of September 11 reinvigorated our spirit
    of public service and compassion and responsibility, and I
    think we now have the unique opportunity to capture and harness
    this spirit to improve our communities. We won this spirit out
    of the great tragedy of September 11. It came at a great cost.
    We cannot afford to lose that which was so expensively won for
    us, but I am concerned the current structure of the programs,
    the corps may not essentially meet effectively and efficiently
    the volunteer needs of Americans, and I question whether the
    corporation is getting the biggest bang for its buck, and I
    think we need to work together on fundamental reforms.
        My view is very strongly that the corporation ought to be
    focusing less on retail activities and more on wholesale
    activities. That means we need to focus the funds, the
    training, the work of the CNCS on training the volunteers to
    mobilize other volunteers. In other words, the corporation
    should train the trainers, because there is a much broader
    reach of people with volunteer time and talents that I believe
    that the members of the organization can mobilize.
        As the chair said, she and I both sit on the authorizing
    committee as well as the appropriating committee, and so you
    will get your fill of us this year, and we look forward to
    working on the reauthorization programs. I think we can truly
    make volunteerism more meaningful and accountable.
        There have been, as we have discussed, inadequate
    management systems and oversight practices have been lacking,
    and a lack of performance outcome data, and these have made it
    a little bit more difficult to get the budget through in the
    Congress, and it has made it an easy target of criticism, and I
    think we are all best served if we can avoid that, those
    openings for attack up front.
        You have received a clean opinion with only one general
    question, and this is the second year in a row. We do know that
    the President has released his principles and reform for a
    Citizens Service Act, and one of the noteworthy items is
    improving the accountability of the corporation's grantees.
        I like the fact that he has called for clearly defined
    performance goals that are measurable. One of my first stints
    in public office was as a State auditor, and we did performance
    audits and asked people, what is it you are trying to provide,
    and how do you know you are doing it? Do not just give us the
    inputs, how much you spend on it, what good comes out of it,
    and I think the corporation needs to be taking a much harder
    look to see those grantees that get the job done, and more
    money, and those who do not, move them out the door.
        I think this kind of strong tough love is going to be
    important. As we work, we hope to expand the budget and the
    responsibilities of the corporation, but management and
    accountability are our top priorities.
        One other issue is the National Service Trust Fund. Last
    year, the chair and I requested the CNCS Inspector General to
    review the financial condition of the corporation's trust fund.
    I'm not going to go into details here, but there is a major
    discrepancy between what the corporation is requesting, and
    what the OIG is estimating for the trust fund. It just does not
    compute. Maybe we do not know how to figure, but there is some
    major disconnect there.
        Finally, I will focus in the Q&A on the issue of
    sustainability. By law, Congress envisioned the corporation
    would consider the grantees' reliance on Federal funding. In
    reviewing the application it expected some grantees would
    eventually operate without Federal funding, but in practice the
    corporation continues to fund the same grants. It is a problem
    we see throughout Government. The rich get richer. Whoever got
    last year gets this year.
        The corporation provided funding year after year for really
    good organizations, and I have no complaint about the
    organizations--Habitat for Humanity--these are worthwhile
    organizations and perform valuable service, but should the
    corporation be looking for new areas to encourage and enhance
    and support with the programs that have not had the benefit of
    Federal assistance?
        With that, Madam Chair, I look forward to the questions and
    answers, and we will see how much we can do before they ring
    the bell for us.
        Senator Mikulski. Thank you very much. Senator Johnson, do
    you have an opening statement?
        Senator Johnson. No, Madam Chairwoman. I would simply
    submit a statement of welcome to Dr. Lenkowsky. The AmeriCorps
    and National Service Corps are obviously very important to my
    State of South Dakota, and I am pleased you are holding this
    hearing and look forward to working to provide an adequate
    budget.
        Senator Mikulski. Thank you very much.
        With that, we would ask you to proceed, Doctor.
        Dr. Lenkowsky Thank you very much, Madam Chair, Senator
    Bond, Senator Johnson. I greatly appreciate having the
    opportunity to appear before you this morning. As a former
    board member, I am most grateful for the efforts you have put
    into making the Corporation for National and Community Service
    what it is today, and laying the groundwork for what it can
    become in the future.
        Senator Mikulski. Doctor, this is your oral statement, is
    that correct?
        Dr. Lenkowsky. That is correct. I have both an oral and a
    written statement.
        Senator Mikulski. I did not mean to interrupt.
        Dr. Lenkowsky. Again, thank you for all you have done to
    lay the groundwork for what this corporation can become in the
    future. This is an extraordinary moment in the history of our
    country, and for the agency I head. Since the terrible events
    of September 11, we have seen expressions of patriotism in the
    United States unlike any I can remember in my lifetime, and at
    a tragically high price. All of us have again realized how
    precious our freedoms are and why it is important for all of us
    to accept the responsibilities of being citizens.
        A survey taken in January by a research center at the
    University of Maryland found that 81 percent of young adults
    between the ages of 15 and 25, cutting across all demographic
    groups and political affiliations, favor a year of voluntary
    national or community service to earn money towards college or
    advanced training. Applications to AmeriCorps and SeniorCorps
    are up substantially over what they were a year ago, and a blue
    ribbon committee chaired by former Senator John Glenn has just
    called upon the Nation's schools to invest more heavily in
    service learning.
        Despite all of the renewed interest in serving, however,
    what Americans have been doing lately tells a different story.
    The University of Maryland survey, for example, reported that
    37 percent of those young adults never volunteer, up from 27
    percent in 2000. Fewer people volunteer occasionally as well in
    that 2-year period.
        To make what so many Americans have been feeling since
    September 11 into a lasting change in what they do, President
    Bush has called on all Americans to give at least 2 years of
    their lives to serving their country, and established the USA
    Freedom Corps as a White House Council to mobilize the
    resources of the Federal Government to help them do so.
        Along with the Peace Corps and a new Citizens Corps, which
    will focus on homeland security, the Corporation for National
    and Community Service is proud to be one of the operating arms
    of this historic new initiative. Through our programs,
    AmeriCorps, Senior Corps, and Learn and Serve America, we
    support the President's call to service by helping to create
    opportunities for all Americans to serve full-time, part-time,
    and while they are students.
        We will also work closely with our Nation's many worthwhile
    charities and nonprofit organizations to assist them in
    recruiting and managing volunteers, as well as accomplishing
    their missions, including providing security for our homeland.
        The budget request before you aims to provide the resources
    necessary for the corporation to do this, and last week the
    President submitted to Congress principles and reforms for a
    Citizens Service Act which will be the first reauthorization of
    the corporation since it was created in 1993.
        We believe strongly that for the corporation to play the
    role the President wants us to in the USA Freedom Corps, we
    need to make AmeriCorps, Senior Corps, and Learn and Serve
    America more responsive to State and local needs, more able to
    support and encourage volunteering, more accountable for
    results, and more effective in assisting hard-pressed
    charities, especially faith-based and community organizations.
        I would like to submit these principles for the record as
    well, and would be glad to answer questions about them. We are
    currently working with the Senate Health and the House
    Education and Workforce Committee on reauthorization of the
    corporation's programs. We will keep you and your staffs fully
    informed on our progress.
        While our existing authorizing laws, together with the
    management improvements we have made in recent years, are
    enabling the corporation to make progress, we believe that the
    changes the President is calling for would produce more
    volunteers and more help for nonprofit organizations for each
    Government dollar spent. Our request to the subcommittee totals
    $638 million, an increase of about $229 million over the amount
    appropriated for 2002.
        Included in this increase are funds for 25,000 additional
    AmeriCorps members, two additional National Civilian Community
    Corps campuses, and a Challenge Grant program to expand private
    support for teaching and other National Service programs. Other
    elements of the President's proposed budget for the
    corporation, including an increase of 100,000 members in Senior
    Corps, and an additional 1,000 AmeriCorps VISTA and AmeriCorps
    NCCC members, will be considered by the Appropriations
    Committee's HHS-Labor Subcommittee.
        We are mindful that this is going to be a difficult year
    for the Federal budget. The requirements of the war on
    terrorism and homeland security, as well as the lingering
    effects of the economic recession, have created sizeable
    demands for additional spending. However, President Bush feels
    strongly, and we agree, that our Nation has a window of
    opportunity that occurs only once or twice a century.
        Through the USA Freedom Corps we have a chance to help
    bring forth a new, great generation whose contributions to
    addressing our most serious problems will be felt far into the
    21st Century. By investing a relatively modest amount of
    additional resources in the work of the corporation for
    national and community service, you will be assisting Americans
    to answer the question, what can I do to help, by increasing
    the opportunities they have to be good citizens.
        We have a written statement which we have submitted for the
    record, and I would be glad to answer your questions.
        [The statement follows:]

                     Prepared Statement of Leslie Lenkowsky

        Madam Chair, Senator Bond, and Members of the Subcommittee: Thank
    you for the opportunity to discuss the views of the Administration
    concerning the fiscal year 2003 budget request for the Corporation for
    National and Community Service.
        This is my first opportunity to appear before you, since the Senate
    confirmed my nomination by President Bush to be the Chief Executive
    Officer of the Corporation for National and Community Service. Prior to
    this appointment, I served three consecutive terms as a Member of the
    Corporation's Board of Directors and the Board of its predecessor
    organization.
        Most importantly, this is an extraordinary moment in the history of
    our country and the Agency I head. Since the terrible events of
    September 11, we have seen expressions of patriotism in the United
    States unlike any that I can remember in my lifetime. At a tragically
    high price, all of us have again come to realize how precious our
    freedoms are and why it is important for all of us to accept the
    responsibilities of citizenship in order to preserve them.
        To make this a lasting change in our civic consciousness, President
    Bush has called on all Americans to give at least two years of their
    lives in service to their country. As the President has said, we can
    build a stronger Nation and fight terrorism by making a commitment to
    service in our own communities, whether that be tutoring a child,
    volunteering at a hospital, or participating in a neighborhood crime
    watch.
        Most of our Nation's civic work is being done without the aid of
    the Federal Government. That is as it should be, as the Federal
    Government did not create this civic spirit. At the same time, the
    Federal Government can do a better job in helping to support and
    encourage it where it can.
        Therefore, through an Executive Order, the President established
    the USA Freedom Corps, which will build on existing Federal programs
    that engage citizens in service, as well as create new opportunities
    related to homeland security and meeting other critical needs.
        The USA Freedom Corps initially will have three major components,
    which will be administered separately but coordinated through a White
    House council. It includes an improved and enhanced set of programs
    supported through the Corporation for National and Community Service.
    Specifically, the Administration has proposed additional community-
    based service opportunities and leveraging thousands of additional
    volunteers by adding 25,000 new AmeriCorps members and 100,000 new
    volunteers in senior service, and by removing current barriers to
    service.
        As part of the announcement of the USA Freedom Corps, the
    Administration indicated its intent to work closely with the Congress
    on a bill that will reform and extend the Corporation's programs and
    authorities. The Administration's reforms were outlined in the document
    entitled ``Principles and Reforms for a Citizen Service Act,'' released
    on April 9.
        For the Corporation to play the role envisioned by the President
    under the USA Freedom Corps, we need to make AmeriCorps, Senior Corps,
    and Learn and Serve America more responsive to State and local needs,
    more accountable for results, more adept at leveraging private
    resources, and more effective in assisting hard-pressed charities,
    including faith-based and community organizations.
        The $229 million increase the President has requested for fiscal
    year 2003 for the Corporation, in the VA-HUD appropriations bill, is
    less than one-quarter of one percent of the total bill--but it is a
    vital part of the President's initiatives to strengthen our Nation at
    this critical time in our history. Defending our Nation requires more
    than a strong military--it requires a strong and enduring civic spirit
    and commitment to serving our neighbors, our communities, and our
    country.
        Following is a summary of the Administration's plans for service
    and volunteerism and the fiscal year 2003 budget request.
                               usa freedom corps
        In his State of the Union address, President Bush announced the
    formation of the USA Freedom Corps--a White House council that
    coordinates and is working to enhance the many service opportunities,
    both domestic and international, available to Americans of all ages.
    The Freedom Corps, which is chaired by the President, brings together
    under one umbrella, the Corporation for National and Community Service,
    the Peace Corps, and a new Citizen Corps dedicated to homeland
    security.
        As part of the USA Freedom Corps announcement, President Bush
    called on all Americans to serve their country for the equivalent of
    two years--or 4,000 hours--over their lifetimes. Some Americans--such
    as those just graduating from high school or college or those beginning
    their retirement--may want to perform one or more years of
    uninterrupted service. Other Americans may wish to commit service hours
    over many years. Some citizens will serve for many more than two years,
    others for less. This initiative is not a Federal mandate--it is a
    profound individual commitment and a worthy national goal.
        The President's Budget for 2003 includes more than $560 million in
    new funds to support these new citizen service initiatives. Of these
    increases, $290 million is earmarked for the programs of the
    Corporation for National and Community Service, the largest share of
    which, $229 million is under the jurisdiction of this Subcommittee.
        The USA Freedom Corps initiative is directed by an Assistant to the
    President, John Bridgeland. The Freedom Corps Council, established by
    an Executive Order and comprised of a number of Federal departments and
    agencies, will make further policy recommendations to the President on
    new ways to enhance service, help agencies recruit and mobilize
    volunteers, chart civic progress, and recognize the participation of
    Americans in serving their neighbors, their communities, and their
    country.
                  principles for a citizen service act of 2002
        As part of the announcement of the USA Freedom Corps, the
    Administration indicated its intention to work closely with the
    Congress on a bill that will reform and extend national and community
    service programs. The legislation that authorized these programs has
    proven to be remarkably resilient, but there are significant
    opportunities to make the programs more effective.
        On April 9, the President presented to the Congress a set of
    principles for legislation that would reauthorize and reform the
    Corporation's programs. The principles seek to: (1) support and
    encourage the greater engagement of citizens in volunteering; (2) make
    Federal funds more responsive to State and local needs; (3) make
    Federal support more accountable, and more effective by focusing on
    sustainability of community service programs; and (4) provide greater
    assistance to secular and faith-based community organizations.
                        fiscal year 2003 budget request
        The budget request before this Subcommittee totals $632.6 million.
    This is an increase of $229.4 million above amounts available in fiscal
    year 2002.
                            strengthening americorps
        The majority of the requested funding increase would support 25,000
    additional AmeriCorps members, an increase of 50 percent above the
    level of 50,000 that we are supporting in 2002. AmeriCorps members
    mobilize, manage, and train volunteers. The members, and the volunteers
    they help organize, engage in a wide variety of activities, for example
    teaching children to read, working to make neighborhoods safer, and
    helping build affordable homes for low-income families. With the coming
    class this fall, more than 300,000 Americans, 18 or older, will have
    participated in AmeriCorps since it was created in 1993 through
    amendments to the National and Community Service Act of 1990 (``the
    Act'').
        Still today, many members of the public do not understand how
    AmeriCorps functions.
        AmeriCorps members serve in nonprofit and community organizations
    like Habitat for Humanity, neighborhood watch organizations, the
    American Red Cross, Boys and Girls Clubs, local faith-based
    organizations, and many more local community organizations. These
    organizations, not the Federal government, select most of the members
    and manage them. The members assist those organizations in meeting
    community needs, as the organizations define them.
        AmeriCorps is largely decentralized. State commissions on community
    service, led by citizen volunteers appointed by governors, select most
    of the programs in which AmeriCorps members serve. Most of the
    projects, and the needs being met, are determined in States and local
    communities, not in Washington.
        AmeriCorps has both full-time and part-time members. Slightly more
    than half of the individuals in these programs serve full-time and
    receive a very modest living allowance, slightly over $9000 per year,
    in order to be able to serve. The other half serve part-time; they
    generally do not receive any living allowance from the Corporation.
        All AmeriCorps members, both full-time and part-time, receive an
    education award, available for seven years, to help finance college or
    pay back student loans upon successful completion of service. At the
    end of this year, we estimate the first AmeriCorps class will have used
    about 72 percent of the education award amounts that were earned.
        It's also important to understand that States, local communities,
    and the private sector make financial commitments to AmeriCorps. There
    are various statutory provisions that mandate such cost sharing.
        There are three main components to the AmeriCorps program: First,
    ``AmeriCorps*State and National'' provides grants to States and to
    national organizations to support members in local nonprofit
    organizations across the country. Second, ``AmeriCorps*VISTA''--the
    continuation of the Volunteers In Service To America program--focuses
    its members' activities on supporting community and faith-based
    organizations in meeting the needs of low-income communities. And
    third, the ``AmeriCorps*National Civilian Community Corps,'' or
    ``NCCC'', is a ten-month, full-time residential service program for men
    and women that combines the best practices of civilian service with the
    best aspects of military service, including leadership and team
    building. As you know, AmeriCorps*State and National, and NCCC are
    funded by your VA-HUD appropriations bill and the AmeriCorps*VISTA
    program is funded through the Labor-HHS-Education appropriations bill.
        Since it was created in 1993, AmeriCorps projects have involved our
    members in meeting community needs in education, health and human
    services, public safety, and the environment. Initial evaluations have
    found positive results. For example, a review of tutoring programs
    found that ``tutored students at all grade levels improved their
    reading performance from pretest to post-test more than the gain
    expected for the typical child at their grade level.'' \1\ Other
    studies have identified positive results consistent with the basic
    purposes of the legislation.\2\ In addition, we are currently
    conducting a ``longitudinal'' study to measure the long-term impact of
    AmeriCorps service upon the individuals who have served.
    ---------------------------------------------------------------------------
        \1\ Abt Associates. 2001. AmeriCorps Tutoring and Student Reading
    Achievement. Final Report. Cambridge, MA.
        \2\ Aguirre International. 1999. Making a Difference: Impact of
    AmeriCorps*State/National Direct on Members and Communities 1994-1995
    and 1995-1996. San Mateo, CA.
    ---------------------------------------------------------------------------
        At the same time, the program has had its share of challenges and
    problems over the years. As a Board member, I called for more
    independent assessments and evaluations, and upon becoming the Chief
    Executive Officer I promptly established a new Office of Research and
    Policy Development, reporting directly to me, for this purpose.
        Further, over the years, several members of Congress have
    identified the need to achieve greater efficiency and accountability.
    As a result, AmeriCorps has tightened its financial management, reduced
    its per-member costs, and adopted and enforced tough rules on political
    activity. I am very pleased to report to the Subcommittee, that the
    Corporation has just received its second consecutive ``clean opinion''
    from outside auditors, and for the first time the opinion finds ``no
    material weaknesses.''
        Having come this far, this Administration is seeking to strengthen
    AmeriCorps and create additional opportunities for national and
    community service. Specifically, our fiscal year 2003 budget requests:
      --$57 million for the National Service Trust. When combined with the
            balances in the Trust and interest earnings, these monies will
            support the anticipated education award and interest costs of
            up to 75,000 members.
      --$403.3 million for AmeriCorps* State and National Programs. These
            funds are used by State commissions and nonprofit organizations
            to support AmeriCorps programs. The Budget proposes an increase
            of $162.8 million above current levels in order to add 24,000
            members in 2003. (The other 1,000 additional members are to be
            supported through the National Civilian Community Corps and
            AmeriCorps*VISTA). Within this category, we propose funding
            for:
        --Homeland Security.--In general, activities in this area fall
                within the categories of public safety, public health, or
                disaster response and preparedness. We support thousands of
                volunteers serving police departments, fire departments,
                rescue teams, emergency response agencies, and land
                management agencies. They are not armed, nor can they make
                arrests, but they carry out vital tasks including
                organizing neighborhood watch groups, community policing,
                victim assistance, fingerprinting and other tasks that free
                up officers and other professionals to do front line work.
                Volunteers in public health roles assist in immunizing
                children and adults, serving as case managers, distributing
                health information, and providing health screenings.
                AmeriCorps members also have a long track record of working
                with FEMA and other relief agencies in helping communities
                respond to disasters and will work actively with Citizen
                Corps councils throughout the country on homeland security.
        --A Senior Service Initiative.--The Corporation requests AmeriCorps
                funding for up to 10,000 seniors to serve 900 hours over a
                1-2 year period and earn a part-time education award of
                $2,362.50. This award could be used by the senior for
                education or given to a grandchild or other designated
                individual as a scholarship for future education. This
                initiative is intended to build on successful pilot
                programs known as the Experience Corps, which uses retirees
                for activities requiring significant skills or training. An
                independent evaluation of the Experience Corps' school-
                based programs concluded that 92 percent of students
                measured showed improved reading during the school year. In
                addition to tutoring, as with other AmeriCorps programs,
                seniors would perform a wide range of services to meet
                community needs, including homeland security.
        --A Literacy Initiative.--The Corporation will continue to
                emphasize the placement of members in programs designed to
                help teach reading. These efforts will be conducted in
                coordination with the Department of Education.
        --A Technology Initiative.--The Corporation will continue its
                emphasis on involving AmeriCorps members in programs that:
                (1) assist in delivering internet access and other
                technologies to low-income individuals and families; (2)
                help train school teachers and staff in community
                organizations in using technology in their work with young
                people; (3) build the technology skills of Americans,
                especially children, who have not yet been exposed to
                computers; and (4) use technology to meet the needs of
                communities.
        --AmeriCorps Education Award Program.--This program--providing
                education awards, but no living allowances--is currently
                funded from demonstration authority under Subtitle H of the
                Act. The President's Budget proposes to fund this as an
                ongoing program (within Subtitle C), in order to increase
                the types of programs and organizations in which AmeriCorps
                members may serve, while minimizing the cost to the
                Corporation.
        --An AmeriCorps ``Promise Fellows'' Program.--The activities under
                this program, previously funded from Subtitle H
                demonstration authority, are also proposed to be funded
                through Subtitle C, AmeriCorps*State and National. This
                change would more fully integrate the activities of
                AmeriCorps members serving in support of the ``five
                promises to youth'' under America's Promise. With this
                transfer to subtitle C, States and nonprofit organizations
                would have the flexibility to determine the level of
                support for AmeriCorps*Promise Fellows, who specialize in
                helping organizations and communities increase their
                capacity to help needy young people.
        --Faith and Community-Based Activities.--Building on the initiative
        begun in fiscal year 2002, program guidelines will continue to
        reflect an increased emphasis on supporting and expanding
        activities related to faith- and community-based programs,
        including additional outreach and capacity-building, and the
        expectation that grantees will include faith-based and small
        community organizations as they develop and implement their
        programs. In fiscal year 2003, the Corporation anticipates a
        significant increase in the number of faith-based and small
        community organizations participating in AmeriCorps, either
        directly or through intermediaries. As has been the case ever since
        the Federal Government began the VISTA program in the 1960s,
        assistance to faith-based organizations will continue to be
        strictly for secular activities.
        --Volunteer Mobilization and Management.--For the current fiscal
                year, a fundamental objective of AmeriCorps is to help
                mobilize, support, and manage the vast networks of
                volunteers assisting non-profit organizations in meeting
                community needs. This includes working cooperatively with
                the many volunteer networks that already exist in the
                field. In fiscal 2003, we will seek to further strengthen
                AmeriCorps' capacity-building activities.
      --$35 million for the AmeriCorps*National Civilian Community Corps.
            Under this budget request, the AmeriCorps*National Civilian
            Community Corps would expand from five to seven campuses. This
            expansion would permit the most cost-effective deployment of a
            proposed 1700 members in fiscal year 2003. The expansion is
            planned in areas of the country that do not currently have
            adequate support from AmeriCorps*NCCC--the South and the
            Midwest. Homeland security and disaster response will continue
            to be a high priority for AmeriCorps*NCCC.
      --$10 million for funding of challenge grants to enhance
            sustainability of non-profits by the private sector. The
            Corporation requests $10 million under Innovation,
            Demonstration and Other Activities for challenge grants to
            support the expansion of teaching and other national service
            programs under AmeriCorps. Private sources would provide at
            least 50 percent of the amount required to expand existing
            national service programs under AmeriCorps. The Corporation has
            supported effective teaching programs in the past, such as
            Teach for America and Notre Dame's Alliance for Catholic
            Education, but has not used an authority that targets Federal
            funds to challenge the private sector to help expand these
            efforts. Further, this request would support other national
            service programs that have the capacity to raise substantial
            amounts of new private funds. When fully implemented, we
            estimate that up to 5,000 additional members could be supported
            with these funds.
        I'd like to take a few minutes now to address some of the questions
    that you and others may have about our budget requests.
        One question you may have is whether nonprofit organizations will
    be able to recruit 25,000 additional AmeriCorps members. We believe
    that many Americans want to serve and that nonprofit organizations,
    with appropriate funding and lead times, will have little difficulty in
    recruiting an additional 25,000 members. Since the State of the Union,
    the number of applications submitted through our on-line recruitment
    system, when compared to a comparable period a year ago has increased
    by more than 100 percent (although on-line applications are still a
    minority of applications received). Individual programs have
    experienced increases as well. For example, Teach for America (TFA), an
    AmeriCorps program, told us a couple weeks ago that they have seen more
    than a 180 percent increase in applications compared to a year ago. As
    a result, they are projecting an incoming corps this year of between
    1,700 and 1,900--up from 900 last year.
        Not all of the more than 900 programs across the country have seen
    these results. But our informal surveys this past fall indicate that
    they are seeing greater interest in service among young people. In
    short, we believe that people will apply and that the national service
    network will be able to recruit many thousands of additional
    participants in AmeriCorps, who will in turn recruit many more
    volunteers--at least 3 for every AmeriCorps member. We call this
    leveraging of additional volunteers.
        A second question you may have is whether organizations have the
    capacity to use these additional participants effectively. That is a
    question we have also discussed with existing programs, and potential
    new grantees. A sample of programs surveyed last fall indicated that
    many are hoping to double in size. In addition, a conference of small
    community and faith-based organizations last year revealed a strong
    interest in accessing additional national service resources, as long as
    we take steps to minimize the administrative burdens on these
    organizations. Also State service commissions, as well as the
    Corporation, each year turn down many qualified applicants. And,
    finally, it's important for you to know that we are committed to
    actively assessing the effectiveness of all existing and new grants
    through an aggressive set of outcome measures.
        A third question you may be considering is whether more Federal
    resources are needed in order to generate 25,000 additional members.
    Couldn't we rely on other sources of funding to do this? In fact, our
    budget assumes approximately $350 million in financial and in-kind
    support for AmeriCorps from non-Corporation resources, including
    funding from the private sector, individuals, States, and community
    organizations. We believe there are opportunities to expand this
    funding, such as through the challenge grants mentioned above. At the
    same time, the Federal Government has an important role to play in
    enabling thousands of additional Americans to make a substantial time
    commitment to national service thereby building a vital non-profit
    infrastructure. In addition, small hard-pressed community organizations
    need our assistance to build their capacity to provide services. Except
    for individuals with substantial means, providing these organizations
    with full-time assistance requires the availability of modest living
    allowances, and educational awards provide additional important
    incentives.
        I intend to continue to work with the Congress to achieve the
    proper balance of public and private sector support for national and
    community service.
                           effective service-learning
        Our budget request includes $43 million for the support of service-
    learning programs--known as Learn and Serve America--in our Nation's
    elementary and secondary schools and institutions of higher education.
    Over the last decade, growing numbers of our Nation's elementary and
    secondary schools and institutions of higher education have used
    service-learning as a way of integrating education and service.
        A 1999 U.S. Department of Education study found that 32 percent of
    all public schools organized service-learning as part of their
    curriculum, including nearly half of all high schools. In addition, an
    impressive fifty-seven percent of all public schools organized
    community service activities for their students. This growth is
    significant when compared to a similar study conducted in 1984 that
    found only 9 percent of all high schools offered service-learning, and
    twenty-seven percent of all high schools offered some type of community
    service.\3\
    ---------------------------------------------------------------------------
        \3\ National Center for Education Statistics. 1999. ``Service-
    Learning and Community Service in K-12 Public Schools.'' Statistics in
    Brief. Office of Educational Research and Improvement. U.S. Department
    of Education.
    ---------------------------------------------------------------------------
        A 1999 study by the Rand Corporation found that Learn and Serve
    America participants had a positive impact on the organizations they
    served. Student volunteers helped community organizations reach more
    people and improve the quality of their services. These accomplishments
    included: improving (younger) students' school achievement; promoting
    children's readiness for school; improving the English skills of
    immigrants; improving adult literacy and job skills; and strengthening
    parents' child care skills.\4\
    ---------------------------------------------------------------------------
        \4\ Gray, Maryann J., E. H. Ondaatje, and L. Zakaras. 1999.
    Combining Service and Learning in Higher Education: Summary Report,
    RAND.
    ---------------------------------------------------------------------------
        Our objective is to encourage schools at all levels to respond to
    the President's call to service--for 4000 hours of service over one's
    lifetime--and institute more service-learning programs. Such programs,
    which tie rigorous school studies to worthwhile volunteer work in the
    community, are critically important if we are to instill the ethic of a
    lifetime of service and civic involvement in a rising generation of
    Americans.
        We do not propose additional funding for Learn and Serve, but
    instead propose to target more Learn and Serve resources on improving
    the quality of programs. And, as we did in the reauthorization of the
    Elementary and Secondary Education Act, we will propose to add more
    accountability to this system of Federal support.
        For higher education, in fiscal year 2003 we propose to continue
    individual campus grants, designed to allow individual institutions of
    higher education to create sustainable programs that are conducted in
    collaboration with schools, nonprofits, and other local organizations
    and institutions. We also propose new grants to higher education
    associations and to consortia that include higher education
    institutions and other organizations. Examples of previously funded
    higher education consortia include Campus Compact, the American
    Association of Higher Education, the United Negro College Fund, and
    Community-Campus Partnerships for Health.
                   management and administrative improvements
        All of us involved with national and community service--the
    Corporation's Board, its previous CEOs, the Congress, State Service
    Commissions, and programs across the country--have recognized the
    significant management and administrative challenges that have faced us
    over the last decade. The Corporation has made progress over the last
    couple years, but much more remains to be done and the Bush
    Administration is committed to making the necessary reforms.
        In this effort to improve the Corporation and its operations,
    fiscal year 2000 was a landmark year. The Corporation received an
    unqualified opinion on its financial Statements for the first time.
    This achievement resulted from a commitment to strong management
    controls and accountability for financial resources. In addition, we
    have during the last month received the results of the 2001 audit from
    the independent auditor under contract to the Office of the Inspector
    General, and the Corporation received an unqualified opinion for the
    second year in a row. Significantly, this year, the auditors reported
    no material weaknesses.
        In general, the Congress has provided the Corporation with the
    tools and support necessary to achieve management improvements.
    However, we have additional ideas that are intended to strengthen our
    ability to carry out our programs efficiently and effectively. As you
    know, we are discussing these ideas in with our authorizing committees.
        Our budget request for fiscal year 2003 includes $35 million for
    program administration, of which $14 million would support State
    Service Commissions. Most of the $4 million increase in requested
    administrative funds would be targeted to State Commissions to support
    the program expansion to 75,000 AmeriCorps members, and their efforts
    to meet standards we have developed for Commission accountability. The
    other portion of the increase would support inflationary costs,
    including civilian pay raises proposed in the President's Budget, as
    well as further improvements in our financial and systems performance.
        Having completed installation of a new accounting and financial
    management system--that has proven essential to our positive financial
    audits in 2000 and 2001--the Corporation is now implementing a new
    electronic grant system, using funding provided specifically for this
    purpose by the Congress. We expect to complete systems development and
    testing this fiscal year, conduct training, and begin implementation on
    a phased basis throughout fiscal year 2003, consistent with our
    established grant cycles. When completed and fully operational, the
    Corporation will have an integrated grants management system providing
    comprehensive financial management information for all grants and
    cooperative agreements. Grantees will apply for and receive assistance
    electronically, thereby greatly reducing current paperwork burdens. And
    the grant system will interface with the Corporation's financial
    management system. The design meets the Grants Financial System
    Requirements of the Joint Financial Management Improvement Program, and
    the requirements of the Government Paperwork Elimination Act and the
    Federal Financial Assistance Management Improvement Act.
                             other budget requests
    Innovation, Demonstration, and Other Assistance
        In the area of innovations and demonstrations, the Administration
    is requesting $25.5 million (in addition to the $10 million identified
    above for challenge grants) for various purposes, including: training
    and technical assistance, recruitment, Martin Luther King, Jr. Day
    grants, and other activities that are critical to the support of high
    quality programs. Moreover, if Congress approves our request to
    transfer the AmeriCorps Education Awards program and the Promise
    Fellows program from this category, we will have greater flexibility in
    carrying out the original intent of this type of support which is to
    develop new methodologies for encouraging service. I continue to
    believe that a critical role for the Corporation is to support those
    innovative activities that will lead to the overall strengthening of
    programs and service experiences across the country.
                                   evaluation
        The Corporation conducts or contracts for evaluations of its
    programs, initiating several studies each year on a range of issues.
    These studies originate from several sources. The National and
    Community Service Act mandates several evaluation studies. Other
    studies are an important part of the Corporation's compliance with the
    Government Performance and Results Act (GPRA). Other research derives
    from the Corporation's Strategic Plan, which is developed through our
    Board of Directors. In fiscal year 2003, we are requesting $5 million
    to support the studies identified in our budget justification.
        These evaluations are a major part of the effort to enhance program
    performance and collect data addressing critical program issues. I
    believe strongly in the centrality of research and evaluation to the
    future of national and community service, and have therefore created an
    Office of Research and Policy Development (RPD), reporting directly to
    me, to focus greater attention in this area.
        Increasingly, I expect the Corporation's new Office of Research and
    Policy Development to be recognized by the broader governmental,
    philanthropic and nonprofit communities as a resource on a wide range
    of research and evaluation issues.
    Points of Light Foundation
        The fiscal year 2003 budget requests $10 million for the activities
    and operations of the Points of Light Foundation that are designed to:
        1. Encourage every American and every American institution to help
    solve the Nation's most critical social problems by volunteering their
    time, energies, and services through community service projects and
    initiatives;
        2. Identify successful and promising community service projects and
    initiatives with nonprofit organizations, corporations, families, and
    youth, and disseminate information concerning such projects and
    initiatives to other communities in order to promote their adoption
    nationwide;
        3. Build the capacity of institutions to support volunteer service,
    and develop individuals as leaders to serve as strong examples of a
    commitment to serving others and to convince all Americans that a
    successful life includes community service; and
        4. Expand its efforts to build the capacity, visibility, and
    sustainability of a unified nationwide network of local Volunteer
    Centers.
    America's Promise: The Alliance for Youth
        The 2003 budget requests $7.5 million for America's Promise: The
    Alliance for Youth. That organization, founded by Secretary of State
    Colin Powell and currently led by former Senator and CEO of the
    Corporation, Harris Wofford, seeks to act as a catalyst to challenge,
    energize, and inspire individuals, organizations, and communities to
    expand efforts to ensure that youth become productive, responsible
    adults.
    Earmarked Grants
        The fiscal 2002 appropriations for the Corporation for National and
    Community Service marked the third year of funding for ``earmarked
    grants'' and included $11.5 million for five specified organizations:
    Communities in Schools, the Parents as Teachers National Center, the
    Youth Life Foundation, Teach for America, and the YMCA of the USA.
        Although it is Congress' prerogative to set earmarks, I would urge
    restraint in this area. The Corporation's Board of Directors and I
    believe very strongly that the best results occur when organizations
    are required to compete for available public funds. The fiscal year
    2003 budget therefore does not propose any earmarks. Moreover, several
    grants awarded under this category in fiscal years 2001 and 2002 were
    for multi-year efforts, thereby eliminating the need for any additional
    funding for the activities of those organizations in fiscal year 2003.
    Office of the Inspector General
        As a separate request, the President's Budget requests $5.1 million
    for the audit and investigative activities of the Office of the
    Inspector General.
        I value the important work of that office to conduct independent
    and objective audits and investigations and to prevent and detect
    fraud, waste, and abuse. Furthermore the reforms being put in place to
    strengthen program accountability will require an active partnership
    between that Office and the Corporation's senior management.
        The President has nominated J. Russell George to be the Inspector
    General of the Corporation for National and Community Service. Mr.
    George has an extensive background in working to promote effectiveness
    and efficiency in government. Most recently, he has served as the Staff
    Director and Chief Counsel to the U.S. House of Representatives
    Committee on Government Reform, Subcommittee on Government Efficiency,
    Financial Management and Intergovernmental Relations, that has
    jurisdiction over the Inspector Generals program nationwide.
        Madam Chair, that concludes my statement concerning the
    Corporation's budget request for fiscal year 2003. We are clearly at an
    opportune moment in the history of Federal support for service, and I
    look forward to working with you, Senator Bond, and the other Members
    of this Subcommittee and the Congress to make the President's proposals
    a reality. I am available to address any questions that the
    Subcommittee may have.

                                 FREEDOM CORPS

        Senator Mikulski. Thank you very much, Doctor. Let me go
    right to our questions.
        I think that there is confusion over the Freedom Corps,
    AmeriCorps, and so on, and could you share with the committee
    what is the Freedom Corps, and second, how does the national
    and community service fit into this?
        Dr. Lenkowsky. Thank you, Senator. We do have a bit of what
    I call a corps identity crisis going on at the moment. The
    Freedom Corps is a White House Coordinating Council. It is a
    Cabinet-level council chaired by the President, consisting of
    Members of the Cabinet and heads of independent agencies such
    as myself, and staffed by John Bridgeland, the Special
    Assistant to the President. It can be thought of as analogous
    to the National Security Council or the National Economic
    Council.
        The USA Freedom Corps was established by executive order,
    but it does not affect the legislative authority or my
    responsibility to you as CEO of the Corporation for National
    and Community Service. The same would be true of my colleagues
    in the Peace Corps and the various agencies in the Citizens
    Corps.
        There are three major operating arms right now under the
    umbrella of the Freedom Corps. One is the Peace Corps, which
    engages in overseas volunteer activities. The second is the
    corporation. We're going to continue to do the range of
    activities we currently do on the domestic front. The third one
    is the Citizens Corps. That's the new one. It will be chaired,
    coordinated through the Federal Emergency Management Agency,
    and it consists of a number of programs, such as the Department
    of Justice's Neighborhood Watch organization, that are focused
    on homeland security.
        The corporation's role vis-a-vis the Citizens Corps is to
    provide support to it. About 30 percent of our AmeriCorps and
    Senior Corps members are already engaged in public safety,
    public health, and disaster preparedness activities. We expect,
    as part of the State and local level planning, that this will
    go on under the aegis of Citizens Corps. In the event, which we
    hope will not occur, of another tragedy striking our cities or
    rural areas, there is going to be a need to get people.
        Senator Mikulski. So essentially it is like just, I will
    call it a coordinating council?
        Dr. Lenkowsky. That is correct.
        Senator Mikulski. Then within this subcommittee we are
    being asked to fund two programs, one, the National Service
    Corporation that you are here for, and the other one is the
    Citizen Corps, which would be under FEMA.
        Dr. Lenkowsky. That is correct.
        Senator Mikulski. Now then, what President Bush is asking
    under our subcommittee is the expansion of the programs as we
    know it, which means AmeriCorps, the Senior Corps, and the
    Learn and Serve America, am I not correct?
        Dr. Lenkowsky. That is correct.
        Senator Mikulski. So it does not break new ground. He wants
    an expansion of what we have, and will work with us and the
    authorizing on what should be a new framework for the new
    century?
        Dr. Lenkowsky. That is correct.
        Senator Mikulski. And it would be to essentially call for
    the new, reinvigorated sense of patriotism, is that correct?
        Dr. Lenkowsky. That is correct, Senator.

                                  SENIOR CORPS

        Senator Mikulski. Now, I am going to come back to the
    Citizens Corps in a minute but for now let's go to the Senior
    Corps. You are talking about expanding the number of
    volunteers, but also saying that the seniors--first of all you
    want to change the age.
        Dr. Lenkowsky. Correct.
        Senator Mikulski. Then you want to change what they do. You
    want to have them have a benefit that they can use either for
    their own education or to give it to a grandchild, is that
    correct?
        Dr. Lenkowsky. We want to make a Silver Scholarship
    available to seniors who commit a significant amount of their
    time to the Senior Corps program, that is correct, Senator.
        Senator Mikulski. This would be up to 10,000 seniors who
    serve 900 hours over 2 years would get a $2,300 education
    grant. Now, here is my question, okay, because first of all I
    am going to ask you, do you think you will need authorization
    to do this, and number two, then do you think you need the
    Finance Committee's permission, or legislative permission,
    shall we say, to do this, and are we--it is hard enough to fund
    AmeriCorps for young people to have education. Why are we
    getting into this? Would you comment?
        Dr. Lenkowsky. There are two provisions related to seniors,
    Senator. The one you cited, the $2,300 for 900 hours, is
    actually part of AmeriCorps today. In AmeriCorps you can be a
    senior and serve, and you can earn an education award. That is
    the law today, so you are absolutely right, we do not have any
    authorization issue there. The problem that has arisen is that
    for a senior who is serving at, say, age 55 or older, to get an
    award useful only for their own education is not necessarily
    the most valuable way we can thank them for their service.
        I was on a talk show, and a woman who served in VISTA, or
    in the Senior Corps, or in AmeriCorps at age 62 said, well,
    thanks for the ed award, but you know, my education is done.
    Can I not transfer this award, say, to a child or grandchild,
    or maybe a tutee that I have been working with, or someone I
    have been mentoring. We do need legislative authority to enable
    us to do that, Senator.
        Senator Mikulski. And does the administration believe that
    that should be tax-free?
        Dr. Lenkowsky. Senator, we do not think the ed award for
    anyone should be taxable. This is a major part of our proposals
    for all age groups, not just the senior group.
        Senator Mikulski. Well, my time has expired. Is it the
    administration's position, then, that the education awards,
    regardless of how they are garnered, either in AmeriCorps or
    Senior Corps, should not be taxable?
        Dr. Lenkowsky. That is correct, Senator.
        Senator Mikulski. And this is going to require an action by
    the Finance Committee?
        Dr. Lenkowsky. I think that is probably correct, Senator,
    but I can tell you, I was just visiting our NCCC campus in
    Denver and there I heard what I hear whenever I meet with
    AmeriCorps members regardless of their age, that the taxability
    of this ed award is their single largest complaint. Remember,
    these people, particularly the young people, do not actually
    see the money. The money goes from our trust fund into the
    school, or to pay back a loan, but what they do see is the tax
    bill, and since they are young people, often going to school,
    they do not have a lot of money stored away to pay taxes.
        Senator Mikulski. I am not arguing with the merits. I am
    arguing where we are. In other words, as we authorize it, do
    you have a Finance Committee--are you discussing this with the
    Finance Committee?
        Dr. Lenkowsky. We will be talking with the Finance
    Committee, yes.
        Senator Mikulski. Well, I will come back for other
    questions, but I think this helps clarify Freedom Corps, then
    the National Service program within it, and then your desire to
    both expand it, as well as for Senior Corps change the age and
    change what can be done with the education, am I correct in
    that?
        Dr. Lenkowsky. There is a separate provision for Senior
    Corps. It is a little bit different. That one also requires
    authority. The Silver Scholarship is a much smaller amount,
    $1,000 for seniors who commit through Senior Corps and not
    through AmeriCorps a substantial amount of time.
        Senator Mikulski. I think we need to get a list of these
    education benefits.
        Senator Bond.
        Senator Bond. Thank you, Madam Chair. It appears that the
    vote has started, but that always makes it interesting around
    here.
        Senator Mikulski. Senator, if I would suggest, why don't I
    leave and you pursue your line of questions, and Senator
    Domenici, if you feel comfortable with the vote, and if I am
    not back just recess, and then we will come back for a second
    round. Does that sound good?
        Senator Bond. That is my suggestion. Thank you, Madam
    Chair. It is always good to get the gavel back, even though it
    is briefly.
        Senator Mikulski. That has a geopositioning device on it.

                                 CITIZEN CORPS

        Senator Bond. Dr. Lenkowsky, I am concerned, as the chair
    is, as I discussed with you yesterday, locating the new
    proposed Citizen Corps to be run by FEMA. Frankly, FEMA has not
    run volunteers. You are the people that run volunteers, and
    FEMA is going to have an awful lot of work to do when we get
    finished with all the funds we dump on them, so we want to
    continue to discuss with you whether in fact FEMA would be
    better off describing and defining the roles that volunteers
    need to play, and tasking CNCS to mobilize the volunteers.
        There is a heck of a lot of difference between running the
    FEMA programs and doing what you do, which is a very staff-
    intensive effort to mobilize volunteers, but we will continue
    to work with you on that.
        Dr. Lenkowsky. I can assure you, Senator, that is
    appropriate. At both the State and local level we will provide
    as much support to that effort as we can, and the larger
    questions I think are questions you need to discuss with your
    colleagues.
        Senator Bond. That may not be at your pay grade. We will
    work with others on that.
        On the sustainability question I mentioned some fine
    organizations that are getting funded regularly, and I just
    would like your view on why would AmeriCorps continue to fund
    Youth Build when it already receives substantial funding, much
    more funding really from HUD, and do you expect that these
    existing grantees will just continue getting the money that is
    available, or should there be some effort to move dollars into
    new promising programs to get them started?
        Dr. Lenkowsky. As a board member, Senator, I was strongly
    in favor of making sure that sustainability was emphasized in
    all our programs. Our proposals envision a number of steps to
    enhance sustainability by grantees, and especially by the kinds
    of grantees that are large and well-established.
        The most important is our Challenge Grant program. The
    Challenge Grant has been part of our authority since the
    corporation was established, but if I am not mistaken, until
    President Bush, no one has proposed actually funding it. We
    have put a fairly modest amount of $10 million in the budget
    request. We can discuss that if you would like, but the aim of
    the Challenge Grant program is, of course, to give well-
    established organizations a real incentive to develop private
    support for their activities, and to move to less dependence on
    funding from the corporation so we can reach out to the smaller
    groups.
        As you suggested, Senator, we are also going to put a
    greater emphasis on capacity building, part of which involves
    the capacity to go out and get resources from throughout one's
    community, so we want to help them become sustainable that way.
    The challenge we are facing, of course, is that one of the
    glories of our nonprofit world is, there is a lot of variation
    in it, and we do not want to create a cookie-cutter approach
    that says, 3 years and you are out. We want to be sensitive to
    what different organizations are doing and what their
    situations are.
        I visited an AmeriCorps program in Red Hook, New York,
    which is taking back a neighborhood that for 40 years has been
    the object of benevolent but misguided intentions on the part
    of public policy. Until AmeriCorps got there, people were
    afraid to walk out their doors. Now the Red Hook Public Safety
    Patrol is bringing back this neighborhood. It is cleaning it
    up. Crime rates are down, drug use is down. The members come
    predominantly from the community, and they are using AmeriCorps
    as a stepping stone to getting higher education themselves.
        We have been there 7 years. That is a long time, but I
    visited that one personally, and frankly, I think while we
    obviously want to push towards sustainability, and there is a
    fair amount of support coming from the City of New York. As
    with all of our programs, as you know, there is a matching
    requirement. We do not want to arbitrarily say, enough is
    enough, because this is a deep-seated poverty situation.
        Senator Bond. Well, I think that is a unique situation, but
    the Challenge Grant was going to be my next question. We are
    inundated with earmarks, with scores of wonderful organizations
    such as the Girl Scouts, Camp Fire USA. Because they do not
    appear to fit into the strict AmeriCorps funding programs you
    have urged that the best results occur when organizations are
    required to compete for available public funds. If we expanded
    the Challenge Grant program, would you be able to allocate
    grants to these people and make these choices?
        Dr. Lenkowsky. Yes, Senator. Again, we have to have a
    competitive process for doing so, but the whole idea is that
    the other area I would like to call your attention to as well
    is our National Direct program, which is also a vehicle for
    funding. Most of the groups, in fact, you mentioned I think are
    probably National Directs. We want to make that more
    competitive as well. We proposed additional funding for
    National Directs. We want to be competitive.
        Senator Bond. If you will excuse me, I want to turn to
    Senator Domenici so he can ask questions before we have to go
    vote.

                      SPECIFICS OF THE PRESIDENT'S BUDGET

        Senator Domenici. Again, I cannot come back, but before we
    finish, are you going to be able to straighten us out as to
    which programs we are going to be funding and which ones the
    President is asking us to fund? There are so many things we
    have going that he does not want any more, but he wants some
    new things in this area of public service, is that correct?
        Dr. Lenkowsky. That is correct. The only things before you
    now are what have always been part of the National Community
    Service Act legislation. That is to say, funding for AmeriCorps
    in particular, and for the National Civilian Community Corps
    Challenge Grants. There is a separate appropriations bill as
    you know, Senator, that deals with VISTA and some of our senior
    programs. There is no change at all in what we have done in
    years past.
        Senator Domenici. So the President's budget supports
    AmeriCorps continuation?
        Dr. Lenkowsky. That is correct.
        Senator Domenici. And what is the President's proposal?
        Dr. Lenkowsky. We are proposing a Citizens Service Act
    which encompasses the reforms of AmeriCorps and our other
    programs. I think it is very important to emphasize that. I
    think we have listened to the members of this committee and of
    other committees, learned from our own experience, and as a
    former board member I have been particularly involved in this
    discussion, so what we are proposing is not simply an expansion
    of our existing programs at all. It is really a significant
    overhaul and improvement.
        The expansion really reflects two things. First, once we
    have done that, we think we can really make these programs
    work. Second, the moment in our time when so many people are
    looking for ways to serve this country, we think through these
    improved programs we can be helpful.
        Senator Domenici. Now, the new approaches by the President,
    could you just state quickly what that is going to be? Are we
    going to pay those volunteers like we did under AmeriCorps?
        Dr. Lenkowsky. A portion of them are stipended, that is
    correct, Senator, but it is now less than half, and we have
    added to our mix various kind of nonstipended or partially
    stipended programs. One of the President's principles, in fact,
    is to take the education-award-only version of AmeriCorps,
    where participants do not receive a stipend from the Federal
    Government, just an education award on the completion of their
    service, move that from the demonstration phase, where we are
    limited to how many of those we can do, and into the regular
    AmeriCorps, giving more discretion to the State and local folks
    as to whether they want to use that approach or other
    approaches.
        Senator Domenici. I just wanted to comment for the record,
    and to my good friend from Missouri, I was unaware that in my
    little State, there are 12,000 New Mexicans that are in this
    American Service Corporation program, and the amount of money
    spent just on us is $6.7 million. Do you believe that the
    corporation is now on track as far as carrying out the work
    that Congress intended when it authorized these programs?
        Dr. Lenkowsky. I think we are certainly moving in the right
    direction. We have, as has been noted, our second clean audit
    in a row, and while I would like to take full credit for that,
    the truth of the matter is that a lot of the hard work to get
    there reflects the efforts of the career employees and other
    board members in the agency. We are going to build on that, and
    we think through the proposal in our reauthorization package we
    will move even further in the right direction and make this a
    program we are all going to be proud of.
        Senator Domenici. Senator Bond, there are several types of
    programs that are funded by the corporation we are speaking of
    in New Mexico, and they have gone to existing institutions, so
    you do not have to go back and start over, like the
    Boys and Girls Club, and it is wonderful to see us
    fund a Boys and Girls Club and expand in a poverty area.
        It would take them 2 years of fundraising and all kinds of
    activity to double the size. Instead of doing work helping
    these kids the adults are busy trying to put the building
    together and come up with the money, and so I am one who thinks
    that Boys and Girls Clubs, existing organizations, if they
    apply and are doing the kind of work you are generally doing,
    that you would get a very good bargain by not starting over
    with a whole new staff trying to add criteria.
        The Boys and Girls Clubs in New Mexico, I do not know about
    yours, but there are eight or nine that receive funding from
    your bill, and it is a very good way to spend our money in my
    opinion.
        Dr. Lenkowsky. That is the challenge of sustainability as
    well. You do not want to throw out good organizations that are
    doing good work.
        I should also tell you about a wonderful program at the
    University of New Mexico, where we are getting students out
    into some of the poorer communities. They are all just getting
    an award from the corporation. They may have received some
    stipends locally, but basically these are getting college
    students engaged.
        Senator Domenici. Can you give us that name for the record?
        Dr. Lenkowsky. I will make sure you get that in the record.
        [The information follows:]

        The Learn and Serve America Higher Education Program at University
    of New Mexico--Gallup (UNM-Gallup) involves 525 college students and
    600 K-12 students in conducting service-learning projects in McKinley
    County, a highly impoverished area in which 72 percent of inhabitants
    are Native Americans. The UNM-Gallup students mentor kindergarten-
    through 12th-graders and tutor Family Literacy, Adult Basic Education,
    and college developmental students. They also conduct human service,
    housing, conservation, and environmental service-learning projects and
    leadership development activities in conjunction with 40 community
    organizations. The project uses summer institutes, in-service
    workshops, and mini-grants to assist 100 faculty members in adding
    strong service-learning components to their curriculum and instruction
    designs in order to ensure that service-learning will be sustained over
    the long-term at UNM-Gallup and in the surrounding community.
        In the past year, UNM-Gallup, has provided tutor/mentor assistance
    to over 400 students in family literacy and adult basic education
    programs in McKinley County, New Mexico. These students, ranging in age
    from youth to senior citizens, have received over 9,000 hours of one-
    on-one tutoring.
        The college has conducted two regional ``College, Career and
    Service'' fairs drawing 400 high school students and over 300 college
    students to an exploration of more than 50 public service, education
    and business opportunities. This initiative offers students the
    opportunity to be of service to others and become more civically
    engaged.
        During their annual Earth Week activities, the college initiated a
    community clean-up effort in central public area where car bodies,
    glass and other trash have been dumped for years. This clean-up effort
    has lead to the city and county collaborating to introduce three
    sponsored clean-up days this spring addressing litter hotspots and
    citizen involvement. The Learn and Serve America program also organized
    a forum in which nearly 100 community members and representatives from
    the Navajo Nation Division of Forestry, the Zuni Department of Natural
    Resources, the Plateau Sciences Society, UNM-Gallup, K-12 institutions
    and other interested citizenry, met concerning community environmental
    issues. A planning group was formed to pursue an academic and service-
    learning program at UNM-Gallup that will focus on the study and use of
    native plants and indigenous knowledge in pursuit of a new vegetation,
    soil and water management system for the Southwest and beyond.
        The Learn and Serve America program provides mini-grants for a
    number of service-learning programs designed to link older with younger
    students or students with others in the community. This year for
    example, middle and high school students participated in an essay
    contest on the issue of safety in our communities, families and
    individual lives. Students read their essays before 150 peers and other
    community members and the contest was judged by college students. Mini-
    grants also supported a pre-school program involving 40 students in
    planting flower gardens at the school, who then presented the flowers
    to the senior citizen residents of Red Rocks Care Center. In another
    project, a class of 4th graders created activity packs containing
    books, writing and thinking activities for pre-schoolers and instructed
    40 children in the activities included in the packs. One mini-grant
    funded an innovative ``Listening, Language and Literary Skills''
    project in which high school students recorded elementary level books
    for younger students to check out of the library for use in building
    reading comprehension and fluency. Other projects this year focused on
    building arts, geometry and science skills through community
    beautification.
        To ensure the long-term sustainability of service-learning and
    partnerships among schools, colleges, and community groups over time,
    the Learn and Serve America program provided seven training events this
    year alone. Through these events, 180 college students, 60 faculty, and
    40 community members a better understanding and appreciation of
    service-learning as an educational method linking academic work with
    community service.

        Senator Domenici. Thank you, Mr. Chairman.
        Senator Bond. Senator Domenici, thank you very much for
    your comments and your interest. This is a very exciting time,
    and I think we have an opportunity to support the corporation.
    It is truly exciting, but we hear our master's voice, and I
    will take the prerogative of the chair and declare a recess
    until the chair returns.

                               NATIONAL PROGRAMS

        Senator Mikulski. The subcommittee will reconvene. Doctor,
    I want to raise the issue of the national program, which is to
    get the administration's perspective on how it wishes to fund
    the national programs. This committee is challenged by the fact
    that these outstanding programs like Teach for America, the Y,
    and a list that I could have, have--and this committee has
    pursued an earmark strategy that leaves--but that is not a way
    to do it.
        In this year's request alone we have $38 million worth of
    requests and each one has merit, so we are not even disputing
    that. I would like to get your perspective on, number 1, how do
    you think we should work together to handle this? What should
    be the role of the national groups, and how--again, there is no
    relationship between the money they ask for and the number of
    people they serve. There is not a clear--and I am not saying we
    should go to a formula.
        Some have been flat-funded, like Teach America over the
    years when they were just a small start-up, and they were like
    an IPO, and they are now a blue chip, and paying enormous
    dividends. The Scouts, that really goes to leadership money,
    not directly to individual Scouts, and I am going to support
    them, and I ask you for your advice on really--this is both an
    authorizing and an appropriations question. Could you share
    your thoughts from the administrative perspective on how we can
    deal with this, or how do you propose to deal with this in this
    year's appropriations?
        Dr. Lenkowsky. Yes, Senator. I was really taken by your
    analogy yesterday to large caps, mid caps, and small caps, but
    it fits well with what I have thought ever since I began my
    career years ago as a grant-maker for a private foundation,
    that good grant-making--and that is what we do here--ought to
    be like good investing. You need to diversify the portfolio,
    and a good balance, some that are your blue-chippers, some that
    are your organizations that may have a niche appeal, that would
    be the mid-cap kind of approach, and some that are the start-
    ups, the innovators that you think can grow, and some are
    risky, but you want to take that risk prudently because you
    think they do have that potential.
        Our view is, in fact, to try to have that kind of
    diversified portfolio. We share your concern about doing things
    through earmarks. We also need to improve the way I think we
    report on a lot of these organizations, and what we do
    administratively. For example, while it is true, if you look at
    Teach for America--which is a wonderful program. I was
    privileged to have known its founder when she was just getting
    it going--it looks like we do not give them a lot of money, a
    little more than $1 million, but that money pays for their
    recruitment and training efforts, which are critical, but the
    big value-added of the corporation's involvement with Teach for
    America is for our award-only program.
        Every member of Teach for America receives an ed award on
    the completion of service, which amounts to millions of
    dollars. It does not show up in the budget because it is a
    trust fund expenditure. We want to be very clear on how we are
    funding organizations. We want to focus them a little bit more,
    and make sure that our National Directs are, in fact, national
    organizations, blue-chippers are really blue-chippers, and not
    organizations that may work in one or two States and somehow
    have gotten into the National Direct pool.
        The big issue we need to talk about in the context of
    authorization and appropriation is the cap that exists on
    National Directs in current law, and our authorization
    proposals. We do not propose to change this. One-third of the
    AmeriCorps allotment is reserved for these blue-chippers. The
    other two-thirds under our proposals for reauthorization would
    go to the States, and through the formula grants, and that
    would be to handle those mid-caps as you put it, the State-
    relevant programs.
        However, through the budget process there has been a second
    cap put on, which is about 18 or 19 percent of the funding for
    AmeriCorps slots. We have proposed in the President's budget a
    substantial increase in dollars for the National Directs, but
    we chose not to increase the percentage in relationship to the
    State funds. That may be something you would like to revisit as
    we go forward here, because a lot of the groups that come in
    for earmarks could just as easily be competitive in the
    National Direct pool, and that would also give us a good check
    on quality.
        Let me just say a word about the small caps, the
    innovators. One of the things we are proposing in this budget
    and in our reauthorization principles is to move a couple of
    things we have been trying, the ed award only program, the
    America's Promise Fellows, out of the demo phase and into the
    regular AmeriCorps funding pool. We think they have proven
    their worth and it is time to make that change. That would have
    a very nice consequence as well, since we are proposing
    continued funding of our research and demo phase at its current
    levels to free up some funding for us to try to do a little
    more demo type activity and really try to find those small
    caps, those start-ups, or those new approaches to AmeriCorps.
        One interesting one that I have been considering is our
    NCCC program, the National Civilian Community Corps. It is a
    great program but it is an expensive program, because in
    addition to a stipend we have to provide room and board,
    because these are people who live on campuses like the one in
    your State at Perry Point.
        Well, we ought to think a little bit about some new models
    to take the best of in NCCC, but apply them in a new way. I
    like to say the equivalent of the ready reserve. If you think
    of NCCC as the Regular Army, maybe we ought to think a little
    bit about the Ready Reserve type that not only gives the
    experience of NCCC to more people, potentially at a lower per-
    member cost, but enable us to partner with other kinds of not-
    for-profit organizations that want to do the kind of NCCC work
    which is very much a part of our homeland security effort. Our
    range for experimentation and innovation is going to be broader
    under the President's proposal.

                                CHALLENGE GRANTS

        Senator Mikulski. I am going to come back to that. Going
    back to the days of the original administration project, the
    part-time versus full-time, the belief that the poor have
    capacity to serve and not only be beneficiary of services. That
    was one of the innovations of Senator Dodd, actually, in the
    early days of our work, as our thinking evolved from military
    service to National Service.
        Tell me your vision of the Challenge Grants. This
    subcommittee, though authorized, has never funded the Challenge
    Grants simply because we were under very spartan circumstances,
    and political prickliness, and we did not fund it. We just did
    not have the money and there was not the political will within
    the Congress. Working now with this bipartisan effort under
    President Bush, how do you see--and presuming we get a decent
    allocation, what do you see the role of the Challenge Grants as
    being, does this deal with maybe the earmark ideas, and
    essentially your thoughts on the Challenge Grants.
        Dr. Lenkowsky. The Challenge Grants are going to be very
    useful, we think, for those organizations that are requesting
    earmarks, because these are usually well-established
    organizations that have a proven track record, but have not
    always generated the level of private support that they are
    capable of generating.
        A lot of our National Directs do generate a lot of private
    support. City Year gets about two-thirds of its revenues from
    the private sector. The percentage for Teach for America is
    even greater, but we think there is probably room to expand,
    and through the Challenge Grant process we want to put up a
    relatively small amount of Federal funds that will have to be
    matched by private contributions.
        As you know, the matching grants provide often a great
    inducement for private funders to join in a project. We want to
    give our successful, well-established organizations
    opportunities to go to potential private supporters,
    corporations, foundations, wealthy individuals and say, okay,
    if you provide support for these volunteer service activities
    it will be matched by the Corporation for National Community
    Service.
        What we propose is a one-to-one match. One corporation
    dollar for every private one, but in our reauthorization
    proposal after a number of years we increase that to two to
    one--two private for every one public, to give a stronger
    incentive for the private sector to get behind these excellent
    groups, and hopefully reduce the pressures for earmarks or just
    for competition through our National Direct pool.
        Senator Mikulski. Senator Bond, I was asking Dr. Lenkowsky
    about the whole issue of the national groups and the earmarks,
    and he gave us some really excellent insights, but in my
    conversation with him yesterday what I was talking about was,
    first of all, or often, we encourage Government to be run like
    a business.
        And I said, so let us think like a business, and we are
    public investors, and this was just kind of fun that we think
    about the national groups like the Y, and Teach for America,
    which you have been so supportive of, as large caps, and then
    there is the wonderful programs run by the States under the
    Governor's Commission, so they are responsive to the States and
    the needs of that community.
        And then third, there is the kind of small cap, and that is
    the small start-up, really new, social entrepreneurs that have
    new ideas, maybe with part-time, or weekend, or generational
    issues, et cetera, so that is what we were also talking about.
        You are here, and let us give you time for a second round,
    and then I am going to come back to the part-timers.
        Senator Bond. Thank you, Madam Chair. Not to flog the
    investment analogy too far, but if you are investing in a large
    blue chip or mid cap or small cap, the only reason you do it is
    to see a return on your investment, and I would suggest that
    whether you are looking at a large organization that we know is
    great, or a small organization that is just starting up, one of
    the tests ought to be, what new are you going to get from this
    investment, and you talked about the Red Hook and the
    tremendous progress.
        Okay, you are seeing a pay-off there. Are there new things
    where we can get these existing agencies to expand? If you are
    just putting money into a grant program that is going to
    continue to go on, there may be other needs, and so I would
    urge you and the corporation to look very carefully at again
    performance measurements, expectations, standards by which to
    measure what are you going to get when you put the money in,
    and I would really like to see that test applied.
        I need to go back to the very first question I mentioned
    earlier about the National Service Trust. Senator Mikulski and
    I asked the OIG to review the trust fund, and no new funds were
    needed in 2002, and recommended $75 million in new funds for
    2003 to enable the corporation to meet its liabilities to fund
    43,000 AmeriCorps members.
        The administration's request, however, assumes the funds
    for 75,000 volunteers but only requests $57 million. Where does
    the money come from?

                          NATIONAL SERVICE TRUST FUND

        Dr. Lenkowsky. What we are dealing with here, Senator, are
    the differences between financial statements, which are
    retrospective, and actuarial estimates, which as you know are
    prospective and depend on such things as estimates of the take-
    up of what rate of utilization of the ed awards will we see
    going forward, and so on.
        We brought PriceWaterhouseCoopers in to look at this as
    well, and we have been working very carefully to try and get an
    accurate estimate of how much we need so that going forward we
    will have the funds on hand to meet the anticipated usage of
    the education awards. We think the $57 million proposed in the
    President's budget will enable us to do that, but we would also
    be glad, together with our IG, to sit down with your staff and
    review these calculations with you.
        It is like anything else in this financial business.
        Senator Bond. The cash flow, and I am no fan of accrual
    accounting for small business. We work with the IRS to give
    them some relief, but if you say that you are going to start up
    new programs and going to be accruing, say, roughly $150
    million in obligations, you need to put that in the budget
    authority even if you only cash-flow out $57 million, because
    we do not have a bow wave coming down where you load up a whole
    bunch of volunteers and say, well, we can cover them this year,
    because the cash-out is only $57 million.
        If you are incurring those liabilities, that is where we
    need you to come up with the budget authority to make sure we
    do not wind up with programs that we cannot afford as the bills
    come due.
        Dr. Lenkowsky. We certainly agree with you on that. We
    ought to work together and let your staff have a look at these
    estimates, and if you think there are some things we need to do
    to adjust them, we would be glad to do that.

                               HOMELAND SECURITY

        Senator Bond. Now, I mentioned the concern I have about the
    Citizen Corps being in FEMA. Could you discuss the
    corporation's current activities related to homeland security
    and disaster relief? For example, is the corporation planning
    to award grants this year to support communities and
    organizations in initiatives like public safety, health,
    disaster preparedness? Is this different from the supplemental
    proposal for $50 million to jump-start a Citizen Corps in 2002,
    and where do we stand on this?
        Dr. Lenkowsky. Our request has nothing to do with the
    supplemental. We do have in the 2002 budget about, $20 million
    of additional spending that is to be used for homeland
    security. This was immediately after September 11. We have just
    put the notices of fund availability out. I am glad to tell you
    we had an extraordinary response from not-for-profit groups
    interested in participating.
        Senator Bond. Was this done in cooperation with FEMA?
        Dr. Lenkowsky. No. I should make it clear, and I believe we
    are submitting to you at your request a copy of our memorandum
    of understanding with FEMA. We have a longstanding
    understanding with FEMA, so while we are moving forward with
    our own programming this is nothing new qualitatively. It is
    just an increase in the amount, in light of the conditions we
    have seen in this country post September 11. As we go forward
    in 2003, we expect that we will continue to see about 30
    percent or so of our AmeriCorps and Senior Corps slots engaged
    in public safety, public health, disaster preparedness. These
    are things that the groups have identified as priorities for
    their own activities.
        I think, and you are aware, that a number of our NCCC folks
    came into your State after some recent weather-related damage
    to help work with all of the other first responders and
    volunteer groups.
        Senator Bond. That was the Kansas City ice storm.
        Dr. Lenkowsky. Exactly, to help get things back in working
    order. We are going to continue to do this. What Citizens Corps
    does, though, is going to give a little more structure at the
    State and local level so that our State commission, our
    gubernatorial State commission folks will be able to
    participate at the State level in inventorying and planning a
    little more systematically for the use of our assets should
    disaster strike. The same will be true at the local level. It
    is really our participation in the coordinating effort, and not
    really to change our programming as such.
        Senator Bond. Well, this obviously will be continued, but I
    have made my views clear as to who is better running
    volunteers, and we will take that up later.
        Thank you very much.

                                 CITIZEN CORPS

        Senator Mikulski. Thank you very much. I would like to pick
    up just for one quick moment on the line of questioning of
    Senator Bond for the Citizen Corps. First of all, we support
    what the President wants to do in terms of a new call to
    service. Senator Bond and I have been working for almost a
    decade on the reform of FEMA, really, because when President
    Bush I was in, and Hurricane Andrew devastated Florida, FEMA
    was the second disaster to hit Florida, and Bush I sent down
    Andy Card, so we have had a rocky road, but it has developed
    into a good road.
        We now are working with Joe Allbaugh to help FEMA become an
    all-hazards agency, and there are issues there over what--Tom
    Ridge wants to expand it. Senator Bond and I have really
    serious yellow flashing lights over FEMA's ability to organize
    and train and sustain volunteers, not to do the FEMA job, and
    for us to continue now to do our reform, because it takes in
    homeland security and all hazards. That is a big job. Allbaugh
    has a big job, and working very hard to do it very well, so we
    are clear about that.
        There is a myth about volunteers, that people can just show
    up, and give them a rake, and it is going to be all fine. There
    is the issue of screening, training, and then sustaining both
    their motivation and their skills, and we really do not think
    that FEMA is the place to really think about doing this, but
    perhaps we should have a memorandum, perhaps with you.
        And then there is this whole issue of how Citizen Corps
    fits in with the volunteer fire fighters who they think are
    already the Citizen Corps, so we have got some real issues
    here. I hope to meet with the Director of Freedom Corps, but we
    would hope that perhaps we can resolve this in some collegial
    way, keeping the momentum that the President has created. We
    want to keep that momentum, and yet at the same time have what
    he wants to do in the right place with the right policies and
    the right funding.
        Dr. Lenkowsky. I understand completely, Senator. All I can
    say for our agency is, everybody in this agency and all of our
    members of AmeriCorps, Senior Corps, and Learn and Serve are
    ready to serve when and how asked.

                      NATIONAL SERVICE VS. NATIONAL GUARD

        Senator Mikulski. Right. Let me then go back to two other
    issues while Senator Bond is here. I just want to have us also
    for the record--two things. Because you were part of the
    founding of National Service and the commission, I want to get
    your view--well, first of all, as I recall, when we founded it
    National Service, meaning citizen volunteers, were never to
    compete with the National Guard, who were citizen soldiers, and
    the reason for that is that both offered education grants. The
    guard was always worried that it could not compete, so we were
    very clear there was a distinction.
        Senators' Bayh and McCain have a proposal of 18 months'
    military duty, 18 months' reserves, 18 months of community
    service, a total of 54 months, very different from what we
    have. Is it your recollection--and also a reaffirmation of
    policy that the National Guard, and whatever we do to expand
    AmeriCorps or other opportunities for volunteerism were never
    to compete with the National Guard. In other words, that there
    were two distinct routes for service.
        Dr. Lenkowsky. That is exactly right, Senator. I was a
    National Guardsman myself many years ago. I know the
    differences. I know the distinctive and valuable contributions
    the National Guard makes and National Service makes, but they
    are separate and should be kept separate. People who want to
    serve at both in various points in their life, they should be
    able to do that. That is great. But we certainly understand the
    distinction between the two, and should not confuse it.

                      PART-TIME MODEL FOR NATIONAL SERVICE

        Senator Mikulski. Now, let me go to the part-time, and we
    invented again National Service, and this goes to the
    innovations that you have talked about. Even in homeland
    security there was an understanding that not everyone could go
    away, or should go away. It was essentially a model of a 2-year
    affluent person using the Peace Corps model. We knew that for
    many they had technical skills, like now in technology, where
    they could not go away but they wanted to serve. Or second, it
    might be that single mother who in the process of volunteering
    is getting an incredible experience and an education voucher
    maybe to go on and get that nursing degree at the local
    community college.
        Could you share with us, number 1, your view of the part-
    time model, and is there funding in your request to affirm
    this, and is this also a tool for, again, creativity within
    this new framework that not everybody can do 2 years, and it
    also has meant, quite frankly, we did not have a housing
    allowance but you could get the education.
        Dr. Lenkowsky. Yes, Senator, that is exactly still our
    understanding. Whenever I travel, I am really quite privileged,
    because I often go into some of the worst parts of every
    community and see the best people. These are people who are
    bringing back their own neighborhoods. They are people who are
    not Ivy League college graduates. They live in those
    neighborhoods. They are engaged in AmeriCorps full-time or
    part-time, a mixture of both, usually, and through their work
    they are contributing not only to their communities in a very
    positive way but also to themselves, taking the next step up
    the ladder of social mobility.
        I was doing a little research recently and it turns out
    that one out of every five AmeriCorps members had a parent who
    received food stamps, so AmeriCorps looks like America. We want
    to keep it that way, and we want to have the kinds of
    flexibility in how we can bring people into AmeriCorps to make
    sure that a very diverse group of people can participate. The
    President's budget does contemplate that partly by moving our
    ed award, which also includes a lot of our part-time, into the
    general AmeriCorps mix, where we will have more room to offer
    those kinds of positions.
        We made certain assumptions just coming up with the number,
    but basically there is lots of room within that number for a
    mixture of full-time, part-time, and ed award only placements.
        Finally, under our innovation area, one of the things I am
    very eager to try and have actually written a little bit about
    this, are more varieties of AmeriCorps that would enable people
    to participate in different ways. For example, if you were a
    young person living in Madison, Indiana, and you wanted to join
    AmeriCorps today, the odds are you would have to move, because
    we probably do not have an AmeriCorps grantee in Madison,
    Indiana.
        Now, that puts an additional burden on somebody to
    participate who wants to participate, but suppose we had a
    variety of AmeriCorps, or form of AmeriCorps which you might
    call individualized model, where you could actually become a
    member of AmeriCorps through a selection process. If you were
    chosen, you could find an organization within certain limits,
    such as an accredited organization, or United Way organization.
    It could be a nursing home that took care of your grandmother
    for years and years, and you would like to spend a year or two
    giving back that way. I mean, an individualized model rather
    than the kind of group models which we have, which are typical
    right now.
        There are some disadvantages to it. It probably makes the
    problems of accountability and management a little trickier, so
    we want to test it. We do not want to jump right into it. But
    it also gives us the flexibility to get people from all walks
    of life into our programs.
        Senator Mikulski. I think that is excellent. I want to come
    back to the variety, because it could very well be someone who
    has technology skills and says, well, there is nothing in
    Madison, but I would like to work in the Police Athletic League
    program. They have tech centers, and I would like to help all
    of the people there to be able to teach tech to the kids.
        Dr. Lenkowsky. Exactly.
        Senator Mikulski. Senator Bond.
        Senator Bond. Madam Chair, I am going to submit the rest of
    my questions for the record.

                                CHALLENGE GRANTS

        Senator Mikulski. I am just going to clarify the Challenge
    Grants, then, one other thing related to variety, but with the
    Challenge Grants, what do you see as being encountered in the
    Challenge Grants? There is confusion now whether State and
    local funds would be counted in the Challenge Grant, and I am
    not talking necessarily about the teacher's salary being paid
    to a teacher in AmeriCorps, but where the City of Baltimore,
    along with the Abell Foundation was contributing to the
    administration of Teach for America in Baltimore.
        Dr. Lenkowsky. As you know, there is a matching requirement
    in existence today for AmeriCorps. I believe it is a 15-percent
    match, and that could be accomplished by any non-Federal
    source, including State or city funding and, of course, private
    funding.
        To be honest, I do not think we have really thought
    carefully enough yet about the Challenge Grants. My own
    instincts, given what we are trying to accomplish, would be
    that the match would come from private sources, but I think we
    need to consult with our grantees, the Teach for Americas, the
    City Years to make sure that as we set up the provisions of
    this program we are doing it in a way which ultimately achieves
    the goal, which is to enable them to generate the kinds of
    resources they need to become as self-sufficient as possible,
    so we want to keep the goal in mind here, and my view would
    generally be that Challenge Grants ought to be matched with
    private money, but I think we need to consult carefully with
    our grantees.

                        COMMUNITY SERVICE IN RURAL AREAS

        Senator Mikulski. Well, as we move forward with our
    appropriations and the desire to see if we cannot fund
    Challenge Grants this year, we really need very clear guidance
    from you on that matter.
        One of the things I would like to just bring to your
    attention is the issue around rural communities, or where they
    do not have foundations. I have been struck, and I know my
    colleague has been a real advocate for rural communities, where
    we have county commissioners who are part-time people who run a
    county.
        My mountain county in Garrett, my Somerset County on the
    shore do not have these foundations--the Abell Foundation, or
    the kind of United Way we have, and yet I have been so
    impressed by their dedication to try to empower and help people
    in their own community, and if they put some money in I think
    you ought to look at it.
        I am going to really ask you for the policy recommendation,
    but communities that do not have access to foundations, where
    there are at least a modest, or modicum of local effort and
    local commitment, I would like us to see how we could recognize
    that, because that is the point. We have challenged that.
        Dr. Lenkowsky. We might also need to think of the Challenge
    Grant also valuing volunteer time. A major part of the
    President's principles calls for judging AmeriCorps programs by
    their ability to leverage nonstipended volunteers, those
    occasional volunteers who on average give 3\1/2\ hours a week.
        Senator Mikulski. It would be simple enough to implement.
    You are very good at that, but I would like to have guidance on
    whether, in addition to foundations or any type of private,
    literally private money, to look at also State and local or
    other income.
        We are going to say goodbye to Senator Bond. I am just
    going to ask another set of questions related to your
    testimony. I want to go to your written testimony, and I want
    to give you the Challenge Grant part, because we really have
    worked in partnership, and I cannot say enough about Senator
    Bond's commitment to sustaining this program during very
    difficult times.

                            ESTABLISHMENT OF ECORPS

        I want to go to page 6 of your testimony, where you talk
    about the senior initiatives, the literacy initiatives, and the
    technology initiatives, all of which are really quite
    interesting. I want to go to things like technology. I am
    trying to establish an eCorps within AmeriCorps. Now, I am
    really asking your advice as to how--and I think we can agree
    upon the technology, and that goes to my concern about the
    digital divide, that second--the digital divide, as I define
    it, as access to technology and access to people who can teach
    you how to use it.
        I was thinking about it in schools and community-based
    centers, PAL programs and so on. But the eCorps from AmeriCorps
    was literally teaching the people who need to teach, who in
    many ways themselves have not had access, in other words, an
    eCorps. I call it an eCorps. I do not care what we call it, but
    what I was looking for, that there are a lot of people who are
    not even infotech majors, but have those skills, and they could
    be the part-timers, and again I am going to leave it to your
    creativity.
        I do not think this has ever really quite gotten off the
    ground, and I just wanted to lay out my picture, and could I
    hear from you, your description, and we have had a good
    discussion on the Senior Service initiative, but on the
    literacy and the technology side, and see what your thoughts
    are to be able to stimulate that.
        Dr. Lenkowsky. Let me start with the technology one,
    because I know that is an interest of yours. We are, in fact,
    funding a large number of technology initiatives now, and would
    be glad to submit a list of those to you for the record, but I
    completely agree. I think with what you are suggesting, that
    what we really ought to be doing in our technology efforts is,
    again, part of our general theme of capacity-building.
        We ought to be teaching the teachers. We ought to be
    helping the organizations develop the capacity to use modern
    technology. You usually talk about the digital divide as being
    one between different people, and there is one, but there is
    also a great digital divide between different kinds of
    organizations, those big national organizations are moving very
    quickly into all sorts of electronic technology, electronic
    fundraising, membership development, all sorts of things, but
    our smaller groups stay level who are often on the front line.
    They are ones that need the help getting that new capacity. I
    think that is a very valuable part of what we can do through
    programs like VISTA and so on.
        I think where I might differ a little with you, Senator,
    is, I would not want to limit this to AmeriCorps. As you know,
    we are also proposing a significant increase in the Senior
    Service Corps.
        Senator Mikulski. That is an excellent recommendation.
        Dr. Lenkowsky. You and I talked a little bit yesterday
    about trying to make sure that our senior programs and senior
    volunteers generally is as attractive to the rising generation
    of seniors, and I am on the front end of that one, approaching
    retirement, as it has been to the previous generation who have
    that strong sense of duty to country.
        We know that a lot of the motivation behind the rising
    generation of seniors is related to using the skills they
    acquired in their working years, but putting them to some other
    use once they are approaching their retirement years, and I
    think if we could engage our seniors in some of these
    technology activities, too, we have a win-win here. We will get
    more attention on the part of the rising generation of retirees
    and bring a lot of valuable skills to organizations and people
    in the technology arena, so that is my vision for the use of
    technology.
        Literacy, as you know, a very large fraction of our
    AmeriCorps members are engaged in tutoring and mentoring. I
    would expect not only to continue that, but to expand that. One
    of the President's proposals which is not before this committee
    is an appropriations matter, and we did discuss a bit in my
    testimony with the Health Committee concerning the Federal
    Work-Study program.
        The Federal Work-Study program is really a very creative
    idea. Back in the 1960's it was part of the war on poverty, and
    the idea was that young people from modest backgrounds who had
    got the grades, the ability to go to college, would get a
    certain amount of financial aid that would be premised on their
    going back into their communities and tutoring and mentoring
    younger people just like them who needed that sense of hope and
    aspiration, and that has changed.
        Work-Study programs are used by colleges and universities
    for all sorts of things these days, and I am sure they are very
    valuable. The President's proposals call for making available
    setting a target of 50 percent of Federal Work-Study slots
    which will be used for community service, and I would expect
    that if we were able to do this a fairly large proportion of
    those would be related to literacy.
        The colleges and universities have very justifiable
    concerns with that proposal, and we are going to be sensitive
    to that and work with them, but there are a lot of ways that
    you can achieve the President's goal.
        For example, I learned of a program--I believe it is at
    Harvard--where they are doing distance tutoring. They have
    really set this up through technology to be able to tutor
    children all around the country in reading and other skills,
    and these are Federal Work-Study students, so the opportunities
    here to be creative are enormous.
        One of the things that is most inspiring to me about the
    President's call to service is when you start thinking
    seriously about this you see there are all sorts of creative
    ways to do it using a lot of existing resources. This is not
    something, as we discussed earlier, where we have got to have a
    10-year R&D effort before we can figure out some good things to
    do.

                            LITERACY AND TECHNOLOGY

        Senator Mikulski. Well, we know that the First Lady is
    devoting herself to education, and we salute her on that, and
    her mother-in-law, Barbara Bush, really did an outstanding job
    on the whole issue particularly of adult literacy, to show that
    there was not something to be ashamed or stigmatized about, and
    I really think did an important service. We want to be able to
    support the literacy issue, and we will work that out in
    appropriations and authorizing, but we see literacy and
    technology as linked. Often, technology is a tool for literacy,
    as you have indicated, and we look forward to how we can foster
    those, but not have so many specific line items that we don't
    lose out of creativity and flexibility.
        The whole idea, when we were working to create this,
    Senator Nunn, myself, and folks like yourself and the Mandel
    Foundation, was that this was not to be just one more
    Government program. It was not meant to be one more social
    program. It was to be about a social movement around the habits
    of the heart, for every opportunity there is an obligation and
    so on, and it was meant to be flexible, not so prescribed. In
    other words, get away from the mentality of the sixties
    programs, not the value base of those, but remember how they
    were overprescribed, over-line-itemed, and over what I call--
    you would have 30 line-item boutique programs, but you could
    not get a critical mass to achieve a critical mass of social
    good.
        So I am looking out for these initiatives, but really I am
    going to again invite you to keep us in the spirit of
    creativity, flexibility, local needs, because they are
    different, and at the same time national standards that we
    expect for training, appropriateness, fiscal accountability and
    so on, but we really do want to keep that local flexibility and
    creativity.
        Dr. Lenkowsky. I could not agree more with that, Senator.
        Senator Mikulski. I think we have really covered
    everything. I want to thank you for your excellent testimony. I
    think your written testimony also provides a very good road
    map. We are going to be as good as our allocation, which is
    kind of sitting out there. I am going to need the Hubbell
    telescope to see it, but it is on the horizon for us, and again
    we just welcome you with enthusiasm and hospitality.
        Dr. Lenkowsky. I look forward to working with you, Senator.

                              SUBCOMMITTEE RECESS

        Senator Mikulski. This subcommittee stands in recess until
    next Thursday--excuse me, next Wednesday, on April 24, in which
    we will be taking testimony from the Neighborhood Reinvestment
    Corporation and the CDFI.
        Thank you very much, and we are recessed.
        [Whereupon, at 11:10 a.m., Wednesday, April 17, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                           WEDNESDAY, APRIL 24, 2002

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:37 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Barbara A. Mikulski (chairman)
    presiding.
        Present: Senators Mikulski and Bond.

                     NEIGHBORHOOD REINVESTMENT CORPORATION

    STATEMENT OF ELLEN LAZAR, EXECUTIVE DIRECTOR
    ACCOMPANIED BY:
            MARGO KELLY, DEPUTY EXECUTIVE DIRECTOR
            CLARENCE J. SNUGGS, DEPUTY EXECUTIVE DIRECTOR/TREASURER
            JEFFREY BRYSON, GENERAL COUNSEL

                OPENING STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Good morning, everybody. The VA-HUD
    Committee will now come to order.
        And we want to welcome Ellen Lazar, the Executive Director
    of the Neighborhood Reinvestment Corporation, and her team; and
    Mr. Tony Brown, the new Director of the CDFI Fund, who we also
    welcome. Both Neighborhood Reinvestment and CDFI seek to
    improve conditions in low income neighborhoods.
        We asked you to testify together at the panel, recognizing
    the distinct, but complementary, missions in a way that we
    could get right to the questions. And some of the questions
    deal with predatory lending, the ability of nonprofits to
    really function in neighborhoods and community development
    corporations. There are many questions that really go both to
    your distinct missions. There are parallels or even
    collaborations, so we thought we would do that.
        And also, we have a markup in Senator Kennedy's committee
    at quarter of 11:00. So we are going to try to move very
    rapidly.
        First of all, both of your institutions recommend, really,
    the area of community development. And we are very interested
    in wanting to know what is working, what is not, what are the
    lessons learned.
        Also, we are very cognizant of the fact that in terms of
    the President's budget, the President has proposed level
    funding of $105 million for the Neighborhood Reinvestment
    Corporation. And we want to know the consequences of flat
    lining.
        Though when I took over this subcommittee in 1988, it was
    $10 million, and I am not sure, if it were indexed and all,
    where it would be. But Congress has had a steady commitment to
    the Neighborhood Reinvestment Corporation.
        For CDFI, the President's budget request is at $68 million,
    a $12 million or 15 percent cut from last year. I have a lot of
    yellow flashing lights about that.
        And, Mr. Brown, we would like to know what are the
    consequences of this cut, and get a picture from you.
        This hearing will focus on really the role, the mission,
    and the resources of both institutions. We are very impressed
    that in fiscal year 2001 at Neighborhood Reinvestment, which
    has been an important tool in assisting communities with
    housing and economic development, but also community
    development and capacity building. I think that is one of the
    signatures of Neighborhood Reinvestment, and that you are not
    just another housing program. You are not a real estate
    program. You are a real community program. And it is about
    community development and capacity development.
        We know that what has been so impressive to the Congress
    over the year is the way that Neighborhood Reinvestment has
    leveraged funds right at the local level to promote economic
    development, neighborhood stability, and home ownership. We
    know that you have helped many first-time home buyers in
    purchasing and keeping their homes.
        Due to our concern about the shortfall in rental housing,
    we know that you have had a real effort to explore innovative
    ways to produce mixed income rental housing for very low income
    families and have a whole new initiative on that. And we are
    very much interested in the whole multi-family area.
        The whole issue of promoting Section 8 for home ownership,
    everyone says ``Let us do that,'' but I am concerned about the
    ability of new homeowners who are very poor and often have not
    been given the financial literacy skills that they need to
    sustain this. I do not want an American dream to become a
    family nightmare, and how we can avoid that from happening.
        This committee has been troubled for some time about the
    whole issue of FHA defaults in neighborhoods, where they become
    what they call HUD houses. And that is the way they are
    referred to, ``Senator Mikulski, there's a HUD house in my
    neighborhood.''
        And rather than remarking on how wonderful it is, it
    usually has been someone has defaulted on their mortgage,
    usually because of no fault of their own. And HUD wants to sell
    it, and HUD becomes a slum landlord and then just unloads it,
    sometimes to even predatory or scum-bum people. So we want to
    know kind of where you are on that.
        And also, in terms of CDFI, CDFI provides financing and
    technical assistance while the BEA program awards banks and
    such for providing similar services. We know that you are doing
    a new market program, and we want to hear about that. We know
    that you are working hard on performance measures and your
    experience in the private sector.
        We are particularly pleased that there is a Native American
    initiative, so that the only money coming in is not more of the
    old Federal stuff that has not worked or casino money. And I am
    not knocking casino money, but there needs to be other forms of
    empowerment for our Native American community.
        For both of you, I know that you have done significant work
    in the rural communities. And this is really an outstanding
    achievement because often they do not have access to technical
    assistance, foundations. The Big Macs do not always want to
    come to the little nuggets in the rural communities.

                               PREPARED STATEMENT

        So we look forward to hearing from you about your work,
    about what you need to do your work, and is the resource that
    is being proposed adequate and, at the same time, really
    remaining the stewards on taxpayers' funds. Not only what you
    do, Mr. Brown, for example, better management of the legacy of
    CDFI, but really to make sure that--there are those out in the
    neighborhoods, not the poor themselves, but who gouge the poor
    and gouge our taxpayers, and that kind of fraud really I find
    doubly despicable.
        [The statement follows:]

                   Prepared Statement of Barbara A. Mikulski

        Today we welcome two witnesses to testify on their fiscal year
    budget submissions: Ellen Lazar, the Executive Director of Neighborhood
    Reinvestment Corporation, and former director of the CDFI Fund, and
    Tony Brown, the new Director of the CDFI Fund.
        We are delighted to have you both here. Both Neighborhood
    Reinvestment and the CDFI Fund seek to improve conditions in low-income
    communities. Neighborhood Reinvestment trains nonprofits and builds
    capacity, while CDFI provides grants and loans to financial
    institutions serving low-income neighborhoods
        In the area of community development, we want to know: what is
    working out there, what isn't, and what are the lessons learned? I am
    especially interested in two areas--how you certify your members, and
    what you are doing to stop predatory lending.
        If we are asking nonprofits to take on more responsibility, then we
    must make sure they are ready. Last year, Neighborhood Reinvestment
    provided over 200,000 training hours to nonprofits and community
    leaders in support of this goal. As the federal government sends more
    money to nonprofits, we need to make sure that they are ready for prime
    time. But we also need to remember that community based groups are not
    a substitute for government--they are a partner to government.
        We also want to know what Neighborhood Reinvestment and CDFI are
    doing to help communities fight predatory lending. In my own hometown
    of Baltimore, non-profits like St. Ambrose Housing Aid Center are on
    the front lines fighting flipping. This is an area that I know your
    members have spent a lot of time on, whether its providing loans,
    homeownership counseling or doing damage control in the neighborhoods
    hardest hit by the predators. We really need you to tell us what can be
    done to prevent these scum--be it lenders, appraisers or investors--
    from destroying neighborhoods and dreams. And also, how do we help
    neighborhoods devastated by these practices to pick up the pieces.
        My own goals for community development have grown out of my own
    experiences, as a community activist, a social worker, and an
    appropriator. I believe there are three types of neighborhoods: stable,
    stress and siege. I believe we are best off focusing our resources on
    neighborhoods under stress that are teeter-tottering on the edge of
    siege. We want to move them into the stable column and fight to make
    sure they don't come under siege. I know that both Neighborhood
    Reinvestment and CDFI support this goal. Neighborhood Reinvestment
    builds capacity of community-based nonprofits by providing capital and
    ``training the trainers'' and CDFI gets capital to underserved
    communities where there has been little investment.
        These two agencies are in a unique position. They play a support
    role for community-based groups on the front lines in their
    neighborhoods. So they are able to respond to the unique needs of each
    community. Too often we make the mistake of confusing program
    development with community development when we know that no two
    neighborhoods are the same, and no two neighborhoods have the same
    needs. Low-income neighborhoods can't afford to navigate giant
    bureaucracies and the federal government can't afford to maintain them,
    which is why we need to target resources carefully.
        In considering the President's budget, we want to learn from you
    what the impact of the fiscal year 2003 budget submission will be. The
    President has proposed level funding of $105 million for Neighborhood
    Reinvestment and funds CDFI at $68 million, a $12 million, or 15
    percent cut from last year. I am disappointed by this because I know
    how important community development funds are to our neighborhoods. We
    want to know what the consequences of this cut will be and how CDFI is
    working to better measure the impact it's having in communities.
        Today we hope to learn what is working to revitalize our
    communities, and what is not working as well. We need to ensure that
    Neighborhood Reinvestment and the CDFI Fund make the best use of scarce
    resources to create communities where families can live, work, worship
    and shop. We look forward to your testimony.

        Senator Mikulski. So I am going to turn to my very able and
    dear friend, Senator Bond, for any comments he wishes to make.

                    STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you very much, Madam Chair. And I share
    the concerns that you raised.
        As I am sure that you all know, this committee operates in
    a very bipartisan way and we are very proud of the work that
    the agencies under this committee's jurisdiction have
    performed, and we share the concerns to make sure they continue
    to serve as they should.
        I join in welcoming Ellen Lazar and Tony Brown. I think,
    Mr. Brown, this is your first appearance before the
    subcommittee. Fasten your seat belt. It is always interesting.
    We never know what is going to happen next.
        Ms. Lazar is probably on the verge of breaking a
    subcommittee record in the number of appearances that she has
    testified as head of CDFI in the past.
        NRC and CDFI are two of the smaller agencies within the VA-
    HUD jurisdiction. But clearly, they are not forgotten, and we
    do not want to overlook them. You do not have the same level of
    resources of other Federal agencies and departments with which
    we work, but both of your agencies play a vital role in serving
    the needs of distressed communities. And that is why this
    separate hearing is designed to focus on your work.
        It would be very difficult for me to forget Neighborhood
    Reinvestment due to the great work it has done and is doing in
    my home State of Missouri. NRC affiliates in St. Louis and
    Kansas City have been working in some of the most distressed
    communities and have been instrumental in revitalizing the
    neighborhoods. I am proud of the work they have done. I have
    seen the value that they have added.
        I am also excited about the merger between Neighborhood
    Housing Services of St. Louis and another successful
    organization called Beyond Housing. These are two of the
    leading CDCs in the St. Louis area. And it seems to me that the
    combining of their talents is a great move. I hope this merger
    may become a model for other CDCs in St. Louis, where there are
    dozens of small-sized, specialized organizations that may not
    have the capacity to take on much-needed, larger-scale housing
    and economic development projects.
        Today I would be interested in hearing more about NRC's
    activities, especially in affordable housing programs.
    Addressing the shortage of affordable housing is one of my
    highest priorities. It has to be one of the highest priorities
    of this committee. It is obviously clear that we need to
    stimulate and support the production of more affordable
    housing, especially for extremely low income families.
        We have a situation in St. Louis County, Missouri, where we
    do not even apply for more Section 8 vouchers, because there is
    no place for them to be used. A voucher without a house to go
    with it is not very useful.
        In the 2002 VA-HUD appropriations bill, I worked to add $5
    million for Neighborhood Reinvestment to expand their multi-
    family housing programs. However, the administration and OMB,
    in their wisdom, did not continue this important initiative in
    the budget request. I am disappointed. I do not agree. But I am
    not deterred. And we will continue to seek support for multi-
    family production.
        Further, we need to know how NRC has been involved in
    helping HUD dispose of its single-family assets and administer
    the new Section 8 home ownership program. Like the Chair, I
    have questions about some of these things.
        First, HUD's decision to impose a moratorium on the asset
    control program, I think it makes a lot of sense to suspend
    those organizations that have not performed or have not
    complied with program rules. But punishing good nonprofits
    puzzles me. It is sort of like throwing the baby out with the
    bath water.
        The alternative of HUD using its own resources to dispose
    of the assets is definitely a worse option. And as the Chair
    said, we want to make sure that the home ownership, the Section
    8 home ownership program, does not become a trap for families
    that are not prepared to assume the responsibility of home
    ownership.
        Now with regard to the CDFI, I commend Treasury Secretary
    O'Neill's initiative to have the fund develop real outcome
    measurements of its program and past reports. It has focused
    too much on the outputs or how much money it spent rather than
    the outcomes. I hope that this effort will help us understand
    how cost-effective and efficient the CDFI programs are,
    especially in comparison to other similar Federal activities.
    If you are not giving more value-added for the buck, then we
    are going to cut it back. We want to see programs and agencies
    that work. And we need to be convinced that they are making the
    kind of difference that warrants the allocation of resources to
    them.
        There are two other issues I need to highlight. One, again,
    I am disappointed by the administration's decision not to fund
    the Native American CDFI technical assistance program. It is a
    modest $5 million program for a population that has significant
    needs. The Treasury Department's own study identified
    significant barriers to capital access for Native Americans.
    And it recently released the Native American lending study,
    which found that many communities located in Indian lands face
    economic and social challenges that place them significantly
    behind the rest of the U.S. economy. To me, it is clear from
    the report that CDFI should be playing a role in Native
    American lands.
        The second issue I would like to raise is the future of
    CDFI. What are you, fish or fowl? With the addition of the new
    markets tax credit program, I want to know whether this program
    will be the fund's primary activity. In other words, should
    CDFI focus its activities on grant-making, as it has in the
    past, or is it going to be an allocated tax credit to meet its
    mission? Which one is it going to be? And I am concerned that
    there may be different skills needs. And I want to see where
    you can get the most effective result of the resources
    allocated.

                               PREPARED STATEMENT

        Lastly, I am concerned about the fund's effort in
    addressing distressed communities in rural areas. I happen to
    live in a rural area. And I know many of our colleagues do, and
    they share my concerns. I would like to hear how the fund has
    proposed and has been addressing this issue, because this
    clearly is a concern as much as the concern about distressed
    communities in urban areas.
        With that, Madam Chair, I thank you and look forward to
    hearing the testimony of our two good friends and witnesses.
        [The statement follows:]

               Prepared Statement of Senator Christopher S. Bond

        Thank you, Madam Chair. I also welcome Ms. Ellen Lazar from
    Neighborhood Reinvestment and Mr. Tony Brown from the CDFI. This is Mr.
    Brown's first appearance before the Subcommittee but I think that Ms.
    Lazar may be on the verge of breaking a Subcommittee record in number
    of appearances since she has also testified as the head of the CDFI.
        NRC and the CDFI are two of the smaller agencies within the VA/HUD
    jurisdiction but they are not forgotten. While these agencies may not
    have the same level of resources of other Federal agencies and
    departments such as HUD, both agencies play a vital role in serving the
    needs of distressed communities.
        It is especially difficult for me to forget Neighborhood
    Reinvestment due to the great work it has performed in my home state of
    Missouri. NRC affiliates in St. Louis and Kansas City have been working
    in some of the most distressed communities and have been instrumental
    in revitalizing neighborhoods. I am proud of the work they have done
    and I have seen the value they have added. I am also excited about the
    merger between the Neighborhood Housing Services of St. Louis and
    another successful organization called Beyond Housing. These are two of
    the leading CDCs in the St. Louis area and combining their talents is a
    great move. I hope that this merger will become a model for other CDCs
    in St. Louis where there are dozens of small-sized, specialized
    organizations that do not have the capacity to take on much needed
    larger scale housing and economic development projects.
        Today, I would like to hear more about NRC's activities, especially
    its affordable housing programs. Addressing the shortage of affordable
    housing is one of my highest priorities. It is obviously clear that we
    need to stimulate and support the production of more affordable
    housing, especially for extremely low-income families. In the fiscal
    year 2002 VA/HUD appropriations bill, I sponsored the addition of $5
    million for Neighborhood Reinvestment to expand their multifamily
    housing programs. However, the Administration and OMB did not continue
    this important initiative in its budget request. I am disappointed but
    not deterred, and I will continue to advocate for multifamily
    production.
        Further, I would like to hear how NRC has been involved in helping
    HUD dispose of its single-family assets and administer its new Section
    8 homeownership program. I have questions about HUD's decision to
    impose a moratorium on the Asset Control Area program. While I support
    the suspension of those organizations that have not performed or
    complied with program rules, punishing good non-profits is puzzling to
    me. HUD's decision is like ``throwing the baby out with the bath
    water.'' And, the alternative of HUD using its own resources to dispose
    of its assets is definitely a worse option.
        In regards to the CDFI, I support Treasury Secretary O'Neil's
    initiative to have the Fund develop real outcome measurements on its
    programs. In past reports, GAO found that its programs emphasized
    outputs rather than outcomes. I hope that this effort is able to help
    us understand how cost-effective and efficient the CDFI programs are,
    especially in comparison to other similar Federal activities.
        There are two other issues I would like to highlight. One, I am
    disappointed with the Administration's decision to not fund the Native
    American CDFI Technical Assistance program. This is a modest $5 million
    program for a population that has significant needs. The Treasury
    Department's own study identified significant barriers to capital
    access for Native Americans. Its recently released Native American
    Lending Study found that ``many communities located in Indian Lands
    face economic and social challenges that place them significantly
    behind the rest of the U.S. economy.'' It is clear from this report
    that the CDFI must play a role in Native American lands.
        The second issue I would like to raise is the future of the CDFI.
    With the addition of the New Markets Tax Credit program to the CDFI
    portfolio, I am interested in whether this program will become the
    Fund's primary activity. In other words, should the CDFI focus its
    activities on grant-making or the allocation of tax credits to better
    meet its mission?
        Lastly, I am concerned about the Fund's efforts in addressing
    distressed communities in rural areas. Many members of this
    Subcommittee share this concern. I would like to hear how the Fund has
    addressed this issue.
        Thank you.

        Senator Mikulski. Well, we welcome both of our witnesses.
    And we ask them to proceed with their testimony. Ms. Lazar, you
    come with considerable background in public service. And we
    would just ask you to proceed.
        Ms. Lazar. Thank you. Good morning, Madam Chair Mikulski,
    and Ranking Member Bond. My name is Ellen Lazar, and I am the
    Executive Director of Neighborhood Reinvestment Corporation.
        I am joined today by Margo Kelly and Clarence Snuggs, who
    are my Deputy Executive Directors, and Jeff Bryson, our General
    Counsel.
        This past year, we were fortunate to have very strong
    leadership from our board of directors. Governor Edward
    Gramlich of the Federal Reserve, serves as our chair. John M.
    Reich, Director of the Federal Deposit Insurance Corporation,
    serves as our vice-chair. Among the other members of our board
    are James E. Gilleran, the Director of the Office of Thrift
    Supervision; Deborah Matz, Director of the National Credit
    Union Administration; John C. Weicher, Assistant Secretary for
    Housing and the Federal Housing Commissioner; and Julie
    Williams, the Deputy Comptroller from the Office of the
    Comptroller of the Currency.
        I am here today to talk about Neighborhood Reinvestment and
    the experience of over 225 affiliated community development
    nonprofits, known as the NeighborWorks network, that serves
    over 2,000 urban, suburban, and rural communities in 49 States,
    the District of Columbia, and Puerto Rico, and to talk about
    the work these organizations are doing to revitalize
    communities and help low- and moderate-income families achieve
    a personal stake in the renewal of their communities.
        Neighborhood Reinvestment supports and strengthens
    NeighborWorks affiliates through technical assistance,
    training, direct funding through grants, program review and
    oversight, and access to a unique secondary market. I ask you
    to support Neighborhood Reinvestment's budget request of $105
    million. There are three reasons why a continued investment by
    Congress in Neighborhood Reinvestment----
        Senator Mikulski. Wait a minute. I am lost here in
    testimony, Ms. Lazar.
        Ms. Lazar. I am sorry.
        Senator Mikulski. I have an oral testimony. And then it
    talks about Neighborhood Reinvestment. And then I have your
    formal testimony. What are you--where are we here?
        Ms. Lazar. I am on the second page of the oral testimony.
        Senator Mikulski. I have it now. Thank you.
        Ms. Lazar. Okay. Thank you.
        There are three reasons why a continued investment in
    Neighborhood Reinvestment is a wise use of this Nation's
    Federal resources.

                        STEWARDSHIP OF FEDERAL RESOURCES

        First, Neighborhood Reinvestment takes very seriously its
    stewardship of its Federal appropriation by maximizing the
    effectiveness and efficiency of the NeighborWorks network. We
    use Federal funding to attract private sector resources. For
    every dollar appropriated to Neighborhood Reinvestment, the
    NeighborWorks system generated more than $15 from private
    sector and other sources, resulting in a direct investment of
    nearly $1.4 billion.
        We can achieve this level of impact because our programs
    and services are highly flexible and tailored to fit the credit
    and resource gaps that cannot be filled otherwise. We use a
    community-based approach to direct our activities. Essentially,
    we ask each NeighborWorks organization to identify the specific
    challenges in their communities. We respond with a unique
    combination of training, technical assistance, and financial
    support.
        As you know, two-thirds of our budget goes out to
    NeighborWorks organizations as direct grants, but we provide
    much more than just funding to local community development
    organizations. Our capacity-building services include technical
    assistance, which responds to intricate and timely
    organizational issues; our risk management system, which
    monitors the organization and its financial health,
    productivity, and viability; and our training institutes, which
    help to educate and ensure that local staff are well informed.
        In fiscal year 2001, we trained more than 4,200 people. Our
    training institutes not only serve our network, but the broader
    community development and housing field. Our services improve
    the local organization, mitigate long-term risk, and maximize
    the impact of the Federal resources we use.
        Secondly, Neighborhood Reinvestment continually looks
    toward the horizon, seeking new opportunities to address
    persistent challenges, thereby serving as the laboratory
    environment Congress intended. The challenges facing this
    country are ever changing. Neighborhood Reinvestment was
    chartered and directed to serve as a laboratory for the
    community development field.
        HUD's Section 8 home ownership option is a good example.
    NeighborWorks organizations provide a bridge between private
    lenders and public housing authorities to make home ownership a
    reality. Organizations receive technical and grant support from
    Neighborhood Reinvestment. And this subcommittee has provided
    the resources that have created this laboratory and seeded this
    effort.
        We have assisted 21 NeighborWorks organizations, working
    with 26 public housing authorities, and have trained over 1,000
    professionals on this option through courses we offer.
        Our multi-family funding has been another significant area
    for us. Last year we received $5 million, which was designated
    to explore ways to serve families with incomes below 30 percent
    of area median income in mixed income rental housing. This is
    especially difficult since low-income families' income is often
    unable to cover the operating costs of the rental unit.
        The majority of the allocation that we received is going
    out to NeighborWorks organizations to fund the development of
    mixed income properties that house families with incomes below
    30 percent of median income. The organizations will employ a
    variety of strategies. We will gather information on how these
    properties and others will financially support a wide mix of
    incomes. We appreciate the opportunity to examine viable
    options in this important area and to report our results to
    you.
        Our most visible laboratory effort to date is the
    NeighborWorks Campaign for Home Ownership. In fiscal year 1998,
    Congress seeded our home ownership efforts with a $25 million
    set-aside. That funding has helped produce some remarkable
    results. The average income of the families we serve is nearly
    half of the national average, $29,300. Ninety-five percent of
    these folks are first-time home buyers. Fifty-two percent are
    ethnic minorities. Forty two percent are female buyers.
        We have produced a series of integrated strategies,
    including comprehensive home buyer education, NeighborWorks
    Home Ownership Centers, and a financial literacy initiative. We
    are on target to surpass our 5-year goal to create 40,000 new
    home buyers.
        Lastly, Neighborhood Reinvestment provides strategies for a
    range of housing and community development challenges. The one-
    size-fits-all approach does not work. We are addressing the
    needs of under-served communities and populations with a
    particular sensitivity to the needs of low-income families,
    immigrants, the disabled, and the elderly. This requires more
    than grants. We need strong organizations led by strong
    community leaders, local resident leaders, leading to greater
    civic involvement, which helps effectuate positive change.

                                   CONCLUSION

        Let me close by thanking Madam Chair Mikulski and Ranking
    Member Bond for the wonderful opportunity you and the
    subcommittee have given this organization to serve America's
    communities and by asking for your continued support.
        At the $105 million level, we will leverage $1.6 billion in
    direct total investment in distressed rural, suburban, and
    urban communities. We will assist more than 71,000 families
    obtain and maintain safe and affordable rental and home
    ownership housing. We will provide pre-and post-purchase home
    ownership counseling and financial literacy to nearly 70,000
    families.
        You have encouraged us to be flexible, creative, nimble,
    and responsive in designing and delivering our services and
    resources. And this flexibility and your demonstrated
    confidence in us has created remarkable results. We know that
    your investment in Neighborhood Reinvestment is an investment
    and expression of confidence in America's communities. And all
    of America benefits when its communities are healthy, strong,
    and safe.

                               PREPARED STATEMENT

        Thank you. And I am happy to take any questions.
        Senator Mikulski. Thank you very much, Ms. Lazar. And with
    unanimous consent of the committee, your entire testimony will
    be included in the record.
        [The statement follows:]

                       Prepared Statement of Ellen Lazar

        Good morning, Chairman Mikulski, Ranking Member Bond, and members
    of the subcommittee. My name is Ellen Lazar and I am the Executive
    Director of the Neighborhood Reinvestment Corporation. I am here this
    morning to talk with you about the work that Neighborhood Reinvestment
    is doing to revitalize communities and help low- and moderate-income
    families achieve a personal stake in the renewal of their communities.
        My testimony is based on the experience and considerable successes
    of 225 community development organizations serving more than 2,000
    urban, suburban, and rural communities. These nonprofits are
    collectively known as the NeighborWorks network and operate
    in 49 States, the District of Columbia, and Puerto Rico.
        The Neighborhood Reinvestment Corporation was created by Congress
    in 1978. Since that time, Neighborhood Reinvestment and its affiliated
    NeighborWorks network have continuously evolved to become
    increasingly effective and efficient in leveraging significant private-
    sector resources for community revitalization and affordable housing.
    This could not have been accomplished without this subcommittee's
    commitment of Federal funds. In fiscal year 2001, the
    NeighborWorks system generated nearly $1.4 billion in direct
    investment, helping nearly 64,000 families obtain and maintain safe and
    affordable rental and homeownership housing.
        I thank the subcommittee for supporting Neighborhood Reinvestment
    through the fiscal year 2002 budget appropriation of $105 million.
    Neighborhood Reinvestment's fiscal year 2003 Budget Justification
    outlines proposed activities at a $105 million budget level. This
    includes $10 million to further expand a groundbreaking effort to
    utilize the HUD Section 8 program in support of home ownership for low-
    income families.
        Before I move further into the details, I would like to express my
    immense pride, and my good fortune, in leading a Corporation that works
    to build community and public-private cooperation as its fundamental,
    day-to-day business. Throughout the Corporation and the
    NeighborWorks network, we feel an increased responsibility to
    the concepts of positive action, purposeful change, and communitywide
    commitment that is so critical to our country today.
                       the neighborworks system
    The NeighborWorks system is three-pronged
        Neighborhood Reinvestment Corporation.--Is a Congressionally
    chartered, public nonprofit corporation, headquartered in Washington,
    D.C., and staffed in nine regional offices. Neighborhood Reinvestment
    has five core activities:
        We charter new NeighborWorks organizations through an
    extensive educational and partnership-building effort, involving
    residents, business leaders and government representatives.
        We provide funding for capital projects and operating grants to
    NeighborWorks organizations, enabling them to create and
    build their own community-revitalization initiatives from a solid asset
    base.
        We provide a high degree of management and technical assistance to
    NeighborWorks members and the broader community development
    field, in order to expand their delivery programs and better serve
    their communities.
        We conduct extensive reviews of NeighborWorks
    organizations, focusing on their capacity to successfully manage their
    resources and programmatic risks. These program reviews monitor
    performance on an ongoing basis and serve as a platform for providing
    management and technical assistance. They also unearth best practices
    at the street level. Our goal is to increase the health, performance,
    productivity and effectiveness of the entire NeighborWorks
    network.
        We conduct national Training Institutes in major cities throughout
    the United States for anyone interested in affordable housing and
    community revitalization, particularly private- and public-sector
    practitioners and community leaders. Typically, 70 courses centered on
    such topics as management and leadership, community building, community
    economic development, neighborhood revitalization and affordable
    housing are offered at each Training Institute. We conduct at least
    five Training Institutes each year, attracting up to 1,200 participants
    at each venue. We also offer other training opportunities such as
    specialized resident leadership workshops and regional trainings.
        These activities individually and collectively help build the
    productivity and strength of local community development organizations.
        The NeighborWorks network.--Was founded by Neighborhood
    Reinvestment. This network of community-based nonprofits has evolved
    from 34 organizations operating in about a dozen States in the 1970s to
    the impressive 225-member network working today in more than 2,000
    communities across the country. NeighborWorks organizations
    operate in our Nation's largest cities and in some of its smallest
    rural communities. Regardless of their target communities,
    NeighborWorks organizations function as partnerships of local
    residents, lenders and other business leaders, and local government
    representatives. They produce creative strategies, share best
    practices, and develop flexible financing mechanisms.
        Neighborhood Housing Services of America (NHSA).--Is a secondary
    market for a range of investment vehicles originated by
    NeighborWorks organizations. It is funded primarily by social
    investors that purchase loans made by NeighborWorks
    organizations, thus replenishing local revolving loan funds and
    enabling them to finance even more homeownership, rehabilitation and
    multifamily housing. NHSA's services focus on lower-income borrowers;
    the median borrower income is $24,652. Over the years, NHSA has
    purchased more than $461 million in loans from local
    NeighborWorks organizations and their local lending partners.
        The NeighborWorks system is the only coordinated effort
    of its type in the Nation. It is unique in that it:
      --Provides a national delivery system built on locally-directed,
            community-based partnerships;
      --Fosters local and regional leveraging of scarce Federal resources;
      --Serves as a laboratory for developing and testing creative
            solutions to problems that impede affordable housing production
            and neighborhood revitalization;
      --Sets high standards for participating in the network and maintains
            them through a strenuous approval process and a comprehensive
            system of ongoing performance reviews; and
      --Facilitates a learning environment for benchmarking and
            disseminating best practices in the field.
        The system's unique qualities pay off in increased reinvestment.
    Through the guidance of the Corporation's Board of Directors, the
    experience of Neighborhood Reinvestment staff, and the willingness of
    NeighborWorks organizations to share the fruits of their
    labors, the NeighborWorks system will, with your support,
    continue to strengthen communities and improve lives throughout America
    in the year ahead.
                        stewardship of federal resources
        As a recipient of congressional appropriations, Neighborhood
    Reinvestment recognizes its responsibility for proper stewardship.
    Neighborhood Reinvestment has an established track record for using the
    resources granted to us by Congress in a productive and efficient
    manner. Further, Neighborhood Reinvestment extends its stewardship by
    maximizing the effectiveness and efficiency of the
    NeighborWorks network in ways that strengthen communities,
    transform lives and bring more of America's families into the economic
    mainstream.
        Neighborhood Reinvestment and the NeighborWorks network
    use Federal funding to attract private resources. The typical
    NeighborWorks organization receives most of its funding
    support from private sources and fees. Private investors have viewed
    the NeighborWorks network as an increasingly sound
    investment. In fiscal year 2001, for every $1 appropriated to
    Neighborhood Reinvestment, the NeighborWorks system generated
    more than $15 from private sector and other sources, resulting in a
    direct investment of nearly $1.4 billion in communities served by
    NeighborWorks organizations. We can achieve this level of
    impact because our programs and services are highly flexible and
    tailored to fill credit and resource gaps.
        Neighborhood Reinvestment bridges the gap between public and
    private funding by integrating public and private support. One critical
    financing vehicle that we provide to NeighborWorks
    organizations is equity capital, for real-estate development and
    lending grants, and for local revolving loan funds. The
    NeighborWorks organizations, in turn, use these funds to draw
    private capital in a variety of ways, including:
      --Equity and gap financing for home purchase loans, including down
            payment and closing costs;
      --Capital for property rehabilitation, micro-enterprise and small
            business loans; and
      --Capital costs associated with the acquisition and development of
            residential and commercial real estate for long-term ownership
            by NeighborWorks organizations.
        Locally directed revolving loan funds are essential to the
    network's success. Revolving loan funds provide flexible funding for
    community priorities, such as homeownership, rehabilitation,
    multifamily housing, and commercial and economic development.
    Neighborhood Reinvestment Corporation supports these revolving loan
    funds through technical expertise, training, and funding. NHSA aids the
    liquidity of the local revolving loan funds by buying revolving loan
    fund loans.
        Most of the funding for revolving loan funds comes from local
    sources--loans and grants made by banks, insurance companies,
    foundations, local governments and other local investors. Loan
    recipients are typically underserved families. Seventy-one percent of
    loans made through NeighborWorks revolving loan funds are
    made to very low- or low-income households, 53 percent to minority-
    headed households, and 43 percent to female-headed households. Loans
    carry a rate and term that the borrower can afford to pay back.
        The NeighborWorks system is the only national nonprofit
    network with expertise in designing, originating and servicing small
    non-conventional loans to lower-income families. These loans help
    create first-time homebuyers, often prevent mortgage delinquencies,
    provide money for repairs, and may ensure accessibility for those with
    disabilities. Generally, the loans offered by local
    NeighborWorks organizations provide a blanket of security for
    neighborhoods of modest means. By designing loans to fill the gap
    between the capacity of the borrowers and the parameters of
    conventional lenders, the NeighborWorks organizations
    complete transactions that could not otherwise be prudently realized.
        Neighborhood Reinvestment employs a grassroots-directed approach to
    our service design or service delivery. We ask each
    NeighborWorks organization to identify the specific
    challenges they face in attempting to ensure strong, safe neighborhoods
    of choice. Neighborhood Reinvestment responds with a tailored and
    solution-oriented combination of training and technical assistance in
    balance with any necessary financial support, including:
      --Our national Training Institutes, which provide education and
            practitioner-focused training, to ensure that local staff is
            well-equipped and informed. Last year, more than 4,200
            community development professionals and others attended the
            Training Institutes.
      --On-site specialized technical assistance in areas such as lending,
            loss mitigation, resource development and marketing, community
            revitalization, and business planning. This on-site assistance
            is coordinated with and augmented by the extensive array of
            formal training conducted at our Institutes and in other
            trainings.
      --On-going and responsive program reviews through our Risk Management
            Unit that monitors the organizational and financial health of
            each NeighborWorks organization. We make a site visit
            to each NeighborWorks organization at least every 24-
            36 months.
        Together, these supportive services help ensure that funding is
    used responsibly, efficiently and effectively at the local level.
        Over the years, Neighborhood Reinvestment has earned a reputation
    for helping communities achieve their revitalization goals. I am
    convinced we can further improve. We have undertaken a corporate-wide
    strategic planning process that will better position our organization
    and our network to meet the challenges of America's communities with
    even greater creativity and success. Emerging goals for our future
    include bringing more private investment into our neighborhoods,
    building stronger community leaders and civic commitment, collaborating
    with new partners and building new alliances with long-standing
    friends, continuing our dramatic success in creating homeownership
    opportunities, and assisting in the effort to create safe, affordable,
    attractive housing for low- and moderate-income families.
        The plan encompasses our commitment to do several things:
      --Increase the capacity of NeighborWorks organizations to
            help underserved communities meet their revitalization goals;
      --Expand the impact and reach of the NeighborWorks network;
      --Increase private-sector resources for the work of the
            NeighborWorks network;
      --Provide responsive, integrated, seamless and efficient customer-
            oriented services; and
      --Be in the vanguard of the community development field.
                        community development laboratory
        Neighborhood Reinvestment continuously looks toward the horizon,
    seeking new opportunities to address persistent and emerging challenges
    facing America's communities. The constant evolution of communities did
    not escape the notice of Congress when Neighborhood Reinvestment was
    chartered and directed to serve as a laboratory for the community
    development field.
        The flexibility of our dollars and the broad reach of the
    NeighborWorks network allows the Corporation to directly
    tackle some of the serious issues that impact communities, as well as
    contribute to broader public policy discussions. Neighborhood
    Reinvestment and the NeighborWorks network have played a
    creative, collaborative role in effecting positive community change--
    and we are well positioned to continue our efforts in fiscal year 2003
    and beyond.
        I would like to share with you some of the successes of our
    laboratory environment, and how they have helped strengthen the
    community development field and America's communities.
        Section 8 Homeownership.--A good example of our laboratory
    environment can be seen in Neighborhood Reinvestment's work with HUD's
    new Section 8 homeownership option. With strong technical support from
    Neighborhood Reinvestment, local NeighborWorks organizations
    have been able to serve as an efficient and effective bridge between
    private lenders and public housing authorities to make homeownership a
    reality for qualified Section 8 recipients. This subcommittee provided
    the resources that seeded our effort, allowing the
    NeighborWorks network to provide high-quality counseling and
    small second mortgages that are paid off by the Section 8 voucher.
        The $5 million that you allocated in our fiscal year 2001
    appropriation allowed us to expand our efforts--from four to 21
    NeighborWorks organizations. The funds helped capitalize the
    revolving loan funds of these NeighborWorks organizations,
    which served as a source for second mortgages. A portion of the set-
    aside was used for capacity building, which helped some
    NeighborWorks organizations tailor their housing counseling
    services to the specific needs of their Section 8 population, and to
    work with public housing authorities.
        Of the families assisted by NeighborWorks organizations
    in fiscal year 2001, 85 percent of the borrowers are single, female-
    headed households, and 35 percent are very-low income. The median
    purchase price of the homes is $85,000.
        The Administration and this subcommittee were supportive of the
    strides made in fiscal year 2001; subsequently this subcommittee
    allocated $10 million of Neighborhood Reinvestment's fiscal year 2002
    budget to continue our work on helping Section 8 voucher holders move
    into homeownership. Over $9.2 million of this allocation is going to
    NeighborWorks organizations as grants and we expect to
    announce grantees in early May. In fiscal year 2002, we expect to
    attract a number of new public housing authority partners to this
    option, as well as assist experienced Section 8 homeownership
    NeighborWorks organizations in their partnerships to include
    additional public housing authorities. Through your support,
    Neighborhood Reinvestment and the NeighborWorks network have
    become sophisticated in our approach to this option. We have and will
    continue to share or successful strategies with others in the field.
        We have concentrated heavily on sharing what we have learned
    through our Section 8 homeownership laboratory with the broader field.
    We have developed a course for the Neighborhood Reinvestment Training
    Institute solely on this program that attracts many beyond the
    NeighborWorks network. Through the Neighborhood Reinvestment
    Training Institute and other training partnerships, we have conducted
    over 28 outreach sessions, which educated more that 1,000 public
    housing authority professionals, nonprofit staff, and lender partners.
    We are also coordinating our training and information efforts with HUD
    and public housing trade groups. We will continue these efforts
    throughout fiscal year 2002 and 2003.
        The NeighborWorks system has made significant headway in
    establishing positive, productive relationships with public housing
    authorities across the country and has made scholarships available for
    public housing officials to attend Section 8 courses at our Training
    Institutes. The strong partnerships established between
    NeighborWorks organizations and their local public housing
    authorities is expected to open the doors of homeownership to more than
    500 families that were previously dependent on ongoing Section 8 rental
    subsidies. With continued support from this subcommittee, Neighborhood
    Reinvestment will continue to play a leadership role in making the
    Section 8 homeownership option available to voucher recipients across
    the country.
        Mixed-Income Rental Housing.--Last year, this subcommittee provided
    Neighborhood Reinvestment with a $5 million set-aside to support our
    work in establishing mixed-income, multifamily rental developments and
    explore ways to serve families with incomes below 30 percent of area
    median income. This allocation recognizes that the challenge of
    affordably housing this Nation's extremely low-income families is
    complicated. We appreciate the opportunity to test a range of
    approaches and eventually report our results to you.
        Understanding the importance of multifamily rental housing in a
    comprehensive neighborhood revitalization strategy, a group of
    NeighborWorks organizations formed the NeighborWorks
    Multifamily Initiative in 1999. Together, these organizations own more
    than 30,000 rental housing units that provide attractive and affordable
    housing for families where renting is currently a more appropriate
    option than owning. The members of the NeighborWorks
    Multifamily Initiative make it their mission to provide sustainable
    multifamily homes, which are marked over the long-term by:
      --Affordability;
      --Well-maintained and attractive physical condition;
      --Access to on-site learning centers designed to support the
            technological and social infrastructure of educational success;
            and
      --Ongoing economic viability.
        Research by the NeighborWorks Multifamily Initiative has
    demonstrated that in all markets, the fundamental economics of serving
    families with incomes under 40 percent of area median income requires
    some level of on-going subsidy. A housing cost equal to 30 percent of
    this household's income yields a rent payment that is less than the
    operating expenses for their unit--leaving no funds for the payment of
    debt service. Similarly, in many markets, creating new housing for
    those at 60 to 100 percent of area median income is equally difficult,
    since many existing subsidies are targeted to households with incomes
    below 60 percent of area median income. Nevertheless, with creativity,
    tenacity and resolve, the Multifamily Initiative members are creating
    mixed-income properties that serve families under 30 percent of area
    median income in a variety of ways.
        We have used the $5 million set-aside to promote mixed income
    properties that dedicate a portion of their units to extremely low-
    income families. The elements of this program include:
        Mixed Income Property Development Grant Incentive Set-Aside. Our
    goal under this component of the allocation was to promote the
    production of units affordable to extremely low-income families within
    mixed-income properties. We have received 17 applications from
    NeighborWorks organizations for this allocation, totaling
    $6.1 million for 191 units affordable to those at or below 30 percent
    of the area median income, in developments that total 1,400 units. We
    will select a set of demonstration projects that serve diverse market
    settings and employ a variety of subsidy strategies. Awards will be
    finalized by the first week of June 2002.
        Neighborhood Capital Corporation. The Multifamily Initiative was
    the catalyst for creating the Neighborhood Capital Corporation (NCC),
    which provides affordable, short-term financing to
    NeighborWorks organizations to acquire multifamily properties
    that are at risk of deterioration or of being lost as affordable units
    available in a community. NeighborWorks organizations and
    other nonprofit developers find the primary obstacle to purchasing a
    property is the lack of flexible pre-development and acquisition
    financing that allows an organization to respond quickly when a
    property becomes available. Neighborhood Reinvestment responded to this
    problem by making an initial investment in NCC. NCC provides essential
    loans so that NeighborWorks organizations can purchase
    multifamily properties, many of which are preservation properties. This
    funding will support the production pipeline of mixed-income properties
    by financing acquisition and preservation of existing properties. The
    Corporation expects that over the next 2 years, NCC will leverage $20
    million from private sector investments.
        Symposium on Mixed-Income Properties.--A symposium was conducted in
    April 2002 to foster dialogue among experienced practitioners from
    across the real estate development, finance, and public agency arenas,
    including housing finance agencies and public housing authorities. This
    symposium examined various real estate development models, operating
    strategies, existing finance tools, and the impact of State and local
    policy and regulations on achieving mixed income properties that can
    house extremely low-income families. The Symposium, which attracted
    some of the best minds in our field, was held on April 4, 2002 during
    Neighborhood Reinvestment's recent Training Institute in Chicago.
        Research Findings.--A portion of this set-aside will also allow us
    to prepare and present a report on strategies and financing currently
    employed to develop mixed-income properties. This report will examine
    properties already in the NeighborWorks portfolio and will
    make observations on those funded through Neighborhood Reinvestment's
    special set-aside for mixed income housing. We expect to have a full
    report to share with you by the end of the year.
        Advanced Training for Experienced Practitioners.--Our national
    Training Institutes are widely acknowledged to be at the cutting edge
    of training for housing and community development practitioners. As we
    have monitored the capacity of the professionals in this field, it has
    become apparent that there are huge benefits to be gained from
    additional training and coaching of the most experienced housing and
    community development practitioners. To respond to this capacity need,
    we are collaborating with Harvard's Hauser Center to develop state-of-
    the-art training for seasoned leaders in an intensive learning
    environment. Our goal is to advance the quality of community
    development leadership, analyze more thoroughly the challenges facing
    America's neighborhoods, and develop even more powerful strategies to
    strengthen our communities.
        New Homeowners.--Perhaps our best-known laboratory effort to date
    is the NeighborWorks Campaign for Home Ownership, our very
    successful effort to assist families of modest means become successful
    long-term homeowners. In fiscal year 1998, Congress seeded our
    homeownership efforts with a $25 million set-aside. That funding has
    helped produce remarkable results--the average income of the homebuyer
    is nearly half of the national average, $29,300; 95 percent are first-
    time buyers; 52 percent are ethnic minority buyers; and 42 percent are
    female buyers. Currently, we are on target to surpass our 5-year goal
    to create 40,000 new homebuyers.
        The NeighborWorks Campaign for Home Ownership has
    identified a series of well-integrated strategies to help lower income
    Americans become homeowners. These strategies include comprehensive
    homebuyer education, Full-Cycle LendingSM,
    NeighborWorks HomeOwnership Centers, and an emerging
    financial literacy pilot. We are currently planning for the next 5
    years of the Campaign, and I know we will continue to strive to help
    lower-income Americans successfully achieve the American dream.
                       solutions to a range of challenges
        No ``one size fits all'' approach can match the wide range of
    economic markets, housing stock, and employment challenges experienced
    in this Nation's urban, suburban and rural communities. Older rural
    communities vary significantly from first-ring suburbs, which differ
    distinctly from Native American lands.
        The flexibility that you have allowed us in designing strategies
    and targeting our resources has given us the ability to devise
    extraordinarily successful tools and strategies, as well as build a
    network of strong and diverse local community development
    organizations. The power and impact of our grants are directly
    attributable to their flexibility. We are in the business of helping
    develop a network of strong nonprofit organizations that can respond to
    vulnerable neighborhoods in a changing environment. Underserved
    populations need to be connected--to private markets, mainstream
    lenders, and conventional products. Since its inception, Neighborhood
    Reinvestment has always been about addressing the needs of underserved
    communities and populations. This focus has allowed the Corporation and
    its affiliated NeighborWorks organizations to develop a
    particular sensitivity and approach to the specialized needs of low-
    income families, immigrants, minorities, the disabled, and the elderly.
    Serving the needs of these populations requires more than grants. We
    are committed to building strong organizations, led by strong community
    leaders. We are especially committed to developing local resident
    leaders because we believe greater civic involvement helps effectuate
    positive change in communities.
        Resident leadership development continues to be a core value in the
    NeighborWorks network's approach to community revitalization.
    To respond to a need for enhanced resident leadership development, we
    sponsor regional Community Leadership Institutes. These programs enable
    resident leaders to share their experiences, hone their leadership
    skills and bring innovative ideas back to their communities. This
    reflects the Corporation's conviction that while new homeowners,
    improved housing and increased investment are essential to
    revitalization, the most essential ingredient for long-term success is
    informed, effective and motivated resident leaders.
        To examine the strategies and best practices of outcome-based
    community organizing, the NeighborWorks network has recently
    developed a community organizing pilot. Twenty NeighborWorks
    organizations have developed action plans and will be documenting their
    progress toward their goals. Over the next year, this pilot will
    develop best practices as well as produce a framework for evaluation of
    community organizing. Our increased focus on the needs of rural
    communities is an example of Neighborhood Reinvestment's commitment to
    diverse communities. In 1990, three NeighborWorks affiliates
    identified their primary service areas as rural communities. By fiscal
    year 2001, that number had grown to 59 organizations, which is 27
    percent of the total number of organizations in the
    NeighborWorks network. The network has proven its efficiency
    in addressing housing needs in rural communities, particularly through
    our partnership with a peer organization, RNA Community Builders. With
    seed funding from Neighborhood Reinvestment and the Northwest Area
    Foundation, rural NeighborWorks organizations have
    transformed this peer-to-peer membership organization into a shared
    revolving loan fund that provides bridge financing for local housing or
    economic development projects at below-market rates.
        Last year, we worked closely with our rural members to deliver a
    week-long sequence of courses at our Training Institute specifically
    focused on the unique barriers to community development in rural areas.
    While the challenges in rural, suburban and urban settings are, in many
    instances, similar, the means to effectively address them are often
    very different. We are engaged in a similar effort to design courses
    that address the very acute barriers to creating homeownership and
    economic development opportunities for Native Americans.
        In fiscal year 2000, more than 50 NeighborWorks
    organizations provided housing for non-elderly persons with
    disabilities, assisting more than 800 families. More than 45
    organizations provided housing services for the elderly, benefiting
    more than 3,300 households. And as the needs in these communities grow,
    our capacity to serve them responds in tandem.
        As you can see by the vast network of services that Neighborhood
    Reinvestment provides--either directly or through integrated channels
    and partnerships--we are committed to building strong communities. The
    needs of underserved communities are as diverse as the Nation itself.
    Therefore, our approach to revitalization must reflect those diverse
    needs.
                                   conclusion
        For fiscal year 2003, we are requesting an appropriation of $105
    million, which includes $10 million to further Neighborhood
    Reinvestment's and the network's pioneering efforts in using Section 8
    vouchers to purchase a home. At this funding level, Neighborhood
    Reinvestment will be able to maintain its current level of services to
    the NeighborWorks network and produce modest increases to the
    outputs and measures.
        A $105 million appropriation will assist the
    NeighborWorks network to:
      --Leverage nearly $1.6 billion in direct total investment in
            distressed rural, suburban and urban communities;
      --Assist more than 71,000 families obtain and maintain safe and
            affordable rental and homeownership housing;
      --Provide pre- and post-purchase homeownership counseling and
            financial literacy training to nearly 70,000 families,
            including many potential Section 8 buyers; and
      --Continue to educate the public housing industry and potential
            partners on the homeownership option.
        To support and expand these significant accomplishments, the
    Neighborhood Reinvestment Corporation and NHSA expect to:
      --Add 12 new organizations to the network, increasing the
            NeighborWorks network to 245 organizations serving
            2,200 communities;
      --Conduct 240 reviews of member organizations;
      --Provide over 190,000 training contact hours to community
            development leaders and practitioners, not only through the
            Neighborhood Reinvestment Training Institute but also through
            local and district training opportunities; and
      --Purchase $60 million in loans from NeighborWorks
            organizations.
        Let me close by thanking the subcommittee for the wonderful
    opportunity you have given Neighborhood Reinvestment and the
    NeighborWorks network to serve America's communities, and by
    asking for your continued support. Because Neighborhood Reinvestment is
    efficient in the services it provides, communities and residents
    benefit. Because our systems continually evolve to address ever-
    changing needs, communities and residents benefit. And because the
    communities and residents are many in number and need, we are
    continually aware of ground-level challenges across this great Nation.
        With your assistance, we will continue to strengthen underserved
    communities and populations across this country. You have encouraged us
    to be flexible, creative, nimble and responsive in designing and
    delivering our services and resources, and this flexibility and your
    demonstrated confidence in us has created remarkable results. In
    addition to transforming lives and neighborhoods in incredibly diverse
    settings, the NeighborWorks network now serves as an
    increasingly effective laboratory for testing new ideas and solutions
    to new and long-standing problems. We know that your investment in
    Neighborhood Reinvestment is an investment and expression of confidence
    in America's communities. And all of America benefits when its
    communities are healthy, strong and safe.
        Neighborhood Reinvestment Corporation is committed to building
    healthy, strong and safe communities all across America. Your continued
    support is vital to us in accomplishing this goal.

                           DEPARTMENT OF THE TREASURY

               Community Development Financial Institutions Fund

    STATEMENT OF TONY T. BROWN, DIRECTOR
        Senator Mikulski. We want to welcome for his first time Mr.
    Tony Brown, who began his tenure at CDFI in August. Prior to
    that, he was a senior vice-president for Bank of America in
    Jacksonville, Florida. And he is a graduate of Xavier
    University in Ohio with a master's in business, with a
    specialty in finance and a degree in international affairs in
    business. So he comes with a very strong background,
    educational background, in the area of finance, as well as
    considerable private sector experience, particularly in the
    field of banking.
        And we do know that Bank of America is one of the real
    recognized banks in reaching out, in fulfilling its obligation
    on the Community Reinvestment Act.
        So you come with a lot of experience. And we really do need
    it. So we welcome you for your first time. We look forward to
    getting better acquainted with you. And this is a good way to
    do it. So we ask you to please proceed.
        Mr. Brown. Thank you, Madam Chair, Senator Bond, and
    members of the subcommittee. I thank you for the opportunity to
    testify before you today on behalf of the Department of
    Treasury's CDFI Fund and in support of the President's fiscal
    year 2003 budget. I do apologize. We did not submit a formal
    oral statement. I do request respectfully that the written
    testimony be included for the record. And I will keep my
    remarks brief.
        As Chairwoman Mikulski indicated, I come to the government
    with 20 years' prior banking experience and with over a decade
    of community development experience. Community development has
    been a career. Community development is a passion. And I thank
    the President and Secretary O'Neill for the opportunity to be
    part of the CDFI team. And I know, and I have witnessed
    firsthand, the remarkable work of CDFIs and the value of
    community development lending and investment services in
    improving our low income communities.
        And so when the Secretary asked us to find ways to help
    show how CDFIs improve and have impact in our Nation's low
    income communities, I knew, I know, from firsthand experience
    that that would be an easy undertaking from the standpoint of
    the things I have witnessed firsthand. And I will share some of
    those with you as I speak.
        As you know, the CDFI Fund is a wholly owned government
    corporation within Treasury that promotes access to capital and
    local economic growth in distressed communities and with under-
    served populations through community development finance. And
    it is that statement, community development finance, that I
    think best highlights what the value of the fund is and what we
    do.
        CDFIs support and provide loans and investments in
    financial services to improve the economic vitality of our low
    income communities. And they do it in ways that are more
    flexible and innovative than regulated financial institutions.
    To date, we have certified 565 CDFIs covering all 50 States.
    These CDFIs provide a wide range of investment and lending
    activities. And I would like to just highlight a few.
        Our leading fund categories are those that we categorize as
    housing and facility loan funds. These entities provide loans,
    as an example, to nonprofit housing developers to help them
    secure site control or conduct due diligence. Our partnership
    with NeighborWorks and NRC is an example. We have certified 66
    NeighborWorks organization of 565 CDFIs. And as Ellen has
    indicated, they show a tremendous record of providing housing
    loan funds to improve our low income communities.
        Other examples in the housing and facility loan category
    would include loans to nonprofit healthcare providers in order
    to provide healthcare centers in low income communities. And
    again, the distinction is that they do it in ways that are
    innovative and more flexible than our regulated financial
    institutions. They may take second and third mortgage positions
    in order to make those facilities happen.
        Our second leading category are business loan funds.
        Senator Mikulski. What page are you working on?
        Mr. Brown. As I said, I apologize, I did not submit an oral
    statement. So----
        Senator Mikulski. No, but it would helpful if you were
    following in order from your written testimony. It is very
    informative, but it is hard for us to follow, Mr. Brown. If you
    could work off the outline of your testimony, so we know at
    least the topic, sir.
        Mr. Brown. I will do that, then. I will speak from----
        Senator Mikulski. Sure.
        Mr. Brown [continuing]. The written testimony.
        Senator Mikulski. We appreciate that.
        Mr. Brown. Okay. The first two pages.
        As I was explaining, on the first page of my written
    testimony in talking about the CDFI Fund being a wholly owned
    government corporation in that second paragraph, I am
    highlighting information about 565 certified CDFIs by giving
    you a few examples of what they do. I just highlighted
    information on the housing loan funds.
        Another example of the 565 certified CDFIs, 25 percent of
    those CDFIs are engaged in business loan funds. They provide
    financing to low income immigrant, minority, and women
    populations, again with innovative and flexible underwriting
    guidelines.
        Our third category of the CDFIs that I have highlighted in
    that second paragraph on page one are community development
    credit unions. These credit unions are specialized
    neighborhood-based financial service centers. Many of them have
    been formed out of the basement of churches and have come
    together as a result of faith-based initiatives.
        The remaining category of funds are those that have been
    formed by bank holding companies, those that are engaged in
    micro-enterprise lending, and then we have venture capital
    funds.
        On page two of my written testimony, as I indicated, our
    vision for the CDFI Fund is to become a leading vehicle and
    best practice government agency for financing economic and
    community development activities. Our mission is to help make
    America a place where all of its people have affordable access
    to credit, capital, and financial services. This administration
    is committed to shifting the fund from merely a grants-making
    organization to one that addresses the economic ills of low
    income communities through targeted investments and community
    development finance.
        Also on page two, I talk about the vision of the fund for
    2003 and beyond. And in that we make mention of our New Markets
    Tax Credit Program. And highlighting that is the fact that the
    opportunity for the fund to achieve major impact is not
    isolated or sporadic, when you consider that 40 percent of the
    Nation's low income--40 percent of the Nation's census tracks
    are low income areas that qualify for our major programs. What
    that means for the State of Missouri is that nearly half, 48
    percent, of your census tracks qualify for our major programs.
    And in Maryland, that number compares to the national average
    at about 38 percent. So I share that information to let you
    know that we understand how important the CDFI program is to
    you and your constituents. And we are committed to making it a
    world-class organization.
        Some of our successes this past year have included, as you
    indicated, release of the Native American Lending Study. And
    along with that was the first year that we provided our Native
    American CDFI Technical Assistance Program. We are quite
    pleased at both products. And the fact that our NACTA Program,
    our Native American CDFI Technical Assistance Program, has
    brought in 45 applications totaling nearly $6 million in
    requests. And it is a program that we are committed to and
    that, though our budget does not contain a set-aside, it is
    included for 2003. And we do plan to issue another NOFA related
    to our NACTA Program.
        Also, this past year was the first year of our SECA
    program. This is the investment program that we make to small
    and emerging CDFIs. We are pleased to announce that we awarded
    over $8 million to 70 small and emerging CDFIs throughout the
    country.

                         NEW MARKETS TAX CREDIT PROGRAM

        Last year we received comments on the New Markets Tax
    Credit Program. This year, and within the next 30 days, we will
    be issuing our Notice of Allocation Availability, which will
    officially start the application process for the New Markets
    Tax Credit Program. And we are certainly pleased to have the
    opportunity to use tax credits as an incentive to see an
    increase in private sector capital, a goal of $15 billion in
    private sector equity, flowing into low income communities.
        Now our budget does respectfully request $68 million in
    appropriations. This comes in recognition of tight budget
    concerns related to tough priorities for international and
    homeland securities. We feel that the reduction in the budget
    will be made up through increased private sector investments,
    through our New Markets Tax Credit Program. We have retooled
    our organization, and we think that more efficient operations
    with quicker disbursement processes will also aid in providing
    the dollars that our communities so vastly need to work in
    improving their low income neighborhoods.
        Senator Bond, to your question of the value of New Markets
    Tax Credit relative to our other Programs, we see it as being
    an integral part of what we do. I often say that our strategy
    at the Fund is a three-part strategy. One is the investments we
    make, our traditional investment programs, our Core and SECA
    Programs and what we do to help our communities create
    specialized loan funds. It is an important part of the strategy
    and one that we are committed to maintaining.
        The second part of that strategy is the Bank Enterprise
    Award Program. We have substantial financial institutions that
    are willing to leverage their balance sheet, their income
    statements, to make a difference in the communities we serve.
    And many have been the major investors to many of the CDFIs
    that have been formed on the local level.
        And then, obviously, the third part of that strategy is the
    New Markets Tax Credit Program. In order to have sustaining
    economic activity, we must have an increased flow of private
    sector dollars into our low income communities.

                               PREPARED STATEMENT

        So with that, I will end my opening remarks. And, again,
    thank you for the opportunity to testify. And I am available to
    answer any questions you may have.
        [The statement follows:]

                      Prepared Statement of Tony T. Brown

                                  introduction
        Madam Chair, Senator Bond and members of the subcommittee, I
    appreciate the opportunity to testify before you today on behalf of the
    Department of Treasury's Community Development Financial Institutions
    (CDFI) Fund and in support of the President's fiscal year 2003 budget.
    I am Tony Brown, the new Director of the CDFI Fund. The Secretary of
    the Treasury selected me as Director in August of last year. I bring a
    20-year prior experience in banking to the CDFI Fund with a decade of
    service in community development where I managed the community
    development program for the largest financial institution in the State
    of Florida. Joining me today are Fred Cooper, Deputy Director for
    Policy and Programs, and Owen Jones, Deputy Director for Management/
    CFO.
        As you know, the CDFI Fund is a wholly owned government corporation
    within the United States Department of the Treasury. The Fund promotes
    access to capital and local economic growth by directly investing in
    and supporting community development financial institutions (CDFIs)
    that provide loans, investments, financial services and technical
    assistance to underserved people and economically distressed
    communities. CDFIs are specialized financial institutions operating in
    market niches that have not been adequately served by traditional
    financial institutions. Included in the various types of CDFIs are
    community development banks, credit unions, business loan funds,
    housing/facilities loan funds, microenterprise loan funds, and venture
    capital funds. As of February 15, 2002, the Fund has certified 565
    institutions as CDFIs. These CDFIs operate in all 50 States.
        Our vision for the CDFI Fund is to become a leading vehicle and the
    best practice government agency for financing economic and community
    development activities in low-income areas to improve the standard of
    living for Americans living in distressed and underserved communities.
    Our goal is to help make America a place where all of its people,
    including those in such communities, have access to affordable credit,
    capital and financial services so that they too can realize the
    American dream. We characterize fiscal year 2003 as a transition year
    where the Fund shifts from an organization seen primarily as a grants-
    making organization to one that addresses the economic ills of low-
    income communities through targeted investments and community
    development finance.
        By so doing we will help the Department of Treasury achieve its
    economic mission of a prosperous and stable America. This ambitious
    undertaking is explained in this testimony.
        My testimony will focus on four key areas: the performance of the
    CDFI Fund in 2003 and beyond; the President's fiscal year 2003 budget;
    management and operations; and CDFI Fund programs.
                 performance of the cdfi fund: 2003 and beyond
        Treasury Secretary O'Neill has challenged all employees of the
    Department to make the Treasury a world-class organization.
    Additionally, he has instructed the CDFI Fund to develop procedures to
    provide a meaningful measurement of the impact and results of taxpayer
    dollars awarded through CDFI Fund programs. In order to successfully
    work toward the goals set by the Secretary, I have asked CDFI Fund
    staff to help me establish the CDFI Fund as a leading vehicle for the
    delivery of community development finance, capital and service
    activities within the Federal Government as well as in the Nation, so
    that we have a demonstrable impact on low-income communities. I
    envision the CDFI Fund becoming an ``expert'' source in this regard.
        As we reported last year, Treasury Secretary O'Neill intends that
    performance measures of the CDFI Fund and all Treasury activities be
    more useful and relevant to the decision-making process, and improve
    the timeliness and accuracy of the information systems that capture and
    report performance data. To move forward on this commitment, the
    Secretary has called for a fundamental review within all Treasury
    bureaus of what we do and why we do it, resulting in a determination of
    what measures of outputs and outcomes best capture what we are trying
    to achieve. This points out the need for consistent ways to evaluate
    the effectiveness of the various incentives for investment in low-
    income communities so that we have a better understanding of what works
    and what does not work. The CDFI Fund is committed to working with the
    Secretary in this important initiative. Our budget includes $500,000 in
    additional administrative funding so that we can collect loan-level
    data to report performance and impact of CDFI activities similar to the
    administration of the Community Reinvestment Act and the Home Mortgage
    Disclosure Act.
        This initiative will, I believe, enable us to measure the types of
    impact of our funding that Secretary O'Neill is seeking. The CDFI Fund
    is working with the community development industry to build a set of
    performance measures and establish a ``performance matrix'' for our
    awardees. This matrix will rate financial stability and community
    development impact. By using financial and economic factors, we intend
    to assess how CDFIs improve economic conditions of communities that are
    underserved by traditional financial institutions.
        Our plan is to use this rating system to better manage the CDFI
    Fund's portfolio of investments and to identify under performing
    entities and create a compliance ``watch list.'' We believe a
    significant investment to collect and analyze loan-level data will
    enhance our ability to report impact in various forms. These
    initiatives will be incorporated into the CDFI Data Project, making
    that industry-wide data collection effort even more useful to the CDFI
    Fund and others interested in CDFIs.
        Turning to the impact that CDFI Fund awardees are having in their
    communities, the CDFI Fund is keenly interested in the issue of impact
    and how it is measured. The Fund is on the forefront of improving data
    collection and reporting in the CDFI industry and is one of the
    founders of the CDFI Data Project (CDP), a collaborative effort of 13
    entities--including the Ford and MacArthur Foundations and the six
    major CDFI trade associations--to develop a standardized data
    collection system for the CDFI industry. The goal of the CDP is to
    produce comprehensive, high-quality activity and performance data on
    CDFIs. The CDFI Fund and other CDP participants issued their first
    collaborative annual survey last spring; selective results for CDFI
    awardees are described below.
        Measuring community development impact has been a challenge to the
    CDFI Fund and the industry overall. The General Accounting Office (GAO)
    recognized this in its 1998 report, entitled ``CDFI Fund Needs Better
    Systems to Measure, Monitor, and Evaluate Awardees' Performance.'' In
    the next 2 years, the CDFI Fund increasingly will focus on identifying
    additional measures of impact. For example, the Fund has begun an
    initiative to collect loan-level data from CDFIs. This data will show
    exactly where CDFIs are lending relative to more traditional lenders
    and thus give us a better idea of the role CDFIs play in filling the
    gap in affordable financial services. The MacArthur Foundation has
    embraced this initiative, and the CDP has incorporated loan-level data
    collection as well as broader impact measurement research into its
    strategic plan.
        Internally, the CDFI Fund is reviewing the way we collect outcome
    information from our awardees. To date, each awardee's performance
    goals and measures have been tailored to their specific activities.
    While these measures were rich in their uniqueness, the outcomes they
    measured could not be aggregated across CDFIs because they were not
    comparable. The CDFI Fund plans to revise its awardee performance goal
    and measurement system so that it produces standardized information on
    all CDFIs. To the extent possible, we will incorporate the CDFI Fund's
    reporting requirements in the annual survey in order to minimize
    reporting burdens on CDFIs and facilitate data analysis at the Fund.
        Finally, the CDFI Fund is beginning to conduct peer analyses in an
    effort to develop industry performance benchmarks for each type of
    CDFI. We will use this information to ``risk rate'' our portfolio of
    awardees. Once it is tested and proven, we will consider other uses
    such as incorporating it into our award decision-making process. All of
    these efforts respond to findings and recommendations in the 1998 GAO
    report.
        It is incumbent upon the CDFI Fund to continually improve its
    processes and develop a system for accurately measuring the real impact
    of CDFI Fund dollars in the communities served by our customers.
                      president's fiscal year 2003 budget
        The President's fiscal year 2003 budget requests $68 million in
    appropriations for the CDFI Fund. This is the same funding level as
    requested in last year's Presidential budget. The Administration
    request should be considered in light of several factors.
        First, the proposed budget for the CDFI Fund reflects overall
    Federal budget priorities for increased National Security and Homeland
    Security.
        Second, the fiscal year 2003 budget level of $68 million maintains
    a basic level of funding to support CDFI Fund programs and assumes
    significant improvements in how we process applications. To do this we
    hope to successfully streamline our award approval and disbursement
    processes. We believe substantial savings in staff time will occur
    through streamlined efforts. This will enable us to provide the much
    needed community development capital to qualifying organizations with a
    quicker disbursement of funds for those organizations who meet all
    program criteria at the date of application.
        Third, the enactment of the Community Renewal Tax Relief Act of
    2000 will devote substantial additional resources to new incentives for
    investment in low-income communities. This includes the New Markets Tax
    Credit (NMTC) Program, to be administered by the CDFI Fund. The NMTC
    Program is a new and, we believe, an exciting program for the CDFI
    Fund. The NMTCs are expected to generate $15 billion in investments in
    low-income communities over the next 7 years. We are working diligently
    to allocate credits this year and measure their impact in fiscal year
    2003, or as quickly as these credits are used, as an incentive to
    attract equity capital. Although the allocations for NMTCs are expected
    to be announced in the fall of calendar year 2002, we may not see the
    effect of the NMTC-leveraged equity investments in low-income
    communities before calendar year 2004. Obviously, the first year of
    this program will be a work in progress since we have a limited sense
    of the demand or actual appetite of investors for these types of tax
    credit allocations. The successful implementation of the NMTC Program
    is one of our highest priorities. The NMTC Program offers us a unique
    opportunity to measure the increased flow of private capital into low-
    income communities. Our resources are mobilized to ensure a successful
    introduction of the NMTC Program this calendar year.
        Lastly, we anticipate that approximately $30 million of the
    proposed fiscal year 2003 budget will be used to fund the Core and
    Intermediary Components of the CDFI Program and Training Program;
    approximately $11 million (including the carryover from the prior year)
    will be made available for the Small and Emerging CDFI Assistance
    (SECA) and the Native American CDFI Technical Assistance (NACTA)
    Components of the CDFI Program; and $20 million will be used to fund
    the Bank Enterprise Award (BEA) Program. The remainder will be used to
    cover the CDFI Fund's administrative costs, including the costs of
    administering the NMTC Program.
        The CDFI Fund will continue to focus efforts on serving those
    markets, including rural and Native American communities, that have
    relatively low levels of CDFI activity and inadequate access to
    financial services. In these areas, we will continue to conduct
    workshops (both in-person and via satellite broadcasts) detailing the
    CDFI certification and funding application processes. We also expect
    that the SECA Component, the NACTA Component, and the Training Program
    will be of particular benefit to CDFIs and CDFIs in formation that
    serve these difficult markets.
                           management and operations
        The CDFI Fund has implemented effective financial and management
    controls as verified by our independent auditors (KPMG, LLP). These
    controls have allowed the CDFI Fund, for the fifth consecutive year, to
    receive an unqualified (clean) audit opinion. Additionally, this marks
    the fourth consecutive year that the independent auditors have
    identified no material weaknesses or reportable conditions. KPMG's
    opinion affirms the CDFI Fund's Statements of Financial Position,
    Operations, and Changes in Net Position and Cash Flow are fairly
    presented. These findings reflect the commitment of the CDFI Fund to
    sustaining and improving upon its internal controls, operating policy
    and procedures, and awards management.
        The CDFI Fund continues to comply with the Federal Managers'
    Financial Integrity Act (FMFIA) and the Federal Financial Management
    Improvement Act (FFMIA). The CDFI Fund's system of internal management,
    accounting and administrative controls are operating effectively.
        During my 7 months as Director, I have spent a significant amount
    of time reviewing the internal operations at the CDFI Fund. It is my
    intention to make necessary changes, which will streamline and make
    more efficient our processes and procedures. It is my hope that, once
    implemented, these changes will accomplish four key goals. First, as
    mentioned above, we need to reduce the amount of time currently
    required for our award processes. This includes reducing time used for
    application reviews, awards obligation and disbursement of funds.
    Second, our plan will successfully integrate the NMTC Program within
    our existing operations without significantly increasing the number of
    new employees above fiscal year 2002 levels. Third, we need to enhance
    the CDFI Fund's ability to perform research, market and portfolio
    analysis to measure the availability of financial services in
    underserved markets and critique the financial and program performance
    of existing CDFIs. Finally, I want to position the CDFI Fund to be
    better prepared and anticipate future responsibilities.
                               cdfi fund programs
        The CDFI Fund supports its economic development mission of
    providing capital to underserved persons and in underserved markets by
    investing in CDFIs, and by providing incentives for mainstream
    financial institutions to invest in CDFIs and increase their activities
    in distressed communities. In addition to three traditional programs
    (the CDFI Program, the Bank Enterprise Award (BEA) Program, and the
    Training Program), the CDFI Fund has introduced two new programs. We
    anticipate these programs will provide additional capital in the
    markets served by our customers. These new programs are the New Markets
    Tax Credit (NMTC) Program, described above, and the Native American
    CDFI Technical Assistance (NACTA) Component of the CDFI Program.
    CDFI Program
        The CDFI Program provides financial assistance in the form of
    grants, loans, equity investments or deposits to CDFIs. Since its
    inception, the CDFI Fund has made over 780 CDFI Program awards totaling
    $357 million. The CDFI Program is composed of three separate funding
    components, each attempting to reach a different type of CDFI or
    market: the Core Component; the Small and Emerging CDFI Assistance
    (SECA) Component (formerly the Technical Assistance Component); and the
    NACTA Component.
        CDFIs also provide their clients with training and technical
    assistance that help organizational clients to better manage community
    development projects and help individual clients to improve their
    financial decision-making skills and increase their options for
    accessing credit. This type of borrower education is the foundation for
    mitigating losses in the CDFI industry overall. In fiscal year 2000,
    the CDFI Fund's awardees provided business training, financial
    management education, credit counseling, and homebuyer training to
    51,059 individuals and 6,298 non-profits and other organizations.
        In addition to financing activities, CDFIs are also depository
    institutions; 159 of the 553 certified CDFIs are regulated financial
    institutions (banks, thrifts, and credit unions). In a survey completed
    in 2000, 21 depository awardees--primarily low-income designated credit
    unions and community development banks--provided 141,440 checking and
    savings accounts, with $257 million on deposit for an average of $1,815
    per account. Each of these institutions has a mission of reaching low-
    income and underserved populations, and some provide products
    specifically designed to help low-income individuals build wealth, such
    as Individual Development Accounts. In all, 985 Individual Development
    Accounts held savings of $388,545, an average of $395 per low-income
    account holder.
        Finally, CDFI Fund awardees have leveraged significant additional
    capital. A sample of non-depository CDFIs estimated that they were able
    to raise an additional $69 million over and above the required 1:1
    match due to being a CDFI Fund awardee or certified CDFI, representing
    an additional $1.48 raised for every CDFI Fund award dollar. This
    capital has come from banks, foundations, State and local government,
    and others.\1\
    ---------------------------------------------------------------------------
        \1\ Source: CDFI Fund Fiscal Year 2000 Annual Survey of Core
    Awardees.
    ---------------------------------------------------------------------------
        The Core Component is directed at building the financial capacity
    of CDFIs by enhancing the capital base. Awardees of the Core Component
    represent some of the Nation's largest loan funds and financial
    institutions. At the end of fiscal year 2000, 122 Core awardees
    reported $2 billion in outstanding loans and investments.
        For the fiscal year 2001 funding round the CDFI Fund provided 51
    Core Component awards totaling $48 million. These 51 awardees are based
    in 27 States. There are now CDFI Program awardees in 49 States, the
    District of Columbia, Puerto Rico and the U.S. Virgin Islands. Of these
    51 awardees, 10 have multi-State or national service areas; 38 serve
    rural markets.
        In addition to geographic diversity, the types of CDFIs assisted
    and the array of loan or investment products provided is broad: 26
    provide loans for housing development or ownership; 20 have micro- or
    small-business loan products; five are credit unions; three are
    community development bank holding companies; and two are venture
    capital funds.
        Entities selected for Core Component awards typically have business
    strategies that support economic stabilization or building wealth in
    low-wealth markets. A few examples include:
        Homeward Inc. of Allison, Iowa, was formed out of a consortium of
    eight rural electric cooperatives to provide loans for housing
    development and for economic development activities.
        Home Headquarters of Syracuse, NY helps to stabilize distressed
    neighborhoods and build assets in Onondaga County through home purchase
    financing targeted to lower income households.
        Kentucky Highlands Investment Corporation is a nonprofit business
    development firm founded in 1968 to provide venture capital and debt
    financing to start-up and expanding businesses. In a nine-county region
    of Appalachia, Kentucky Highlands, through its financial products, has
    helped to create or retain 7,000 jobs. This means that, on average, 12
    percent of the households in this rural nine-county region have a
    family member employed by a company that Kentucky Highlands assisted.
    In the local Empowerment Zone, which is located within the nine-county
    region, this CDFI's impact is even greater: since 1994, Kentucky
    Highlands helped create or retain 3,086 jobs in the area that is now
    part of the Empowerment Zone. This translates into an average of 39.7
    percent of EZ households with a family member employed by a company
    that Kentucky Highlands helped.
        On September 24, 2001, the CDFI Fund published a Notice of Funds
    Availability (NOFA) announcing the availability of $36.9 million in
    Core Component awards for fiscal year 2002. The application deadline
    was December 11, 2001; we received 136 applications, requesting a total
    of $198 million.
        The Intermediary Component allows the CDFI Fund to invest in CDFIs
    through intermediary organizations that support other CDFIs and
    emerging CDFIs. These intermediary entities, which are also CDFIs,
    generally provide financial and technical assistance to small and
    growing CDFIs. Like Core awardees, Intermediary awardees are required
    to obtain matching funds in comparable form and value to the financial
    assistance they receive from the CDFI Fund.
        Since inception, the CDFI Fund has obligated awards totaling over
    $20 million to 11 different intermediary institutions. Beginning with
    the fiscal year 2001 funding round, the Intermediary Component has been
    announced and evaluated as part of the Core Component and CDFI
    Intermediaries now compete directly with other Core Program applicants.
        The Small and Emerging CDFI Assistance (SECA) Component was
    initiated in fiscal year 2001. It replaces the Technical Assistance
    (TA) Component, which was first introduced in 1998 to build the
    capacity of CDFIs to serve their target markets--particularly ``start-
    up,'' young and small institutions. Under the TA Component, the CDFI
    Fund directed relatively small amounts of funds--generally $50,000 or
    less--to CDFIs that could demonstrate significant potential for
    generating community development impact, but whose institutional
    capacity needed to be strengthened in order to fully realize this
    potential. Some typical uses of TA grants included: computer system
    upgrades and software acquisition; developing loan underwriting
    policies and procedures; evaluating current loan products and
    developing new ones; and training staff. Under the SECA Component, the
    CDFI Fund has augmented the range of assistance provided under the
    predecessor TA Component. In addition to TA grants, eligible applicants
    can also request Financial Assistance, generally used for enhancing the
    applicant's lending capital, up to $150,000. Small and emerging CDFIs
    generally have less than $5 million in assets and have never received
    Financial Assistance from the CDFI Fund. Requests for Financial
    Assistance must be matched dollar-for-dollar with other non-Federal
    funds.
        In fiscal year 2001, the Fund provided 70 SECA/TA Component awards
    totaling $8 million. Of the fiscal year 2001 awardees, 32 (45 percent)
    are start-ups. We are pleased to report that the SECA Component has
    been particularly responsive to the needs of community development
    credit unions: 20 (or almost 30 percent) of the fiscal year 2001 SECA
    awardees are credit unions. The SECA Component also has proved to have
    national reach: the 70 SECA awardees are located in 26 States,
    Washington, D.C., and Puerto Rico. Of these 70 awardees, about half
    (37) include rural markets within their service areas.
        On September 24, 2001, the CDFI Fund published a NOFA announcing
    the availability of $5.6 million under the SECA Component for fiscal
    year 2002. A total of 120 applications was received, for $18 million.
        SECA Component awardees are serving some of the Nation's most
    economically distressed and hardest to serve markets and are exhibiting
    important programmatic innovations. The CDFI Fund's SECA Component
    awards are helping to build the organizational infrastructure to
    increase the flow of capital in economically distressed areas and to
    low-wealth populations:
        The Bushwick Federal Credit Union is a recently chartered start-up
    serving the economically distressed Bushwick neighborhood of Brooklyn,
    New York. It provides financially literacy to a largely unbanked
    population. It proposes to use its award to capitalize a micro loan
    product and to expand its ATM services.
        Nevada Microenterprise Initiative, based in Reno, provides training
    and financing to lower income entrepreneurs that lack sufficient
    collateral for conventional financial institutions and proposes to use
    the award to obtain staff training and to refine its business plan.
        Azteca Community Loan Fund of San Juan, Texas, proposes to build
    its capacity to help build assets among very low-income people through
    development services and loans that will increase the rate of
    homeownership in colonias in the south Texas border region.
    The Bank Enterprise Award (BEA) Program
        The Bank Enterprise Award (BEA) Program is the principal means by
    which the CDFI Fund achieves its strategic goal of expanding financial
    service organizations' community development lending and investments
    through regulated institutions. The BEA Program recognizes the key role
    played by mainstream depository institutions in promoting the growth of
    CDFIs and the revitalization of distressed communities.
        The BEA Program provides monetary incentives for banks and thrifts
    to expand investments in CDFIs and/or to increase lending, investment
    and service activities in distressed communities. BEA Program awards
    vary in size, depending upon the type and amount of assistance provided
    by the bank and the activities being funded through the bank's
    investments. In general, banks that provide equity investments to CDFIs
    are likely to receive the largest awards relative to the size of their
    investments.
        Through 2001, 577 BEA Program awards totaling over $182 million
    have been provided to banks and thrifts. Banks and thrifts receiving
    BEA Program awards have provided $959 million directly to CDFIs, and
    $2.5 billion to distressed communities \2\ in the form of direct loans,
    investments and services.
    ---------------------------------------------------------------------------
        \2\ Distressed Community is a defined area that must have a poverty
    rate of at least 30 percent and an unemployment rate that is at least
    1.5 times greater than the national rate.
    ---------------------------------------------------------------------------
        Of the fiscal year 2001 funding round awardees, the CDFI Fund made
    139 BEA Program awards totaling $46 million. On September 24, 2001, the
    CDFI Fund published a NOFA announcing the availability of $16.5 million
    in BEA Program funds for fiscal year 2002. The application deadline for
    this NOFA was November 13, 2001.
        The CDFI Fund has made BEA Program awards to 386 different
    institutions since 1996. The average Total Assets of the 386 BEA
    Program awardees is just under $10 billion. BEA Program awardees range
    in size from $585 billion in assets to $8 million. BEA Program awardees
    have an average Return on Assets of 1.1 percent and average Tier One
    Capital of $407 million. The BEA Program award as a percentage of Tier
    One Capital is less than 3 percent on average. All BEA awardees whose
    BEA Program award represents more then 10 percent of Tier One Capital
    are certified CDFIs.
        All but two BEA Program awardees have Satisfactory or Outstanding
    Community Reinvestment Act (CRA) ratings. About one-third have
    Outstanding CRA ratings and about 60 percent have Satisfactory ratings.
    The BEA Program awardees with Outstanding CRA ratings have an average
    size (in terms of assets) of $17 billion, while awardees with
    Satisfactory Ratings have an average of $6 billion in Total Assets.
        A few examples of BEA Program awardees include:
        AmSouth Bank of Birmingham, Alabama received an award of $221,600
    for providing $300,000 in grants and $1.6 million in loans to ten
    CDFIs: Affordable Housing Resources; Community Equity Investments;
    Enterprise Corporation of the Delta; Florida Community Loan Fund; Local
    Initiatives Support Corporation; Neighborhood Housing Services;
    Southern Development Bancorporation; Nashville Housing Fund;
    Chattanooga Neighborhood Enterprise; Structured Employment Economic
    Development Corporation; and Technology 2020 Finance Corporation. The
    awardee is a State chartered bank with total assets of $39 billion.
        Providian National Bank of Tilton, New Hampshire, received a BEA
    Program award of $1,110,000 for making a $7.5 million equity like loan
    to the National Community Capital Association, a certified CDFI.
    Providian's investment will help fund the first national childcare
    facilities fund, which will provide financial assistance to childcare
    providers and thereby increase the availability of affordable childcare
    slots for disadvantaged families and communities in New Hampshire and
    throughout the country. The awardee is a national bank with total
    assets of $15 billion.
        Since first participating in the BEA Program in 1996, KeyBank, a
    national bank based in Cleveland, Ohio, has received a total of $2.3
    million for providing over $22 million in financial support (including
    grant, equity-like loans, and loans) to several CDFIs: Cascadia
    Revolving Loan Fund, Coastal Enterprises, Coastal Ventures Limited
    Partnership, Coastal Ventures II, LLC, Cincinnati Development Fund,
    Columbus Growth Fund, Community Capital Development, Capital District
    Loan Fund, Community Preservation Corporation, Denver Neighborhood
    Housing Fund, The Enterprise Foundation, Funding Partners for Housing
    Solutions, the Housing Partnership Development Fund, Growth Finance
    Corporation of Oxford Hills, Housing Partner Development Fund, Impact
    Capital, Jubilee Community Loan Fund, Local Initiatives Support
    Corporation, Mutual Financial Services, NHS of Toledo, Northern
    Community Investment Corporation, Progressive Neighborhood Federal
    Credit Union, Rural Opportunities Enterprise, Vermont Community
    Development Loan Fund, and Western Maine Finance. The awardee is a
    national bank with total assets of $76 billion.
    The Training Program
        The Training Program, begun in fiscal year 1999, is aimed at
    supporting the CDFI Fund's strategic goal of strengthening the
    organizational capacity and expertise of CDFIs and other Financial
    Service Organizations. The Training Program provides funds that support
    the development and delivery of training products to CDFIs and other
    entities engaged in community development finance. Training is
    addressed via classroom instruction, web-based distance learning, and
    other electronic formats. The CDFI Fund is particularly excited about
    providing the support to help build the electronic teaching capacity of
    the CDFI industry. Through distance learning, the cost of accessing
    training is reduced for the CDFIs (elimination of the time and cost of
    travel) and the ability of CDFIs that are either of limited resources
    or of remote locations to access training is enhanced.
        In fiscal year 2001, the CDFI Fund awarded contracts to four
    training providers for curriculum development and the delivery of three
    courses: How to Do a Market Analysis; How to Prepare Financial
    Projections; and How to Develop and Operate a Community Development
    Lending Program. Training has already begun under each of these
    courses. Through February 2002, there have been 60 offerings of the
    three courses supported by the Fund. Each class usually serves up to 30
    participants. Through February 2002, it is estimated that 1,200
    individuals will have participated in Fund-supported training. Of the
    four training providers, two providers (the National Community Capital
    Association and the National Federation of Community Development Credit
    Unions) are CDFI trade associations. Support to their members and
    others is provided through advisory services, which is now enhanced
    through these training products. The CDFI Fund has found these trade
    associations and other contractors to be good partners in helping to
    build the capacity of CDFIs in serving their communities--they couple a
    deep knowledge of the circumstances of the industry with a mission to
    serve.
    New Markets Tax Credit (NMTC) Program
        Congress enacted this program in December of 2000 to attract
    private sector investment in businesses located in low-income
    communities to improve economic conditions in such communities. Under
    the NMTC Program, taxpayers will be provided a credit against Federal
    income taxes for qualified investments made to acquire stock or other
    equity interests in designated Community Development Entities (CDEs).
    In turn, substantially all of the proceeds of qualified investments
    must be used by the CDE to make qualified investments in low-income
    communities. These qualified low-income community investments include
    loans to or equity investments in, businesses or CDEs operating in low-
    income communities. The credit provided to the investor covers a 7-year
    period. In each of the first 3 years, the investor receives a credit
    totaling 5 percent of the total value of the stock or equity interest
    at the time of purchase. For the final 4 years, the value of the credit
    is 6 percent annually.
        This calendar year, NMTCs will be allocated annually by the CDFI
    Fund to for-profit CDEs under a competitive application process. These
    CDEs in turn will pass the credits to investors (such as banks,
    corporations, mutual funds, and/or individuals). To qualify for CDE
    designation by the Fund, an entity must be a domestic corporation or
    partnership that: (1) has the primary mission of serving, or providing
    investment capital for low-income communities or low income persons;
    and (2) maintains accountability to residents of low income communities
    through representation on a governing or an advisory board.
        On April 20, 2001, meeting its statutory mandate, the CDFI Fund
    issued Guidance relating to the certification of CDEs and the
    competitive allocation of NMTCs. The Guidance was published in the
    Federal Register on May 1, 2001--the same day that the IRS issued an
    Advanced Notice of Proposed Rule Making (ANPRM) announcing its
    intention to develop regulations covering all tax-related aspects of
    the NMTC Program. Both the Guidance and the ANPRM requested public
    comments, which were due to the Fund and IRS, respectively, on July 2,
    2001. The CDFI Fund received public comments from over 40 different
    organizations and trade associations.
        On December 20, 2001, less than 1 year after Congress enacted the
    NMTC Program, the CDFI Fund released application materials enabling
    organizations to apply to the Fund for designation as CDEs--effectively
    launching the NMTC Program. The CDFI Fund has fully implemented rules
    to permit entities to becoming certified CDEs. To date, approximately
    211 organizations have been certified as CDEs or currently have CDE
    applications pending with the CDFI Fund.
        The CDFI Fund's objectives for the remainder of the year are to
    publish an NMTC allocation application, select qualified CDEs to
    receive an allocation of tax credits, and complete the awards
    allocation process for 2001/2002 tax credits. The CDFI Fund expects to
    issue a Notice of Allocation Availability (NOAA) next month announcing
    the availability of tax credits supporting up to $2.5 billion worth of
    equity investments in CDEs. The CDFI Fund will review applications from
    CDEs under a competitive review process, with the goal of finalizing
    award decisions by the fall of 2002. In this manner, investors making
    equity investments into eligible CDEs would be able to claim tax
    credits during this calendar year.
        By offering a tax credit, the NMTC Program encourages private
    investment in underserved communities. If investors embrace the
    program, it will be a significant source of new capital that could help
    to stimulate new industries and entrepreneurs, diversify the local
    economy, and generate new jobs in low-income communities. Our fiscal
    year 2003 budget requests $2.7 million in administrative funds to
    operate this program. This request accounts for 24 percent of our
    administrative budget.
    Native American CDFI Technical Assistance (NACTA) Component
        A second recent initiative at the Fund is focused on Native
    American communities. This initiative includes the Native American CDFI
    Technical Assistance (NACTA) Component of the CDFI Program and the
    Native American CDFI Training Program. The CDFI Fund's fiscal year 2001
    and 2002 appropriations bills each include a $5 million set-aside for
    this effort. The purpose of this initiative is to increase access to
    capital in Native communities. In response to the set-aside contained
    in the fiscal year 2001 budget, the Fund issued a Notice of Funds
    Availability (NOFA) on September 24, 2001, requesting applications
    under the NACTA Component. Approximately $3.5 million of the $5 million
    set-aside will be available for this round.
        The CDFI Fund has received 46 applications for assistance under the
    NACTA Component. The applications, which are currently under review,
    represent 21 States. A second NACTA NOFA will draw from the set-aside
    contained in the fiscal year 2002 CDFI Fund appropriations. Funds will
    be allocated under the NACTA Component through direct grants to Native
    CDFIs, Tribal organizations, and other financial institutions and
    organizations serving these communities. It is anticipated that these
    funds will: (i) enable financial institutions to enhance their capacity
    to provide access to capital and credit to these communities; and (ii)
    assist such communities in establishing their own CDFIs.
        Another $1.5 million of the set-aside is being used to develop a
    training program. This training program will be designed to help Native
    American communities build leadership skills enabling them to create
    and manage CDFIs.
        The need for this new initiative was identified during the
    workshops organized by the CDFI Fund in conjunction with the
    development of the Native American Lending Study/Action Plan. This
    Study examines the key barriers to accessing debt capital and equity
    investments in Native American communities. Numerous actions that could
    be taken by Tribes, lenders, and local and national policy makers were
    identified. These ranged from the adoption of the Uniform Commercial
    Code by Tribal governments to the capacity-building efforts now
    underway at the CDFI Fund. The final report was distributed in December
    2001 to the House and Senate Committees who hold jurisdiction over the
    CDFI Fund and Native American issues, as well as to the President.
        In developing this study, the CDFI Fund conducted 13 regional
    workshops across the country and two roundtable meetings. The CDFI Fund
    also administered a national survey of 860 tribal organizations and 750
    financial institutions located near Indian reservations, Alaska Native
    Villages, and Native Hawaiian Communities. The survey collected data
    such as barriers to accessing capital, accessibility of bank services
    and products, availability of technical assistance, industrial sector
    financing gaps and strength of internal tribal resources and policies.
    The CDFI Fund also administered an equity investment research project
    to assess the gap and potential opportunities for Native Americans to
    access this kind of investment.
    Rural Community Assistance
        Lastly, the fiscal year 2002 appropriations for the CDFI Fund
    contained report language requesting an update on rural lending
    practices as part of the fiscal year 2003 budget submission. Core
    Component and BEA Program awardees are indeed reaching rural areas. Of
    123 surveyed Core awardees, 21 (17 percent) estimated that 100 percent
    of their activities went to rural areas and an additional 15 (12
    percent) estimated that 51 to 99 percent of their activities went to
    rural areas. Out of 160 surveyed BEA awardees, 11 (7 percent) said that
    100 percent of their business activities went to rural areas, and an
    additional 18 (11 percent) said that 51 to 99 percent of their business
    went to rural areas. Considering that 22 percent of U.S. households
    reside in non-metropolitan areas, the percentage of Core awardees that
    target more than half their activities to rural areas (29 percent)
    compares favorably, while BEA falls slightly short at 18 percent.
        The CDFIs focusing on rural areas tend to be smaller than their
    urban counterparts and the actual dollar amount that awardees' lend to
    rural areas is proportionally less than the percent that serve rural
    areas. An estimated 17 percent ($351 million) of Core Component
    awardees' lending and 11 percent ($161 million) of BEA awardees'
    lending went to non-metropolitan counties \3\. The CDFI Fund has
    identified several options that may increase the flow of CDFI Program
    and BEA Program awardees' dollars to rural areas. For the BEA Program,
    the most significant of these would require changes to the Fund's
    authorizing statute. For example, under the BEA Program, a ``distressed
    area'' must have a population of at least 4,000. Distressed areas are
    composed of census tracts. Many rural census tracts do not have 4,000
    people, which in many cases precludes their eligibility as BEA
    distressed areas. Eliminating the BEA Program population requirement
    for rural areas would result in more people becoming eligible for
    consideration under the BEA Program.
    ---------------------------------------------------------------------------
        \3\ Core Component awardee dollar amounts were estimated by
    applying the awardees' estimated percentage of fiscal year 2000
    customers located in rural areas to the awardees' total financing
    closed in fiscal year 2000. BEA Program awardee dollars were estimated
    by applying the awardees' estimated percentage of total lending in
    rural areas to the sum of their total community development and service
    activities, and CDFI support activities during the BEA assessment
    period.
    ---------------------------------------------------------------------------
        In addition, almost all of the new NACTA Component dollars are
    expected to flow to rural areas: 46 of 47 current NACTA applicants
    target rural areas.
                                    summary
        Treasury Secretary O'Neill and the Administration have set the bar
    high for the expected performance from us at Treasury as well as the
    entire Federal Government. As you can see, I have laid out a blueprint
    for the CDFI Fund to enable us to reach goals that will improve and
    enhance our performance and service to our customers. These goals will
    hopefully provide an increased efficiency in the use of taxpayer
    dollars. Our goals are numerous and in some instances, very ambitious.
    It undoubtedly will require a very focused and conscientious effort by
    all of us at the CDFI Fund. During my short time at the CDFI Fund, I
    have developed the utmost confidence in the commitment of our staff
    toward our customers and the communities that they serve. I am certain
    that we will all rise to the occasion to meet our goals and do so in a
    timely and professional manner. I look forward to working with the
    members of this subcommittee towards achieving these goals. Again, I
    thank you for the opportunity to present my testimony in support of the
    President's 2003 budget request and look forward to answering any
    questions you may have for me.

        Senator Mikulski. Well, thank you. You did very well, Mr.
    Brown and Ms. Lazar.
        Let us move right to the questions. And I am going to start
    first with really the President's budget. Ms. Lazar, you talked
    about in your testimony what you would do with the $105
    million, which, of course, are both the goals and specific
    objectives that you wish to achieve. What can you not do that
    you would like to do this year?
        Ms. Lazar. We would like to do more the multi-family work.
    I am cognizant of how desperately we need more rental housing
    opportunities in this country for low-income people. Our
    groups, through our multi-family initiative, have capacity, and
    their capacity is growing, to explore a variety of means of
    developing and preserving affordable rental housing. So that is
    certainly a piece that we only have limited funds to explore.
        Senator Mikulski. And what would it take to keep that
    momentum going? Because one of the issues that both the
    Chairman and I share is our great concern for the lack of
    production in the area of rental housing for people of very
    modest incomes. And also, the success in some neighborhoods
    means that people no longer really want to take Section 8. We
    keep funding Section 8 and now there is a backlog of unused
    vouchers in many of our communities, because people just will
    not accept them.
        Do you have--so is it----
        Ms. Lazar. I have----
        Senator Mikulski. Go ahead.
        Ms. Lazar. I have a sense that if we were to receive an
    additional $5 million to $10 million for multi-family housing,
    for the work that we began this year, we could continue to
    expand that activity. I would want to make sure, before I gave
    you a firm number, that that money would really be able to be--
    --
        Senator Mikulski. But that is generally the area of the
    priority that you would like to continue to keep the momentum
    going----
        Ms. Lazar. Yes, absolutely.
        Senator Mikulski [continuing]. That you have undertaken.
    And I am going to come back to some of the policy questions,
    but I wanted to get that on the record.
        Ms. Lazar. Sure.
        Senator Mikulski. Mr. Brown, in your first appearance
    before the community, you certainly are a good administration
    soldier. You said 15 percent does not bother you a bit. It is
    going to be made up in private sector investment. And you
    outlined the 3 priorities. So Secretary O'Neill, he did the
    right thing.
        But let us go to really the CDFI and two issues that arose
    that I would like to raise in both the expenditure. First of
    all, we want to compliment you on focusing on internal
    controls. And there has been a lot of issues in the transition
    over the last year.
        And the second issue that you raised, though, is CDFI is
    now involved in funding healthcare centers. This is something
    the committee was not aware of. We want to hear your views.
    Number one, what are you talking about? Number two, why did you
    get into this? And are you being a healthcare bonding authority
    by proxy? And number three, why do you think this is an
    appropriate role for CDFI, because just the demands in housing,
    micro-enterprise, and that venture capital that we have talked
    about, where you, too, are an incubator agency?
        Could you share with us this healthcare? And then I will go
    on to some other questions, if my time permits.
        Mr. Brown. Senator, what I was merely doing was giving you
    an example of the types of things our CDFIs do. I think that
    the value of the CDFI program, and one of the things that I
    think is remarkable about the program is that our funds are
    driven based on what the needs are in the local community.
        And in the category of housing and facility funds,
    obviously the major needs in our communities, low income
    communities, are what we call community facilities. Examples of
    community facilities could be a retail shopping center that our
    CDFIs may fund. Some have provided assistance to helping create
    charter schools. Others in my example I gave have helped to see
    that there is the availability of healthcare centers. One in
    particular that has demonstrated what I consider to be a world-
    class example is in New York City. And we highlighted them in
    our last newsletter, that they have played a leading role----
        Senator Mikulski. Tell me what you did. And why did you do
    it?
        Mr. Brown. We did it because we matched the funding,
    because there was a need to provide services to low, very low,
    income people who are in dire need of medical or healthcare
    services. The money----
        Senator Mikulski. But what did you do? Did you provide
    funds for a building? Did you match funds?
        Mr. Brown. We matched funds for the financing of the
    building. In several examples, the organization provided
    financing to a nonprofit healthcare provider who renovated a
    grocery store that had left the community. So it provided the
    value of turning a vacant storefront facility into a medical
    center for residents that were in need of healthcare services.
        Our money was matched to help that organization to continue
    to provide financing for nonprofit healthcare providers, in
    this case in New York City.
        Senator Mikulski. So just to be clear, this was one
    initiative. But it is not one of your core things. This is just
    an example of trying to be creative and respond to local
    community need.
        Mr. Brown. Yes.
        Senator Mikulski. And where really the conversion of that
    grocery store into a supermarket of healthcare, if you will, I
    mean, this is not like a hospital, like a Hopkins or a Mercy or
    a Sinai going to get bonding authority to build a new wing.
        Mr. Brown. That is correct.
        Senator Mikulski. This is really very small. It is almost
    like a micro-enterprise healthcare. Am I correct?
        Mr. Brown. And in this example, maybe to clarify further,
    in the example that I am giving in this case, the organization
    helped finance what I would consider a full-care medical
    service center in not only providing family care, but they had
    an office for dentistry, psychiatric assistance.
        Senator Mikulski. Yes. I understand the services that would
    go on. I just wanted to know what CDFI was doing.
        Mr. Brown. Yes.
        Senator Mikulski. I have other questions that I am going to
    pursue on predatory lending and so on. But let me turn to my
    colleague for his questions.
        Senator Bond. Thank you, Madam Chair.
        Mr. Brown, following up on that question, there is no
    question that many of our communities need accessible
    healthcare. As a matter of fact, one of my major initiatives in
    another subcommittee has been to, along with Senator Hollings,
    double the funding for community health centers, because
    community health centers are the ultimate safety net. We are
    trying to make sure that those are robustly funded, that we
    have funds available for capital improvements.
        So I do not doubt that a community needs, health centers.
    And we are working hard to fill more of the gaps. But I get a
    little concerned when I try to figure out what your focus is.
    And you are getting over into other areas.
        I think that we need to get a better handle on what the
    focus will be. You have said that it is all part of one
    strategy. We are going to be handing out grants, and we are
    going to be allocating tax credits. But which do you see as the
    main focus? Do you need more staff? What do you have on board?
    Do you have the staff that is proficient in allocating credit?
    What is going to be your focus?
        This is a small agency. There is a lot of work to do. To
    make an impact, you have to focus and do a job well. What job
    are you doing? And what is the staff you are utilizing to do
    it?
        Mr. Brown. And Senator, again, to clarify, our primary
    mission, our core competency is to help eliminate impediments
    that deal with the flow of capital, and particularly the flow
    of capital in low income communities. So if the need in your
    community is jobs and small business, and the flow of that
    capital has been an impediment to help businesses with their
    financing needs, then our role at the CDFI Fund and working
    with your local communities is to provide the cash by which
    those loans can be made to small businesses.
        Senator Bond. I have another hat. I also am ranking member
    on the Small Business. What is the difference between the 7A
    program and the micro-loan program and the small business
    investment company? You are in that area now.
        Mr. Brown. You are asking the same type of questions that
    Secretary O'Neill has asked. How does our mission and the
    mission of the fund, relative to the Treasury, coincide with
    SBA, with HUD, who does housing, NRC and their community-
    based----
        Senator Mikulski. The community development block grant
    money.
        Mr. Brown. All the above. But if you have been engaged in
    community development, you understand that you need equity, you
    need bank financing, you may need the SBA. And then maybe in
    some cases, that is not enough. You might need the financial
    assistance of your local CDFI, or the loan may have been done
    in a way, as I mentioned in my opening remarks, that is more
    innovative and flexible than perhaps the SBA guidelines, as
    well as what you may get from your local lender.
        So that is in general the best way I can categorize the
    unique role that our specialized, certified, community
    development financial institutions play. And they have created
    a niche, a market, in providing the type of financing that is
    needed to get the types of specialized services in low income
    communities.
        The second part of your question relative to our budget and
    our staffing needs is one that we have concentrated on here at
    the fund. As I mentioned earlier, we have reorganized our
    staffing in order to take on a very important program of new
    markets tax credits. Our budget request includes a significant
    amount to help with our performance measuring systems and our
    ability to collect low level data to report on the types of
    loans in rural communities, in prominent areas, et cetera, that
    CDFIs are doing in conjunction with and complementary with
    traditional financial institutions.
        We are currently undergoing our strategy plan in
    preparation of our 2004 budget that, when I come to you next
    year, will be more directional in terms of what we need in
    order to maintain compliance with the New Markets Tax Credit
    program, as well as other programmatic changes we may propose
    at that time.
        Senator Bond. Thank you very much, Mr. Brown. I am
    delighted that you would come and testify before our committee.
    We may have to have you testify before the full committee. It
    seems that your breadth of activity is as broad as Governor
    Ridge. And we are certain to have a coordinating entity like
    CDFI that covers the waterfront from Health and Human Services
    and CHCs to small business to lending.
        So, Madam Chair, I am impressed.
        Mr. Brown. Senator, I would add it seems that was the
    vision of the fund when it was formed. As a reminder, our
    advisory board does include representatives from Commerce, HUD,
    SBA, Interior, and Treasury.
        Senator Mikulski. Mr. Brown, we are not being critical. You
    have $16 million. HUD has $32 billion. And both of you are
    meant really to be incubators. And I think what Senator Bond is
    saying is, how do we get maximum coordination and yet not for
    CDFI become these other programs by proxy because of a variety
    of reasons. We pass no judgment on it. We just are looking for
    focus.
        But let me go to a focus that this committee has had. And I
    must, again, thank my colleague for his bipartisan support on
    this. And that is the issue of predatory lending.
        As you know, for a number of years now I have been raising
    the issue of predatory lending and also on the issue of what we
    call in Baltimore flipping, where someone buys a house, even a
    HUD house, for a very low, flips it with just a patina of
    repair, sells it to the poor at really exaggerated prices, but
    they think they are paying $500 a month. And then they end up
    with like balloon payments at the end of 15 years of $70,000.
        I would like to know from both of you what is the
    leadership, as well as concrete action that you are taking to
    deal with the issue of predatory lending. The committee is
    particularly interested in where you are promoting home
    ownership. So that home ownership, when people enter into that,
    like the Section 8, that they can sustain it.
        So we really want to know what you are doing and your view
    of the problem. What are you doing about it? And do you have
    the adequate resources to really do this, because it gouges the
    poor. It gouges the taxpayer.
        Ms. Lazar. I am happy to start and tell you about what we
    are doing, both through the NeighborWorks organizations and
    what Neighborhood Reinvestment is doing in partnership with
    others. We have been very, very focused on public education, as
    well as product development. And we are working on both paths
    to make sure that we can address predatory lending issues.
        Neighborhood Reinvestment has established a national
    financial literacy pilot to promote financial literacy
    education for consumers in 24 cities across the country. This
    work will help us establish baseline for financial literacy
    training for individuals, which we hope will give them the----
        Senator Mikulski. What do you mean by that?
        Ms. Lazar. What I mean by that is the resources to
    understand what their obligations are as a homeowner.
        Senator Mikulski. How will this work? How will this work at
    the neighborhood level?
        Ms. Lazar. At the neighborhood level, our NeighborWorks
    organizations have classes on a regular basis, financial
    literacy classes. People sign up for them. They make a
    commitment to come. We also do fairly intensive training of the
    trainers for those classes. We just entered into a partnership
    last week with the Federal Deposit Insurance Corporation to use
    their Money Smart curriculum as part of our financial literacy
    training.
        Through our HomeOwnership Centers, we have the facilities
    where there is always ongoing classes to help get people better
    acquainted with their----
        Senator Mikulski. Okay. Now how does this work with your
    Section 8 program? Secretary Martinez has a great passion for
    promoting home ownership as well. And he has been really great
    to work with on many of these issues. Again, how does this go
    to the Section 8 program that you have.
        Ms. Lazar. Sure.
        Senator Mikulski. And how does that work?
        Ms. Lazar. For the Section 8 program, we again bring
    families into our HomeOwnership Centers for financial literacy
    and other home ownership counseling services. What we have been
    finding is that we have to work much more directly on a one-on-
    one basis with the individuals who have already gotten some
    training through the Family Self-Sufficiency Program, through
    the PHAs that they have been working with.
        So we bring them in and really get them acquainted with the
    housing, housing finance, home ownership maintenance issues,
    the long-term obligation----
        Senator Mikulski. How are you different than HUD with what
    they want to do on such Section 8?
        Ms. Lazar. Our home ownership campaign has developed a set
    of counseling curricula that we use on a regular basis. It has
    been fairly well recognized around the country as a strong
    basis and a strong curriculum for bringing families into home
    ownership and helping them maintain sustainability over the
    long term.
        Senator Mikulski. Well, I would like to be able to come
    back to that. But, Mr. Brown, could you just comment on
    predatory lending? Because I know you do not want to
    inadvertently end up underwriting it.
        Mr. Brown. Yes. Well, as you know from Treasury, addressing
    predatory lending is one of Secretary O'Neill's highest
    priorities. In fact, his focus is on financial literacy, and
    how do we make credit education an integral part of our
    education system in that regard, as well as Assistant Secretary
    Bayer has been promoting a national code of ethics in
    addressing a lot of the lending ills related that could lead to
    predatory practices.
        What we have done at CDFI has been a number of different
    things. Many of our certified community development financial
    institutions, banks, thrifts, credit unions provide IDA type of
    accounts. Many of our CDFIs provide, as part of their service,
    credit counseling to potential borrowers.
        One particular leading example is an organization out of
    North Carolina, a self-help credit union, which has been on the
    forefront of addressing predatory lending practices and getting
    legislative changes in North Carolina that have led to other
    State----
        Senator Mikulski. We appreciate North Carolina, but what do
    you at your headquarters do in terms of having an organized,
    systematic message out to all CDFIs on this issue of predatory
    lending? I know you are big on data collection. And we love
    that. Do you have a watch list that you are watching trends?
    And are you doing training for CDFIs and so on?
        Mr. Brown. Senator, specifically to that question, we have
    not collected data specifically to how CDFIs have addressed the
    impact of predatory lending. But what we have measured and
    recovered is the types of loans that our organizations make to
    provide affordable credit to low income communities.
        Examples, our bank enterprise award program provides a
    major incentive for financial institutions to target their
    mortgage products in low income communities. And many do
    provide those loans at below market rates in order to get loans
    to low income people at affordable rates. The example I was
    going to provide with self-help is that one of the issues of
    some of the traditional financial institutions that, as they
    underwrite these loans, a typical sub-prime loan historically
    has not met the underwriting or the secondary market guidelines
    for Fannie and Freddie. So as a result, many of the CDFIs have
    perhaps negotiated with local banks to do portfolio lending.
        In the self-help example is that they have created a
    secondary mechanism so that those banks that are doing
    portfolio lending, in order to provide affordable mortgage
    loans to low income communities, have found a way to buy those
    loans and to put those loans out in the secondary market. And I
    think that that is an example of a model that we are looking
    at. And, in fact, we are currently conducting a study to see if
    there is a way that we can create a whole loan or a secondary
    market mechanism that could allow for loans that do not meet
    Fannie or Freddie guidelines, as well as other community
    development loans, if they can be sold in the secondary market.
        Senator Mikulski. I have to think about this. First of all,
    I am going to come back to my original point. Number one, I
    would encourage you at CDFI to have some type of national way
    of watching the trends on predatory lending that the CDFIs
    might inadvertently be getting into or become aware of, because
    predatory lending has the right name. It is about predators.
    And they look at every opportunity to gouge. They are
    predators. And we have gotten lots of programs that I find the
    predators have really milked, squeezed, and so on, that then
    did not result in value for the poor, a different way of life,
    a different opportunity.
        We need you to really be watching this. So that is number
    one.
        Number two, CDFI was meant to come into small areas where
    banks or others would not have come in. And what I want you to
    be very careful about what you underwrite that does not meet
    other guidelines, so we do not end up with a whole set of
    bankruptcies on our hand or defaults. I really am going to
    insist on this, because we have gone down the line of promoting
    home ownership. We have gone down the line of FHA. And we have
    been pushing FHA and home ownership.
        And I have in Baltimore City in FHA 50 percent of the
    people in default. Now something is real wrong somewhere. So
    before we get into how do we underwrite and so on where there
    are not even usual and customary guidelines, I just want you to
    be very careful because the predators will come in. That is
    number one. Or number two, the whole issue of financial
    literacy, which I really think could be one of the most
    important areas for both of you to pursue, using the
    appropriate tools available to you.
        And I know this goes to the civil rights organizations are
    interested in it. Reverend Jackson and others have spoken to
    this. Financial literacy is the way to have people clean up
    their credit, get ready for another opportunity, make sure that
    opportunity is sustainable.
        But anyway, I have gone over my time. Senator Bond, why do
    you not----
        Senator Bond. Thank you, Madam Chair.
        Ms. Lazar, to follow up on a question that the Chair asked
    earlier about production, what kind of experience has NRC had
    in producing rental housing for extremely low-income families
    while maintaining the property's long-term viability? Is it
    possible to structure properties with only up-front capital so
    that ongoing subsidy needs are not necessary? And how much
    money is NRC dedicating to the multi-family activities? And
    what other resources are you using?
        Ms. Lazar. Senator, as you know, last year this committee
    provided us with $5 million to look at the possibility of
    maintaining, and creating mixed income properties that serve
    some families below 30 percent of area median income. We have
    just received the applications for the grants that we are going
    to make in June. Some of the uses that have been proposed
    include reducing a property's mortgage debt, which will then
    allow the property to charge lower rents for percentage of
    units, rents that are affordable to extremely low-income
    people.
        Other applicants are working with local housing authorities
    to make a percentage of units available to extremely low-income
    holders of housing choice vouchers and using the grants to
    support the additional resident services and more intensive
    management as appropriate to support a mixed income profile.
        We are continuing to look through the applications for
    funding that we received this year at a range of options to
    create mixed income housing. We just sponsored a symposium in
    Chicago a couple of weeks ago, where we brought the best
    thinkers around the country to think and talk----
        Senator Bond. You are still in the planning stage.
        Ms. Lazar. We are still in the planning stage on pursuing--
    --
        Senator Bond. You have not done it.
        Ms. Lazar [continuing]. The work that we had been funded
    for this past year. We are working on a study that we will have
    probably for you later in the fall, early winter, on mixed
    income housing opportunities. We are doing a wide range of
    activities that will help us develop more of an educational
    base of what is possible.
        Senator Bond. In sum, it is all planning.
        Ms. Lazar. Most of it is in the planning stage right now.
    We will be getting grants out in June. And it will start going
    into real properties in the summer.
        Senator Bond. Well, being from Missouri, I would like for
    you to show me.
        Ms. Lazar. I will.
        Senator Bond. Planning is great.
        Ms. Lazar. I will be glad to.
        Senator Bond. Yes. Planning is fine and all that, but we
    want to know not what you plan, but what you do.
        Ms. Lazar. We expect to have the grant list available in
    June. We will come up and share it with you, so that you know
    what is on the board.
        Senator Bond. Okay. Appreciate that.
        Let me turn back to an area that is very closely related to
    the problems that my colleague has indicated may be existing in
    Baltimore. NRC and other organizations are involved in
    disposition of HUD assets located in designated distressed
    neighborhoods called asset control areas. Recently you
    conducted a review of the program. One of the studies' major
    findings was that the use of other Federal programs, such as
    HOME, CDBG, HUD, neighborhood initiative grants, and Hope 3,
    went into the ACA program.
        At least from my standpoint, I do not know about anybody
    else in Congress, but I never contemplated that this
    disposition program would involve the use of other funds. We
    put the other funds out there for other programs.
        What has been NRC's experience with HUD's asset control
    program? Do you have any suggestions on how to improve it? And
    why is there a need for other Federal subsidies? Something is
    amiss here.
        Ms. Lazar. I think I could answer that question concisely.
    The asset control area program has been an effective tool,
    particularly for our NHS organization in Chicago, to gain back
    positive momentum in the Back of the Yards and the Chicago Lawn
    neighborhoods. There has been an increase in sub-prime and
    predatory lending in that community. And there has been some
    very serious resultant foreclosures.
        When neighbors see rehab activities on homes that have been
    vacant for months or even years, they are more inclined to
    invest in the upkeep of their own properties. This activity has
    helped preserve the values of other homes in the neighborhood
    rather effectively.
        Now the ACA program in Chicago had some additional funding
    put in it to help close the appraisal gap. When we are rehabing
    houses throughout the NeighborWorks network, we want to make
    sure that the rehabilitation creates a safe, sound unit that is
    going to be housing for that family over the long term. What we
    were finding was that the cost of the house, plus what was
    necessary for the rehab costs, went beyond the appraised value
    of the property. The additional funding that the NHS was able
    to negotiate through Congressman Gutierrez's office has really
    helped bridge that appraisal gap.
        Saying that, I think if my colleague, Bruce Gotchall from
    the NHS, were here, he would say that if he had gotten the
    house for $1, had been able to make the necessary repairs to it
    and then split the proceeds with HUD, they would have had a
    much more successful transaction.
        Senator Bond. Yes. I think that is the 50-percent
    requirement. That seems to be the real problem.
        Madam Chair, if I may just ask one final question.
        Senator Mikulski. Please keep going.
        Senator Bond. I would like to hear from both of you what
    your agencies are doing in rural communities and how are you
    working with USDA and HUD and other Federal agencies. Let us
    start with Mr. Brown. How is your rural effort?
        Mr. Brown. Our rural effort is a significant part, Senator,
    of what we do. And it is important to the CDFI Fund. What we
    have done in the past is we have surveyed our core recipients
    to get an understanding specifically of the markets that they
    serve and the types of services that they provide into our
    rural communities.
        What we do know is that when we surveyed our core
    recipients from 1996, the lending activity between 1996 and
    1999, they reported that over half of their products and
    services were in rural communities. And when we surveyed the
    banks that are participating in our bank enterprise award
    program, they indicated that 60 percent of their services and
    loans were made in rural communities.
        We are putting the finishing touches on our rural findings
    and survey as part of the appropriation language that was
    attached last year. And we will provide you and staff a full
    copy of that report.
        [The information follows:]

    Community Development Financial Institutions Fund Activities: Tracking
                                 Rural Outcomes

        The conference report for the fiscal year 2002 VA, HUD, and
    Independent Agencies appropriations bill requested that the CDFI Fund
    report on its rural activities:
        The Committee remains concerned about [the CDFI Fund's] lending
    activities in rural areas, especially the Fund's use of its Bank
    Enterprise Award (BEA) Program. The Committee urges [the CDFI Fund] to
    increase its activities in rural areas, especially in light of the
    abundance of Federal programs already dedicated to urban areas.
    Further, CDFI is directed to include details on its rural lending
    activities in its fiscal year 2003 budget justifications. These details
    should include the number of CDFIs approved [for funding] in rural
    areas by State and the amount of funds provided to each rural area by
    program activity [Core/Intermediary Component, Small and Emerging CDFI
    Assistance (SECA) Component, and the Bank Enterprise Award (BEA)
    Program].
    Findings
        Thirty-two percent ($73.5 million) of all the CDFI Program dollars
    awarded to the 121 1996-2000 Core Component Awardees went to CDFIs for
    whom a majority of their customers are located in rural areas.
        Seventeen percent of the 542 certified CDFIs (as of December 2001)
    are headquartered in rural areas.
        The CDFI Fund has made $62.5 million in awards (12 percent of 1996-
    2001 total awards) to CDFIs and banks headquartered in rural areas.
    Eligible Census Tracts
        Forty-one percent of the Nation's census tracts qualify as eligible
    Target Markets under the CDFI Program's Investment Area test.\1\ Of
    these total eligible tracts, 25 percent are defined as non-metropolitan
    areas (see Table 1). Large expanses of rural areas are eligible,
    including most of central Appalachia, the Mississippi Delta, most of
    the non-metropolitan counties along the Mexican border, and Native
    American lands. Certified CDFIs provide services to a minimum of 38
    percent of the Nation's eligible tracts, including 25 percent of
    eligible tracts in non-metropolitan areas. It should be noted that
    these coverage figures understate the actual coverage of certified
    CDFIs because they include only the 355 CDFIs that designated
    Investment Areas. It does not include the 187 CDFIs that designated a
    Low-Income Targeted Population or an Other Targeted Population. Neither
    does it include the 18 CDFIs that report a national service area. If
    the national service areas had been included, the table would show 100
    percent coverage in both non-metropolitan and metropolitan areas. We
    did not include these because we cannot validate that the national
    CDFIs have had actual lending or investment activity in every eligible
    census tract in the country.
    ---------------------------------------------------------------------------
        \1\ This does not include those non-metropolitan census tracts
    that, based on the census data for those census tracts, do not qualify
    on their own but would qualify if included in a county that qualified
    based on county-wide census data. (CDFI Fund regulations allow non-
    metropolitan counties or census tracts to qualify as Investment Areas;
    however, metropolitan areas may only qualify based on census tracts).
    ---------------------------------------------------------------------------
        The Fund recognizes the importance of tracking the precise location
    of CDFIs' lending activity. Therefore, in fiscal year 2003 the Fund
    plans to collect detailed loan-level data that will show which census
    tracts CDFIs are lending and investing in. When the Fund has that loan
    level data, it will be able to report exactly how many loans and
    investments CDFIs made in eligible census tracts, which resulted from
    the leverage of our direct investments.
    CDFI Fund Awards
        The Fund can provide a more detailed analysis of rural coverage for
    a subset of all awardees. These are the 121 CDFIs that received Core
    Component awards from 1996 through 2000. These awardees respond to a
    detailed annual survey, from which this data is analyzed. As Table 2
    shows, nearly one-third of all the CDFI Program dollars awarded to
    these 121 CDFIs went to CDFIs for whom a majority of their customers
    are located in rural areas. An additional 8 percent went to CDFIs for
    whom 25 percent to 50 percent of their customers are located in rural
    areas. For a complete list of surveyed CDFIs and their locations by
    State, see Table 3.
        The 121 Core Component Awardees report that an estimated 24 percent
    of their financing went to customers in rural areas. This estimate is
    based on the percentage of customers that each CDFI reported as located
    in rural areas and the CDFI's financing outstanding at the end of
    fiscal year 2000. This estimate is the closest the Fund can get given
    the data we now collect. Once loan-level data is collected, the Fund
    will be able to report exactly how many loans and investments CDFIs
    made in rural areas and what the total dollar amount was.
        Another, less accurate, measure of rural activity is the location
    of the institutions' headquarters. As Table 4 shows, 17 percent of all
    certified CDFIs are headquartered in rural areas. From 1996 through
    2001, 19 percent of all SECA/TA Component award dollars went to rural-
    based CDFIs. 15 percent of Core Component and 4 percent of Bank
    Enterprise Award (BEA) Program dollars have been awarded to
    institutions headquartered in rural areas. However, many CDFIs that are
    headquartered in urban areas provide services to rural areas and may
    even have rural branch offices. Table 4 does not include that data.
        We cannot estimate BEA Awardee services provided to rural areas
    because of the unavailability of data. The statutorily prescribed
    definition of ``Distressed Community'' under the BEA Program restricts
    award dollars to rural communities. First, rural areas have difficulty
    meeting the program's 30 percent poverty requirement because
    populations in rural areas are often scattered, with Low-Income
    households mixed with households of higher incomes, and have fewer
    concentrations of poverty than is often found in urban areas. Second,
    over 40 percent of the Nation's rural population resides in communities
    with fewer than 2,500 people but located in metropolitan areas. These
    communities are too small to meet the BEA Program's statutorily
    required population minimum of 4,000 people in metropolitan areas.
    Further, in non-metropolitan counties there is a minimum population
    requirement of 1,000 people in a qualifying census tract. This figure
    also precludes otherwise qualifying economically distressed rural areas
    from BEA Program eligibility.

        Senator Bond. Well, we look forward to seeing that.
        The other, for the NRC, Ms. Lazar, what do you----
        Ms. Lazar. We have a rural initiative, which is one of our
    four major initiative programs, that has had steady growth.
    Fifty-nine of our 225 NeighborWorks organizations, or 27
    percent of the network, is serving rural areas. We are a
    resource for training and technical assistance provider to
    these organizations.
        We provide them with grant funding. We established an
    organization called RNA Community Builders, which is a national
    CDFI intermediary, which is supporting the work of rural
    practitioners around the country.
        We are working closely with the Department of Agriculture,
    through the Department of Agriculture's 504 program. We are
    looking at other ways of using Agriculture's programs in
    helping to deliver services to these rural communities. We do a
    great deal of work through our education programs. Next week we
    are hosting a conference in Oak Ridge, Tennessee, for our rural
    organizations, to help them do some problem solving together.
    We do specialized courses and programs of study at our training
    Institute. And we have actually a very unique partnership in
    Montana, which is a model for statewide activity, where we work
    with our organization in Montana to increase home ownership
    through a statewide counseling program. We have gone from 134
    home buyers in 1998 to 409 new home buyers in 2001.
        As you know, Montana is a good example of great geographic
    distances and a very, very hard place to do community-based
    work. The Great Falls NHS has done a fabulous job partnering
    with a variety of agencies and with a variety of players on the
    State and local level to really provide services all across the
    State.
        Senator Bond. Thank you very much, Ms. Lazar.
        Thank you.
        Senator Mikulski. I want to support those initiatives that
    you have just discussed and also my colleague's area of
    questioning in that area. My observations as a Senator, having
    been a city councilwoman and a congresswoman from one of the
    poorest areas of our State, is that rural poverty is so
    different. And often, people in rural areas do not have the
    resources, as I said, to technical assistance, foundations, the
    kinds of things that are available in a St. Louis or a
    Baltimore or a Bethesda. And so we really want to encourage you
    on this.
        I want to ask a question about faith-based engagement.
    Wherever I go in my State, people are saying to me,
    particularly institutions, where the leadership are people of
    color, are saying, ``Senator, what is this faith-based
    initiative, and how can I get in on it?'' That is one thing.
        The second thing is, everywhere I go I am seeing the
    merging of community development corporations, which were a
    very important tool at the grassroots, but they are popping up
    like flowerbeds and that they vary in capacity. And I am
    concerned about the issue of capacity building, is that new
    people coming into new organizations, with new access to funds,
    without the capacity to move into sound financial management.
        My observation of community development is often it is a
    charismatic leader, who gets involved in solving a neighborhood
    problem. The people come together in a very dynamic and
    exciting and wonderful, energetic way. They become a CDC. They
    start to get grants. And that charismatic leader's experience
    has been on household finance, not organizational finance. And
    then we get into all kinds of other issues.
        Could you share with the subcommittee, because both of you
    are there, what you see, number one, in your work in faith-
    based organizations, because these will not necessarily be the
    big churches. They might be mid-sized. And for whatever we do,
    we want it to work. We really want it to work and not have
    either homeowners in default or CDCs in default.
        As you know, Washington, D.C., has had some really bad
    experiences of late. And we do not want this to be throughout
    the country. Could you share with us that?
        Ms. Lazar. I will be glad to get started.
        Senator Mikulski. And am I raising very real issues?
        Ms. Lazar. Oh, absolutely. I would like to invite Margo
    Kelly, my deputy, to join me, because she has had a great deal
    of experience with this and how we have been working with
    faith-based organizations over time.
        When the administration came in last year and brought a lot
    of focus on faith-based organizations, our first reaction was,
    so what is new? Those of us working in the CDC field for many
    years had had experiences with leaders, particularly through
    Catholic Charities and other faith-based organizations, for
    very many years. I know that the earliest organizations I
    worked with were all an outgrowth of faith-based organizations.
        Within our network, we have a number of organizations that
    are rooted in faith communities. We treat them like we treat
    everybody else wanting to make sure----
        Senator Mikulski. Well, what do you do about capacity
    building? We are really talking about the African-American
    churches, the Latino communities. Because the big associates,
    like the Catholic Charities associations, they know how to work
    with agencies. They are constitutionally compliant. But this is
    a new thing that the President wants to start. And we think it
    is worth taking a look at, as long as there is constitutional
    compliance and capacity, particularly because these are new
    startups.
        Ms. Kelly. I began my career in this organization doing
    start-up organizations. I know that one of the first places you
    go when you are in a new community is to the churches, because
    that is where the leadership is.
        I think Neighborhood Reinvestment has provided four aspects
    of capacity building that have worked, both with the faith-
    based organizations that are in our network and with our other
    organizations. The first one is technical assistance. When an
    organization is interested in joining the network, we take a
    close look at their performances in six key areas that we refer
    to as PROMPT planning, resource development, oversight,
    management system, financial systems, et cetera. We help them
    to develop in the areas where they are weak.
        The second place we provide assistance is in training
    through our national training institutes and on-site. This is
    another critical aspect of building capacity. We also, in
    conjunction with our training and technical assistance, provide
    grants. In some cases with a small organization, one of the
    critical needs that they have is for financial management
    systems. Sometimes it is for computers, hardware or software.
    Sometimes it is for training for their staff who need to learn
    those systems and how to operate them.
        And our fourth area, which is very critical, is an area
    that we refer to as risk management or program review. This is
    an annual process, where a unit that works with Clarence
    Snuggs, our other deputy, spends time on-site reviewing these
    organization and gives them a report card. It tells them how
    they are doing in these areas. If there are serious
    shortcomings, we ask them to develop a corrective action plan
    with our assistance and to address them.
        So it is a multifaceted approach. It works very well on the
    ground. And I think it has kept our network quite strong.
        Senator Mikulski. Well, that is outstanding. I am going to
    turn to Mr. Brown. But does HUD do this, also?
        Ms. Kelly. Madam Chair, I do not know exactly what HUD
    does. I think that the training, the resources and the tools
    that we use are available. Actually, our training institutes
    are a really good opportunity for people to access those tools
    and apply them for themselves.
        Senator Mikulski. Thank you very much. What we like to have
    is really that specific description of PROMPT. I like that. And
    I think we want to also discuss this with Secretary Martinez.
    We do not want the taxpayers gouged and, you know, the
    capacity--Mr. Brown, and then I am going to turn to Senator
    Bond. This will then conclude our testimony.
        Yes?
        Mr. Brown. Senator Mikulski, building capacity and
    technical assistance is the cornerstone of the CDFI program. As
    I mentioned earlier, 100 of our 550-some-odd certified
    community development financial institutions are community
    development credit unions. Our SECA program this past year, 20
    percent of the awards were made to community-based credit
    unions.
        And as I stated in my opening testimony, many of the credit
    unions were formed and came out of church basements. And so our
    SECA program, as an example, particularly in your State, we
    funded the Faith Fund of Baltimore, which is a startup, multi-
    faith entity with a technical assistance award.
        So we dedicate 20 percent of our budget to building
    capacity and expertise of CDFIs. And our SECA program has been
    one of the ways in which local community-based, faith-based
    initiatives have been able to take advantage of our funding.
        Senator Mikulski. Well, thank you. We could pursue this.
    The little white light means that there is a vote.
        But we will let this point of light ask his questions here.
        Senator Bond. Well, my bulb is dimmed. And I am going to
    put the rest of my questions in for the record, Madam Chair. We
    have miles to go before sunset. And we have another couple
    things going.
        So I appreciate very much your testimony. It is two small
    agencies with very big responsibilities. And we appreciate your
    dedication to trying to bring all these things together. You
    certainly have broad scopes of interest that mirror in many
    ways this committee. And we thank you for your testimony and
    look forward to reading your written responses to the questions
    we submit.
        Thank you, Madam Chair.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Mikulski. I, too, will have written questions. We
    want to thank you, first of all, for appearing today and the
    work that you do in every way. I think we have articulated the
    areas that we have concern about. But most of all, it is that
    American dreams really are American dreams, whether they are an
    individual buying a home or a community development
    corporation.
        And we will be having further discussions with you. And we
    look forward to working with you in this year's appropriation.
        [The following questions were not asked at the hearing, but
    were submitted to the Agencies for response subsequent to the
    hearing:]

       Questions Submitted to the Neighborhood Reinvestments Corporation

               Questions Submitted by Senator Barbara A. Mikulski

                               predatory lending
        Question. Describe what your membership is doing to combat
    predatory lending?
        Answer. We have been increasingly concerned with the growth of
    predatory lending practices. The concern focuses on protecting new
    homebuyers the NeighborWorks network has assisted, but our
    concern also extends to the threat predatory lending poses to entire
    communities and to the safety and soundness of regulated financial
    institutions and its impact on their ongoing work in expanding
    responsible ownership opportunities for low- and moderate-income
    families. We have pursued a number of efforts to document and analyze
    predatory-lending practices and create a series of strategies to combat
    abusive lending practices.
    Financial Literacy Training
        Neighborhood Reinvestment has established a national pilot program
    to promote financial literacy education for consumers in 24 cities
    across the country using the FDIC's Money Smart curriculum. The purpose
    of this program is to assist the NeighborWorks network to
    establish a high-quality financial literacy training program for lower-
    income families across the Nation. In 2001, the 24
    NeighborWorks organization participating in this pilot
    accomplished the following:
      --2,491 graduates of program;
      --Average of 10 contact hours per participant (total of 27,400
            contact hours);
      --Average income of participants is $22,927;
      --93 percent of program participants are renters;
      --67 percent of participants are female;
      --39 percent of participants are very-low income households;
      --36 percent of participants are African-Americans; and
      --21 percent of participants are Latino or Hispanic.
    ``Don't Borrow Trouble'' Campaign
        Neighborhood Reinvestment is participating with Freddie Mac to
    expand a consumer education program called ``Don't Borrow Trouble''.
    With Freddie Mac's support, the campaign has been expanded to 12 major
    cities to launch local campaigns that will alert millions of Americans
    about the dangers of predatory lending and set up special hotlines they
    can call to get advice and report problems. The innovative campaign
    uses a combination of ads, billboards, Web sites, and public service
    announcements in English and Spanish to educate borrowers about
    predatory lending practices and encourage them to call a toll-free
    number for referrals to local government and non-profit agencies to
    help them understand and resolve specific lending problems.
    NeighborWorks HELP Program
        In response to an increase in predatory lending activities,
    Neighborhood Reinvestment Corporation has worked with Freddie Mac to
    develop a product that is currently being tested in 10 communities. The
    NeighborWorks Home Equity Loss Prevention (HELP) product
    offers victims of predatory lenders an opportunity to refinance out of
    their predatory mortgage to a reasonable and fair mortgage product,
    thereby helping targeted homeowners avoid imminent foreclosure.
        The product is designed to help homeowners with impaired credit and
    excessive debt to refinance on affordable terms. Freddie Mac is using
    the HELP initiative to buttress the ``Don't Borrow Trouble'' ad
    campaign in select cities, where the HELP program is introduced as a
    possible refinance program with local government participating in the
    marketing effort.
        Through this pilot effort, Freddie Mac will purchase up to $20
    million in HELP loans, which will be originated by Wells Fargo Mortgage
    Corporation and insured by Mortgage Guaranty Insurance Corporation of
    Milwaukee and PMI Mortgage Insurance Company. The
    NeighborWorks HELP loan is a fixed-rate, 30-year market rate
    mortgage.
        As part of the refinancing, homeowners will obtain intensive and
    personalized financial counseling and may use up to 10 percent or
    $10,000 of the new refinanced mortgage--whichever is greater--for
    property improvements or debt consolidation, provided borrowers meet
    certain requirements. Borrower debt-to-income ratio is limited to 42
    percent and may go up to 50 percent provided that the borrower's
    overall monthly payments after the debt consolidation are less than
    before the refinance.
    Research and Education
        Neighborhood Reinvestment has funded and participated in research
    studies of the growth of subprime lending and foreclosures in several
    cities and regions. The studies have been conducted in Atlanta,
    Chicago, Boston and Connecticut. Abt Associates, the research firm that
    conducted some of these studies, has done follow-up research and
    analyses with HUD on the impact of subprime lending in Baltimore,
    Atlanta, Chicago and Boston.
        Neighborhood Reinvestment also conducted a symposium--``Tools and
    Tactics to Combat Predatory Lending: A Practitioners' Forum.'' Major
    speakers represented Fannie Mae, Freddie Mac, Atlanta Legal Aid
    Society, Center for Community Self-Help and the Office of Thrift
    Supervision. Workshops presented a range of cutting-edge tools on
    prevention, education, analysis and intervention. More than 200
    community-development practitioners attended.
        Neighborhood Reinvestment and the Joint Center for Housing Studies
    of Harvard University together published a research paper,
    ``Understanding Predatory Lending: Moving Toward a Common Definition
    and Workable Solutions,'' that explored the range of predatory-lending
    practices and proposed three potential regulatory and legislative
    solutions.
    Post-Purchase Services
        Counseling prospective buyers and following up new homeowners with
    post-purchase education are key elements of the proven system for
    promoting affordable home ownership that local NeighborWorks
    organizations pursue, in partnership with residents, local business and
    government. Post-purchase services build the capacity of new
    homebuyers, strengthen the neighborhoods they move into, and reinforce
    the effectiveness of their local NeighborWorks organizations.
        In Chicago, for instance, Neighborhood Housing Services of Chicago
    has initiated a comprehensive neighborhood stabilization program that
    fights predatory lending and its almost-inevitable consequence,
    foreclosure. The Neighborhood Ownership-Recovery Mortgage-Assistance
    Loan (NORMAL) program is a partnership among lenders, the city and
    Neighborhood Housing Services of Chicago. One main goal is to create a
    loan fund to refinance qualified borrowers who have been victims of
    predatory-lending practices.
        Question. What success has Neighborhood Reinvestment Corporation
    had in its collaboration with Freddie Mac? How many loans have you
    restructured? Is the program replicable on a national scale?
        Answer. The HELP program is an aggressive, innovative mortgage
    product that can provide relief to those who have been victimized or
    are vulnerable to the practice of predatory lending. It is the first
    national program that incorporates the assistance of the secondary
    market to combat predatory lending.
        In order to restructure loans, a lender partner had to be
    identified at a national level; after a concerted search, Wells Fargo
    Mortgage Corporation was selected as the loan originator nationally.
    All partners recognized that this was a groundbreaking effort--one that
    would include changing systems, and labor-intensive counseling that
    could last up to a year.
        The customer service system is currently being refined, and the
    pipeline homebuyers in need of refinancing is being built. Under HELP,
    225 homeowners have received credit counseling and foreclosure
    intervention services. Unfortunately, the number of owners that have
    closed on a HELP loan is negligible. We continue to work with Wells
    Fargo and Freddie Mac on customer service, and NeighborWorks
    organizations on technical assistance and best practices. We are
    hopeful that HELP will provide an appropriate route for victims of
    predatory lenders in keeping their homes, and it will be readily
    replicable nationally; however, at this time, we continue to work with
    our partners in refining the product.
        Question. Are you developing any training materials on predatory
    lending, or putting together a report for use in other communities?
        Answer. Since 1999, a total of 184 practitioners have completed a
    special course offered at our national Training Institutes on
    preventing predatory lending called ``Helping Homeowners Avoid
    Delinquency and Predatory Lenders.'' This two-day course covers:
      --Delinquency prevention and financial trends;
      --Debt warning signs for homeowners;
      --Outreach and programs for debt management;
      --Post-purchase delinquency and debt management counseling;
      --Recognizing lending abuses; and
      --Strategies for success.
        Additionally, over the past year we have been working with a number
    of NeighborWorks organizations to assess their ability to act
    as mortgage brokers in their communities. Many of these organizations
    are pursuing this activity as a way to prevent further predatory
    lending from occurring in their markets. The ``NeighborWorks
    Network Mortgage Broker Handbook'' publication details a range of
    issues that organizations should consider prior to launching a mortgage
    brokerage. In particular, the Handbook contains two assessment tools
    that help organization measure the feasibility of assuming the broker
    role.
        The broker feasibility tool was created to assist
    NeighborWorks organizations with initial planning activities
    for an in-house mortgage brokerage. The feasibility tool uses a series
    of questions to help network members evaluate issues related to the
    mortgage operation. The resolution of these questions provides the
    organization with a framework to pursue the mortgage broker activity,
    or the justification to decline it.
        We developed the broker production tool to assess the financial
    benefits of developing an in-house mortgage brokerage. The production
    tool projects income, expenses, and production for a 24-month period.
    It is meant to provide nonprofit organizations with projections that
    supplement the decision-making process.
              affiliation of neighborworks organizations
        Question. Explain the process, step-by-step, that Neighborhood
    Reinvestment Corporation uses to make a non-profit a part of the
    NeighborWorks network?
        Answer. Interested organizations must apply to Neighborhood
    Reinvestment for membership. Since the application process is a
    competitive and membership is extended to a limited number of
    organizations every year, meeting all national criteria and district
    priorities does not automatically guarantee an organization will be
    extended the opportunity for membership in the network.
        The national threshold criteria for membership include:
      --The organization must be a partnership of residents, the private
            sector, and the public sector;
      --The organization must be resident led;
      --The organization must engage in community revitalization and
            housing production;
      --The organization must have garnered broad support in the community;
      --Potential affiliates must have the organizational capacity to
            accomplish the mission, strong financial support from local
            sources, and a high quality financial management and internal
            operating systems.
        Neighborhood Reinvestment reaches under-served communities and
    populations by bringing organizations into the NeighborWorks
    network. In all cases applicant organizations must have a clear
    understanding of the expectations and benefits of membership and have a
    demonstrated enthusiasm for becoming an active network member.
        The average length of time from submission of application to
    charter eligibility is 12 to 18 months. The length of time does vary
    depending on the scope of development work that an organization must do
    to comply with all of the chartering requirements. The length of time
    is also dependent on the capacity--staff and resources--of Neighborhood
    Reinvestment to work with the organization throughout the process.
        Once interested organizations have submitted an application, the
    review process for membership in the NeighborWorks network
    begins with a careful evaluation and screening of all applications. At
    present, the current growth strategy for the NeighborWorks
    network is focusing priority attention on:
      --States and cities with populations over 500,000 where we have no
            current presence,
      --Sites that are significantly underserved in terms of community
            development efforts and resources,
      --A blend of organizations representing single and multi-family
            producers who work within the context of neighborhood or
            community revitalization,
      --Sites where the specific needs identified are a good match for the
            specific resources we currently offer, and
      --A geographic mix that represents rural, small city, large city and
            suburban sites.
        A select group of applicant organizations that meet specific
    membership criteria and are considered to be competitive for membership
    participate in a rigorous review and assessment process. The assessment
    process may include an initial site visit, a detailed field assessment,
    and an analysis by Neighborhood Reinvestment.
        Requirements of NeighborWorks membership include an
    unqualified annual audit and compliance with a variety of other
    operating standards that we regularly review. We are the only network
    of community development organizations that has implemented a series of
    formal conditions and standards of operations as a prerequisite for
    membership. Any NeighborWorks organization that wishes to
    benefit from the Corporation's resources must subscribe and continue to
    meet these conditions and standards.
                               capacity building
        Question. How do you increase the capacity of non-profits?
        Answer. Neighborhood Reinvestment Corporation engages in five key
    activities specific to increasing the capacity of
    NeighborWorks organizations:
        We charter new NeighborWorks organizations through an
    extensive educational and partnership-building effort, involving
    residents, business leaders and government representatives.
        We provide funding for capital projects and operating grants to
    NeighborWorks organizations, enabling them to create and
    build their own community-revitalization initiatives from a solid asset
    base.
        We provide a high degree of management and technical assistance to
    NeighborWorks members and the broader community development
    field, in order to expand their delivery programs and better serve
    their communities.
        We conduct extensive reviews of NeighborWorks
    organizations, focusing on their capacity to successfully manage their
    resources and programmatic risks. These program reviews monitor
    performance on an ongoing basis and serve as a platform for providing
    management and technical assistance. They also unearth best practices
    at the street level. Our goal is to increase the health, performance,
    productivity and effectiveness of the entire NeighborWorks
    network.
        We conduct national Training Institutes in major cities throughout
    the United States for anyone interested in affordable housing and
    community revitalization, particularly private- and public-sector
    practitioners and community leaders. Typically, 70 courses centered on
    such topics as management and leadership, community building, community
    economic development, neighborhood revitalization, home ownership and
    community lending and affordable housing are offered at each Training
    Institute. We conduct up to five Training Institutes each year,
    attracting up to 1,200 participants at each venue. We also offer other
    training opportunities such as specialized resident leadership
    workshops and regional trainings.
        We are undertaking advanced training to build capacity of the most
    seasoned practitioners for the future. We have accepted 45 executive
    directors into an Achieving Excellence program, which includes
    coursework at Harvard that is specifically focused on community
    development and application of that learning when those directors
    return to their communities.
        These activities individually and collectively help build the
    productivity and strength of local community development organizations.
        Neighborhood Reinvestment also increases organizational capacity by
    bridging the gap between public and private funding through integrating
    public and private support. One critical financing vehicle that we
    provide to NeighborWorks organizations is equity capital, for
    real estate development and lending grants, and for local revolving
    loan funds. The NeighborWorks organizations, in turn, use
    these funds to draw private capital in a variety of ways, including:
      --Equity and gap financing for home purchase loans, including down
            payment and closing costs;
      --Capital for property rehabilitation, micro-enterprise and small
            business loans; and
      --Capital costs associated with the acquisition and development of
            residential and commercial real estate for long-term ownership
            by NeighborWorks organizations.
        Locally directed revolving loan funds are essential to each
    organization's and the collective network's success. Revolving loan
    funds provide flexible funding for community priorities, such as
    homeownership, rehabilitation, multifamily housing, and commercial and
    economic development. Neighborhood Reinvestment Corporation supports
    these revolving loan funds through technical expertise, training, and
    funding. Neighborhood Housing Services of America aids the liquidity of
    the local revolving loan funds by buying revolving loan fund loans.
    With this increased loan fund capability, NeighborWorks
    organizations experience a tremendous surge in their capacity, and the
    increase is ultimately felt at the community level.
        Network capacity is further enhanced through the flexibility that
    you have allowed us in designing strategies and targeting our
    resources. This has given us the ability to devise extraordinarily
    successful tools and strategies, as well as build a network of strong
    and diverse local community development organizations. The power and
    impact of our grants are directly attributable to their flexibility.
        Question. What is your strategy for working with members who are
    having problems?
        Answer. We manage risk through our standing Risk Analysis
    Committee, which meets quarterly to review NeighborWorks
    members classified as ``vulnerable.'' The Risk Analysis Committee
    examines the results of data collection and analysis, on- and off-site
    program reviews and the ongoing technical assistance and capacity
    building efforts of Neighborhood Reinvestment. The Risk Analysis
    Committee reviews thoroughly all data on targeted organizations and
    maintains an approved risk ranking system.
        Based on an on-site review, organizations failing to meet
    performance standards in any of the eight PROMPTSM
    dimensions will receive a request for ``corrective actions.'' We
    require organizations to file a corrective action plan; Neighborhood
    Reinvestment's technical assistance and grants will be targeted toward
    resolving the conditions underlying the organization's vulnerability.
    Neighborhood Reinvestment staff then ascertain whether corrective
    action has been taken and whether a recommendation can be made to the
    Risk Analysis Committee for a stable or exemplary ranking. We also
    provide many other forms of technical assistance to build capacity in
    organizations. This may be in the areas of financial management and
    accounting, fund-raising and marketing, funding, partnership building
    and the development of resident leaders. Staff may also work with an
    organization's partners to explore mergers with other community
    development organizations in their community. The Corporation also
    provides scholarships to staff and board members of
    NeighborWorks organizations to participate in the
    Neighborhood Reinvestment Training Institute.
        Ultimately, the responsibility for the continued viability and
    successful management of risk in an environment of growth lies with the
    skills and commitment of an organization's board and staff.
    Neighborhood Reinvestment provides strategic funding and assistance for
    organizations to pursue strategies in preserving affordable housing and
    revitalizing communities.
                               board of directors
        Question. Do you train the boards of these non-profits? How? Why is
    this important?
        Answer. Each of our nine districts has at least one staff member
    whose expertise is in organizational development, including training
    and orientation of nonprofit boards of directors. As community
    development organizations have become more complex, we find that to
    maintain an informed, partnership-based board with engaged resident
    participation is a growing challenge. However this kind of board
    composition--one that includes the private, public and community
    sectors--is a cornerstone of Neighborhood Reinvestment's beliefs about
    how credible community development needs to be accomplished.
        We continue to prioritize board orientation, training and
    leadership development as a key area for technical assistance. While
    our national Training Institutes provide an outstanding venue for
    training, it is difficult for many board members to devote time during
    the week, out of town, to take advantage of the courses available.
    Presently we are seeking new ways to provide training to board members,
    including designing joint trainings of several boards at the district
    or regional level.
        In addition to helping board members understand their appropriate
    roles and responsibilities, we also work closely to assist them to
    understand and exert conscientious oversight of program operations. The
    check-and-balance system that can be achieved by an informed and
    empowered local board of directors is irreplaceable. While we wish we
    had more resources to devote to this increasingly challenging and time-
    consuming effort, it is an area of endeavor that we will never abandon.
    We will continue to seek new, more effective and efficient ways to use
    our staff skill and resources to create positive, measurable outcomes
    in this area.
                    certification of nonprofit organizations
        Question. Do you think other Federal agencies that partner with
    nonprofits should be certifying them?
        Answer. Neighborhood Reinvestment utilizes a process that combines
    both:
      --A formal chartering process; and
      --A methodology for monitoring the ongoing health of an organization,
            through program reviews and risk evaluation procedures.
        We have developed this system in order to protect the investment of
    the Corporation in local organizations--grants, as well as training,
    technical assistance--to mitigate exposure to risk encountered by
    individual organizations and the NeighborWorks network as a
    whole, and to increase the confidence level of other investors in the
    activities of these organizations.
        This process has worked well for Neighborhood Reinvestment.
    However, for other Federal agencies, circumstances and capacity vary
    greatly. Certifying nonprofit organizations is a labor- and cost-
    intensive process. Therefore, the question of other agencies' ability
    and willingness to certify nonprofits would seem to depend on a number
    of considerations, including issues such as:
      --The level of funding being provided;
      --The type of funding relationship--one time funding or a long-term
            funding arrangement; and
      --The maturity of the organization receiving funding--a more mature,
            sophisticated organization might take less time to certify,
            versus an upstart, emerging organization that might not meet
            certification standards, or might require slight technical
            assistance to achieve those standards.
        Most Federal programs, particularly those available to nonprofit
    organizations, fund specific programmatic initiatives. In contrast,
    Neighborhood Reinvestment emphasizes underwriting the nonprofit
    organization through its certification process. With a paradigm shift,
    Federal agencies could embrace this model as the first step to
    certifying and more efficiently funding nonprofit organizations. More
    specifically, Federal agencies' underwriting and oversight of any
    specific project could be commensurate with their level of funding in
    that project.
        As an example of today's practices, HUD provides a fairly
    consistent degree of underwriting and oversight for any project
    utilizing HUD grant funds--regardless of whether the total project cost
    includes two percent of its funding from HUD, or 80 percent. In the
    conventional lending environment, it is commonplace for several lenders
    to participate in financing a real estate project. Typically, one
    lender functions as a lead lender. The lead lender typically provides
    the highest percentage of funding in the transaction, and the other
    participating lenders agree to accept the underwriting and project
    oversight decisions and actions provided by the lead lender.
        Similarly, Federal agencies could view their funding in specific
    projects as participation with other investors in the project. If
    another investor is providing a higher level of funding to the project,
    the Federal agency should regard that investor as the lead-lender and
    reduce their level of underwriting/oversight involvement accordingly--
    commensurate with their reduced financial exposure and risk.
        To summarize, Neighborhood Reinvestment would not fund an
    organization without thoroughly reviewing the ability of that
    organizations to execute the activities for which its seeking funding.
    While up-front costs would be high, if other Federal agencies were to
    follow the Neighborhood Reinvestment model, the long-term benefits
    would include a reduced risk of fraud, waste, and abuse of Federal
    funds, and a more efficient, streamlined, and user-friendly process for
    certified organizations seeking Federal funds.
                 neighborworks multifamily initiative
        Question. Does Neighborhood Reinvestment Corporation's multifamily
    initiative have lessons for communities like Prince George's County,
    that have dilapidating multifamily developments because of delinquent
    landlords?
        Answer. Members of the NeighborWorks Multifamily
    Initiative believe that multifamily properties should be cornerstones
    of community health. To achieve this end, the property must be both
    capitalized and owned/operated according to principles of ``sustained
    excellence.'' We believe the key markers of sustained excellence in
    affordable rental properties should include:
      --Ongoing economic viability
      --Well-maintained and attractive physical condition; and
      --Resident access to learning centers for the technological and
            social infrastructure of educational success.
        Guided by these principles, NeighborWorks organizations
    attempt to make units affordable without sacrificing the long-term
    economic viability of the property. These principles do not happen
    without a dedicated owner--one who is committed to making the property
    a long-term neighborhood asset, and not solely an income stream. Often
    the choices made by the latter sacrifice the long-term viability in
    favor of short-term gain.
        The lessons of the Multifamily Initiative include:
        Select owners not just properties.--The ownership of multifamily
    properties is critical. Property owners must be motivated to provide a
    long-term housing resource to their community. Strong property owners
    can demonstrate successful portfolio performance over time, have a
    strong track record with regards to capital expenditures on their
    properties, and pay close attention to management and resident
    selection at their properties. These owners are beginning to be called
    ``preservation owners''. They stand in stark contrast to those
    motivated strictly by real estate depreciation tax shelter, who are not
    apt to be strong long term owners.
        Capitalize properties for long term success.--We focus on what we
    call ``sustainability'' planning, structuring and financing properties
    so that they will not need future subsidies. One important principle is
    reserves that are adequate to cover the property's expected future
    capital replacement needs--for appliances, carpets, roofs, and so
    forth. The second important principle is to be realistic about what it
    will really cost to operate the property, over the long term, realizing
    that in some years operating conditions may be difficult. This requires
    being particularly careful in our underwriting. However, in practice,
    it is very tempting to under-fund properties, in the name of producing
    more housing right now.
        Services can be an important enhancement.--Depending on the target
    market, services such as employment training, after school academic
    support, or financial literacy and homeownership preparation can go a
    long way to building a resident base as committed to the neighborhood
    as homeowners.
        Use restrictions can protect the public sector investment.--As
    cities, counties or States invest tax credits, HOME or CDBG, the use
    restrictions and liens that are established can establish important
    long term oversight in the hands of the public sector investor. In
    addition to long term affordability restrictions, periodic property
    inspections, crime reviews, and occupancy compliance reviews can be
    required as part of the public investment and can help ensure that the
    community is getting what it was investing to obtain.
        The price of better housing is somewhat deeper equity subsidies.--
    To achieve this type of sustainable housing and long-term
    ``preservation owners'', public funders may need to fund properties so
    that less mortgage debt is needed. This will mean the units produced
    are far more desirable, and are designed, overseen, owned and operated
    to provide a cornerstone housing resource in the community.
        Question. Can you share the results of the fiscal year 2002 mixed
    income demonstration program? What have you learned?
        Answer. We would like to thank you again for the additional $5
    million to fund the demonstration program in mixed-income housing that
    will serve extremely low-income households. We issued our request for
    grant proposals in February, and funded 14 proposals to produce 1,364
    units, 120 of which would be affordable to extremely low-income
    families. A full analysis of the ``lessons learned'' that can be
    obtained from our demonstration applications will be completed by the
    end of June.
        We also sponsored a national symposium on mixed income rental
    developments in April. This symposium included nationally recognized
    and respected participants from the various parties needed to develop
    and maintain high-quality, affordable rental properties--from State
    housing finance agencies, to nonprofit, for-profit and PHA owners and
    developers, to lenders. Participants explored how to develop and
    sustain these properties in five different market environments. Each
    market environment had its own advantages and challenges. We came away
    from the symposium with a healthy respect for the high level of
    flexibility that is needed to make mixed-income communities work across
    our very diverse country. A primary theme that emerged was that mixed
    income neighborhoods ``trump'' mixed-income properties--implying that
    if the neighborhood has a strong income mix, then the property itself
    might bring (or preserve) a more deeply skewed income mix (more lower-
    income residents) and still produce a very healthy property and
    community. In other words, there is no one ``right income mix'' to
    attain the benefits of mixed-income and sustainability. Participants
    also identified a number of areas in which existing programs do not
    promote mixed-income properties as we would want. Our research will
    yield a paper later this summer on the leading barriers to the
    development of mixed income housing.
        The initial feedback on the applicants is that, as we hoped, the
    grant applicants want to pursue a wide variety of approaches.
        Some applicants propose to use the grant to reduce a property's
    mortgage debt, thereby allowing the property to charge lower rents for
    a percentage of the units--rents that are affordable to extremely low-
    income households.
        Other applicants are working with the local Housing Authority to
    make a percentage of units available to extremely low-income holders of
    Housing Choice Vouchers, and using the grant funds to support
    additional resident services and more intensive management, as
    appropriate to support a mixed-income resident profile. Using Housing
    Choice Vouchers seems particularly useful in areas in which the Housing
    Authority reports a shortage of units available to voucher holders.
        One applicant is seeking to extend the income range upwards as well
    as downwards--to incorporate additional higher-income households as
    well as additional extremely low-income households, to provide for both
    a healthier income mix, and create a cross-subsidy aimed at reducing
    the housing cost burden of the extremely low-income families.
        Applicants have identified a variety of management and operations
    innovations, to provide the more intensive management that mixed-income
    communities often require. We are very excited about putting this money
    to work to serve extremely low-income households, and about using the
    demonstration grants to learn more about what it takes to develop and
    sustain successful mixed-income communities in a diverse range of
    communities.
        Question. Will the lessons learned in the mixed-income demo be
    applicable to HOPE VI developments?
        Answer. We believe most of the lessons learned from the $5 million
    demonstration will have broad application, including to projects such
    as HOPE VI.
                                     aging
        Question. What sort of strategies are your members using to address
    the needs of our aging population?
        Answer. NeighborWorks organizations plan, develop and
    execute programs based on the needs of local populations. Their work
    involves people from all backgrounds, genders, ages and abilities. The
    NeighborWorks network is primarily ``place-based'', rather
    than ``population-based''; in other words, Neighborhood Reinvestment
    does not typically seek particular populations such as the elderly or
    the disabled. The focus for our attention and resources is on
    strengthening communities-- and most of the communities served by our
    network include the elderly and the disabled. While working with the
    aging or with disabled populations may not be a planned initiative,
    NeighborWorks organizations routinely provide rehabilitation
    counseling, work write-ups and loans to elderly homeowners on fixed
    incomes and to disabled homeowners who are seeking to make their units
    more accessible.
        Other than when required by Federal or State eligibility standards,
    NeighborWorks organizations respect the privacy of customers
    and do not require applicants to disclose physical disability as a
    condition of service. Because of this sensitivity,
    NeighborWorks organizations may be underreporting their
    involvement with disabled populations and the elderly. Nonetheless, we
    know that in 2000, more than 30 NeighborWorks organizations
    provided housing for non-elderly persons with disabilities, assisting
    more than 1,000 families. More than 30 organizations provided housing
    services for the elderly, benefiting nearly 2,800 households.
        Neighborhood Reinvestment provides financial resources, leadership,
    research and information that benefit the aging and the disabled.
    Expendable and capital grants help fund housing and support
    NeighborWorks organizations' efforts to assist residents.
    Neighborhood Reinvestment publishes information, such as a recent paper
    written in conjunction with the Joint Center on Housing, Aging and
    Health Care and ``Winning Strategies'', best practices from the
    NeighborWorks network. The Corporation convenes forums for
    discussion such as the upcoming Neighborhood Reinvestment Training
    Institute that will include a symposium on ``Aging in Place''.
    Neighborhood Reinvestment is also exploring opportunities for
    collaboration with AARP.
        The following is merely a sampling of the ways that
    NeighborWorks organizations are assisting the elderly and
    persons with disabilities to meet their particular housing needs.
    Chattanooga, Tennessee
        Chattanooga Neighborhood Enterprise in partnership with the Alexian
    Village of Tennessee has begun construction on a $4.5 million
    conversion of the St. Elmo Elementary school into an apartment complex
    for the elderly to be known as the Alexian Court apartments. Financing
    the conversion of the 95-year old building is one of the most complex
    deals Chattanooga Neighborhood Enterprise ever put together, which
    included eight sources of funds. Funding includes historic preservation
    and low-income tax credits, partners' equity, grants and a mortgage.
    Neighborhood Reinvestment's flexible $200,000 capital grant covering a
    portion of the pre-development and development costs was critical to
    making the deal work. The City of Chattanooga donated the school
    property (vacant since 1989) for the project, but did not provide any
    tax money to the effort.
        Alexian Court, future home of residents age 62 and older, will
    contain 47 units. Rents will range from $450 to $600. Resident income
    will be limited to a maximum of 60 percent of median income. The
    development was planned with input from neighborhood residents, who
    wanted to preserve the structures and bring back the original look of
    this Victorian neighborhood. The complex is composed of two school
    buildings plus eight duplex bungalows. A third building, formerly the
    cafeteria and gymnasium, will become a community center for residents
    of the entire St. Elmo neighborhood.
    New Haven, Connecticut
        The Mutual Housing Association of South Central Connecticut (MHA)
    is committed to developing economically, ethically and culturally
    diverse communities that are accessible and affordable. This commitment
    adheres to the principles of equal-opportunity housing, which ensures
    access and inclusion for people with disabilities. MHA strives to
    comply with and exceed regulations set forth by the Americans with
    Disabilities Act to accommodate people with disabilities at Mutual
    Housing properties. This is reinforced through organizational policies
    that include an affirmative fair housing marketing plan and fair
    housing policy, an affirmative-action policy, and an ADA notice and
    grievance policy that provides prompt and equitable solutions to
    complaints. In addition, MHA's resident-selection process was approved
    by the Connecticut Department of Housing in 1994.
        MHA staff, board members and residents participate in ongoing
    training to keep apprised of fair housing developments, and planning,
    monitoring and evaluation to insure accessibility for people with
    disabilities at Mutual Housing properties. Current activities include
    evaluation and audit of structural design and compliance with housing
    code, marketing to people with disabilities, and supporting disabled
    residents in securing rental assistance through Section 8. Because of
    coordination with social service, church and community agencies such as
    the Center for Disability Rights, and Shoreline Association for
    Retarded and Handicapped Citizens, MHA receives guidance in ensuring
    properties are accessible, marketing to people with disabilities and
    providing support for disabled residents.
    Chicago, Illinois
        Roseland Ridge Apartments is a $6.4-million, affordable-housing
    development in Roseland, a neighborhood on the far South side of
    Chicago. Roseland Ridge provides 40 units of high-quality housing for
    people making less than 60 percent of the area median ($40,750 for a
    family of four). The development contains one- and two-bedroom, garden-
    style units and two- and three-bedroom duplexes. Each unit features
    such amenities as central air conditioning, washers and dryers, off-
    street parking, security systems, and patios or balconies. Rents range
    from $525 to $665.
        The development was a collaborative effort of Neighborhood Housing
    Services of Chicago, government agencies, other nonprofits and business
    partners. The city Department of Housing provided more than $2 million
    in low-interest loans and $445,270 in Federal low-income housing tax
    credits, which generated nearly $3 million in equity. The project
    received additional financing and support from Bank of America, the
    Illinois Department of Commerce and Community Affairs, State Farm
    Insurance, and others.
    Rutland, Vermont
        Rutland West Neighborhood Housing Services won a Housing
    Preservation Grant from Rural Development in 2000 to rehabilitate 20
    homes belonging to very low-income residents in a tri-county region.
    The grant proposal featured a partnership between Rutland West
    Neighborhood Housing Services and the Vermont Center for Independent
    Living and gives immediate priority to very low-income individuals/
    households with special needs. Examples of typical projects include
    access modifications for individuals discharged from the regional
    medical center and for mentally retarded/mentally ill individuals
    attempting to live independently.
                         section 8 homeownership option
        Question. The Administration's 2003 request funds the Section 8 to
    Homeownership program at nearly 10 percent of Neighborhood Reinvestment
    Corporation's budget. Is it working? What will be achieved with the new
    funds?
        Answer. Overall, we consider the initiative to be going very well
    and there continues to be great interest among the
    NeighborWorks network as well as public housing authorities
    and lender partners.
        Nationally, through the end of December 2001, HUD's Section 8
    Homeownership Option had assisted 135 Section 8 families to purchase a
    home using the Section 8 homeownership option. Ninety-two of those
    families--representing 68 percent of all of the Section 8 families
    assisted nationally--were in sites where there was assistance from a
    NeighborWorks organization. Nearly 1,600 Section 8 families
    are in the homeownership pipeline of the 21 NeighborWorks
    sites, and 560 of these families have already completed a pre-purchase
    counseling course. The 21 funded NeighborWorks organizations
    have partnered with 27 public housing authorities in providing this
    option to Section 8 families, with an additional 15
    NeighborWorks/public housing authority partnerships currently
    under development. Certainly, the 2003 request would enable us to cast
    our net even further to more communities, more public housing
    authorities and more Section 8 families.
        We are meeting our established production goals for this
    initiative. We are also collecting data on the families assisted by
    NeighborWorks organizations and developing best practices.
    Our most important work is reaching out to public housing authorities,
    to inform their decisions on this option and to encourage partnerships
    among local public housing authorities, community-based nonprofit
    organizations and lenders in implementing the homeownership option. Our
    experience has demonstrated that to be successful at creating
    sustainable homeowners through this option, such partnerships are
    critical.
        There have been a number of challenges that we would like to share
    with you.
        There are limited opportunities for our NeighborWorks
    organizations to recapture the higher administrative and counseling
    costs associated with this initiative. High-quality pre- and post-
    purchase counseling is important to creating successful and sustainable
    homeowners. This is particularly true for families of modest means.
    NeighborWorks organizations have invested substantial
    resources thus far in preparing a pipeline of mortgage-ready Section 8
    buyers. In some markets it is taking up to three times longer in
    preparing a Section 8 buyer than what we find with a typical
    NeighborWorks first-time homebuyer.
        Lenders have responded positively to providing the first mortgages,
    which are accompanied by a second mortgage provided by another source,
    such as a NeighborWorks organization, and paid down by the
    Section 8 voucher. However, few national lenders are positioned to
    manage multiple payments for mortgage--e.g., one from the public
    housing authority and one from the family. Loan servicing is more
    complicated--and therefore more costly--with two payments for one
    mortgage, which poses a challenge for most conventional lenders.
        Knowing the growing expertise among selected
    NeighborWorks organizations, public housing authorities have
    approached NeighborWorks organizations for assistance in
    developing and implementing a Section 8 homeownership option.
    Neighborhood Reinvestment is challenged to help NeighborWorks
    organizations address these exciting opportunities and expand where
    appropriate.
        We feel it is important that we share the learning of the funded
    sites with other interested NeighborWorks organizations and
    the broader community development field. We developed a course offered
    at the Neighborhood Reinvestment Training Institute on the
    homeownership option. Further, we distribute best practices on this
    option.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

                              multifamily housing
        Question. What kind of experience has your organization had in
    producing rental housing for extremely low-income families while
    maintaining the property's long-term viability? Is it possible to
    structure properties with only up-front capital so that on-going
    subsidy needs are not necessary? Lastly, how much money is Neighborhood
    Reinvestment Corporation dedicating to its multifamily activities and
    what other resources it is using?
        In 1999, Neighborhood Reinvestment and the NeighborWorks
    network launched the NeighborWorks Multifamily Initiative in
    order to bring high standards in asset management and peer learning to
    those NeighborWorks organizations that own or manage
    multifamily rental properties. The members of the Multifamily
    Initiative own nearly 30,000 units and make it their mission to provide
    multifamily homes, which are marked over the long-term by:
      --Affordability;
      --Well-maintained and attractive physical condition;
      --Access to learning centers for the technological and social
            infrastructure of educational success; and
      --Ongoing economic viability.
        Guided by these principles, NeighborWorks organizations
    attempt to make units affordable without sacrificing the long-term
    economic viability of the property. In support of these principles,
    Neighborhood Reinvestment grants are provided, which help increase the
    equity position of the NeighborWorks organizations in the
    properties, thereby reducing the need for debt. Lower debt is key to
    these goals, freeing the operating budget to support higher levels of
    replacement reserves, asset management fees, and much needed services.
        The following are some observations NeighborWorks
    organizations and Neighborhood Reinvestment have found in serving
    extremely low-income families.
        Forty percent of area median income is the ``breaking point''.--In
    most markets, the fundamental economics of serving families with
    incomes under 40 percent of area median income is infeasible without
    subsidy. A housing burden of 30 percent of household income yields a
    rent payment that is less than operating expenses--those costs
    necessary to maintain the unit and keep it on-line--leaving no cash to
    repay loans.
        Market areas vary widely.--The communities served--rural, low-
    income urban, and higher-income suburban, for example--vary in
    character and social dynamic, which therefore affect the property's
    market appeal and market rent. Development and operating costs vary
    greatly across markets. Designing a Federal program that fits the
    varied markets of this country and the varied needs of families is
    exceptionally difficult.
        Mixed income strategies can be used.--To house families in this
    income range some form of subsidy is essential. Theoretically, a
    property with a 100 percent capital grant for development enables
    internal cross subsidization--having units with higher rents cover the
    operating costs and debt service for those units rented to extremely
    low-income families--to some degree. This may be one solution for
    smaller properties in lower income markets, which is often the case for
    revitalization areas. Larger properties in higher income markets may
    need a smaller grant, since it can support perhaps up to 50 percent of
    the development cost of the property.
        Rental subsidy approaches serve as a solution as well.--Section 8
    vouchers and rental assistance from USDA Rural Development enable
    properties to house extremely low-income households in all markets.
    This operating subsidy over the long term also enables use of debt,
    instead of grants.
        Feasibility of older, smaller properties demands realistic
    maintenance, replacement and utility budgeting.--
    NeighborWorks properties represent all types of rental
    housing--1 to 3 unit houses, small apartments, and large. They tend to
    be older (over 20 years old), and many of the properties are smaller,
    30-60 units in size. As with all existing, older stock, they carry
    higher expenses in the areas of maintenance, replacements, and
    utilities. Property--and therefore neighborhood--success depends upon
    realism in budgeting for these critical cost areas.
        When housing extremely low-income families, a modest operating
    investment in an amenity package targeting personal asset building
    supports the long-term viability of the properties.--Most extremely
    low-income families have access barriers to the ``economic ladder''.
    These barriers include night jobs, which require older children to step
    into oversight roles for younger children after school; language
    barriers; transportation; and lack of post-secondary or even complete
    high school education at the parental level. As the percentage of
    extremely low-income residents increases in a property, access to
    resident-directed, personal asset-building services becomes critical.
    In addition to advancing resident goals, these services have been shown
    to enhance the long-term viability of the property, in terms of
    improved occupancy and collections; reduced turnover; and lowered
    security and maintenance costs. These costs are built into the budgets
    of a number of the ``live properties'' in amounts which may exceed the
    ``minimum levels'' allotted for in the ``model properties''. The
    experience of our NeighborWorks organizations shows that an
    additional operating expense of approximately $25 per unit per month,
    while inadequate to support an intensive welfare-to-work package, is
    adequate to maintain services important to a viable apartment community
    serving extremely low-income households.
        Short-term acquisition loans are needed.--Because the vast majority
    of NeighborWorks properties are existing,
    NeighborWorks organizations are often purchasing them to
    either prevent the loss of affordability or to reverse years of
    neglectful ownership. In either event, the seller oftentimes requires a
    90 to 120 day acquisition timeframe. In such cases, the acquisition may
    need to occur prior to all subsidy layers being in place. Short-term
    acquisition funding has been historically missing from the marketplace,
    and therefore properties that could be preserved have been lost. To
    fill this historic gap in funding, Neighborhood Reinvestment and the
    NeighborWorks network formed the Neighborhood Capital
    Corporation, which provides subordinate loans for up to 25 percent of
    the purchase price. These loans will leverage up to nine times the
    capital from the conventional lenders in the first mortgage position.
        Because of this Subcommittee's leadership on multifamily rental
    issues, we were able to nearly double our planned budget for
    multifamily activities in fiscal year 2002. Combined with the $5
    million set-aside, Neighborhood Reinvestment allocated nearly $10.4
    million to multifamily activities, 85 percent of which were distributed
    in the form of equity grants.
                        assistance for native americans
        Question. Please describe Neighborhood Reinvestment Corporation's
    activities on Indian Lands. Also, please describe the major impediments
    to homeownership you have found.
        Answer. When Neighborhood Reinvestment was created by Congress in
    1978, we primarily focused on urban areas. However, the Corporation's
    commitment to serving underserved markets and populations led us into
    Indian Country. Although the environments are different, the inability
    of low- and moderate-income individuals to gain access to homeownership
    lines of credit is similar.
        Individual NeighborWorks organizations have developed
    programs to meet the needs of local Native American populations. These
    programs are varied according to the geographic region served by an
    organization, the needs of each community, and the organization's
    capacity. At least ten NeighborWorks organizations have
    developed specific programs to assist Native Americans, though many
    more work with Native Americans on a case-by-case basis.
        The Neighborhood Reinvestment Training Institute has offered
    training opportunities for Native Americans and those working in Indian
    Country. One course, ``Developing a Homeownership Program in Indian
    Country,'' was offered at the Minneapolis Institute in October 2001.
    Numerous scholarships have also been offered for Native Americans
    attending other institute classes.
        Neighborhood Reinvestment was a catalyst behind the One Stop
    Mortgage Center Initiative in Indian Country, a 2-year study sponsored
    by HUD and Department of the Treasury that paired Federal agencies,
    financial institutions, and Tribal representatives to jointly identify
    the barriers to mortgage products and solutions to lending in Indian
    Country.
        Focusing exclusively within tribal land, the Navajo Partnership for
    Housing, in Window Rock, Arizona, was created by Neighborhood
    Reinvestment at the request of the Navajo Nation in 1996 to increase
    homeownership opportunities throughout the Navajo Nation, working in
    partnership with a variety of lending institutions and government
    agencies.
        Most NeighborWorks organizations that serve native
    communities also work with non-natives. For example, over 53 percent of
    Fairbanks Neighborhood Housing Services' clients are Alaskan native, to
    whom they provide important and culturally-relevant homebuyer education
    and housing counseling services in partnership with the local Indian
    Housing Authority. Partnerships are critical to these programs.
    Neighborhood Housing Services of Santa Fe is working with four Pueblos
    in northern New Mexico--Santa Ana, San Juan, Santo Domingo and Jemez--
    to build the capacity of the tribes to offer high quality homeownership
    opportunities. In Montana, the newly formed statewide Montana
    Homeownership Network, an initiative started by Great Falls
    Neighborhood Housing Services, has included the Assiniboine and Sioux
    Tribal Enterprise Community.
        Neighborhood Reinvestment has provided financial support to Sicangu
    Enterprise Center, an affordable housing and loan provider, for the
    past 13 years. Sicangu Enterprise Center provides services to the
    Rosebud Reservation in southern South Dakota. The Rosebud Reservation
    experiences a 74 percent unemployment rate, and the average income is
    just over $10,000 per year. Housing is at such short supply that the
    Housing Authority on the Reservation maintains a waiting list of 1,000
    families.
        Native American housing and economic development issues are
    fundamentally different than affordable housing needs of other
    populations. Most native communities suffer from very weak economies,
    with few job opportunities and critically low incomes. When these
    market challenges are coupled with unfamiliarity or incompatibility
    with conventional mortgage models and lands held in trust by the Bureau
    of Indian Affairs, the housing needs and issues grow severe and
    complicated.
        Our NeighborWorks organizations also report the impact of
    non-streamlined mortgage lending process across various Federal
    agencies and Government Sponsored Enterprises. The lack of standard
    lease and loan documents presents confusion and breeds distrust and
    reluctance among uninformed buyers.
        NeighborWorks organizations are currently enhancing the
    readiness of Native Americans to become homeowners through financial
    literacy, culturally sensitive homebuyer education, credit repair and
    savings programs. However, other private and public entities need to
    contribute to these efforts in order to significantly improve the
    prospects for homeownership among Native Americans. For example, the
    home-buying process would be eased through the increased availability
    of title insurance and appraisals for Native American buyers, and
    through reducing lender transaction costs, largely a function of the
    time it takes to process loans. Finally, NeighborWorks
    organizations have witnessed the need for local municipalities to
    encourage land use planning and infrastructure development, and for
    more training and support of private non-profits and Indian Housing
    Authorities to deliver mortgage based homeownership programs.
                            section 8 homeownership
        Question. Neighborhood Reinvestment has received $15 million over
    the past 2 years to expand partnerships between NeighborWorks
    organizations and PHAs in implementing the Section 8 homeownership
    option. For fiscal year 2003, you are requesting another $10 million
    set-aside.
        Answer. Why are the NeighborWorks organizations
    participating in the Section 8 option and what value do they add? Do
    you have any suggestions, based on your early experience, to improve
    the program? Lastly, do you anticipate that after you have established
    a track record for the program that conventional lenders may provide
    financing?
        We believe that NeighborWorks organizations bring three
    competencies to this option that will help make it a long term
    success--the deep expertise in preparing families of modest means for
    the responsibilities to be homeowners, the experience of bridging the
    gap between the private market and public funding, and the dedication
    to the long term success of neighborhood revitalization and individual
    family stabilization.
        Neighborhood Reinvestment Corporation and the
    NeighborWorks network bring years of experience in helping
    families of modest means become successful long-term homeowners. For
    the past 10 years, many NeighborWorks organizations have
    consciously focused on homeownership as a strategy to further
    neighborhood revitalization. And we have done so with remarkable
    results--since 1992, the NeighborWorks network has created
    more than 53,000 homebuyers of modest means.
        Since 1998, the median income of the typical buyer through a
    NeighborWorks organization is $29,472, while the median
    income of the typical U.S. buyer is $51,642. Ninety-five percent of the
    NeighborWorks buyers are first-time buyers, over 52 percent
    are ethnic minority--compared to 19 percent by the conventional
    mortgage market--and 43 percent are female buyers.
        As a result of assisting so many underserved families, the
    NeighborWorks system brings with it a unique set of tools
    that are targeted to families similar to those found in the Section 8
    homeownership program. The Section 8 homeownership option allows the
    NeighborWorks system to apply its deep experience to lower
    income population.
        The foundation of NeighborWorks organizations'
    significant experience and success in creating homeownership
    opportunities for those of modest means is their expertise in Full-
    Cycle LendingSM, which emphasizes pre- and post- purchase
    counseling. Neighborhood Reinvestment has set rigorous standards in
    terms of curriculum content and hours. NeighborWorks
    organizations also have experience with nontraditional mortgage
    products, such as USDA Rural Development and State housing finance
    agency products, and second mortgages--all of which have proven to be
    critical pieces in building successful Section 8 homeownership programs
    across the country.
        Many NeighborWorks organizations have as their mission to
    provide homeownership opportunities for low- and moderate-income
    families--often acting as a bridge between the public and private
    sector in order to meet their mission. This long-standing partnership
    approach is critical in the success of Section 8 homeownership
    programs.
        The under-girth of neighborhood revitalization and employing
    homeownership as a strategy is that of long-term stability.
    Neighborhood Reinvestment and the NeighborWorks organization
    network believe that homeownership is a successful revitalization
    strategy only if it is sustainable. As such, intensive and, at times,
    lengthy homebuyer education and counseling are necessary. We have
    developed partnerships to begin a financial literacy pilot to further
    ready potential homebuyers and strengthen the existing asset base of
    existing homeowners. We believe the Section 8 homeownership option will
    be as successful as the individual homebuyers themselves.
        A key to making successful homeowners is intensive preparation and
    counseling. In some markets NeighborWorks organizations have
    had to triple their pre-purchase education and counseling efforts, in
    comparison to the time a typical first time homebuyer requires. To the
    extent that more resources could be dedicated to sustaining counseling
    services, we believe that the need for aggressive post-purchase
    counseling will be necessary. Certainly assisting new Section 8
    homeowners maintain the asset of their new home and avoid any predatory
    lending risk is as critical as the time and effort put into the pre-
    purchase efforts.
        Already the private market has been a strong and essential partner
    in this effort. In some cases, the private market is providing the
    entire mortgage and accepting the Section 8 voucher as income. In many
    cases, we have seen smaller, regional banks becomes the first lending
    institutions to participate, as they seem to be more nimble in
    responding to the unconventional mortgage structures. We hope that the
    activity from these banks will spur bigger financial institutions to
    become active partners in this program. Although the single mortgage
    model is fairly rare in our experience, it is an important step toward
    higher privatization of the financing for the Section 8 clients. Fannie
    Mae has been particularly accommodating with its guidelines,
    particularly in considering the voucher income in progressive ways.
    Freddie Mac has also been responsive to this program in looking for new
    ways for Section 8 mortgages to be originated.
                          overlapping federal programs
        Question. I am concerned about overlapping Federal programs. It is
    clear that Neighborhood Reinvestment Corporation works with the same
    communities and institutions that HUD and other Federal agencies work
    with.
        Answer. Please tell me about any informal and formal efforts to
    coordinate Federal activities in assisting distressed communities. How
    do your organizations ensure that its activities are not duplicative of
    other Federal activities?
        Neighborhood Reinvestment has worked to establish and maintain
    strong working relationships and communication with senior staff at
    HUD, Department of Agriculture, various offices within the Treasury
    Department, and other appropriate Federal agencies. Neighborhood
    Reinvestment staff also serve on various work groups, task forces and
    committees established by Federal agencies around specific issues.
    Through these communications, we are able to keep representatives of
    the appropriate Federal agencies informed of corporate directions and
    initiatives, and abreast of successes and challenges being encountered
    by its local affiliates at the community level. The Corporation also
    disseminates information to its affiliates regarding proposed statutory
    and regulatory changes that might significantly affect their work and/
    or the communities they serve. The Corporation submits, as appropriate,
    written comments to various Federal agencies regarding the impact that
    proposed statutory or regulatory changes may have on our affiliated
    NeighborWorks organizations or the communities they serve.
        Other Federal activities provide important complementary support to
    the work of Neighborhood Reinvestment and its local affiliates, but the
    NeighborWorks system is the only coordinated effort of its
    type in the country.
        While it is true that like HUD, Neighborhood Reinvestment focuses
    on expanding affordable housing opportunities for low- and moderate-
    income households and on community revitalization, there is in fact a
    tremendous level of difference between the mission and programmatic
    approaches of Neighborhood Reinvestment and HUD--and other Federal
    programs. Most Federal programs, particularly those available to
    nonprofit organizations, essentially fund projects or specific
    programmatic initiatives.
        Neighborhood Reinvestment does not fund freestanding projects. We
    support a national network of community-based nonprofit organizations
    through a tapestry of services. Other Federal entities may provide some
    of these services, but Neighborhood Reinvestment is the only entity
    that provides, in a systematic way:
      --A formal chartering process that requires adherence to an
            established set of vigorous requirements regarding things as
            diverse as board make-up, financial management and internal
            controls, programmatic delivery and production standards,
            quarterly reports and annual audits;
      --Comprehensive training, through the nationally recognized
            Neighborhood Reinvestment Training Institutes and other
            vehicles;
      --On-site technical assistance to staff and boards of local
            NeighborWorks organizations;
      --Quality control of all NeighborWorks organizations,
            through on-site program reviews, risk management approaches and
            review of annual audits;
      --Connectivity among NeighborWorks organizations through
            actualized peer-to-peer initiatives--such as the
            NeighborWorks Campaign for Home Ownership; the Rural
            NeighborWorks Alliance; the NeighborWorks
            National Insurance Task Force; the NeighborWorks
            Multifamily Initiative; the NeighborWorks Resident
            Leadership Initiative--and through publications, a members-only
            Web site, computer-based listserves, and other vehicles; and
      --Access to a specialized secondary market that enables
            NeighborWorks organizations to sell loans that they
            have made from their own revolving loan funds.
        Woven throughout the various organizational and programmatic
    tactics supported by Neighborhood Reinvestment is a steadfast belief
    that approaches that dictate to communities, or decide what is in the
    best interest of communities, or attempt to ``parachute'' help into
    communities, are inevitably doomed to failure. The Corporation firmly
    believes that community residents, armed with appropriate information
    and tools, are the only ones who truly have the ability to change their
    neighborhoods.
        By statute, our Board of Directors includes representatives from
    the five Federal banking regulators--Board of Governors of the Federal
    Reserve System, Comptroller of the Currency, National Credit Union
    Administration, Federal Deposit Insurance Corporation, and Office of
    Thrift Supervision--and HUD. This relationship uniquely situates
    Neighborhood Reinvestment to act as a bridge between the all-too-
    separate worlds of housing and the financial services industry, as well
    as between government, the for-profit and nonprofit environments. For
    example, a recent partnership with the Federal Deposit Insurance
    Corporation resulted in the NeighborWorks network using the
    FDIC's Money Smart financial literacy program. This curriculum will
    help train adult educators and teach money management skills to
    thousands of people. In addition, our work with HUD on the Section 8
    homeownership option allowed for coordination of efforts, and created a
    delivery system for advancing the homeownership option.
        As a result of these and other efforts, no organization can match
    the demonstrated track record of Neighborhood Reinvestment and its
    affiliates when it comes to leveraging Federal resources--and
    attracting private capital in support of distressed urban, suburban and
    rural communities across America.
        After more than two decades of experience, the
    NeighborWorks network now serves approximately 2,100 urban,
    suburban and rural communities across America--and is uniquely
    positioned to not only continue to serve as a laboratory, but also
    serve as a fast track implementation testing ground for new approaches.
        Further, the Corporation has always believed its public
    responsibility goes far beyond the direct services we provide to the
    NeighborWorks network--and as such, we have always attempted
    to share our learnings and experiences to support and strengthen the
    broader housing and community development field.
                                   oversight
        Question. Ms. Lazar, could you tell us how Neighborhood
    Reinvestment Corporation is able to provide adequate oversight and
    ensure accountability within the NeighborWorks system?
        Could you also discuss what sort of risk-management system you have
    in place to monitor your affiliates?
        Answer. We are strongly committed to promoting and maintaining a
    network of productive, well-managed, nonprofit community development
    corporations that deliver high quality services responsive to local
    needs and have a measurable impact on communities. One of the tools
    employed in doing this is a uniform program review and assessment
    system. The purposes of this system are to assist in:
      --Enhancing the performance and productivity of network
            organizations;
      --Assessing the health and risk-taking capacity of individual network
            organizations and the network as a whole;
      --Determining organizational compliance with Neighborhood
            Reinvestment Corporation, Neighborhood Housing Services of
            America and related contract and network standards;
      --Evaluating whether organizations are using Federal funding from
            Neighborhood Reinvestment appropriately; and
      --Assessing newly developed or potential affiliate organizations to
            ensure their capacity to meet NeighborWorks network
            membership standards and performance objectives.
        The heart of the system is a set of performance standards used to
    assess a NeighborWorks organization's health and how well it
    manages risk. Recognized by the PROMPTSM acronym,
    organizations are evaluated using performance standards in eight areas:
    P--PLANNING
        How well does the organization's mission accord with Neighborhood
    Reinvestment's and to what degree does strategic and business planning
    support this mission?
    R--RESOURCE DEVELOPMENT
        Does the organization have sufficient operating and capital
    resources to support organizational needs and an active oversight
    process to monitor fund-raising progress and the status of the budget?
    O--ORGANIZATIONAL OVERSIGHT
        How well is the Board meeting its fiduciary responsibility in
    overseeing an organization's operations, its finances, its production
    and contract management, and its planning? How well is resident
    participation enabled through the Board?
    M--MANAGEMENT
        Financial Management.--How well does the accounting and financial
    management system provide current and accurate records of the
    organization? Does the Board receive timely financial reports that are
    understandable?
        Contract Management.--Is the organization meeting its contractual
    obligations with funders including production and reporting and how
    satisfied are funders with the organization's performance?
        Personnel Management.--Are there legally sound and updated
    personnel policies in place that are followed? What is the status of
    the performance appraisal system and is the executive director
    regularly appraised?
    P--PRODUCTION/PROGRAM SERVICES
        How congruent is production and provision of services with the
    wants of the community and is the level of production consistent with
    the resources available to the organization?
    T--TECHNICAL OPERATING SYSTEMS
        Are standard operating procedures and practices consistent with
    legal and funding source requirements and do they promote an effective
    and efficient delivery of services?
        Through a system of continuous monitoring, each
    NeighborWorks organization is subject to an annual risk
    assessment through either off-site or on-site program reviews.
        Off-site reviews involve the collection and analysis of all data
    available about the organization from within Neighborhood Reinvestment
    and from Neighborhood Housing Services of America. Data for each
    organization is analyzed quarterly in terms of eight risk areas. If a
    risk alert is identified, we determine whether the organization has the
    capacity to manage the risk. In cases where more information is needed
    or where the risk is deemed to be serious, an on-site review is
    scheduled.
        On-site reviews of organizations are conducted in addition to off-
    site reviews for approximately two-fifths of the
    NeighborWorks organizations each year. There are several
    conditions that would lead to an on-site review. An on-site review may
    be an outcome of an off-site review where serious risk was discovered.
    All new applicants for membership are evaluated on-site before being
    offered a charter as a NeighborWorks member. An on-site
    membership review is conducted for new network members within 2 years
    of chartering.
        A typical on-site review involves three phases: preparing for a
    review, conducting the review, and reporting review results. In
    preparation for a review, the review team evaluates documents that have
    been requested from the organization, analyzes all available data
    within Neighborhood Reinvestment about the organization, and reviews
    outcomes from the previous on-site review. The actual site-visit
    involves typically one to three reviewers depending on the size and
    complexity of the organization. Most visits last three days and the
    review team employs interview, documentation, and observation
    techniques in assessing capacity and risk management in the
    organization. Finally, the review team prepares a site-visit profile
    that will be used by Neighborhood Reinvestment's Risk Management Unit
    in its continuous risk monitoring system until the next on-site review.
        Question. When you identify an organization as ``troubled,'' what
    actions do you take?
        Answer. For a complete response to how we address troubled
    organizations, please see our response to the Chairman on page 8.
        Question. I understand that you revoked the NHS of St. Joseph,
    Missouri. What happened to them?
        Answer. Neighborhood Housing Services of St. Joseph has recorded
    many accomplishments over its 10-year history. It has done much to
    revitalize neighborhoods and offer homeownership opportunities to an
    under-served segment of the community. It can be proud of what it has
    created.
        However, the last few years have been extremely difficult for this
    organization. The City of St. Joseph withdrew its financial support of
    the Neighborhood Housing Services in early 1999. Loss of a major
    funding partner can be a devastating blow to an organization working in
    a relatively small community. Along with this loss of funding came a
    continuing decrease in support from the insurance and lending
    institutions.
        The organization had a number of directors who had served on the
    Board for many years. Their dedication allowed Neighborhood Housing
    Services of St. Joseph to significantly improve neighborhoods over the
    years. In spite of their fervor, the Board was unable to pull together
    and successfully compete for additional resources to fill the void left
    by the City's withdrawal of support.
        Faced with seemingly overwhelming issues, the Board numbers
    continued to decrease to its present seven directors. Reduced revenues
    resulted in elimination of staff positions and, with them, significant
    reduction in programs and services. Neighborhood Housing Services of
    St. Joseph no longer provides lending services, nor does it have the
    capacity to offer post-purchase counseling or foreclosure prevention.
        Further, with a soft real estate market, the organization found
    itself in a situation in which it can no longer be assured of
    recapturing its investment in properties it purchased with the intent
    of rehabbing for resale. These uninhabitable properties are generating
    no income, but are a continuing drain on the organization's limited
    resources because of required maintenance and security.
        Our last program review concluded the following:
      --Neighborhood Housing Services of St. Joseph incurred a major budget
            deficit last year and lacks the capacity to provide adequate
            systems to monitor, control and resolve the impact on the
            organization.
      --The Board's financial oversight and decision-making practices do
            not ensure compliance with their fiduciary responsibility to
            safeguard the organization's assets.
      --The organization can no longer pay staff salaries, and medical
            benefits were withdrawn 2 months ago.
      --Neighborhood Housing Services of St. Joseph no longer has the staff
            capacity or funds to ensure quality delivery of program
            services. There is no capacity/procedures to adequately mange
            rental/lease purchase programs.
        Based on the findings of the review, it is our recommendation that
    the Board work quickly to dissolve Neighborhood Housing Services of St.
    Joseph. It is not an easy decision to make, but the Board can be
    assured that Neighborhood Reinvestment will work closely with them in
    this process. To continue to operate this agency with full awareness of
    its severe funding deficit only increases the continuing liability to
    the organization. The Board can no longer assure the quality of
    programs and services that the organization is providing. The Board
    also can no longer assure accurate and proper reporting or tracking of
    the organization's assets.
                       george knight scholarship program
        Question. Two years ago, we provided $2.5 million to endow a
    ``George Knight Scholarship Fund,'' named after our good friend and
    former Executive Director, George Knight. This fund was established to
    allow local leaders, community developers, and residents to receive
    training from your training institute.
        Can you give us an update on this program? Is there a large demand
    for this program?
        Answer. The George Knight Endowment Fund has begun to fill a deep
    need within the community development field--that of providing
    financial support to worthy community development professionals who
    might otherwise not be able to attend the Neighborhood Reinvestment
    Training Institute. Since Congress' initial investment of $2.5 million
    is used as an endowment, the George Knight Endowment Fund will be able
    to provide access to high-quality training for years to come.
        To date, George Knight scholarships have been awarded to 242
    Neighborhood Reinvestment Training Institute participants for a total
    $134,612. As indicated in the chart below, the number of awards granted
    decreased for the Minneapolis and San Francisco Training Institutes
    when interest earnings on the endowment declined.

                          GEORGE KNIGHT ENDOWMENT FUND ACTIVITY SUMMARY--APRIL 2001-APRIL 2002
    ----------------------------------------------------------------------------------------------------------------
                                                                                        Scholarship
     Neighborhood Reinvestment Training Institute                 Dates                 Recipients        Awards
    ----------------------------------------------------------------------------------------------------------------
    Chicago 2001..................................  April 15-20.....................              44         $22,534
    Washington, DC 2001...........................  August 19-24....................              54          32,925
    Minneapolis 2001..............................  October 14-19...................              23          14,770
    San Francisco 2001............................  December 9-14...................              21          11,293
    Atlanta 2002..................................  February 17-22..................              38          17,540
    Chicago 2002..................................  April 2-6.......................              62           35,10
                                                                                     -------------------------------
          Total...................................  ................................             242         134,162
    ----------------------------------------------------------------------------------------------------------------

        As a result of Congress' investment, we have secured $1 million
    from Washington Mutual to capitalize a similar scholarship endowment.
                                 elderly needs
        Question. Ms. Lazar, there are tremendous housing needs for the
    elderly and disabled populations in this country. In St. Louis, for
    example, there is a significant shortage of affordable housing that
    meets ADA requirements.
        What are Neighborhood Reinvestment Corporation and its network
    doing to address these needs?
        Answer. For a complete response, please see our answer to the
    Chairman on page 13.
                                  cdc mergers
        Question. I am excited about the merger of the St. Louis NHS and
    Beyond Housing. Not only will this merger combine the talents and
    skills of these successful organizations, it will enable them to take
    on larger scale projects.
        What are your views about mergers? Why are mergers important?
        Answer. We have encouraged and assisted an increasing number of
    mergers in our network over the last 5 years. There is no question that
    the proliferation of nonprofit community-based development
    organizations has led, in some instances, to potential duplication of
    effort and stretched resources. There are also instances, like St.
    Louis, where two strong organizations discover new opportunities by
    joining hands. Neighborhood Reinvestment is committed to supporting
    local solutions and local governance. However, we are also committed to
    deploying our precious resources as effectively and efficiently as
    possible. We will continue to respond very positively to inquiries
    about merger partners and we will continue to provide technical
    assistance, evaluation and support for member organizations who seek to
    create additional strength, health or efficiency through mergers. I
    should note that the amount of time, politics and negotiations involved
    in merger activities can never be underestimated.
                                  land trusts
        Question. Ms. Lazar, one impediment to developing affordable
    housing is the cost of acquiring land. I am interested in the use of
    land trusts.
        Do you see this as a viable tool for developing and maintaining
    affordable housing? To what extent is Neighborhood Reinvestment
    Corporation promoting the creation of land trusts?
        Answer. While Neighborhood Reinvestment has not promoted the
    creation of land trusts as an affordable housing tool, we have actively
    supported applications from non-profit land trusts seeking to become
    network members. Land trusts appear to be most abundant on the east and
    west coasts. Several of the members of our network in the State of
    Vermont are land trusts, including one of our premiere Section 8 to
    Homeownership pilot sites, the Burlington Community Land Trust.
    Ultimately, the land trust concept appears to be suitable in some
    geographic locations and less appealing in others.
        The Neighborhood Reinvestment Training Institute offers a course on
    ``Community Land Trusts: A Tool for Neighborhood Revitalization.'' The
    course describes how community land trusts combine affordable private
    home ownership with community ownership of land to help turn
    deteriorating neighborhoods into neighborhoods of choice and help
    prevent displacement of low-income residents due to gentrification. It
    educates participants on the creation of a land trust, how land trusts
    can be used as part of a comprehensive neighborhood revitalization
    strategy, and how a land trust seeks to balance the seemingly competing
    goals of providing homeowners with a fair return on their housing
    investment while ensuring that housing is kept permanently affordable
    for future occupants.
                              resident involvement
        Question. Neighborhood Reinvestment has always had a focus on
    developing resident leaders as a strategy that leads to neighborhood
    revitalization.
        Can you tell us how you engage residents and develop leaders? Why
    is this an important component for your work?
        Answer. Most community development efforts in this country grew out
    of problem-solving efforts by neighborhood residents at the local
    level. Early in this movement, resident leaders were regularly in the
    driver's seat in determining priorities and strategies for revitalizing
    their neighborhoods. As time passed and community development
    activities became more sophisticated, things began to change. Resident
    leaders on community Boards began to disappear to be replaced by
    professionals with finance, housing development and legal backgrounds.
    Staff recruitment that had once emphasized leadership development
    skills and neighborhood organizing experience, now focused on
    practitioners with the same finance and development skill sought for
    Boards of Directors. And as funders have increasingly emphasized unit
    production as a primary measure of organizational effectiveness,
    technical skill and expertise at the Board and staff level has been in
    even greater demand. The debate about the dwindling number of resident-
    led organizations has been fueled by the increased complexity and
    attendant risks that characterize community development activity and
    the honest questions that have been raised about the kind of skill and
    oversight needed at the Board level to manage these sophisticated
    institutions.
        Resident leaders are developed through a variety of strategies:
      --Many NeighborWorks organizations incorporate resident
            leadership development directly into their staffing and
            business plans.
      --Our Community Leadership Institutes provide training for resident
            leaders. Residents return prepared for deeper leadership roles
            in local NeighborWorks organizations.
      --Our Resident Leadership Initiative is building resources to support
            community leadership development at the wider neighborhood
            level, bringing both homeowners and renters into community
            leadership forums.
      --The Multifamily Initiative provides specialized resident leadership
            development resources, to ensure that rental residents are
            trained in asset management, so that they can be knowledgeable
            participants in Boards, committees, and resident councils.
        Neighborhood Reinvestment grew out of a resident-led effort--one
    that started with residents, and grew to include public and private
    partnerships. This three pronged partnership ensures that the products
    and outcomes remain firmly grounded in and accountable to a legitimate
    customer base. The credibility of our work rests on our commitment to
    insuring that resident leaders are at the heart of the work of our
    network.
                                     ______

    Questions Submitted to the Community Development Financial Institutions
                                      Fund

               Questions Submitted by Senator Barbara A. Mikulski

        Question. What criteria do you use for certifying new CDFIs?
        Answer. The CDFI certification criteria are prescribed in the
    Fund's regulations and application materials. There are six criteria:
    (1) having a primary mission of community development; (2) serving an
    eligible Target Market; \1\ (3) being a financing entity; (4) being
    accountable to the Target Market; \2\ (5) providing development
    services (training or technical assistance) to borrowers and potential
    borrowers; (6) and being a non-governmental entity. CDFI certification
    does not entail a competitive process, applicants for certification are
    deemed to either meet the criteria or not.
    ---------------------------------------------------------------------------
        \1\ Target Market is defined as an Investment Area(s) and/or a
    Targeted Population(s).
        \2\ Market Accountability is defined as having area and/or
    population representation on its governing board or otherwise.
    ---------------------------------------------------------------------------
        Question. What is the process for certification?
        Answer. An entity may apply for CDFI certification to the Fund at
    any time or it may do so in conjunction to applying for funding under
    the CDFI Program. Once a certification application is received, it is
    first reviewed for completeness. When deemed to be complete, a staff
    reviewer determines whether the applicant meets the six tests described
    above. The reviewer makes a certification recommendation, which is then
    reviewed for approval by a Program Manager. If the applicant is
    certified, it receives a letter that describes its Target Market and
    the end of the term of the certification (3 years from date of
    approval). If not certified, the applicant is sent a letter describing
    which of the tests it did not pass. CDFIs must be re-certified every 3
    years. As of February 15, 2002, the Fund has certified 553 CDFIs in all
    50 states, DC, USVI, and PR.
        Question. How do you monitor the performance of CDFIs? Has the Fund
    ever revoked the certification of a CDFI?
        Answer. Annual Reporting.--The Fund requires awardees to submit
    performance and financial reports on a semi-annual and annual basis.
    Performance reports indicates how well an Awardee is achieving the
    goals and measures that it negotiated with the Fund, as incorporated in
    its assistance agreement. Financial reports demonstrate the fiscal
    health of the overall operation of the Awardee organization and/or its
    affiliates. The Compliance Monitoring and Evaluation (CME) staff of the
    Fund reviews these reports.
        Reports are reviewed and awardees rated as compliant, on
    ``compliant watch'', non-compliant but not resulting in an event of
    default, or non-compliant. Awardees are automatically deemed
    noncompliant if they fail to submit required reports by the deadlines
    stated in their Assistance Agreements.
        If an Awardee is noncompliant under the terms and conditions of its
    Assistance Agreement, CME staff will contact it to discuss the
    noncompliance and its plans for improvement; CME staff then prepares
    and presents its recommendations to the Fund's Portfolio Committee.
    Corrective actions approved by the Portfolio Committee can range from
    an amendment of the assistance agreement so as to adjust for unforeseen
    conditions, to de-obligation of undisbursed funds, to (in the most
    serious cases) a demand that award funds be returned to the Federal
    Government.
        On-site Reviews.--In the very near future, the CME unit will begin
    conducting on-site visits to examine certain organizations' operations
    more closely, and to ensure their compliance with the CDFI Fund's
    requirements. Organizations will be selected for on-site visits through
    a risk assessment process, with those deemed at higher risk being
    examined first. Some on-site visits are planned to organizations that
    are not considered at higher risk in order to balance the portfolio of
    on-site visits and to establish baseline procedures.
        Program Suspensions.--In certain cases, the Fund has revoked the
    certification of CDFIs. A CDFI certification can be revoked when the
    Fund is notified of material changes in an organization, meaning that
    the entity no longer satisfies all six CDFI certification criteria. The
    manner in which the Fund learns of such changes occurs in several ways,
    including notification by a CDFI's regulator, notification by the CDFI
    itself, notification by an unrelated third party, or upon the Fund's
    review of reports submitted annually by the CDFI.
        Performance Measures.--The Fund is reviewing its current
    methodology for developing performance goals and measures to
    incorporate a more quantitative analysis of the Awardee's community
    development impact, solvency, asset quality and management capacity
    (PLUM \3\). Analysis is being conducted to identify peer groups and
    benchmark data. Based on this information, acceptable levels of
    achievement will be determined and applied to awardees to achieve the
    following: identify CDFI Fund portfolio risk and to identify CDFIs that
    have achieved higher success in fulfilling its community development
    mission. Based on this information, the Fund can conduct targeted
    analysis of its portfolio, highlight best practices that can be shared
    with the CDFI field, and better assess CDFIs' abilities to expand or
    stabilize underserved market areas.
    ---------------------------------------------------------------------------
        \3\ PLUM is defined to include P (performance effectiveness/
    community impact), L (leverage, liquidity, solvency), U (underwriting),
    and M (management).
    ---------------------------------------------------------------------------
        Yes, the Fund has revoked certification status of a CDFI. As the
    Fund is notified of material changes in a certified CDFI's
    organization, material enough so that the entity no longer satisfies
    all six certification criteria, certification statuses are revoked.
        Question. What strategies have CDFIs used in preventing predatory
    lending?
        Answer. CDFIs have been among the leaders in bringing attention to
    harm caused by predatory lending. For example, Self-Help, a CDFI
    serving North Carolina, was instrumental in documenting the results of
    predatory practices in that state. It measured the ``equity-stripping''
    effect of predatory lending. An outcome of its efforts was the
    pioneering legislation passed by the state legislature in 1999. That
    legislation decreased the attractiveness of several predatory
    practices.
        Other CDFIs have promoted public policies to reduce the corrosive
    effects of predatory lending on individuals and on neighborhood
    revitalization efforts. The Reinvestment Fund, a Philadelphia-based
    CDFI, launched a predatory lending strategy in that city in 2000; a
    year later the city council passed an anti-predatory lending ordinance.
    CDFIs also provide needed financial counseling to lower income
    households (which is one of the six requirements to be a certified
    CDFI). Knowledge gained from such counseling arms lower-income
    borrowers so that they are not victimized by predatory lending
    practices.
        Question. What strategies have CDFIs used to help victims of
    predatory lending?
        Answer. CDFIs, by definition, engage in consumer-friendly lending.
    They help provide low cost alternatives for financial services. The
    activities of a successful CDFI demonstrate that it is possible to lend
    in a manner that is not abusive. Those CDFIs that lend to individuals
    (rather than solely to businesses) are able to design loan products or
    financial services that either help correct for the damage done by a
    predatory lender or can demonstrate alternatives to abusive lending in
    low-income markets. For example, though ``payday loans'' can service a
    short-term financial need of some customers, Northside Federal Credit
    Union in Chicago developed an alternative to the ``payday loan.'' It
    provides short term, small signature loans to its members that allow
    ready access to needed cash but with interest rates and terms that are
    manageable.
        The Fund's awards have been used by CDFIs to capitalize anti-
    predatory loan products designed to help victims of abusive practices.
    NHS of New York is an example of a Fund Awardee whose loan product will
    wrap in a single re-financing first and subordinated mortgage debt, as
    well as consumer debt. This is considered a risky loan in that it
    generally requires providing a loan well in excess of the value of the
    underlying collateral (the house). Without an investment source like
    the CDFI Fund, this entity may not have had sufficient resources to
    launch the product or meet demand without extensive long-term fund-
    raising at the local level.
        The Reinvestment Fund, a Philadelphia-based CDFI, and the
    Neighborhood Lending Services, a Chicago CDFI, also have developed
    similar products to assist predatory loan victims. Such loans refinance
    predatory loans and are coupled with intensive counseling.
    Additionally, the work of Self Help (noted above) is creating a large-
    scale alternative to predatory loans. It has developed a secondary
    market for non-conforming mortgage loans, thus allowing low-wealth
    households to buy homes with conventional financial institutions
    providing financing, as opposed to meeting interest in ownership
    through the services of sub-prime lenders. Self-Help used the Fund's
    award to capitalize this effort and included a requirement that banks
    from which Self-Help purchased loans had to use the proceeds from these
    loan sales to continue making similar loans serving the low-income,
    first-time homebuyers.
        Through the BEA Program the conventional financial institutions are
    encouraged to provide products and services that would create
    constructive alternates to predatory lenders. For example the BEA
    Program encourages banks to start First Account programs and adding
    ATMs or branches in underserved neighborhoods. Increased access to such
    services foster competition and provides low-cost alternatives to
    compete effectively with check-cashers or payday lenders. Additionally
    banks are rewarded for increased mortgage lending in lower income
    areas, another alternative to non-regulated predatory lenders.
        Question. Do CDFIs ever work with FHA's inventory? Is there a role
    for CDFIs in property disposition?
        Answer. CDFIs are lenders; many CDFIs lend to developers of housing
    that is affordable to lower-income households. Many CDFIs have lent to
    non-profit developers of housing that work with FHA inventory, either
    single family or multi-family. CDFIs can make logical partners for such
    housing developers. Many CDFIs understand working with troubled
    properties and in risky markets. Developers of FHA inventory often need
    such lenders. Further, CDFIs can provide debt with flexible terms,
    allowing for lease-up or marketing periods that may be longer than
    would typically be available for housing targeted to a more affluent
    market or terms more flexible than can be provided by a traditional
    lender.
        Question. Do CDFIs help in restructuring bad loans? If so, what
    percentage of these was FHA insured?
        Answer. CDFIs often serve the most difficult to underwrite
    customers. The provision of development services (credit counseling),
    required in order to be certified as a CDFI, helps to keep these loans
    from going bad. On occasion, a CDFI may need to re-structure its own
    loans, depending on the borrower and its overall portfolio policies and
    procedures. There are only a handful of CDFIs that are FHA-insured
    lenders. Most CDFI mortgage lending is in the form of second, or
    subordinated, mortgages. The first mortgage is typically the one with
    mortgage insurance. The number of CDFI-financed deals that have had
    some FHA lending is not known. The Fund anticipates collecting loan
    level data in the near future. However, until that form of data
    collection is attained, such information is anecdotal. More
    importantly, a CDFI is often the type of lender that would be turned to
    in order to help re-finance a property if the original financing was
    inappropriate or the borrower faced potential foreclosure.
        Question. Explain the timing of the New Markets Tax Credits--when
    will they hit the street?
        Answer. To date, the NMTC Program has achieved a series of critical
    milestones. We successfully launched the allocation application process
    that introduces the New Markets Tax Credit (NMTC) Program on June 7,
    2002. The Fund anticipates that selection of applicants and the making
    of allocations will occur in early winter 2002, possibly allowing
    Allocatees time to secure investor funding and/or make investments in
    2002 with the proceeds of investment in CDEs.
        On April 20, 2001, the Fund issued guidance (which was published in
    the Federal Register on May 1, 2001 at 66 FR 21846) that provided
    general programmatic information, as required by the NMTC Program
    statute. On December 20, 2001, the Fund issued additional guidance in
    the Federal Register (at 66 FR 65806), which provided specific guidance
    on how an entity may apply to be certified as a ``community development
    entity'' (CDE). On December 26, 2001, the Internal Revenue Service
    (IRS) published temporary regulations in the Federal Register (at 66 FR
    66307) that provide guidance to taxpayers claiming New Markets Tax
    Credits (NMTCs). Also, on December 26, 2001, the Fund made CDE
    Certification Applications available through its website,
    www.cdfifund.gov.
        Question. What activities will the New Markets Tax Credits finance?
    How are those activities different from what the CDFI Fund supports?
        Answer. The NMTC Program permits taxpayers to claim a credit
    against Federal income taxes for Qualified Equity Investments (QEIs)
    made to acquire stock or a capital interest in designated Community
    Development Entities (CDEs). Designated CDEs must use substantially all
    of the proceeds from the QEIs to make Qualified Low Income Community
    Investments (QLICIs). The tax credit provided to the investor (either
    the original holder or a subsequent purchaser) is claimed over a 7-year
    credit allowance period. In each of the first 3 years, the investor
    receives a tax credit equal to 5 percent of the total amount paid for
    the stock or capital interest at the time of purchase. For the final 4
    years, the value of the tax credit is 6 percent annually. The Fund
    certifies CDEs on an ongoing basis, and will allocate NMTCs annually to
    CDEs through a competitive application process.
        The CDFI Program, in contrast, helps to capitalize community
    development lenders (CDFIs) through direct investments from the Fund.
    These investments, which take the form of grants, loans, equity
    investments and deposits, are made to qualified institutions that
    provide access to credit and capital in economically distressed and
    underserved markets. We believe that by providing financial investments
    and technical assistance support to CDFIs, they in turn will better
    serve their communities. Providing financial and other services in
    these communities helps low-income families to build wealth (through
    savings and use of financial services less costly than provided by non-
    regulated entities), increase economic self-sufficiency, and reduce
    dependence on transfer payments.
        Question. What effect will this multi-billion dollar program have
    on the CDFI fund office? Do you have enough staff to adequately oversee
    this program in addition to the fund?
        Answer. The cost to administer the New Markets Tax Credit Program
    is currently 24 percent of the Fund's administrative budget. It is
    anticipated that with full implementation of this program, from
    application review to NMTC allocation to compliance monitoring, the
    Fund's administrative costs to support NMTC Program will increase. The
    new FTEs requested in the fiscal year 2003 budget request are earmarked
    for the NMTC Program and additional administrative support staff. We
    believe that we have adequate resources to administer both the NMTC
    Program and our award programs through fiscal year 2003.
        Question. Will your management of the Tax Credits take away from
    your focus on managing the CDFI core programs?
        Answer. No. The Fund envisions that the NMTC Program will
    complement the Fund's existing programs that provide direct funds to
    community development financial institutions.
        Question. What steps is the CDFI Fund taking to improve its outcome
    measures and data collection?
        Answer. Our objective is to show how the investments we make in
    CDFIs, and the loans they make in turn, fill gaps in financial services
    for distressed areas and populations. Our program performance measures
    will show the impact CDFIs' loans made to stabilize or improve our
    Nation's underserved communities and target populations through
    community development financing activities.
        The Fund is reviewing its current methodology for developing
    performance goals and measures to incorporate a more quantitative
    analysis of the Awardee's community development impact (improvement in
    community conditions), and it's financial capacity to sustain its
    lending activities--solvency, asset quality and management capacity.
        Question. Do the grants and loans provided by the CDFI fund serve a
    unique purpose? How are they different from what is available through
    the Small Business Administration? Through Community Development Block
    Grants?
        Answer. Yes, the awards administered by the Fund serve a unique
    purpose. Investments by the Fund serve a special purpose in that they
    help to capitalize specialized loan funds that fill voids in the
    conventional capital markets. Such loan funds must serve economically
    distressed places or underserved populations. CDFIs serve a wide array
    of such communities through a wide array of financial services. SBA's
    products generally are for a range of small business loan services with
    limited risk profiles for borrowers than a small business loan fund may
    provide.
        CDFIs may lend in ways that banks, thrifts and other conventional
    lenders find too risky or unprofitable. They may lend in order to make
    major projects happen, such as by providing development loans to non-
    profit organizations; they may take subordinate (2nd or 3rd) loan
    positions to convince a bank to lend to bring a major grocery store or
    medical center into a distressed area. These institutions may take the
    first credit risk to ensure that a bank's loan meets safe and sound
    underwriting. CDFIs are distinct from other financial institutions in
    that CDFIs may provide training and technical assistance (development
    services) to borrowers and potential borrowers. This is one way that
    CDFIs build markets where conventional lenders do not see opportunity.
    Support from the Fund may allow a CDFI to absorb the cost of
    development services delivery and innovation that it could not fully
    recover through its lending operations.
        The CDBG Program provides local governments with grants, which they
    design, localized programs to meet needs of their low-income
    populations. It appears that the majority of HUD's CDBG funds are used
    for infrastructure redevelopment (such as installation of water and
    sewer lines and/or road and street improvements). Grants to low-income
    residents may be provided for housing development and rehabilitation.
    These grants sometimes are used in conjunction with loans from CDFIs
    and may be used to reduce the costs of meeting standard zoning
    requirements so as to make homeownership affordable to low-income
    people. A CDFI may make a loan to a non-profit affordable housing
    developer to help meet the project feasibility requirements for a CDBG
    grant or qualify for conventional financing from a traditional lending
    institution. CDFIs can help communities underwrite small-scale or
    scattered site affordable housing units, thus helping to improve and
    increase the Nation's stock of affordable and decent housing.
    Therefore, the capital provided by the Fund to CDFIs, which may in turn
    be used to make loans to non-profit housing developers, and the CDBG
    grants that developers may receive from HUD are in fact two
    complementary efforts that in many cases result in an increase of the
    Nation's stock of decent and affordable housing. CDFIs democratize the
    availability of credit and capital to scores of underserved communities
    and populations.
        Question. What community development activities does the CDFI Fund
    most often fund or underwrite? Please break out the activities by type,
    and grant/loan amount.
        Answer. As the following table shows, in terms of both number and
    dollar amount of awards, the Fund supports CDFIs that engage in
    housing/community facilities most frequently, followed by those engaged
    in business lending and consumer lending/financial services (the latter
    includes credit unions and banks). CDFI Intermediaries, the fourth
    category, support all types of CDFIs. Venture Capital CDFIs provide
    equity to businesses. Multi-bank CDCs are primarily business lenders,
    though some are housing lenders.

                   CDFI FUND AWARDS BY TYPE OF AWARDEE--1996-2001 CORE, INTERMEDIARY, & SECA/TA AWARDS
    ----------------------------------------------------------------------------------------------------------------
                                                                           Award Amounts          Number of Awards
                                                                    ------------------------------------------------
              Type of Awardee by Primary Business Activity                            Percent               Percent
                                                                         Dollars      of Total   Numbers    of Total
    ----------------------------------------------------------------------------------------------------------------
    Housing/Facilities.............................................    $152,294,696         42        210         32
    Business.......................................................      76,237,083         21        177         27
    Consumer Lending and Financial Services........................      49,800,801         14        130         20
    CDFI Intermediary..............................................      25,027,201          7         20          3
    Venture Capital................................................      20,664,301          6         23          3
    Microenterprise................................................      18,748,642          5         67         10
    Multi-Bank CDC.................................................      16,490,987          5         22          3
                                                                    ------------------------------------------------
          Total....................................................     359,263,711        100        649        100
    ----------------------------------------------------------------------------------------------------------------

        Question. What percentage of the loans that originate from the CDFI
    Fund go into default?
        Answer. To date, no CDFIs have defaulted on loans from the Fund. A
    couple of CDFI borrowers have been late on interest payments but all
    have otherwise met the terms and conditions of their debt instruments
    with the Fund.
        Question. Do private banks get CRA credit for investments in low-
    income communities that are also incentivized by Bank Enterprise
    Awards? Please document some cases in which this could happen.
        Answer. The BEA Program is intended to encourage FDIC-insured
    depository institutions to go beyond just serving the ``convenience and
    needs of the communities in which they operate'' (as called for by the
    CRA). The BEA Program provides an incentive to banks and thrifts to
    serve areas or people that the institution may not necessarily have to
    serve in order to receive a Satisfactory CRA rating. The BEA Program
    award should therefore be seen as a complement to the CRA activities of
    an institution.
        Generally, the types of activities that would qualify for a BEA
    Program award would also be viewed favorably by the regulatory agency
    in developing the CRA rating for the institution--provided the
    activities occurred within the bank's CRA Assessment Area.
        For example, take a bank whose CRA Assessment Area is the
    Washington DC metropolitan area. This bank could apply for a BEA
    Program award for increasing its lending within the Anacostia area
    (which qualifies as a BEA Distressed Community). In the current funding
    environment, the bank would have to increase its activities
    significantly to increase the probability of receiving an award. (When
    the Fund lacks sufficient resources to fund all qualified activities
    for which BEA applications are submitted, it must follow statutorily
    prescribed priorities, which include ranking applicants by the ratio of
    activity level to asset size. Thus, the greater the activity level, the
    greater the probability of an award.)
        These activities--because they are within a low-income community--
    would likely also receive positive CRA consideration. The regulator, in
    developing a CRA rating for the bank, would view these activities in
    the context of the bank's overall operations. Because the regulator is
    looking for a reasonable level of activity within the low-income areas
    of the Assessment Area, there is no incentive to maximize or exceed a
    certain the level of investment activity. The BEA Program regulations,
    on the other hand, encourage the institution to provide more lending in
    the Distressed Community than required for ``Satisfactory'' ratings
    under CRA. Moreover, areas must pass a more stringent level of distress
    to qualify for the BEA Program (which considers poverty rate and
    unemployment rate of the area) than under the CRA regulations (which
    just consider income level of the census tract). Financial institutions
    participating in the BEA Program manage some of the Nation's best CRA
    programs, as nearly one-third of BEA Program participants have received
    ``Outstanding'' ratings under CRA. According to bank regulators, only
    10 percent of regulated institutions receive ``Outstanding'' CRA
    ratings.
                                     ______

                   Questions Submitted by Senator Tim Johnson

                     rural communities and the bea program
        Question. The CDFI Fund has identified several options that may
    increase the flow of CDFI Program and BEA Program funding to rural
    areas. Your testimony notes that within the BEA program authorizing
    language would be needed to alter the definition of ``distressed
    areas'' which currently only applies to communities with a population
    of 4,000 or greater.
        Could you provide me with a breakdown of obstacles you've
    determined would need to be address in authorizing legislation? Second:
    Could you provide us with any examples of administrative and regulatory
    modifications you intend to implement to better serve rural
    communities?
        Answer. The statutorily prescribed definition of ``Distressed
    Community'' under the BEA Program is an obstacle and disadvantages
    rural communities. First, rural areas have difficulty meeting the
    program's 30 percent poverty requirement because populations in rural
    areas are often scattered, with Low-Income households mixed with
    households with higher incomes, and have fewer concentrations of
    poverty than is often found in urban areas. Second, over 40 percent of
    the Nation's rural population resides in communities with fewer than
    2,500 people. These communities are too small to meet the BEA Program's
    statutorily required population of 4,000 people in metropolitan areas.
    Further, in non-metropolitan counties there is a minimum population
    requirement of 1,000 people in a qualifying census tract. This figure
    also precludes otherwise qualifying economically distressed rural areas
    from BEA Program eligibility. To best address the issue, statutory
    modifications would be necessary.
    Background
        According to the statute that created the BEA Program, a Distressed
    Community consists of contiguous Geographic Units (e.g., census tracts)
    located within the boundaries of one Unit of General Local Government
    (e.g., town, city, or country) that meet certain minimum population,
    poverty, and unemployment requirements, as follows:
        Minimum Population Requirements.--Metropolitan Statistical Areas:
    The population of a Distressed Community must be at least 4,000 people
    if any portion of the area is located within a Metropolitan Statistical
    Area. Non-Metropolitan Statistical Areas: The population of a
    Distressed Community must be at least 1,000 people if no portion of the
    area is located within a Metropolitan Statistical Area. Indian
    Reservations: If a Distressed Community is located entirely within an
    Indian Reservation, it is not required to meet the minimum population
    requirements.
        Minimum Poverty Requirements.--At least 30 percent of the Residents
    of the Distressed Community must have incomes that are less than the
    national poverty level, as determined by the latest decennial census.
        Minimum Unemployment Requirements.--A Distressed Community must
    have an unemployment rate that is at least 1.5 times greater than the
    national average, as determined by the Bureau of Labor Statistics' most
    recent statistics.
        In addition, the BEA Program regulations allow that a Distressed
    Community may consist of Geographic Units that (1) individually meet
    the minimum population, poverty, and unemployment requirements
    discussed below, or (2) in the aggregate meet the poverty and
    unemployment requirements, provided that no designated Geographic Unit
    within the Distressed Community has a poverty rate of less than 20
    percent.
               native american cdfi technical assistance program
        Question. Forty seven organizations have applied for awards in the
    first round of funding in that Native American CDFI Technical
    Assistance (NACTA) program, demonstrating very strong interest on the
    part of tribes and other organizations serving Native Americans in
    expanding the work of CDFIs in Indian country. Fiscal year 2002 will be
    the first year that monies will be awarded through the NACTA program.
        What kind of priority will the NACTA program have to the Fund, if
    resources are limited to the President's budget request of $68 million?
        Answer. It is the intent of the Fund to have a second round of the
    NACTA Component in fiscal year 2003.
           performance measures for rural and reservation communities
        Question. With regard to performance measures. I am concerned that
    seemingly straightforward standards may in fact work to the detriment
    of some communities. Particularly where they may aggravate the barriers
    rural and Native American areas already face in securing CDFI
    investments.
        For example, it is very straightforward to measure the success of
    an investment in terms of the number of jobs created and wages paid.
        However, it's equally important to consider the services provided
    and the impact that a business may have on the quality of life in the
    community. This is particularly important in rural and isolated areas.
        How do we measure the impact on a rural or reservation community by
    establishing a welding shop, a cafe, a grocery store, or a gas station?
    The business my only create 3 or 4 jobs, but area families no longer
    must drive 20, 30, 40 miles or more to utilize that service.
        In developing the ``performance measures'' required by Secretary
    O'Neill, how can we make sure rural and Native American CDFIs are not
    penalized for investing in small main-street business that may only
    create a handful of jobs, but significantly enhance the community?
        Answer. Performance measures will not disadvantage rural
    communities. The Fund's measure of impact will not focus on volume but
    will attempt to assess the local community improvement impact of each
    award made by the CDFI Fund. The Fund's Small and Emerging CDFI
    Assistance (SECA) Component, in particular, seeks to assist small
    lending operations that demonstrate that they are likely to achieve
    impact in the communities they serve.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

                              performance measures
        Question. I am pleased that Secretary O'Neill has recognized the
    importance of performance outcomes because it is still unclear to me if
    CDFI's programs make a significant difference in helping distressed
    communities and if its programs are more cost-effective and efficient
    than other similar Federal efforts.
        For example, I would like to know to what extent the Bank
    Enterprise Award program motivate financial institutions provide
    capital in distressed communities, especially when they are required to
    perform these activities under the Community Reinvestment Act.
        Answer. Congress, in passing the BEA Program legislation, intended
    the BEA Program to encourage FDIC-insured depository institutions to go
    beyond just serving the ``convenience and needs of the communities in
    which they are chartered.'' Congress wanted to provide an incentive to
    banks and thrifts to do business in highly distressed communities that
    may not necessarily be part of their Community Reinvestment Act (CRA)
    assessment areas or to serve as partners with local CDFIs that serve
    populations that the institutions may not necessarily have to serve in
    order to receive Satisfactory CRA ratings. A BEA Program award should
    therefore be seen as a complement to the CRA activities of an
    institution.
        Question. In response to Secretary O'Neill's initiative, when do
    you expect to be able to provide this committee with data on program
    performance? Do you expect to collect and analyze data that will
    compare the performance of CDFI's programs to other Federal activities?
        Answer. The Fund is able to provide program performance data now.
    Our objective is to show how the investments we make in CDFIs, and the
    loans they make in turn, fill gaps in financial services for distressed
    areas and populations. Our program performance measures will show these
    investments improve our Nation's underserved communities and target
    populations through community development financing activities.
        The Fund is reviewing its current methodology for developing
    performance goals and measures to incorporate a more quantitative
    analysis of the awardee's community development impact, solvency, asset
    quality and management capacity (PLUM \1\). Analysis is being conducted
    to identify peer groups and benchmark data. Based on this information,
    acceptable levels of achievement will be determined and applied to
    awardees to achieve the following: identify CDFI Fund portfolio risk
    and to identify CDFIs that have had achieved higher success in
    fulfilling its community development mission. Based on this
    information, the Fund can conduct targeted analysis of its portfolio,
    highlight best practices that can be shared with the CDFI field, and
    better assess CDFIs' abilities to expand or stabilize underserved
    market areas.
    ---------------------------------------------------------------------------
        \1\ PLUM is defined to include P (performance effectiveness/
    community impact), L (leverage, liquidity, solvency), U (underwriting),
    and M (management).
    ---------------------------------------------------------------------------
        The awards administered by the Fund serve a unique purpose.
    Investments by the Fund serve a special purpose in that they help to
    capitalize specialized loan funds that fill voids in the conventional
    capital markets. Such loan funds must serve economically distressed
    places or underserved populations. CDFIs serve a wide array of such
    communities through a wide array of loan products and financial
    services. The Fund differs from many other Federal activities in that
    the Fund invests in institutions not projects. CDFIs are local market-
    based institutions that respond to market demand in their communities.
    Support from the Fund may allow a CDFI to absorb the cost of
    development services delivery and innovation that it could not fully
    recover through its lending operations.
                          overlapping federal programs
        Question. I am concerned about overlapping Federal programs. It is
    clear that CDFI works with the same communities and institutions that
    HUD and other Federal Agencies work with.
        Please tell me about any informal and formal efforts to coordinate
    Federal activities in assisting distressed communities. How do your
    organizations ensure that its activities are not duplicative of other
    Federal activities?
        Answer. The Fund has a structured means of coordination with other
    agencies through the Community Development Advisory Board, which
    includes representatives from six Federal Agencies (USDA, Commerce,
    HUD, Interior, Treasury, and the SBA). The statute that created the
    CDFI Fund requires the Advisory Board. In addition, the Fund, by law,
    coordinates with the banking and credit union regulatory agencies while
    in the process of considering Fund investments in regulated entities.
        Programmatically, the Fund regularly engages in discussion with
    other agencies. For example, there is current strategizing with HUD as
    to how to increase the level of resources available to the colonias in
    the U.S.-Mexico border region. The Fund has shared with HUD information
    about CDFIs serving these distressed areas in which the Fund has
    invested and described how CDFIs can help provide a permanent flow of
    capital in otherwise underserved areas. HUD in turn has shared its
    information regarding the concentrations of colonias. Both entities are
    interested in improving data-gathering to document the level of
    financial services activities in these areas. The Fund is also engaged
    in a dialog with Federal Reserve Board of Governors and the Federal
    Reserve Bank of Richmond as to the development of measurements that
    will serve to allow comparative classification of levels of financial
    services. Achieving this will help the Fund to improve its ability to
    target dollars to areas of market dysfunction.
               native american cdfi technical assistance program
        Question. The Treasury Department's November 2001 ``Native American
    Lending Study'' clearly indicates a need for capital access and
    financial lending on Indian lands. Further, the study recommends,
    ``creating more financial institutions, including CDFIs, on Indian
    Lands'' and ``encouraging existing financial institutions that are not
    located on Indian Lands to open branches on Indian Lands.'' However,
    the Administration has not requested any new funds for fiscal year 2003
    for the Native American Technical Assistance program.
        Can you explain this disconnect? By not funding this initiative,
    does this mean that you disagree with the study's recommendations?
        Answer. The Fund supports the recommendations set forth in the
    Native American Lending Study report. The reason we have not included a
    request for Native American CDFI Technical Assistance (NACTA) funding
    in our fiscal year 2003 budget is because we believe that the carryover
    (unused funds) from fiscal year 2002 will be sufficient to meet the
    fiscal year 2003 need.
                              monitoring awardees
        Question. How does the CDFI monitor the management of grantees? Has
    the Fund ever revoked the certification of a CDFI?
        Answer. The Fund uses several methods to monitor its awardees. They
    include the following:
    Annual Reporting
        The Fund requires awardees to submit performance and financial
    reports on a semi-annual and annual basis. Performance reports tell how
    well an awardee is achieving the goals and measures that it negotiated
    with the Fund, as incorporated in its assistance agreement. Financial
    reports demonstrate the fiscal health of the overall operation of the
    awardee organization and/or its affiliates. The Compliance Monitoring
    and Evaluation (CME) staff of the Fund reviews these reports.
        Reports are reviewed and awardees are rated as compliant, on
    ``compliant watch'', non-compliant but not resulting in an event of
    default, or non-compliant. Awardees are automatically deemed
    noncompliant if they fail to submit required reports by the deadlines
    stated in their Assistance Agreements.
        If an awardee is noncompliant under the terms and conditions of its
    Assistance Agreement, CME staff will contact it to discuss the
    noncompliance and its plans for improvement; CME staff then prepares
    and presents its recommendations to the Fund's Portfolio Committee.
    Corrective actions approved by the Portfolio Committee can range from
    an amendment of the assistance agreement so as to adjust for unforeseen
    market conditions, to de-obligation of undisbursed funds, to (in the
    most serious cases) a demand that award funds be returned to the
    Federal Government.
    On-site Reviews
        In the very near future, the CME unit will begin conducting on-site
    visits to examine certain organizations' operations more closely, and
    to ensure their compliance with the CDFI Fund's requirements.
    Organizations will be selected for on-site visits through a risk
    assessment process, with those deemed at higher risk being examined
    first. Some on-site visits are planned to organizations that are not
    considered at higher risk in order to balance the portfolio of on-site
    visits and to establish baseline procedures.
    Program Suspensions
        In certain cases, the Fund has revoked the certification of CDFIs.
    A CDFI certification can be revoked when the Fund is notified of
    material changes in an organization, meaning that the entity no longer
    satisfies all six CDFI certification criteria. The manner in which the
    Fund learns of such changes occurs in several ways, including
    notification by a CDFI's regulator, notification by the CDFI itself,
    notification by an unrelated third party, or upon the Fund's review of
    reports submitted annually by the CDFI.
    Performance Measures
        The Fund is reviewing its current methodology for developing
    performance goals and measures to incorporate a more quantitative
    analysis of the awardee's community development impact, solvency, asset
    quality and management capacity (PLUM). Analysis is being conducted to
    identify peer groups and benchmark data. Based on this information,
    acceptable levels of achievement will be determined and applied to
    awardees to achieve the following: identify CDFI Fund portfolio risk
    and to identify CDFIs that have had achieved higher success in
    fulfilling its community development mission. Based on this
    information, the Fund can conduct targeted analysis of its portfolio,
    highlight best practices that can be shared with the CDFI field, and
    better assess CDFIs' abilities to expand or stabilize underserved
    market areas.

                              SUBCOMMITTEE RECESS

        Senator Mikulski. This subcommittee stands in recess until
    next Wednesday, May 1, in which we will be taking testimony
    from NASA.
        So thank you very much.
        Ms. Lazar. Thank you both.
        Senator Mikulski. And we are in recess.
        [Whereupon, at 10:55 a.m., Wednesday, April 24, the
    subcommittee was recessed, to reconvene at 9:47 a.m.,
    Wednesday, May 1.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                             WEDNESDAY, MAY 1, 2002

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:47 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Barbara A. Mikulski (chairman)
    presiding.
        Present: Senators Mikulski, Bond, Shelby, Craig, DeWine,
    and Stevens.

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    STATEMENT OF SEAN O'KEEFE, ADMINISTRATOR
    ACCOMPANIED BY:
            DR. JOHN GRUNSFELD, ASTRONAUT
            STEVE ISAKOWITZ, COMPTROLLER
            DR. EDWARD J. WEILER, ASSOCIATE ADMINISTRATOR FOR SPACE SCIENCE
            DR. GHASSEM ASRAR, ASSOCIATE ADMINISTRATOR FOR EARTH SCIENCE
            ROBERT W. COBB, INSPECTOR GENERAL

                OPENING STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. I want to convene the Subcommittee
    hearing on VA-HUD appropriations to take the testimony of Mr.
    Sean O'Keefe, our NASA administrator, to review the NASA
    appropriations request.
        Mr. O'Keefe, this is the first time that we are welcoming
    you before this Appropriations Committee, and we look forward
    to listening to you and working with you.
        You come with a great deal of--you come with many
    credentials and we know that you come also with the confidence
    of the White House. I know that before this, before you took
    over NASA, you were deputy director of OMB. So you are used to
    being in orbit. That is a joke, but we will just let it go.
        Senator Mikulski. You come with a great deal of management
    experience and won all kinds of awards, and I believe your
    expertise in management is just what NASA needs right now. We
    are hoping that if anyone can get NASA back on track, it is
    really going to have to be you.
        We look forward to working with you and I am going to go
    through some of the challenges I believe that NASA is facing
    that we would like to hear your views on today and, of course,
    we hope to have other conversations with you as we prepare for
    markup.
        The President has proposed a flat budget for NASA this year
    at $15 billion. I must say I am disappointed that we continue
    to see the flat budgets for NASA, especially considering the
    enormous needs that NASA has.
        We have issues related to shuttle upgrades, additional
    scientific commissions, and an aging infrastructure that is
    troubling. These are just a few of the needs that need to be
    addressed. Along with that is the significant issue of the
    ongoing issue of the cost overruns of the space station.
        NASA has to have a balanced program in terms of human space
    flight, scientific research and aeronautics. In a speech you
    gave at Syracuse last month, you said that NASA's mission and
    vision was to improve life here on earth and find life beyond.
    I think that is an excellent vision. And to me, that is earth
    science, space science, and biological and physical science.
        But we are very troubled about the space station. The space
    station continues to be NASA's number one problem. With the $5
    billion in cost overruns, the station continues to be a dark
    cloud over NASA's horizon rather than a bright opportunity for
    research.
        NASA must implement the management reforms and creditable
    cost estimating this year. Otherwise, I am concerned that
    Congress will have no faith in NASA's cost estimates until the
    management reforms are firmly in place and NASA starts
    delivering results.
        Second, NASA must reaffirm that scientific research is the
    primary purpose of the space station. I am concerned that if we
    only have three astronauts in the station, all they are doing
    is housekeeping, rather than the scientific discovery, some of
    which I know we are going to see today.
        Third, NASA needs to present Congress with a scientific
    research plan that then lays out what it is going to do. The
    cuts to scientific research aboard the space station have
    really cost support for the program.
        Another important issue is the future of the space shuttle.
    The shuttle now costs $3 billion per year to operate, almost 20
    percent of the NASA budget. I know you are starting to look at
    privatizing of the shuttle program as a solution. I believe
    that NASA must proceed very, very, very carefully before making
    any decisions related to privatizing. And I know you will share
    with us what you think is the best way.
        I know that you are absolutely as committed as this
    committee is to the safety of our astronauts. And we need to
    look at what is the best way to get them into space safely and
    to return them to safety safely and to be able to sustain them
    when they are. So we look forward to the ideas and the money to
    do this.
        I know we cannot fly the shuttle forever, and that is why
    we look at other initiatives like the space launch.
        Moving on to science, aeronautics, and technology, I am
    glad to see that the administration has proposed a 10 percent
    increase in the funding. I know that you want to start an in-
    space nuclear power program, and I think NASA is--I think we
    need to discuss this.
        I am concerned that you have zeroed out Pluto. We could be
    missing an opportunity if it does not launch. We only get every
    200 years to do this.
        Earth science, I am beginning to think we are beginning to
    see the benefits of that investment, record numbers of users on
    earth science, improving their understanding of how the earth
    works, and even other Federal agencies making use of this
    information.
        I know that we will always get double value from what we do
    at NASA, that science, technology, discovery always leads to
    the new ideas that either save lives, save communities, or
    generate jobs.
        We really look forward to hearing what you want to do with
    $15 billion, how we can keep NASA flying, and I turn now to my
    very able colleague, Senator Bond, for his comments.

                    STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you very much, Madam Chair. I join with
    you in welcoming the new NASA Administrator Sean O'Keefe, the
    first appearance before this subcommittee. It is usually not
    too painful and we hope we can be constructive on all sides,
    but we do have some very serious questions as we have discussed
    previously.
        Mr. O'Keefe has some big boots to fill in replacing Dan
    Goldin, who spent almost a decade at the helm of the agency. It
    is a big job to fill not only because of the imprint that Mr.
    Goldin left, but also because the agency continues to face a
    number of management and budget concerns, many associated, as
    the Chair has said, with the International Space Station and
    the space shuttle program, two of NASA's best known and visible
    programs.
        I have a great deal of confidence that Sean will be a great
    NASA administrator. And while he does not have an aerospace
    background, I think what is clearly needed at this agency are
    the critical management skills and budgetary expertise that I
    believe he brings to address the previous inability of NASA to
    provide an adequate budget for its programs and to solve the
    management problems.
        Mr. O'Keefe has been the staff director for the Senate DOD
    Appropriations Subcommittee, a comptroller of DOD, Secretary of
    the Navy, most recently deputy director at OMB, and frankly he
    has survived the blood and the water mentality at OMB, which
    should auger well for his ability to succeed in another agency
    with a little blood around it.
        I also believe every new agency head must be provided an
    opportunity to demonstrate leadership and management abilities.
    We will do all we can to support Mr. O'Keefe in meeting the
    many challenges facing him at NASA.
        In particular, the International Space Station, which is
    been touted as the new crown jewel of NASA, now appears to be a
    rather expensive bit of costume jewelry. And since 1993 when
    the ISS redesign work began, the program has gone through
    continuing fits and starts, delays, additional costs resulting
    from Russia's failure to meet certain commitments, as well as
    other costs and delays resulting from problems caused by NASA
    and its contractors.
        It would not surprise me if the Harvard Business School
    decided to use the ISS decision-making and funding process for
    a whole year's worth of courses on government and business
    mismanagement. It has been that bad. That could keep a whole
    raft of students busy and professors for many, many months.
        The problems all came to a head, at least most recently, in
    February 2001 when the key management personnel of the ISS
    identified just another little $5 billion in cost overruns for
    the space station to meet the assembly fact--those facts, and
    the crew has--this has been a major problem. They have let the
    assembly and completion requirements, set that time--the
    administration and NASA decided to reduce station funding
    requirements by cancelling or indefinitely deferring
    construction of ISS hardware, and by cutting funding for space
    station research.
        As currently formulated, NASA plans to reach what it calls
    ``core complete'' by launching and completing assembly of the
    existing ISS elements and then adding lab modules being built
    by Europe and Japan.
        I think the decision is correct, because of other funding
    priorities, both within NASA and within the VA-HUD
    Subcommittee. I am disturbed that we will not realize fully the
    potential of ISS as a world-class research facility for science
    conducted in a micro-gravity environment.
        This failure is further highlighted by the fact that the
    crew size of the ISS is limited to a crew of three, while it
    requires two and a half crew to operate and maintain the
    station. Despite arguments to the contrary by some NASA staff,
    I do not believe that we are serving our scientific mission
    well when we have one half time of one crew member devoted to
    science.
        At a minimum, without additional investment for a crew
    return vehicle or the addition of more Soyuzes from Russia,
    most of the complex science research that was anticipated to be
    conducted on the station is not going to be accomplished.
        Equally troubling is NASA's attempt to control the costs
    and pay for cost overruns by slashing $1 billion from space
    station research budget projections from fiscal year 2002
    through 2006. In the current year, there are $140 million in
    terminations within the ISS research account. Now, that is very
    troubling to us for a program that costs as much as $100
    billion after completion and operation.
        On top of this and contrary to concerns raised last year in
    the NASA budget hearing, NASA has allowed policies to be put in
    place that will further reduce the stature of ISS from a
    research facility to a guest hotel for the super rich.
        Last year, Dan Goldin promised the international agreements
    on visitors and crew standards would ensure that all visitors
    to the space station would be trained comprehensively and
    qualified before permission would be granted to visit the
    station.
        Instead I believe that the proposed policies on station
    visitors are weak, insubstantial and could pose a deadly risk
    to every crew member on the station. To me that is
    unacceptable, especially during the assembly of the station,
    which is a period of heightened risk in an already extremely
    hazardous environment.
        Well, I have a number of other issues I want to raise today
    for the record. I am concerned about NASA meeting all the
    funding needs associated with the space station program. The
    Aerospace Safety Advisory Panel recently concluded its March
    2002 annual report by saying, ``current and proposed budgets
    are not sufficient to improve or even maintain the safety risks
    of operating the space station or the ISS.''
        I think that raises additional issues as to the future of
    the shuttle, how safety concerns are prioritized, what is the
    relationship between the space station program, the development
    of a crew return vehicle and the SLI, designed to develop
    second and possibly third generation reusable launch vehicles.
    Each of these programs has substantial costs. I am not
    convinced that the NASA budget can sustain even the shuttle
    program and the SLI without a clearer vision of the goals and
    relationships.
        Finally, on a positive note, I am gratified NASA is working
    with the University of Missouri's Center for General Physiology
    in the area of gender-related issues in space flights.
        As we look to explore the universe, commit men and women to
    long periods of time in space, we need to understand the risks
    and stresses on the human body of living in space. In
    particular, it is critical to know the sex-specific factors
    that influence our ability to adapt to the challenges posed by
    living in the harsh environments encountered in the exploration
    of space.
        Thank you, Madam Chair.
        Senator Mikulski. Thank you.
        [The statement follows:]

               Prepared Statement of Senator Christopher S. Bond

        Thank you, Madam Chair. I welcome the new NASA Administrator, Mr.
    Sean O'Keefe, to his first appearance before the Senate VA/HUD
    Appropriations Subcommittee. Mr. O'Keefe has some big boots to fill in
    replacing Dan Goldin who spent almost a decade at the helm of this
    agency. This is a big job to fill, not only because of the imprint that
    Dan left on the agency, but also because the agency continues to face a
    number of management and budget concerns, many of which are associated
    with the International Space Station and the Space Shuttle Program, two
    of NASA's best known and visible programs.
        However, I have a great deal of confidence that Mr. O'Keefe will be
    a great NASA Administrator. And while Mr. O'Keefe does not have an
    aerospace background, he does have the critical management skills that
    I believe are needed to address NASA's inability to budget adequately
    for its programs, and that once we solve these management problems NASA
    will be on a smooth flight plan. In particular, Mr. O'Keefe has been
    the staff director for the Senate DOD Appropriations Subcommittee, the
    Comptroller of DOD, Secretary of the Navy, and most recently the Deputy
    Director at OMB. Just to survive the ``blood in the water'' mentality
    at OMB augurs well for his success at NASA.
        I also believe every new agency head must be provided an
    opportunity to demonstrate their leadership and management abilities
    and I intend to provide whatever support I can to Mr. O'Keefe in
    meeting the many challenges facing him at NASA.
        In particular, the International Space Station which has often been
    touted as the new crown jewel of NASA now appears to be little more
    than very expensive costume jewelry. Since 1993, when the ISS redesign
    work was begun, the program has gone through many fits and starts,
    including delays and additional costs resulting from Russia's failure
    to meet certain commitments as well other costs and delays resulting
    from problems caused by NASA and its contractors. It would not surprise
    me if the Harvard Business School decided to use the ISS decisionmaking
    and funding process for a whole year's worth of courses on government
    and business mismanagement. It has been that bad.
        These problems all came to a head in February 2001 when the key
    management personnel of the ISS identified another $5 billion in cost
    overruns for the Space Station to meet assembly and completion
    requirements.
        Since that time, the Administration and NASA decided to reduce
    station funding requirements by canceling or indefinitely deferring
    construction of some ISS hardware and by cutting funding for space
    station research. As currently formulated, NASA plans to reach what it
    calls ``core complete'' by launching and completing assembly of the
    existing ISS elements and then adding laboratory modules that are being
    built by Europe and Japan.
        While I believe the decision is correct because of other funding
    priorities, both within NASA and within the VA/HUD Appropriations
    Subcommittee, I am disturbed that we will not realize fully the promise
    of the International Space Station as a world class research facility
    for science conducted in a microgravity environment. This failure is
    further highlighted by the fact that the crew size of the ISS is
    limited to a crew of three while it requires 2\1/2\ crew to operate and
    maintain the station. Despite arguments to the contrary by some NASA
    staff, I do not believe much compelling science can be accomplished by
    only one-half a crew member. At a minimum, without additional
    investment for a crew return vehicle or the addition of more Soyuzes
    from Russia, most of the complex science research that was anticipated
    to be conducted on the Station will never be accomplished. Equally
    troubling is NASA's attempts to control costs and pay for cost overruns
    by slashing some $1 billion from space station research budget
    projections from fiscal year 2002 through fiscal year 2006. In fiscal
    year 2002 alone, there are $140 million in terminations within the ISS
    research account.
        This is not acceptable for a program that could cost as much as
    $100 billion after completion and operation. On top of this and
    contrary to concerns raised last year in the NASA budget hearing, NASA
    has allowed policies to be put in place that will further reduce the
    stature of the ISS from a research facility to a guest hotel for the
    super rich. Last year, Dan Goldin promised that international
    agreements on visitors and crew standards would ensure that all
    visitors to the Space Station, would be trained comprehensively and
    qualified before permission would be granted to visit the Station.
    Instead, I believe that the proposed policies on Station visitors are
    weak, unsubstantial and could pose a deadly risk to every crew member
    on the Station. Again, this is unacceptable, especially during the
    assembly of the Station which is a period of heightened risk in an
    already extremely hazardous environment.
        I have a number of other issues and concerns that I intend to raise
    today or as questions for the record. In particular, I am concerned
    about whether NASA is meeting all the funding needs associated with the
    Space Shuttle program. The Aerospace Safety Advisory Panel recently
    concluded in its March 2002 annual report that ``current and proposed
    budgets are not sufficient to improve or even maintain the safety risks
    of operating the Space Shuttle or the ISS.'' This raises additional
    issues as to what is the future of the Shuttle, how safety concerns are
    prioritized and what is the relationship between the Space Shuttle
    program, the development of a crew return vehicle and the Space Launch
    Initiative (SLI) which is designed to develop second and possibly third
    generation reusable launch vehicles. Each of these programs have
    substantial costs and I am not convinced the NASA budget can sustain
    even the Shuttle program and the SLI without a clearer vision of the
    goals and relationship of these programs.
        Finally, I am very gratified that NASA is working with the
    University of Missouri's Center for Gender Physiology in the area of
    gender-related issues in space flight crews. As we look to explore the
    universe and commit men and women to long periods of time in space, we
    need to understand the risks and stresses on the human body of living
    in space. In particular, it is critical to know the sex-specific
    factors that influence our ability to adapt to the challenges posed by
    living in the harsh environments encountered in the exploration of
    space.
        Thank you, Madam Chair.

        Senator Mikulski. I note that Senator Ted Stevens is here,
    the ranking member.
        Sir, I know that you have many demands on you. Would you
    like to make a statement?

                        STATEMENT OF SENATOR TED STEVENS

        Senator Stevens. Madam Chair, you are very kind. Senator
    Inouye is opening our defense hearing, well, in just 2 minutes.
    I came to pay my respects to Administrator O'Keefe and to just
    put one little item in the budget, which--in the record, which
    I will bring to Mr. O'Keefe.
        I am a little worried about the fact that Gilmore Creek, I
    hear, is maybe subject to being closed. That is the last
    tracking station on American soil. I would urge that you put
    down that rumor if it is not true and review it if it is.
        Thank you very much.
        Senator Mikulski. Thank you, Mr. Chairman.
        In order of arrival, it was Senator Craig, Senator Shelby,
    and Senator DeWine. I wonder if you want to make any statements
    now or if you would prefer to do that as you move into your
    questions or concerns you might have--Senator Craig or----
        Senator Shelby. Madam Chairman, I just want to associate my
    remarks with those of Senator Bond. I think he laid out some
    very serious and important questions that I hope Mr. O'Keefe
    will address.
        Senator Mikulski. Thank you, sir.
        Senator Craig.

                      STATEMENT OF SENATOR LARRY E. CRAIG

        Senator Craig. Madam Chairman, thank you.
        Director O'Keefe, we welcome you to the committee. I also
    am frustrated by the very concerns that Senator Bond has spoken
    to. We Americans have a love affair with space, and it is still
    there. There is no question about it. And so we here who
    appropriate for your activities have a similar excitement about
    it.
        But you are there and I think you have been put there to
    bring some sense of balance and fiscal responsibility to this
    agency and also to chart new directions for it. And that is
    extremely important for all of us, because in reference to
    science and what can be gained, this morning once again we are
    seeing those phenomenal new images coming out of Hubble and
    going, ``Whoa, that is exciting.'' And if it were not for the
    space program, we would not have been able to make that step.
        I have been associating myself with it for some time as
    Senator Bond mentioned, university programs that are extremely
    valuable. Many of the researchers and educators from Idaho who
    take part in those programs see phenomenal benefit from them.
        We, in Idaho, have grown increasingly excited about the
    Educator in Space Program. As many know, mission specialist
    Barbara Morgan is from McCall, Idaho, and she is slated to go
    up sometime in 2004 in a mission.
        That excites us all. But it is an opportunity to extend
    once again to our young people a tremendous challenge towards
    space, space exploration and as my colleague from Missouri
    mentioned, as the chairman mentioned, science. We have invested
    a great deal in the biological sciences for the last decade and
    this Congress has been committed to them as the physical
    sciences in part have languished.
        And I would hope that we can reinstate our purpose there,
    and NASA plays an extremely important role in that. Your new
    nuclear system initiative is exciting for me to see where you
    want to go. And I say that, and your jointly working with the
    Department of Energy is an opportunity.
        It is not only an opportunity for us to be able to build
    long-term energy supplies or energy capability, but also to
    extend greater research into the area of nuclear reactors and
    energy from that type of thing.
        We in Idaho are very proud of the fact that in our
    laboratory over 52 nuclear reactors have been built over the
    last five decades of all shapes and sizes. Working with Argonne
    and other laboratories around the Nation, we can lead the
    world, and this is an initiative that I am pleased that you are
    looking at. I think it is important for all of us in the long-
    term efforts in space and the long-term efforts of producing
    viable energy for our country.
        Madam Chairman, let me put the balance of my comments in
    the record.
        We are pleased to have you before us, sir, Mr.
    Administrator. And I trust that next year you will be able to
    tell us about all of the corrective measures made and the great
    new direction and course that NASA is taking.
        Thank you.
        Mr. O'Keefe. Thank you, sir.
        Senator Mikulski. Without objection, sir, your statements
    are in the record.
        [The statement follows:]

                  Prepared Statement of Senator Larry E. Craig

        Today we are hearing from the Administrator of NASA about the
    important programs conducted by this leading science agency. Over the
    last several months, I have met with many researchers and educators
    from Idaho who take part in and benefit from NASA's programs.
    Administrator O'Keefe, I commend you and the people of NASA for the
    excellent work you do in getting young people excited about science.
        I know your testimony makes reference to the sobering statistics
    regarding the workforce challenges faced by--not only NASA but all of
    the Federal Government--in terms of the aging of our Federal scientists
    and engineers. We must do all we can to reinvigorate our science and
    engineering base in this country--to arrest this decline, and starting
    turning those statistics around.
        One of the ways that students really become engaged is through the
    ``Educator in Space'' program. I am obviously very excited that you
    recently announced--and personally conducted a joint press conference
    with--NASA's first ever ``Educator in Space''--Mission Specialist
    Barbara Morgan from McCall, Idaho. You can bet that school children all
    over Idaho and all over the world will be following Barbara's story as
    she prepares to take part in her space mission in 2004.
        In your testimony we will also hear about a new NASA initiative
    that has really peaked my interest. This new initiative is the Nuclear
    Systems Initiative. This new program would cost about $800 million over
    5 years. What excites me about this new program is that it acknowledges
    something I have long believed. If this country intends to explore the
    far reaches of the universe, it will not be possible to power these
    craft without nuclear power.
        Working jointly with the Department of Energy, NASA has used
    nuclear power systems in space for over 35 years. These nuclear
    generators use the heat of the decay of nuclear materials to generate
    electricity. These systems are safe, proven, reliable, maintenance
    free, and capable of producing heat or electricity for decades under
    remote, harsh environments such as deep space.
        NASA's new Nuclear Systems Initiative will improve upon these
    existing nuclear generators. Additionally, this new program will seek
    to develop a uranium-fueled nuclear reactor that will power an advanced
    electric propulsion system. I think this development is critical to the
    future of deep space exploration.
        The Department of Energy's Office of Nuclear Energy has been a
    partner with NASA in all of its nuclear space initiatives. The same
    will be true of this new initiative. When it comes to the development
    of new, nuclear reactor technology, the Idaho National Engineering and
    Environmental Laboratory along with Argonne West--in Idaho--are DOE's
    lead laboratories.
        Over the course of the last five decades, 52 nuclear reactors have
    been built at the INEEL. I encourage you to visit these facilities in
    Idaho and see for yourself what we can do. Working jointly with NASA
    and DOE, I look forward to the contributions that Idaho can make to
    this new Nuclear Systems Initiative

        Senator Mikulski. Senator DeWine.

                        STATEMENT OF SENATOR MIKE DEWINE

        Senator DeWine. Madam Chair, thank you very much.
        Administrator O'Keefe, good to see you again.
        Let me express my support for your efforts in getting the
    Nuclear Systems Initiative started. I have confidence that this
    will provide the agency and the country with the technologies
    that we need to support future space missions, and I applaud
    you for that.
        Let me also say that the NASA Glenn Center in Ohio is a
    NASA Center that is really, I think, able to contribute to this
    initiative through its electric propulsion technology
    capabilities and flight developmental heritage. And you and I
    have talked about that extensively in the past.
        So, again, we welcome you here and look forward to your
    testimony.
        And, Madam Chair, I would just ask unanimous consent that
    the balance of my statement be made a part of the record.
        Senator Mikulski. Thank you, Senator DeWine.
        [The statement follows:]

                   Prepared Statement of Senator Mike DeWine

        I would like to recognize the NASA Glenn Center in Ohio as an
    outstanding NASA Center that is able to contribute to this initiative
    through its electric propulsion technology capabilities and flight
    development heritage. NASA Glenn provides a significant contribution to
    the economy of Ohio. The Glenn Research Center has a total employment
    impact of more than 12,000 Ohio jobs and an economic output of
    approximately $1.1 billion for the entire State. Glenn is particularly
    well suited to have a major leadership role as part of this initiative.
    I will also point out that NASA Glenn is uniquely qualified to lead
    systems analysis and engineering efforts in the development of many
    non-nuclear technologies including: (a) high performance ion thrusters,
    (b) high voltage power management and distribution systems, and (c)
    power systems including high temperature lightweight radiators.

                             HUBBLE SPACE TELESCOPE

        Senator Mikulski. Mr. O'Keefe, we now turn to you for your
    testimony on the appropriations request and the management
    guidance that you want to provide the agency. But we also know
    that Hubble--as the new retrofitted Hubble with its new eye in
    the sky has sent back some really wonderful pictures and
    pictures that tell us even more about the universe.
        You know, we are very proud of Hubble, because of Hubble
    itself out there looking to the edges of the universe, but the
    fact that Goddard is the catcher's mitt of the information
    coming in and then it tosses it to the Johns Hopkins Space
    Telescope Institute for its marvelous analysis and so on.
        So we in Maryland view the Hubble kind of--right now, it
    has been up there so long, it is kind of like the Cal Ripken of
    space telescopes.
        And so we are--but unlike Cal, we had a very expensive
    contact lens that we had to retrofit, which also says something
    about the fact that even with the station, we know it has got
    problems, but when we get it on track, like we got Hubble on
    track, the results can be stunning.
        So why do you not go ahead and tell us about your request
    and, of course, bring to the table whoever you wish?

                           STATEMENT OF SEAN O'KEEFE

        Mr. O'Keefe. Thank you, Madam Chair, Senator Bond, members
    of the committee. Thank you all very much for your hospitality
    and willingness to consider our requests on a variety of fronts
    and, your very important, I think, opening statements have
    touched on the very challenges that I have seen in the course
    of my vast tenure of 4 months now at NASA. These are exactly
    the kinds of issues that I am wrestling with every day, and I
    think you put your finger to them.
        First and foremost, I want to tell you how pleased I am to
    be here at this committee, being an alumni of the Senate
    Appropriations Committee staff longer ago than I care to admit,
    but nonetheless a very proud member of that alumni team and
    very grateful for the opportunity to be here.
        I would like to submit a statement for the record, if you
    would permit, and quickly summarize a couple of points, and
    then touch on the Hubble images, Madam Chair, that you referred
    to up front.
        Senator Mikulski. Without objection, it will be.
        Mr. O'Keefe. First and foremost, the issues I think that
    best characterize the approach that we are taking for the
    fiscal year 2003 budget before you and the request that the
    President has advanced, is characterized first by an approach
    to try to emphasize enabling technologies to overcome technical
    limitations that have been structural for some time.
        That is a mission objective of trying to deal with some of
    the enduring kinds of challenges that sort of limit our ability
    to explore and discover anywhere. Most characteristic of that
    and touched on in the statements of several members here this
    morning, is our objective of trying to look at propulsion
    systems and power generation capacities that get us past what
    our current limits that, quite frankly, in the speed that we
    travel once we do the amazing effort of getting into low-earth
    orbit in 8 and half minutes, we are basically traveling----
        Senator Mikulski. Mr. O'Keefe, I appreciate you giving oral
    testimony----
        Mr. O'Keefe. Yes, ma'am.
        Senator Mikulski [continuing]. But could you follow your
    written one in some order as you summarize it? It is hard for
    us to follow you in a very complex technical testimony.
        Mr. O'Keefe. Oh, I apologize.
        Senator Mikulski. Okay.
        Mr. O'Keefe. I am sorry. I have got to get the statement
    then.
        Senator Mikulski. Yes, because we have got a statement. We
    cannot read the statement and listen to you.
        Mr. O'Keefe. I understand.
        Senator Mikulski. But if you could just follow some order
    with your priorities.
        Mr. O'Keefe. I apologize.
        Senator Mikulski. Please--and I am prepared to listen to
    the oral, but I have got to have a framework.
        Mr. O'Keefe. My apologies. All right.
        I am sorry. I attempted to just cut through two issues as a
    means to just summarize this statement and then move to the
    Hubble issues to quickly work through that.
        First and foremost, our mission objectives and the
    statement that we have prepared here for the vision and mission
    of where we would like to take the agency is best summarized by
    a concern that we focus on and establish a priority for
    enabling technologies. And that is essentially what the first
    initial couple of pages here has attempted to touch on.
        And so our attempt is to emphasize what have been
    structural deficiencies and difficulties that we have
    encountered as part of our challenge to explore and discover.
    And so in that nature, the objective here is to look at very
    specific technologies that would overcome propulsion system and
    power generation capacity limits that would otherwise exist.
        And in that regard, our primary effort for the most mature
    technology we seek to emphasize is for nuclear systems
    initiative, which is a maturing technology that gives us an
    opportunity to travel at speeds that exceed what we are
    currently restricted to, which right now are precisely or
    within the same realm or framework of what we did on Friendship
    Seven 40 years ago when Senator Glenn took his first trip.
        So as a consequence, we are in that same set of limitations
    there. And part of what we attempt to describe here in the
    opening statement as that objective is to look at the enabling
    technologies to achieve that vision and mission statement
    objective.
        A second area I want to touch on very briefly that is
    summarized towards the end of the statement as well, and then
    we will move from there again, with your indulgence, Madam
    Chair, to a discussion of the Hubble imaging that has just come
    back as of yesterday, is to touch quickly on the International
    Space Station and the approach that we are taking in this
    regard. And this is summarized later on page six and
    thereafter, in which our attempt is to look at five very
    specific dimensions of International Space Station to infuse a
    sense of management discipline to this particular process that
    we believe will correct some of the deficiencies and I think
    that Senator Bond touched on very, very clearly in his opening
    commentary as what we see as the nature of our problem.
        First and foremost is to emphasize the science priorities.
    This must be driven by science requirements. The purpose of
    having an International Space Station is multi-fold, but its
    first primary objective should be to achieve the science and
    research objectives that have been outlined.
        And in that regard there is a wide array of scientific
    community assessment and judgment that has been rendered over
    the course of the years, which unfortunately does not have any
    specific priority order attached to it.
        In that regard, what we have done is asked a team of
    external scientists who represent all of the disciplines within
    the scientific community to look at this range of approaches
    that have been advocated for what the scientific and research
    objectives will be on station and rank order prioritize what
    should be accomplished using this astonishing capability and
    infrastructure that we have managed to deploy at this juncture.
        That is the first objective, to reach a prioritization
    effort, which gives us a very clear understanding of what we
    can use to maximize the research potential for those research
    objectives that uniquely require the kind of capability and
    micro-gravity condition that exists on the International Space
    Station; and then as a follow-on matter, also to emphasize
    those research opportunities which would give us a breakthrough
    potential in those particular fields or disciplines.
        A second area of concern that is, again among the five
    focus areas that we are looking at for station, I think address
    the issues that were summarized well in the opening statement,
    is to focus very specifically on the engineering challenge of
    what we are dealing with here.
        Over the course of the next 2 years to achieve the core
    configuration--this is not so much limited by resources as it
    is by just the dynamics of large scale systems integration
    challenge.
        And, again, summarized as item two is the engineering
    objectives on page seven, which very specifically we looked to
    the course of the next 2 years through early fiscal year--I am
    sorry--through early calendar year 2004.
        There are ten successive shuttle flights with payloads that
    will build out the International Space Station in the graphic--
    both here on the chart as well as before you--that need to be
    achieved in succession. And every one of those missions must be
    successful. Everyone has to be building on the success of the
    previous mission.
        That is not so much limited by resources as it is by just
    the engineering challenge of that many flights, that much of a
    payload and the succession of that kind of a payload
    integration challenge.
        So as a consequence, our approach is to focus very directly
    on the program management challenges of what it will take to
    achieve that particular objective, that milestone, which then
    could permit and facilitate the opportunity to consider the
    larger international partner assembly complete configuration
    that was envisioned so many years ago.
        But as an engineering matter between now and, you know, 2
    years from this stage in early 2004, if we do not achieve that
    milestone, we cannot look at expanding the scope of the
    International Space Station beyond what it is today. So it must
    be achieved and it must be done successfully in each of those
    successive ten missions to build out the entire station to
    facilitate that opportunity.
        The third quick item, again, touched on in your opening
    statements that is a matter of extreme interest and concern to
    me is the cost estimation and analysis problem. There is no
    question that exactly the history that Senator Bond recounted
    is the manner in which it was revealed.
        In early 2001, the determination was that we were $5
    billion at present over the estimate. And at this juncture, we
    have asked for and commissioned, as the statement describes, is
    an internal cost estimating procedure to validate what it will
    take to achieve core configuration and then to look at what the
    additional excursions would be for the international partner
    complete configuration that would follow thereafter.
        Secondary, we have also asked for an independent cost
    assessment, part of the recommendations of the Young Commission
    that reviewed this matter last fall and made recommendations to
    NASA on that point. We have commissioned that particular
    independent cost assessment, all of which we expect to converge
    this summer.
        So I can give you an estimate of what we believe to be the
    cost engaged in this particular activity. At this juncture, it
    is our best estimate, but it is one that I think needs to be
    validated further with a more disciplined cost estimating
    approach.
        The fourth area is the international partnership dimension
    that you referred to as well. The international agreements call
    for a build out of International Space Station beyond what is
    referred to as node two, which is that particular milestone
    that occurs in the early part of 2004. And to reach those
    agreements and to make sure that we have accomplished that task
    is what we attempt to touch on in that last point.
        And, finally, on the fifth objective of where we are on the
    International Space Station is to look at what the flight rate
    requirements are for shuttle and payload missions for Soyuzes,
    for progress flights from our Russian partners engaged in the
    activity, to assure that we have supported this particular 2-
    year endeavor at this juncture to assure we reach that core
    configuration and then can discuss beyond that.
        As it stands now, the flight rate that is built into the
    budget is the maximum achievable flight rate to support this
    particular engineering dynamic. So as a consequence, there is
    no more aggressive deployment of that particular build-out
    procedure according to the project management and engineering
    team that manages the International Space Station and what we
    have built into the program. And it is designed purposely in
    order to achieve that systems integration success.
        With that, Madam Chair, if you would permit me, those two
    issues are the primary topics I wanted to at least touch on
    briefly, and then to defer quickly to a discussion of the
    Hubble imaging effort that just occurred. And, again, I think
    your characterization of it is precisely right.
        And I would simply add one footnote to the history of it.
    Ten years ago, this was an asset that was roundly criticized as
    an absolute failure, and as you correctly described, a
    corrective lens was installed by a remarkable astronaut by the
    name of Story Musgrave, who performed a series of space walks
    that were just positively over the top in terms of what anybody
    thought was achievable to bring this into a serviceable
    condition.
        But what we are getting back today as a consequence of the
    Hubble servicing missions that have occurred since that time,
    since his success in 1993, have really been beyond what we ever
    could have expected. And a gent that I have asked to join us
    here today is a veteran astronaut of four different missions,
    two of which were Hubble servicing missions to include the most
    recent one, STS 109, which was launched on March the 1st and
    returned in mid-March after the very successful upgrade of the
    power units aboard as well as the infrared imaging systems, all
    of which exceeded our expectations.
        Our fondest hope was that we would get a ten-fold increase
    of what we would see coming back as imaging from Hubble, which
    has already, even before the servicing mission, rewritten the
    astronomy books.
        But as a consequence of this latest mission, I think we
    have not seen anything yet in terms of the caliber of materials
    that has come back.
        John Grunsfeld is, again, a veteran astronaut, a fellow who
    was aboard the last mission, and in the history and in the
    legend of a guy like Story Musgrave, he too is becoming
    legendary, given the fact that he has done two of these
    servicing missions. And among all of his extraordinary
    characteristics as an astrophysicist and just a remarkably
    talented fellow, it turned out that his greatest attribute on
    this mission, on the several EVA space walks that he did to
    service the Hubble mission over the course of several hours, to
    include almost 7 and a half to 8 hours each mission--his
    greatest attribute is because all the control panels on Hubble
    are on the left-hand side, he is a left-hander, and so it made
    it an awful lot easier to service. So around NASA he is
    referred to as the ``southpaw savant.''
        So I would like to introduce Dr. John Grunsfeld, who will
    walk us through a few of the images that have just returned
    from Hubble and released just yesterday.
        Senator Mikulski. Thank you.
        [The statement follows:]

                       Prepared Statement of Sean O'Keefe

        I appreciate the opportunity to appear before the Subcommittee
    today in my new capacity as NASA Administrator. My objective throughout
    my stewardship of this storied Agency is to ensure that the Congress
    and the public are fully aware of our accomplishments, our current
    efforts and our plans for the future. My job as Administrator is to
    remind everyone of what NASA does and what we are capable of doing.
    It's a responsibility I take very seriously. I believe we are at a
    crossroads in NASA's history. We have an opportunity here and now to
    reinvigorate the Agency's agenda and renew the entrepreneurial spirit
    present at NASA's beginning--a continued characteristic of American
    culture.
        The President's fiscal year 2003 budget proposal for NASA of $15.1
    billion reflects the Administration's commitment to NASA's core
    research efforts and its fundamental mandate to advance aeronautics and
    aerospace science and technology. This budget initiates exciting new
    efforts in the realms of space transportation and propulsion. It builds
    upon our abilities to measure and understand our home planet and the
    natural--and unnatural--forces that shape our environment. I believe it
    is a well-balanced and progressive budget that allows us to set the
    stage for the future. Enclosure 1 displays NASA's fiscal year 2003
    budget request.
        In the 4 months since my confirmation, I have traveled across the
    country to visit each of our 10 Centers to meet NASA's dynamic
    workforce and have seen firsthand the remarkable science and technology
    efforts that are the underpinning of our endeavors. In this relatively
    short period of time, the Agency has taken a fresh look at the long-
    term management, resource, and technical challenges while continuing to
    expertly carry out highly complex day-to-day operations. Together we
    have charted a vision and mission that I look forward to sharing with
    you this morning.
        My testimony today will focus on the talent and technology that is
    embedded in the NASA organization, the challenges we face, and, more
    importantly, the steps we will take as an Agency to chart a clear
    course for the future. We are intent on continuing the gains made over
    44 years while pushing the edge of the envelope of what appears today
    to be impossible. NASA today is working together, as one Agency,
    committed to a clear vision and refined mission that will serve as the
    blueprint for service to America.
        What NASA needs now is a roadmap to continue our work in a more
    efficient, collaborative manner. I first outlined this roadmap for NASA
    on April 12 at the Maxwell School of Citizenship and Public Affairs,
    Syracuse University. NASA's imperative is not only for the sake of
    knowledge--it is for our future and our security. I have introduced a
    new strategic framework and vision for NASA. It is a blueprint for the
    future of exploration. It is a roadmap for achievement that we hope
    will improve the lives of everyone in this country and everyone on this
    planet.
        That is a bold statement, I know. But, I am confident in saying
    this because the unique work that NASA does truly touches all of our
    lives.
        This is NASA's vision for the future. Our mandate is:
      --To improve life here;
      --To extend life to there; and,
      --To find life beyond.
        This vision is much more than carefully arranged words; it frames
    all that we do and how we do it.
        So, how do we get to that impressive picture of the future? The
    answer is by executing NASA's mission:
      --To understand and protect our home planet;
      --To explore the Universe and search for life; and,
      --To inspire the next generation of explorers as only NASA can.
        To understand and protect our home planet, NASA develops and
    employs the technology to make our nation and society a better place.
    We forecast the impact of storms on one continent upon crop production
    on another continent, track and predict the patterns of mosquito-borne
    diseases, and study climate, geography and the environment.
        NASA's contribution to security comes from increased cooperation
    and the sharing of imagery and unique technology with the Federal
    agencies charged with the defense of our homeland. Aerospace
    innovations developed at our centers prevent civilian aircraft from
    being used as weapons. Improved air traffic control safety systems and
    engineering that will make future airplanes more efficient and
    environmentally sound are clear examples of our role in the changing
    nature of transportation and our Nation's security. Hypersonics and
    quiet aircraft are efforts to speed transport and, in doing so, bolster
    the economy.
        Our mission's second theme is to explore the Universe and search
    for life. NASA will exploit advanced technology, robotics, and will
    eventually use humans to explore and seek the answers and the science
    behind our most fundamental inquiries: How did we get here? Where are
    we going? Are we alone? If we are to achieve our ambitious objective of
    exploring the universe and the searching for life beyond our Earth, be
    it through flights to Mars or observing faraway planets, we must
    continue to learn about and overcome the technical hurdles that remain
    in our quest to answer our most probing questions.
        NASA's recent achievements are only the beginning of the Agency's
    role in rewriting tomorrow's textbooks for America's children, as well
    as for today's astronomers and astrophysicists alike. Just yesterday,
    NASA released the first images received from the newest science
    instrument on the Hubble Space Telescope, the Advanced Camera for
    Surveys (ACS). The new ACS was part of the recent and highly successful
    STS-109 servicing mission, during which astronauts helped take Hubble
    to the next level of excellence. This new and improved camera now
    offers us 10 times the discovery power than the camera it replaced.
    With the ACS, our view into the depths of our Universe has been taken
    to a new level. I would like to share with you today a set of the
    stunning new images from the Hubble Space Telescope, including an image
    of a spiral galaxy dubbed ``Tadpole,'' residing in a constellation
    about 420 million light years away; an image of the center of the Omega
    Nebula, a hotbed of newly born stars, 5,500 light years away; and, an
    image of a pair of colliding galaxies nicknamed ``The Mice,'' more than
    300 million light years away.
        Later this month, we will launch the GALEX, Galaxy Evolution
    Explorer, which will use ultraviolet light to conduct an all-sky
    ultraviolet survey and detect millions of galaxies located billions of
    light years from our earth. Next year, we will travel further into our
    own solar system with the launch of the Mars Exploration Rovers and
    Mars Express missions. The Mars Rovers will take us beyond the success
    of the Mars Pathfinder mission in 1997 and allow us to analyze rock and
    soil samples on the Martian surface at a microscopic level. Mars
    Express, a mission planned by the European and Italian space agencies,
    will be the result of international collaborative efforts with NASA.
    This mission will take us another step closer to our search for
    evidence of past or present life on Mars. In January 2003, we will
    launch the last of NASA's great observatories, the Space InfraRed
    Telescope Facility, destined to be a cornerstone in our Astronomical
    Search for Origins Program and allowing us to peer into regions of
    space currently hidden from our view.
        If we are to achieve the mission of exploring the universe and
    searching for life, there is much we must still learn and many
    technical challenges that must be conquered. Today's chemical energy
    rockets that have been the engine of exploration since the inception of
    space travel are today at the limit of what they can deliver. Using
    current technology, if we were to embark to explore Pluto in 2006, the
    earliest we could arrive there is 2014-2016; and then, upon our
    arrival, we would only be able to obtain meaningful research for 4-6
    weeks. That is an 8-10 year travel period for 4-6 weeks of science.
    NASA's fiscal year 2003 budget includes nearly $1 billion for a nuclear
    systems initiative as a first step in addressing this challenge.
    Nuclear propulsion is a mature technology that has been used safely by
    the U.S. Navy since 1955. Since that time, the Navy has sailed over 120
    million miles encompassing 5,000 reactor years without incident. This
    technology may hold the key to overcoming the time/distance challenge,
    and its application to space travel has great potential.
        Propulsion is only one of the challenges facing further human
    exploration of space. Still unknown are the long-term effects of
    radiation and exposure to a microgravity environment on humans. The
    fiscal year 2003 budget includes funding for a new initiative for space
    radiation research.
        Our third mission objective is to inspire the next generation of
    explorers. America looks to NASA to build an unequalled scientific base
    of knowledge and motivate our youth to embrace math, science and
    engineering. While opportunities in the technology sector are expected
    to quadruple this decade, the pool of college students enrolled in
    science and engineering courses continues to decline. NASA has an
    obligation to the nation and its own workforce to reverse this trend.
        NASA faces similar challenges with its scientific and engineering
    workforce. During one of my recent Center visits, I found that only 62
    engineers out of a 3,000-person workforce were less than 30 years old.
    In fact, as an Agency, our over-60 population is three times larger
    than the under-30 workforce. Inspiring the next generation of explorers
    to enter fields of science and engineering is integral to NASA's
    success in reconstituting our workforce for the 21st Century
    challenges.
        Students are only part of the education equation at NASA. Our
    Nation's educators are also a critical component of NASA's revitalized
    education focus. Teachers at all levels already possess the skills to
    inspire and plant the seeds necessary for this Nation to grow the next
    generation of science and technology leaders. NASA can best introduce
    itself and the science that it represents into the classroom by teaming
    up with educators, especially at the younger grade levels.
        Inspiring future generations works in synergy with NASA's mission
    to protect our home planet. The U.S. Commission on National Security
    for the 21st Century (the Hart-Rudman Commission) concluded that
    advances in technology and changing economies mandate an increase in
    the level of technology literacy across society. It is clear that
    technological human capital is an essential component of our national
    security equation.
        Our mission concludes with the statement, ``as only NASA can.'' Our
    Agency is one of the Nation's leading research and technology Federal
    agencies with unique tools, capabilities and expertise that represent a
    National asset. The Agency contributes to America in a broad spectrum
    of areas. Medical technologies, aerospace innovations, spin-offs, nano-
    technologies, and countless commercial applications are rooted in NASA
    discovery. Our commitment to the American taxpayer is to continue
    providing a direct and very tangible means of improving life on our
    planet. Extending life beyond the reaches of our earth is not a process
    driven by any particular destination, but by science that will
    contribute to the social, economic, and intellectual growth of our
    society.
        NASA provides a constant return on taxpayer dollars with each new
    discovery, telescope picture, launch, patent, and newly inspired child
    or adult. That being said, none of the ambitious plans that I have
    detailed for the Agency will take root if we fail to improve the
    management of our resources, commit to fiscal responsibility, and
    establish a clear set of priorities. A clear vision and integrated
    mission are important foundations for NASA's future success, but
    success requires that we embrace a wide variety of tools to move us
    forward.
        At NASA, and at other departments and agencies across the Federal
    Government, we are vigorously implementing the President's Management
    Agenda as a powerful management initiative. Each of the five items
    included in the Agenda applies directly to NASA.
        First on the Agenda is the strategic management of human capital.
    As I mentioned previously, we face challenging times as we reconstitute
    and reshape our workforce for the 21st century. Today we have an
    extremely experienced workforce in terms of overall capability. The
    downside, however, is that almost one-third of the workforce will be
    eligible to retire within the next 3-5 years. We must aggressively deal
    with this leadership and workforce challenge. I have recently forwarded
    a series of legislative provisions to the Office of Management and
    Budget, which address this challenge head-on. These provisions will
    complement the Administration's Managerial Flexibility Act, and I look
    forward to working with the Congress to ensure that these essential
    tools are enacted into law.
        The second element of the Agenda is competitive sourcing. We are
    thoroughly examining the best ways to motivate a competitive sense in
    all we do. By focusing on results and outcomes, we will find the most
    efficient means to accomplish our goals.
        The third element of the Agenda is expanded electronic government.
    We must pay specific attention to information technology and ensure
    that the information technology process is integrated into Agency
    decision-making.
        The fourth element of the Agenda is improved financial management.
    I am pleased to report that we are aggressively implementing our
    integrated financial improvement program, which is now in the third
    year of its implementation schedule. I have tasked the staff to explore
    all options to determine whether we can accelerate implementation
    throughout the Agency.
        The fifth element of the Agenda involves budget and performance
    integration. We must become results-oriented and link our budgets to
    performance. We will breathe new life into the Government Performance
    and Results Act. We in NASA are spending a great deal of effort into
    developing metrics to measure performance.
        I would now like to provide a status of two of our major programs.
    International Space Station
        The International Space Station (ISS) is without precedent in the
    history of the U.S. space program. The ISS Program has had a year of
    spectacular technical achievements, which include ground preparation
    and checkout, launch integration, and on-orbit assembly and operations.
    To date, the ISS program has achieved remarkable technical successes;
    however, it has not been equally successful in controlling cost growth.
    Last year, NASA projected an overrun in the amount it needed to
    complete the space station, as then planned, of up to $4.8 billion.
    While some of that growth may be attributable to such factors as
    inadequate initial requirements definition, added content, late
    delivery, and development problems leading to cost variance, there are
    clearly areas of fiscal management and program control that need
    improvement.
        The President's Budget Blueprint for fiscal year 2002 laid the
    groundwork for attaining cost control and regaining credibility for the
    program to reach its full potential. As a result, a course of action
    was prescribed to get cost growth under control and restore confidence
    in NASA's cost management, and to achieve the science priorities for
    which the Nation has made a large investment. We are continuing with
    the reassessment and review activities that we began last year that
    followed the Blueprint, but did not eliminate the cost challenge. The
    President's fiscal year 2003 budget projections include about $600
    million of savings that NASA will realize through the implementation of
    identified program initiatives, and a process that continues to seek
    additional savings while containing the threats to further ISS cost
    growth. While steps taken last year were designed to contain cost
    growth and to gain better understanding of its source and nature, this
    year will be one of corrective action--putting in place the right
    processes, tools, management controls, and measures to improve and
    evaluate the ISS program.
        Thanks to the efforts of the ISS Management and Cost Evaluation
    (IMCE) Task Force, led by Mr. Thomas Young, we are well along in
    effecting proper controls and regaining credibility. I have reviewed
    the Young team's recommendations and have endorsed them as a roadmap to
    improve the ISS Program management. As a result, the ISS management has
    already taken actions to develop implementation strategies.
        The following five points are guiding our efforts at reform and
    revitalization of the ISS program:
        Research Priorities.--Establishing an integrated portfolio of
    science and technology priorities that maximize the benefits of space-
    based research within available resources. In addition to addressing
    the cost challenges of the ISS, we must make a renewed determination of
    the research goals and on-orbit capabilities that we want the ISS to
    achieve. Our priority should not be to simply build an ISS to a
    specific hardware complement and then seek research and experiments to
    make use of the hardware. The ISS Program should be driven by high-
    priority research objectives. NASA has recently established a Research
    Maximization and Prioritization (ReMaP) Task Force to assess how high-
    priority research objectives can be best met by ISS within available
    resources, and how the resulting research strategy might evolve, given
    the possibility of research-driven enhancement to the ISS beyond U.S.
    Core Complete.
        Engineering Development/Deployment.--Development of a program road
    map that focuses on successfully achieving a ``core complete''
    configuration within budget. This will not be easy, but we are
    dedicated to making it happen. Therefore, it is imperative that
    Congress provide us with the requested funds so that we can meet our
    commitment to achieving a core Station. Should NASA demonstrate that
    reforms are implemented and cost credibility is regained, this will
    enable future decisions towards a requirements-driven ``end state''
    that will, defined in terms of science priorities, allow an expanded
    research potential for us and our international partners.
        Cost Estimation and Analysis.--The ISS is the largest and most
    complex engineering development program ever pursued by the United
    States. Implementation of improved methodologies, tools and controls
    are underway and will allow us to regain credibility and improve our
    ability in financial forecasting and strategic planning capabilities.
    An independent cost review is underway to better understand our costs.
    These projects will also be beneficial to the Agency at large.
        International Partnerships.--An important challenge is maintaining
    the ISS international partnerships. Our partners have expressed their
    concerns stemming from NASA working to get the fundamentals right to
    achieve U.S. core complete; and then to identify options beyond U.S.
    core complete to realize the full potential of the ISS. Although the
    configuration of the ISS has been modified to meet the cost challenges
    we face, the fundamental purposes remain--research and international
    cooperation. To reaffirm NASA's strong commitment to its international
    partnerships, I have formed a team to meet with representatives of all
    our partners to understand their concerns and to work with them in the
    spirit of cooperation.
        Mission and Science Operations.--Advanced planning for Space
    Shuttle and ISS operations to maximize the productivity of on-orbit
    research and ensure the safety of real time operations.
    Space Shuttle
        NASA is proud of its historic record of 106 Shuttle missions and,
    in particular, the accomplishments of the last year in support of the
    ISS. Last year, seven Shuttle missions were flown with five of those
    missions launched during a 6-month period.
        This budget continues to invest in safety and supportability
    improvements for the Space Shuttle and increases the investment in
    repairing aging Shuttle infrastructure. These investments, totaling
    $1.35 billion over the next five years, will ensure that the Space
    Shuttle can meet NASA's space transportation needs for at least the
    next decade. NASA seeks to implement these upgrades as quickly as
    possible, and is working to accelerate the availability of planned
    upgrades. These investments are an integral part of NASA's Integrated
    Space Transportation Plan (ISTP), which also includes investments in
    the Space Launch Initiative (SLI) for NASA's next-generation reusable
    space transportation system.
        As recommended by the IMCE Task Force, reducing the Space Shuttle
    flights to four per year appears to be sufficient to meet ISS needs.
    However, we are reviewing this decision to determine whether any
    additional flights are necessary.
        The President's budget also provides for the continued pursuit of
    Shuttle competitive sourcing. The anticipated benefits of competitive
    sourcing include: (1) greater flexibility to recruit and retain the
    skilled personnel necessary to safely operate the Shuttle; (2) avoiding
    potential continued cost growth for Shuttle operations by moving to a
    private organization that has greater flexibility to make business
    decisions that increase efficiency; and, (3) significant culture change
    in Human Space Flight at NASA by making it a purchaser of services
    rather than an operator of infrastructure.
        Mr. Chairman, I believe the vision, mission, programs, initiatives
    and budget I have described represent a strong commitment to a healthy
    and forward-moving NASA. I believe it is deserving of the
    Subcommittee's strong support and I look forward to working with the
    Subcommittee to achieve an appropriation that supports the President's
    budget request.
        I have mentioned the opportunity I have had to meet the men and
    women of NASA, working in our installations across this land. We have a
    diverse and resilient workforce, and they are proud and excited about
    the work they are doing. They are our greatest assets and I believe our
    greatest hope for the future of this Agency. They have shown me their
    desire to be a part of the work contributing to even greater meaning in
    the larger dreams represented by this Agency. Their eagerness and
    dedication and the strength of their resolve tell me that, together
    with the support of Congress and this Subcommittee, we can achieve what
    we have set out in this budget to accomplish--and more.
        Thank you.

                        NATIONAL AERONAUTICS AND SPACE ADMINISTRATION FISCAL YEAR 2003 ESTIMATES
                                           [In Millions of Real Year Dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                        Fiscal year
                                                                     -----------------------------------------------
                                                                       2001 Op plan    2002 Initial      2003 Pres
                                                                        revised \1\       Op plan         budget
    ----------------------------------------------------------------------------------------------------------------
    Human Space Flight..............................................         7,153.5         6,830.1         6,130.9
    International Space Station.....................................         2,127.8         1,721.7         1,492.1
    Space Shuttle...................................................         3,118.8         3,272.8         3,208.0
    Payload & Elv Support...........................................            90.0            91.3            87.5
    Heds Investments and Support....................................         1,247.8         1,214.5         1,178.2
    Space Communications & Data Systems.............................           521.7           482.2           117.5
    Safety, Mission Assurance & Engineering.........................            47.4            47.6            47.6
    Science, Aeronautics & Technology...............................         7,076.5         8,047.8         8,844.5
    Space Science...................................................         2,606.6         2,867.1         3,414.3
    Biological & Physical Research..................................           362.2           820.0           842.3
    Earth Science...................................................         1,762.2         1,625.7         1,628.4
    Aerospace Technology............................................         2,212.8         2,507.7         2,815.8
    Academic Programs...............................................           132.7           227.3           143.7
    Inspector General...............................................            22.9            23.7            24.6
                                                                     -----------------------------------------------
          Total Agency..............................................        14,253.2        14,901.7        15,000.0
    ----------------------------------------------------------------------------------------------------------------
    \1\ Fiscal year 2001 restructured to reflect two-appropriation structure

                         HUBBLE SPACE TELESCOPE IMAGES

        Senator Mikulski. Good morning, Doctor. Come on up.
        We are looking forward to hearing you. You know, they often
    say about this agency and these appropriations for it really is
    rocket science. But we are glad to really meet a rocket
    scientist, so----
        Dr. Grunsfeld. Do you have a baseball analogy for a lefty?
        Senator Mikulski. No. I am going to just----
        Dr. Grunsfeld. All right.
        Senator Mikulski. I am going to just sit in the dugout here
    and look at the pictures.
        Dr. Grunsfeld. Well, it is truly a pleasure to be here. And
    I thank you very much for allowing my participation.
        First, let me say that I was on the Hubble Space Telescope
    a month and a half ago, and the Hubble Space Telescope is a
    national treasure. I would just like to report to you that the
    telescope is in fantastic shape.
        We spent about 35 hours space walking on the Hubble Space
    Telescope. While the outside may look a little tattered, inside
    it is a brand new telescope. And even more so now that we have
    made the upgrades, as Mr. O'Keefe told you, the telescope is
    now ten times better and has a new power system, so I think
    effectively we can consider it a brand-new telescope.
        It is very exciting for me to be involved in the Hubble
    project as an astronomer simply because it is kind of a Mecca
    for astronomers in that it is the most productive scientific
    instrument ever created by people. I think that is just
    incredible, we are all alive at this time in history to be
    participants. So I would like to bring all of you as
    participants into that a little closer by showing a short video
    with some of the early results. And I really want to just
    remind you that the best is yet to come. This is just a sneak
    preview.
        So we are going to start with the first images. These were
    released yesterday. They are from work that occurred in April
    from the advanced camera for surveys, a digital camera. It
    actually has three cameras inside of it, but it is the digital
    camera.
        We are going to show you four pictures today. The first
    picture is called the cone nebula. And this is a very large
    turbulent pillar of gas very much like the Eagle nebula
    pictures from the wide field camera. But this is unprecedented
    detail of this nebula. And this nebula is a star forming
    region.
        We are seeing where baby stars are born and start to grow.
    There is another star off field that is illuminating this and
    giving us just beautiful views of this.
        The next picture is zooming in from an earth-based optical
    picture, which is now low resolution compared to the new Hubble
    images. You can see it getting blurry until you get to the
    Hubble image. And as we zoom in, you can see the very, very
    small detail. This picture is only about 3,500 times as big as
    our solar system.
        The next is the Mice. And this is a zoomed-in view of the
    tail, and the detail is unbelievable. This is a 16 million
    pixel camera, and we are seeing a galaxy that has collided with
    a much smaller galaxy and thrown out a pillar of gas. The two
    galaxies are interacting and the tails--but in the background,
    you see all these other objects. And it comes out more in this
    picture, which has been named the Tadpole. And, again, it is
    interacting galaxies that have thrown out a tail. Star
    formation is occurring in that tail, spawning off new galaxies.
        The incredible thing about this picture is in the
    background--the main thing to take was the picture of the
    Tadpole galaxy, but in the background, it is virtually another
    Hubble deep field. This picture was taken over the course of
    about 1 day of observation compared to the 12 days of the deep
    field.
        When we take pictures like this, I think we are going to
    get a deep field in every picture, and it is just incredible.
    There is a total of about 6,000 galaxies in the background of
    this picture, twice----
        Senator Mikulski. 6,000 galaxies?
        Dr. Grunsfeld [continuing]. The number that we saw in the
    two deep fields that were dedicated precious Hubble time.
        We saw pictures of bright young stars in those pictures. I
    had the opportunity last week to talk to third-graders in my
    hometown, which is the south side of Chicago. That is the age
    at which I kind of became inspired to do science. It was when I
    had to do a biography of Enrico Fermi, a famous American
    physicist.
        I had the opportunity to talk to a third-grade class about
    the Hubble mission. There was one little girl in that class who
    raised her hand and asked me a question, and it was more of a
    statement than a question. She said, ``Did you know that 3
    billion years or 4 billion years from now, our sun is going to
    explode and create a planetary nebula like the ones you showed
    in the pictures?''
        Senator Mikulski. She said that to you from the third
    grade?
        Dr. Grunsfeld. She said that to me. I thought this is
    incredible that a third-grader knows enough about stellar
    evolution and the course of stars like our own, that there is
    hope for all of us yet. And I think those are the bright young
    stars that these Hubble images really talk to is our young
    people, getting them interested in that age in technology and
    science. I thank you very much.

                                 HUBBLE MISSION

        Senator Mikulski. Well, thank you very much, Doctor.
        First of all, I think in behalf of the Committee and the
    Congress and the country, we really want to thank you and we
    want to thank the astronauts who went on this mission. It was
    not an easy mission. It was a white-knuckled mission in terms
    of the complexity of the retrofitting.
        All the hard work and the training that you all did in
    order to be efficient and safe in space, first of all, we want
    to thank you for the successful completion of the retrofitting
    that adds not only new life to the Hubble, but a whole new
    incredible capacity, bringing it far beyond what we wish we had
    even thought of for Hubble.
        And so we would like to thank you and, of course, everyone
    connected with Hubble in terms of what they are doing. And some
    day that little third grader is going to be--I have a feeling,
    is going to be up in space.
        And so, again, do you not think we ought to just give them
    a round of applause here?

                       MANAGEMENT REFORMS OF THE STATION

        And after that, it seems kind of nickel and dime to be
    talking about the budget, but we must. So thanks again and we
    look forward to this.
        Thank you. I am going to move now to my questions and let
    us go to the issues related to--I know that Senator--let us go
    to the questions related to the space station.
        In your written testimony on pages six and seven, you
    really go into what you want to be the management reforms of
    the station. $4 billion in overruns; $4 billion in overruns.
    You give these excellent five points and you had them in your
    testimony, the research priorities, engineering developments,
    cost estimates, holding steady our international partners,
    which is getting tattered and worn, and then, of course,
    mission.
        What can we expect over the next year in terms of the
    bringing this into some form of discipline and some form of
    really true cost estimates in terms of what the station will be
    able to do?
        Mr. O'Keefe. Well, first of all, if you would permit me,
    Madam Chair, I want to thank you again for the recognition of
    John Grunsfeld, Scott Altman and his extraordinary crew that
    performed this mission. It was really remarkable, and I thank
    you for the opportunity to present that today.
        As it pertains to the International Space Station, I think
    you put your finger right to it. What we are focused on and
    clearly dedicated to is to focus on program management and
    fiscal discipline principles to achieve the core configuration
    so we can then have a meaningful discussion and debate of how
    to best utilize the scientific requirements or to employ the
    scientific requirements that will emerge from that.
        My strongest hope and frankly confidence is that this
    summer as we complete the internal, as well as, independent
    cost estimates, that we are going to find ourselves within the
    range of what we presented as the budget for this particular
    endeavor and assure that we stick to that as a means to
    accomplish this particular task.
        Again, the pacing milestone that is most critical, for
    which everything needs to be discussed from that point is the
    accomplishment of node two, which is part of the international
    partner deployment of that module, which then facilitates a
    larger configuration potential. But between now and then, what
    you see in the budget for 2003 as well as the projections for
    2004 is the amount required to achieve the core configuration,
    and based on the map out here of each of the fiscal years laid
    out, or each of the calendar years; and to achieve that task
    then makes open the possibility for a larger discussion of what
    assembly complete would look like with all the international
    partner components that would go to that.
        If we do not meet that milestone, that objective, there is
    not a discussion beyond that. As an engineering matter, the end
    state, not because it is resource constrained, not because
    anyone wants it to be that way, but because that becomes the
    reality of what we are faced with if we cannot achieve the core
    configuration by that stage.
        So our focus is very much on the knitting of getting from
    here to that big milestone, and then assuring that each of the
    international agreements that we have entered into can then
    follow on from there to achieve what could be the assembly
    complete configuration.
        But until that point, our focus has to be primarily on the
    core configuration between the elements, and the budget
    includes----

                          SPACE STATION COST OVERRUNS

        Senator Mikulski. We appreciate the focus on the core
    configuration. And here is my question: based on what you're
    bringing to bear on the space station through your executive
    ability and management methodologies, can we have your
    assurance that the cost overruns are over?
        Mr. O'Keefe. This summer, when the internal, as well as
    independent cost estimate is complete, I will be able to give
    you a definitive answer on that.
        Senator Mikulski. Oh, we take you for your word. We believe
    you are a man of integrity and that is why we need candor here.
        Mr. O'Keefe. Sure. I appreciate that. Yes. At this
    juncture, I cannot give you an assurance that this is the end
    of it. I do not know, until that independent cost estimate and
    the internal estimate is complete.
        I think we are heading in that direction. There is nothing
    so far, that I have seen in the last 4 months that has been a
    surprise or anything even approaching what we saw emerge as a
    consequence of the early January 2001 revelations of what the
    cost configurations were here.
        So there is nothing along that run, or line. But I think by
    this summer, I will be able to give you a definitive answer to
    that. Until then I am withholding judgment myself. We are
    trying to exert as much of a discipline in that process to make
    what we have sent and the President has proposed for 2003 as
    well as projections for 2004 for the International Space
    Station, the resources we think at this juncture are necessary
    to achieve that task.

                           CORE COMPLETION--CREW SIZE

        Senator Mikulski. Well, first of all, I want to salute you,
    because I think that you are ending this culture associated
    with the station that it did not matter if there were cost
    overruns, that we would make it up in other programs. And all
    of us feel that other programs have suffered because of it.
        But one last question and then we will be turning to
    Senator Bond. I understand that the core completion means that
    the station would be able to house three crew astronauts, am I
    correct in that?
        Mr. O'Keefe. Yes.
        Senator Mikulski. And that anything to go to the seven,
    which we had already envisioned, would be beyond core. So this
    is really the basics, not even the basics. This is the bare
    minimum to even justify the station. Am I correct?
        Mr. O'Keefe. Well, the----
        Senator Mikulski. And then the question is: Can you really
    do research with three astronauts?
        Mr. O'Keefe. Yes. This is definitely a chicken and egg
    problem. I think you put your finger right to it, Madam Chair.
    But let us recall, again, as a systems integration, an
    engineering reality, we are through 2004--under any
    configuration whether we agreed to a ten-astronaut
    configuration, or twenty, or whatever other number you would
    like. The reality is in the next 2 years, the engineering
    principles driving the direction, and the systems integration
    challenges driving the direction of an International Space
    Station, between now and 2004, that will accommodate three.
        There is no way to accommodate larger than that between now
    and then, and never was part of the plan. Even before the cost
    estimates were revealed to have increased, there was not a
    point where we would have achieved more than three crew
    members, up until 2004.
        It was beyond that that was the original agreement and
    understanding, because, again, the buildout time it takes to do
    this is such that we are about halfway there right now, maybe a
    little more than that. And so as a consequence, the reality is
    we are going to be at a three-crew-member configuration. We
    were going to be at that a year ago. We were going to be at it
    yesterday. We will be at it tomorrow.
        The plan, the objective, the clear intention is to get to
    the point by early 2004 where we can look at the deployment of
    modules and components that would make this a larger
    configuration for a crew size driven by the science
    requirements, not by some number we all make up. Instead, it
    ought to be driven by what those requirements are and how many
    crew it takes in order to conduct that set of priorities that
    are there.
        So part of the discussion we need to engage in here over
    the course of the next year, as we reach that configuration
    that facilitates this meaningful discussion, is to talk about
    what those priorities are and how far we want to go, how deep
    down that priority list we want to achieve this and, therefore,
    how many crew members it will take to accomplish that task.
        That is a more, I think, appropriate way to look at the
    nature of the objective, the mission of what is required and
    the requirements for this extraordinary capability, rather than
    backing into it by some crew configuration number that is
    different.
        Again, the total crew size that exists today was the crew
    size that was envisioned at the time of the international
    agreements at this time. And all the way through 2004, that was
    going to be the crew size configuration. My fondest hope is
    that we not stop there. Nonetheless, we need to exert the
    discipline to assure that we can at least get there before we
    can even entertain a discussion beyond that.
        Senator Mikulski. Senator Bond, I know you have questions
    on this.

                         PRIORITIZING SCIENCE RESEARCH

        Senator Bond. This is an area we have discussed before and
    one of great concern to me. The core complete, obviously you
    have got to take the first step before you can start to jog or
    run, and one of my questions was going to be how you prioritize
    the science research.
        And you have indicated briefly that you are going to move
    to the science side first and use the science requirements to
    drive the configuration needs for manning the space station. Is
    that a fair assessment?
        Mr. O'Keefe. Yes, sir. I think the science and research
    objectives are the primary, not the only, but the primary
    reason why we have engaged in this remarkable challenge of
    building something this big, 250 miles straight up that is
    moving at 18,000 miles an hour while we are trying to build it.
    It is a challenge, yes.
        Senator Bond. And in prioritizing the science--we talked
    about it yesterday--tell us about how you are prioritizing the
    science for the station. What kind of tests are you doing? Are
    they laying out in each project the time, the crew man hours or
    time hours, the costs? How are you prioritizing the science?
        Mr. O'Keefe. Thank you, Senator. The approach is to pull
    together, and what we have assembled now is a group of
    scientists who represent all of the respective disciplines, to
    include a plant scientist, to include Dr. Vitchi, as well, who
    is one of the members of that particular group, that is
    prioritizing the full range of all the scientific objectives
    that has been expressed by each of those communities, chemists,
    biologists, plant scientists, across the board, everyone who
    has articulated what they think are the purposes or the
    utilization of capability that is continuous microgravity
    condition----
        Senator Bond. Yes.
        Mr. O'Keefe [continuing]. And for which there would be
    extraordinary breakthrough research opportunities, if conducted
    in that atmosphere. So in other words, what we have asked them
    to do in representing all of those disciplines is, give us your
    highest priorities that meet those two criteria, then use this
    capability uniquely.
        Senator Bond. When is that due? When are you going to get--
    --
        Mr. O'Keefe. That would be finished by early June. Within
    the next 6 weeks, we will have that in hand. Yes, they have
    committed to that. They are on track for that too.
        Senator Bond. Yes. Do you get it prioritized? Do they say,
    This is going to take--this project, we estimate will take so
    many crew hours, so many crew days, so many crew years``? How
    do you--if you are going to meld that in, you need to know the
    cost of it.
        Mr. O'Keefe. Sure, yes, sir.
        Senator Bond. You need to know the extent of the equipment.
    And I gather from what you are saying, although you have not
    said it explicitly, the crew size you are going to shoot for
    ultimately is going to depend upon the human needs associated
    with each experiment.
        Are they going to give you an estimate of the crew time? Is
    that going to drive the habitation needs?
        Mr. O'Keefe. Yes, sir. Well said. That is exactly the
    objective, to look at that as the driving requirement. While
    this particular group is not making an assessment of how many
    people to take or how much does it cost, we already have that
    in the can by virtue of the fact that most of the efforts that
    are underway in each of these research communities are
    identified. What they are doing is prioritizing them, so
    therefore you can draw from each----
        Senator Bond. So you have the crew--each project has a crew
    time, cost and all that.
        Mr. O'Keefe. Can be derived.
        Senator Bond. They are just prioritizing their--okay.
        Mr. O'Keefe. It can be derived, yes.

                       BEYOND CORE COMPLETE CONFIGURATION

        Senator Bond. And at what point, assuming they come up with
    some things that require, say, for example, that you go up to
    the seven-man crew. Under what proposal, when would you be able
    to provide for and fund a habitation module and the crew return
    vehicle necessary? What are you doing in that area to--I know
    you have some options. Tell us about those if you would,
    please.
        Mr. O'Keefe. Yes, sir. Thank you. As it stands, several of
    the decisions that are necessary to look at beyond core
    complete configuration can be made in 2003 and the early part
    of 2004. There are a few that really need to be considered and
    thought about as early as this fall, or certainly by the time
    the 2004 budget is presented to the Congress for your
    consideration.
        So there are a few issues that are pacing items that need
    to be considered on that point. The most critical of them is
    the successful development and production of the node two
    module, which the Italians are very ably conducting right now.
    We have been working with them extensively to assure delivery
    of that module that then opens up the opportunity for the
    habitation module you described.
        Senator Bond. Yes.
        Mr. O'Keefe. So the decisions are about a year off, and we
    need to assess that to see where we are on the deployment of
    that particular configuration by that time.
        On the crew return vehicle that you have discussed, we are
    looking at several alternatives that will be platforms to
    accomplish multiple objectives, not single purpose objectives.
        And as it stands now, the X38 crew return vehicle, which is
    a single purpose mission craft which was designed and
    developed, there has been a test article of it. We know how far
    that is going to go and we got a pretty good idea of how to
    make it, and instead of going ahead and producing or investing
    the $1 billion plus that it takes for a single purpose craft,
    we are setting that aside and looking at other alternatives
    that would give us multiple mission objectives for
    transportation, for resupply, for logistics, for payload
    requirements, and crew return capacity.
        So there are a number of options we are looking at right
    now that are developed, that are flight tested as well, that if
    we can deploy in the same time frame coincident with any change
    that would necessitate a crew size larger than three, then we
    have got an opportunity, I think, to look at those options
    right now, this year and develop them during the course of the
    next two, in order to achieve that set of objectives.
        So we are on track to do that. I think we have got the
    options ready to go to consider it and if need be, if we have
    to go to a single purpose craft like an X38, we have got that
    ready to re-energize, if necessary, or reactivate in order to
    achieve that task.
        But at this juncture, investing in a single-purpose craft
    that meets a crew-size objective greater than what we currently
    have and investing what we know is going to be a substantial
    amount for a single-purpose objective, we are looking to buy
    that extra time in order to achieve the multiple mission
    objectives and to leverage that investment for those multiple
    purposes.
        Senator Bond. It sounds like it makes a lot of sense to me.
    I hope it works. And we will be watching that.
        Thank you, Madam Chairwoman.
        Mr. O'Keefe. Thank you, sir. I appreciate your support.
        Senator Mikulski. Those were excellent questions, Senator
    Bond. They parallel my thinking.
        Again, I think you can see you have got really bipartisan
    support and you have bipartisan questions.
        Senator Shelby.

                       PRIORITIZING RESEARCH FOR THE ISS

        Senator Shelby. Thank you. Thank you, Madam Chairman.
        I just want to briefly associate myself with Senator Bond's
    questions regarding the prioritizing of the research for the
    International Space Station.
        Mr. O'Keefe. Sure.
        Senator Shelby. I think we have to, Mr. O'Keefe, recognize
    the importance of material science research, as a key enabler
    to our future success in space. And I hope that NASA will
    remain committed to working with industry to develop materials,
    devices and processes that we are going to need tomorrow.
        Mr. O'Keefe. Yes, sir.
        Senator Shelby [continuing]. I think that there is so much
    out there, if we will not ignore it. And I hope you remain
    committed to this.
        Mr. O'Keefe. Yes, sir. No, very much so. I think that you
    put your finger to a very important element of the research
    agenda that must be emphasized that gives us the unique
    capability to utilize the space station for what it was
    envisioned to be used for, and can give us some breakthrough
    opportunities. I think you are exactly right.

                           NUCLEAR SYSTEMS INITIATIVE

        Senator Shelby. There is no telling where it will carry us
    in the future with our industrial products and everything that
    goes with it.
        Mr. O'Keefe, the nuclear systems initiative, my colleague
    from Ohio touched on earlier. I know you mentioned it in your
    written testimony.
        Compared to current technology, what specific capabilities
    is the nuclear initiative designed to produce for our
    spacecraft? And how will this initiative's success impact
    future missions, particularly NASA's ability to conduct space
    science? I think it has a lot of promise, as Senator DeWine
    said, but I thought you might want to touch on it here in the
    open hearing.
        Mr. O'Keefe. No, I appreciate it. Thank you, Senator. First
    and foremost, this is the best example of what I think we can
    find and what we see in the manifest and the budget for
    enabling technologies to get past what had been structural
    limitations for exploration and discovery for 40 years.
        And the fact of the matter is, again boldly stated, that we
    travel beyond lower earth orbit at speeds that roughly
    approximate that which John Glenn flew at in Friendship Seven
    40 years ago. We are stuck in that laws of physics paradigm.
    And we have not found a successful method of----
        Senator Shelby. We have got to break out of it.
        Mr. O'Keefe. I am sorry, sir?
        Senator Shelby. We have to break out of that.
        Mr. O'Keefe. I mean, we have got to find a leap ahead
    technology. We have got to find an enabling capability to get
    past that structural limitation of speed or on orbit time, one
    of two.
        And what we see generated, I think, by a power generation
    or propulsion system, and the specific objectives we have in
    mind is to decrease the time to traverse distances or increase
    on-orbit time, one or the other or both in that task.
        Senator Shelby. Yes.
        Mr. O'Keefe. And we are setting as a near term, I think,
    conservative objective improving that speed to achieve distance
    by a factor of three or improving on-orbit time by much more
    than that, than what we achieve today. And the most mature
    technology that is out there right now that has a means to be
    developed is nuclear fission, and a means to either upscale
    what has been a very strong experience that NASA has had with
    power generation units, RTGs that we used on Cassini and a
    number of other missions over the course of the past 20 years,
    but that only is a power generation capacity.
        What we are looking for is a propulsion capability that can
    then beat those longer distances because right now we are
    limited by solar electric capacity, which the further away from
    the sun we get, the more dependent we are on gravitational pull
    as a means to deep space exploration.
        As a consequence, the further away you get, even a non-
    engineer, non-physicist, non-scientist like me understands, the
    lights go out. As a result, you cannot depend on solar electric
    for long. It is very----
        Senator Shelby. This could keep the lights on, could it
    not?
        Mr. O'Keefe. Yes, sir. Keep the lights on and move faster.
        Senator Shelby. Sure.
        Mr. O'Keefe. And stay on orbit for a greater period of
    time.
        Senator Shelby. It has got a lot of promise.
        Mr. O'Keefe. That is the objective behind the nuclear----
        Senator Shelby. A lot of promise. And we are closer to it
    than many think, are we not?
        Mr. O'Keefe. I think so. I think we can get there.

                         SPACE LAUNCH INITIATIVE (SLI)

        Senator Shelby. Briefly, I want us to touch on the Space
    Launch initiative. In this budget, NASA has requested $759
    million to execute the SLI program. This technology program is
    of critical importance, I believe, to the future of NASA.
        And I assume, Mr. Administrator, that you would oppose any
    effort to reduce funding by SLI in 2003.
        Mr. O'Keefe. Yes, sir. I think it is a critical initiative,
    one that is the future of reusable launch vehicles, space
    flight----
        Senator Shelby. Yes.
        Mr. O'Keefe [continuing]. And the objectives for launch to
    achieve ultimately shuttle replacement. All those ride in the
    balance. It is a very important issue. Yes, sir.
        Senator Shelby. Okay.
        Thank you, Madam Chair.
        Senator Mikulski. Thank you, Mr. Shelby.
        Mr. DeWine.

             NUCLEAR SYSTEMS INITIATIVES PROGRAM/ENERGY DEPARTMENT

        Senator DeWine. Thank you very much.
        Mr. O'Keefe, we talk about the nuclear power. This nuclear
    power program, what will be the role of the Department of
    Energy in this?
        Mr. O'Keefe. The----
        Senator DeWine. What is the big picture?
        Mr. O'Keefe. Yes, sir. We are beginning to sort that out. I
    have had several discussions with the Naval Reactor side of the
    Department of Energy through Admiral Skip Bowman to discuss how
    we could take the mature technology they have developed to
    generate power for substantially larger platforms than what we
    need frankly. But they have had a long experience of producing
    advanced reactor capabilities that now power every nuclear
    powered vessel in the United States Navy safely without
    incident for 45 years, have had a stellar record of doing just
    that. In the process, they have managed to design and produce
    nuclear reactors that are substantially smaller, as in more
    compartmented, that they take up a lot less space. On a
    submarine that is a big deal, kind of like it is on space
    shuttle or any kind of space launch vehicle. And they have
    increased the capacity.
        When H. G. Rickover first designed the reactors that went
    aboard Enterprise and earlier than that for Sea Wolf, they
    celebrated the fact they lasted 18 months before refueling.
    Today, every reactor lasts the full life of a 40-year-old ship.
        So as a consequence, the operational experience that they
    have achieved is something we seek to tap in dealing with this
    as well as the design experience they have achieved, which is
    to reduce the size, mass, and compartmentalization of that
    reactor capability, which, again, far exceeds what we need and
    then to upscale what it is we have been doing on RTG's for the
    last 25 years.
        Senator DeWine. So when you talk about ``X'' number of
    dollars, a long-term vision, obviously the Department of Energy
    is involved in that significantly?
        Mr. O'Keefe. I think there is certainly a very close
    collaboration we are seeking to develop. We are kind of in the
    initial phases right now. We are setting up the project team.
    Again, this is a fiscal year 2003 initiative that we are going
    to have to step up in a big way here in the month's ahead. So
    putting together a project management team, as well as how to
    develop that close professional inter-rogatory-agency
    cooperation with all the elements of the Department of Energy,
    which includes the Naval Reactor side, will be critical, as
    well as the nuclear energy piece.
        There is a civilian commercial component within DOE.
    Certainly many of the DOE labs have been involved in this
    activity. We have got to parse through how we maximize and
    leverage that technology experience best.

                           RE-EXAMINING HEAD CENTERS

        Senator DeWine. Mr. Director, you have stated that you
    intend to recentralize programmatic authority at NASA
    headquarters, rather than the centers. How is that process
    coming?
        Mr. O'Keefe. Well, I think that may be----
        Senator DeWine. Is that too strong a statement?
        Mr. O'Keefe [continuing]. Too definitive a statement.
        Senator DeWine. Where are we? What are you going to do
    then?
        Mr. O'Keefe. I basically looked at a request through the
    agency to reexamine the proposition of lead centers. The notion
    that everything is delegatable for program management,
    oversight, and all other purposes to individual elements of
    what is conducted throughout the agency.
        Indeed, I think what we have an opportunity to do, like on
    the nuclear initiative, is to collaborate very extensively on
    extant capabilities within NASA that is not individually
    center-centric, if you will.
        On the nuclear initiative, clearly the prowess demonstrated
    by NASA Glenn, by the Marshall Space Flight Center, by the Jet
    Propulsion Lab in Pasadena, California, all of them are going
    to be contributors in how we develop this initiative.
        So rather than designating any individual center as the
    dominant or only, instead we are looking at it more as a case
    of ``How do you maximize core competencies that exist at each
    of those centers and then collaborate for the purpose of trying
    to develop end products, end purposes that are greater for the
    advantage, I think, of the agency overall?''
        Senator DeWine. All right.
        Mr. O'Keefe. So that is a bit of a difference there, and
    that does not necessarily mean we are going to drag everything
    into headquarters. Indeed, not an awful lot really, you know,
    visionary comes from headquarters any time of any agency.
        So as a consequence, we are seeking to keep the delegated
    program management authority within the centers, but to
    establish a firm policy and oversight function within
    headquarters.
        Senator DeWine. Good. Thank you very much.
        Mr. O'Keefe. Thank you, Senator. I appreciate your
    question.

                     ENVIRONMENTAL COMMUNITY--NUCLEAR POWER

        Senator Mikulski. Let me go to the questions related to the
    space shuttle.
        I think we have covered a lot of the information related to
    the station as well as these new innovations on nuclear
    propulsion. And we can understand the merits of that.
        I believe that there will be a lot of concern from the
    environmental community about nuclear power in space. And I
    would just hope that we would acknowledge that, number one,
    there will be concerns, and that we address them----
        Mr. O'Keefe. Absolutely.
        Senator Mikulski [continuing]. Rather than the--often the
    usual way is--and I am not saying this about you, Mr. O'Keefe,
    but usually when the environmental community raises an issue,
    everybody says it is not an issue. They are ignored. And it
    becomes a very prickly issue within this institution. So let us
    just deal with it.
        Mr. O'Keefe. Absolutely.
        Senator Mikulski. And let us just deal with the groups who
    want to raise those flags, because often they have very good
    insights that help us provide the opportunity to do bold things
    but ensure the safety for those who are traveling on the
    mission as well as for the planet. So now speaking----
        Mr. O'Keefe. Madam Chair, would you permit me to just
    comment real quick?
        Senator Mikulski. Yes. Please go right ahead.
        Mr. O'Keefe. I think you have hit the nail exactly on the
    head. This is something not to be avoided. We really need to
    engage on this question.
        And there is a couple of facts that I think really are
    persuasive in my mind. Pioneer 10 was launched in 1972. We are
    still getting information back from it. It still has a nuclear
    capability that is generating power to keep that communication
    coming back to us that is 7.5 billion miles away. I mean, this
    has been done safely in the past and it has a success rate on
    this and a track record that is clear.
        The second one is, again, the nuclear reactor performance
    record of the United States Navy over the course of the last 50
    years is very, very reassuring. It says we know how to design
    capabilities and we know how to operate them.
        So you are exactly right. We need to engage this debate
    with the environmental interests to be sure that we are doing
    this right and doing it in a way that assures public safety.
    And I appreciate your point and associate myself completely
    with the sentiments you have expressed.

                           RELIABILITY OF THE SHUTTLE

        Senator Mikulski. Well, then this takes me, since we are
    talking about safety, this then takes us to the issue of the
    space shuttle. We are very concerned about the shuttle. The
    shuttle is wearing out. The shuttle has a limited shelf life.
        And my question is: What can we do now in terms of the
    resources to ensure the reliability of the shuttle in terms of
    its transportation mission, but also the reliability of the
    shuttle in terms of the safety of the astronauts?
        I know they are entwined, but we need to be sure, one, that
    it is the mule train that was supposed to go into space, So its
    reliability to take off and get the missions up, but once we
    are going, to make sure that our astronauts can go and come
    back.
        Mr. O'Keefe. Yes. Indeed, I think the----
        Senator Mikulski. Do you think you have the right
    resources? Do you think you have the right management?
        Mr. O'Keefe. There is, I mean, more important than any
    other factor, the right culture exists at NASA to focus on
    safety. I think it is up there with a theological calling. I
    mean it is unbelievable to see the, I think, the real
    commitment to safety objectives.
        On the Hubble mission that we talked about a little bit
    earlier, for the STS 109 flight, I attended a flight readiness
    review at Kennedy Space Center 2 weeks before the mission took
    off. They worked through second, third and fourth-level
    indenture issues over the course of a day and a half that I
    found to be absolutely unbelievable. They leave absolutely
    nothing unturned.
        And as a consequence, all the way up until the final moment
    of launch, there is an obsession that if there is anything,
    even the slightest deviation from what should be acceptable,
    the launch is postponed. As a consequence of that, that is
    reassuring. I have seen that now every step of the way through
    this process and am impressed with the manner in which they do
    that. And, again, it is easily a rival of what I saw in the
    nuclear Navy. It is an absolute obsession of how that is
    conducted.
        So what we have included as part of the fiscal year 2003
    budget, I think, is a responsible allowance for continuing
    safety upgrades and operational upgrades. The issue that I find
    disconcerting, though, is our safety panel of outside experts
    who have come in, who report annually to us--I just got the
    outbrief of that about a month and a half ago--have determined
    that the safety upgrade requirements as well as potential
    modifications and service life extension requirements, if we
    extend the orbiters past 2012, are insufficient the way we are
    looking at it right now.
        So what I have asked them to do as their next order of
    priority here over the course of the next 6 months leading up
    to the 2004 considerations, is to give us a very specific
    understanding of what they advise--and again this is an outside
    group of experts who represent every discipline on the
    engineering and safety regime that I have--the quality
    assurance business that I have ever seen, to give us a very
    clear understanding of what upgrades they think would be most
    significant, which ones we missed, what we should be doing
    differently.
        We are concurrently doing an internal review of that as
    well as the Office of Space Flight has conducted, to see what
    it would take, if we extend it past 2012, what would that take.
    So there is a whole revision, I think, of the safety upgrades,
    as well as major modifications and capabilities enhancements
    that we need to look at and consider what those options will
    call for.
        In 2003, I think we put in a safety upgrade modifications
    portfolio that is appropriate to get us from here to that
    consideration.

                             SHUTTLE PRIVATIZATION

        Senator Mikulski. Well, where does privatization come in,
    and what are your thoughts on privatization?
        You know, the word ``privatizing'' sounds like----
        Mr. O'Keefe. Yes. Yes.
        Senator Mikulski [continuing]. You know, is there a space
    Greyhound that is going to take over and----
        Mr. O'Keefe. Right, exactly. I have, you know----
        Senator Mikulski. And that, you know----
        Mr. O'Keefe. The reason I was pausing here is I get the
    same reaction. Another step beyond that is that when you say
    privatization that means you made up your mind what the outcome
    is going to be.
        In my judgment, and more importantly in the President's
    management agenda, the focus on competitive sourcing is the
    approach we are after at this stage, so rather than
    preordaining what the result will be, what we are after right
    now is developing a business case of what it would take, what
    would be involved to take all the range of shuttle operations
    and consider an alternative means of delivery than what we are
    doing today. That may mean more public servants, less public
    servants, more private company, more non-governmental
    organizations, whatever it calls for. We are just starting with
    an approach that says do not preordain what you think the right
    answer is. Let us ask the question of what needs to be
    accomplished and then what is the alternative means to go about
    accomplishing those tasks?
        Senator Mikulski. I did not understand that. What would be
    like examples? Are you saying who does the mechanics? Who does
    what? I don't understand what you are----
        Mr. O'Keefe. You are exactly right, the functions that
    would be involved are ``What does it take for maintenance
    modifications, for, safety and mission assurance?''
        Senator Mikulski. And I appreciate that then, but is your
    objective to save money or to save the shuttle when you do
    this?
        Mr. O'Keefe. Yes, the primary objective is to enhance
    safety. Whatever that takes in order to achieve that task, we
    need to figure out what the best way is to deliver that
    activity. The fondest hope would be we find an efficient way to
    do that. And certainly in the risk management arena and
    community, there is a very strong school of thought that says
    it does not necessarily cost more. It means you do it
    differently, in order to assure a higher grade of quality
    assurance.
        So looking at those kinds of challenges in that way may
    result in a different cost model, maybe more, maybe less. I do
    not know. But the primary objective in looking at the business
    case is: Let us first look at the functions. How do we do this
    safer than what we are doing today? How do we do it more
    efficiently than what we are doing today? And achieve the
    operational readiness rates that we want.
        Senator Mikulski. Well, I think there needs to be far more
    extensive conversation about this. First of all, I want to just
    say we are so glad that you are as safety-obsessed as the
    members of the committee.
        Mr. O'Keefe. Indeed.
        Senator Mikulski. So that is number one. Number two, I
    mean, we are going to turn to Senator Bond--we do need to look
    at ``What does integrated transportation mean? What would be
    some other vehicles to get other things, say, up to the
    station?'' and the space launch initiative--I know that it has
    been raised by colleagues.
        Of course, you know, I am interested in the whole
    possibility that perhaps out of something like a Wallops, that
    an unmanned vehicle could go up and act like a cargo shuttle,
    and use the astronauts for only what the astronauts need to do.
        But they do not need to be delivering cargo. Okay? They
    need to be delivering other astronauts. And so there is a lot
    for us to talk about.
        But let me turn to Senator Bond.

               SPACE LAUNCH INITIATIVE/NUCLEAR PROPULSION PROGRAM

        Senator Bond. Well, the Chair has raised a whole
    interesting area. You certainly have a broad field to resolve
    some very sticky questions. We are most interested in them.
        I just want to pick out a couple while we still have time
    and I am going to submit a lot more for the record and look
    forward to continuing the discussion, but there are significant
    costs associated with both the Space Launch Initiative, the
    Nuclear Propulsion Program.
        What do you see the out year costs, and how do we balance
    these programs to ensure that they complement each other, they
    do not--we are always worried about robbing from one program to
    deal with another. What are your projections on those?
        Mr. O'Keefe. Well, certainly over the course of the next 5
    years, we are looking at about a $4.5 to $5 billion initiative
    for Space Launch Initiative alone. That is the current
    projection where we are to down select from about a half-a-
    dozen-plus options of where we are today, to think about what
    the most likely vehicle prospects would be to achieve not only
    shuttle replacement, but a range of others, mission objectives
    as Senator Mikulski identified very clearly.
        Coincident with that, though, I think is an opportunity
    that we are at right now in this unique period of history in
    which there is a convergence between requirements NASA has in
    terms of longer term exploration platform discovery objectives,
    as well as that which we see on the Air Force side of the
    equation for reusable launch vehicles.
        They are probably a little bit further behind in terms of
    their requirements definition than we are at this juncture for
    our requirements, but not so substantially that it would not be
    possible to consider those requirements on both sides of the
    equation and think about how we leverage the technology best in
    order to meet multiple objectives.
        So while we may not end up with the same vehicle or same
    end item, it has the opportunity to draw on comparable
    technologies for propulsion, aerodynamics, a range of different
    disciplines and technology breakthrough opportunities that we
    really need to converge this a little more closely.
        As a result, we are spending a lot more time now getting
    closer to understanding each other's requirements as they are
    emerging to see as we move through this as a program management
    and contractual matter how we can best utilize those
    technologies for multiple means.

                    INTEGRATED FINANCIAL MANAGEMENT PROGRAM

        Senator Bond. Well, let me move from the exciting
    projections to some really mundane management questions. Over
    the last 5 years, NASA has been judged by its auditor, Arthur
    Andersen, to meet all of the Federal financial reporting
    requirements. This was at a time GAO was saying NASA
    procurement was high risk, and the new auditor,
    PriceWaterhouseCoopers disclaimed an opinion on NASA's fiscal
    year 2001 financial statements because of internal control
    weaknesses.
        What are you doing--they said that the financial management
    systems do not substantially comply with the requirements of
    FFMIA. What are you doing to address these concerns, and what
    are you doing to address the GAO identified contracting
    management risks specifically?
        Mr. O'Keefe. Senator, thank you for the question. I regret
    to advise that management mundanery for financial management
    systems apparently is proclaimed as a forte of mine by many
    of----
        Senator Bond. I am afraid we may lose half of the crowd
    here, but these are unfortunately very important issues.
        Mr. O'Keefe. No, they are ones I think are critically
    important. I have just taken a fair amount of commentary of why
    that is a forte as opposed to some other areas that some would
    prefer. But I frankly agree with you. I think this is the
    number one structural management issue across the agency that
    we have got to arrest and bring to absolute discipline control.
        We are implementing an integrated financial management
    program now that is intended to look at accounting, finance,
    human resource management, contract management, logistics,
    inventory control, all that in a method that is full management
    information system exposed.
        And we have brought in the best experts I know how to
    recruit in the information technology (IT) arena, and in the
    financial management arena, from in the private communities for
    financial management and IT to come to NASA to deal with this
    particular set of problems as a Kaizon team to arrest it and to
    make it work.
        So it is the number one priority that every center
    director, every enterprise manager knows is the first order of
    priority we have got to do. It is the idea of coming up with a
    disclaimed opinion from the independent auditors, because they
    could not get the data is unacceptable.
        So in my judgment this will not be a topic of discussion
    next year in this vein. It will be more that, yes, we have
    beaten that problem to death and we have implemented a
    integrated financial management system that satisfies not only
    your, but all of our questions on what it costs to do anything.
    That is first.
        Senator Bond. That is an easy promise to remember. We will
    keep that one in mind.
        Mr. O'Keefe. Yes, sir. I intend to keep----
        Senator Bond. Okay. We will look for it.
        Mr. O'Keefe [continuing]. That, if it is the last thing I
    do.

                                 HUMAN CAPITAL

        Senator Bond. Let me just ask you one very quick question.
        Senator Mikulski. I am not even going to go there. You go.
        Senator Bond. One very quick question, that something that
    concerns us on this committee a great deal. Your specific
    problem, the Aerospace Advisory Panel said that their hiring
    freeze on planned departures has produced critical skill
    deficits, and we know that NASA is beginning to--in the serious
    shortfall of younger scientists and engineers, you are
    beginning to address it.
        Is this one of your top priority attention areas? Do we
    need a national policy to ensure that we have an adequate
    number of scientists, engineers and researchers? First, is this
    a high priority concern, and is this one of your major
    concerns?
        We would like to work with you, because we see this in NSF
    and so many other areas. And we will look forward to seeing
    your action steps in this area.
        Mr. O'Keefe. Yes, sir. Well, thank you for the question,
    Senator. I guess beyond my priorities, this is the number one
    priority the President has articulated for the strategic
    management of human capital as part of the President's
    management agenda.
        There is no question, the most polite way to say this is we
    have a very mature workforce. No doubt about it. The experience
    rate and the level of talent we have in the agency has never
    been higher. The catch is we have got roughly a third of that
    workforce that is eligible to retire in the next 5 years.
        Senator Bond. Yes.
        Mr. O'Keefe. So we are looking at some real serious
    challenges on this front in the technology and engineering
    fields, particularly math, science, technology and engineering,
    those are the kinds of disciplines that we are seeing a real
    departure of not only talent and experience, but not a lot
    behind it in terms of cohort capability, numbers of people to
    fill those capacities. That is true not just at NASA, I think
    across the entire frame. And you are exactly right.
        The President submitted back in October the Manager
    Flexibilities Act that has now manifested itself in the form
    of, I want to say it is a Senate bill that was introduced by
    Senator Voinovich that has been modified since that time that
    we are very, very enthusiastic about in the administration, and
    we will love to see enacted because it provides the tools on
    the personnel, human resource front to start to arrest this
    problem and to deal with the issue of recruitment, retention
    and how to really deal with the technology, engineering, math,
    science kinds of disciplines that are necessary to continue to
    recruit for.
        Senator Bond. Thank you. That is very, very interesting to
    us.
        Senator Mikulski. Very, very good.
        Senator Bond. Thank you, Madam Chair.
        Mr. O'Keefe. Well, thank you, Senator. I appreciate the
    question.

                              CIVIL SERVICE REFORM

        Senator Mikulski. You were talking about the Voinovich
    civil service reform.
        Mr. O'Keefe. Indeed, exactly.
        Senator Mikulski. Yes. We are interested in that too.
        Mr. O'Keefe. He has done a superb job of really pulling
    together some great tools to help manage the human resource
    challenge we are all facing at every agency.
        Senator Mikulski. Senator Shelby.
        Mr. O'Keefe. Thank you.

                       AIR FORCE/SPACE LAUNCH INITIATIVE

        Senator Shelby. Could you elaborate a little bit about the
    involvement of the U.S. Air Force in the SLI program and what
    does the Air Force bring to the table and how cooperative is
    the effort thus far?
        Mr. O'Keefe. Very cooperatively, if I can take the last
    part of this first, because we are really very much in the
    formative discussion phase. I think the idea of how much and
    what type and so forth is yet to be determined.
        Senator Shelby. Yes.
        Mr. O'Keefe. Again, the sum and substance of where I think
    we are right now is just this interesting historic convergence
    in which the Air Force has a set of demands for reusable launch
    vehicles and a concern about long-term reliability of
    expendable launch vehicles.
        Senator Shelby. Yes.
        Mr. O'Keefe. We, in turn, have, a set of structural
    challenges, that many members here this morning have identified
    when the retirement rates of assets will occur, shuttle
    orbiters to be specific about it. As a consequence, that
    convergence gives us a unique opportunity to look at how we can
    leverage technologies to meet different purposes, but to derive
    from similar technological basis.
        So it is very much in the formative phase. It is very much
    cooperative. Just 2 weeks ago, I met at an extended series of
    meetings over a course of a couple of days with the Commander
    in Chief of the U.S. Space Command, with the Under Secretary of
    the Air Force, Under Secretary Teets, and General Eberhart, and
    respective staffs from the Office of Secretary of Defense, and
    their research and engineering teams, as well as within the
    aerospace community, to think about what is laying on the
    table, what are all those requirements and how can we choose
    the technologies that best leverage and maximize the efficiency
    of what we select to meet multiple objectives. We conducted a
    study that lasted about 4 months with the Air Force in an
    attempt to converge these. We still have to go back and look at
    it again, because I think we are a little bit behind step. But
    in terms of collaboration and cooperation, it is real close. We
    are at least identifying what we see are mutual problems or
    mutual challenges, mutual opportunities, and we are now just
    about the business of trying to identify them.
        Senator Shelby. Thank you very much.
        Mr. O'Keefe. Thank you, Senator. I appreciate the question.
        Senator Shelby. Thank you.
        Senator Mikulski. Yield?
        Senator Shelby. Yes.
        Senator Mikulski. Senator DeWine?
        Senator DeWine. Nothing further, Madam Chair.

                            NATIONAL SECURITY ISSUES

        Senator Mikulski. Well, I want to raise some questions
    about the Russians and knowing both of your interests in
    national security, it might be of interest to you.
        My colleagues--by way of background, when the Cold War
    ended or was about to end, we looked forward to how to
    cooperate with the Russians in a very different way. And one of
    the things that we were concerned about is the issue of
    proliferation, and I know my two colleagues here have been very
    keenly interested in that.
        And we engaged the Russian scientists in being involved
    with us on the International Space Station, so that the Russian
    scientists rather than selling rocket launch capability to
    people that we did not want to have rocket launch capability
    would be involved with us in the new world order and democratic
    Nations who have been involved as our international partners on
    the space station.
        We have been very unhappy about this. And I would like to
    know, Mr. O'Keefe, exactly where are we in terms of, one,
    insisting with the Russians that they are not engaging in
    proliferation and, number two, we have been very much involved
    in the Iran non-proliferation act. That requires the President
    to certify that Russia is not assisting Iran with ballistic
    missile technology or other assistance in the development of
    mass destruction, meaning launch capacity or whatever. Without
    the Presidential certification, you are to be prohibited from
    sending funding to Russia under certain circumstances.
        Now, let us step back here. First of all, we know we are
    engaged with the Russians in our fight against terrorism, that
    Mr. Putin has been very cooperative, but yet at the same time
    we see Iran poses great threats to allies and to the strategic
    interest of the Mid-East. Could you tell us, one, where are we
    with the Russians, where are we in what you believe their
    cooperation is in the Iran non-proliferation or selling their
    technology, and do you believe that they are really stepping up
    and that their scientists have been truly engaged with us?
        I pass no judgment on the technical competency of the
    scientists, but I really wonder if our money to the Russians is
    going to the Russian scientists or is going to the Russian, you
    know--so we are interested in this, we are very much interested
    in how, through the use of engaging the Russians in civilian
    space like the space station, we help them make sure that their
    scientists or other mechanisms out of Russia are fostering the
    proliferation of weapons of mass destruction.
        Mr. O'Keefe. Thank you for a very timely question. I just
    last week spent 2 days with Deputy Secretary Armitage in
    Moscow. He, in discussing, the bilateral discussions leading up
    to the President's summit meeting later this month, early June,
    and I spent most of my time with RosaviaKosmos, and the general
    director of that space agency as well.
        And we reconverged towards the end of our meetings with
    Foreign Minister Primakov as well as Foreign Minister Ivanov,
    who then discussed this with Koptev who is the general director
    of RosaviaKosmos on very, very similar lines as your discussion
    has just gone down.
        It is a challenge in the sense that we have a very strong
    close working relationship with RosaviaKosmos, and the
    operations and the activities of the International Space
    Station are heavily dependent on our meeting the build out
    requirements. For example, as I discussed at length, and their
    objectives as well as commitments to help the support and
    logistics requirements for progress and Soyuzes flights. As a
    consequence, their continuing efforts on that front are
    critical to achieving the milestones I have talked about. I
    think we are there. It is a very close collaborative
    relationship. The issue that clearly is always going to be on
    the table in the foreign policy discussion that Secretary
    Armitage had, as well as the closer intergovernmental
    discussion I had with Director General Koptev is over the
    matter of the Iran non-proliferation treaty or agreements act.
        And it means that we really need to be conscious of how
    that is implemented and we are continuing to work at every
    opportunity to try to reach agreement on how that can be, not
    only adhered to, but verified. There is a very strong interest,
    I sensed in the couple of days I spent there in wrestling with
    that question successfully. There is a very strong view in that
    direction.
        Senator Mikulski. Well, Mr. O'Keefe, this is a subject of
    great interest I know to the members of this subcommittee, and
    I would like to suggest that I coordinate a meeting with you
    and welcome any members of this subcommittee who wish to have a
    more in-depth conversation with you about that.
        Mr. O'Keefe. Terrific.
        Senator Mikulski. I do know that members of the
    subcommittee are actively engaged. And Senator Lugar, really
    our outstanding Senator----
        Mr. O'Keefe. You bet.

                               NON-PROLIFERATION

        Senator Mikulski [continuing]. On non-proliferation has
    invited us to join with him in a group to Russia on the issues
    of non-proliferation. So I think it is timely that we perhaps
    talk with you on how we can make wise use of our time there,
    enhance this and also get a more in-depth view that I know you
    and your team could share with us.
        So would you just presume that we are going to coordinate a
    meeting and we will make the arrangements and we will invite
    the appropriate people and look forward to working with Senator
    Lugar who has been a real champion on this, and then how we can
    really keep the Russians engaged in civilian science.
        Mr. O'Keefe. Absolutely. No, I would be delighted, Madam
    Chair. That would be terrific.
        Senator Mikulski. And so let us talk some more about that.
        Mr. O'Keefe. If you would permit me, my intent would be to
    be in touch with Secretary Armitage, as well, and see if we can
    coordinate an effort that meets your schedule and timing as
    well. I think that would be terrific.
        Senator Mikulski. I think that would be great. We have
    worked with Secretary Armitage on a number of issues and I have
    great admiration for him.
        Mr. O'Keefe. Great. I appreciate it.
        Senator Mikulski. Senator Shelby, did you wish to comment
    on this?
        Senator Shelby. Yes, I do.
        Senator Mikulski. I know you have been----
        Senator Shelby. I want to follow up and I appreciate you
    bringing it up.
        Senator Mikulski [continuing]. An expert on this, as
    Senator DeWine.
        Senator Shelby. I do not know about that. But all three of
    us, plus Senator Lugar that you mentioned, Mr. O'Keefe, serve
    on the Intelligence Committee, and we are very interested in
    this subject matter, not just for this committee but for what
    we do in our government and the security of our Nation.
        So I appreciate, Madam Chairman, you bringing this up. And
    I think a meeting with Mr. O'Keefe at the right time would be
    well attended and be very important.
        Senator Mikulski. Very good.
        Mr. O'Keefe. Thank you, Senator. I appreciate that.
        Senator Mikulski. Senator DeWine, did you want to comment
    or----
        Senator DeWine. I am fine.

                                 PLUTO MISSION

        Senator Mikulski. Okay. There are many other areas that we
    could pursue. We thank our colleague, Senator Bond, for raising
    the work force issue.
        Let me go to some issues with space science and then I
    think we will be ready to conclude our hearing.
        I was concerned that OMB cancelled Pluto in space science
    or I guess that the administration's fiscal 2003 cancels the
    Pluto mission.
        The opportunity to go to Pluto will not come again for
    another 200 years and we understand from the applied physics
    lab that would do the Pluto mission that they have estimated
    their costs at $450 million, much less than what NASA
    originally thought.
        Could you tell us where we are on the Pluto mission? What
    is the rationale for cancelling it? Was it financially driven?
    Was it science-driven? And is there any way that we can get
    this back on track----
        Mr. O'Keefe. Thank you for the question, Senator.
        Senator Mikulski [continuing]. Working with the
    subcommittee?
        Mr. O'Keefe. Well, first and foremost, the requirement, or
    at least the mission objectives, the research that could be
    gained by a mission to the outer edge of this solar system is
    something that clearly has captured the attention of the
    scientific community and they view it as an important
    objective, to the point where the National Academy of Sciences
    this summer, we are hopeful they are going to conclude by this
    summer, is rank ordering the priorities of where they see
    exploration objectives. This clearly is among the missions they
    are considering very seriously in terms of what its standing
    and prioritization should to be. So we will be driven and
    guided by that determination as well from the National Academy.
    But nonetheless it is one that, I think as you are well aware,
    Madam Chair, they view as an important set of objectives, so I
    think that is not in dispute, the criticality of it.
        The second issue that we have really run across is the how
    to get there, how to accomplish it. The stark reality is much
    in the vein of the earlier discussions we have had or at least
    touched on, this is a quintessential example. But then, again,
    any destination in the solar system and indeed in this universe
    would be an example too, of how long it takes to get anywhere.
        A very responsive proposal that was advanced, as I
    understand it, would call for a launch as soon as 2006, or a
    vehicle probe by that time, and achievement of the objectives
    by about the 2015, 2016 time frame. So in that rough parameter,
    maybe as early as 2014, maybe as late as 2017, we are still
    talking about a period of time that is approaching 15 years
    from now, roughly within that parameter, which therefore
    suggests, two problems.
        The second issue that really is dominant there as well is
    given the existing capability we have for propulsion and power
    generation, once we pass or get to Jupiter, we basically run
    out of the option, not completely, but for all practical
    purposes of solar electric capability.
        We, therefore have to depend on the gravitational slingshot
    effect, if you will, off Jupiter to meet the timelines you are
    talking about. That is the most aggressive approach we could
    possibly employ in order to be on station about 15 years from
    now to achieve that task, and through the Kuiper Belt beyond.
    What would amount to a few months worth of imagery that would
    be of higher caliber than what we can do today.
        So not a challenge at all, not a problem at all about what
    the mission objective, the requirement, the scientific research
    opportunity would be. We will be, again, guided by the National
    Academy of Sciences in terms of where they think that
    prioritization fits.
        Our greatest obsession at this juncture is how to get there
    and stay on station for a long enough period of time in order
    to truly inform the research and scientific objectives.
        There are options that we are clearly looking at if the
    National Academy comes up with findings that say this is a very
    high priority, that may be we will be able to do that.
        Senator Mikulski. Mr. O'Keefe, when is the National Academy
    going to complete its work?
        Mr. O'Keefe. We are told this summer, but----
        Senator Mikulski. But what does ``this summer'' mean? The
    committee is going to be marking up in June.
        Mr. O'Keefe. I know. This has been a question on my mind as
    well. I would really appreciate your assistance in this regard
    too.
        Senator Mikulski. What can we do to help you out here,
    because first of all, we welcome the National Academy's advice.
    They have been such an excellent resource to we policymakers.
        Mr. O'Keefe. They are indeed.
        Senator Mikulski. But their timeline and ours do not--and
    we do not mean--we really want to welcome their priority
    commentary. But would you let my staff know how we can help you
    be a booster rocket here?
        Mr. O'Keefe. I appreciate that. I would welcome that
    opportunity.
        Senator Mikulski. Because we would really like their
    advice, if we could, really sometime in June.
        Mr. O'Keefe. Yes, ma'am.
        Senator Mikulski. At least certainly perhaps into the top
    tier of what they are recommending.
        We would also like their specific commentary on Pluto. It
    is something that I have very keen interest in and also the
    fact that it will only come in 200 years. So we are either
    going to do it, we should do it right. We should do it
    prudently. So let us work together on this.
        Mr. O'Keefe. I would enjoy that very much. Thank you.

                      NEXT GENERATION OF SPACE TELESCOPES

        Senator Mikulski. We cannot conclude this hearing without
    asking about Hubble.
        NASA's current plans for Hubble is to receive one more
    servicing mission and then have it operating until 2010. Then
    the next generation space telescope will be launched to replace
    the Hubble. Well, I understand that schedule has slipped.
        As we look at the next generation of space telescope, which
    I am a supporter of, should we develop a contingency plan that
    will enable Hubble to operate beyond 2010? And we are seeing
    now, here it is, 2002, and I was really taken aback by these
    photographs. I mean, even--this is better than Spielberg and he
    makes it up, you know----
        Mr. O'Keefe. It is the real thing.
        Senator Mikulski [continuing]. And in some ways has a
    bigger budget than the Hubble has.
        Maybe you ought to trade places here.
        But truly even to the untrained scientific eye that you
    could look at it and not only were they dazzling, but you know
    that a gifted and talented scientific analytical group of
    people are going to glean so much about the universe and so
    tell me what you think. First of all, I know that eventually we
    will need a next generation. We want to prepare for it and it
    has got to be reliable and sustainable, all the management
    words you would use.
        But tell us what you think about Hubble and should we have
    a contingency plan?
        Mr. O'Keefe. Sure. Thank you, Madam Chair.
        Senator Mikulski. Should we have two space telescopes?
        Mr. O'Keefe. Thank you, Madam Chair. I think the logic that
    you are employing here has a lot of merit. It is something that
    I have begun to inquire about as well internally.
        Given the stunning results we have seen thus far exceeded
    our expectations. And this is not just because the great
    unwashed type like me is looking at this, because what I know
    about this you can summarize in a matter of moments, but more
    importantly the astronomers who are looking at this, the
    astrophysicists who are examining this, the scientific
    community is stunned by the value of what they are getting out
    of this.
        It is not just the new imagery. It is the archival imagery.
    It is the things that we have downloaded as imagery from prior
    transmissions that was archived and viewed as available and
    indeed some of the most stunning discoveries were made 2 and 3
    years after the images were transmitted, because someone, a
    scientist, a researcher, a principal investigator, thought to
    go look at some particular aspect, dig it out of the archives,
    see what it may reveal, and then drew a series of conclusions
    from that.
        So the data that is being gathered is not just a one-trick
    pony opportunity. It is something that is a longstanding set of
    requirements or information bits that in turn then are
    revealing things over a period of time that we did not expect,
    even though they were gathered 2, 3, 4, 5 years ago.
        So that alone tells that the logic that you have employed
    is precisely the way we have got to look at this. We ought to
    be thinking about, given the results we are achieving here,
    what is it going to take in order to operate that?
        Certainly the next mission in 2004 is planned. We are going
    to press on ahead with that. But we then have to trade that off
    relative to what we would gain thereafter. And that is
    precisely the kind of analysis we have got to conduct, more
    rigid analysis, I think, than we have employed so far to see
    exactly what that would take. And now, again, seeing the
    advantages that come from this that exceeded our expectations,
    it clearly is something that merits that kind of attention.

                             EARTH SCIENCE MISSIONS

        Senator Mikulski. Well, know that I do believe we do need a
    next generation of space telescope and I think we can really
    plan and get the highest use of it by making use of both
    telescopes that we have, those space telescopes.
        Earth science, we understand that the NASA budget indicates
    that the future for earth science mission is kind of in limbo,
    until the administration completes an interagency review on
    global warming. I am concerned about that because as you know,
    you are an old hand at these things, interagency reviews can
    take forever. And we have an excellent earth science program
    and I believe you know how there are multiple agencies that are
    making use of this.
        Could you tell us: When do you expect the administration to
    release the details of this review, and what does it mean for
    the EOS follow-on projects that will be re-proved or where are
    we on earth science?
        Mr. O'Keefe. And I think your characterization of the
    interagency process is polite, diplomatic.
        Senator Mikulski. That is me.
        Mr. O'Keefe. Well, in that case, uncharacteristically
    understated in terms of the challenges of the interagency
    process. You are exactly right.
        Nonetheless, what I have been really struck with, as
    Secretary Evans has taken this challenge, he and Secretary
    Abraham, but Secretary Evans is leading it at this juncture, to
    pull together all the agencies necessary. We meet pretty
    regularly. I have been surprised at the intensity, frequency
    and deliberation that has gone into this particular task, so
    the President's challenges we have accepted as an
    administration and we are moving ahead smartly on it.
        Exactly when the deliverable will be, let me give you a
    more comprehensive answer after a little more research, because
    I am wrestling to remember the dates of when various elements
    are to be delivered back to the White House. But it is not
    necessarily holding up or driving what we are doing at NASA as
    well though. It is a very important consideration, but it is
    not one that I would say is limiting.
        The Aqua launch occurs 7 o'clock today?
        Staff. On the 4th.
        Mr. O'Keefe. Oh, on the 4th. Excuse me. I am sorry. On the
    4th of May. So we are proceeding apace with a series of earth
    science activities and as a result, we are continuing to use
    EO1, which has, proven to be an extraordinary source of imagery
    and information on weather and geological phenomenon.
        TDRSS continues to be deployed. We have got another launch
    of that due in October, I guess. So we are pursuing a series of
    earth science objectives that I think are as aggressive as we
    think are necessary for this coming year. I do not see it
    constrained by that particular review at all. If anything, I
    see a very aggressive effort underway to try to beat that
    interagency challenge that I think you very accurately
    described.
        Senator Mikulski. Well, we want to, of course, talk more
    about that.
        Mr. O'Keefe. Sure.

                       SENATOR MIKULSKI'S CLOSING REMARKS

        Senator Mikulski. We are not sure when we are going to get
    our allocation, but we believe that there is a variety of views
    looking at how we are going to be proceeding on the budget
    resolution, et cetera. But it is our estimate that we will be
    marking up sometime in June, of course, working with the House,
    but at least a preliminary framework.
        So we look forward to further conversations with you as we
    prepare for markup, Mr. O'Keefe, because you have got studies
    and all online that are going to be relevant to our decision
    making process. So we really need to continue our very close
    collaboration. We want to thank you and your entire team for
    what they do every day for the NASA mission, but also their
    very collegial and cooperative spirit in working with the
    committee.

                         ADDITIONAL COMMITTEE QUESTIONS

        So we want to say thank you and God bless you and God bless
    everyone who is trying to do so much in our space program.
        [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 Barbara A. Milkulski

                            space launch initiatives
        Question. What is your approach with regard to SLI flight tests to
    evaluate key technologies?
        Answer. SLI continues to emphasize the importance of testing
    advanced enabling technologies in their relevant environment. In some
    cases, flight-testing can provide validation of key technologies that
    cannot be adequately tested on the ground. SLI evaluates each
    individual technology test and evaluation effort based upon the benefit
    for the program relative to its cost. Some of the technologies being
    evaluated for testing in a flight environment include airframe and
    mechanical systems, thermal protection system, operations, avionics,
    power, crew escape systems, and integrated vehicle health management
    systems. SLI's flight test programs complement its integrated ground
    testing and simulation tasks. There are currently three companies under
    contract to provide flight demonstrations for the SLI-Kistler
    Aerospace, Orbital Sciences Corporation, and the Boeing Company. In
    addition, one of the primary objectives of the ongoing NRA 8-30 Cycle
    II procurement is to identify cost-effective candidates for flight-
    testing.
        Question. What is your strategic plan for Wallops Flight Facility
    and does it include SLI flight-testing?
        Answer. Currently, there are no current plans to perform SLI
    flight-testing at WFF. The SLI program is evaluating industry proposals
    for flight demonstration of key technologies for a 2nd Generation
    Reusable Launch Vehicle. These proposals include the identification of
    flight test launch site operations of which WFF is eligible for
    consideration. In addition, the SLI Program is actively engaged in
    discussions with WFF to determine other areas where WFF flight-testing
    and operations expertise can be utilized. Decisions to use WFF or other
    flight test facilities will be made competitively based on these
    proposals and discussions.
                             aeronautics blueprint
        Question. Mr. O'Keefe, during your testimony before the House VA/
    HUD Subcommittee 2 weeks ago, you answered ``I think so'' in response
    to a question asking if the current aeronautics budget is sufficient to
    realize the vision in the Aeronautics Blueprint.
        Could you please expand on that answer and explain how a major new
    undertaking in aeronautics is to be funded in a budget that is cut
    under your request? When can we expect a budget estimate of what will
    be required to implement the Blueprint?
        Answer. The Aeronautics Blueprint addresses how new technology can
    be brought to bear on the issues facing aviation in the United States.
    These technologies, still in their infancy, have the potential to
    create a new level of performance and revolutionize aviation by
    addressing key public good issues (aviation safety, air system
    congestion, and aircraft noise and emissions) that could constrain
    future air system growth. NASA aeronautics programs have been realigned
    and investments have been reprioritized toward the vision articulated
    in the Blueprint. The NASA funding request for aeronautics research and
    technology is sufficient to formulate the development of the necessary
    fundamental understanding of these technologies. As progress is made on
    this long-term technology development, planning will be updated and
    technology investments revised.
        Question. Given the opportunity presented by the slow-down in air
    traffic after 9/11, what is NASA doing to move ahead as soon as
    possible with improvements to the national air system?
        Answer. In cooperation with the Federal Aviation Administration,
    NASA is developing technology for air traffic decision support tools in
    support of the FAA's Operational Evolution Plan. Additionally, NASA is
    investigating potential future air traffic management concepts of
    operation and the technologies that support them.
        Question. Can NASA truly take advantage of the current slow down
    and aggressively work to meet the 4 Airspace System goals of the
    Blueprint (reduced throughput in bad weather, en route congestion/poor
    traffic flow, better manage aircraft movements at HUB airports, develop
    precision navigation systems) when you propose cutting the Airspace
    Systems Program?
        Answer. As the events of September 11 slowed air traffic in the
    skies and transformed the current-world aviation situation to increase
    emphasis on the aviation security, there has been no change in the
    (already increased) momentum in which NASA strives to resolve the
    current Airspace Systems goals. The $8.8 million reduction in Airspace
    Systems was a planned reduction. The NASA request for the projects in
    this program supporting the airspace systems goals (Advanced Air
    Transportation System and Virtual Airspace Modeling and Simulation) is
    at the same level as the fiscal year 2002 appropriation.
        Question. Are you concerned with the position taken by the
    Europeans in their ``Vision 2020'' plan to be the world's undisputed
    leader in aviation 2 decades from now?
        Answer. NASA has been focused for several years now on the key
    public good issues (aviation safety, air system congestion, and
    aircraft noise and emissions) that Europe is beginning to address in an
    integrated fashion through the ``Vision 2020'' document. These public
    good issues pose the largest constraints on continued air system and
    aviation market growth.
        Question. Is your ``Aeronautics Blueprint'' in response to the
    Europeans ``Vision 2020''? If so, why is there no discussion of the
    funding that should be committed to this effort?
        Answer. The Aeronautics Blueprint is not in response to the
    Europeans' ``Vision 2020.'' The Blueprint was prepared to provide more
    details to NASA strategic plan for aeronautics developed in 1997, well
    in advance of the European vision. It is interesting to note that the
    targets established in the Europeans' vision are consistent with NASA's
    goals of 1997. Furthermore, NASA believes it has sufficient funding to
    pursue the vision articulated in the Blueprint.
        Question. Does NASA anticipate that we will need a comparable level
    of funding to what the ``Vision 2020'' calls for--roughly a billion per
    year for the next 20 years to help our aviation industry remain
    competitive in the face of their increased investment?
        Answer. NASA believes that the five-year funding plan for
    aeronautics accompanying its fiscal year 2003 budget request will
    enable the agency to pursue revolutionary technologies over the next
    five years that will provide this country's aviation system with
    unparalleled capability.
        Question. Do you believe that the cuts to NASA's aeronautics
    research and development enterprise over the last 5 years have played a
    major role in the government's backpedaling on what were once
    priorities for improved air service in this country?
        Answer. NASA's aeronautics research and technology funding peaked
    at an all time high of $920 million in fiscal year 1998. This peak
    funding was largely due to the budget ramp-up associated with the High
    Speed Research program, a program to develop an environmentally
    compatible, commercially viable supersonic passenger jet in partnership
    with industry. This program was cancelled when technology and market
    projections led industry to defer funding commitments to the
    development of a supersonic passenger jet into the future. Prior to
    this peak, NASA aeronautics research and technology has been funded at
    about $500-$600 million per year, adjusted for inflation, as far back
    as the early 1970s. NASA's fiscal year 2003 budget request and five-
    year budget projection for aeronautics research and technology is
    consistent with these levels and provides adequate funding to pursue
    key technology goals over the next five years that could improve
    aviation safety and capacity and reduce aircraft noise and emissions.
        Question. Why was it so important for NASA in the past to enumerate
    such goals when the Aeronautics Blueprint fails to mention any time
    frame for accomplishing similar goals regarding safety, emissions,
    noise and cost of air travel?
        Answer. The Aeronautics Blueprint is consistent with NASA's
    strategic plan for aeronautics, which lays out technology goals that
    could enable the nation to realize improvements in aviation safety,
    capacity and mobility and mitigate the impact due to noise and
    emissions by 2022.
        Question. Do you anticipate incorporating time frames for the goals
    enumerated in the Aeronautics Blueprint? If not, why?
        Answer. The Blueprint states general objectives. NASA's strategic
    plan for aeronautics, which has specific time frames, has targeted 2022
    for the development of technology to enable revolutionary improvements
    in aviation safety, capacity and mobility and mitigate the impact due
    to noise and emissions.
        Question. Is the problem of drawing students to aeronautical
    engineering degrees at U.S. universities so great, and the problem of
    bringing on new talent to replenish the depth of expertise that has
    been lost at the NASA Aeronautics Centers so critical, that NASA
    undergraduate and graduate research opportunities need to be larger by
    an order of magnitude?
        Answer. We believe that we can refocus our programs in such a way
    to expand the university community's participation in the full range of
    aerospace technology research and education programs. Examples of such
    activity are reflected in our recent selection for further negotiations
    of seven leading American academic institutions for research and
    education program development in emerging technology areas. We believe
    that by providing the opportunity for high quality collaboration by the
    academic community we can stimulate and attract the best and brightest
    of the university populations to our programs.
                          international space station
        Question. A principal justification for undertaking the
    International Space Station program was to conduct world class,
    groundbreaking research across multiple scientific disciplines over a
    10 to 15 year period. Achieving that goal will be difficult. In the
    past, GAO has pointed out that funding the research program has been a
    challenge for NASA, given the need to fund other important development
    activities. Today, NASA's ``core complete'' concept limits permanent
    presence on the station to 3 people, one of whom must be a Russian
    pilot to operate the Soyuz crew return vehicle. This scenario obviously
    places additional limits on the amount of research that can be
    performed.
        What is your vision as to the purpose of the research component of
    station operations and what is the scope of the research that can be
    completed under the ``core complete'' concept?
        Answer. NASA's Biological and Physical Research (BPR) Enterprise
    seeks to use the unique space environment to conduct research and to
    develop commercial opportunities that could not otherwise be pursued on
    Earth, while building the vital knowledge base needed to enable
    efficient and effective systems for protecting and sustaining humans
    during extended space flights. BPR addresses the two fundamental
    challenges associated with human space flight: (1) understanding
    nature's forces in space; and (2) understanding the human experience in
    space.
        Established in fiscal year 2001, BPR closed its first year with a
    significant record of accomplishment. ISS outfitting for research began
    with the delivery of the Human Research Facility in March 2001. After
    more than a year of continuous human occupation, the ISS now has 5
    research racks. There are 26 investigations currently underway aboard
    ISS, representing research from government, industry and academia; 54
    investigations have been carried out since ISS construction in orbit
    began. The Agency is on-track to deliver an additional five research
    equipment racks by the end of 2002. Expeditions 5 and 6 will also fly
    during fiscal year 2002, and 41 experiments will be conducted in the
    areas of biomedical research, biotechnology, microgravity fluid physics
    research, materials science, agriculture, and Earth observations.
        In spite of a significant unscheduled ISS upkeep and
    troubleshooting activities during Expeditions 1 and 2, the ISS team was
    able to meet the minimum research objectives of the first four research
    increments. NASA continues to prepare for ISS on-orbit research through
    the preparation and testing of five additional research racks and
    ongoing payload crew training. In addition, NASA looks forward to
    launching STS-107 in the late summer, a Space Shuttle mission dedicated
    to biomedical and biological research. .
        Throughout the ISS construction phase, NASA is continuing to
    achieve a balanced program of scientific exploration that will
    contribute, along with ground-based research, to the fields of biology,
    physics, chemistry, and the long-term effects of space flight on
    humans.
        In response to the second part of your question concerning the
    scope of the research that can be completed under ``core complete,''
    the U.S. core complete will be achieved in February/March 2004, at the
    conclusion of Increment 9, which is planned as Mission 10-A, by which
    there will be an average of 15 continuing experiments and 7 new
    experiments (delivered by Shuttle resupply missions) onboard. U.S. core
    complete will include 5 EXPRESS racks, featuring Physical Sciences
    research and Space Product Development; 2 Human Research Facility
    racks, hosting Bioastronautics experiments; one Microgravity Sciences
    Glovebox, hosting Physical Sciences and Commercial experiments, and the
    Window Observational Research Facility (WORF), collecting observational
    data for Earth Sciences and the Office of Space Flight. Enclosure 1,
    which includes graphs (a), (b), and (c), shows ISS experiments by
    discipline or category and by increment, comparing the growth in number
    of experiments for each discipline as the increments continue.
        Although NASA did not plan to expand the crew size beyond three
    members until 2006, a permanent crew of three could preclude certain
    experiments that are very crew time-intensive or complex and which do
    not lend themselves to automation. Examples include experiments that
    involve crew manipulation such as time-course sampling of plants.
        In addition, BPR is stressing the maximization of research return
    from the ISS by actively seeking options for broadening its access to
    flight platforms in pursuit of the answers to its driving scientific
    questions. NASA is working with the White House Office of Science and
    Technology Policy (OSTP) and the Office of Management and Budget (OMB)
    to engage the scientific community and reestablish clear high-priority,
    affordable science objectives with near-term focus on improving
    scientific productivity. The results of this review, which was
    conducted by the Research Maximization and Prioritization (ReMaP) Task
    Force, became available in early July. The ReMaP results will help set
    the BPR science agenda that will, in turn, drive how the ISS is used.
    We expect the ReMaP recommendations to increase the efficiency and
    output of ISS research and realign NASA's ISS research portfolio to
    reflect current scientific priorities.
        Question. What opportunities do you see for increasing the amount
    of research time on the station?
        Answer. NASA is currently evaluating several options for increasing
    research time on the ISS, including the recommendations of the ReMaP,
    which will play a role in determining the cost/benefit of adopting one
    or more of these approaches to enhancing crew time for research. NASA
    plans to discuss a set of option paths in the fall of 2002 and
    determine the optimal ISS configuration to maximize research in 2003.
        Prior to the program restructuring, the crew size was not planned
    for expansion beyond three until 2006. Research plans through that time
    remain largely unchanged. Experiments until 2006 are specially designed
    and chosen through peer review to not require significant crew
    involvement. The ReMaP results will provide guidance on research
    priorities that will allow informed decisions to be made on the areas
    of research on which to focus.
        During Fall 2001, the International Space Station (ISS) Management
    and Cost Evaluation (IMCE) Task Force recommended that extended Soyuz
    sortie missions coupled with Space Shuttle Extended Duration Orbiter
    (EDO) missions be considered to provide additional crew time for
    scientific research to supplement a crew size of 3.
        The IMCE also recommended a Space Shuttle flight rate of no more
    than 4 per year. This results in significant constraints to research
    due to limited ability to launch and resupply research equipment. The
    addition of Shuttle missions in the 2006+ timeframe will supplement
    research crew time by freeing the ISS crew from some of their EVA
    requirements and thereby increasing the crew time available for
    research; and by allowing the visiting shuttle crew to perform short
    duration experiments during the docked mission, or initiate long
    duration experiments which would then be completed by the ISS crew
        Use of overlapping Soyuz for gaining additional crew time is of
    limited attractiveness. Overlapping Soyuz opportunities could
    potentially provide 300-400 hours of additional research, presuming the
    docking time is extended. However, it would add significant logistical
    burdens to the existing Shuttle flights; since it would be necessary to
    accommodate for the additional life support and crew provisions.
    Further, there is a significant learning curve for visiting Soyuz crews
    that would limit the productivity during the first several weeks of the
    mission. Additional study is required to assess cost verses benefit of
    this particular option. The use of an Extended Duration Orbiter for
    existing or new missions appears promising and is under consideration.
        Question. What are the obligations of both the U.S. and Russia
    regarding the long-term operations of the space station?
        Answer. The specific responsibilities of NASA and the Russian
    Aviation and Space Agency (Rosaviakosmos) are listed in Article 6
    (enclosed) of the Memorandum of Understanding (MOU) on the
    International Space Station (ISS) signed in January 1998. This detailed
    list of responsibilities includes separate sections for the design and
    development phase and for the assembly, operation and utilization
    (long-term) phase. These responsibilities cover a wide range of issues
    from management mechanisms, to logistics arrangements, to training
    facilities and simulators. NASA provides the basic infrastructure of
    ISS, including four solar arrays that generate the majority of power to
    ISS and two significant research modules. In addition, other NASA key
    obligations regarding operations include: (1) logistics support for
    delivery of supplies to ISS on the Shuttle; (2) Mission Control from
    Houston; (3) crew rotation on the Shuttle; (4) crew return after
    assembly complete; and (5) life support systems. Many of Rosaviakosmos'
    key obligations regarding operations are similar to those of NASA,
    including: (1) logistics support for delivery of supplies and
    propellant; (2) Mission Control from Moscow; (3) crew rotation; (4)
    crew return during assembly; and (5) life support systems for the
    Russian segment.
        Question. How can NASA effectively manage its work on the station
    given its dependence on its international partners?
        Answer. The deployment, operation and utilization of the
    significant capabilities already attained with the ISS demonstrate what
    international partnering can achieve. While the failure of some
    partners to deliver certain elements according to schedule has been a
    past issue, the issues addressed in the recent ISS Independent
    Management and Cost Evaluation (IMCE) task force did not raise concern
    in this regard.
        Partnerships, by definition, ascribe certain rights and
    responsibilities to each of the parties, and the ISS international
    partnership is no exception. As such, NASA, like each of the ISS
    partners, expects the others to fulfill their obligations and fully
    intends to continue meeting its own. Meanwhile, NASA is effectively
    managing its own domestic team of civil servants and contractors,
    continuing to integrate U.S. elements of the ISS, and, in concert with
    the international partners, accomplishing program objectives including
    the integrated operation of the overall ISS vehicle and the execution
    of an internationally-coordinated research agenda.
        Question. Under the terms of the NASA/OMB agreement, will the final
    space station configuration conform to the expectations set out when
    the program began, that is, 7-person capability? If not, what are the
    differences?
        Answer. The final configuration of the ISS has not been determined.
    The NASA/OMB agreement takes the ISS through the core complete
    configuration that accommodates deployment of the International
    Partners elements. The launch and assembly of this configuration is our
    first and foremost priority. We are currently defining research
    requirements, after which we will perform an analysis of resource
    capacity to meet those requirements. We recently completed two separate
    independent life cycle ISS cost estimates. When all of this requisite
    knowledge is in hand, we can begin considering potential option paths
    to address delta requirements.
        Question. How can NASA meet its commitments to the international
    partners if the station does not progress beyond a 3-person crew
    capability?
        Answer. NASA is committed to meeting its obligations to the
    International Partners under the ISS international agreements and has
    made no decision to reduce the crew size from that specified in the ISS
    international agreements. NASA has initiated a five-point assessment to
    reform and revitalize the ISS Program and ensure the construction of a
    viable ISS that fulfills its potential as a world-class research
    facility. The five areas of this assessment are: science priorities,
    engineering development and deployment, cost estimating and analysis,
    mission and science operations, and international partner coordination.
    The resources required to meet the science priorities of ISS will
    determine the ultimate crew size. NASA is working closely with the
    International Partners throughout this process to ensure that the
    United States meets its commitments in a manner consistent with the ISS
    Agreements. The International Partners have demonstrated a willingness
    to work with NASA as we assess the ISS Program and develop an end state
    acceptable to the partnership. If, as a result of this process, it is
    determined that specific provisions under the ISS international
    agreements require renegotiation, NASA will work with relevant
    International Partners to seek consensus on the changes.
        Question. How will the loss of the habitation module and the crew
    return vehicle and the U.S. resulting dependence on the Russians impact
    U.S. leadership on the station/in space?
        Answer. NASA's leadership role in the International Space Station
    (ISS) is a fundamental principle in the Intergovernmental Agreement
    among the ISS Partners and in the Memoranda of Understanding between
    NASA and each of the cooperating space agencies. NASA's contribution to
    the ISS Partnership outweighs that of any other partner many fold, but
    the Partnership is still dependent on each of its members to provide
    certain goods and services. Over the course of the design and
    development of the ISS there have been a number of changes in the
    planned contributions of the various Partners. NASA, executing its
    responsibility for overall management and coordination, has led the
    Partnership through the requisite changes and adjustments. As the ISS
    has evolved, changes have occurred on a number of smaller scale items
    and, most notably, on a larger scale when the Russian Federation joined
    the Partnership in 1993. The ISS is a partnership, with all Partners
    dependent on the performance of the others. NASA has embarked on a
    five-point effort to reform and revitalize the NASA ISS Program. This
    plan is premised on research requirements driving the ISS vehicle
    configuration. We have, with the Heads of the ISS Cooperating Agencies,
    agreed to a Program Action Plan for the remainder of calendar year 2002
    that will allow for multilateral endorsement of an option path to meet
    utilization and research requirements. This option path will address
    NASA's demonstration that it has regained programmatic cost control,
    the timing of research requirements on orbit, as well as budgetary
    requirements and constraints, while recognizing NASA's prerequisite
    coordination with the Administration and Congress.
                                 space shuttle
        Question. What are NASA's current plans for and cost of upgrading
    the shuttle?
        Answer. Current plans include the following for upgrading the space
    shuttle:
    Safety upgrades
        The Cockpit Avionics Upgrade Increment 1 (CAU) will enhance crew
    situational awareness and reduce crew workload by providing automated
    control of complex procedures. The fiscal year 2003 President's budget
    estimate of total funding is $442 million. The Preliminary Design
    Review for CAU Increment 1 was held the week of April 22, 2002.
        The Advanced Health Management System Phase I (AHMS) upgrade to the
    Space Shuttle Main Engines (SSME) will provide improved real-time
    vibration monitoring of the SSME and will provide improved engine
    anomaly response capabilities. The fiscal year 2003 President's Budget
    estimate of total funding is $55 million. The first flight of AHMS
    Phase I is scheduled for 2004
        Friction Stir Welding (FSW) increases External Tank (ET)
    reliability by improving weld joint strength, weld margins, and
    fracture toughness, FSW also enhances process control. In addition,
    this project decreases ET production time and cost and is an
    operational demonstration of large-scale use of FSW technology. The
    total funding is $21 million. The first production use on an ET will be
    in April 2003.
        Main Landing Gear (MLG) Upgrade improves tire designs that could
    allow for higher landing speeds and increases in cross winds and
    landing load limits. It will also mitigate obsolescence issues and
    improve margins for pressure leakage and colder temperature
    environments. The tire improvement project received the authority to
    proceed in May 2002. The fiscal year 2003 President's Budget estimate
    of total funding is $11 million.
        Industrial Engineering For Safety (IES) Upgrades identify and
    reduce risks to ground operations personnel and flight hardware by
    optimizing human-system interfaces. The IES project will also enhance
    maintainability and improve overall processing operations of flight
    hardware and vehicle systems. Total funding is estimated at $90 million
    Supportability Upgrades
        Long Life Alkaline Fuel Cell (LLAFC) upgrade modifies cells of the
    Shuttle's existing stack to lengthen corrosion path, reduce reactant
    temperatures, upgrade external seals and insulator plate, and modify
    regulator housing to eliminate aluminum corrosion. The total cost for
    this upgrade is $28 million. The new hardware will be available for
    installation into the fleet on an attrition basis starting in 2005.
        Solid Rocket Booster (SRB) Range Safety Command Receiver--Decoder
    (CRD) upgrade eliminates a criticality 1 failure mode, decreases
    destruct reaction time, mitigates obsolescence of key components, and
    enhances maintainability. The total cost for this upgrade is $5
    million. New hardware will be available for installation into the
    booster fleet in early 2003, with first flight expected in 2004.
        SRB Altitude Switch Assembly (ASA) upgrade is a pressure-sensing
    device to initiate SRB recovery sequence (one unit per SRB). The ASA
    upgrade eliminates an escalating failure rate and a poor repair record
    and improves fault tolerance and reliability. The total cost for this
    upgrade is $4 million. New hardware will be available for installation
    into the booster fleet in early 2003, with first flight expected in
    2004.
        Reusable Solid Rocket Motor Nozzle/Case Joint J-Leg upgrade
    eliminates potential for hot gas intrusion into the joint and
    eliminates significant time and effort expended evaluating hot gas
    pass-throughs. The total cost for this upgrade is $9 million. First
    flight for the improved joint insulation design is targeted for 2004.
        NASA is currently assessing the Space Shuttle supportability and
    upgrade candidates, ground support equipment supportability and upgrade
    candidates, and infrastructure supportability and upgrade candidates.
    The primary objective of this activity is to understand options to
    maintain safe space shuttle operations through 2020, should NASA need
    to fly the Shuttle until that time. No decisions have been made to fly
    the Shuttle beyond 2012.
        Question. What is the impact on these plans since the shuttle will
    only be flown four times a year in support of the International Space
    Station?
        Answer. The limit of four Shuttle flights a year applies only to
    ISS missions. NASA retains the flexibility to fly additional missions
    if the benefiting party (NASA enterprises/DOD/Commercial) provides
    funding. Currently, there are no impacts to the existing Shuttle
    upgrades.
        Question. What is the status of NASA's efforts to solve the
    agency's space shuttle-related human capital challenges?
        Answer. NASA is making key investments in recruiting, training, and
    retaining a dedicated and skilled workforce. At the end of fiscal year
    1999, OSF undertook an assessment of its staffing requirements at the
    field centers. Our internal assessment of core civil service workforce
    requirements at the four Space Flight Centers revealed that full-time
    equivalent (FTE) targets would have to be adjusted upwards. In late
    December 1999, each Center was directed to address critical Space
    Shuttle Program (SSP) workforce shortfalls. The objective was to hire
    employees to support flight safety and the Space Shuttle Upgrades
    program, including addressing critical skill shortages. Since January
    2000, we have seen our Space Shuttle Full Time Equivalents (FTE) levels
    grow from a fiscal year 1999 base of 1819 to a planned fiscal year 2002
    level of 1986. The SSP has made significant progress in addressing the
    skills imbalance identified in 1999; however, like other programs it
    has been impacted by normal attrition. Having completed two consecutive
    years of hiring, our fiscal year 2003 hiring efforts will target
    critical skills.
        Question. NASA has convened an independent business review team to
    evaluate market potential, financing and indemnification issues
    associated with transitioning the Shuttle to private industry. With the
    uncertainty associated with how long the Shuttle will operate under a
    competitive sourcing scenario, how can this team develop a reasonable
    financial assessment?
        Answer. NASA commissioned RAND to assemble a business review team
    consisting of representatives from across the private sector (business
    management, marketing, finance, insurance, safety, and academia) to
    evaluate the various business models that could be considered to
    competitively source Space Shuttle operations. For each proposed
    business model, RAND defined the conditions and requirements necessary
    for the business model to be financially viable. This will enable NASA
    and the Administration to fully understand the level of commitment
    (including required policy and regulatory changes) necessary if they
    choose one of these business models or a variant option. To ensure the
    financial viability for each business model, the President's fiscal
    year 2003 Budget lays out key criteria for Space Shuttle competitive
    sourcing proposals, including financial viability within the Shuttle's
    planned retirement in 2012.
        Question. Is the review team considering the possibility of private
    industry accepting the Shuttle fleet only if maintainability upgrades
    have been made at NASA's expense?
        Answer. The issue of who pays for maintainability upgrades is tied
    to the years of contractor commitment needed and will be considered in
    NASA's competitive sourcing analysis.
        Question. At one time, NASA was considering privatizing one of the
    Orbiters. What was the reason why this was not pursued?
        Answer. In 1996, United Space Alliance (USA) was given the
    opportunity to ``sell'' one Shuttle flight to commercial customers. USA
    pursued this offer, but, was unable to find sufficient commercial
    market demand to underwrite the flight. If a market does not exist for
    one flight, then the concept of privatizing an entire Orbiter for
    commercial purposes is unrealistic. It is important to note that
    privatization is a mechanism distinct from competitive sourcing, which
    could or could not include privatization of some portion of the Space
    Shuttle fleet or infrastructure.
        Question. NASA recently announced a decision to move space shuttle
    maintenance from California and consolidate space shuttle operations at
    Kennedy Space Center facilities. Reportedly, the decision was made
    after ``years of study'', and will save ``millions of dollars''. What
    is the estimated cost saving? What is the analytical basis for the
    estimated cost savings? Will the facilities used to house the
    maintenance activities be renovated existing facilities or new
    construction? To what extent has the cost of providing the facilities
    been included in any analysis justifying the move? To what extent have
    all the costs to terminate maintenance activities in California been
    included in any analysis justifying the move?
        Answer. The estimated cost savings is $30 million. The JSC Systems
    Management Office independent cost/risk assessment is attached as
    Enclosure 2. Additional independent cost assessments were performed
    (see Enclosure 3). All three assessments indicated that cost savings
    would be realized in moving OMM from Palmdale to KSC.
        The Orbiter modifications in Florida will use existing facilities
    and there are no plans for renovation or construction of new
    facilities. OMM at Palmdale is conducted in a government owned facility
    and the government will retain it. USA and Boeing are conducting
    studies to determine the best location to complete the Space Shuttle
    work that currently remains at Palmdale, CA.
                            space launch initiative
        Question. NASA and the Space Launch Initiative Program Office did
    not conduct a cost estimate prior to initial contract awards in May
    2001. At this time an independent cost estimate for total program costs
    has not yet been conducted. What is the timeframe for completing an
    independent cost estimate for the Space Launch Initiative program?
        Answer. An independent group, the Space Launch Initiative Cost
    Credibility Team, formed in February 2002, has been chartered to review
    the current state of cost effectiveness for development, production,
    and operations in the aerospace industry and to formulate
    recommendations for applying the findings to the life cycle cost
    estimates for the next generation of RLVs. The team includes members of
    the MSFC SLI program office, MSFC Systems Management Office (SMO), NASA
    IPAO, Department of Defense, Aerospace Corporation, Rand Corporation,
    Institute for Defense Analysis, and the COTRs for each Integrated
    Architecture team
        The team is collecting the data from each industry-led architecture
    development team to serve as the basis for the initial estimates. The
    preliminary estimates will be available to support a Non-Advocate
    Review (NAR). The estimates for full-scale development cost will be
    directly dependent upon the results of the systems requirements review
    process and the awards from the RFP currently scheduled for late next
    calendar year.
        Concurrent with the SLI Independent Cost Team, the Systems
    Engineering and Integration Office is developing a ``bottoms-up'' cost
    and schedule estimate on the basis of the system design fidelity. The
    systems engineering review process factors in comprehensive budget
    estimates, detailed project schedules, and business and performance
    plans, against the goals of safety, reliability, and cost, in addition
    to overall technical feasibility. This approach forms the basis for the
    investment decisions in the 2nd Generation RLV program's risk reduction
    activities.
        Question. How are you measuring progress toward achieving full-
    scale development decision in fiscal year 2006?
        Answer. We added the word ``decision'' in the text of the question
    because SLI has never planned to have Full-Scale Development (FSD) of
    the 2nd Generation RLV by fiscal year 2006, but rather an FSD decision
    by fiscal year 2006--the critical milestone facing the Agency. SLI is
    on track to provide the necessary scientific and technological data
    required to design, evaluate, and formulate realistic plans leading to
    a FSD decision in 2006. NASA is pursuing priority investments for
    designing the 2nd generation system, maturing critical subsystems to
    technology readiness levels, and developing credible cost and
    performance estimates.
        Question. In light of NASA's problems in controlling costs on
    previous programs, what will you do to ensure that the agency
    adequately defines requirements and adequately manages the program
    within established cost guidelines?
        Answer. As outlined in the strategic plans for SLI, the program
    continues to refine the Level I requirements and design reference
    missions in order to maintain focus on the Full Scale Decision by
    fiscal year 2006. Comprehensive top-to-bottom systems engineering and
    the cost-control process ensure that the Government gets what it pays
    for by measuring technical progress against the schedule at regular
    intervals. The cost-to-benefit ratio must prove a wise investment;
    gated procurements provide built in ``off ramps'' to discontinue
    efforts after a period of performance, as well as ``starting gates'' to
    add new tasks to fill technology gaps and spur competition. The
    research funded must be directly relevant to SLI goals to reduce the
    technical and business risk of developing a new RLV system. In addition
    to the multiple internal reviews and analysis teams, the requirements
    are also reviewed by an external group. The External Requirements
    Assessment Team (ERAT) was chartered to provide senior-level advice and
    recommendations to MSFC on this program. Specifically the ERAT will
    provide an independent assessment of NASA's requirements development
    processes and resulting documented requirements. The ERAT is further
    chartered to recommend specific refinement (if necessary) of the
    program's goals and objectives.
        The 2nd Generation RLV External Requirements Assessment team
    reports to the Manager of the 2nd Generation RLV program office at the
    NASA, Marshall Space Flight Center. The team is supporting all relevant
    reviews and requirements development activities required to provide a
    detailed assessment of the processes and resulting documented
    requirements.
        The process of narrowing architectures completed a major
    milestone--the Interim Architecture and Technology Review--in the
    second quarter of fiscal year 2002. The next phase will continue to
    focus space transportation system designs from many concepts to several
    of the most promising candidates to go forward into more detailed
    development. As technology trade studies are focused and validated
    through a rigorous systems engineering process, the two merge again in
    the Systems Requirements Review milestone, anticipated in the first
    quarter of fiscal year 2003. This further narrows the field to a select
    few designs and defines which technologies require further investment
    to enable the eventual winner to be built and become operational. In
    this way, the Space Launch Initiative is reducing the risks inherent in
    an advanced research and development program of this magnitude, while
    fostering a fair business environment for industry and ensuring the
    wise use of valuable resources.
        In conjunction with the numerous technical requirements reviews,
    SLI has implemented a disciplined Earned Value Management (EVM) process
    across all projects. EVM is implemented on the SLI contracts consistent
    with NPD (NASA Program Directive) 9501.3, ``Earned Value Performance
    Management''. The EVM reports are specified within each contract and
    are reported to the Program Manager on a monthly basis.
        Question. The X-37 is to serve as a platform for integrated flight
    demonstration of reusable space system technologies thus advancing
    technologies to reduce risk to the overall Space Launch Initiative
    program. Is NASA providing adequate funding to support the X-37 program
    through the aerodynamic drop tests in fiscal years 2004 and 2005?
        Answer. The X-37 continues to serve as a one of multiple platforms
    for integrated flight demonstrations of reusable space system
    technologies thus advancing technologies to reduce risk to the overall
    Space Launch Initiative program. The X-37 program is currently planned
    through an atmospheric drop test, scheduled to begin in 2004, to
    demonstrate approximately 18 imbedded technologies. Funding for the X-
    37 in fiscal year 2004 timeframe will be contingent upon the final
    evaluations of the current NRA 8-30 Cycle II.
                        space launch initiative reserves
        Question. In fiscal year 2002, each Space Launch Initiative project
    included five percent in reserves. By 2nd quarter fiscal year 2002, the
    reserves have been significantly depleted.
        What was the basis for determining the adequacy of a 5 percent
    allowance for SLI reserves? What are the plans for replenishing the
    reserves and what impact will this have on program risks?
        Answer. The program allocated an initial 5 percent reserve to each
    project based upon the contracts awarded from NRA 8-30 Cycle I. In
    addition to the project reserve allocation, the program carries
    approximately 15 percent reserve each fiscal year. Each project can
    request funds from the program reserves through the Risk Management
    Board, chaired by the Program Manager, as required. The program level
    reserves are allocated by the Program Manager consistent with program
    priorities and assessment of each task's associated risk to achieving
    the overall program goals and objectives.
          contract management/integrated financial management program
        Question. GAO has reported that NASA's contract management is a
    continuing area of high risk, because the agency lacks effective
    systems and processes for overseeing contractor activities. For
    example, in a recently issued report on International Space Station
    cost limits, GAO found that NASA was unable to provide auditors with
    detailed, transaction-based data to support the dollars obligated for
    the space station, and did not have support for the actual cost of
    completed space station components--either in total or by subsystem or
    elements. As a result NASA is not able to re-examine its cost estimates
    for validity once costs have been realized. A key effort to address
    these weaknesses is the implementation of a new integrated financial
    management system. Implementation of the system and its integration
    with full cost accounting have been delayed for several years, however,
    because of significant development and implementation problems. NASA
    has started its third attempt at developing such a system, after having
    spent $180 million over 12 years on two failed efforts. Until the new
    system is operational, performance assessments relying on cost data may
    be incomplete.
        After two failed attempts, what is your expectation for fully
    implementing the Integrated Financial Management System (IFMS)?
        Answer. We are currently on schedule for implementing all eight (8)
    modules comprising the IFMS. To date, the Travel Manager, Resume
    Manager and Position Description modules are in various stages of
    Agency-wide deployment and the rollout of our Core Financials module
    pilot (at Marshall Space Flight Center) is on schedule with a ``go
    live'' date of October 2002. The remaining four (4) modules, Budget
    Formulation, HR, Integrated Asset Management (IAM), and Contract
    Administration (CA) are also on schedule for rollout over the next
    thirty six (36) months.
        Question. What lessons learned from the previous attempts do you
    plan to apply to increase the probability of success on the current
    effort?
        Answer.
      --Use COTS software
      --Use a phased approach for module rollout
      --Involve the end-users early into the deployment process
      --Drive the change management process as an integral part of the
            transformation
        Question. What type of management attention are you providing to
    this effort?
        Answer. After Safety, the Administrator has made the successful and
    accurate implementation of the Integrated Financial Management System
    the primary goal. In addition, he has hired a Special Assistant who is
    the Program Executive Officer of IFM and reports directly to him. He
    has also directed a re-focus of the field centers to include financial
    analysis to be complete with the implementation of the IFM program.
        Question. What is the estimated completion date for fully
    implementing the IFMS?
        Answer. December 2005 for all eight modules. Resume Management was
    implemented in January 2002, Position Description in August 2002, Core
    Financials will be fully implemented in June 2003, Budget Formulation
    in February 2004, Human Resources, Integrated Asset Management and
    Contract Administration are currently scheduled for December 2005.
        Question. What are the total estimated costs to develop and
    implement the IFMS?
        Answer. The PCC number is $644.8 million (fiscal year 2001 through
    fiscal year 10). Details are:

                              [Dollars in millions]

                                                                      Amount
    Fiscal year:
        2001.......................................................... $76.7
        2002..........................................................  73.3
        2003..........................................................  85.1
        2004..........................................................  91.2
        2005..........................................................  90.8
        2006..........................................................  48.2
        2007..........................................................  67.0
        2008..........................................................  37.5
        2009..........................................................  37.5
        2010..........................................................  37.5

        Question. What are the advantages and risks for NASA to accelerate
    progress on developing the IFMS?
        Answer. The IFM will give the tools to NASA necessary to manage in
    a timely and efficient its finances. So far, the IFM implementation is
    on schedule and any additional acceleration analysis will include a
    detailed risk identification and mitigation strategy comparable to the
    one adopted for the Core Financials module.
        Question. Do the centers have the resources and knowledge to
    implement the IFMS?
        Answer. Yes. They are working in very close coordination and
    concert with the IFM program office.
        Question. How will NASA's new financial management system change
    the way NASA tracks and uses cost information for activities such as
    estimating and controlling costs, performance measurement and making
    economic trade-off decisions?
        Answer. IFM will provide NASA with timely, accurate and highly
    detailed and correlated financial information capable of supporting
    both full-cost accounting requirements and program and project level
    performance analysis. It will help shift the financial management focus
    of the Agency from ``spending to budget'' to ``managing to cost'' by
    providing the necessary information for effective decision support in a
    timely, user-friendly and reliable environment.
        Question. Given the fundamental changes in NASA's financial
    management, how will NASA manage the cultural and workforce changes
    needed for the project to succeed?
        Answer. NASA is keenly aware that one of the major success factors
    related to implementing a new Agency-wide system like IFM resides in
    transferring as quickly as possible the ``ownership'' of the new system
    and its related processes from the Project Office to its ultimate
    constituencies. In parallel to the software technical implementation,
    the Agency is scheduling the related change management activities
    following a timetable closely coupled with individual user/constituency
    feedback.
        Question. What other steps will you take to enhance oversight of
    contract management activities?
        Answer. The appointment of a Program PEO and the competitive
    sourcing of future module, such as Payroll, focusing on ``best of
    Breed'' and e-government guidelines will enhance contract management
    oversight.
                                workforce issues
        Question. Between fiscal year 1993 and fiscal year 2000, NASA
    experienced a 26 percent civil servant reduction. The downsizing skewed
    the age distribution of NASA's workforce and contributed to critical
    skill shortages. More people in the workforce are over 60 than are
    under 30, and there is concern about the prospect of large numbers of
    future retirements. Since the completion of downsizing in fiscal year
    2000, NASA has shifted its focus to workforce revitalization and
    restructuring.
        What progress has NASA made toward mitigating critical skill
    imbalances and reversing adverse workforce demographic trends?
        Answer. NASA has taken, and continues to pursue, efforts to address
    Agency workforce issues, including skill imbalances and adverse
    workforce demographic trends.
        To help us better manage the existing workforce and enable better
    strategic decisions about future workforce needs, the Agency has
    undertaken an initiative to develop and implement an Agency-wide
    integrated workforce planning and analysis capability that will permit
    us to track the distribution of NASA's workforce across programs,
    capture critical competencies and skills, and allow an analysis of gaps
    between current and desired states.
        The Agency is very focused on addressing the adverse workforce
    demographic trends it faces, including the shrinking S&E pipeline, lack
    of diversity within that pipeline, and NASA's aging workforce. In order
    to reshape and reconstitute the workforce for the future, NASA Centers
    are re-establishing recruitment networks and rebuilding the once
    extensive Co-operative Education Program. The Agency will continue to
    use these programs, as well as the Presidential Management Intern
    Program, the Federal Career Intern Program, and other student
    employment programs as tools for entry-level hires.
        NASA uses available financial incentives to attract and retain a
    workforce that has the right skills for the future and is
    representative of the Nation's diversity. For example, NASA Centers
    will offer starting salaries above the minimum rate of a grade and when
    appropriate offer recruitment bonuses to attract, and retention
    allowances to retain, needed talent. Use of these incentives has
    increased in the recent past--a trend the Agency expects to continue
    because of an increasingly competitive job market and high cost of
    living surrounding some NASA Centers. The Centers are now also able to
    repay student loans as a way to attract or retain employees.
        The National Recruitment Initiative study, completed in January
    2002, was created to develop Agency-wide hiring strategies and tools
    for NASA's current and future science and engineering recruitment
    needs. Information gathered was used to develop recruitment
    enhancements that focus on the candidate instead of the hiring process;
    leverage partnerships and alliances with universities; and coordinate
    Agency-wide recruitment opportunities and outcomes. In addition, the
    Agency's automated resume submission process enables applicants to
    apply for jobs using an on-line service called NASA Staffing and
    Recruitment System (NASA STARS). We recently added an on-line
    notification system that allows individuals to be automatically
    notified of new vacancies that may be of interest to them.
        Given current workforce demographics, particular attention must be
    focused on assuring the Agency captures and makes available the wealth
    of expertise and experience the current workforce possesses--as well as
    that which resides outside the Agency in similar organizations--to aid
    in developing the next generation of project/business managers and
    leaders. Accordingly, NASA has identified an ``improvement initiative''
    to ensure training and development programs build needed competencies,
    including more effective incorporation of knowledge sharing and
    mentoring in the development of employees.
        To help ensure a continuing pipeline of future talent, NASA has a
    number of programs, K-12 through post-graduate, to encourage students
    to pursue science, math, engineering, and technology studies. The
    Agency has made education a core mission and is pursuing a more
    coordinated management approach that will further enhance our reach and
    improve our performance in the education area. In addition to those
    efforts, NASA is working to improve the linkage between these
    ``feeder'' programs and projected workforce requirements.
        We face challenging times as we reconstitute and reshape our
    workforce for the 21st century. While we continue to use our existing
    flexibilities, they are not entirely adequate. To help us address the
    challenge head-on, in May 2002, we recently forwarded to Congress a
    series of legislative provisions dealing with human capital. These
    provisions will complement the Administration's Managerial Flexibility
    Act, and we look forward to working with the Committee and Congress to
    ensure that these essential tools are enacted into law this year.
        Question. What barriers impeded NASA from achieving proper staffing
    levels?
        Answer. The rigidity of Federal workforce restructuring,
    recruitment and compensation laws and rules impede NASA's ability to
    respond in an agile and efficient manner to mission or program changes
    and workforce trends. NASA needs additional flexibilities and
    authorities to address its human capital challenges.
        NASA must reshape and reconstitute its current workforce to address
    its skills imbalances and lack of depth in critical competencies. The
    buyout and early retirement authorities are very useful tools to
    facilitate downsizing, but management must be able to use them for
    restructuring and reshaping (not just downsizing) and be able to target
    them on the basis of skills and occupations.
        Financial incentives are needed to attract and retain a world-class
    workforce and avoid a sudden drain of talent and corporate knowledge
    that could result from the departure of too many key employees at
    critical points. More competitive and flexible recruitment, relocation,
    and retention bonuses would address this need. Other incentives, such
    as the authority to offer new employees the same travel and
    transportation benefits available to permanent employees who transfer
    to other duty locations would make a difference when recruiting new
    employees for positions in high cost areas.
        Federal recruitment and placement processes are overly cumbersome
    and time consuming. As a result, NASA loses highly qualified candidates
    to the private sector, which can extend more lucrative offers much more
    quickly. Streamlining these processes will enable NASA to respond more
    quickly and effectively to workforce changes and compete more
    successfully with the private sector for talent. Among some of the
    suggested changes include:
        A streamlined hiring authority for severe shortage and critical
    needs positions.
        A more flexible term (time-limited) appointment authority. Term
    appointments, which currently are limited to 4 years, often are used to
    support scientific and technical projects and programs. The completion
    of such projects often is dependent on the technology, so their
    duration may extend beyond the original anticipated date--and beyond 4
    years. NASA needs the authority to make/extend a term appointment for
    up to 6 years. In addition, the process of converting term employees to
    permanent must be simplified. Doing so is likely to make term
    appointments more attractive to potential applicants and thereby
    provide a more robust labor pool from which to draw.
        Question. What is the status of the agency-wide workforce planning
    system NASA is developing, and what is its relationship to the
    Integrated Financial Management Project? How will the new system assist
    the agency in making strategic decisions about future workforce needs,
    including the size of the workforce and the knowledge, skills, and
    abilities needed to carry out agency operations?
        Answer. As mentioned previously, we are implementing a three-phase
    plan for developing an improved workforce planning capability at the
    Agency level. This effort began in fiscal year 2002 and is scheduled
    for completion in fiscal year 2005. The plan focuses on the
    competencies required and those possessed within the NASA workforce.
    Ultimately, we plan to use the Human Resources (HR) capabilities of the
    IFM enterprise software to integrate workforce planning with other
    planning processes in the Agency.
        Initially, we have had the Centers update an inventory of
    competencies in their civil service and contractor workforces. We are
    refining that data and improving our competency definitions. We will go
    back to the Centers later this year to get input identifying specific
    competency gaps related to NASA program needs. Simultaneously, we are
    working on standardizing and extending the use of a competency
    management system model devised at the Kennedy Space Center. A team has
    begun work on this model, which will provide the common framework
    needed across all the Centers to identify competencies and workforce
    needs. This framework will be used to configure the HR module in the
    IFM system. The new IFM HR software will give us the capability, for
    the first time at the Agency level, to associate skills and
    competencies with positions and with employees. It will further enable
    us to associate employees with the programs and projects on which they
    work. This will give us the information needed to plan and target
    hiring and training to the needs of the programs and agency operations.
                        next generation space telescope
        Question. NASA's current plans are for the Hubble Space Telescope
    to receive one more servicing mission and then to operate it until 2010
    or until subsystem failures render the Observatory inoperable. The
    schedule for the Next Generation Space Telescope (NGST)--an observatory
    that will enable NASA to estimate the total mass in galaxies even in
    non-luminous regions due to sensitive infrared capability--has been
    extended. NASA has acknowledged that delays are due to a number of
    factors, including foreign partner concurrence and the performance of
    an improved instrument cost estimate. Down select to a single prime
    contractor is currently scheduled for this fiscal year.
        Uncertainty in the details regarding the transition from the Hubble
    to the NGST is not unlike that associated with the transition from the
    Shuttle to a replacement Reusable Launch Vehicle. Indeed, in both the
    case of the Hubble and Shuttle, we are a long ways away from an
    operational replacement system, costs for the replacement are
    uncertain, and decisions need to be made in short order if additional
    upgrades to extend the life of the current system are to be cost-
    effective.
        As the NGST schedule is extended, is it prudent to develop a
    contingency plan that will enable Hubble to operate beyond 2010? Has
    NASA developed such a plan? If so, what is the range of costs
    associated with possible contingencies? Are skill shortages a concern
    among HST staff in light of possible operations beyond 2010? Is
    sufficient time being allotted for testing to ensure that NGST's needed
    technologies--such as lightweight optical structures, new generations
    of infrared detectors, and energy-efficient cooling techniques--will
    operate successfully when launched?
        Answer. We currently plan to launch NGST in 2010. It is important
    to note that NGST and HST look at different portions of the
    electromagnetic spectrum, so even in the event that NGST slips, trying
    to keep HST going past 2010 wouldn't ``make up'' for the delayed
    science. This is not to say that astronomers interested in HST visible/
    ultraviolet data would not be interested in NGST infrared data, but it
    is worth noting the difference. Therefore, because there is no pending
    ``data gap'' to mitigate, we have not developed a contingency plan to
    extend Hubble's operational life.
        It is also important to point out that the amount of archival data
    from Hubble is immense and could easily keep the scientific community
    occupied for years. In fact, one of our most important discoveries from
    Hubble over the past year--the existence of ``dark energy'' that pushes
    galaxies apart--resulted from archival data, not from a recent
    observation. Even if there is a delay in NGST development or if HST's
    planned operational life is unexpectedly shortened, NASA plans to
    continue to provide grants to researchers to make use of archival data
    from Hubble.
                              aeronautics research
        Question. NASA's fiscal year 2003 Budget Estimates says that:
    ``U.S. competitors are targeting aviation leadership as a stated
    strategic goal. Without careful planning and investment in new
    technologies, near-term gridlock, constrained mobility, unrealized
    economic growth, and the continued erosion of U.S. aviation leadership
    could result''.
        Mr. Administrator, I too am concerned about the apparent loss of
    U.S. aviation leadership. While NASA expresses concern, its budget
    request seems to say otherwise. How else could you interpret the
    decreasing funding trends in aeronautics research? Take ``Breakthrough
    Vehicle Technologies'' for example, a component of the Vehicle Systems
    Program. Fiscal year 2001 and fiscal year 2002 appropriations were
    $84.4 million and $83.2 million respectively. The fiscal year 2003
    request is for $61.9 million. Does this trend mean that the continued
    erosion of U.S. leadership has stopped?
        Answer. During fiscal year 2001 and fiscal year 2002, the budget
    for the Breakthrough Vehicle Technology project included a task
    associated with 3rd generation reusable launch vehicles unrelated to
    aeronautics technology. During the fiscal year 2003 program
    restructuring to provide more focus on aeronautics, this work ($20.5
    million) was appropriately consolidated with the Space Transfer and
    Launch Technology program. The fiscal year 2003 NASA request for
    aeronautics work within the Breakthrough Vehicle Technology project has
    increased over the fiscal year 2002 request.
        Question. The Aerospace Technology Enterprise Plan issued in April
    2001 is NASA's blueprint for a new era in Aerospace for the United
    States. Focusing on the goal of pioneering technology innovation, I am
    struck by the apparent absence of key markers that would demonstrate
    NASA's resolve. Is this indicative of a void in the Nation's strategic
    approach to aeronautics research?
        Answer. NASA is in the process of defining metrics for its
    pioneering technology innovation goal. NASA's Office of Aerospace
    Technology is working with its partners and customers in the NASA
    Enterprises to establish definitive objectives and metrics for this
    goal. The absence of the metrics is not an indication of a void in the
    Nation's approach to aeronautics research. For example, NASA's
    strategic plan has established quantitative metrics for aviation safety
    as follows: technology development to enable an 80 percent reduction in
    fatal accident rates by 2007, and a 90 percent reduction by 2022.
    Similar quantitative metrics have been established for aviation noise
    and emissions reduction, and capacity and mobility improvements.
                        space shuttle safety/astronauts
        Question. Richard Blomberg, who recently completed his term as
    chairman of an independent panel that oversees human space flight
    safety at NASA, told the House Science Committee: ``In all the years of
    my involvement, I have never been as concerned for Space Shuttle safety
    as I am right now.'' Is this country on the verge of another Challenger
    tragedy? What is NASA doing to allay Mr. Blomberg's concerns?
        Answer. The Space Shuttle is safe to fly. The recent discovery of
    the flow liner cracks exemplifies the risk adverse nature of the
    Shuttle team. For the future, NASA is currently assessing Space Shuttle
    supportability and upgrade candidates for hardware, infrastructure and
    obsolescence, and reviewing human capital investment required to
    operate the shuttle beyond 2012. The primary objective of this activity
    is to understand options to maintain safe Space Shuttle operations
    through 2020 should Agency planning for a transition to a second-
    generation vehicle by 2012 change. No decisions have been made to
    extend Shuttle operations beyond 2012.
        Question. Last year, your predecessor was quite concerned about the
    prospect of ``tourists'' on the space station. But now NASA and the
    other space station partners have agreed to allow Russia to send
    ``spaceflight participants'' to visit the space station regularly.
    Another one--a millionaire from South Africa--is up there now, and
    several more candidates are waiting in the wings. Do you consider this
    an appropriate use for the world-class research facility that we're
    building? Is this what NASA means by ``space station
    commercialization''? What are NASA's plans for flying non-professional
    astronauts either on the space shuttle or the space station?
        Answer. The International Space Station (ISS) is a partnership
    venture, where each partner has rights associated with activities
    utilizing the resources and capabilities that they contribute to the
    venture. As such, the Russian partner has the right to utilize their
    portion of the ISS to accommodate ``spaceflight participants'' whom
    they choose to sponsor and transport to the ISS. In general, each
    partner selects candidates for its own ISS crewmembers based on its own
    criteria and procedures. The ISS partnership has agreed on a set of
    criteria and processes to be used by all ISS partners when assigning
    their professional astronauts/cosmonauts or spaceflight participants as
    ISS (Expedition and Visiting) crewmembers. This document addresses the
    requirements for candidate crewmembers in the following areas: general
    suitability, medical requirements, behavioral suitability, linguistic
    ability, crew code of conduct, and training requirements.
        NASA has no plans for flying non-professional astronauts
    (``spaceflight participants''), either on the Space Shuttle or the ISS,
    and does not envision any consideration of such individuals until
    assembly of the ISS is completed (``US Core Complete''). Any future
    consideration to fly spaceflight participants on the Space Shuttle or
    the ISS would only be considered if it were deemed to be in the
    ``national interest.''
        Question. Do women astronauts have the same opportunities as their
    male counterparts? We have heard that NASA's decision to curtail
    funding of a ``small torso'' spacesuit severely limits the number of
    women who can be assigned to space station crews. Is that correct? What
    percentage of the women in the astronaut corps currently cannot be
    assigned to space station crews because of the spacesuit issue? If
    women are not part of the long duration crews on space station, how
    will data be acquired on women's adaptation to the space environment to
    ensure they can be included on trips to Mars, for example? How much
    money will NASA save by not building that version of the spacesuit?
    What scientific research objectives will not be achieved--particularly
    in understanding human adaptation to the space environment--because
    there are so few women on space station crews?
        Answer. NASA's anthropometric criteria for astronaut candidates are
    intentionally broad to allow us to select from the nation's best and
    brightest, regardless of gender. Naturally, all astronauts are not
    going to be qualified for all the possible roles on a mission, with
    respect to their size or other characteristics.
        It is important to note that only EVA suits, which are only used
    for space walks, are in any way limiting which astronauts can fly on
    Shuttle missions. The Shuttle spacesuits for launches and landings
    accommodate all astronauts. While the small EVA suit could affect 31
    women astronauts in the current astronaut corps, only three are
    currently impacted for future missions. These three women have yet to
    be assigned to a mission, but they will likely be assigned within the
    next year. Given a recent change in policy that allows astronauts to be
    assigned to ISS Expedition crews even if they are not EVA qualified, it
    is now possible for these three women astronauts to qualify for an ISS
    Expedition mission.
        As far as the other 28 women astronauts potentially affected,
    fifteen can be accommodated in the medium EVA suit. One recent graduate
    of Astronaut Candidate training has yet to be evaluated for EVA suit
    sizing requirements. Seven female astronauts are not eligible for EVAs
    regardless of suit size. Four of these seven women are on inactive
    status and have already completed multiple space flights as mission
    specialists or pilots. The other three have been assigned mission-
    critical roles as Shuttle pilots or as a mission commander. Of the
    remaining women astronauts, five have already had multiple flight
    assignments in mission-critical roles, such as Robotic Manipulator
    System operators, and have been instrumental in International Space
    Station (ISS) assembly operations. Deferral of the development of the
    small EVA suit will not eliminate opportunities for assignment to ISS
    flights since all long-duration crewmembers do not require EVA
    qualification. The length of the EVA suit shoulder determines who can
    wear the existing suits. Some male astronauts are too big for the extra
    large suit just as some women are too small for the medium EVA suit.
    Thus far, many women and men have trained and qualified in the medium,
    large, and extra large EVA suits. Women astronauts have performed
    significant EVAs in support of the ISS assembly within the past year
    most recently, Dr. Linda Godwin and Col. Susan Helms.
        NASA recognizes that the current EVA suit has limitations,
    including size constraints and interchangeability, which we hope to
    improve through further evolution in suit design and configuration. The
    next generation of EVA suits that we develop will improve functionality
    for all users and will also accommodate a broader range on both
    extremes of the anthropometric spectrum, small and large.
        We must emphasize that NASA has not terminated the small EVA suit,
    although its certification and production have been deferred in favor
    of higher funding priorities. Even if the development of the small suit
    resumed immediately, it could not be ready for use during the assembly
    phase of the ISS, when the demand for EVA is at its peak. In addition,
    operational problems would still exist since the small EVA suit parts
    are not compatible with the other suits.
                       mergers in the aerospace industry
        Question. Has there been any impact on competition in NASA
    contracting because of mergers in the aerospace industry?
        Answer. Mergers in the aerospace industry have reduced the number
    of competitors for NASA contracts. Despite these changes, however, NASA
    has experienced an increase in the percentage of competitive contract
    actions from 75 percent in fiscal year 1997 to 81 percent in fiscal
    year 2001. In spite of a relatively flat budget over the last several
    years, the percentage of dollars awarded competitively has also
    increased from 61.9 percent in fiscal year 1997 to 64.1 percent in
    fiscal year 2001.
        Question. Is competition less fierce today than, say five years
    ago?
        Answer. There is no indication that competition among contractors
    vying for work with NASA is any less fierce today than it was five
    years ago.
        Question. If so, is NASA paying more for products and services?
        Answer. To the extent that we obtain competition for NASA business
    as noted above, we believe that the prices are reasonable and
    reflective of the marketplace.
        Question. Should additional mergers such as Northrop Grumman's
    proposed merger with TRW be discouraged?
        Answer. In general, NASA defers to the Departments of Commerce and
    Justice to evaluate potential mergers. We believe each proposed merger
    should be reviewed on a case-by-case basis in cooperation with those
    Departments. NASA does not anticipate any adverse impact from the
    pending Northrup Grumman/TRW merger.
                               nuclear propulsion
        Question. When do you expect nuclear propulsion for planetary
    probes to be ready to fly? You have said that we should wait until
    nuclear propulsion is available to send a probe to Pluto because it can
    get there without a gravity assist from Jupiter, and will be able to
    conduct longer term studies of Pluto once it arrives. Assuming your
    nuclear systems initiative is funded as planned for the next 5 years,
    when will that nuclear-propelled Pluto probe be launched? Will it
    arrive at Pluto by 2020, when scientists say the atmosphere is likely
    to collapse?
        Answer. The proposed Nuclear Systems Initiative research and
    development program could enable the flight of a nuclear fission-
    powered spacecraft early in the next decade. A mission to orbit Pluto
    would take approximately 10 years to reach and orbit Pluto. There is
    currently no consensus among the scientific community as to when or
    even if Pluto's atmosphere will freeze out. Nuclear electric propulsion
    reduces or eliminates the need for planetary gravity assists, and would
    therefore not have launch date constraints.
        The abundant on-board power and propulsion enabled by the nuclear
    fission system (more power than approximately 250 watts electric from a
    radioisotope power system) would permit the spacecraft to orbit the
    Pluto/Charon system, rather than simply fly-by, allowing significantly
    more time for detailed survey of Pluto/Charon through the use of remote
    sensing instruments. Additionally, the abundant energy would enable a
    much greater scientific data-return communications link to Earth
    compared to what could be achieved with a radioisotope power system.
                         status of russian commitments
        Question. What is the status of Russia fulfilling its commitments
    to the space station program? The cost overruns on NASA's part of the
    program have overshadowed concerns about Russia's ability to fund
    construction and launch of Progress and Soyuz spacecraft. Are you
    confident that Russia will meet those commitments? If not, what remedy
    do you propose?
        Answer. Russia continues to meet flight commitments including the
    provision of Service Module life support systems and launch of Progress
    and Soyuz spacecraft for re-supply, reboost, and crew escape functions.
    It is our expectation that Russia will continue to meet these
    commitments.
        Question. Of the space station segments Russia promised to build--
    such as the Science Power Platform, docking units, and Research
    Modules--which do you still anticipate will be constructed? If Russia
    does not provide the Science Power Platform, will we have to provide
    electrical power for their segment of the space station? If so, will
    they be charged for that resource?
        Answer. The Science Power Platform (SPP) as originally envisioned
    has not been completed due to budget shortfalls and design
    uncertainties. Although some hardware has been built, it became clear
    that the original design would be too heavy for launch on the Space
    Shuttle. Most work on the project was halted, in order to allow time to
    re-design the SPP. The primary consequence of not building the SPP as
    planned is to reduce the amount of power available to the Russian
    Segment of the ISS.
        Relative to additional assembly hardware to be delivered, progress
    on these elements has also been limited due to funding issues. However,
    like the SPP, the primary consequence of not building out the full
    Russian segment is an impact to the Russian segment utilization.
        NASA has received alternative Russian design options for technical
    consideration. However, NASA is not in a position to discern whether
    Russia will be able to address the financial issues that continue to
    delay progress on their plans to build out the Russian segment nor the
    specific elements that will ultimately be deployed to orbit.
        Question. What is the status of discussions with Russia about
    providing additional Soyuz spacecraft to enable the space station crew
    size to grow to six? How much do you think Russia will charge the ISS
    partnership for two additional Soyuzes per year?
        Answer. NASA is currently not engaged in discussions with the
    Russian Aviation and Space Agency (Rosaviakosmos) on the subject of
    additional Soyuz vehicles to increase the size of the International
    Space Station (ISS) crew from three to six. A decision on the most
    effective crew size and associated crew return requirements is not
    expected until NASA completes its five-point assessment to reform and
    revitalize the ISS Program. The five areas of this assessment are:
    science priorities, engineering development and deployment, cost
    estimating and analysis, mission and science operations, and
    international partner coordination.
        Moreover, NASA is legally prohibited from purchasing ISS-related
    goods and services from any entity or element of the Government of the
    Russian Federation under Section 6 of the Iran Nonproliferation Act of
    2000 (INA) (Public Law 106-178) unless the President determines that
    Russia meets specific nonproliferation conditions. NASA has made it
    clear to Rosaviakosmos that any potential future purchase of crew
    return services would have to be within U.S. non-proliferation
    regulations, including INA.
        With USG interagency approval, NASA did discuss the feasibility of
    extending/expanding the use of Soyuz crew return vehicles with
    Rosaviakosmos in February 2002. Rosaviakosmos indicated willingness and
    ability to supply additional Soyuz spacecraft if NASA is able to
    provide lead funding at least 2 years prior to delivery. NASA did not
    enter into negotiation regarding the price of Soyuz crew return
    vehicles. The price would depend on the number of vehicles required and
    delivery schedule. Any requirement for additional crew return
    capability will come from the ongoing five-point NASA assessment of the
    ISS Program. This plan is premised on research requirements driving the
    ISS vehicle configuration. We have, with the Heads of the ISS
    Cooperating Agencies, agreed to a Program Action Plan for the remainder
    of calendar year 2002 that will allow for multilateral endorsement of
    an option path to meet utilization and research requirements. This
    option path will address NASA's demonstration that it has regained
    programmatic cost control, the timing of research requirements on
    orbit, as well as budgetary requirements and constraints, while
    recognizing NASA's prerequisite coordination with the Administration
    and Congress.
                          orbiter major modifications
        Question. Your decision to move Shuttle ``Orbiter Major
    Modifications'' (OMM) work to Florida from California has stimulated
    some controversy.
        Kennedy Space Center's press release announcing the transfer stated
    that performing all the OMM work in Florida ``would also minimize
    risk.'' What risks are minimized by moving this work to Florida? What
    risks are increased? For example, it would seem that there are
    increased risks in having the entire shuttle fleet in the same
    geographical location. Wouldn't it be prudent to keep at least one
    orbiter in a different location in case terrorists or natural disasters
    strike Kennedy Space Center?
        Answer. Several risk factors are lessened by the transfer of OMM to
    KSC: reduced risk of transporting orbiters cross-country from Palmdale
    to KSC; reduced Shuttle manifest impact planning risk; reduced Shuttle
    ground operations risk, reduced overall costs per year ($30 million);
    reduced risk of ``redoing'' OMM work. KSC is constantly improving its
    security procedures to protect the nation's Space Shuttle and ground
    facility assets, with an accelerated improvement effort in light of the
    events of September 11. While we must remain vigilant for future
    missions, past experience has shown that the orbiters are very well
    protected at KSC. Placing a single orbiter at a different location in
    order to protect it from a natural disaster or terrorist attack will
    only increase the strain on NASA security forces to protect more than
    one location.
        Question. How many people in California will lose their jobs? How
    many people in Florida will be hired? Are you or your contractors
    trying to motivate workers to move to Florida so their experience is
    not lost?
        Answer. Due to the periodic nature of the OMM's in Palmdale, the
    workforce is hired/terminated based on need. Utilizing synergies of a
    common workforce, United Space Alliance's plan uses 235 workers. This
    workforce is a combination of current and new hires. In addition, 30
    Boeing engineers for design-engineering support will be used.
    Management has been drawn from the existing Orbiter Element and Ground
    Operations Element teams.
        In September 2001, and March 2002, United Space Alliance held an
    ``Open House'' in Palmdale for the purpose of interviewing and
    extending offers to Palmdale employees to relocate to KSC in Florida.
    Approximately 300 attended the September event, and 90 attended the
    March event. USA has extended 25 relocation offers, of which 15 have
    been accepted. Currently there are no other offers pending to
    California workers to relocate to Florida. It should be made clear that
    the Palmdale workforce was laid off after the completion of the last
    OMM, not as a result of the transfer to KSC. This is a cyclical process
    that occurs after each OMM at Palmdale. Many of the laid-off Palmdale
    workers have secured other positions at area aerospace firms.
        Question. What is your current estimate of how much money will be
    saved by this transfer on an annual basis for the next 5 years? What is
    your current estimate of the costs (including costs to the Federal
    Government, State government, local government, and contractors)?
    Please specify any facilities that must be built, renovated, or
    upgraded and the associated costs.
        Answer. The proposal to conduct OMM at KSC was based on a plan to
    use existing facilities, in their current configuration. The current
    savings per year due to the relocation is $30 million. NASA and United
    Space Alliance will perform OMM's in existing Orbiter Processing
    Facilities (OPF). Since OMMs are a labor-intensive effort and we are
    using existing facilities at KSC, there are no costs associated with
    this transfer. A declining flight rate has alleviated processing
    dependencies on facilities.
        Question. When will the transfer be completed and the Palmdale, CA
    facilities closed?
        Answer. The transfer has already begun and closure is dependent
    upon the USA & Boeing evaluation of remaining work at Palmdale.
        Question. How has your approach to shuttle security changed since
    the September 11 terrorist attacks? Much attention has been given to
    your decision not to announce shuttle launch times until 24 hours in
    advance. Since all shuttle flights, with one exception, are to the
    space station, and launch times can be calculated easily based on the
    space station's orbit, is it correct that the reason behind your
    decision was related to that one exception--this summer's launch of
    STS-107, which includes an Israeli astronaut? If so, will you return to
    your prior practice of announcing launch times well in advance of a
    launch after STS-107 is completed?
        Answer. Subsequent to the events of September 11, KSC received
    approximately $45 million to enhance security. While this work is in
    progress, a variety of security efforts have already been instituted.
    No, the decision not to announce shuttle launch times until 24 hours in
    advance is not related to STS-107--this decision was initiated
    immediately following the events of 9/11 and will remain in effect
    until NASA's security policy changes.
                               radiation exposure
        Question. In addition to the spacesuit issue, another factor that
    may limit women's participation in space station crews is radiation
    exposure limits. For example, your guidelines are that women who make
    their first long duration 6-month space flight at age 45 cannot make
    another long duration flight, but a male of the same age can make two
    such spaceflights. You note that the data on which you base your
    guidelines is quite dated, and new research could change those
    guidelines. Do you anticipate that your Space Radiation Initiative will
    demonstrate that women can participate in space missions to the same
    extent as men? If not, what are the implications for women
    participating in trips to the Moon or Mars? In general, your radiation
    exposure guidelines limit most men and women to either one or two 6-
    month spaceflights over their lifetime. Is that a ``showstopper'' for
    human trips to Mars?
        Answer. The safety of flight crews is NASA's highest priority. As
    such, we strive to ensure that our astronauts are protected from undue
    hazards, including excessive exposure to radiation. NASA's standards
    for radiation safety are based on recommendations from the National
    Council on Radiation Protection and Measurements (NCRP) and approved by
    the Occupational Safety and Health Administration (OSHA). Several
    radiation limits are used to deal with specific exposure types. The
    current NASA radiation limits are based on NCRP guidelines issued in
    1989. New guidelines were published in 2000 and recommended for
    adoption by the NASA Aerospace Medical Advisory Board; procedures for
    implementation of that recommendation are being developed.
        The most restrictive radiation limit is the career radiation
    exposure limit. This limit has been set to ensure that the probability
    of fatal cancer during the individual astronaut lifetime is not
    increased by more than 3 percent above the average lifetime risk for
    the U.S. population (which is approximately 20 percent). This risk
    limit is imposed equally for both male and female astronauts of all
    ages. The radiation exposure of astronauts is controlled to ensure that
    this risk level is not exceeded. However, the risk associated with a
    given radiation dose is different for men and women, mainly due to
    radiation-sensitive organs in women. The risk is also dependent on age.
    For this reason, the cumulative career radiation dose allowed for women
    is less than that for men, and the cumulative career radiation dose
    allowed for younger astronauts is less than that allowed for older
    astronauts of either gender.
        The probability of fatal cancer is calculated using measured
    radiation doses. Current knowledge is not sufficient to establish this
    relation accurately, and therefore there are large uncertainties in the
    risk prediction for a given radiation dose. For this reason, large
    margins of safety are required to ensure that the risk is not exceeded.
    At a given radiation dose, the risk may be as much as three times
    greater than the average estimate. Therefore, in order to have
    reasonable confidence that the risk limit is not exceeded, further
    radiation exposure needs to be restricted after a radiation dose
    corresponding to only a third of the dose corresponding to a 3 percent
    risk limit.
        The Space Radiation Initiative will contribute in several ways to
    demonstrate that women can participate in space missions to the same
    extent as men. The increased knowledge gained from the research will
    reduce the uncertainty in risk prediction, allowing narrower safety
    margins to be applied. This means that higher dose and, therefore,
    longer duration missions for both men and women astronauts can be
    accepted with the same confidence that risk limits will not be
    exceeded. The Space Radiation Initiative will also provide
    significantly better data in physics and biology. This data will lead
    to improved utilization of spacecraft components for radiation
    shielding. Finally, development of a significant radiobiology research
    community will allow NASA to participate in, and benefit from the
    breakthroughs in biology. Even minor advances could lead to significant
    benefits for NASA, as well as society at large. For example,
    improvements in biochemical diagnostic techniques that lead to earlier
    diagnosis and lower fatality rates for breast cancer would
    significantly reduce the risk attributable to radiation in a given
    mission. Even further along the horizon, biological intervention to
    mitigate risks of all fatal disease is a realistic hope. A science
    community attuned to NASA mission requirements will be able to
    translate its benefits into meeting NASA requirements.
        The current limitations on astronauts are applicable to the Space
    Station. A Mars mission would have greater uncertainties, and require
    greater margins of safety. The Space Radiation Initiative is necessary
    for Space Station and is intended to be sufficient to assure three 180-
    day missions for men and women astronauts within adequate safety
    margins. The advances of the Initiative are necessary for a Mars
    mission, but are not sufficient. Better prediction of biological health
    effects, including effects other than fatal cancer, is required for a
    Mars mission than for a stay on Space Station. In addition to
    optimization of spacecraft design for radiation shielding properties it
    will be necessary to design shielding for a planetary surface; a new
    concept of radiation shielding may also be developed for a long
    interplanetary transit. A Mars mission with only our present knowledge
    is likely to result in radiation exposures that exceed current NASA
    limits. However, it is reasonable to assume that, on the time scale
    needed for the execution of a Mars mission, adequate progress could be
    made to enable a Mars mission to proceed without exceeding safe risk
    limits.
                            earth science enterprise
        Question. How has your strategy changed regarding commercial remote
    sensing applications?
        Answer. With the advent of successful deployments of commercial
    remote sensing satellite systems starting in 1999, NASA assessed that
    it was appropriate to expand its role in the area of Earth science
    applications. In January of this year, NASA released the ``Applications
    Strategy: 2002-2012'' for the Earth Science Enterprise (ESE). The focus
    of this strategy is on national applications that extend and accelerate
    the operational use of the results of NASA research and development in
    Earth science and technologies. A copy of the Strategy is available at:
    http://www.earth.nasa.gov/visions.
        The Applications Strategy indicates a role for commercial remote
    sensing in serving NASA research purposes in understanding the Earth
    system. The Applications Program undertakes the functions of evaluating
    potential sources of commercial data, verifying and validating the data
    and information technologies, and then benchmarking their use for
    scientific research and applications development and demonstration.
        NASA proactively develops opportunities for using commercial data;
    e.g., partnerships with industry and leveraging investments in new
    products and services to serve the research agenda. The Landsat Data
    Continuity Mission (LDCM) is a public/private partnership enabling the
    private sector to provide data to meet a government specification for
    the Earth science community. This multi-year development effort sets a
    precedent for government requirements that may be served by the private
    sector on a sustained basis into the future.
        Question. For example, what is the significance of your decision to
    change the Commercial Remote Sensing Program (CRSP) at Stennis Space
    Center to the Earth Science Applications Directorate?
        Answer. The title was changed to reflect the broader role of the
    Earth Science Applications Directorate (ESAD) at Stennis in support of
    the ESE. The ESAD contributes to the systems engineering functions of
    evaluation, verification and validation, and benchmarking associated
    with the use of commercial remote sensing data, and for the use of NASA
    results in the national applications. ESAD serves in leading many of
    the crosscutting solutions associated with the systems engineering to
    enable the effective use of Earth science predictions and observations
    to be assimilated into decision support tools, including assessments
    and decision support systems. This approach is consistent with the
    approach of the Climate Change Research Initiative (CCRI) and other
    Federal agencies in addressing national needs for Earth science results
    to be deployed effectively to serve our citizens.
        Question. Your fiscal year 2002 budget estimate states that the
    goal of the CRSP program was to ``accelerate the development of a
    preeminent U.S. remote sensing industry,'' but your fiscal year 2003
    budget documents state that, as of fiscal year 2002, that no longer is
    a strategic objective. What has changed, and why?
        Answer. The U.S. remote sensing industry has grown in capacity
    recently, as manifested by the successful launches of commercial remote
    sensing satellites and successful operations of a number of airborne
    commercial remote sensing systems.
        The ESE recognizes the importance of systematically enabling the
    results from NASA's research and development of aerospace science and
    technology for increasing the understanding of the Earth system to
    enable decision support systems to serve our Nation. In January of this
    year, NASA released an Applications Strategy to accomplish the purpose
    of serving national applications (including energy forecasting, public
    health, agricultural competitiveness, homeland security, coastal
    management, etc.). The strategy directly addresses the NASA mission
    objective of ``understanding and protecting our home planet''.
        The National Academy of Sciences (NAS) is currently reviewing the
    Strategy, and their report is due to be released this fall. The NAS,
    the Earth Systems Science and Applications Advisory Committee (ESSAAC),
    the CCRI and the U. S. Global Change Research Program) (USGCRP) have
    all documented the importance of effectively enhancing and expanding
    the benefits of our increased understanding of the Earth system (in
    general) and NASA ESE results (specifically) to beyond the traditional
    scientific community. The ESE Applications Program's focus is to
    accomplish this purpose.
        Question. When do you expect the Administration to release its
    Climate Change Research Initiative and make decisions about the future
    of the EOS program?
        Answer. The Climate Change Science Program Office (CCSPO), led by
    Dr. James R. Mahoney, the Assistant Secretary of Commerce for Oceans
    and Atmospheres, and the National Climate Change Technology Initiative
    (NCCTI) group is coordinating the review of multi-agency climate
    research activities called for by the Administration in its fiscal year
    2003 budget submission. The inventory began in early 2002 and was
    completed in July 2002. The CCSPO integrated the information submitted
    into a single document shared among the Federal agencies. Draft
    criteria for the evaluation of the research programs have been iterated
    among the agencies and CCSPO. The other affected agencies are currently
    presenting their climate change activities to the CCSPO, and it is
    expected that all presentations and the overall synthesis of this
    information should be completed in time to affect the fiscal year 2004
    President's budget submission to Congress.
        The CCSPO's interagency review process of agency activities is
    expected to produce recommendations about plans for individual agencies
    from CCSPO to both the agencies and those components of the Executive
    Office of the President that oversee the overall budget process and
    content. However, any CCSPO recommendations will occur only after all
    agencies have made their presentations, and subsequent deliberations
    are carried out, which should be completed in August. NASA strongly
    believes that our EOS follow-on plans are critical to the success of
    the CCRI and the USGCRP, especially meeting the goal identified in the
    draft memo on criteria for program review to ``Enhance observation and
    monitoring systems to support scientific and trend analyses and to
    improve decision support tools.''
        Question. Have you received any indication so far as to what EOS-
    Follow On projects will be approved? If so, what are they?
        Answer. The fiscal year 2003 budget continues funding for three
    Follow-On missions and one study for a mission:
        National Polar-orbiting Operational Environmental Satellite System
    (NPOESS) Preparatory Project (NPP) ($153 million)
        Landsat Data Continuity Mission (LDCM), which is being planned as a
    data purchase ($45 million)
        Ocean Topography ($32 million)
        Study of a potential Global Precipitation Mission (GPM) ($8
    million)
        All other EOS follow-on missions are on hold until the CCRI review
    is complete.
                                 orbital debris
        Question. There have been conflicting accounts of NASA's plans
    regarding continuation of the office at Johnson Space Center that
    analyzes orbital debris. As space becomes more littered with debris, it
    would seem that more attention, not less, needs to be given to this
    type of analysis. Are you planning to close that office? If so, why?
        Answer. The NASA Orbital Debris Program Office, based at the
    Johnson Space Center, is not being closed nor does NASA plan to
    eliminate capabilities in this area. Customers that benefit from the
    expertise of the Orbital Debris Program Office are being identified to
    assure that requisite funding is maintained to meet those customers'
    requirements.
                                   dreamtime
        Question. Press reports indicate that the space station
    commercialization agreement you signed with DREAMTiME has not been
    successful. What is the status of that agreement? What difficulties
    were encountered? What does the failure of DREAMTiME imply for other
    space station commercialization concepts?
        Answer. Dreamtime's funding to support its performance of the
    Agreement was largely based upon obtaining venture capital and
    anticipated revenues from Internet business ventures. With the general
    downturn in interested businesses beginning shortly after the Agreement
    was signed, Dreamtime was unable to raise the funds necessary to
    perform a number of its principal obligations under the Agreement.
    Because this was a collaborative agreement, rather than a normal
    procurement agreement, and NASA did not have significant resources at
    risk, NASA chose to give Dreamtime every opportunity to perform.
    However, by early this year it became obvious that Dreamtime's
    situation was unlikely to improve, and NASA elected to proceed to
    terminate under the terms of the Agreement. The termination became
    effective on June 1, 2002. The failure of Dreamtime was due to
    circumstances specific to the nature of its proposed business
    operations, and does not suggest that other types of space station
    commercialization initiatives would suffer a similar fate.
                            reusable launch vehicle
        Question. You are developing technologies both for a ``2nd
    generation'' reusable launch vehicle (RLV), and a ``3rd generation''
    RLV. According to your briefings, you expect a 2nd generation RLV to be
    operational by 2012, and a 3rd generation RLV by 2025. Why develop a
    2nd generation RLV that would be obsolete in such a short period of
    time? Would it be more cost effective to invest in the 3rd generation
    technologies, and continue to rely on the shuttle until they are
    available? What cost-benefit studies have you conducted of the trade-
    offs between doing 2nd and 3rd generation programs versus focusing on
    the 3rd generation technologies while continuing to rely on the
    shuttle? Please provide those studies to the committee.
        Answer. The 2nd Generation RLV program is pursuing the development
    of key technologies that are essential for future generations of RLVs.
    Specifically, the 2nd Generation RLV program is maturing technologies
    such as thermal protection systems, avionics, operations, long-life
    engines, and integrated vehicle health management systems. The 3rd
    Generation RLV program relies on these advancements as a foundation in
    its pursuit of breakthrough technologies required to help America
    maintain leadership in space far into the foreseeable future. NASA
    believes the risk associated with achieving 3rd Generation RLV
    technology breakthroughs is currently too high to justify maintaining
    the decades old Shuttle fleet until these breakthroughs occur. NASA's
    ISTP (Integrated Space Transportation Plan) lays out the agency's space
    transportation strategy for improving mission affordability and safety
    over multiple generations of launch vehicles.
        Over the past few months, NASA has conducted a number of reviews to
    assess the Integrated Space Transportation Plan (ISTP), which includes
    the Space Launch Initiative (SLI), the Space Shuttle hardware and
    infrastructure upgrades, and the longer-term 3'd Generation Reusable
    Launch Vehicle Program. The ISTP update has incorporated the ongoing
    reviews of the Space Shuttle Program, and has included an assessment of
    the timetable for a multipurpose vehicle to serve crew transfer and
    crew return functions. The ISTP review will conclude shortly. The
    outcome of the ISTP update will be a roadmap for future investment
    decisions including phasing decisions concerning Shuttle, 2nd
    Generation and 3rd Generation systems.

                                     ______

                 Questions Submitted by Senator Larry E. Craig

                           nuclear systems initiative
        Question. NASA has proposed a new program, the Nuclear Systems
    Initiative, that will spend about $800 million over 5 years to develop
    new space nuclear power systems.
        The funding level in fiscal year 2003 would be about $125 million.
         How would this initial increment of funding be used?
        Answer. This initial increment will fund initiation of the Stirling
    Radioisotope Generator and Multi-Mission Radioisotope Thermoelectric
    Generator development projects; both technologies are under
    consideration for the 2009 Mars Smart Lander/Mobile Laboratory mission.
    In addition, technology research and development for next-generation
    power conversion for radioisotope power systems will be started via
    competitive solicitations.
        In the area of fission electric power and propulsion research and
    development, fiscal year 2003 funding would be used to support four
    principle areas: (1) electric propulsion research and development (via
    competitive selection of several proposed approaches) for electric
    thrusters that are about 10 times more powerful than those that have
    been flown before (e.g. the Deep Space-1 ion electric thruster); (2)
    power conversion research and development (via competitive selection of
    several proposed approaches) for power conversion about 25 times more
    powerful than what has been flown before (e.g. the SNAP-10A power
    conversion system); (3) reactor research to investigate design options
    for a fission reactor capable of supporting a nuclear electric
    propulsion system (which could ultimately be used for expanded
    exploration of the solar system); and (4) mission and spacecraft system
    design studies to enable the selection of the optimal fission power and
    propulsion technologies for expanded solar system exploration.
        Question What will be the division of responsibilities between NASA
    and DOE for this nuclear program?
        Answer. The DOE is responsible for developing all civilian
    technologies directly involving nuclear materials. Therefore, the DOE
    is responsible for Stirling Radioisotope Generator and Multi-Mission
    Radioisotope Thermoelectric Generator development, and for fission
    reactor development.
        NASA is responsible for power conversion and electric propulsion
    research and development, overall spacecraft design and integration,
    mission planning and design, and expanded scientific exploration of the
    solar system using radioisotope and fission power and propulsion
    systems.
        Your testimony makes reference to the Naval Nuclear Propulsion
    program, which has a proud history in the State of Idaho. The Naval
    Reactors Facility in Idaho continues to receive all expended Navy fuel
    cores for examination and storage.
        Question. The Naval Reactors program operates under strict secrecy
    requirements because of national security implications. Will that
    environment of secrecy be a complicating factor in collaboration?
        Answer. Any potential area of coordination or collaboration
    involving the Naval Reactors program must and will attend to national
    security requirements.
        Because the NASA Nuclear Systems Initiative is in the early stage
    of research, NASA and DOE are exploring available technical options to
    assess their applicability to, and utility for, expanding the
    exploration of the solar system using fission power and propulsion. At
    present, it is too early to determine the optimal combination of
    technologies for this task, and therefore too early to determine
    whether Naval Reactors program technologies might be appropriate.
        Question. NASA has traditionally worked with DOE's Office of
    Nuclear Energy on space nuclear applications. Is NASA collaborating
    with DOE-NE on the Nuclear Systems Initiative?
        Answer. DOE has supported NASA for over 30 years to enable solar
    system exploration, including exploration of the outer planets, using
    radioisotope power systems (e.g., radioisotope thermoelectric
    generators, or RTGs). This work has been accomplished by DOE through
    its Office of Nuclear Energy (NE) or its predecessor organizations. DOE
    has identified NE (specifically NE-50) as the lead for radioisotope
    power system development (at present, this includes the Multi-Mission
    Radioisotope Thermoelectric Generator, and Stirling Radioisotope
    Generator). DOE has also identified NE (specifically NE-50) as the lead
    for reactor system development planning.
        We anticipate that our close relationship, built over several
    decades of cooperation, will be a critical factor in the success of the
    Nuclear Systems Initiative.
                                     ______

                   Question Submitted by Senator Ted Stevens

                         gilmore creek tracking station
        Question. With the potential of the Gilmore Creek Tracking Station,
    coupled with the other two facilities, cannot more be done to maintain
    or upgrade our domestic satellite tracking capabilities and not ship
    our Nation's meteorological satellite systems of the Department of
    Defense, Department of Commerce (DOC) and NASA to a foreign country?
        Answer. The Fairbanks, Alaska area hosts many satellite tracking
    stations, including the National Oceanic and Atmospheric Administration
    (NOAA) Tracking Station at Gilmore Creek and the NASA Tracking Station
    hosted on the University of Alaska's Poker Flat research launch range.
    There are commercial Datalynx and Universal Space Net stations, as well
    as a station associated with the Alaska Synthetic Aperture Radar
    Facility on the University campus.
        NASA's Ground Network (GN) is composed of a mix of assets owned by
    NASA and commercial service providers. The capabilities of NASA's and
    associated commercial tracking stations are focused on supporting
    science research missions rather than operational meteorological
    satellites. The locations of NASA's tracking stations are driven by
    mission needs related to on-board satellite data storage capacity, data
    delivery latency, and orbit geometry.
        Concerning the NOAA Fairbanks Command and Data Acquisition station
    (FCDAS) at Gilmore Creek, Alaska, the station is now and will remain an
    important capability to support multi-agency satellite programs.
    Indeed, significant resources have been expended and additional
    investments are planned in the future to maintain and upgrade NOAA's
    FCDAS. A recent upgrade added the NASA Ground System Interface
    Processing facility at Gilmore Creek, which makes the FCDAS a
    telecommunications hub. The new capability sends data collected from
    NASA's Earth Observing System (EOS) satellites to Goddard Space Flight
    Center in Greenbelt, MD. This connects the NASA Poker Flats operations
    to the FCDAS for initial processing of EOS mission data through local
    fiber optic telecom links.
        More broadly, the communications infrastructure in Alaska has
    benefited from approximately $29.5 million in investments in the last 3
    years alone. These include three new 13-meter antenna systems, signal
    and data processing equipment upgrades and control software upgrades.
    The upgrades added new commercial satellite communications systems to
    receive and disseminate mission data to Department of Defense and
    Department of Commerce operational weather users within the continental
    United States.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                               nuclear propulsion
        Question. One of the highlighted programs in this year's submitted
    budget, as well as in your testimony today, concerns research with
    nuclear propulsion. The research necessary to conduct this research may
    be able to be done through collaborative work with other Federal
    agencies. As an example, the DOE labs in New Mexico have extensive
    expertise in fission electric power systems.
        How does NASA intend to ensure that expertise of the national
    laboratories will be strongly incorporated into development of the
    fission electric power systems that will be required by NASA?
        Answer. The majority of this program will be competitively sourced,
    and NASA fully expects that the national laboratories will propose to
    lead or to team with industry for nuclear fission reactor research and
    development.
        Question. Can you explain further where the nearly $1 billion in
    funding comes from and how NASA intends to proceed with research on the
    feasibility and safety of nuclear propulsion in space?
        Answer. The budget for the Nuclear Power and Nuclear Electric
    Propulsion programs represents mostly new funding for NASA. There was
    some rebalancing within the overall Space Science program to cover a
    portion of this initiative; however, no Space Science missions were
    cancelled to pay for this initiative. The nuclear electric propulsion
    portion of this initiative will likely be a research program for the
    near future, leading to engineering test components that could then be
    developed for flight. During this stage, NASA will have the lead for
    non-nuclear portions of the initiative, and will work closely with the
    Department of Energy (who will have the lead for nuclear fission
    reactor research) to research and develop the safe and effective
    propulsion systems we will need to continue our exploration of the
    solar system.
                            management effectiveness
        Question. The Administration in its submitted budget has taken to
    reviewing programs, throughout the Federal Government to see what is
    being done effectively, and what is not. Two of NASA's highest profile
    endeavors, the International Space Station and the Space Shuttle, for
    safety upgrades, were assessed as being ineffective. The Mars
    exploration was given only a moderately effective assessment, with a
    comment that ``recovery from failures successful so far.''
        What will NASA be doing under your leadership to make all of NASA's
    programs more effective, and are these reforms addressed in your
    proposed 2003 budget?
        Answer. The President's Management Agenda is at the center of
    NASA's efforts to make its programs more effective. In pursuit of this
    Agenda, NASA has completed a pilot of its first agency-wide human
    resources tracking system, increased the number of positions that could
    be open to competition by 70 percent over its fiscal year 2000 FAIR Act
    inventory; and developed an interim plan for competing up to 40 percent
    of the positions identified as potentially commercial on its 2000
    inventory. We have aligned our budget structure with program outputs
    and prepared for full cost and performance budgeting in fiscal year
    2004. We will be working this fall with the Office of Management and
    Budget to review four major programs as part of the President's
    Management Agenda in Budget and Performance Integration. Those four
    programs will be the Space Shuttle, Space Station, Space Launch
    Initiative, and the Mars Exploration Program.
        As a major effort at removing internal barriers to program
    effectiveness, NASA has devoted considerable effort to its Freedom to
    Manage tiger teams. At the initiative of NASA staff and leadership,
    numerous personnel authorities previously held at Headquarters have
    been delegated to Center Directors; the number of overlapping Councils
    and Boards has been reduced, and on-going efforts are aimed at
    combining responses to numerous internal and external reviews.
        The major management reforms being undertaken at NASA, such as
    greater use of human resources flexibilities, competitive sourcing, e-
    government initiatives, full cost accounting, and integrated financial
    management, are designed to create a more efficient and productive
    agency. This is accomplished by creating greater cost transparency
    across the agency, lowering the transaction costs involved in
    maintaining a competitive, diverse work force, and improving
    productivity in creating more scientific and technological results and
    research opportunities in line with NASA's Vision and Mission.
                      attracting and retaining scientists
        Question. Many agencies within the Federal Government are going to
    see large amounts of employees retiring from Federal service in the
    next decade. There has also been difficulty within the Federal
    Government to keep and attract scientists and employees with high
    technical skills.
        The National Space Grant College and Fellowship program is one of
    the tools at NASA's disposal to help promote research at the
    undergraduate and graduate education levels. This program is funded in
    the President's request at $19.1 million. (The New Mexico Consortium is
    ranked 8th in funding out of the 52 consortia nationwide.)
        How is NASA working to keep its scientists at NASA, as well as
    working to attract new scientific talent to come work for NASA?
        Answer. NASA reduced its civil servant workforce during the 1990's.
    This reduction along with little turnover in the scientist occupations
    has significantly compounded the phenomenon of the ``aging'' NASA S&E
    workforce. As these men and women choose to draw their successful and
    productive careers to an end, NASA may experience a serious loss in
    scientific competencies in addition to existing skills imbalances.
    While NASA does, and will continue to, take advantage of existing human
    resource flexibilities to recruit and retain needed talent, the current
    retention incentives are not always adequate to retain employees with
    critical skills. NASA is emphasizing strategic recruitment initiatives
    and creating long-term ``pipeline'' interest in scientific and
    engineering occupations to address skills imbalances.
        Our recruitment strategy to increase interest in NASA jobs includes
    personal networking and extensive networking with professional
    associations and universities to increase awareness in interested
    individuals of our NASA employment opportunities. As you mention, we do
    have access to some of the leading scientists through our promotion of
    research at the undergraduate and graduate education levels. We plan to
    aggressively leverage our alliances by networking with principal
    investigators at these colleges and universities to ensure that we have
    access to the students who are working on projects through our research
    and grant programs.
        We have identified scientific professional associations and
    established internet links on these associations' and universities'
    website to our NASAJobs web site (http://www.nasajobs.nasa.gov/).
    Adding instant access to NASAJobs from these websites will increase the
    level of awareness of NASA employment opportunities in the scientific
    community and will also serve as a catalyst to increase the number of
    highly qualified scientists who apply for our vacancies.
        NASA uses all available and appropriate financial incentives to
    make competitive job offers, including recruitment bonuses, salaries
    above the minimum rate of the grade, and repayment of federally insured
    student loans. In offering jobs, we emphasize the entire Federal
    package since our retirement, health, leave, and life insurance
    programs are competitive with those offered by many private sector
    companies. We also emphasize the other benefits we can offer, such as
    flexible work schedules, family friendly programs, professional
    development opportunities, and tuition support.
        But the currently available tools are no longer enough. We are
    faced with the convergence of several trends: a decrease in the number
    of students entering the scientific and engineering fields, an increase
    in competition for the S&E graduates from both the traditional
    aeronautics private sector and new, non-aeronautics business sectors
    (e.g., banking, entertainment) and the upcoming retirement wave
    mentioned earlier. NASA is finding it increasingly difficult to attract
    and retain the best and brightest S&E talent.
        NASA needs more tools to enhance our current efforts and
    initiatives to reshape and reconfigure our workforce. For example, we
    need streamlined and flexible recruitment and employment processes,
    recruitment and retention incentives that are flexible and meaningful
    to ``fresh out'' and mid-level employees, and a position classification
    and compensation system that is market sensitive and rewards
    performance. We also need voluntary separation and early retirement
    incentives not tied to a reduction in the workforce, but to reshape the
    workforce; that is, to reallocate the slots to areas where they are
    needed.
        These tools are critical for NASA to compete successfully for
    scientific talent in this increasingly competitive marketplace, and
    they require legislation. For these reasons NASA earlier this year
    submitted a series of legislative proposals to Congress and is working
    with its oversight committees to secure their enactment.

                              SUBCOMMITTEE RECESS

        Senator Mikulski. The subcommittee stands in recess until
    next Wednesday, May 8, on which we will be taking testimony
    from FEMA.
        Mr. O'Keefe. Thank you, Madam Chair. I appreciate your
    courtesy.
        Senator Mikulski. Thank you.
        [Whereupon, at 11:38 a.m., Wednesday, May 1, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                             WEDNESDAY, MAY 8, 2002

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:35 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Barbara A. Mikulski (chairman)
    presiding.
        Present: Senators Mikulski, Kohl, Johnson, Bond, Shelby,
    Craig, Domenici, and Stevens.

                      FEDERAL EMERGENCY MANAGEMENT AGENCY

    STATEMENT OF JOE M. ALLBAUGH, DIRECTOR
    ACCOMPANIED BY GEORGE OPFER, INSPECTOR GENERAL

                OPENING STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Good morning, everybody. The subcommittee
    of VA-HUD will come to order. This morning we are going to take
    the testimony of Mr. Joe Allbaugh, the very able director of
    FEMA, and we have many issues to talk about. First of all, we
    want to acknowledge the tremendous role that FEMA has done in
    the last fiscal year. Who knew what was going to happen to our
    communities and to the United States of America. We know that
    FEMA has responded to over 50 disaster declarations that have
    ranged from the aerial terrorist attack on the United States of
    America to a tornado in my own State.
        We want to hear from the director of FEMA on what we can do
    to be able to help FEMA continue to be first responders,
    through prevention, readiness, response and recovery, we can
    save lives, save jobs, and save our community.
        Speaking as the Senator from Maryland, last week we were
    once again reminded how important FEMA is to our country. An F4
    tornado swept through three counties, Calvert, Charles and
    Dorchester hitting a number of our communities now called La
    Plata. I visited La Plata with my senior Senator and I will
    never forget what I saw, destruction and devastation. As I
    walked down St. Mary's Avenue, we saw the courthouse and across
    from that we saw Delegate Van Mitchell's Value City business
    just absolutely destroyed. Residential areas and parks
    devastated, local banks destroyed. The Catholic church and
    Catholic school and other churches, other schools and as the
    Senator from Maryland I am going to do everything I can to help
    those communities rebuild and recover.
        The people of Charles, Calvert and Dorchester County should
    know I am on their side as the Senator for Maryland. I am
    making sure the Federal Government is an active part in the
    rebuilding efforts. I talked to the county officials and all of
    the counties to hear directly from them about their needs.
    Today I want to thank President Bush for his very swift
    response to this tragedy. He signed a disaster declaration
    within 24 hours. We want to thank the President. Mr. Allbaugh,
    we want to thank you and the very able FEMA team that rushed to
    the aid of our State and local government. FEMA's role really
    shows that they can count on FEMA.
        This morning I want to go over some of the issues involved
    with that and I am going to hear from him what the people are
    doing, how the families need to connect to FEMA to get help.
    What actions they can expect in short term and long term and
    what can we do to start looking at recovery. As I visited La
    Plata, I was once again struck by the heroism of our first
    responders. Throughout southern Maryland, police, fire and
    emergency workers risked their lives to save others. It is so
    clear that we need to continue to support our first responders.
    That is why I am going to do everything I can to provide the
    $900 million for the program to give our firefighters the best
    equipment and training. We have to look at how we are going to
    spend the money.
        We also, I think, need to be really committed to make sure
    our first responders are all hazards, again whether it is a
    terrorist attack or tornado, whether chemical incident, our
    responders need to be ready. I am concerned that as we provide
    more resources to fight the war on terror, we make sure that we
    reinforce FEMA's role also in natural disasters.
        Fifty disasters, not including September 11. It is amazing.
    We want to hear what you do, what we need for your team and for
    those at the local levels so that we are getting double value
    for our taxpayers' dollars by being ready for all hazards, both
    natural disasters and other attacks. We want to hear about
    State preparedness as well. We also want to hear about your new
    thinking on hazard mitigation. Of course, there is the issue of
    flood modernization because so many Americans are hit by
    floods. Just over this weekend in West Virginia and once again
    FEMA had to respond, and I know you are very interested in
    flood insurance. Issues we need to talk about in the beginning
    of the year and that, of course, FEMA has been a partner in the
    emergency food and shelter program which gives FEMA really high
    marks for this program. So Mr. Allbaugh, we really want to
    thank you for the job that you have been doing in keeping up
    the spirit of reform that was started many years ago in both
    reform and at the same time response. So we look forward to
    hearing what you need and how we can show that by helping you
    we are helping the American people. Senator Bond, do you wish
    to have an opening statement?

                    STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. I certainly do, madam chair. Thank you very
    much and my welcome to Director Allbaugh as well. We have had
    the pleasure of hearing the director testify on several
    occasions this year regarding the President's proposal on
    homeland security, and making FEMA the primary Federal domestic
    agency. That is an important area, one that we are going to
    have to address, but this is an important opportunity to focus
    on the needs for FEMA in carrying out its more traditional and
    primary responsibility in responding to natural disasters.
        As we all know, since its founding in 1979, FEMA has been
    the backbone of the Federal response to all types of hazards
    through a comprehensive emergency management program of
    mitigation, preparedness, response, and recovery. An area of
    responsibility for FEMA that has not been discussed this year
    as it has been overshadowed by the tragedy and horrific
    terrorist events of September 11 and FEMA's new efforts in
    developing a comprehensive homeland security strategy.
        I believe generally that FEMA has been doing a very good
    job in responding to the needs of States and localities, as
    well as our citizens in harm's way. I know Senator Mikulski has
    been very much involved and concerned as we all have been about
    the swath of damage and death left by tornados in La Plata and
    others. Those of us who see those tornados frequently know the
    extent and the scope of the damage they can cause. Missouri
    also has not had a good spring, ice storms in Kansas City late
    January and February and more recently, severe storms and
    tornados that struck Bollinger, Butler, Carter, Howell and
    Madison Counties in late April.
        We lost a 12-year-old boy from Marble Hill in those storms,
    but the tragedy simply reinforced FEMA's ability to respond
    quickly to national disasters. I have just been handed an
    article in today's Cape Gerardo Southeast Missourian saying
    Tornado Victims Have Trouble with Federal Aid. While others are
    speaking, I am going to see what the problems are in Southeast
    Missouri and I will share that with you later. But we do
    appreciate the response of FEMA.
        Nevertheless, a lot needs to be done as the chair has
    already mentioned and that includes improving accountability
    for disaster relief expenditures, revamping the flood insurance
    program, streamlining disaster field operations and improving
    the management of mitigation programs. FEMA is also proposing a
    number of controversial reforms to the flood insurance program,
    as well as a controversial new program for funding disaster
    mitigation efforts that would replace several current
    successful mitigation funding approaches. I guess you thought
    we weren't paying attention. We are.
        But I look forward to working with the chair, members of
    the subcommittee and FEMA on these important issues, but
    effective implementation, accountability with respect to the
    disaster relief program and the flood insurance program are my
    key priorities. They become even more important as we begin to
    face a series of natural tornados throughout the Nation that we
    have already discussed, and FEMA is already responding to major
    disasters in 11 States. The year is still young. We want to
    make sure that you have adequate resources to respond to what
    nature does to us as well as the other problems we may have.
        I would also ask that FEMA work closely with your FEMA
    Inspector General. As I noted the appropriate expenditure of
    FEMA funds accountability is key to FEMA's credibility and
    effectiveness. And in particular, the Federal Government and
    FEMA are dealing with really huge sums of money as we try to
    rebuild the New York City portions destroyed on September 11.
    There is great pressure to get FEMA money funds out quickly,
    however, we have seen in the past that quick sometimes means
    sloppy, and can result in excessive expenditures of tax
    dollars. They say we need to do it right, and I think FEMA can
    help make sure it is done right and I think the same is true as
    FEMA winds down to Cerro Grande office in New Mexico. A lot of
    it has gone up as the system, an appropriate system, has been
    in place to make sure that the people who need it got it and
    others did not.
        I also want to make sure that FEMA is not strapped with so
    many responsibilities that it cannot meet its primary mission
    in responding to disasters. There has been so much focus on
    homeland security and more recently on related new proposals
    such as the CitizenCorps that I am concerned that FEMA's
    disaster relief responsibilities may be forced to a back seat
    to homeland security issues.
        We need to ensure that FEMA is capable and committed to
    meeting all of its responsibilities. FEMA needs to be balanced
    in how it meets them. I know we on this subcommittee will want
    to ensure that you, your staff had the funding and the
    capabilities to meet whatever responsibilities are placed in
    your portfolio. Thank you, madam chair.
        Senator Mikulski. Senator Stevens? As a courtesy?
        Senator Stevens. Thank you very much. I have no statement.
        Senator Mikulski. Senator Shelby?

                     STATEMENT OF SENATOR RICHARD C. SHELBY

        Senator Shelby. Madam Chairman, Thank you, I would like to
    welcome Mr. Allbaugh to the committee. We had a nice
    conversation about a lot of issues that I will bring up with
    him in a few minutes publicly. We welcome you and look forward
    to your testimony.
        Senator Mikulski. Mr. Allbaugh, why don't you proceed to
    address the committee.
        Mr. Allbaugh. Thank you Madam Chairwoman, Senators Bond,
    Shelby, Stevens. It is an honor to be before this committee
    primarily because you have been strong supporters of our agency
    over the years. I am pleased to come here today to talk about
    three particular priorities. I have submitted for the record a
    written statement and I will just take a few minutes, Madam
    Chairman.
        Senator Mikulski. Without objection.
        Mr. Allbaugh. I will talk about three priorities in our
    budget that deal first with FEMA and homeland security and part
    of that is driven by our new responsibilities, visibility and
    scope that has grown since 9-11. Two primary areas in homeland
    security. The first responder initiative that the President has
    talked so much about as well as myself and our new
    responsibility for our Office of National Preparedness.
    Management in the First Responder initiative will capitalize on
    FEMA's great ability to expedite grant money out the door to
    those who actually need it.

                           FIRST RESPONDER INITIATIVE

        First, let me speak about the First Responder initiative.
    $3.5 billion for planning, training, equipment and exercising
    will focus on two particular areas within that.
    Interoperability, both of individuals and communities. I
    witnessed as you may have heard me say before individuals in
    New York City passing notes back and forth, communications was
    a disaster in and of itself. When it comes to personnel,
    oftentimes individuals show up at a disaster who are not
    properly trained, and put into harm's way, and thus putting
    additional lives in jeopardy.
        Second to that, is planning. We do not provide enough
    assistance, in my opinion, for States and the local level in
    the area of planning and exercise. We want to improve our intra
    and interstate mutual aid agreements, which means that we need
    to do a certain amount of resource typing. When one county
    across the State calls for assistance from another county 100
    miles away, we need to ensure that the assets that they are
    calling for are exactly what they need and everyone understands
    that.
        I hope that the $3.5 billion will be a down payment for
    years to come. There is no way, in one budgetary year, that we
    can address all of the needs. And I know you all feel the same
    way, quite frankly. This is a problem nationwide trying to
    improve our infrastructure. $175 million in the supplemental,
    which I will talk about in a minute, will be 100 percent money
    to the States this year. From the $3.5 billion, we want to give
    all States $5 million and distribute the remainder based on a
    population formula.
        Our supplemental funding request is critical, so that
    States and communities can start to develop their plans now. We
    will distribute the money down to the local level, but at the
    same time, our Office of National Preparedness will be charged
    with developing national standards to use that money. We
    desperately need national standards. The central role of the
    Office of National Preparedness is to be the focal point for
    coordination for all Federal response activities.
        In addition to developing those standards, will deal again
    with equipment standards, interoperability, training standards.
    We want to make sure that everyone knows the capabilities of
    their neighboring responders and again to re-emphasize the
    importance of mutual aid agreements.

                                  ODP TRANSFER

        Let me speak for a minute about the transfer that the
    President has proposed from ODP to Justice to FEMA. It makes
    sense. One, as I said earlier FEMA has a great history of grant
    management. Last year alone we did $3.5 billion in grants. We
    are on our way to $8 billion currently. We also want to
    eliminate the redundancy in our Federal training programs. The
    recipients of these training programs across the country are
    the State and local individuals who are the first responders. I
    want to make sure that there is uniformity in our training.
        And lastly, I want to build upon the positive relationship
    with our first responder community. Let me say, as a couple of
    members have already addressed, that our new responsibilities,
    our enhanced responsibilities, will not compromise our
    responsibilities in natural disaster response management. That
    is one of our core responsibilities. I know everyone is focused
    on weapons of mass destruction, terrorism preparation, training
    since 9-11, but at the same time, we have responded just since
    Sunday evening, five disasters. Our core responsibility will
    not fall away, which brings me to point number two of our
    priorities.

                            PRE-DISASTER MITIGATION

        It is the hazard mitigation grant program. The President
    wisely has suggested in his 2003 budget for FEMA a new program
    which will amount to $300 million in the first year, a
    predisaster grant process. We want to be able to help
    communities who have identified their risk before a disaster
    hits. Right now, communities identify their risk and they sit
    on the shelf at city hall until the disaster happens and we can
    come in with post disaster mitigation. I want to make sure, as
    the President does, that we can address these risks up front
    prior to a disaster and at the same time keep our post disaster
    mitigation intact. And this will require us, which we are in
    the process of developing a competitive grant process as I said
    to take effect before, any disaster that takes place. The third
    component and third priority of our budget this year is another
    mitigation program that the President requests.

                            FLOOD MAP MODERNIZATION

        It is our flood map modernization project. Everywhere I go,
    everyone, members in both houses, members from State
    legislatures across the country, mayors, city council members,
    all are asking about flood mapping. And quite frankly to solve
    the problem it is a matter of money. We have historically been
    given $5 to $15 million annually to address a billion dollar
    problem. I think the President has wisely stepped forward,
    stepped up to the plate, and asked the Congress for $300
    million to update and digitize our current flood mapping
    problem.
        We can address this in a 3-year program to improve these
    maps, and they are absolutely essential for better planning for
    these communities and again identifying those risks up front.
    The 3-year program at $300 million a year will essentially wipe
    out our current backlog of flood mapping.

                       SUPPLEMENTAL APPROPRIATION REQUEST

        Finally, let me take a moment to highlight FEMA's portion
    of the supplemental appropriation request. The request totals
    were $3.07 billion, $2.75 billion of which is requested for
    further World Trade Center relief efforts, focusing on public
    infrastructure. The other $326 million for planning and
    assistance are broken down in the following ways. $175 million
    for planning to first responders, $56 million for State and
    local planning for emergency operations centers, $50 million
    for Citizen Corps and $32.4 million for weapons of mass
    destruction training, for the balance of our urban search and
    rescue teams. As you know we only have six of our 28 USAR teams
    that are WMD trained. I think it is inexcusable for our agency
    not to go forward and fund the rest of the teams, the other 22
    teams, to make sure that they are WMD trained and qualified. We
    need to be prepared. We never know when an incident is going to
    be taking place, and it is important that all 28 teams are
    trained to the same standard.

                                 THE FEMA TEAM

        Those basically complete my, conclude my oral remarks. I
    want the members to know that it is an extreme honor and
    privilege for me to serve our President, to serve our country,
    to be a part of a great FEMA team.
        I am not the one that makes this thing work. It is the long
    hours, the sweat, the toil, the sacrifices that FEMA employees
    make, not only the full-time employees, but the disaster
    assistance employees who are at each one of our open disasters
    right now across the Nation and they number about 5,000 that we
    have the ability to draw from. This is a tremendous
    responsibility. It is our core mission and I am honored to be
    in this position for a short period of time and I thank you for
    the opportunity to be here today.
        [The statement follows:]

                     Prepared Statement of Joe M. Allbaugh

                          introduction and background
        Good morning Madam Chair, Senator Bond, and members of the
    subcommittee. I am Joe Allbaugh, Director of the Federal Emergency
    Management Agency (FEMA). Thank you for the opportunity to brief you
    today on FEMA's budget proposal for fiscal year 2003.
        FEMA is the Federal Agency responsible for coordinating our
    nation's efforts to mitigate against, prepare for, respond to and
    recover from all hazards. Our success depends on our ability to
    organize and lead a community of local, State, and Federal agencies,
    volunteer organizations, private sector entities and the first
    responder community. We know whom to bring to the table when preparing
    for a disaster and when a disaster strikes in order to ensure the most
    effective management of the response and recovery effort. We provide
    management expertise and financial resources to help State and local
    governments when they are overwhelmed by disasters.
        When I say ``we'' do that I'm talking, of course, of FEMA. FEMA has
    a lot of Cal Ripkens; the folks that come to work each day and do their
    job with skill and grace. I depend on those staff for their counsel and
    advice due to the experience and perspective they possess.
        But I am also referring to this Committee that has provided us so
    much support, and the resources we need to do our job. You have a great
    amount of experience--you have seen FEMA through the rough times and
    the good times. In fact, a lot of those good times were partly a result
    of your efforts, so I want to acknowledge that help and express the
    thanks of our staff for that steady support.
        As I explained, we don't profess expertise in every subject area,
    but we do know whom to bring to the table. The best example of this
    convening process is the Federal Response Plan (FRP). The FRP forms the
    heart of our management framework and lays out the process by which
    interagency groups work together to respond as a cohesive team to all
    types of disasters. This team is made up of 26 Federal departments and
    agencies, and the American Red Cross, and is organized into 12
    emergency support functions based on the authorities and expertise of
    the members and the needs of our counterparts at the State and local
    level.
        Since 1992, in all manner of horrific natural disasters like the
    Northridge Earthquake and Hurricane Floyd and also in response to the
    Oklahoma City bombing and the terrorist attacks of September 11, 2001,
    the FRP has proven to be an effective and efficient framework for
    managing all phases of disasters and emergencies. The FRP is successful
    because it builds upon existing professional disciplines, expertise,
    delivery systems, and relationships among the participating agencies.
    FEMA has strong ties to the emergency management organizations--fire
    service, law enforcement and emergency medical communities--and we
    routinely plan, train, exercise, and operate together to remain
    prepared to respond and recover from all types of disasters.
                            fiscal year 2003 request
        First, I will outline our 2003 request. Then, after I've completed
    that review, I will explain our recent request for emergency
    supplemental funding for this fiscal year.
        As you are aware, FEMA's budget request is for appropriations
    totaling $6.44 billion. A significant increase from the 2002 budget,
    the bulk of this funding is requested to dramatically enhance the
    homeland security preparedness capabilities of our nation's first
    responders. In addition, this budget will fully fund FEMA's core
    operations for responding to disasters and continues to emphasize
    empowerment and personal responsibility as they pertain to disaster
    preparedness and mitigation.
           national preparedness--homeland security responsibilities
        The President has requested that FEMA receive $3.5 billion to
    administer a major component of the Homeland Security efforts--the
    First Responder Initiative. Grants based on this initiative will give
    the first responder community--firefighters, police officers, and
    emergency medical personnel--critically needed funds to purchase
    equipment, train their personnel and prepare for a Weapons of Mass
    Destruction (WMD)/terrorist incident. The Office of National
    Preparedness (ONP) within FEMA will be responsible for administering
    these First Responder grants.
        Following the events of September 11, and in light of the funding
    this Committee approved as part of the December 2001 Emergency
    Supplemental, FEMA has staffed up and refined the mission and functions
    of the ONP to fully support the budget initiatives of the President.
        Some of the goals established by ONP for the First Responder
    Initiative are as follows:
      --Giving the first responder community critically needed funds to
            purchase equipment, train their personnel and plan;
      --Provide states and localities with the proper balance of guidance
            and flexibility so that the funds are used in the local areas
            where they are needed most;
      --Establish a consolidated, simple, and quick method for disbursing
            federal assistance to states and localities;
      --Foster mutual aid across the nation so that the entire local,
            state, federal and volunteer network can operate together
            seamlessly;
      --Create an evaluation process to make sure that all programs are
            producing results and to direct the allocation of future
            resources, and;
      --Involve all Americans in programs to make their homes, communities,
            states and nation safer and stronger.
        ONP will first concentrate on developing a streamlined mechanism
    designed to speed the flow of resources to the States and localities.
    The $3.5 billion will be used to sustain the first responder activities
    with a special focus on the following areas:
      --Planning.--Support state and local governments in developing
            comprehensive plans to prepare for and respond to a terrorist
            attack;
      --Equipment.--Allow State and local first responder agencies to
            purchase a wide range of equipment needed to respond
            effectively to a terrorist attack, including personal
            protective equipment, chemical and biological detection
            systems, and interoperable communications gear;
      --Training.--Train firefighters, police officers, and emergency
            medical technicians to respond and operate in a chemical or
            biological environment;
      --Exercises.--Support a coordinated, regular exercise program to
            improve response capabilities, practice mutual aid, and assess
            operational improvements and deficiencies.
        We fully intend to keep the focus of this program at the State and
    local level. The program will be run through and coordinated by the
    States. States will be allowed to use up to 25 percent of the funds,
    with at least 75 percent of the funds distributed to local
    jurisdictions.
        But we will also insist on the funds being based on comprehensive
    planning. As a condition of receiving these grants, States will receive
    plans from local jurisdictions, submit their own plans, and allocate
    funding based on locally driven needs identified through various
    assessments. The funding will have a matching requirement, and in-kind
    matches will be allowable. This match can be part of the money that
    States have spent to secure a facility for training, or the costs that
    have been incurred paying overtime to employees who are providing
    coverage for other employees participating in exercises or training.
        The final component we will insist on at all levels--from FEMA to
    the State to the local governments--is full accountability. We must
    maintain the confidence of our citizens that the funds are being used
    swiftly but wisely to provide increased protection for our nation.
            transfer of the office for domestic preparedness to fema
        Of the $3.5 billion funding request, $235 million represents the
    President's request that the Office for Domestic Preparedness (ODP) be
    transferred from the Department of Justice to FEMA. With this proposal
    the President has shown true leadership in his willingness to address a
    long-standing problem--the need for central coordination among the
    myriad Federal programs dealing with terrorism preparedness.
        Some forty Federal Departments and Agencies have been involved in
    the overall effort to build the national capability for preparedness
    and response to the consequences of terrorist incidents. Many of these
    activities have been primarily focused on the development or
    enhancement of Federal capabilities to deal with terrorist incidents,
    including plans, personnel and physical security upgrades, and
    specialized resources such as protection and detection technology and
    response teams. Other Federal programs and activities are focused on
    building the local and State first responder and emergency management
    capabilities, to include the provision of resources and funding to
    support planning, training, exercises and equipment acquisition.
        Various independent studies and commissions have recognized the
    problems inherent in this uncoordinated approach. Recommendations by
    the Gilmore Commission, for example, stress the importance of giving
    states and first responders a single point of contact for Federal
    assistance for training, exercises and equipment.
        At the request of the Appropriations Committees we recently
    completed an ``Assessment of Federal Terrorism Preparedness Training''
    report that we transmitted to the Committees last month. The study
    found that Federal training is generally effective, but that it is also
    fragmented and, in some instances, redundant. State and local officials
    continue to be frustrated by the lack of a single coordinating point
    through which they can obtain the needed training.
        In the post-9/11 environment, we can ill afford to wage turf
    battles that in effect protect the inefficiencies of the status quo. We
    must instead focus on the merits of a proposal that seeks to address
    duplication, shore up gaps, eliminate confusion and reduce
    complication. As the attacks of September 11 have drawn much comparison
    to the attacks of December 7, 1941, there is a forward to a book about
    Pearl Harbor that has been brought to my attention that speaks of the
    worst-case scenario in a government's preparation and response:

        ``Surprise, when it happens to a government, is likely to be a
    complicated, diffuse, bureaucratic thing. It includes neglect of
    responsibility but also responsibility so poorly defined or so
    ambiguously delegated that action gets lost . . .
        ``. . . It includes the contingencies that occur to no one, but
    also those that everyone assumes somebody else is taking care of. It
    includes straightforward procrastination, but also decisions protracted
    by internal disagreement. It includes, in addition, the inability of
    individual human beings to rise to the occasion until they are sure it
    is the occasion--which is usually too late,'' (Thomas Schelling,
    forward to Roberta Wohlstetter's Pearl Harbor: Warning and Decision).

        FEMA's core responsibilities are its all-hazard emergency
    management activities involving preparedness, response, recovery and
    mitigation. FEMA's involvement in terrorism preparedness and response
    is based on statutory authorities, executive orders, and Presidential
    Decision Directives (PDDs). As the designated lead agency for
    consequence management, FEMA coordinates Federal disaster and emergency
    assistance programs and activities to support state and local
    governments in their preparedness and response efforts.
        FEMA's role in planning for the response to and the recovery from
    any type of disaster or emergency, including WMD/terrorist incidents,
    is clear under the authority granted by the Robert T. Stafford Disaster
    Relief and Emergency Assistance Act. Also clear is the fact that FEMA
    is the lead Federal entity empowered by statute and executive direction
    to facilitate and oversee the implementation of the national
    preparedness effort as it applies to consequence management. This
    includes the responsibility for ensuring that a coordinated and
    comprehensive emergency preparedness and response capability exists
    among Federal, State, and local governments for dealing with all
    hazards, natural and man-made.
        Lest there be any question about FEMA's commitment to our
    communities or our ability to live up to the mission of ONP, we have
    available upon request a chart that documents FEMA's long and
    successful record of distributing grant monies to States and local
    jurisdictions. Indeed, that track record and the relationships our
    people have made with local communities around the country have made
    FEMA the first federal point-of-contact for local First Responders for
    many years.
                                 citizen corps
        In order to help Americans strengthen their communities, President
    Bush tasked FEMA with overseeing the Citizen Corps. This initiative is
    part of the overall effort of Freedom Corps, whose mission is to assist
    individuals and communities with implementing Homeland Security
    Programs in their areas.
        Since September 11, 2001, Americans are more aware than ever of the
    threat of terrorist acts on home soil. In the days following the
    attacks we saw immediate and selfless volunteering, generous monetary
    gifts, blood donations, and an outpouring of support and patriotism
    across America. The President has understood the need for people to be
    involved, to feel that they are making a contribution toward the health
    and safety of their communities. Citizen Corps taps into those civic
    desires through the organization and coordination of a lot of ongoing
    efforts across the nation. Sustaining that spirit of volunteerism and
    unity is crucial to defending the homeland.
        FEMA expects that $230 million will be needed to help with the
    Citizen Corps initiative. This broad network of volunteer efforts will
    harness the power of the American people by relying on their individual
    skills and interests to prepare local communities to effectively
    prevent and respond to the threats of terrorism, crime, or any kind of
    disaster.
        The Citizen Corps will build upon existing crime prevention,
    natural disaster preparedness, and public health response networks. The
    Citizen Corps will initially consist of participants in the following
    five programs:
      --the Volunteers in Police Service Program--this unique program
            provides volunteer support for law enforcement by tapping
            volunteers to perform administrative and non-intervention
            policing activities to free up officers to be out in the
            community;
      --an expanded Neighborhood Watch Program--will incorporate terrorism
            prevention and education into its existing crime prevention
            mission;
      --the Medical Reserve Corps--currently practicing and retired health
            care professionals will augment emergency medical response
            resources during large-scale emergencies. These volunteers can
            also support non-emergency public health needs of the community
            throughout the year;
      --Community Emergency Response Teams (CERT)--the CERT program trains
            individuals in emergency preparedness and basic response
            techniques to enable them to take a more active role in
            personal and public safety; and
      --Operation TIPS--the Terrorist Information and Prevention System,
            will tap millions of workers who, by the nature of their jobs,
            are well-positioned to serve as eyes and ears for law
            enforcement. Operation TIPS will provide them with a toll free
            number to report suspicious activity to the nearest FBI field
            office.
        FEMA has the responsibility for approving additional programs to be
    affiliated with Citizen Corps in the future. We will call upon our
    communities to employ their creativity and inventiveness to develop
    other programs that will encompass the needs of the community and
    encourage more people to be involved.
        Finally, the Citizen Corps will bring together local government,
    law enforcement, educational institutions, the private sector, faith-
    based groups and volunteers into a cohesive community resource. The
    Federal role is to provide general information, to develop training
    standards and materials, and to identify volunteer programs and
    initiatives that support the goals of the Citizen Corps.
                          the u.s. fire administration
        The U.S. Fire Administration (USFA) provides a unique focus on fire
    programs within the Federal Government. These programs are included in
    the Agency's mission-related preparedness and mitigation strategies.
        The Assistance to Firefighters Grant Program remains an important
    element in supporting the most pressing needs of at risk communities
    and fire service providers in reducing the loss of life and property
    from fire, including loss of life and injury to firefighters. As a
    result of the last year's appropriations, the Grant Program has
    received $150 million that must be obligated by September 30 of the
    current fiscal year and an additional $210 million received in last
    December's Emergency Supplemental that is expendable until September
    30, 2003. We expect most of the supplemental appropriation will be
    obligated in fiscal year 2002 with almost all of the remainder
    obligated in the first quarter of fiscal year 2003.
        I have confidence that we can do that, and that confidence is based
    on our experience last year. In less than a year the USFA, with a lot
    of dedicated work from other parts of FEMA, especially Financial
    Management, was able to get out $100 million in grant funds to more
    than 1,800 communities. This was a cooperative effort not only within
    FEMA but also with the Fire Service organizations that volunteered
    their expertise to make our peer review panels just that; the work of
    true peers that understand fire fighting issues and needs. So I'm
    pleased to take on this challenge again this year.
        The fire fighters obviously were heroes on September 11, that's a
    given. But we need to remember that they are heroes every day of the
    year in towns large and small across the country. So we at FEMA are
    particularly proud to administer programs that help them to carry out
    their jobs.
        Our nation's firefighters will continue to bear an increasing
    portion of the burden for Homeland Defense, responding to a variety of
    emergent issues including terrorism. I would like to again thank the
    Subcommittee for all of the support they have given to the fire
    community over the last few years.
        While FEMA's role in Homeland Security is expanding, we will
    continue to meet our core functions of natural disaster response and
    mitigation. I would like to touch upon just a few of our major funding
    requests in our other program areas.
                          flood map modernization fund
        FEMA's 2003 request includes $300 million in new discretionary
    appropriations for our Flood Map Modernization Fund and $51 million
    from the federal policy fee for a total appropriation of $351 million.
        Since the late 1960's, the Federal Government has produced flood
    maps for over 19,000 communities. The maps and flood data are used an
    estimated 20 million times a year by communities, lenders, insurance
    agents, and many others to make critical decisions on where to build,
    where insurance is required, and what is the appropriate premium to
    pay. Two-thirds of these maps are over 10-years old, and many do not
    reflect the change in risk that has occurred due to increased
    development. Nearly all of the maps have out-dated streets that make it
    difficult to accurately determine if a property is located in the most
    risky flood zones. Furthermore, there are 2,700 flood-prone communities
    that have never been mapped. This adversely affects the ability of
    communities to guide new development away from flood risks, impacts the
    ability of the National Flood Insurance Program to collect appropriate
    premiums to pay flood claims, and the Federal government is forced to
    pay more in disaster assistance. It is estimated that some $800 million
    in new funding is needed to fully update and modernize the maps. It is
    conservatively estimated that benefits exceed cost by a factor of two,
    and over the next fifty years, the savings will amount to $26 billion.
        FEMA has reengineered the way we make maps with increased focus on
    technology, such as GIS, exciting new remote sensing techniques, and
    the opportunities for Internet distribution that will reduce costs. In
    addition, FEMA has established the Cooperating Technical Partner
    initiative, a program that brings together other Federal, state, and
    local governmental agencies into long-term partnerships to actively
    participate in the re-mapping process, and to share in the cost. This
    partnership is essential. These are not just FEMA maps, they need to
    belong to the communities. Through this partnership communities will
    take on ownership of these maps, both in their quality and in their
    responsibility to reflect the risks outlined in the maps when they go
    about their planning and policy-making at the local level.
        In my 12 months as Director of FEMA, I have not come across many
    who disagree with the map modernization initiative, and I have heard
    from environmentalists, homebuilders, realtors, lenders, insurance
    companies, engineers, planners, surveyors, and numerous organizations
    representing state and local governments. Each year that implementation
    is delayed, the cost of the plan, and the cost to the Nation,
    increases.
        The result of getting this funding will be greater reliability and
    accessibility for State Emergency Managers, local planners, and
    developers alike. It's a win-win investment situation, and again, I
    thank you for your help on this issue.
                   new pre-disaster mitigation grant program
        The fiscal year 2003 budget proposal includes $300 million in no-
    year monies under the National Pre-Disaster Mitigation Fund to initiate
    a shift from a post-disaster grant system to a pre-disaster,
    competitive grant process. These changes will in no way limit FEMA's
    basic Disaster Relief efforts--as always, when tragedy strikes, we will
    be there. However, I also believe we must refocus our efforts to save
    lives, protect property, and, over the long term, increase overall
    Federal assistance for local communities.
        The proposed program creates a separate funding source for pre-
    disaster mitigation and continues to support the goals of the Disaster
    Mitigation Act of 2000 (DMA2K). DMA 2000 provides a real incentive for
    communities to assess their risks, evaluate their vulnerabilities, and
    incorporate an action plan into the ongoing planning processes that
    many jurisdictions undertake already. With the recognition of the
    importance of mitigation planning, many communities are better
    positioned to develop cost-effective proposals for mitigation projects
    and activities.
        An annual grant program that provides a consistent source of
    funding would allow States and communities to develop more
    comprehensive proposals and projects to reduce their overall risks.
    Communities would no longer be dependent on a disaster declaration in
    order to obtain a FEMA grant to help protect their constituents.
        Specifically, the proposal calls for the grants to be awarded on a
    competitive basis. This will help to ensure that the most worthwhile,
    cost-beneficial projects receive funding. In addition, grants will be
    made without reference to State allocations, quotas or other formula-
    based allocation of funds.
        The goal is to fund activities that will reduce the risks of future
    damage in hazard prone areas, thereby reducing the need for future
    disaster assistance. Eligible activities would include: vulnerability
    assessments; State and local mitigation planning; the reinforcement of
    structures against seismic, wind, and other hazards; elevation of
    flood-prone structures; acquisition or relocation of structures at
    risk; and minor flood control or drainage management projects.
        As States currently play an essential role in the implementation of
    all of FEMA mitigation grant programs, FEMA's strategy is to include
    the States in the new program. States provide technical assistance to
    communities, solicit and review applications, and coordinate statewide
    mitigation activities. A project evaluation process will be established
    to determine how well projects achieve mitigation goals. This
    effectiveness evaluation would help to better link resources to
    performance information for planning and reporting purposes. Results
    will also be used in reviewing and adjusting the evaluation criteria
    for future grant competition, as appropriate.
        Mitigation should be a regular investment priority and should not
    only track with the unpredictable level of disaster activity in a given
    year. The new competitive process will make sure the best thought out
    and cost-effective programs get funded every year, so that our
    communities are prepared before disaster strikes.
                        national flood insurance program
        The 2003 Budget proposes several reforms to the National Flood
    Insurance Program to improve financial performance and transfer greater
    financial liability to individuals building in flood-prone areas. Some
    of the primary reforms are as follows:
        (1) Phase out insurance policy rate subsidies for non-primary
    residential structures, including second homes, vacation properties,
    rental properties and non-residential properties. Rates for primary
    residences, which represent the majority of the program's policies,
    would not change under this proposal.
      --The net savings in fiscal year 2003 would be $13 million;
      --The estimated net savings grows to about $200 million annually in
            the outyears;
      --Approximately 350,000 policyholders would be affected by this
            proposal;
      --The average premiums for the policyholders impacted would increase
            from $650 to an average between $1,600 and $1,800; and
      --Assuming a 5-year phase-out, premium increases for these policies
            would average about 20 percent a year during the phase-out.
        (2) Require that mortgage borrowers insure the full replacement
    value of their properties. Under current law, lenders must only ensure
    that flood insurance covers the outstanding principal balance of a
    loan.
      --Changing the requirement for the amount of insurance to be the
            value of the property brings the requirement in line with what
            is the general practice in the insurance and lending industries
            for about the last 25 years.
      --By providing full coverage this reduces the need for disaster
            assistance and tax write-offs for uninsured losses.
                              disaster relief fund
        The 2003 Budget request fully funds the Disaster Relief Fund's
    (DRF) 5-year average obligation level of $2.9 billion. The President's
    Budget includes $1.8 billion in new funds for the Disaster Relief Fund.
    An aggressive campaign is also promised during the remainder of 2002
    and 2003 to recover unspent balances from previous disaster
    declarations.
        Once a Hazard Mitigation Grant Program (HMGP) project has been
    approved and funding has been obligated, the performance period for
    construction grants ranges from 1 to 5 years, depending on the
    complexity of the project and length of the construction season. Given
    the 5-year window for completing projects and liquidating funds, FEMA
    is focusing its efforts to liquidate and/or recover funds on HMGP
    grants obligated during and prior to fiscal year 1997.
                         disaster, response & recovery
        In fiscal year 2003, the Readiness, Response and Recovery (RRR)
    Directorate will continue to focus resources on carrying out its core
    function of coordinating the activities of the interagency community to
    prepare for, respond to, and recover from all significant disasters and
    emergencies to minimize the suffering and disruption that they cause.
    Emphasis will be placed on working with the interagency community to
    incorporate disaster lessons learned into the Federal Response Plan to
    continue its improvement and ensure that it can be effectively
    implemented to manage the consequences of all types of disasters,
    including acts of terrorism. By utilizing lessons learned from past
    disasters, such as the World Trade Center, we can develop more
    effective and efficient response and recovery capabilities. Related to
    this, work will continue on enhancing existing plans and preparedness
    measures to address special events, such as the Weapons of Mass
    Destruction Contingency Plan that addresses terrorist attacks in the
    National Capital Region.
        The RRR Directorate programs will work toward improving disaster
    response capabilities and the speed and effectiveness with which
    disaster assistance can be provided to disaster victims, while reducing
    costs and achieving greater accountability of disaster equipment and
    assets. We are also examining a number of possible alternative
    approaches for building a more nationally integrated and robust
    operational capability to address more complex future Federal disaster
    operations. We will continue to work with the States to maximize their
    role in managing disasters and will begin producing incident-specific
    response plans for truly catastrophic disasters, such as hurricanes,
    earthquakes, and terrorist attacks. The importance of satisfying the
    needs of disaster victims is paramount in our Individual Assistance and
    Public Assistance disaster recovery programs. In this capacity we will
    provide resources to ensure timely and efficient inspections of damages
    to residences and provide the capability to respond to multiple
    disasters requiring manufactured housing.
                      the emergency food & shelter program
        The 2003 Budget proposes the transfer of the Emergency Food and
    Shelter Program to the U.S. Department of Housing and Urban Development
    (HUD). The purpose of this proposal is to permit better coordination of
    services for the homeless under one agency.
        Funds for this program are obligated to a National Board, which is
    chaired by FEMA and whose non-profit partners (The Salvation Army,
    American Red Cross, United Way of America, and others) provide
    professional expertise to the board. The National Board then works
    through similarly composed Local Boards to advertise the availability
    of funds, assess community needs, and make allocation choices.
        In fiscal year 2002, FEMA is allocating $140 million for this
    program. Due to the proposed transfer, no resources are shown in the
    FEMA Budget request for the Emergency Food and Shelter Program.
                 fiscal year 2001 independent auditor's report
        I would also like to discuss briefly the fiscal year 2001
    Independent Auditor's Report. We welcome this kind of review of
    accounting practices government-wide. After 3 years of ``clean''
    opinions, FEMA's 2001 financial statements were issued a ``qualified''
    opinion.
        There are two reasons for the qualifications: (1) adjustments to
    unliquidated obligations and (2) property and equipment tracking and
    accounting. First, FEMA reduced it unliquidated obligations by $77
    million or 1.27 percent. This reduction was necessary because of errors
    made when converting financial data to a new general ledger based
    financial management system in 1996. It is FEMA's belief, however, that
    the one time adjustment has improved the overall accuracy of the
    financial statements and should satisfy any further audit requirements
    on obligations.
        Second, with regard to property and equipment tracking and
    accounting, FEMA did not maintain customary records for its equipment
    and related depreciation, therefore the auditors determined that it was
    not practicable to extend their auditing procedures to sufficiently
    satisfy themselves as to the accuracy of the equipment with a net book
    value of $10.8 million.
        Finally, the audit concluded that FEMA has long-standing internal
    control/material weaknesses in several areas. We generally agree with
    the overall findings of the audit and have in fact already taken many
    steps to correct the identified shortcomings. For instance, a
    remediation plan, developed in September 2001, will be refined and
    updated to address needed improvements to assure compliance with the
    ever-changing government-wide accounting standards and OMB and Treasury
    reporting requirements. A JFMIP compliant version of our financial
    management system is currently being implemented. This system upgrade
    will greatly enhance FEMA's reporting capabilities and correct many of
    the deficiencies cited in the report. Resources and expert personnel
    are key to assuring changes and improvements. We are seeking additional
    qualified staff and contractor support to help us improve FEMA's
    financial management operations. FEMA will continue to address the
    issues identified in the audit and work toward making improvements.
                     fiscal year 2002 supplemental request
        The President's request for supplemental appropriations includes
    just over $3 billion for FEMA. From that total, $2.75 billion is
    devoted to the Disaster Relief Fund to assist in the ongoing recovery
    efforts from September 11.
        The remaining $326 million is requested to enable FEMA to
    immediately begin getting our Urban Search and Rescue Teams WMD-
    capable, to assist the States with comprehensive planning that includes
    mutual aid and other important operational elements, and to begin the
    Citizen Corps initiative.
        This supplemental, if approved, will give FEMA the opportunity to
    jump-start several critical preparedness-related initiatives that
    shouldn't wait for the changing of the fiscal year.
        The additional funds for the Disaster Relief Fund will ensure that
    our commitment to New York and New Jersey and Virginia to assist in
    their recovery from the events of September 11 will proceed without
    interruption.
        The start-up funding for the First Responder Grant Program is
    vitally important. The funding will allow us to begin to construct an
    infrastructure at the State level to support the larger grant program
    next year. For example, this will include secure phone and fax lines
    for the States to use.
        Senator Mikulski, you have often mentioned the importance of having
    strong offices at the State level that would be able to coordinate with
    the Federal agencies. A good example is the funding in the Supplemental
    to support security clearances at the State level. Getting these basic
    administrative steps in place is going to make the program of real help
    to the State and local first responder community from the moment the
    funds are available. It can increase both their effectiveness and their
    long- term accountability.
        Another important element in the request will support improvements
    and greater support to our Urban Search and Rescue (USAR) Teams.
    Senator Bond, I know this is of great interest to you because you have
    introduced legislation recently along these lines. I think you can see
    from the details of the Supplemental that we are in synch on the
    importance of these teams. We agree on the need to provide them with
    increased support that will allow for updated equipment and additional
    training. Believe me, my experience in New York with our USAR teams as
    they searched, day after day, 24 hours per day, will always be etched
    in my memory. And I intend to turn that experience into informed
    support for those teams.
        This Supplemental legislation also puts in motion our new Citizen
    Corps program. These funds will assist communities in organizing their
    volunteers and giving their citizens the opportunity to realize their
    greatest wish since September 11; to be of service in protecting the
    health and safety of their communities.
        While this hearing is rightly devoted to the 2003 budget, I hope
    you will be able to look favorably on this Supplemental request as a
    logical and appropriate starting point to move us toward the direction
    of the 2003 funding proposals.
                                   conclusion
        While there are more goals for FEMA in the coming year, these are
    some of the major ones. I look forward to working with this committee
    on these priorities. Again, I thank you for the opportunity to be here
    this morning and will be happy to answer any questions you may have.

                          LA PLATA, MARYLAND DISASTER

        Senator Mikulski. Thank you very much, Mr. Allbaugh. We
    have a lot of ground to cover. I'd like to ask some questions
    about southern Maryland. First of all, I understand that as of
    yesterday, FEMA received close to 360 applicants from Charles,
    Calvert and Dorchester County. The bulk of the applicants were
    from Charles County and also Governor Glendening is also asking
    for disaster declaration.
        Could you tell us what is FEMA's current estimate of the
    cost of the tornado that hit southern Maryland last week?
        Mr. Allbaugh. I can't give you a hard number. We are in the
    process of reviewing with our disaster assistance teams the
    damage that has taken place. I believe we amended the disaster
    declaration yesterday for two of these three counties, adding
    those counties for public assistance. We will add the third
    should the teams agree with the governor's request. But it will
    take a while to recover from an F4 tornado, as you heard me
    talk last week. Then-Governor Bush and I participated after the
    fact in an F5 tornado in Jarrell, Texas. Lives were lost. That
    community is still rebounding.
        FEMA will be there as long as we need to be there. I think
    my numbers show 87 homes were totally destroyed, 174 received
    major damage, 368 received minor damage. We are there. We have
    already processed I do not know how many hundreds of thousands
    of dollars in assistance to those individuals, and the
    businesses who have been affected.

                             DELIVERY OF ASSISTANCE

        Senator Mikulski. That is exactly right. There were three
    categories of injury. One, of course, was the homes. The others
    were to people's livelihoods such as the hardware store,
    florist shop, bank building; at the same time was the public
    infrastructure aspect. How long do you think it will take to
    provide assistance to everyone who is eligible and when do you
    think that we can expect that the checks will start to arrive?
        Mr. Allbaugh. The checks were electronically transferred or
    in the mail within 24 hours of when the President declared this
    disaster when we got his request. We have a fabulous system
    that Larry Zezinger runs in our office for the agency. We have
    that ability, normally within 2 to 5 days, to put money in the
    hands of those individuals who are harmed, and we have already
    done that.
        Senator Mikulski. I know that our very able county
    commissioners established something called People's Place. I
    bet you like that because it put all of the agencies like FEMA,
    SBA and some that were going to help families in one place
    while they had an incident management operation center
    someplace else. If you recall, our rescue squad even lost its
    roof. From the people operating out of People Place, would you
    describe for committee how it works, how someone comes in and
    how they apply and what can they expect in terms of timeliness?
        Mr. Allbaugh. Normally what takes place is we try to lean
    as far forward out of the foxhole as we can when one of these
    incidents takes place. That basically entails a disaster
    response team that is flown to the site. They start searching
    for an area where we can house all the Federal and State
    agencies under one roof so we can offer in a disaster field
    office setting a one-stop shopping for those individuals who
    have been harmed. This happens in two ways: they can either
    come to the disaster field office to register in person for
    State and Federal assistance, and even local assistance, and
    also charitable organizations are a part of that disaster field
    office, or mainly the norm is to call our 800-621-FEMA, our
    hotline, where we teleregister those individuals who have been
    harmed or even think that they have been harmed.
        Senator Mikulski. We think that is a terrific system. I
    think part of preparedness has to do with where would you
    operate an incident management situation which goes then to
    your need for technology, interoperibility, and mutual aid. We
    were gratified in southern Maryland the way others responded to
    help our responders. Therefore we need to be looking at
    interoperability incident management and then preparedness
    which is where would the people go if they need to seek
    shelter, where do the people who are going to help them get
    benefits need to go and where would be the command and control
    environment.
        Is that part of what you see needs to be, therefore not
    only helping, would help both as I said against tornados or
    national disasters, as well as against terrorism?

                                 CITIZENS CORPS

        Mr. Allbaugh. The interesting thing about our agency is
    that we believe we are an all hazards agency, whether it is
    man-made or of natural design. We implement the same process.
    We go through the same procedures. Our people are very well
    trained in going in and quickly making assessments as to
    individuals, businesses and a community's need. Nine times out
    of 10, the individuals who respond to a disaster are those
    innocent citizens who were right there if they have not been
    harmed themselves. That is why I think one of our programs
    which is a part of Citizen Corps is a great program. It is a
    Community Emergency Response Training that we do. We certify
    individuals with 18 hours of training. And we essentially have
    a fabulous program in Pittsburgh where we train the trainers
    trying to reach as many people as we possibly can to identify
    when they are in a disaster situation and respond immediately
    to before fire, police and utility individuals can show up at
    the scene and clearly before the Federal assets are able to
    arrive.
        But our system works. We reach out with great regularity to
    State and our local partners and communities to make them aware
    of how our programs work, and again, it is the tireless effort
    of the FEMA employees who actually make this work day in and
    day out.
        Senator Mikulski. Thank you. Just one final question. How
    many offices do you have in southern Maryland, and how long
    will they remain open?
        Mr. Allbaugh. They will remain open as long as they need to
    be open in assessing and assisting those individuals. We have
    77 FEMA employees on the site right now. I think there is one
    main disaster field office and two satellite offices. We may
    even have a mobile office in the area. I do not know. But I
    will find out exactly and respond back.
        Senator Mikulski. Again, the next time you see the
    President and the next time I do on behalf of all of southern
    Maryland and all of Maryland, we just want to say thank you. I
    think our colleagues know when they are hit by something,
    nobody knows that lady with that flower shop or that man with
    his business or that senior citizen with their home, nobody
    knows if they are Republican or Democrat. They just know they
    are Americans. And thank you very much for your response.
        Mr. Allbaugh. Thank you, Senator.
        Senator Mikulski. Senator Bond.

                        HAZARD MITIGATION GRANT PROGRAM

        Senator Bond. Thank you, madam chair. You mentioned the
    proposal to replace the hazard mitigation grant program which
    now retroactively awards percentage of the disaster relief for
    future mitigation. With a forward-looking approach. This is
    something that I have asked about over the last several years.
    I believe your IG is also supporting it. Now FEMA is proposing
    to establish a new $300 million competitive mitigation program.
    I'd like to ask you sort of a three-part question.
        How--what benefits do you see accruing in this program,
    rather than in the current HMGP program since we do not have
    any authorizing language, how would the program be structured,
    two. And three, what would be the priorities for funding?
    Advantages. Structure. Priorities.
        Mr. Allbaugh. Senator, the biggest benefit is that you
    remove individuals from harm's way immediately by buying out
    those businesses or homes that have been identified as being at
    risk. I remember last year touring the Red River of the North
    in the Grand Forks area. They identified many areas from the
    flood of 1993 where the community had gone in, identified after
    the fact and subsequently bought out those homes and businesses
    that were in harm's way. This time around, last year when
    flooding was severe, those homes and businesses were not at
    risk. Basically that area had been turned into a green belt
    area or park and--
        Senator Bond. I fully support mitigation. I am just saying
    with a, what would be, how do you see the advantages of the new
    program, rather than the previous program which did provide
    mitigation resources on a percentage basis to the disaster
    relief?
        Mr. Allbaugh. The biggest thing immediate would be that the
    vast communities across the country already know where their
    risk are. They have identified them. They are on the shelf.
    They do not have the ability to buy those properties right now
    and remove them from any type of threat. This allows them up
    front a competitive basis to remove those properties from risk,
    as opposed to waiting until a disaster takes place where we go
    in after the fact and offer up mitigation money to buy
    individuals out.
        Senator Bond. How would the program be structured? What
    would be the guidelines? What would be the priorities?
        Mr. Allbaugh. Well, we are in the process of establishing
    that. There would be eligible activities based upon
    vulnerability assessments.
        Senator Bond. Maybe we ought to ask you to submit that for
    the record. Maybe part of the answer is in my second question.
    According to FEMA's IG's 2001 report, as of April 2001, out of
    more than $2.5 million for the HMGP program since 1989, 48
    percent had not been disbursed. The bulk of the funds that make
    the disasters have been sitting there 5 to 11 years. In
    particular the HMGP funds generated by two disasters,
    Northridge Earthquake and Hurricane Georges in Puerto Rico
    account for more than one-third of the total amount of HMGP
    funds awarded since the program's inception and nearly 75
    percent of all undisbursed funds. It appears that only a couple
    of areas backed the tank truck up to suck out of that wonderful
    trough.
        What is, what is happening? What is the problem with
    everybody else?
        Mr. Allbaugh. Well, we had a history of allowing
    communities to not step up to the plate and take advantage of
    those HMGP funds. I realize it is a problem. It is a priority
    for me to close out those loans. They are given 4 or 5 years to
    tap into HMGP and we need to reclaim that money. We have not
    done a good job on that and the IG is absolutely on target.

                           TORNADO DAMAGE IN MISSOURI

        Senator Bond. I mentioned the article. I just read the
    article today's Southeast Missourian, tornado victims have
    problem with Federal aid. 19 areas hit, 86 homes completely
    destroyed. They had been denied individual assistance. My own
    friend, the fire county chief, Chief Bollinger appropriately
    enough said we got people here that are beyond welfare. One is
    living out of a car. Other is living in a house with a tarp
    over it and they say we do not qualify. If the tornado hit a
    metropolitan area, the situation would have been handled
    differently. People in rural areas are penalized and he is
    aggravated. I guess the other thing that is aggravating is that
    FEMA put in place a toll free number urging families to apply
    for individual assistance and when they called the number they
    found out that they were not eligible for individual
    assistance, which kind of raised some expectations that were
    destroyed.
        If you followed----
        Mr. Allbaugh. This is the first I have heard about it. I
    will sure check in and respond back to you. There could be a
    sizable portion of those individuals who are insured and that
    may preclude them from being eligible.
        Senator Bond. There is some that are insured. We have not
    looked at it.
        Mr. Allbaugh. I was just handed it as well.
        Senator Bond. That brightens your day.
        Senator Mikulski. Senator Shelby.
        Senator Shelby. Thank you, Madam Chairman. We talked about
    Maryland and Missouri. I thought I would get into my home State
    of Alabama, Mr. Director.
        Mr. Allbaugh. Good.

           CHEMICAL STOCKPILE EMERGENCY PREPAREDNESS PROGRAM (CSEPP)

        Senator Shelby. I have been working, as you know with
    Senator Sessions, and Congressman Riley to facilitate the
    discussions between the Army and FEMA and our State and local
    officials in Alabama regarding critical CSEPP safety
    requirements associated with chemical weapons. CSEPP, you are
    familiar with that?
        Mr. Allbaugh. Yes, sir.
        Senator Shelby. Officials from your agency participated in
    all the operational assessment team meetings which were
    convened at the direction of Secretary Rumsfeld and overseen by
    Under Secretary Pete Aldridge regarding funding for critical
    CSEPP safety requirements. Two issues remain unresolved as of
    today. While the Army has transferred the necessary funding to
    FEMA and the State and county EMA have developed training to
    make those plans, funding for level A suits and protective
    hoods remains blocked. The OAT process provided numerous
    opportunities for FEMA representatives to raise important
    concerns. But none of the recent criteria produced by FEMA for
    the level a suit and protective hoods were brought up during
    the process.
        Several questions. First, tell us why FEMA officials, your
    officials, did not raise objections to these protective suits
    and hoods during the OAT process and second, since DOD and the
    Army have transferred the funding to you, this is not an
    issue--it shouldn't be an issue of money. What are the reasons
    FEMA continues to refuse to agree with DOD and the Army that
    protective suits and hoods are a safety device?
        Mr. Allbaugh. Senator, I have no idea why FEMA employees
    who attended those meetings failed to speak up. They have known
    our position from day one and there is no excuse for them not
    making people's position well-known.
        Senator Shelby. Will you look into this?
        Mr. Allbaugh. Sure. I will report back to you.
        Senator Shelby. And straighten that out.
        Mr. Allbaugh. To the best of my ability. I sure will.
        Senator Shelby. You are the director. I think you can
    straighten it out. In FEMA. Maybe not elsewhere in the
    government. In FEMA. I have confidence in you as the director
    to run your agency, and if you run your agency as I believe you
    have and will, you will straighten that out.
        Mr. Allbaugh. Well, I have been about the business of
    trying to straighten out the issue on Anniston since this has
    come to my attention several months ago. What I am concerned
    with first and foremost and if you want to blame someone for
    the holdup, you can blame me and hold me responsible.
        Senator Shelby. We are more interested in performance. We
    have talked about this. I am not here to blame you. I am here
    to get it straightened out.
        Mr. Allbaugh. I understand. We are in the position right
    now of trying to work with the community to make sure that they
    have a certain amount of training. We have asked for a plan and
    proposal from the city after they were not too interested in
    what we had offered up and I expect that to take place in short
    order, Senator, and we can resolve those issues. I do want to
    make sure that individuals if we are going to be buying hoods
    or masks are properly trained.
        Senator Shelby. Absolutely. We are all interested. The
    bottom line at Anniston dealing with chemical demilitarization
    is nothing but safety. Safety at whatever because the people
    there have no one to speak up.
        Mr. Allbaugh. I agree.
        Senator Shelby. If we do not speak up, if we up here do not
    speak up, no one will. I want to commend again Senator Mikulski
    for conducting the hearing regarding other issues in Anniston
    several weeks ago.
        Mr. Allbaugh. There is not anything more paramount to our
    agency than safety. We are about the business of protecting
    lives and saving properly property, and just as soon as it is
    feasible, I have the ability to sit down with the Anniston
    folks, I think we can resolve this issue. We have given them
    everything that the Army has promised except for the issue on
    the hoods and I see no reason why this cannot be solved in
    short order.

                              FEMA'S ROLE IN CSEPP

        Senator Shelby. Mr. Director, I only have a minute. Given
    our recent conversation about your level of frustration with
    the CSEPP program, I want to know what your thoughts are
    regarding FEMA's continued involvement in the program. Second,
    do you believe any statutory changes need to be made that would
    improve FEMA's ability to execute the CSEPP program and third,
    what discussions have you had with Dr. Fiori and Secretary
    Aldridge regarding these unresolved OAT safety issues?
        Mr. Allbaugh. I have not had any personal conversations
    with Dr. Fiori. I know numerous members of our staff have. I
    believe the CSEPP program is better served returning to the
    Department of the Army. We have nine facilities nationwide. Our
    only role in CSEPP programs needs to be continued and that is
    one of planning, assisting those communities with their
    evacuation routes, and their planning. But I believe the Army
    runs a program that is a good program. I think they should have
    the entire program, just not part of the program.
        Senator Shelby. Thank you, Madam Chairman.
        Senator Mikulski. Senator Johnson?
        Senator Johnson. Thank you, Madam Chairman. Welcome.
        Mr. Allbaugh. Good to see you, Senator Johnson.

                                 PROJECT IMPACT

        Senator Johnson. Thank you for your attendance. I observed
    the Project Impact is not part of the initiative we are talking
    about today. It has been a popular program in my State,
    numerous communities have been able to secure the resources
    they have needed to prepare in advance of disaster. How does
    FEMA intend to support legal strategic disaster planning at the
    local level outside of the project impact?
        Mr. Allbaugh. The President's First Responder program
    serves that purpose, to offer assistance, technical assistance
    and planning, training, equipment purchases and exercises.
    Standardization is probably one of our number one priorities
    across the Nation. Many communities have plans that have not
    been looked at in recent years. They need to be taken off the
    shelf once again, dusted off and we can provide that assistance
    through our State partners to improve those disaster response
    plans.
        Senator Johnson. Any sense of what kind of, you not only
    have to work with communities that have no plans but update
    communities that do have old plans which may not be up to date,
    may not be appropriate to contemporary needs. How far down the
    road are we going to get in assisting these communities?
        Mr. Allbaugh. Well, the supplemental has $175 million to be
    used totally for planning. We already asked States and
    communities to start their planning process so if Congress acts
    in the affirmative with the $175 million it will be 100 percent
    grant money and we can expedite getting that money out the door
    to further assist those communities.
        Senator Johnson. Very good. Thank you.
        Senator Mikulski. Mr. Allbaugh, I'd like to pick up on
    that--excuse me. Senator Craig. Sorry.
        Senator Craig. If you have got a follow through on that.
        Senator Mikulski. You go right ahead. You have been waiting
    very patiently. Please proceed, sir.

                            INTER-AGENCY FIRE CENTER

        Senator Craig. Madam chair, welcome. Joe, welcome to
    committee. One question--well a couple in relation to the fire
    administrations and the National Fire Act. Do you see expanding
    roles with the Interagency Fire Center in Boise? I know FEMA
    has a presence there now on a concurrent basis with all of the
    other agencies that interface as it relates not just to fire,
    but they also deploy equipment materiel in national disasters?
        Mr. Allbaugh. Actually, I'd like to have a more expanded
    role there at the center. It is a fabulous facility. We only
    have personnel there located during the seasonal hot spots.
        Senator Craig. The peak of the season. That's right.
        Mr. Allbaugh. Yes, sir. We have a great organization in the
    United States Fire Administration led by chief Dave Paulison. I
    would like to improve that relationship. I was there last year.
    There is a willingness with the Ag department to do the same
    thing. As you know we are about the business early on in the
    fire season of administering our fire management grants which
    used to be called fire suppression grants. We have done several
    over the last several days, I think 5 in the last 3 days alone
    where private property and public buildings have been
    threatened. It is an area that we need to work closer with Ag
    to improve our relationship, and I'd like to achieve that.

                               FIRE GRANT PROGRAM

        Senator Craig. Fire management grants are different than
    the kind of grants that are going to the local communities and
    local fire departments?
        Mr. Allbaugh. That is correct. Yes, sir, they are. Fire
    management grants tend to be one of an emergency nature where
    there is an immediate threat to property and individuals. The
    fire grant program that Congress in my opinion wisely passed
    last year, we had a 5-month period to get the first $100
    million out. We were successful. That goes to basic
    firefighting needs to local fire departments. This year
    Congress has given us $150 million plus $210 million in the
    supplemental for a total of $360 million, which I know will be
    out the door by the end of this calendar year and I thank you
    for that support. It is a strong program, and it makes a
    difference in those local fire departments.
        Senator Craig. That is a strong program. It is very popular
    in my State. I have been visiting most of my fire departments.
    They just do not want it lost inside the bigger issue today.
        Mr. Allbaugh. I agree with that, Senator if you do not mind
    me interrupting. I know OMB wants to combine the fire grant
    program with First Responder program. I am dead set against
    that. It is for two different purposes. And I think it is a
    mistake to try and put those--I am going to get in trouble for
    this, but it is a mistake quite frankly.
        Senator Craig. You won't get in trouble with this Senator
    and my guess is my colleagues will agree with that.
        Senator Bond. Last time I agreed with somebody disagreeing
    with OMB, he was canned 3 days later. We wish you well, Joe.
        Senator Craig. I will leave you my phone number.
        Senator Bond. Mike Parker.
        Mr. Allbaugh. I consider myself not only working for the
    American public, but directly for the President of the United
    States and I think I still have a fairly good relationship. I
    might survive this area.
        Senator Craig. The program that you have talked about is
    very popular amongst fire departments because it picks up some
    of the pieces they cannot afford to pick up in training,
    equipment and material. It remains very valuable. I met with
    Idaho's fire chiefs a couple of weeks ago and that was their
    first request. Do not lose this program. It is the best we have
    seen to date. It is quick to respond to our needs. And it is an
    opportunity. I am pleased also to hear you talk about the
    potential of an expanded role at the Interagency Fire Center in
    Boise because while we look at it as a fire center, it will
    also buy caches of equipment and readiness, it does respond and
    has responds to communities all over the country with the
    deployment of communications equipment and all kinds of things.
    It is a natural for the area, the region because it services
    the whole western States that it literally is the whole
    national center. I am glad that you see that in its provincial
    and present management system.
        Mr. Allbaugh. It is a tremendous facility. I look forward
    to expanding our role there. Back on the fire grant program
    just for a minute to refresh everyone's memory. Last year the
    first year we had over 20,000 applications for $100 million.
    Twenty thousand plus applications represented over $3 billion
    in needs and requests. This year, we are right at 19,000 and
    some applications and we are going to be moving quickly getting
    that money out the door, so it is an extremely popular and
    successful program.
        Senator Mikulski. I just want to reiterate how supportive
    we are of the fire grant program because it helps particularly
    the volunteer fire departments where we are asking people on
    their own time and in their own mind, to meet the bottom line.
    This has been an excellent program. This then also takes me to
    the whole issue of State and local, strengthening State and
    local emergency management.

                        INTEROPERABILITY AND MUTUAL AID

        First of all, we want to thank Governor Tom Ridge for
    taking a look at our capital region in terms of the need for
    disaster planning. That is the District of Columbia, my own
    State of Maryland and Virginia. We are the capital region. I
    must say, we are a high security issue but also as part of
    that, is southern Maryland and La Plata, a little county run by
    commissioners and a lot of great volunteer fire departments. So
    let me get to the point. I'd like you to elaborate what is in
    this year's budget to help with interoperability and mutual
    aid. What I heard you talk about was in New York people wanted
    to help but they couldn't because of the failure for
    interoperability. When I walked the streets of La Plata, what I
    saw was that county executive Doug Duncan from Montgomery
    County rushed to be able to help La Plata. That the Ocean City
    mayor had come because they had some experience with natural
    disasters, and it showed why we need to have mutual aid and
    also the need for interoperability in communications. Mr.
    Duncan of Montgomery can talk to Mr. Curry of Prince George's,
    but I am not sure both of them can talk to Charles County or be
    able to even go across the river to get help from Northern
    Virginia.
        I note this is a high priority with you. Could you tell us
    how we could put money in the Federal budget to ensure
    interoperability and also this great approach of mutual aid
    where I think is the key to a successful rescue and recovery
    operation.
        Mr. Allbaugh. Thank you Senator, for the question.
    Interoperability comes in many forms, not only in
    communications, but equipment, personnel. In our first year,
    which would be this year I hope with the supplemental, $175
    million we are requesting which is 100 percent money to go to
    those local departments to start that planning process. It is
    basically similar to playing a football game. You do not want
    to go out and put your players on the field until you have a
    game plan, and it is important that States and local
    communities have that game plan and we need to assist those
    communities in that game plan. Coupled with that, there are two
    particular areas in mutual aid arena that we want to spend $5
    million in assisting those communities in crafting the
    requirements when it comes to mutual aid, and $7 million for
    secure communications with State and local individuals
    nationwide.
        It is important for us, when there is an incident that is
    ongoing, to have the ability to communicate in a secure
    fashion, something that we do not have between the governors
    and other State officials and the Federal Government. We do
    among most Federal agencies, but not at the State level. So
    there is $7 million we would like to spend in that arena. We
    are asking for $50 million in the area of Citizen Corps. This
    is probably one of the greatest programs that can help a
    community be prepared. And the reason we are asking for that
    money is to accentuate an already excellent program that
    started in Los Angeles in 1985 and we picked it up in the later
    1980s, which is the community emergency response team, the CERT
    training. It's a fabulous opportunity to train the trainers,
    get them out of the communities and train individuals on how to
    respond to a disaster to assist their fire, police utility
    departments, city council, hospitals, EMTs. Many people just do
    not know what to do and what we will do by making this training
    available is enhance the already well-established local
    response capability. That is just some of the dollars we will
    be spending this year, I hope.
        Senator Mikulski. Mr. Allbaugh, I want to assure you that I
    regard the whole issue of interoperability and mutual aid to be
    one of our highest priorities to be able to serve our
    communities and serve the Nation. I am going to work with you
    through the appropriations process and any help that you need
    with other Federal agencies on establishing national standards
    for equipment and using other resources like the National
    Institutes for Standards and Technology. The private sector is
    developing excellent technology and improving it every day and
    second, we want to have this interoperability and mutual aid. I
    have seen it at the Pentagon when Maryland and Northern
    Virginia responded with citizen soldiers helping our American
    military and now I have seen it in my own disasters and you
    have heard it from my colleagues. So we really want to work
    with you because I think this is how we are going to get
    maximum value for our dollar and maximum assistance for our
    communities.
        Mr. Allbaugh. If I could add two more points, Senator. At
    the Federal level, there has been some confusion in the
    interoperability arena. We have taken steps with Treasury to
    head up a consortium of all Federal agencies called SAFCOM that
    will solve this interoperability problem at the Federal level.
    I believe first we have to get our own house in order before we
    can help others.
        Second to that, Bruce Baughman, who is heading up our
    Office of National Preparedness, second from your left is doing
    a fabulous job. One of his challenges is to set nationwide
    standards in the area of communications and equipment
    interoperability. I hate to be redundant but I remember so
    vividly showing up at the Pentagon and people had their own
    breathing apparatus with them and they couldn't use the freshly
    charged bottles because the threads would not be
    interchangeable.
        In New York City we had pumper trucks that we desperately
    needed from lower Manhattan and Yonkers and New Jersey, great
    vehicles, great equipment, people with the drive and training
    to use them and we couldn't use those pumper trucks when we
    wanted to use them because the threads weren't uniform. We had
    a variety of uniformity issues across the board in equipment
    and personnel we are going to solve.
        Chief Paulison and I are going to have all the
    manufacturers in the next couple of weeks to use my 275 pounds
    of intimidation and kind of beat them about the heads and say
    we are putting lives at risk unnecessarily because we cannot
    solve the interoperability problem and we are going to solve
    it.
        Senator Mikulski. Terrific. Senator Bond?
        Senator Bond. Senator Domenici has come in.

                               CERRO GRANDE FIRE

        Senator Domenici. I think my first round here I will talk
    about a parochial issue, the fire in New Mexico that you are
    wrapping up in terms of the management plans, the Cerro Grande
    forest fire in the Los Alamos area. First, I want to thank you
    personally for the attention that you have given to the
    recovery of Los Alamos and the surrounding areas around the
    Cerro Grande fire. Just about 2 years ago is when it occurred.
    The fire consumed about 50,000 acres, 48,000 I think, destroyed
    about 400 homes, caused damages and injuries to a thousand
    families and countless businesses. The county of Los Alamos,
    State of New Mexico, four Indian Pueblos and the Federal
    laboratory. I want to remind my colleagues that this was
    started by Federal Government when a monument burned out of
    control.
        For that reason Congress enacted the Cerro Grande fire
    claim assistance act of 2000 and appropriated $455 million to
    FEMA to establish a claims program to compensate victims of the
    fire. Senator Bond, I remember vividly your cooperation after
    you went through this issue and made sure that we understood
    that FEMA had not, before that had not been doing this kind of
    work but remember they had an emergency response and then
    somebody else would do the kind of things that we had here,
    Small Business Administration, HUD, etc.
        But I want to suggest to you that from what I know, they
    have done an excellent job. They are not quite finished, but I
    think today you can wrap this up for us and perhaps you could,
    we could start by saying as of the 28th of August the fire
    claims under this act will expire. There will be no more time
    to file their claim. They had a short time fuse if they wanted
    to participate under this act this they to file claims. Perhaps
    some will save their claims and file in Federal court.
        Director, would you please give the subcommittee the latest
    figures on the fire, the number and amount of the claims filed,
    the number of claims approved, and the number of claims paid
    and the pending number of claims and the number of claims
    anticipated to be filed by August 28. Could you do that or
    would you rather do it----
        Mr. Allbaugh. I will take a stab at it, Senator, based on
    what I recall. Principally to remind everyone, I was aware that
    the program would not be extended. The clock is running. They
    need to file their claims by August 28 of this year. Originally
    the program officials on site only estimated they would be the
    recipient of about 1,500 claims. We have handled over 20,000
    claims to date thus far and we spent almost $300 million of the
    original $455 million that was granted by the Congress. We
    expect another 2,000 claims to be added to that prior to the
    28th of August.
        I have not paid any insurance company the subrogation of
    claims because I wanted to make sure that 95 percent or so of
    the claims of individuals would be paid prior to the insurance
    companies and we are adhering to that and I am proud of all of
    our agency folks for helping us achieve that goal.
        I do believe that there, in my request for an additional
    $80 million there is a need to have a safety net. I would
    prefer to disclose and play all my cards on top of the table.
    There is no reason to believe we are going to go beyond the
    $455 million, but to protect ourselves and make sure everyone
    is taken care of I think it is a prudent course and action to
    take. If this committee gives us the $80 million extra, we
    would turn back anything that is unused. I would be happy to do
    that. We are well on track. We still have about a, 45
    individuals at the Los Alamos office every day and I am pleased
    with our progress of this program.
        Senator Domenici. I am going to submit further questions to
    you for the record.
        Senator Mikulski. Absolutely, Mr. Chairman. We really look
    forward to cooperating with you. We know that it is a most
    devastating, devastating situation.
        Senator Domenici. I have some other questions, but I will
    wait.
        Senator Mikulski. Senator Kohl.

                         FIRST RESPONDER GRANT PROCESS

        Senator Kohl. Thank you, Mr. Allbaugh. There were a number
    of concerns regarding FEMA grant process and I will address
    just two of his and my concerns. First the emergency response
    community in Wisconsin is pleased that FEMA is taking over the
    Office of Domestic Preparedness programs in the Department of
    Justice for First Responder assistance and I have heard several
    complaints regarding the complex process that the Office of
    Domestic Preparedness had used to provide equipment grants to
    first responders. Many local people believe that these programs
    were too cumbersome and took too long for the money to filter
    down to the people who needed it. So will FEMA make a concerted
    effort to make the process easier for local communities so that
    the money can be spent more rapidly?
        Mr. Allbaugh. That is our plan, Senator. I think our fire
    grant programs our application is down to a page and a half,
    maybe two pages maximum. We believe training for first
    responders ought to be consolidated into one location
    regardless of where it is as opposed to a fragmented system
    that we currently have right now. The Office of Domestic
    Preparedness of Justice has focused in my opinion on the small
    part of the entire emergency response arena. It is something we
    do. This is our core mission. This is why we exist, and I hope
    that at some point we will be able to consolidate these
    programs but I appreciate what you are saying.
        Senator Kohl. Second, State and local emergency management
    officials are concerned that all the additional funds provided
    at the Federal level will not be well used if there is not a
    strong foundation at the local level to absorb these funds.
    They tell me they need money to hire full time staff,
    coordinate local and regional efforts. This funding for
    emergency management performance grants should be boosted so
    States and localities can have the staff and infrastructure to
    handle these new funds as widely as possible.
        Mr. Allbaugh. I'd like to see that we improve our funding
    to assist the States in those arenas. I know they cannot do it
    with the resources they have right now. We need to assist them
    with personnel and technical assistance to make sure the money
    goes exactly where it is intended to go.
        Senator Kohl. So we can hope maybe there will be some
    additional funds for personnel?
        Mr. Allbaugh. I hope so, too. For a number of years EMPG
    funding has been level. I am not sure I understand the
    rationale why we did not include an upgrade in our EMPG money
    for the 2003 budget, except we were totally focused on events
    after 9-11. It is my plan to increase that money. State
    directors in NEMA know that. They understand that. If there is
    any money that I can utilize in the interim, I would be happy
    to do that.
        Senator Kohl. I thank you so much. I thank you, madam
    chair.
        Senator Mikulski. Senator Bond.

                              CERRO GRANDE AUDITS

        Senator Bond. Following up on my good friend from New
    Mexico there asking questions about the Cerro Grande program, I
    wonder if the FEMA IG Mr. George Opfer could come forward and
    answer a couple of questions if you would please. We want to
    find out how you think it is been going. Are there adequate
    accountability requirements to assure that payments were
    consistent with losses? Was the office providing
    accountability, were they cooperative and were the payments
    consistent with the types of models used by insurance company
    for losses?
        Mr. Opfer. Senator, there was a learning curve for both for
    the FEMA and OIG personnel who were assigned there. We had some
    coordination problems in the initial stages of operations, that
    is, making sure program officials understood the role of the
    Inspector General both in terms of our audits and
    investigations. That relationship has worked out very well
    recently and, we are seeing a number of improvements. We have
    full time audit personnel assigned there who are now working
    closely with FEMA management. Once our work is done, we intend
    to prepare an after-action report from the General's
    perspective addressing questions concerning operational
    effectiveness and accountability, as well as our own
    experiences in dealing with program officials.
        Right now we think that the process or the experience level
    of the people who are involved with the Cerro Grande program
    has dramatically improved and it is functioning quite well.
        Senator Bond. Joe, you had a view on that? It is not as
    bad?
        Mr. Opfer. We had some problems in the field in the
    beginning. We had to address it at a higher level in the
    agency. Program staff appear to be cooperating now, however. I
    would like to comment on the efforts of the Acting Deputy
    Director, Mike Brown, in helping us attain that cooperation.
    When things came to my level, I oftentimes turned to Mike for
    assistance. He was very helpful in making sure personnel from
    the management side of the Cerro Grande program were responsive
    to our inquiries. We have had excellent cooperation from Mike.

                            NEW YORK INVESTIGATIONS

        Senator Bond. While you are up there, Mr. Opfer, we
    indicated lots of money going into New York after the tragedy
    of 9-11. Are there adequate controls in place, procedures in
    place to ensure that any fraud or abuse or misuse of taxpayer
    money with regard to New York City assistance are in place? Can
    we be comfortable that all the money going there is being spent
    well?
        Mr. Opfer. I think you can understand from my accent that I
    am quite familiar with New York, being born and raised there. I
    started my government career with the Secret Service in 1969
    working in the New York field office. I was with the Secret
    Service for 25 years before coming to FEMA.
        Senator Bond. Takes one to know one.
        Mr. Opfer. We worked very hard with the District Attorney
    in New York. He has opened up his office to us. We actually
    have our agents located in the Manhattan District Attorney's
    office so, from an investigative point of view, we are working
    quite well with the city of New York and their police
    department, investigators, and all their appropriate law
    enforcement agencies. We are also working with the U.S.
    Attorney's Office in Manhattan. I believe we have a very good
    handle on how the money is being used in New York City.
    Furthermore, some of the other Federal agencies involved,
    Social Security Administration Inspector General, for example
    working very closely with us are reviewing all complaints or
    allegations that are referred to us to determine whether.
    Federal funds are involved, and to determine who would be best
    equipped to address the issue. We are on site, and from our
    perspective, we feel very comfortable at this stage that all
    the appropriate Federal guidelines are being followed.
        Senator Bond. Are there a relatively large number of actual
    indictments or criminal proceedings which have been commenced
    in New York City?
        Mr. Opfer. At this stage, we have made 39 arrests, mostly
    dealing with false applications for Federal assistance. In one
    case an applicant claimed that her spouse was killed in the
    World Trade Center, but was actually alive and well in another
    State. We are also looking at some contractor fraud that is,
    false billings. Unfortunately, what we are seeing is not
    anything that we do not see in other major disasters. In the
    Northridge Earthquake, for example, we had people that would
    take the identity of the deceased victims and file for Federal
    assistance. We are basically, unfortunately, seeing the same
    type of problems in New York.
        Senator Bond. Thank you very much.

                          MERGER OF TRAINING PROGRAMS

        Senator Shelby. Thank you, Madam Chairman. Director
    Allbaugh, in earlier conversations, you discussed the need to
    collapse all training programs into one. Could you explain to
    me in detail what you mean by collapse? Does this merely mean
    put all existing programs under one roof or literally collapse
    them all and give rise to another, to one specific training
    program? In other words, could you discuss exactly how you
    envision FEMA operating at the current national domestic
    preparedness consortium that the President has proposed your
    agency take over?
        Mr. Allbaugh. I think what we have to do is merge those
    programs that we know about that exist at the Federal level
    already, and take advantage of the pluses of all the programs,
    improving those programs and training so that the recipients of
    the training can go one place, as opposed to hunting around for
    training. Now what concerns me right now is that I cannot
    certify the type of training that ODP is conducting nor can
    they certify the type of training that we are doing. The
    American taxpayer deserves to know that there is one entity,
    regardless of where it is, that is going to be held accountable
    for that training that local responders desperately need.
        Senator Shelby. Mr. Director, could you discuss how FEMA
    proposes to deal with a live agent training facility at the
    center for domestic preparedness? How does FEMA propose to
    obtain live agents for training? Under the current law I
    believe it authorizes the Secretary of Defense to transfer
    chemical agents to the Department of Justice. In addition,
    there are issues relating to the existing Chemical Weapons
    Treaties. If you could comment on these issues and how FEMA
    proposes to address them?
        Mr. Allbaugh. Well, I can't speak to the law, Senator,
    directly. I will have to check on that and respond back. But
    there are two particular facilities that I know, have seen one
    and know about another. Yours at Fort McClellan is a first
    class facility that I think would do nothing but enhance the
    training that already goes on for our first responders. The
    other facility is the Nevada test site outside of Las Vegas. It
    is extremely important for individuals, whether it is hazmat,
    chemical, radiological or biological to experience as much as
    they possibly can reality in real live exercises.
        Last week I was at the Nevada test site and witnessed a
    radiological exercise where a hazmat team had come in from
    another State, for the specific purpose of this type of
    training and those individuals learned so much from this
    exercise.
        Senator Bond. Under real conditions.
        Mr. Allbaugh. That makes a vast amount of difference as
    opposed to a table top exercise in a classroom, or even
    exercises that they may do in their own community. It is a
    vital asset to take advantage of what you have at Fort
    McClellan and at the Nevada test site.
        Senator Bond. Thank you, Madam Chair.
        Senator Mikulski. All right. I see Senator Domenici.

                         FIRST RESPONDER GRANT PROGRAM

        Senator Domenici. Could we talk a minute about first
    responders.
        Mr. Allbaugh. I will do my best.
        Senator Domenici. First responders are statutory and they
    are created by law. As I understand it, what you wanted to do,
    I do not have any feelings as to whether I favor it or do not.
    I would assume that for consolidation purposes if nothing else
    that I will. But as I understand it, this activity by our
    Federal Government has been shifted from one place to another
    over the last three or 4 years. It is very hard at this point
    to decide who really has jurisdiction. I think it is the
    Justice Department. I am not sure. Have you been told that to
    do the consolidating that you desire you are going to have to
    pass a statute permitting this First Responder training?
        Mr. Allbaugh. What I understand, Senator, is that for the
    most part under the fire act we really have broad authority to
    implement and operate these programs, but we are working with
    our authorizing committees in both houses with language that
    OMB has brought forth to further clarify the authorization that
    some individuals believe that we need to have. And we will
    continue to do that.
        Senator Domenici. Under the First Responder program that
    the Appropriations Committee finally put into effect through
    the great efforts of Senator Judd Gregg who worked for a year
    and a half, as I understand it, that program has been used in
    128 cities of America to bring the responders together
    programmatically and they worked together, the fire department,
    the police department, the doctors in the town, the hospitals
    and they prepared a so-called preparedness First Responder
    plan. Now, that whole effort is going to change and be under
    FEMA?
        Mr. Allbaugh. I wouldn't say it is going to change. I think
    we will merge the two programs and it will be a stronger
    program at the end of the day. We do that with the rest of the
    communities across the country right now to the best of our
    ability along with the States.
        Senator Domenici. Well, I think it ought to be in one place
    and if we can get it in your shop, I am all for it, count me as
    one at this point from what you have told me we ought to do
    something like that. There is no reason to have it in three
    places.
        Mr. Allbaugh. I commend Senators Shelby and Gregg and
    Hollings. They were caring about this program long before
    others did. It was shopped around and it was, ended up in
    Justice and probably, in my opinion based upon what my 15-month
    exposure has been at FEMA, it should have been in FEMA all
    along.
        Senator Domenici. Actually that is a statute prepared by
    Senators Lugar, Nunn and myself. We left it up to the President
    as to the whole program and where it would be headquartered. We
    thought it would be best as part of a national security effort
    with the country but nobody wanted it and he did not want to
    push too hard so maybe we could make it work in a consolidated
    matter.
        Mr. Allbaugh. It is a high priority for this President, as
    all of you know.

                           FIRE MANAGEMENT ASSISTANCE

        Senator Domenici. One last question has to do with forest
    fires. Actually it hardly seems realistic that the fire season
    is back upon us, but--for forest fires, but it is. And New
    Mexico is currently in a drought State, which you know from
    going out there, and on top of that, we had already some major
    fires. We now have a fire management assistant system
    assistance grant program. We did not have that before, and it
    is kind of a program that is born out of frustration that there
    weren't any adequate assistance grants for drought areas that
    had forest fires.
        Could you explain to the subcommittee what authorities you
    have and how you are responding to wildfire forest fire
    emergencies now?
        Mr. Allbaugh. Yes, sir. I have learned also in that 15-
    month period that many of the programs that we now have, have
    been born out of frustration with the inability to respond
    immediately, which is why FEMA exists to begin with.
        Senator Domenici. That's right.
        Mr. Allbaugh. Fire Management Assistance Program is a
    wonderful program that gives us real time ability to respond to
    a States request when life and property are in danger. We turn
    this around within a 24-hour process. It is a verbal
    communication. We have done five in the last 3 days. We have
    three or four in New Mexico, a couple in Colorado that we
    utilized. It is a successful program and the greatest benefit
    of this program quite frankly, most of these small communities
    worry about how they are going to pay for a fire that could get
    out of control. We removed that responsibility right at the
    outset, that way they can focus on putting out the fire when
    they need to do it and utilizing the assets they need to and to
    the State it is a 75/25 match program.
        It is a very successful program and unfortunately, as you
    pointed out we will probably use this program quite a bit this
    year. We are suffering a drought all over the United States and
    fires tend to start in the South but later on in the year and
    move North, Northwest and I remember vividly using a couple of
    fire management grants in January and February of that year,
    which is basically unheard of. It is going to be a tough year,
    but it is a successful program and I appreciate your support
    for the program.
        Senator Domenici. I just wondered since every one knew that
    was going to be a tough year, was there an extra amount of
    money asked for in the President's budget because of this, it
    was pretty obvious we would all predict you would have a heavy
    load in this area. Do you remember whether there was any extra
    money?
        Mr. Allbaugh. This comes out of our disaster relief fund. I
    don't remember if we asked for extra money. It is treated as
    part of a whole. I know that Congress will always make sure we
    have enough money in the disaster relief fund to do what we
    need to do.
        Senator Domenici. Thank you.

                                 FLOOD MAPPING

        Senator Mikulski. The time is growing short and we have so
    many questions. I am going to submit for the record my
    questions on flood insurance reforms, as well as the very
    important need for mapping because I feel that so much of our
    communities are hit by flooding that really flood mapping would
    go a long way to maximizing resources for hazard mitigation. In
    fact, that was the flooding in Senator Bond's State and my own.

                                 CITIZENS CORPS

        I really need to ask some questions about the Citizen Corps
    initiative. First of all, we support President Bush's effort
    for renewed and reinvigorated sense of volunteerism and the
    concept behind freedom Corps but the Citizen Corps is something
    that I have questions about whether not the need to volunteer,
    but the need for FEMA to be in charge of a volunteer effort.
        Looking at the President's request, he is talking about,
    for example, five programs under FEMA, one would be what you
    are doing already, the CERT program. You spoke about that. But
    then there are three Department of Justice programs, volunteers
    in police service, a neighborhood watch program and something
    called TIPS, terrorist information and prevention. Why FEMA
    would be involved in that I do not know. Then there is the
    Medical Reserve Corps, $10 million which I think would be a new
    program which I think offers tremendous potential. Why you and
    not HHS that interacts with the timing they have this excellent
    office of bioterrorism that my own former head of the school of
    public health Dr. Henderson was involved in.
        I am concerned that we are going into a corps du jour with
    a lot of new corps and then second, others that are just not
    connected to FEMA where a CERT definitely is. I see volunteers
    in disasters even in La Plata for many nights showed up really
    to help with building, women who had heard that a senior
    citizen in the hospital lost her wedding band and some key
    things and over 30 women showed up to dig to help her find her
    treasures. You know what, they found it. They found her wedding
    ring of over 60 years. This is terrific.
        But at the same time why would you be involved in terrorist
    information tips. What do you have to do with the Neighborhood
    Watch Program? And I will tell you, the volunteer firefighters
    are prickly about this because they feel they are the
    volunteers and last year we were foraging for funds to put
    money in the fire program. So we have got $360 million, we have
    a request here for $230 million more than we put in fire grants
    so you see where we are headed here?
        Mr. Allbaugh. I sure do.
        Senator Mikulski. We want to encourage volunteerism, to
    have them really help you in response to any disasters, but I
    think we are not so sure the Citizen Corps is the way to go.
    Could you tell us about this?
        Mr. Allbaugh. The best logic I can offer is one that makes
    sense is that we do well in coordinating other activities at
    Federal agencies when there is any type of response mechanism
    required. We have a great relationship with all of these
    agencies you mentioned, and I believe the President, what he
    had in mind was one of a coordinating role. Except for Citizen
    Corps. There we have the ability to specifically offer
    technical assistance.
        I know it is a concern of members of the committee that it
    detracts from our obligations day-to-day. Thus far from what I
    have seen there has been no inability to provide those
    services. Quite frankly, it occupies a few individuals, their
    time on a regular basis, but it is not something that will ever
    detract from our core responsibilities responding to man-made
    or natural disasters. That is probably about the best logic on
    the coordination of those other programs that I can offer you
    at this time, Senator.
        Senator Mikulski. Let me conclude. First of all, you have
    got the CERT program. And there is a request in that, there is
    a line item for $61 million. We absolutely want to help you
    with CERT but let me ask, are you going to own and operate the
    Medical Reserve Corps?
        Mr. Allbaugh. No, ma'am. That will be at HHS.
        Senator Mikulski. I apologize. Are you going to own and
    operate that?
        Mr. Allbaugh. That will be under coordination.
        Senator Mikulski. Same with the Neighborhood Watch Program?
        Mr. Allbaugh. Correct.
        Senator Mikulski. Same with the police search program?
        Mr. Allbaugh. Yes, ma'am.
        Senator Mikulski. How do you coordinate it, and why does it
    mean anything to FEMA? Particularly with the watch program and
    TIPS program. The Medical Reserve, of course, is very
    important.
        Mr. Allbaugh. I think there is an advantage to be in a
    coordinating role because of our relationships with State and
    local officials already. We are just trying to capitalize to
    make sure that everyone knows what is going on. It is not that
    we are going to be running those programs. It is more one of
    awareness than anything else.
        Senator Mikulski. Well, I do not know. I do not know. But I
    do know that some of the programs have been outstanding. The
    CERTS program. We really do applaud the Medical Reserve Corps.
    Those are the programs that we respond to. But Neighborhood
    Watch and TIPS. I am not sure. I will yield now to Senator
    Bond.

                              FIRE FIGHTER GRANTS

        Senator Bond. Thank you very much, Madam Chair. I want to
    say thanks and amen to a couple of things. Number one, the fire
    grant program, the firefighters in my State is I think as in
    all States really believe strongly in the peer review process
    and we are delighted to understand where you are coming from,
    and whatever your position was, I think we could say that
    Congress was probably going to keep that fire grant program
    administered by fire professionals.

                          CITIZEN CORPS AND VOLUNTEERS

        Second, I concur 100 percent with the chair on the Citizen
    Corps. I admit having daily conversations with my good friend
    John Ridgeland. I have a minimum amount of high enthusiasm for
    adding that responsibility of coordinating those programs to
    people. We have gone down a whole list of things that you have
    to do and we are going to give you more and you have got, you
    have got every kind of crisis to handle and if you think that
    with just a few individuals and taking away very little time
    from your other responsibilities, you could coordinate large
    groups of volunteers, you have not had the same experience with
    volunteers I have.
        We have traditionally had the best volunteer organization
    when it comes to politics in the State of Missouri. We have a
    dynamite volunteer organization, but if you do not have a good
    professional staff running it, they are going to run into each
    other, run over each other, get you in trouble and absolutely
    drive you nuts. Volunteers well managed are the greatest
    resource we have. I think we have got something called National
    Service Corps, which has been in the business of dealing with
    volunteers. I'd like to see them use their people, their
    recipients as wholesale coordinators. We will have, we will
    continue that discussion later, but I just, I like the
    President's idea. I think it is great. I just think that you
    have got more than you can shake a stick at and you do not need
    to put a new volunteer coordinator hat on.
        Mr. Allbaugh. Senator, thank you for your comments on the
    fire grant program. And one of the reasons I feel so strongly
    about the fire grant program is that for years and years
    firefighters have always been the first in line for budget cuts
    and the last in line for recognition and for the first time in
    a very long time Congress has recognized the need, Congress has
    stepped up to the plate to devise a very successful program and
    we are doing a good job of implementing it, and I thank you for
    your support.

                         FLOOD INSURANCE PARTICIPATION

        Senator Bond. I have just got two quick questions
    remaining. They are not brief ones and you may want to submit
    more for the record. The first is what can we do about the poor
    participation in the flood insurance program? I have seen ads.
    This thing, this thing requires more people involved. We are
    not getting involved in it. And really what can we do? How can
    we get more people?
        Mr. Allbaugh. I would like to respond because it does take
    an elaborate answer that is pretty lengthy to solve this. There
    are ways to improve it. I think we have taken some concrete
    steps just recently with Bob and hopefully today Anthony Lowe
    is having his hearing as new Federal Insurance Administrator.
    We will have him on board. That will be a tremendous step.

                     PREVENTION AND CONSEQUENCE MANAGEMENT

        Senator Bond. The final one I will pass along to my
    colleagues. We are, I believe very strongly that FEMA should
    handle the consequence management in any kind of homeland
    security emergency. I think that is very clear that is what you
    do. That is what you ought to focus on. The question is how do
    we draw the line between prevention and consequence management
    and that is I think that is going to be a lengthy discussion.
    We have already raised a lot of troubling questions and we
    would like to be able to discuss with you and that your
    thoughts on how we draw that line.
        Mr. Allbaugh. I would be happy to do that, Senator. We have
    had great conversations about this. I would point out to the
    members here that we may have stumbled into a process and a
    template that works in the future, and by that I mean the setup
    between the Secret Service, the FBI, and FEMA that we utilized
    at the Super Bowl this past year and the Olympics that took
    place. It was a relationship. It was a partnership that
    absolutely worked when it comes to delineating those lines of
    responsibility between crisis and consequence and response. I
    think it is something that we can look to to talk about in the
    future.
        Senator Bond. Thank you very much.
        Senator Mikulski. Senator Shelby.

                        FIRST RESPONDER TRAINING BUDGETS

        Senator Shelby. Mr. Director, you might want to, submit
    this answer for the record, and I hope you will. Could you
    please explain to the subcommittee the budget request for the
    existing consortium members, specifically, how much money FEMA
    proposed to spend on each of the consortium members and how
    those programs will expand or contract in light of the new
    focus on First Responder training?
        Mr. Allbaugh. It is a great question. I would like to
    respond for the record. I'd like to do a little research. I
    know a little bit about it, but I would respond for the record.
        Senator Shelby. Thank you for your appearance today.
        Mr. Allbaugh. Thank you.

                                CONCERN FOR FEMA

        Senator Mikulski. Well, thank you very much, Mr. Allbaugh.
    I think the number of Senators that appeared, the length of
    questions shows our concern of course, like yours and the
    President's for the Nation and we do look forward to working
    with you and making sure that FEMA has the right sources as
    well as the right framework to respond. We look forward to
    seeing you again and we look forward also in seeing you take a
    tour of southern Maryland and also for the excellent
    responsibilities that you have assigned to the Fire Academy in
    Emmitsburg. So again, 50 disasters, an aerial attack on the
    United States. You and your team have had a lot on your plate.

                         ADDITIONAL COMMITTEE QUESTIONS

        We would like to thank you for really all that you have
    done and know that you and your team are not alone.
        Mr. Allbaugh. Thank you very much.
        [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 Patrick J. Leahy

        Question. Director Allbaugh, I am very happy to see the proposal to
    add $300 million for FEMA's flood map modernization initiative. Many
    town and regional planners in Vermont do not have updated maps, so it
    is difficult to know exactly what areas might be affected by different
    rain or run-off levels. I am concerned, though, that a small State like
    Vermont will not receive adequate funding from the program, either
    because it lacks the matching funding or because funds might be
    distributed in a manner that favors more urban areas. Can you please
    tell me exactly how FEMA plans to distribute this funding? Do you see
    the need for Congress to include strong small-State minimums when it
    authorizes the modernization program?
        Answer. It is important to note that FEMA's Map Modernization Plan,
    if funded and implemented as planned, will result in the issuance of
    modernized flood hazard mapping for all States and territories,
    regardless of size. The plan requires funding in fiscal year 2003 and
    the two subsequent fiscal years to accomplish this.
        Over the past several months, FEMA has been working with the States
    and territories to develop statewide mapping plans to accomplish the
    remapping effort. These plans call for remapping work to commence in
    all fifty States in fiscal year 2003. Accordingly, FEMA sees no need
    for Congress to include strong small-State minimums when it authorizes
    the modernization program.
        Question. Director Allbaugh, I am very concerned about proposed
    reductions to the Hazard Mitigation Grant Program, otherwise known as
    404 mitigation funds. This funding allows communities to reduce
    potential repeats of disasters, permitting such sensible moves as
    buying out homes located in floodplains. This program needs
    improvements, especially in disbursing funds more quickly and fairly to
    small States. Yet it will save lives and reduce disaster costs over the
    long-term. Don't you think it would have been more effective to make
    changes to the program, including adding in very strong small-State
    minimum funding levels, than to request a total elimination of the
    program?
        Answer. The President's 2003 Budget did not propose a reduction in
    funding for FEMA mitigation programs overall. In general, the Hazard
    Mitigation Grant Program has been a flexible and effective tool for
    States and communities to accomplish mitigation priorities in the
    aftermath of a disaster, while at the same time assisting residents
    affected by the disaster. However, because the funds are tied to
    specific disaster events, implementation of long-range mitigation
    priorities established through a comprehensive planning process at the
    State and local community level is sometimes difficult to achieve.
    Therefore, I believe that some combination of both pre and post-
    disaster mitigation is worth considering.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

                                   hmgp plans
        Question. HMGP permits States to receive an increased amount of
    HMGP's funding from 15 percent to 20 percent of the disaster funds if
    the State has an approved State Hazard Mitigation Plan. This plan would
    ensure that HMPG funds are used for important and comprehensive
    mitigation efforts. How many States have these plans in effect and what
    is FEMA doing to ensure that States develop these plans.
        Answer. The Disaster Mitigation Act of 2000 (DMA) amended the
    Stafford Act by adding Section 322 on Mitigation Planning. FEMA's new
    planning regulation, 44 CFR Part 201, Hazard Mitigation Planning, which
    was published as an Interim Final Rule in the Federal Register on
    February 26, 2002, establishes new criteria for State and local hazard
    mitigation planning consistent with the requirements of Sec. 322. The
    deadline for approval of State and local mitigation plans as a
    condition of receiving Hazard Mitigation Grant Program (HMGP) grants
    will be November 1, 2004. A November 1, 2003 deadline for plans has
    been set as a condition for local governments to receive Pre-Disaster
    Mitigation (PDM) grants (authorized by Section 203 of the Stafford Act,
    as amended by the DMA) for ``brick and mortar'' mitigation projects.
    The Interim Final Rule:
      --Continues the requirement for State mitigation planning as a
            condition of disaster assistance (which allows a State, tribal
            or local government to receive HMGP funding based on 15 percent
            of the total estimated eligible Stafford Act assistance), and;
      --Provides incentive for strengthening mitigation programs by
            establishing criteria for States to receive increased (20
            percent) HMGP funding if, at the time of the declaration of a
            major disaster, they have an enhanced mitigation plan in place;
      --Establishes a new requirement for local mitigation plans as part of
            the HMGP, which will be phased in; and
      --Allows States to use up to 7 percent of HMGP funds for the
            development of State, Tribal, and local mitigation plans. This
            provision has been in effect for all disasters declared after
            October 30, 2000.
        The new planning initiative provides a framework for linking pre-
    and post-disaster mitigation planning and initiatives with public and
    private interests to ensure a comprehensive approach to disaster loss
    reduction. Such decision-making, based on sound understanding of
    vulnerability to hazards and appropriate mitigation measures, is the
    best indicator of a successful mitigation strategy that can be
    sustained over the long-term.
        Because meaningful, effective mitigation planning takes both time
    and resources, FEMA established the 2003 and 2004 deadlines to give
    States, tribal and local governments sufficient time to understand the
    intent and scope of the requirements, and to undertake the planning
    process that will meet those requirements. It is in the States'
    interest to submit and have approved an Enhanced Mitigation Plan as
    soon as possible. Although no States have yet met the requirements for
    an Enhanced Plan, several States have submitted plans to their FEMA
    regional offices to get feedback on what it will take to upgrade them
    to the Enhanced level, so we know that work is underway to develop
    these plans.
        FEMA has undertaken an aggressive technical assistance effort to
    ensure that States develop plans that meet the Standard Plan
    requirements at a minimum, and to go beyond those to meet the Enhanced
    Plan requirements as well. Technical assistance is also being provided
    to support local and tribal governments efforts to meet the new plan
    requirements.
        Shortly after publication of the Interim Final Rule, FEMA conducted
    mitigation planning workshops in all 10 FEMA Regional Offices for
    Regional and State mitigation staff, to provide a detailed orientation
    on the planning provisions of the DMA and requirements of the Interim
    Final Rule. In addition to training on the requirements of local plans
    and Standard and Enhanced State Mitigation plans, the workshops
    included an opportunity for each State, in close coordination with the
    FEMA regional office staff, to begin developing its approach to meeting
    the requirements for the Enhanced Plan.
        Each workshop also explained and provided copies of planning
    technical assistance tools developed by FEMA to assist State and local
    governments in undertaking a meaningful mitigation planning process
    that will meet the requirements of the DMA. These materials include
    Mitigation Plan Guidance and Evaluation Criteria, a ``canned'' workshop
    for local mitigation planning that each State may use ``as is,'' or
    adapt as it chooses, a series of ``How-To'' Guides for Mitigation
    Planning, and numerous other publications, courses, etc.
        In fiscal year 2002, FEMA awarded PDM grants to every State as well
    as the District of Columbia, the U.S. Virgin Islands, the Commonwealth
    of Puerto Rico, American Samoa and the Commonwealth of the Northern
    Mariana Islands. FEMA placed an emphasis on mitigation planning in
    fiscal year 2002 in order to position States and local governments to
    meet the new criteria for State and local hazard mitigation plans. Most
    States have chosen to use fiscal year 2002 PDM funds to support
    planning and risk assessment for local governments. In addition, we
    awarded 18 PDM grants directly to Indian tribal governments for hazard
    identification and risk assessment, comprehensive multi-hazard
    mitigation planning, and public education and outreach.
        The mitigation planning process begun at the Regional workshops
    held in March and April, 2002 envisioned continual two-way
    communication between States and their respective FEMA Regional Offices
    to facilitate the development of effective mitigation plans that will
    meet the new requirements. We know from our Regional Offices that this
    process is, in fact, occurring. Further, FEMA Regional and Headquarters
    staff are also taking every possible opportunity to speak at national,
    regional and State-level conferences and meetings held by professional
    associations, States, etc., to discuss the mitigation planning process
    and the new requirements, and disseminate our technical assistance
    materials. FEMA is providing materials in both traditional hard copy,
    as well as on CD-ROM, and posting them on our website.
        FEMA is confident that all States will have an approved Standard
    Plan in place by the November 1, 2004 deadline, and that several States
    will have approved Enhanced Plans by then, if not sooner.
                      goals for assisting disaster victims
        Question. Per the Budget, the Administration has set a goal of
    meeting the needs of disaster victims for shelter, food and water
    within 12 hours after the President declares a major disaster. What has
    FEMA done to meet this goal?
        Answer. Mission assignments are one tool that FEMA uses to meet
    requests for Federal assistance. When a State lacks the capability to
    perform or to contract for eligible emergency work, FEMA may issue
    direct Federal assistance (DFA) mission assignments to provide
    essential assistance for eliminating an immediate threat to life and
    property resulting from a major disaster or emergency. FEMA has been
    working with the U.S. Army Corps of Engineers to develop pre-scripted
    statements of work (SOWs) under FEMA issued mission assignments. These
    pre-scripted SOWs are intended to expedite the mission assignment
    process and provide the needed assistance quickly and effectively. When
    mission assignments are required, it is anticipated they will be issued
    from the Regional Operations Center and/or the Disaster Field Office.
        FEMA has also improved its ability to preposition essential
    supplies and equipment in affected States and has accelerated the
    establishment of FEMA's field infrastructure, including disaster field
    offices and disaster recovery centers.
                           fema disaster relief fund
        Question. Outside of the available FEMA Disaster Relief funds for
    New York City, how much Disaster Relief funding is available for the
    rest of the Nation for fiscal year 2002? Are these funds consistent
    with the 5-year rolling average that FEMA uses to assess its needs for
    disaster assistance?
        Answer. Outside of the set-aside for the Inspector General and the
    funding provided as a result of the September 11 terrorist attacks,
    there was approximately $2.7 billion available for other disasters in
    2002. Fortunately, 2002 was a less than normal year in disaster
    activity with no disasters that exceeded $500 million in projected
    costs.
                                    buyouts
        Question. As you know, former FEMA Director Witt was a big
    supporter of buyouts of properties in the floodplain. Unfortunately,
    despite massive dollars provided by Congress for buyouts, FEMA still
    does not have a coordinated cohesive buyout program with clear rules
    and procedures. What is your view about the role of Federal buyouts in
    terms of a national mitigation plan?
        Answer. FEMA's Mitigation grant programs generally operate
    successfully as flexible and effective tools for States and communities
    to accomplish mitigation priorities, including buyouts. In fact, these
    programs have become an integral part of the overall recovery process.
    Many States across the nation have successfully used buyouts to move
    homes and businesses out of harm's way. As many as 24,000 properties
    have been purchased nationally as part of this program since 1993. In
    many of those cases, the land left behind has been flooded again.
    Without a buyout, those homes and families would have suffered once
    more.
        To the extent allowable, given differences in the authorizing
    statutes, FEMA guidance on buyouts for all funding sources is
    consolidated and consistent. Our guidance provides adequate flexibility
    to States and local communities to plan and implement the best project
    to meet their unique situations and needs.
        FEMA continues to evaluate the implementation of buyouts in order
    to strengthen our ongoing program. During fiscal year 2002, FEMA
    entered into a cooperative agreement with the University of North
    Carolina to conduct a study on the Impact of Property Acquisition
    Programs on Participating Communities. The purpose of this research is
    to conduct a national study that focuses on the process of conducting
    buyout programs as well as an evaluation of outcomes of these programs.
    The research focuses on examining the structure of buyout programs and
    their impact on individual decision-making. The study will provide FEMA
    with useful information to evaluate existing practices in the property
    acquisition program, and to identify steps to strengthen coordination
    and collaboration with other Federal programs, such as the National
    Flood Insurance Program (NFIP) and the Small Business Administration
    (SBA) in order to better assist households and communities affected by
    disaster events.
        In addition, FEMA's believes that effective coordination and
    planning at the local, Tribal, State and Federal Government levels, as
    well as the coordination of pre- and post-disaster mitigation funding
    opportunities, is essential to achieving mitigation goals and the
    prevention of disaster losses. FEMA's new planning regulation, 44 CFR
    Part 201, Hazard Mitigation Planning, establishes new criteria for
    State and local hazard mitigation planning, carrying out the
    authorities provided by Congress in the Disaster Mitigation Act of
    2000. With this emphasis on mitigation planning, many communities will
    be better positioned to develop proposals for cost-effective mitigation
    projects and activities, including buyouts, and to link pre-and post-
    disaster mitigation planning and initiatives with public and private
    interests to ensure a comprehensive approach to disaster loss
    reduction. Such decision-making, based on sound understanding of
    vulnerability to hazards and appropriate mitigation measures, is the
    best indicator of a successful mitigation strategy that can be
    sustained over the long-term.
        In fiscal year 2003, FEMA expects to publish a proposed regulation
    that will amend the existing regulations for HMGP. The proposed rule
    revises the existing regulations to implement amendments to the
    Stafford Act that provide for delegating the administration and
    management of the HMGP to States. FEMA is taking this opportunity to
    amend the existing regulations to clarify implementing procedures for
    buyout projects and open space maintenance, to more fully reflect
    program and grants management practices previously detailed in
    guidance, to strengthen the use of cost-effectiveness in prioritizing
    and selecting projects at the State level, and to make the rule more
    reader-friendly.
                          cerro grande fire assistance
        Question. On May 4, 2000, the National Park Service initiated a
    prescribed burn that exceeded the containment capabilities and
    destroyed a significant amount of New Mexico. In response, the Congress
    appropriated $455 million through the Cerro Grande Fire Assistance Act
    to compensate residents for losses from the Cerro Grande fire. What is
    the status of this program? I also would like to understand what
    accountability requirements were put in place to ensure that any
    payments were consistent with losses.
        Answer. Earlier this year, FEMA notified Congress of a projected
    $80 million funding shortfall. In July, $61 million of the projected
    $80 million shortfall was included in a $20 billion supplemental
    appropriations bill passed by Congress. This $80 million was included
    in the $5.1 billion in non-emergency funding contained in the
    supplemental appropriation and, as a result, was not funded. Without an
    additional appropriation, FEMA will run out of claims money early in
    fiscal year 2003 before all valid claims are paid. Consistent with the
    priority provisions of the Cerro Grande Fire Assistance Act, FEMA has
    not paid any of the subrogation claims, which are estimated to total
    around $104 million.
        FEMA plans to prioritize payments within the remaining
    appropriation pending receipt of additional funding. FEMA will use the
    following order of priority in paying claims: individual claimants,
    business claimants, claimants awarded compensation during the
    administrative appeal process, claimants awarded compensation in an
    arbitration decision, claimants seeking individual mitigation measures
    and lastly, insurance subrogation claimants. If insufficient funds
    remain to pay claims, FEMA will notify claimants with valid claims that
    the claim will be paid pending the appropriation of additional funding.
        The deadline to receive all claims except those seeking mitigation
    assistance passed on August 28, 2002. Now that the final date to submit
    most claims has passed and the universe of claims is known, FEMA
    estimates that as of September 17, 2002, an additional $150 million
    plus $5 million in administrative costs will be needed to complete the
    program.
        Initial claim evaluation and approval is now nearly completed, and
    the program is beginning to transition the remaining files to FEMA's
    National Processing Service Center in Denton, Texas. As FEMA brings the
    initial claim process to a conclusion, however, claimants who are
    dissatisfied with the award continue to pursue the internal appeal
    process implemented by regulation that serves as the preliminary to
    statutorily-mandated arbitration. FEMA anticipates that the appeals and
    arbitrations procedures will not be completed for most claims until
    well into 2003 and for claims for mitigation assistance through 2004.
        FEMA has implemented procedures to ensure that payments from the
    Cerro Grande Fire fund are consistent with losses suffered in the fire.
    First, the Agency prepared policy guidelines that deal with the most
    common types of losses and provide guidance on the appropriate
    methodology to document, analyze and pay each claim. To ensure
    consistency and accountability, each claim is processed by a minimum of
    four people: (1) a thorough review is made by claims reviewers who make
    an initial payment recommendation; (2) the recommendation is reviewed
    and approved by a supervisor; (3) an authorized official then
    independently reviews the claim on the merit of the documentation
    provided and either approves or reduces the recommended amount; and (4)
    a comptroller signs the payment schedule.
        Computer systems and a mandatory review help us to identify and
    avoid duplicating benefits from insurance companies or other aid
    providers. FEMA's Office of the General Counsel provides periodic legal
    review of the policies and procedures to ensure that our determinations
    are consistent with New Mexico law. An experienced private contracting
    firm with expertise in evaluating medical records and personal injury
    claims reviews the bodily injury claims and assists us in determining
    whether an injury was caused or aggravated by the fire and in setting a
    fair amount of compensation consistent with similar claims paid
    elsewhere in New Mexico.
                    new york city 9/11 losses from terrorism
        Question. What steps has FEMA put in place to ensure that fraud and
    abuse with regard to FEMA disaster assistance funds are minimized?
        Answer. Under the direction of FEMA's Inspector General, George
    Opfer, the Office of Inspector General at FEMA became proactively
    involved within a week after the September 11 attack. Both auditors and
    investigators were dispatched to New York and have remained on site
    since that time actively auditing and investigating allegations or
    complaints of fraud, waste and abuse involving the FEMA programs. They
    provided fraud awareness and financial accountability briefings to
    FEMA, State, and City disaster personnel. They created a permanent
    satellite office in New York and staffed it with five full-time
    employees. In addition, they continue to rotate five to six temporary
    disaster assistance employees to the Disaster Field Office on a regular
    basis. They are currently auditing the City's major debris removal
    contracts and working criminal investigations with the Manhattan
    District Attorney's Office, the Southern and Eastern Districts of the
    United States Attorney's Offices, and the State of New York Attorney
    General's Office. The OIG's investigative cases are being coordinated
    with the New York Police Department, Port Authority Police Department,
    New York Department of Investigations, Small Business Administration
    OIG, Internal Revenue Service Criminal Investigation Division, General
    Services Administration OIG, Social Security Administration OIG, and
    others. Following are their investigative statistics as of September
    30, 2002:

    Information/Indictment............................................    61
    Arrests...........................................................    60
    Open Complaints...................................................    91
    Closed Complaints.................................................   619
    Open Investigations...............................................   104
    Closed Investigations.............................................    24
                            flood map modernization
        Question. FEMA's Budget Request for fiscal year 2003 includes $300
    million for flood map modernization as well as $51 million derived from
    flood insurance premium fees. This must be a priority since flooding
    causes some $6 billion annually. Unfortunately, 63 percent of the flood
    maps are more than 10 years old and some 38 percent are more than 15
    years old. How much are the overall costs to improve or replace the old
    and inaccurate maps? Does FEMA have any estimate for savings once all
    flood maps are modernized? How does the flood map modernization program
    work with the Flood Insurance program?
        Answer. Funding levels of $300 million in new monies (over and
    above $51 million derived from flood insurance premium fees through the
    National Flood Insurance Program) in fiscal year 2003 and the two out
    years are planned to fund the Map Modernization Program. Program costs
    will be evaluated and refined as scoping meetings are held with the
    individual communities to be mapped, and community needs are factored
    into the mapping process.
        The following chart illustrates that that modernized flood mapping
    for the Nation will help avoid an estimated $45 billion in flood
    damages to new buildings and infrastructure over a 50-year period.

        The modernized flood maps will serve as the actuarial and
    floodplain management bases of the National Flood Insurance Program.
    Moreover, the digital form of the flood mapping will facilitate policy
    rating by insurance agents, enhanced floodplain management by
    communities, and more accurate determinations by banks of whether a
    structure must be protected by flood insurance.
                            flood insurance program
        Question. FEMA is recommending that the Flood Insurance program be
    reformed to, among other things, (1) phase-out the pre-firm taxpayer
    subsidy on second homes, vacation properties and rental properties; and
    (2) include the expected costs of coastal erosion in the premiums for
    policies in coastal areas. I assume that these changes need
    legislation. Are you working with the appropriate authorization
    committees?
        Answer. Yes, legislative changes will be needed in order to bring
    about these proposals. FEMA has briefed key staff on the appropriate
    subcommittees of both the Senate Committee on Banking, Housing and
    Urban Affairs and the House Committee on Financial Services, on the
    legislative changes needed for these proposals.
        Question. The Flood Insurance program is not actuarially sound.
    What does this program owe on its Treasury line of credit? What other
    steps can FEMA take to make this program actuarially sound?
        Answer. Although the NFIP is not actuarially sound in the
    traditional sense the term is used of charging full actuarial rates for
    all coverage, NFIP enabling legislation authorizes the charging of
    actuarial rates only for structures that are newly constructed after
    being provided with detailed flood risk information by FEMA. At the
    same time, such legislation has required the charging of highly
    subsidized rates for older, existing structures in Special Flood Hazard
    Areas. In the aggregate, NFIP premium levels are sufficient to pay
    losses associated with the average NFIP historical loss year.
        In addition to the proposal contained in FEMA's portion of the
    President's fiscal year 2003 budget, to phase out the pre-FIRM taxpayer
    subsidy on second homes, vacation property and rental property, as
    mentioned above, FEMA engages in a number of activities that assist in
    making the program more actuarially or financially sound. FEMA
    continues to review its annual and historic loss experience to
    determine and make annual adjustments to NFIP rates, as needed, and
    within the limitations contained within the NFIP's enabling
    legislation. At this point in time, more than 70 percent of NFIP
    policyholders are charged premiums that are considered to be full-risk
    premiums. Annual review and adjustment maintains the integrity of these
    rates. Slower progress is being made in reducing the levels of program
    subsidy by gradual rate changes for older construction.
        FEMA also continually promotes sound floodplain risk management
    among State and local governments to minimize the risk of flooding to
    new structures, which lowers their flood risk exposure and related loss
    potential. FEMA estimates that these efforts result in reduced damages
    by about $1 billion each year.
        Finally, FEMA further promotes sound floodplain risk management by
    aggressively administering the Flood Mitigation Assistance and Hazard
    Mitigation Grant Programs, encouraging State and local governments to
    take definitive flood loss reduction actions to properties at risk.
    Marketing the NFIP Community Rating System and providing technical
    assistance to local communities also promotes loss reduction which
    contributes to a more actuarially sound program.
        Question. FEMA has a poor record of getting homeowners to
    participate in the Flood Insurance program. What is the current rate of
    participation? How does this compare over the last 4 years and what is
    FEMA doing to ensure increased participation?
        Answer. As of July 31, 2002, the NFIP has 4,370,066 policyholders
    with over $617 billion of insurance coverage in force. Participation in
    the NFIP varies around the country. In areas without recent flood
    threats or with low mortgage activity, it can be particularly low. On
    the other hand, market penetration in much of the Southeast and States
    bordering the Atlantic and the Gulf of Mexico is relatively high.
        As an example of the result of that market penetration, in 2001 the
    NFIP paid over $1.1 billion in claims to more than 30,000 flood
    insurance policyholders in Texas and Louisiana after Tropical Storm
    Allison--the NFIP's biggest payout to date. Tropical Storm Isidore
    struck in September 2002 and is projected to result in 9,200 claims
    from policyholders in Louisiana, Mississippi, Alabama, Florida and
    Texas. Hurricane Lili affected many of the same Louisiana and
    Mississippi policyholders in October 2002, with 3,000 claims projected.
        Total flood insurance policies in force over the last four calendar
    years are as follows:
            Calendar Year                                  Policies in Force
    2001.......................................................... 4,476,836
    2000.......................................................... 4,369,087
    1999.......................................................... 4,329,985
    1998.......................................................... 4,235,138

        In fiscal year 2001, through the work of our stakeholders, new
    business increased nearly 15 percent with the addition of 630,944 new
    policies to the National Flood Insurance Program's (NFIP's) books.
    These gains in flood insurance policies, however, were offset by
    attrition (552,783 policies) from the previous year's total number of
    policies in force. While a certain degree of policyholder non-renewal
    has to be expected, we recognize that to improve overall NFIP
    participation we must not only continue to attract new business, but
    also boost the retention of current policyholders. Therefore, we have
    initiated a number of strategies and tactics to improve policy
    retention, both from a mandatory and a voluntary purchase perspective.
        FEMA will be working to reinvigorate its marketing and advertising
    campaign. FEMA will be developing a fresh campaign with a paramount
    objective of increasing the number of NFIP policies. This new national
    marketing and advertising campaign will be grounded in effective risk
    communication principles and practice. In this way the campaign will
    address one of the major obstacles to flood insurance purchase, the
    lack of perception of risk. It is expected that the campaign will
    effectively convince consumers of their vulnerability to flood damage
    and the value of buying and retaining flood insurance protection.
    Retention has been identified as a key issue.
        FEMA does not have oversight authority for lending institutions.
    Nevertheless, we foster lender compliance with mandatory purchase
    provisions by conducting lender training seminars across the country,
    developing guidance materials for lenders both in hard copy and
    electronically via our website, and by maintaining regular
    communication with Federal lending regulators, Government Sponsored
    Enterprises (GSE's), and the lending community.
        Recent analyses indicate that lenders may be correctly requiring
    the purchase of flood insurance as a condition of mortgage loan
    origination. We believe, based on policy attrition rates for the past
    several years and other data, that enough borrowers may not be
    maintaining flood insurance throughout the term of the loan, as
    required by law, to have a significant impact on our policy retention.
    GAO issued a June 2002 report on this issue, ``Flood Insurance: Extent
    of Noncompliance with Purchase Requirements Is Unknown''.
        We plan to work with Federal lending regulators and GSE's to
    identify actions we can take to ensure borrowers are required to renew
    flood insurance policies annually. Although we do not have oversight
    authority, we can help identify whether there are any means by which we
    can prevent renewals of mandatory purchased policies from ``falling
    through the cracks.''
        Also, we plan to assess State escrow laws and systems to determine
    whether any obstacles to flood insurance escrow may exist and, where
    necessary, work with the States on amendments. It bears further
    research and consideration because monthly-automated payments have been
    shown to improve the persistency of flood and other lines of insurance.
        To better guide our strategies we need current information
    regarding customers' views of our products. FIMA is in the process of
    contracting for research to determine why policyholders do or do not
    renew their policies. Another research project will assess the
    relationship of customers' perception of risk to the pricing and
    structure of the flood insurance product.
        To encourage retention of policies voluntarily purchased, we are
    seeking opportunities to drive the message that flood insurance should
    be maintained. When maps are updated and a flood risk zone is
    determined to be of lower risk than before, the message will be for
    policyholders to switch to a lower premium policy, not to drop
    coverage. Additionally, as the memory of certain significant flood
    events fades, we are working to convey to policyholders the importance
    of renewing their coverage, and that damaging floods can occur again.
    These efforts involve working through the media and asking lenders,
    insurance companies and agents to amplify the messages through their
    own direct mailings, advertising and public relations.
        A pilot project is underway to enable certain State risk pools to
    sell flood insurance to publicly-owned buildings. These risk pools will
    operate under the same rules as insurance companies that participate in
    the Write Your Own Program.
        Additionally, FEMA published an interim final rule on September 30,
    2002 to adjust the Group Flood Insurance Policy (GFIP) to be consistent
    with changes in the disaster assistance program. At that time we asked
    for comments about allowing the States to renew GFIP policies after the
    36 month expiration, provided the States pay the premium on behalf of
    certificate holders. This rule has a 6-month comment period.
        Last, we are implementing a number of technology improvements over
    the next several years that will make flood insurance easier for
    insurance companies and agents to sell and for consumers to buy.
                       emergency food and shelter program
        Question. The Administration is recommending that FEMA transfer the
    Emergency Food and shelter program from FEMA to HUD. This program has a
    long history of success at FEMA. What are the advantages to moving this
    program to HUD?
        Answer. The success of the Emergency Food and Shelter (EFS) Program
    is primarily due to the structure in which Congress established the
    program. As such, the program is administered by FEMA and governed by a
    board whose membership includes representatives from six national non-
    profit organizations. The National Board, as it is referred to, governs
    the day-to-day operations of the program, develops program policies and
    requirements, ensures the timely distribution of funds, monitors
    program compliance by the funded agencies, and compiles reports
    detailing accounting of the use of all program funds. FEMA's role is to
    chair the National Board and provide oversight and guidance to ensure
    adherence to Federal laws. Therefore, continued success is predicated
    on preserving the current structure of the EFS Program, which is
    allowing the National Board to continue to govern the program and
    allowing a Federal agency to administer it. Should the program be
    transferred to HUD and operated in the same manner, it will continue to
    be successful.
        The advantages of transferring the program to HUD are:
      --It will be easier to assess how the EFS Program is being
            coordinated with other major Federal homelessness prevention
            and assistance programs and to determine if structural changes
            to the program are necessary to ensure an integrated approach
            to assisting persons facing housing emergencies.
      --It will enable the EFS Program to link housing and services for the
            chronically homeless to other comprehensive services. Linking
            emergency homeless services for the homeless would mean that a
            full range of needs of the homeless could be addressed in a
            coordinated and comprehensive manner.
      --It would decrease duplication of services and allow for scarce
            resources to be utilized more efficiently and effectively.
            Currently, several Federal homeless assistance programs are
            providing funding to the same agencies for the same services
            and same individuals.
                 fiscal year 2001 independent auditor's report
        Question. After 3 years of clean opinions, FEMA's 2001 financial
    statement was issued a qualified opinion. What are the key concerns
    raised in the qualified opinion and what steps is FEMA taking to
    address these concerns?
        Answer. A qualified opinion was received in the fiscal year 2001
    Independent Auditor's Report for the following reasons: (1) the
    auditors could not sufficiently satisfy themselves as to the accuracy
    of the net amount ($10,753,000) of FEMA's equipment and related
    depreciation and (2) FEMA recorded an unsupported reduction
    ($77,000,000) to unliquidated obligations. FEMA management has
    addressed these areas and both financial management and the IG expect
    an unqualified opinion for fiscal year 2002. To resolve the equipment
    issues, a complete inventory of equipment is being conducted and values
    established for fiscal year 2002 statements. This effort and new
    procedures for the current year should eliminate this qualification in
    fiscal year 2002. To resolve the reduction to unliquidated obligations
    issue, a complete reconciliation of all unliquidated obligations has
    been completed which will eliminate this qualification.
                        prevention vs. homeland security
        Question. There remain significant concerns among Members as to how
    best to allocate Homeland Security responsibilities among Federal
    agencies. The President supports FEMA as the lead domestic agency over
    DOJ because of its experience and expertise in responding to natural
    disasters, such as earthquakes, hurricanes and tornados. In addition,
    FEMA has been developing additional expertise to plan and respond to
    acts of terrorism through its Office of National Preparedness. Others
    suggest that DOJ is the appropriate agency because of its experience in
    developing strategic planning through the Office of Domestic
    Preparedness. What are the strengths and weaknesses of each of these
    agencies in taking on the responsibilities for being the lead domestic
    agency in preventing and responding to acts of terrorism?
        Answer. In preparing and responding to a man-made national disaster
    or emergency, FEMA's core mission is to save lives, limit casualties,
    and minimize damage to property. Police officers, firefighters, and
    emergency medical teams are America's front-line responders in the
    event of both man-made and natural disasters, including a terrorist
    attack. With the right training and equipment, these first responders
    have the greatest potential to accomplish the mission of saving lives,
    limiting casualties, and minimizing damage to property. In the same
    terrorist scenario, Justice's core mission is to gather intelligence to
    prevent or mitigate the event, and to conduct the criminal
    investigation to identify and prosecute the perpetrator(s).
        FEMA has an established history of working with the State and local
    governments and the first responder community to prepare for, mitigate
    against, and respond to all-hazards. Our mission is to provide
    leadership and support to reduce the loss of life and property and to
    protect our nation's institutions from all types of hazards through a
    comprehensive, risk-based, all-hazards approach. As evidenced in the
    Federal Response Plan, FEMA coordinates all facets of emergency
    management without directly ``owning'' many of the specific programs
    and activities. The First Responder Initiative will require an agency
    well skilled in coordination, and FEMA is the lead agency in both
    Federal and State and local government coordination. This permits FEMA
    to coordinate programs in the most effective manner possible.
        One of the primary reasons for locating the new consolidated
    program within FEMA is the agency's strong record for quickly
    distributing emergency planning and assistance grants. FEMA has
    extensive experience providing direct assistance to local governments
    through its disaster assistance programs and its Fire Grant program.
    Because First Responder grants will be allocated to States according to
    a formula, FEMA will be able to disburse these funds quickly and
    without difficulty. We are already working with our State and local
    partners to establish a sound, working grants management process
    specifically for this program so that a system is in place and ready
    should the First Responder Initiative receive Congressional approval.
        Since FEMA is the lead agency for consequence management and for
    preparing State and local governments for all hazards, including
    weapons of mass destruction terrorism, FEMA is the most logical agency
    to coordinate all these functions.
        Question. There seem to be a clear demarcation in how we view the
    responsibilities of domestic Federal agencies with regard to acts of
    terrorism. First, there is prevention and then there is response and
    consequence management. It seems clear that DOJ is best equipped to
    handle prevention and FEMA is best equipped to handle response and
    consequence management. The key appears to be, in part, how we define
    prevention and how we define consequence management. How do we define
    these issues? Are there overlapping issues? What are those issues and
    how do we reconcile overlapping issues in order to allow DOJ and FEMA
    to work together?
        Answer. FEMA is not seeking the transfer of a law enforcement
    function. In preparing and responding to a man-made national disaster
    or emergency, FEMA's core mission is to save lives, limit casualties,
    and minimize damage to property. Police officers, firefighters, and
    emergency medical teams are America's front-line responders in the
    event of a terrorist attack. With the right training and equipment,
    these first responders have the greatest potential to accomplish the
    mission of saving lives, limiting casualties, and minimizing damage to
    property. In the same terrorist scenario, Justice's core mission is to
    gather intelligence to prevent or mitigate the event, and to conduct
    the criminal investigation to identify and prosecute the
    perpetrator(s). FEMA has not, nor does it intend to train and exercise
    law enforcement officials with respect to these core investigative
    duties.
        In the President's Executive Order establishing the Office of
    Homeland Security, elements of preparedness and prevention were
    defined. Preparing for and mitigating the consequences of terrorist
    threats or attacks involves working with Federal, State, and local
    agencies and private entities to review and assess emergency response
    plans, coordinating domestic exercises and training programs, ensuring
    the readiness of response teams, and ensuring national preparedness
    programs and activities are evaluated under appropriate standards.
        Prevention involves working with Federal, State, and local agencies
    and private entities to facilitate the exchange of information related
    to preventing the entry of terrorists and terrorist materials,
    coordinating investigations of threats and attacks, and coordinating
    the security of borders, water, and airspace.
        To reconcile these issues, the President has recommended in both
    the fiscal year 2003 Budget and the Department of Homeland Security
    proposal that the Office for Domestic Preparedness be transferred to
    FEMA. With this proposal, the President has shown true leadership in
    his willingness to address a long-standing problem--the need for
    central coordination among the myriad of Federal programs dealing with
    terrorism preparedness.
        FEMA looks forward to enhancing the training provided by ODP and
    serving as a ``single point of contact'' for State and local
    governments as numerous Commissions and recent GAO reports have
    recommended. In fact, by eliminating the duplication, confusion and
    inefficiencies of the current system as the fiscal year 2003 budget
    proposes, we will be helping to ensure that our nation's first
    responders are better trained, better equipped and better prepared.
    This consolidation and simplifying of the Federal Grant process by
    consolidating all First Responder grants at FEMA will allow our
    terrorism preparedness programs to mirror our terrorism response
    programs and satisfy repeated State and local government requests.
                                fire act grants
        Question. FEMA currently is administering the FIRE Act Grants
    program at $360 million in fiscal year 2002. This is a popular program
    that targets funds to firefighters, who are the first line of response
    to both disasters and terrorism. The program is authorized at $900
    million for both Fiscal Years 2002 and 2003. Nevertheless, the
    Administration's budget assumes that this program will be absorbed into
    a proposed larger block grant program that is administered by States.
    There are real concerns that these funds will be slowed by a new
    bureaucracy and watered down at a time of great need. I believe that we
    need to preserve this program. However, if we do, how will this impact
    the proposed Homeland Security block grant and is there a way to
    reconcile this program with the block grant proposal?
        Answer. We believe as you do that the FIRE Act program does need to
    be preserved separately from the grants provided to States for the
    first responder initiative. Subsequent to the President's submittal to
    the Congress of the 2003 budget, the Administration is on record as
    supporting separate programmatic funding between the first responder
    grant program and the Assistance to Firefighter grants. There are
    numerous reasons to maintain this separation: (1) the governing statute
    for the fire grants emphasizes fire prevention as well as response
    capacity (2) the first responder program funding priorities will be
    based on a different threat profile (i.e., terrorism) than the fire
    grants; and (3) the fire grants are required by statute to be made
    directly to local fire departments, not to the States as the first
    responder grants will be made.
        Nevertheless, there clearly are ties between the two programs, and
    therefore we also believe these two programs demand a close
    coordination with each other.
                                  legislation
        Question. Many of the Administration's proposals for Homeland
    Security depend on appropriations without any authorization structure.
    I believe that we need authorizing legislation in order to ensure a set
    of standards and benchmarks with regard to Homeland Security as well as
    ways to ensure accountability on how Homeland Security funds are spent.
    Please provide your comments.
        Answer. We believe FEMA's current authorities, transferred to the
    Department of Homeland Security as well as sections 502 and 506 of H.R.
    5005, or section 102 of S. 2452 should provide adequate authority and
    accountability.
        Question. On March 21, 2002, I introduced the S. 2061, the National
    Response to Terrorism and Consequence Management Act of 2002, which is
    designed to provide a statutory structure for the full funding of the
    Urban Search and Rescue Response System as well as a new FEMA program
    to provide technical and planning grants for States to develop State
    and local capacity to respond to acts of terrorism, including those
    involving weapons of mass destruction. If you have had an opportunity
    to review the legislation, I would like your views on the bill. If not,
    I would like your views on the need to fund fully the urban search and
    rescue response system.
        Answer. We have reviewed the legislation and believe that it
    contains important authorizing language for the National Urban Search
    and Rescue System. We have taken steps to develop a rulemaking for the
    system, which is currently under review. Your legislation provides FEMA
    with an important framework for the system and will allow for better
    financial support to the program in future years. Under the legislation
    the number of teams will continue to be 28, with the option for
    expansion resting on the judgment of the agency based on need and the
    expectation that all 28 teams will be fully capable and mission ready.
    We support this concept as we work to develop greater capability within
    the existing system. We feel that it is critical to provide the utmost
    support to the existing teams before adding additional teams.
        We believe it important to fully fund the National Urban Search and
    Rescue System to include the 28 teams and their equipment, training,
    exercises and support for deployment. It is also critical that we have
    the staff resources within the program office to provide an outstanding
    level of support to the teams before, during, and after deployment.
    Toward that end we have requested the $32 million in the emergency
    supplemental for fiscal year 2002 to bring the teams up to status to
    respond to WMD situations. Thanks to your support that effort to equip
    and train all of the teams is underway. We also have requested $16
    million for fiscal year 2003 to develop the training and exercise
    program further and to allow us to implement improved team
    accountability and peer review programs. We are looking at the addition
    of at least seven critical positions to the National Urban Search and
    Rescue Division of USFA to carry out these tasks. It is essential that
    we develop the system with care to provide increased capability, while
    meeting the needs of the teams and providing them with the training and
    equipment they need.
                          disaster assistance criteria
        Question. Congress has repeatedly sought to have FEMA establish
    clear criteria for evaluating a Governor's request for a presidential
    disaster declaration. However, FEMA has continued to employ county-wide
    and State-wide per capita cost thresholds as its primary means of
    determining whether damages exceed a State's capabilities. The FEMA
    Office of Inspector General and the General Accounting Office have
    suggested alternative methods to determine a State's financial ability
    to respond to a disaster, including assessments of its total taxable
    resources. Recently, the President, in his fiscal year 2002 budget
    plan, called on FEMA to develop ``improved guidelines for disaster
    assistance that provide States with meaningful criteria that must be
    met in order to become eligible for Federal disaster assistance.'' What
    is the status of these efforts and review?
        Answer. During fiscal year 2001, a FEMA-State Working Group
    consisting of staff from FEMA headquarters, regions, and selected
    States, including leadership from the National Emergency Management
    Association, conducted a broad review of the disaster declaration
    factors and considered various options for revising them. A
    considerable amount of discussion focused on the specificity of the
    factors--if the factors are very definitive and precise, they are
    perceived as too stringent and inflexible (and possibly too
    complicated), not allowing the agency the discretion to address the
    varying nature of disasters and the range of impacts on States. The
    opposing viewpoint is that factors that are more flexible and open to
    interpretation are seen as too vague and subjective, not defining a
    true baseline for assistance. Though a number of possible revisions to
    the factors were discussed (including using total taxable resources as
    a criterion), the Working Group generally supported the current
    factors, stressing their simplicity and the agency's inherent
    discretion in using the factors to evaluate Governors' requests for
    disaster assistance. One common concern within the Working Group was
    that any effort to revise the factors that would devolve more
    responsibility to the States for responding to and administering
    disasters, would equate to passing on additional costs at a time when
    State budget surpluses were turning into budget deficits.
        As a result of the Working Group's efforts and subsequent
    discussions, FEMA is continuing to use the current disaster declaration
    factors, as they provide general guidelines for the States to use in
    determining whether they are eligible for disaster assistance. For
    example, the factors that provide a baseline for assistance from the
    Public Assistance Program (which represents the majority of FEMA
    disaster assistance expenditures) are generally well understood. For
    example, the factor that focuses on the per capita impact of disaster
    damages on a State, clearly establishes that a figure of $1.09 per
    capita is used as an indicator that the disaster is of such size that
    it could warrant Federal assistance. Other more general factors (such
    as whether other Federal program assistance is available and the amount
    of insurance coverage in force) are also considered, allowing the
    agency to look at the collective impact of all of the factors when
    making a recommendation to the President. This approach considers the
    total impact and specific circumstances of a unique disaster within a
    particular State. Thus, the current declaration process provides an
    appropriate level of executive discretion, as well as flexibility for
    the President and the Governors.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

        Question. Director Allbaugh, those of us in the west are facing a
    100-year drought by some accounts, and the forest fire season looks to
    be the worst in decades. New Mexico has had its first fires of the
    season, and I was interested to see that FEMA has a role in responding
    to wildland fires under its fire management assistance grant program.
    Could you explain to the Subcommittee what authorities FEMA has in
    responding to wildland fire emergencies? What new activities can FEMA
    undertake in these situations that it couldn't under earlier
    authorities? What actions did FEMA take in assisting New Mexico
    communities in the recent fires? What is the fiscal year 2003 request
    for these grants, and what is FEMA's estimate of the potential need for
    this type of assistance next year? Did FEMA anticipate a significant
    fire season when it developed its fiscal year 2003 budget request?
        Answer. Could you explain to the Subcommittee what authorities FEMA
    has in responding to wildland fire emergencies?
        The Fire Management Assistance Grant Program (FMAGP) is the primary
    vehicle FEMA uses to provide assistance to State and local governments
    for wildland firefighting activities. Section 420 of the Robert T.
    Stafford Disaster Relief and Emergency Assistance Act (Stafford Act),
    42 U.S.C. 5187, as amended by the Disaster Mitigation Act of 2000,
    established FMAGP. Under approved fire management assistance
    declarations, FEMA provides assistance, primarily in the form of
    grants, to any State or local government for the mitigation,
    management, and control of any fire on public or private forest or
    grassland that threatens such destruction as to constitute a major
    disaster.
        Under fire management assistance grants, total eligible costs are
    reimbursed at a 75 percent Federal and 25 percent non-Federal cost
    share. Eligible wildland firefighting activities covered under FMAGP
    may include costs for field camps; equipment use, repair, or
    replacement; tools, materials, and supplies; mobilization and
    demobilization; limited pre-positioning; emergency work; and temporary
    repair of damage caused by firefighting activities.
        In addition to submitting requests to FEMA for fire management
    assistance declarations, States may submit requests to the President
    for emergency or major disaster declarations for wildland fire
    emergencies. If a declaration were warranted, the President would
    authorize FEMA to provide the Federal disaster assistance designated in
    the declarations. It should be noted however, that funds for recovery
    and hazard mitigation can be designated only under a Presidential major
    disaster declaration.
        Question. What new activities can FEMA undertake in these
    situations that it couldn't under earlier authorities?
        Answer. Section 420 of the Stafford Act, Fire Management
    Assistance, expands the scope and level of assistance previously
    available under Section 420 of the Stafford Act, Fire Suppression
    Assistance. Instead of limiting Federal assistance to the
    ``suppression'' of forest or grassland fires that threaten such
    destruction as would constitute a major disaster, Section 420, Fire
    Management Assistance, expands the range of eligible activities to
    include the ``mitigation, management, and control'' of such fires. In
    the final rule for FMAGP, ``mitigation, management, and control'' is
    interpreted as a flexible and broad-based provision intended to reduce
    the spread of a fire, reduce associated health and safety threats,
    prevent potential damages by the fire, repair damage caused by the
    firefighting activities, and provide for the limited pre-positioning of
    certain types of wildland firefighting resources.
        Another activity FEMA is authorized to undertake under FMAGP are
    those activities allowable under Section 403 (42 U.S.C. 5170b),
    Essential Assistance, of the Stafford Act necessary to mitigate,
    manage, and control the fire. Section 403 authorizes assistance for
    activities required to meet threats to life and property. Section 403
    activities that may be eligible for funding under FMAGP include police
    barricading and traffic control, evacuations and sheltering, search and
    rescue, arson patrol, and the dissemination of public safety
    information.
        Under FMAGP, FEMA is also authorized to provide funding to State
    and local governments. Previously, we could only provide assistance to
    the State as the sole applicant eligible for assistance.
        Question. What actions did FEMA take in assisting New Mexico
    communities in the recent fires?
        Answer. Between March and August 2002, the State of New Mexico
    submitted and FEMA approved nine requests for fire management
    assistance declarations. The State has a maximum timeframe of up to one
    year from the date of the fire management assistance declarations to
    submit its grant applications to FEMA for review and processing. We
    have already obligated approximately $5 million to the State for one
    fire management assistance declaration and our Regional staff is
    continuing to work with the State and local governments to document
    actual eligible costs so that the State can submit its eight other fire
    management assistance grant applications within the timeframes allowed.
        Question. What is the fiscal year 2003 request for these grants,
    and what is FEMA's estimate of the potential need for this type of
    assistance next year?
        Answer. FMAGP provides reimbursement to State and local governments
    in the form of grant assistance for actual costs incurred in the
    performance of eligible wildland firefighting activities for a declared
    fire. We have not received any requests for fire management assistance
    declarations since October 1, 2002, the beginning of fiscal year 2003.
    It should be noted, however; that as part of the Regulatory Planning
    and Review requirement published as part of the final rule for FMAGP,
    we estimated that in extraordinary years, with severe fire conditions
    and a high level of fire activity, fire management assistance grants
    may total more than $50 million.
        Question. Did FEMA anticipate a significant fire season when it
    developed its fiscal year 2003 budget request?
        Answer. FEMA did not anticipate a significant fire season when it
    developed the fiscal year 2003 budget request due to uncertainties in
    trying to forecast the number and severity of wildland fires that would
    be eligible for assistance under FMAGP.
        Question. Director Allbaugh, I want to thank you for your personal
    attention to the recovery of Los Alamos and surrounding areas from the
    devastating Cerro Grande Fire that occurred in New Mexico just about
    two years ago. This fire consumed almost 48,000 acres of forest,
    destroyed nearly 400 homes and caused damage or injury to 1,000
    families, countless businesses, the county of Los Alamos, the State of
    New Mexico, four Indian pueblos, and Los Alamos National Laboratory. I
    would remind my colleagues that this fire was started by the Federal
    Government when a controlled burn at Bandelier National Monument burned
    out of control. For that reason, the Congress enacted the Cerro Grande
    Fire Claims Assistance Act of 2000, and appropriated $455 million to
    FEMA to establish a claims program to compensate victims of the fire.
    New Mexicans had until August 28 of this year to file claims under the
    Act, and according to recent assessments of the Cerro Grande fire
    claims program, additional appropriations will be needed to pay
    anticipated claims.
        Would you please give the Subcommittee the latest figures on: the
    number and amount of claims filed; the number and amount of claims
    approved; the number and amount of claims paid; the number and amount
    of claims pending; and the number of claims anticipated to be filed by
    August 28.
        Answer. Claims filed: 21,512
        Claims paid: 14,614 ($430 million)
        Claims closed: 19,060 (included in $430 million)
        Number of claims pending: 2,452 ($150 million)
        Question. Under the recent assessment of the program, FEMA
    indicated that additional appropriations will be needed. What is FEMA's
    estimate of the additional appropriations needed to pay anticipated
    claims?
        Answer. We estimate that we will need an additional $150 million to
    pay all claims. The amount is based on estimates of our current
    liabilities. Please see Table below:

                      OCGFC CLAIMS LIABILITY AS OF 10/03/02
    ------------------------------------------------------------------------
                 Category                  Sub-Totals           Totals
    ------------------------------------------------------------------------
    Total Appropriation..............  .................       $455,000,000
    Reimbursement from Stafford......         $2,305,601          2,305,601
    Total Paid to Date...............  .................       (424,554,223)
    Estimated Remaining Liabilities:
        Individual Claims Liability..         23,311,587  ..................
        Business Claims Liability....         18,004,441  ..................
        Government Claims Liability..         16,313,928  ..................
        Pueblo Liability.............          4,984,127  ..................
        Appeals Liability............            100,615  ..................
                                      --------------------------------------
          Sub-total Liabilities......  .................         62,714,698
                                      ======================================
    Liabilities Remaining without      .................        -29,963,320
     Subrogation and Unknowns........
    Subrogation......................        103,775,814  ..................
    Projections for Inestimable
     Liabilities:
        Potential appeals............          2,552,766  ..................
        Potential arbitrations/               10,000,000  ..................
         Federal Court...............
        Mitigation...................          2,910,000  ..................
                                      --------------------------------------
        Sub-total Inestimable........  .................        119,238,580
                                      ======================================
    Additional Funds Required........  .................       -149,201,900
    ------------------------------------------------------------------------
    The formula to determine the OCGFC liability will be as follows:
      Appropriation; Plus Reimbursement from Stafford; Less Total Paid to
      Date; Reserves on Individual, Business, Government and Pueblo Claims
      (Open Claims); Open Appeals; Subrogation liability.
    Projections for Inestimable Liabilities: Mitigation; Future Appeals;
      Future Arbitrations/Federal Court.
    Equals--Additional Funds Required.

        Question. When does FEMA expect to need these funds, and for what
    purpose?
        Answer. The funding will be needed by the end of the first quarter
    to continue processing payments. We continue to hold payments to
    insurance companies, as specified in the Act, until additional funding
    is available. However, we are fast approaching a time when additional
    dollars will be needed in order to continue payments to individuals and
    businesses affected by the fire.
        Question. With these funds, will FEMA be able to keep on schedule
    processing and paying claims?
        Answer. Depending on the amount of funding approved, whether it is
    the full amount or a partial amount, we could continue the processing
    of payments and delay payment of subrogation claims until funding
    becomes available.
        Question. What would be the effect of not receiving these funds in
    the fiscal year 2002 supplemental appropriations bill now before
    Congress?
        Answer. The effect of not receiving the funds would be that
    starting in late November 2002 any additional payments would be
    prioritized. We would continue to pay claims already in process. Those
    that cannot be paid would receive a letter detailing the agreed award
    to be paid contingent upon funding.
        Initially, FEMA would cease making payments to all claimants other
    than individual and business claims received before a financially
    determined cut off date. Individuals and businesses who filed after the
    calculated cut off date would be paid initial awards on a first
    completed basis from remaining funds until funding was depleted.
    Remaining amounts awarded through appeals, mitigation claims, or
    arbitrations would not be awarded until funding was made available.
        Director Allbaugh, I would first like to say that I support
    President Bush and his Administration 100 percent in their efforts
    regarding the war on terrorism. There is nothing more important and no
    higher priority for this country at this time in history. That having
    been said I would like to ask you some questions regarding the shift in
    funding regarding the training of our first responders, an activity
    that, up until this particular Presidential budget request, has been
    administered by the Department of Justice (DOJ).
        Question. Has the entire activity of first responder training been
    transferred to the Federal Emergency Management Agency (FEMA) or does
    DOJ still retain some aspects of this critically important function?
        Answer. The fiscal year 2003 Budget and the President's Department
    of Homeland Security proposal would transfer all functions and
    activities of the Office for Domestic Preparedness (ODP) of the
    Department of Justice to FEMA. FEMA will continue the preparedness
    activities at facilities currently funded by ODP, and will build upon
    and enhance those activities at a greater level. These are not law
    enforcement functions. They include only those activities that have
    long been a part of the FEMA preparedness mission.
        FEMA is not seeking the transfer of a law enforcement function. In
    preparing and responding to a man-made national disaster or emergency,
    FEMA's core mission is to save lives, limit casualties, and minimize
    damage to property. Police officers, firefighters, and emergency
    medical teams are America's front-line responders in the event of both
    natural and man-made disasters, including terrorist attacks. With the
    right training and equipment, these first responders have the greatest
    potential to accomplish the mission of saving lives, limiting
    casualties, and minimizing damage to property. In the same terrorist
    scenario, Justice's core mission is to gather intelligence to prevent
    or mitigate the event, and to conduct the criminal investigation to
    identify and prosecute the perpetrator(s). FEMA has not, nor does it
    intend to train and exercise law enforcement officials with respect to
    these core investigative duties.
        Question. Director Allbaugh, I think we all agree that a shift in
    first responder training responsibilities would require legislative
    authorization by the Congress. You recently mentioned that you were
    working with the Environment and Public Works Committee on such
    legislation. As a new member of that Committee, could you tell me the
    nature of these discussions, and bring me and my staff up to date on
    those discussions?
        Answer. Senator Jeffords introduced S. 2664, the First Responder
    Terrorism Preparedness Act of 2002, in June 2002. This bill would amend
    the Robert T. Stafford Disaster and Emergency Assistance Act to
    establish a program to provide assistance to enhance the ability of
    first responders to respond to incidents of terrorism, including
    incidents involving weapons of mass destruction. To accomplish this
    purpose, the bill would establish the Office of National Preparedness
    within FEMA to coordinate and build viable terrorism preparedness and
    response capability at all levels of government.
        The Committee on Environment and Public Works met to consider S.
    2664 on June 27, 2002. By voice vote, the committee agreed to three
    amendments offered by Senator Clinton. The first amendment, as
    modified, established a program to protect the health and safety of
    first responders. The second amendment required States to use criteria
    established by FEMA to disburse funds to local governments and local
    entities within 45 days and to coordinate with them concerning the use
    of this assistance. The third amendment provided that FEMA will
    coordinate with the Department of Justice in relation to the Community
    Oriented Policing Services program. The committee then agreed to
    favorably report S. 2664, as amended, by voice vote. Report Number 107-
    295 was reported by Senator Jeffords on October 1, and the bill, as
    amended, was placed on the Senate Legislative Calendar; Calendar number
    625.
        Under the leadership of Senator Judd Gregg as the then-Chairman of
    the Senate Commerce, Justice, State, and the Judiciary Appropriations
    Subcommittee, the Congress established the first responder training
    program in the Department of Justice, and it has been extremely
    successful in training 80,000 police, fire, and emergency personnel.
    Last May, when the President proposed the transfer of first responder
    training to FEMA, it was a program of about $30 million. For fiscal
    year 2002, the National Domestic Preparedness Consortium received $32.7
    million with an additional $63 million added after the September 11
    attacks. The President proposes to transfer $234.5 million for all
    Department of Justice counter-terrorism funding associated with
    domestic preparedness to FEMA, and the new program is now proposed at
    $3.5 billion!
        Question. The proposed $3.5 billion program is a significant
    expansion of the first responder training program. I asked this same
    question to the Attorney General--would FEMA have the capability of
    implementing a dramatically expanded first responder training program
    in fiscal year 2003 considering that legislation has not yet been
    considered to establish this program?
        Answer. Yes. FEMA believes it has existing authority to implement
    the First Responder Initiative as derived from the Stafford Act as well
    as the Federal Fire Prevention and Control Act. Grant making or other
    financial assistance authority for training is found in a number of
    sections of the Stafford Act. The Stafford Act (42 USC 5196(f))
    authorizes the Director of FEMA to ``conduct or arrange, by contract or
    otherwise, for training programs for the instruction of emergency
    preparedness officials and other persons in the organization,
    operation, and techniques of emergency preparedness'' as well as
    ``conduct or operate schools'' and ``provide instructors and training
    aids as necessary.''
        In addition, the Federal Fire Prevention and Control Act (15 U.S.C.
    2206) authorizes the establishment of the National Fire Academy and
    permits the Superintendent to ``admit to the courses and programs of
    the Academy individuals who are members of the firefighting, rescue,
    and civil defense forces of the Nation and such other individuals [. .
    .] as he determines can benefit from attendance.''
        Question. Is FEMA prepared to implement this program in a fashion
    that will not delay critical first responder training activities while
    it sets up an internal structure to implement this new program
    responsibly? Other significant program expansions are proposed for FEMA
    in the budget that will also place administrative burdens on the
    agency.
        Answer. One of the primary reasons for locating the new
    consolidated program within FEMA is the agency's strong record for
    quickly distributing emergency planning and assistance grants. FEMA has
    extensive experience providing direct assistance to local governments
    through its disaster assistance programs and its Fire Grant program.
    Because First Responder grants will be allocated to States according to
    a formula, FEMA will be able disburse these funds quickly and without
    difficulty. That being said, FEMA intends to monitor the funds closely,
    ensure they are awarded based on risk and need and require that mutual
    aid agreements are in place as a prerequisite to funding.
        The Administration expects that FEMA will begin operating the First
    Responder program immediately following the passage of FEMA's 2003
    appropriations bill. FEMA intends to award grants to the States shortly
    after receiving the appropriation from Congress. FEMA has developed a
    process for the distribution of the fiscal year 2002 supplemental
    grants that will be adapted and used for the fiscal year 2003 First
    Responder grants.
        Question. How would FEMA utilize the current training partners of
    the National Domestic Preparedness Consortium, which includes the New
    Mexico Institute of Mining and Technology, under its proposed first
    responder training program?
        Answer. FEMA intends not only to continue the preparedness
    activities at the New Mexico Institute of Mining and Technology and the
    other facilities currently funded by ODP, but also to build upon and
    enhance those activities at a greater level. Training is a crucial
    component of this countries' ability to prepare and respond to
    terrorism activities. The request for $3.5 billion will ensure that we
    begin providing the enhancements and new efforts necessary to get our
    First Responders on track for the level of preparedness that is
    necessary to deal with any future terrorist or WMD events.
        ODP provides funding for a number of training programs and non-
    Federal terrorism centers. In 2003, FEMA will continue to fund those
    activities for which the Administration requested funding in fiscal
    year 2002, including:
      --Center for Domestic Preparedness (Ft. McClellan)--chemical weapon
            training
      --Texas A&M--Emergency response training
      --Louisiana State University--Bio-preparedness training
      --DOE Nevada Test Site--Large-scale WMD training
      --New Mexico Institute of Mining and Technology--Live explosives
            training
        Question. How would FEMA make provision to train first responders
    for weapons of mass destruction, including biological, chemical, and
    radiological weapons, which require highly specialized facilities to
    ensure safe exercises?
        Answer. FEMA will continue the preparedness activities currently
    funded by the Office of Domestic Preparedness that offer specialized
    training activities, to include live-agent training and will build upon
    and enhance those activities at a greater level. Training is a crucial
    component of this country's ability to prepare for and respond to
    terrorism activities.
        Question. Assuming that a comprehensive first responder training
    program is developed, it is clear that responding to potential attacks
    using weapons of mass destruction--chemical and biological agents and
    even nuclear devices--requires very specialized training. In your
    opinion, are there necessary trainers available throughout the country
    to carry out a significant first responder training program,
    specifically one that is comprehensive and coordinated to provide a
    seamless response to a disastrous attack?
        Answer. It is critical that a comprehensive, coordinated and
    consolidated terrorism training program be established. This is why the
    President asked FEMA to manage the First Responder Grant Program which
    would provide over $1 billion in training funding alone. It is also why
    I have put all FEMA training under the same directorate, so all first
    responder training could be centrally coordinated and each emergency
    discipline could learn to work as a team with others. FEMA has for many
    years used a robust and coordinated training system that utilizes over
    50 State fire academies and State emergency management training
    programs, there are also robust State and local fire, emergency medical
    services and police academies as well. These systems train hundreds of
    thousands of responders each year and have largely been left out of the
    funding and support from DOD and the Justice Department's programs.
    There are thousands of trainers that can be brought to bear on this
    issue. We are also aggressively working to develop additional train-
    the-trainer opportunities to assist first responder training systems
    with the expertise they need. Chemical incidents are not dissimilar
    whether the cause is accidental or terrorism and our nation's hazardous
    materials teams are well suited to respond. We continue to work with
    the Environmental Protection Agency, the Department of Transportation
    and others to strengthen their training. Biological events, while
    having some similarities to chemical incidents, do require additional
    training and we look forward to working with the CDC and the Department
    of Health and Human Services to address these needs. The bottom line is
    that through FEMA, we need to fully utilize the existing robust
    training systems we have in place, that have not yet seen significant
    support, rather than creating new mechanisms that will perpetuate a
    disjointed program of Federal assistance. In that way we can make sure
    that our first responders are well prepared to respond to any attack
    regardless of cause.
        Question. On Sunday April 28, 2002 a tornado touched down in
    Southern Maryland destroying many homes and businesses in Charles and
    Calvert Counties. It also caused an estimated $3.5 million in damages
    to Southern Maryland Electric Cooperatives (SMECO) facilities which
    serves the entire area. Can you give me a time frame as to when SMECO
    can expect reimbursement from FEMA and an approximate percentage of
    recovery?
        Answer. Six Project Worksheets (PW) totaling $1,100,358.09 (75
    percent Federal Share) were approved and obligated for the SMECO on or
    before 5/31/02. The majority of these projects were 100 percent
    completed at the time of the PW preparation and therefore actual
    eligible costs were reimbursed. There are currently no outstanding
    issues related to this applicant.
        Question. Over the past decade FEMA has stepped in and provided
    vital support in helping to rebuild local communities and entire
    regions when natural disasters have occurred. Timely assistance in
    helping homeowners rebuild, small businesses recover from structural
    and economic damages, and providing grant assistance for public and
    cooperatively-owned utilities in order to restore critical
    infrastructure will be essential to Southern Maryland's recovery. Do
    you foresee any delays or problems with the State of Maryland's
    request?
        Answer. The incident occurred on Sunday, April 28, 2002, and was
    declared on Wednesday, May 1, 2002. Tornado damage is normally covered
    by homeowners' insurance. While the majority of applicants received
    insurance settlements, FEMA was able to provide disaster housing
    assistance in the amount of $158,247.60 to 87 eligible applicants. The
    Individual and Family Grant (IFG) Program provided grant awards for
    serious unmet needs in the amount of $175,676.00 to 70 eligible
    applicants. Disaster Unemployment Assistance (DUA) was given to 50
    applicants in the amount of $32,618.00. To date, Crisis Counseling
    grants have been awarded in the amount of $716,617.00. In addition to
    FEMA assistance, the U.S. Small Business Administration (SBA) has given
    106 loans totaling $5,987,600.00 (70 home loans in the amount of
    $3,268,200 and 36 business loans in the amount of $2,719,400.00).
        A total of $1,100,358.09 (75 percent Federal Share) was approved
    and obligated for Southern Maryland Electric Cooperatives to reimburse
    them for emergency costs incurred and to restore their infrastructure.
    All of these funds were obligated by 5/31/02.

                              SUBCOMMITTEE RECESS

        Senator Mikulski. God bless you. God bless America. And
    this hearing stands in recess until next week Wednesday, May
    15, when we will listen to the National Science Foundation and
    the Office of Science and Technology Policy.
        [Whereupon, at 11:10 a.m., Wednesday, May 8, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                            WEDNESDAY, MAY 15, 2002

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:46 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Barbara A. Mikulski (chairman)
    presiding.
        Present: Senators Mikulski, Johnson, Bond, and Domenici.

                          NATIONAL SCIENCE FOUNDATION

    STATEMENT OF DR. RITA COLWELL, DIRECTOR
    ACCOMPANIED BY:
            DR. WARREN WASHINGTON, CHAIR, NATIONAL SCIENCE BOARD
            TINA BOESZ, INSPECTOR GENERAL

                       EXECUTIVE OFFICE OF THE PRESIDENT

                    Office of Science and Technology Policy

    STATEMENT OF JOHN H. MARBURGER III, DIRECTOR

                OPENING STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. My colleague, Senator Bond, is on his way
    from a meeting, but I am going to go ahead and start the
    hearing and then he will be able to join in his statement,
    because we have to wrap up as close to 11 o'clock as we can,
    just because of all of the things going on, on the floor.
        So, I want to state that the subcommittee on VA/HUD will
    come to order. And today we are going to take the testimony for
    fiscal year appropriations from Dr. Rita Colwell, the Director
    of the National Science Foundation, who is now approaching her
    fourth year of her term; and we welcome her.
        To Dr. Warren Washington, the new chair of the National
    Science Board. And, Doctor, I understand that you were just
    elected by your peers to be the next chairman of the National
    Science Board, so congratulations and a most warm and cordial
    welcome to you.
        And also we have asked Dr. John Marburger to come, as well.
    He is the Director of the Office of Science and Technology
    Policy, the President's advisor on science. Dr. Marburger, this
    is your second appearance before this subcommittee. You and
    Administrator Whitman, the administrator of EPA, testified last
    year on the Anthrax situation concerning the Hart Building and
    the Brentwood Mail Facility, in which you helped to get the
    post office very important and crucial technical assistance.
    So, we welcome you as well.
        In reviewing this year's appropriations requests from the
    administration, I was really taken aback at what I regard as a
    rather spartan budget for the National Science Foundation. I
    really, in the course of our testimony this morning, will want
    to ask all of you what you think the administration's long-term
    plan is for scientific research.
        Last year--I was disappointed as well in the
    administration's budget, because it actually cut into research.
    And everyone from those who are advocating the United States of
    America maintaining its strategic and competitive edge, to
    those interested in national security and homeland security, we
    are all turning to science and technology, and we are turning
    to scientists to help maximize--to really maximize the human
    capacity we have in our country.
        So looking at this, I was really concerned. Last year,
    Senator Bond and I worked on a bipartisan basis to increase NSF
    by 8 percent. It is well known that Senator Bond and I want to
    double the National Science Foundation. And he and I continue
    to be committed to that on a bipartisan basis.
        And I know he will speak for himself in his usual unabashed
    way; it is the characteristics of who chairs this committee.
        This year's budget sent up by the Administration is a bit
    better. It does contain a 5 percent increase, but one-third of
    the increase is made up from programs from other agencies,
    meaning a transfer of--from NOAA and other agencies. So it is
    really only 3 percent.
        I find this really disturbing in light of: This is the
    beginning and the dawn of the 21st Century and some of the
    great institutions created in the last half of the last century
    are staying--seeing us well.
        And I just point to NATO and the National Science
    Foundation. NATO has helped preserve the peace, bring about the
    end of a Cold War, has protected both this country and its
    allies, and was a very crucial institution in this century.
        The National Science Foundation was created so that we
    could advance science and technology, particularly in the
    civilian sector. Science and technology helped us win World War
    II, and we knew that it would help win the war of the future,
    in terms of economics and national security.
        So we want to make sure, of course, NATO is strong. But I
    want the National Science Foundation to be strong and funding
    the cutting edge research that needs to be done, and bringing
    along the next generation.
        We have to do more than keep up with inflation if we are to
    expect our scientific enterprise to give us the ability to meet
    our national and economic security challenges. And, again, I
    will reiterate that Senator Bond and I want to double this
    budget.
        In order to meet that goal, we would need a 15 percent
    increase in NSF this year, not 3 percent proposed by the
    Administration. So we are going to have a tremendous amount of
    work to do.
        In the areas of research, the Administration is proposing
    transferring three programs from other agencies to NSF. NOAA's
    Sea Grant program--and Dr. Colwell, I know this is one of your
    great areas of interest, because of your previous job heading
    up the Marine Biotech Center at the University of Maryland.
        But really, does Sea Grant belong at NSF, or does it stay
    at NOAA where it has done such an outstanding job over the
    years? Then there is EPA's environmental education program and,
    of course, the Administration wants to transfer the U.S.
    Geological Survey's water quality research program.
        To me this is the illusion of creating an increase; this is
    not an increase. It simply moves the responsibility from one
    area to another. We want to be able to discuss this.
        I do not believe a merger of these programs is warranted--
    but I do want to hear the justification of the Administration.
        I am pleased, however, with proposed increases in
    information technology, nano-technology and bitechnology. I
    believe that these are cutting edge, and we will want to
    discuss these further.
        Though in reviewing the basics, which is always the basics,
    I was disappointed with the funding level of basic science, or
    the core sciences, to really see that in areas like physics and
    chemistry that I know you, Dr. Colwell, have said have long
    been neglected, are really again at--they have gone from
    spartan to--I am afraid they are on the verge of skimpy.
        We can see that the investments in science are yielding
    results. My colleague here, Senator Bond, has been a very
    strong advocate of mapping the plant genome. And we see the
    results of this.
        They have completed the genetic map of rice, which, of
    course, could have untold consequences in terms of world food
    supply, disease resistance, all of these things. I mean, this
    is what--you know, this is what we want to be able to help do,
    not only the practical applications, but the basics, so that
    even the private sector can value add. This discovery will be a
    major step, as I said, in preventing world hunger.
        Then we look at things like info-tech. That takes us to
    issues like cyber-security, when just about everything we do
    relies on a computer network, cyber-attacks could make us very
    vulnerable in the United States of America.
        So, we want to discuss the core science programs and what
    really is needed to maintain this.
        In the area of education, of course, I am interested in the
    next generation of science. I know that over 40 percent of our
    PhD's--students studying for PhD's, are from other countries.
    That is not a xenophobic statement on my part.
        But what is happening to our young people? Where are they
    in science and in engineering and so on?
        Well, I know that one of it is that the stipends used were
    really quite modest and we were able to increase that to
    $21,500. And I note that this goes a long way to increasing it
    to $25,000. So in my mind, one of the jobs of NSF is to be
    bringing along the next generation, which if it were medicine,
    it would be interns and residencies and so on.
        And this is what we need to be thinking about here, as well
    as them being attracted to the basic sciences, so we can move
    ahead in other areas of science and technology.
        I am concerned that undergraduate education funding
    declines by 5 percent and that programs for women and
    minorities decline by over 7 percent.
        I think that is very shortsighted. Then there is the issue
    of work force readiness. I think it is well-known that I
    believe, like our Secretary of Labor, Elaine Chao, that we do
    not have a job shortage in this county; we have a skill
    shortage. And then that takes us, again, through this.
        I will be at a press conference shortly after this on the
    issues related to the digital divide. So, we are looking at the
    basics--our basic scientists, our basic research, the future
    scientists of America. Well, we know that science education
    really starts at the K through 12 level and even before that.
        Finally, we go to NSF management. We want to know what NSF
    and the National Science Board have done to improve its project
    and fiscal management of large-scale projects.
        We need to understand how NSF sets priorities, particularly
    among new, major equipment projects and how are they being
    managed. We need to maintain a strong management focus
    particularly as--hopefully as the budget increases. This budget
    proposes a significant increase in salaries and--increases. So,
    we want to hear from you on that.
        Dr. Marburger, also, we welcome you, as we will be asking
    you: What are the administration's over-arching objectives in
    science and technology? What is the role of OSTP when it comes
    to major agency science programs, such as the space station?
    Does it really do cutting edge research? Where are we going in
    areas that have specific strategic interest to the United
    States and, of course, the balance between the life sciences,
    and physical sciences and engineering science?
        We really would like to also know what kind of interagency
    task forces are going on in the area of science and technology
    and particularly in the areas of education.
        And we will have more to go in on this. I note that my
    ranking member has arrived. I want to really thank him for his
    very strong advocacy on the National Science Foundation.
        We have worked on a bipartisan basis on this. And I think
    it is one of the things that we have really enjoyed working
    together. So Senator Bond, let me turn it over to you.

                    STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you very much, Madam Chair; I thank you
    for your kind words. I also thank you for your leadership and I
    could just say, ``Amen, I agree with everything you said,'' but
    being this is the United States Senate, I am going to say it
    anyhow. Because this is an area where we both have a deep
    personal interest and concern, I want to share with you some of
    those concerns, some of the optimism, some of the hope.
        I apologize to you, Madam Chair, and to the witnesses. I
    was late. I was on the phone with another friend from the White
    House talking about VA/HUD issues. It is certainly nice to be
    popular. They have our phone numbers and I apologize for the
    delay.
        I join in welcoming Dr. Colwell, Dr. Marburger, and Dr.
    Washington.
        Dr. Washington, in your first appearance as the Committee--
    before the Committee as chair of the National Science Board, I
    look forward to working with you. You have very big shoes to
    fill, since Dr. Kelly was very active, very helpful to us and
    played a major role in boosting NSF's budget.
        I also understand that the Inspector General, Dr. Tina
    Boesz, is here. She has done an outstanding job in reviewing
    NSF management practices, especially of the large facility
    project area.
        Also, I add a special commendation for the outstanding work
    of Dr. Bob Eisenstein, who is departing the Foundation at the
    end of the month. Dr. Eisenstein is a native Missourian, who is
    in charge of the math and physical sciences directorate at NSF,
    and leaves a very distinguished record. I wish him the very
    best and thank him for his great service.
        This is our last budget hearing, or at least regularly
    scheduled hearing in this Committee. But it is very important
    to us, because it gives an opportunity to talk about the
    critical role that science and the National Science Foundation,
    OSTP play in the economic and intellectual growth and in the
    well-being of the Nation.
        According to many economists, over the past half century,
    advances in science and engineering have stimulated at least
    half of the Nation's economic growth. Further, investment in
    scientific research has led to innovative developments in the
    high-tech industry, most notably the Internet, lasers, and
    supported notable scientists such as Carl Sagan and John Nash.
        And that is why my colleague, Senator Mikulski, and I have
    led the bipartisan, effort to double NSF's budget. As she has
    said, unfortunately, we have a long way to go. We do not have
    the budget recommendation.
        And while Federal support in life sciences, specifically
    NIH, has increased significantly. The combined share of the
    funding for physical sciences and engineering in the Federal
    research budget total has actually dropped.
        I am very disappointed that the Administration has not
    demonstrated the same level of support for NSF, as we have
    continued to argue for NSF and ask Dr. Marburger to help us
    change the Administration's views about the importance of the
    physical sciences.
        Support for NSF is vital to the research in the bio-medical
    field, as well. And that is what so many doctors have told me
    throughout Missouri and throughout the country.
        They have been alarmed at the disparity in Federal funding
    between life science that NIH supports and the physical
    sciences that NSF mainly supports. Without NSF's supported
    research and the physical sciences, medical advances will
    stagnate.
        Many medical technologies such as magnetic resonance
    imaging, ultrasound, digital mammography, genomic mapping,
    could not have occurred and cannot improve to the next level of
    proficiency without underlying knowledge from NSF supported
    work in biology, physics, chemistry, math, engineering, and
    computer sciences. Simply put, supporting NSF supports the work
    of NIH.
        Now, the Federal Government's drop in support of the
    physical sciences has also alarmed the high-tech industry,
    because of the significant decline in bachelor degrees in
    physical sciences. As the chair pointed out, this decline has
    put our Nation's capabilities for scientific innovation at
    risk; and equally important, at risk of falling behind other
    industrial Nations.
        The high-tech industry is struggling to find qualified
    engineers and scientists and, as noted, becoming much more
    reliant on foreign nationals to fill those positions. That is
    fine if we can encourage those people to come here and stay
    here, but when they go home and take their knowledge with them,
    that is a serious brain drain.
        Many notable researchers in the high-tech industry have
    told me that the shortages of trained American scientists and
    engineers has limited the growth potential of the electronics
    and software industries and allowed foreign competitors to
    catch up to U.S. industry.
        To address the shortage of the tech talent in this country,
    I have joined with Senate colleagues, including Senator
    Mikulski, Senator Lieberman, Senator Frist, and Senator
    Domenici, in introducing legislation to improve undergraduate
    education in math, science, engineering, and technology.
        I appreciate the Administration's support of the program
    and its budget request and hope we can provide more money there
    this year.
        As, again, as the Chair has mentioned, one of my specific
    areas of interest is plant biotechnology. I strongly believe
    that biotechnology, namely the plant genome research, is
    critical in maintaining the long-term sustainability and
    competitiveness of our Nation's agriculture. In particular,
    NSF's plant genome program has generated exciting possibilities
    for improving human health and nutrition.
        It can be a very powerful tool for addressing hunger in
    many third-world countries, as well as improving our own
    environment and our own nutrition values in food.
        Now, while I would prefer to spend more minutes
    highlighting the importance of scientific endeavors, such as
    the plant genome, I need to raise some questions about the
    Foundation's management.
        As you all know, I am a big advocate for the Foundation.
    But my enthusiasm for boosting the NSF's budget runs into
    problems when we have management problems.
        In the inspector general's written testimony submitted for
    this hearing, she found three significant management problems
    related to post-award management, work force planning, and most
    notably, large facility project management. These findings are
    troubling, especially since these issues are not new and are
    not difficult to resolve.
        The most troubling management issue is NSF's management and
    oversight in large research facilities. At my request, the I.G.
    audited NSF's funding and management of major research
    equipment and facilities, and recently issued its final report
    on May 1.
        The I.G. report noted that the Foundation has made some
    effort to improve its management and oversight of large
    facilities; however, the I.G. found that the lack of adequate
    guidance ``have allowed NSF to use multiple appropriation
    accounts to fund the acquisition and construction costs of
    major research and equipment and facilities, and led to
    inconsistency in the types of costs funded through the MRE
    account.''
        Unbeknownst to the science board and Congress, NSF
    practices have resulted in significant cost overruns and
    cannibalization of funds from other worthy research projects.
    For example, the I.G. report found that NSF's contribution to
    the Large Hadron Collider project would exceed its budgeted
    amount by $59 million or 73 percent. According to the I.G.'s
    report, this practice seems to be common in other large
    facility projects.
        This report confirmed my fears about the oversight of NSF's
    large facilities. It appears that once the money is out the
    door, too little follow-up occurs.
        Now, NSF has taken some important steps, such as developing
    a management and oversight plan, but much more needs to be done
    and needs to be done very promptly. I've seen how mismanagement
    often leaves other agencies open to budget cuts and NSF would
    not be immune.
        Related to this issue is my concern about the Foundation's
    process for prioritizing its large facility projects. I have
    recently asked my staff to begin discussions with the National
    Academy of Sciences to see if the Academy could provide us some
    guidance on how NSF can better prioritize its numerous large
    facility projects.
        I plan to pursue this matter and hope that the Science
    Board and the Foundation can work with us and we can develop a
    better plan.
        Lastly, I need to express my concern about the proposed
    national underground science laboratory at the Homestake Mine
    in South Dakota. Since I first became involved with this
    subcommittee, I have defended the peer review system.
        However, despite my remarks--or remarks made by the lab's
    political advocates that the Homestake project will be judged
    solely on the scientific merits, I am skeptical. I fear that
    the peer review system is in danger and that political pressure
    may prevail.
        I have been concerned about the project ever since the
    Homestake Identification Bill was forced through Congress last
    year. I believe that the passage of the indemnification bill
    has tainted what could otherwise be a scientific worthy
    project. The bill has created a dark cloud around the Homestake
    Mine project, due to the dangerous legal, budgetary, and policy
    implications it may create.
        And it could be, unfortunately, a great, big, black hole in
    the ground where we pour research dollars badly needed in other
    areas.
        This very costly program may be largely redundant since
    there are already sophisticated neutrino labs in Canada and
    Europe. I urge NSF and the Science Board to review this project
    carefully and I assure you I intend to monitor it carefully as
    well.
        With that, I thank the Chair for her indulgence. I have a
    lot to say, because this is a very important agency to me.
        Senator Mikulski. Yes, absolutely.
        Senator Johnson, did you want to have an opening statement
    or any remarks?

                        STATEMENT OF SENATOR TIM JOHNSON

        Senator Johnson. Well, Madam Chairman, I will submit an
    opening statement. I want to expedite the opportunity to listen
    to this panel.
        I would make just a very brief observation. One is just
    that I want to express my enthusiasm for Federal science and
    technology investments, despite the fact that my own State of
    South Dakota ranks 52nd in Federal expenditures in research and
    development, dead last behind the District of Columbia and
    Puerto Rico.
        And I share your support for higher education, NSF
    stipends. I benefitted, myself, as a graduate student from an
    NSF grant.
        I want to express strong support for the EPSCoR program,
    which has done a great deal to help small States develop the
    research infrastructure that they need to have at their
    colleges and universities. And lastly, I want to observe that a
    panel of experts convened by the NSF recommended the Home Stake
    Gold Mine as a potential site for a national underground
    science laboratory.
        That assessment was conducted by scientists who evaluated
    the proposals on the merits, and the subsequent proposal is now
    before the NSF for further consideration and peer review.
        I appreciate that the future of the proposal be determined
    by its scientific merit. And I do not believe the South Dakota
    delegation, the bipartisan delegation effort to make sure that
    the Home Stake Mine as an option is inappropriate political
    intervention.
        We have had to work with the Home Stake Mining Company to
    see that they do not flood this unique resource, an 8,000-foot
    shaft, so that it remains an option. But the Congressional
    delegation from South Dakota has no intention of intervening
    and otherwise pressuring or causing the selection process that
    would involve anything other than scientific peer review on its
    merits.
        We have worked on a parallel track to ensure that the
    research opportunities of mining are available, should the NSF
    and the National Science Board recommend proceeding with such
    an initiative. And I want to thank Madam Chairman for her work
    in that regard to allow us to preserve this as an option. But
    that is the extent of the Congressional involvement in this NSF
    project, and it is my hope it will go forward untainted by any
    political concerns, and that the base science in the end wins
    out.
        So thank you, Madam Chairman, and I will submit a more
    complete statement for the record.
        Senator Mikulski. Thank you, Senator Johnson.
        Senator Johnson. Oh, I would observe that, unfortunately, I
    have a conflicting obligation involving a foreign trade
    delegation and I am going to have to leave much sooner than I
    would otherwise like. But I do want to welcome the panel. And I
    appreciate their working with this subcommittee. Thank you
        Senator Mikulski. Let us now turn to our witnesses. And the
    way we would like to proceed is first to Dr. Colwell, then to
    Dr. Washington; and then Dr. Marburger, we are going to ask you
    to be the wrap up.
        I am going to ask unanimous consent that your written
    statements be included in the record. I know you have--each
    have oral statements. And in the interest of time, just presume
    that you have all been introduced and proceed, kind of like you
    are defending your dissertation, okay?
        Dr. Colwell. Thank you, Chairwoman Mikulski, Senator Bond,
    and members of the committee. Thank you for providing the
    opportunity to discuss the President's budget request for the
    National Science Foundation.
        Before I begin, I would just like to say that we are
    thrilled to have Dr. Warren Washington, the newly elected chair
    of the National Science Board here with us. And with your
    permission, I would ask that Dr. Washington be permitted to
    address the committee.
        So, Dr. Washington.

                       STATEMENT OF DR. WARREN WASHINGTON

        Dr. Washington. Thank you. First of all, I would like to
    say, Madam Chair and to Ranking Member Bond, and the members of
    the subcommittee, I appreciate having the opportunity to
    testify before you as chair----
        Senator Mikulski. Dr. Washington, would you pull that
    microphone closer?
        Dr. Washington. Okay.
        Senator Mikulski. Thank you.
        Dr. Washington [continuing]. As chair of the National
    Science Board. I am Warren Washington, senior scientist and
    section head of the climate change research section of the
    National Center for Atmospheric Research.
        On behalf of the science board, I thank the subcommittee
    for its sustained commitment to a broad portfolio of
    investments in science, mathematics, engineering and technology
    research and education. These investments contribute to our
    Nation's long-term security and economic vitality, and to the
    well-being of all Americans.
        The National Science Board has approved and supports the
    National Science Foundation's budget request for fiscal 2003.
    The 5 percent increase in funding will allow NSF to continue to
    nurture people, ideas, and tools needed to generate new
    knowledge and new technologies.
        Among the important initiatives that this budget includes
    are priorities for science and engineering work force,
    mathematical and statistical science research that will advance
    interdisciplinary science and engineering, and research in the
    social, behavioral and economic sciences to explore the complex
    interactions between technology and society.
        The NSF director, Dr. Rita Colwell, will discuss these and
    other specifics of the budget request in her testimony.
        Among the Federal agencies, NSF has the unique mission of
    advancing the Nation's health, prosperity, and welfare by
    supporting basic research and education in all fields of
    science and engineering.
        NSF programs support new discoveries and innovative
    educational programs at all levels. NSF funded research and
    education are critical to sustaining United States strength in
    science and technology, which is a key element of national
    security.
        Revolutionary advances such as those in information
    technology, nano-technology, materials and biotechnology,
    remind us that such breakthroughs with promising benefits to
    the economy, the work force, education, health, and national
    security require long-term, high-risk investments.
        Despite wide-spread recognition of the benefits that flow
    from federally supported research, as a Nation, we are
    seriously under-investing in basic research. In our $10
    trillion gross domestic product, the Federal Government budgets
    $24 billion to basic research, which represents one-fourth of 1
    percent of the gross domestic product.
        Of the $24 billion, NSF receives $3 billion to support
    cutting edge science. It is estimated that the NSF proposals,
    representing another $5 billion, are worthy of investment if
    funds were available.
        Achieving a balanced portfolio in the basic sciences is as
    important as the quality and quantity of the research funded.
    For example, as Congressional leaders and others have pointed
    out, the success of the National Institutes of Health's efforts
    to find cures for deadly diseases depends heavily on the
    underpinning of basic research supported by NSF.
        In addition to providing oversight to NSF, the board
    provides advice to the President and Congress on matters of
    science and engineering policy. I would like to mention some of
    our current activities related to major issues affecting the
    health of the science and engineering enterprise.
        The level of Federal investment is crucial to the health of
    the science and engineering enterprise. Equally crucial is how
    effectively that investment is made. The growing opportunities
    for discovery and the inevitable limits on Federal spending
    mean that hard choices must be made and priorities set.
        In its recent report, ``Federal Research Priorities, A
    Process for Setting Priorities,'' the board offers its
    recommendations for a more effective budget process, including
    an improved information base and a process for allocating
    Federal funding to research.
        The conduct and the communication and the use of science
    are intrinsically global. The collaborations and international
    partnerships contribute to addressing a broad range of
    international problems and help build more stable relations
    among Nations.
        In its recent report ``Towards A More Effective Role for
    the U.S. Government in International Science and Engineering,''
    the board recommends that the Federal Government increase the
    effectiveness of its coordination activities, increase
    international cooperation, especially with developing countries
    and by younger scientists, and improve the use of science and
    engineering information in dealing with global issues.
        An area of constant concern for the NSF and the board is
    the quality and the adequacy of infrastructure to enable
    scientific discoveries in the future. The rapidly changing
    environment of new knowledge, new tools, and new information
    capabilities has created a demand for more complex and more
    costly facilities for scientific research. A board task force
    is assessing the changing needs and strategies to ensure that
    the Nation will have the infrastructure to sustain cutting-edge
    science and engineering research.
        We expect to receive the task force's preliminary findings
    this summer.
        For the U.S. leadership in science and engineering, there
    is no more important an issue than the development of a skilled
    technical work force. As a Nation, we are not attracting the
    number of science and engineering students our Nation needs to
    sustain its leadership, nor are we successfully tapping all of
    our domestic resources, especially the under-represented
    minorities and women.
        A board task force is considering policy options for
    ensuring an adequate science and engineering work force for the
    future. We anticipate receiving the task force's report by the
    end of the year.
        Madam Chair, at this point I would like to close my formal
    remarks. I thank the subcommittee for its long-time support of
    science--for the science community, especially the National
    Science Foundation, and for allowing me to comment on
    significant national policy concerns, as well as on the
    foundation's budget. Thank you.
        [The statement follows:]

                  Prepared Statement of Dr. Warren Washington

        Madame Chair, Ranking Member Bond, and members of the Subcommittee,
    I appreciate having the opportunity to testify before you as Chair of
    the National Science Board. I am Warren Washington, Senior Scientist
    and Section Head of the Climate Change Research Section at the National
    Center for Atmospheric Research.
        On behalf of the National Science Board, I thank the Subcommittee
    for its sustained commitment to a broad portfolio of investments in
    science, mathematics, engineering, and technology research and
    education. These investments contribute to our Nation's long-term
    security and economic vitality and to the well being of all Americans.
    The National Science Foundation's Budget Request
        The National Science Board has approved and supports the National
    Science Foundation's budget request for fiscal year 2003. The 5 percent
    increase in funding will allow NSF to continue to nurture the people,
    ideas, and tools needed to generate new knowledge and new technologies.
    Among the important initiatives that this budget includes are
    priorities for the science and engineering workforce; mathematical and
    statistical science research that will advance interdisciplinary
    science and engineering; and research in the social, behavioral, and
    economic sciences to explore the complex interactions between
    technology and society. The budget continues support for the Math and
    Science Partnership program; increases funding for the Foundation's six
    priority areas, which have the potential of enormous payoff for the
    Nation; and provides a much-needed increase in annual stipends for
    graduate fellows in a critical investment, the future U.S. science and
    engineering workforce. The NSF Director, Dr. Rita Colwell, will discuss
    these and other specifics of the budget request in her testimony.
        As this Committee recognizes, NSF is a major contributor both to
    scientific research and science education. Federal investments in the
    basic sciences through NSF have produced new discoveries and new
    technologies essential to our national security and economic
    prosperity. In addition, NSF supports innovative education programs
    from pre-kindergarten through graduate school, preparing the next
    generation of scientists and engineers and contributing to a more
    scientifically literate workforce and society.
        Each year NSF evaluates, primarily through external peer review,
    32,000 proposals from 2,000 colleges, universities, and institutions.
    The value of the proposals is approximately $16 billion. NSF annually
    makes 10,000 awards, totaling nearly $3 billion, in a highly
    competitive merit review process. It is estimated that NSF proposals
    representing an additional $5 billion are worthy of investment if the
    funds were available.
    The Health of the Science and Engineering Enterprise
        The new knowledge and technologies emerging today are a tribute to
    Federal research investments made years ago in a spirit of
    bipartisanship. When those investments began, no one could foresee
    their future impact. Revolutionary advances such as those in
    information technology, nanotechnology, materials, and biotechnology
    remind us that such breakthroughs with promising benefits to the
    economy, the workforce, our educational systems, and national security
    require long-term, high-risk investments. Among Federal agencies, NSF
    has the unique mission of advancing the Nation's health, prosperity,
    and welfare by supporting research and education in all fields of
    science and engineering. NSF plays a critical role in supporting new
    discoveries and knowledge as well as innovative educational programs at
    all levels. NSF-funded research and education are critical to
    sustaining U.S. strength in science and technology, a key element of
    national security.
        Despite widespread recognition of the benefits that result from
    federally supported scientific research, as a Nation, we are seriously
    under-investing in basic research. In our $10 trillion Gross Domestic
    Product, the Federal Government budgets $24 billion to basic research,
    which represents one-fourth of 1 percent of the Nation's Gross Domestic
    Product. Of the $24 billion, NSF receives $3 billion to support
    cutting-edge science and the search for new knowledge.
        Achieving a balanced portfolio in the basic sciences is as
    important as the quality and quantity of research funded. For example,
    as Congressional leaders and others have pointed out, the success of
    the National Institutes of Health's efforts to find cures for deadly
    diseases depends heavily on the underpinning of basic research
    supported by the National Science Foundation.
    National Science Board Policy Studies
        In addition to providing oversight to NSF, the Board provides
    advice to the President and the Congress on matters of science and
    engineering policy. I would like to mention some of our current
    activities related to major issues affecting the health of the science
    and engineering enterprise.
                 federal investment in science and engineering
        The level of Federal investment is crucial to the health of the
    science and engineering enterprise. Equally crucial is how effectively
    that investment is made. The growing opportunities for discovery and
    the inevitable limits on Federal spending mean that hard choices must
    be made and priorities set.
        In its recent report, Federal Research Resources: A Process for
    Setting Priorities, the Board offers its recommendations for a more
    effective budget process, including an improved information base and a
    decision-making process for allocating Federal funding to research. The
    Board's conclusions are based on reviews of the literature on budget
    coordination and priority setting for public research and invited
    presentations from and discussions with representatives of the Office
    of Management and Budget, the Office of Science and Technology Policy,
    the Federal research and development agencies, congressional staff,
    high-level science officials from foreign governments, experts on data
    and methodologies, and spokespersons from industry, the National
    Academies, research communities, science policy community, and academe.
         u.s. government role in international science and engineering
        In the 21st century, advances in science and engineering will to a
    large measure determine economic growth, quality of life, and the
    health and security of our planet. The conduct, communication, and use
    of science are intrinsically global. New ideas and discoveries are
    emerging all over the world and the balance of expertise is shifting
    among countries. Collaborations and international partnerships
    contribute to addressing a broad range of international problems. They
    also contribute to building more stable relations among nations by
    creating a universal language and culture based on commonly accepted
    values of objectivity, sharing, integrity, and free inquiry. The
    Federal Government plays a significant role in promoting international
    science and engineering activities and supporting research with
    international dimensions.
        In its recent report entitled Toward a More Effective Role for the
    U.S. Government in International Science and Engineering, the Board
    concludes that new approaches to the management and coordination of
    U.S. international science and engineering activities are needed if the
    United States is to maintain the long-term vitality of its science and
    engineering enterprise and the vitality of its economy. The Board
    recommends that the Federal Government (1) increase the effectiveness
    of its coordination of international science and engineering
    activities, (2) increase international cooperation in fundamental
    research and education, particularly with developing countries and by
    younger scientists and engineers; and (3) improve the use of science
    and engineering information in foreign policy deliberations and in
    dealing with global issues and problems.
                  u.s. science and engineering infrastructure
        An area of constant concern for NSF and the Board is the quality
    and adequacy of infrastructure to enable scientific discoveries in the
    future. The rapidly changing environment of new knowledge, new tools,
    and new information capabilities has created a demand for more complex
    and more costly facilities for scientific research.
        A Board task force is assessing the current status, changing needs,
    and strategies needed to ensure that the Nation will have the
    infrastructure to sustain cutting-edge science and engineering
    research. We expect to receive the task force's preliminary findings
    this summer.
            national workforce policies for science and engineering
        For U.S. leadership in science and engineering, there is no more
    important issue than the development of a skilled technical workforce.
    As a Nation, we are not attracting the numbers of science and
    engineering students our Nation needs to sustain its leadership. Nor
    are we successfully tapping all our domestic resources, especially
    under-represented minorities and women. The pool of potential science
    and engineering students will increasingly reflect the growing
    diversity in the American workforce and society.
        A Board task force on workforce policies for science and
    engineering is reviewing U.S. workforce needs, the role of foreign
    students and workers, and policy options for ensuring an adequate
    science and engineering workforce for the future. We anticipate
    receiving the task force's report by the end of this year.
        Madame Chair, at this point I would like to close my formal
    remarks. I thank the Subcommittee for its long-time support of the
    science community, especially the National Science Foundation, and for
    allowing me to comment on significant national policy concerns, as well
    as on the Foundation's budget request.

        Senator Mikulski. Thank you very much, Dr. Washington.
        Dr. Colwell.

                         STATEMENT OF DR. RITA COLWELL

        Dr. Colwell. I would--will continue, Madam Chair. Every
    year, the foundation's optimal use of limited public funds has
    relied on two conditions. One is ensuring that our research and
    education investments are aimed and continuously re-aimed at
    the frontiers of understanding, and then certifying every
    dollar goes to competitive merit reviewed and time limited
    awards with clear criteria for success.
        NSF has been proactive in implementing the President's
    management agenda, and we welcome--and we will apply input from
    many sources to continuously improve the way we manage programs
    at NSF.
        As an aside, I would say that NSF is, by far, the leading
    agency in the world and looked to by other countries in
    following the procedures that we have developed.
        When these conditions are met, our Nation gets the most
    intellectual and economic leverage from its research and
    education investment. The National Science Foundation is
    requesting $5.036 billion for fiscal year 2003, $240 million or
    5 percent more than the previous year.
        For the United States to stay on the leading edge of
    discovery and innovation, we cannot do less. Before providing a
    few highlights of the budget, let me stress that the priority
    setting process at NSF results from continual consultation with
    the research community.
        New programs are added or enhanced only after seeking the
    combined expertise and the experience of the science and
    engineering community, the Director, the Deputy Director and
    the National Science Board.
        Programs are initiated or enlarged based on consideration
    of their intellectual merit, the broader impacts of the
    research that is done, the importance to science and
    engineering for the United States and balance across fields and
    disciplines, as well as synergy with research and other
    agencies and other Nations.
        NSF coordinates its research with our sister research
    agencies informally by program officers being actively informed
    of other agencies' programs and formally through interagency
    agreements that spell out the various agency roles in research
    activities.
        Moreover, through our committee of visitors process, there
    is continuous evaluation. There is feedback of information on
    how the NSF programs are performing. One of the highlights of
    the budget of this year is the second installment of $200
    million for the national 5-year, $1 billion Math and Science
    Partnership Program, the President's program, which we heartily
    and thoroughly endorse.
        The program links local schools with colleges and
    universities to improve pre-K to 12 math and science education,
    trains teachers, and to create innovative ways to raise the
    performance of all students and schools.
        An investment of approximately $37 million will increase
    the annual stipends for graduate fellows to $25,000, to attract
    more of the Nation's most promising students in science and
    engineering. I would like to thank the Chair and Senator Bond
    for your support of graduate student fellowships.
        The budget also includes funding for six priority areas,
    including $221 million for nano-technology research,
    fundamental and important for our country; $286 million for
    information technology research; and $60 million as part of the
    new priority area in mathematical and statistical sciences
    research that will ultimately advance interdisciplinary science
    and engineering.
        We will direct $185 million to the NSF's Learning for the
    21st Century Work Force priority area, including $20 million to
    fund three or four new multi-disciplinary, multi-institutional
    Science of Learning Centers to enhance our understanding of how
    we learn, how the brain stores information, and how we can best
    use the new information technology to promote learning in our
    classrooms.
        We are also requesting $10 million to seed a new priority
    area in the social, behavioral, and economic sciences to
    explore the complex interactions between new technology and
    society, so that we can better anticipate and prepare for their
    consequences.
        Finally, the budget requests $79 million for research on
    bio-complexity and the environment. Now, this builds on the
    past investments to study the remarkable, the dynamic web of
    interrelationships that arise when living things at all levels
    interact with their environment. Research in two new areas this
    year as part of bio-complexity are the microbial genome
    sequencing and the ecology of infectious diseases that will
    help us develop strategies to assess and manage the risks of
    infectious diseases, invasive species, and biological weapons.
        I should add that as part of the Administration's new
    multi-agency Climate Change Research Initiative, we will
    implement a $15 million research program to advance
    understanding in highly focused areas of climate science to
    reduce uncertainty and facilitate policy decisions.
        Our budget also includes $76 million for programs slated to
    be transferred to NSF from NOAA, EPA, and the USGS. I want to
    assure the committee that NSF has been working closely with
    these agencies to develop plans for implementing these
    transfers, should they be approved by Congress.
        In large facilities, we will continue support for the next
    phase of construction for the Atacama Large Millimeter Array,
    ALMA. New construction projects in fiscal year 2003 include two
    prototype sites for the National Ecological Observatory
    Network, NEON, at a cost of $12 million to analyze data to
    detect abrupt changes or long-term trends in the environment.
        The budget also requests $35 million for EarthScope to
    detect and investigate earthquakes, volcanic eruptions, and
    landslides on the North American continent.
        The events following September 11 demonstrated our
    capacity--the National Science Foundation's capacity to engage
    the research community in ways that are immediately responsive
    to national needs. We owe this flexibility to a highly trained
    scientific and engineering work force that's capable of
    selecting the most interesting, the most challenging problems
    for their research.
        It is this flexibility, enabled by the merit review system,
    that makes ours a model of scientific support that is clearly
    the envy of the world. Madam Chair, I thank you for allowing me
    to include a copy of the NSF budget summary as part of my
    testimony and I will be pleased to respond to any questions
    that the committee may have. Thank you.
        [The statements follow:]

                   Prepared Statement of Dr. Rita R. Colwell

        Chairwoman Mikulski, Senator Bond, and Members of the Committee,
    thank you for providing this opportunity to discuss the President's
    budget request for the National Science Foundation.
        Every year, the Foundation's optimal use of limited public funds
    has relied on two conditions: Ensuring that our research and education
    investments are aimed--and continuously re-aimed--at the frontiers of
    understanding; and certifying that every dollar goes to competitive,
    merit-reviewed, and time-limited awards with clear criteria for
    success.
        When these two conditions are met, our nation gets the most
    intellectual and economic leverage from its research and education
    investments.
        The National Science Foundation is requesting $5.036 billion for
    fiscal year 2003, $240 million or 5 percent more than the previous
    fiscal year. For the United States to stay on the leading edge of
    discovery and innovation, we cannot do less.
        Before providing a few highlights of the budget, let me stress that
    the priority setting process at NSF results from continual consultation
    with the research community. New programs are added or enhanced only
    after seeking the combined expertise and experience of the science and
    engineering community, the Director and Deputy, and the National
    Science Board. Programs are initiated or enlarged based on
    considerations of their intellectual merit, broader impacts of the
    research, the importance to science and engineering, balance across
    fields and disciplines, and synergy with research in other agencies and
    Nations. NSF coordinates it its research with our sister research
    agencies both informally--through the active monitoring by program
    officers of other agencies' programs--and formally, through more than
    150 MOUs and Interagency Agreements that spell out the various agency
    roles in research activities.
        One of the highlights of the budget is a second installment of $200
    million for the national 5-year, $1 billion Math and Science
    Partnership Program. The program links local schools with colleges and
    universities to improve pre-K-12 math and science education, train
    teachers, and create innovative ways to raise the performance of all
    students and schools.
        An investment of approximately $37 million will increase annual
    stipends for graduate fellows to $25,000 to attract more of the
    Nation's most promising students to science and engineering.
        The budget also includes funding for six priority areas, including
    $221 million for nanotechnology research, $286 million for information
    technology research, and $60 million as part of a new priority area in
    mathematical and statistical sciences research that will ultimately
    advance interdisciplinary science and engineering. $185 million is
    directed toward NSF's Learning for the 21st Century Workforce priority
    area--including $20 million to fund three to four new multi-
    disciplinary, multi-institutional Science of Learning Centers to
    enhance our understanding of how we learn, how the brain stores
    information, and how we can best use new information technology to
    promote learning.
        We are also requesting $10 million to seed a new priority area in
    the social, behavioral, and economic sciences to explore the complex
    interactions between new technology and society so that we can better
    anticipate and prepare for their consequences.
        Finally, the budget requests $79 million for research on
    biocomplexity in the environment. This builds upon past investments to
    study the remarkable and dynamic web of interrelationships that arise
    when living things at all levels interact with their environment.
    Research in two new areas this year--microbial genome sequencing and
    ecology of infectious diseases--will help develop strategies to assess
    and manage the risks of infectious diseases, invasive species, modified
    organisms, and biological weapons.
        I should add that as part of the Administration's new multi-agency
    Climate Change Research Initiative, we will implement a $15 million
    research program to advance understanding in highly focused areas of
    climate science, to reduce uncertainty and facilitate policy decisions.
    Our budget also includes $76 million for programs slated to be
    transferred to NSF from NOAA, EPA, and the USGS. I want to assure the
    Committee that NSF has been working closely with these agencies to
    develop plans for implementing these transfers should they be approved
    by Congress.
        In large facilities, we will continue support for the next phase of
    construction of the Atacama Large Millimeter Array (ALMA). New
    construction projects in the fiscal year 2003 budget include two
    prototype sites of the National Ecological Observatory Network (NEON)
    at a cost of $12 million to analyze data to detect abrupt changes or
    long-term trends in the environment. The budget also requests $35
    million for EarthScope to detect and investigate earthquakes, volcanic
    eruptions, and landslides on the North American continent.
        Madam Chair, if there are no objections, I would like to include a
    copy of the NSF budget summary as part of my testimony, and I would be
    pleased to respond to any questions that the committee may have.
                                     ______

                  Prepared Statement of Dr. Christine C. Boesz

        Madam Chair, Senator Bond, and distinguished members of the
    Subcommittee, I am Dr. Christine Boesz, Inspector General at the
    National Science Foundation (NSF). I appreciate the opportunity to
    appear before you today. As you know, NSF continues to be an innovative
    agency dedicated to maintaining American leadership in the discovery
    and development of new technologies across the frontiers of scientific
    and engineering research and education. NSF has had an extraordinary
    impact on scientific and engineering knowledge, laying the groundwork
    for technological advances that have shaped our society and fostered
    the progress needed to secure the Nation's future. Because the
    scientific enterprise and its underlying basic research are
    everchanging, NSF continuously faces new challenges. Consequently, my
    office is working closely with NSF management to identify and address
    issues that are important to the success of the Agency. Today I would
    like to provide an update on the status of NSF's progress in three
    areas critical to its success: post-award management, workforce
    planning, and large facilities management.
                             post-award management
        NSF's primary mission is to fund extramural research and education
    activities that will advance science and engineering. Over 95 percent
    of NSF's fiscal year 2002 budget is in support of these activities,
    which are funded primarily through grants and cooperative agreements.
    The Agency's scientific directorates and offices have a shared
    responsibility with the Office of Budget, Finance, and Award Management
    to oversee the financial and programmatic management of these awards.
    Because of its enormous impact on NSF's daily operations, for the past
    2 years I have identified award administration as one of NSF's top ten
    management challenges.\1\
    ---------------------------------------------------------------------------
        \1\ Memorandum from Christine C. Boesz, Inspector General, National
    Science Foundation, to Eamon M. Kelly, Chairman, National Science
    Board, and Rita R. Colwell, Director, National Science Foundation
    (January 30, 2002) (on file with the National Science Foundation Office
    of Inspector General) [hereinafter 2001 Management Challenges]; Letter
    from Christine C. Boesz, Inspector General, National Science
    Foundation, to Senator Fred Thompson, Chairman, Senate Committee on
    Governmental Affairs (Nov. 30, 2000) (on file with the National Science
    Foundation Office of Inspector General) [hereinafter 2000 Management
    Challenges].
    ---------------------------------------------------------------------------
        In addition, during the most recent annual audit of NSF's financial
    statements, our external auditors identified, as a reportable
    condition, weaknesses in NSF's internal controls over the financial
    aspects of post-award management.\2\
    ---------------------------------------------------------------------------
        \2\ Auditor's Report, fiscal year 2001 National Science Foundation
    Financial Statement Audit, (January 18, 2002).
    ---------------------------------------------------------------------------
        The auditors found that, while NSF has a robust system of award
    management over its pre-award and award phases, it needs to develop a
    more rigorous, risk-based monitoring program for the post-award phase.
    In addition, NSF needs to significantly improve its current policies
    and procedures for the valuation and tracking of its assets, including
    facilities and equipment held and maintained by other entities.
        NSF management agrees that award administration is one of NSF's top
    management challenges, but disagrees that it should be classified as a
    reportable condition for the purposes of financial statement reporting.
    Nevertheless, NSF is working to continuously improve its business
    processes by refining its award management procedures to include a more
    structured, risk-based monitoring element. Further, NSF is taking steps
    to improve its oversight of assets for which it holds title.
        In support of these efforts, my office is currently conducting a
    review of best practices in grant award administration to assist NSF in
    addressing this audit finding and meeting its management challenge. We
    are looking at organizations in both the public and private sectors
    that dispense and administer financial assistance awards, and we plan
    to issue our report by the end of the year. In addition, we will
    continue to assess NSF's overall progress in developing a more
    effective post-award management system.
                               workforce planning
        Despite an increasing workload and a budget that has grown from $1
    billion to $5 billion over the past 20 years, the number of full-time
    equivalent positions (FTEs) at NSF has remained relatively static.\3\
    In addition, NSF, like much of government, is vulnerable to a wave of
    retirements in key areas. Because of these concerns, I identified
    workforce planning and training as another management challenge for
    NSF.\4\
    ---------------------------------------------------------------------------
        \3\ Compare NSF's fiscal year 1983 Budget Request to Congress with
    NSF's fiscal year 2001 Budget Request to Congress. Between 1983 and
    2001, FTEs increased by less than 2 percent, from 1200 to 1220.
        \4\ 2001 Management Challenges and 2000 Management Challenges,
    supra note 1.
    ---------------------------------------------------------------------------
        The strategic management of human capital is a major component of
    the President's Management Agenda \5\ and has been identified by the
    Government Accounting Office (GAO) as posing a significant risk
    government-wide.\6\ Last year, this Subcommittee requested that my
    office analyze the adequacy of the agency's staffing and management
    plans in light of the efforts to expand NSF's budget over the next 5
    years.\7\ In response to that request, my office has performed a review
    of NSF's workforce planning activities.
    ---------------------------------------------------------------------------
        \5\ Executive Office of the President of the United States, the
    President's Management Agenda: Fiscal Year 2002 (Aug. 2001).
        \6\ High-Risk Series: An Update, GAO-01-263 (2001); Human Capital:
    Meeting the Government-wide High-Risk Challenge, GAO-01-357T (2001).
        \7\ S. REP. NO. 107-43 (2001).
    ---------------------------------------------------------------------------
        NSF's workforce planning to date, like that of most Federal
    agencies, has largely been confined to stating broad goals and
    standards. It falls short of an actionable plan, which requires
    specific objectives, clearly assigned responsibilities, well-defined
    milestones for discrete actions, and practical measures of
    effectiveness for accountability. However, NSF is in the process of
    contracting for a multi-year business analysis of its operations that
    will include a human capital management plan component identifying its
    future workforce requirements.\8\
    ---------------------------------------------------------------------------
        \8\ NSF has issued a Request for Quotations for a multi-year
    business analysis of its operations, including a comprehensive human
    capital management plan. NSF expects to award this contract, which is
    estimated at $15 million over a 3 to 4 year period, next month. RFQ
    Number CPO 020027.
    ---------------------------------------------------------------------------
        While it may be premature to attempt a meaningful assessment of
    future workforce planning at NSF, due to the imminent launch of the
    Agency's ambitious business analysis initiative, I can offer some
    preliminary conclusions. I believe that the Agency's proposed business
    analysis, if diligently conducted by the contractor and properly
    overseen by NSF, represents a comprehensive and rigorous approach to
    reviewing NSF's primary operations and the human resources needed to
    staff them. It has the potential to generate an actionable plan that
    will help NSF identify and meet its current and future workforce needs,
    as well as plan ways to head off future problems. The ultimate value of
    the initiative, of course, will be determined by the validity of the
    findings of the business analysis and the actions that NSF takes
    pursuant to them. Given NSF's investment in time and resources, I look
    forward to substantial, concrete results that will improve the agency's
    business processes, including workforce planning and management.
                        large facilities management plan
        NSF's management of large facility projects is another issue that I
    have identified as one of the Agency's top ten management
    challenges.\9\ In response to the President's Budget Blueprint,\10\
    increased scrutiny from the Office of Management and Budget (OMB) and
    the Congress, and recommendations from my office, NSF developed a
    Facilities Management and Oversight Plan (Plan) last fall.\11\
    ---------------------------------------------------------------------------
        \9\ 2001 Management Challenges and 2000 Management Challenges,
    supra note 1.
        \10\ Executive Office of the President of the United States, A
    Blueprint for New Beginnings: A Responsible Budget for America's
    Priorities 161 (Feb. 2001).
        \11\ National Science Foundation, Large Facility Projects
    Management & Oversight Plan NSB-01-153 (Sept. 2001).
    ---------------------------------------------------------------------------
        As part of its implementation, the Plan calls for significantly
    upgrading the current procedures and guidelines for oversight and
    management of large facility projects. The implementation has been
    slower than originally anticipated, and recruitment of a new Deputy
    Director for Large Facility Projects is now expected to be completed
    this summer. However, despite the delay, I am encouraged by recent
    progress. Last month, members of the team charged with drafting the new
    guidelines and procedures briefed my office on their progress, and I am
    pleased to see NSF is on track for full implementation later this year.
        To assist NSF in carrying out this plan, we have identified
    additional ways that NSF can enhance its policies and procedures to
    provide a more robust facilities management system.
        During our audit of the Major Research Equipment (MRE)
    appropriation account, which was requested by this Subcommittee, we
    found several areas that NSF needs to address to continue improving its
    management and oversight for large projects and facilities. My office
    issued a report responding to your request earlier this month.\12\ We
    found that questionable practices discovered during our audit of the
    Gemini project \13\ have occurred in other MRE-funded projects as well.
    NSF's existing policies and procedures have led the Agency to apply
    funding sources inconsistently among these projects and fail to account
    for each project's total cost.
    ---------------------------------------------------------------------------
        \12\ Office of Inspector General, National Science Foundation,
    Audit of Funding for Major Research Equipment and Facilities, Report
    No. 02-2007 (May 1, 2002).
        \13\ Office of Inspector General, National Science Foundation,
    Audit of the Financial Management of the Gemini Project, Report No. 01-
    2001 (Dec. 15, 2000).
    ---------------------------------------------------------------------------
        As a result of these findings, we have recommended that NSF revise
    its financial management policies and procedures to ensure that it
    identifies the full cost of major research equipment and facilities and
    improves its administration of MRE accounts.
        NSF should be able to incorporate these improvements into its
    current efforts to implement the large facilities Plan.
        Finally, the MRE account provides funding for two distinctly
    different types of projects: those that invest in state-of-the-art,
    scientific tools for research and the development of new knowledge and
    ideas; and those that support the investment in mission critical
    property, plant, and equipment (PP&E) owned by NSF. The latter provide
    the facilities and logistical means for a broad range of science
    endeavors, primarily in NSF's Polar Programs. Both types of projects
    require effective management, i.e., planning, budgeting, construction
    oversight, and risk management, to ensure that these multimillion-
    dollar projects proceed on schedule, stay within budget, and perform as
    expected. Both also require full-cost accounting in accordance with
    Federal accounting standards.
        But funding these types of projects from a single appropriation
    account creates a situation where the replacement, renovation, and
    upkeep of assets critical to the safety and health of researchers and
    their support personnel could potentially compete with new scientific
    tools for limited funding. In updating its large facilities policies
    and procedures, therefore, NSF should (1) plan and prioritize the
    mission critical PP&E projects separately from the development and
    construction of research tools and (2) distinguish their different
    funding sources, to avoid possible negative impact on the broad range
    of programs these assets support. More specific accounting will reduce
    confusion about how funds are being allocated, improve the accuracy of
    budget planning, and allow more effective monitoring of the use of
    funds.
        I am pleased to see NSF addressing large facility management
    through the development of this Plan. As the guidelines and procedures
    are fully developed and implemented, my office will continue to assess
    this critical area and recommend further enhancements where necessary.
    We share the same goal--efficient and effective management of these
    large and complex projects--and I look forward to assisting NSF in
    realizing this goal.
        Madam Chair, this concludes my statement. I would be happy to
    answer any questions you or other members of the subcommittee may have,
    or to elaborate on any of the issues that I have addressed today.
                              contact information
        For information about this statement, please contact Dr. Christine
    C. Boesz at 703-292-7100 or cboesz@nsf.gov.

        Senator Mikulski. Thank you very much, Dr. Colwell.
        Dr. Marburger, please.

                       STATEMENT OF JOHN H. MARBURGER III

        Dr. Marburger. Madam Chairman and members of the
    subcommittee, I am pleased to appear before you today. And I
    ask that my written testimony, which described OSTP's budget
    and highlights of the Administration's fiscal year 2003 R&D
    budget request, be included for the record.
        Senator Mikulski. So ordered.
        Dr. Marburger. As you well know, the terrorist attacks on
    September 11th dramatically changed the context for this
    budget. The attacks laid bare vulnerabilities in our physical
    security and exacerbated weaknesses in our economy.
        The priorities of the Nation drastically changed in a
    matter of a few hours. And this budget reflects the change in
    priorities and three primary goals, winning the war on
    terrorism, protecting the homeland, and reviving our economy.
        Recognizing that science must play a role in these
    priorities, the President provides for an unprecedented level
    of investment in Federal R&D, marking the first time in history
    that a President has requested an R&D budget greater than $100
    billion. It is $111.8 billion, up eight points--8 percent
    overall from the previous fiscal year. This is the largest
    requested increase for R&D in over a decade.
        I cannot emphasize enough how dedicated the Administration
    is to working with you to see this R&D budget enacted.
        Madam Chairman, I believe you and I share a commitment to
    keeping America the world's leader in science and technology,
    and I hope you agree that OSTP plays a vital role in leveraging
    the government's science and technology investments for broad
    national goals.
        Our small staff advises the President on fast breaking
    science and technology developments. We coordinate the work of
    the R&D agencies to ensure that we get the biggest bang for our
    science and technology bucks, and we promote strategic
    partnerships among science and technology stake holders
    including State and local government, industry, the academic
    sector, and various international players as well.
        We bring real value added to the national science and
    technology enterprise, and I have two examples in my oral
    testimony that I would like to give that provide a sense of
    breadth of our scope.
        The two examples are the Administration's initiative on
    nano-technology, an interagency committee, and our efforts to
    improve mail security in response to the anthrax contamination,
    a relatively new type of function for our office.
        As you know, Madam Chairman, OSTP was deeply involved in
    the formation of the multi-agency, national nano-technology
    initiative. And your help was key to its implementation. OSTP,
    through the auspices of the National Science and Technology
    Counsel, convened an interagency working group to look into the
    feasibility of a nano-technology initiative for fiscal year
    2001.
        This subcommittee continues to provide the important
    interagency coordination and long-range planning for Federal
    research and nano-scales science and engineering and
    technology. These ongoing efforts have culminated this year in
    providing the nano-technology initiative with a 17 percent
    increase in funding, bringing the total effort to $679 million
    distributed among nine Federal agencies.
        This $100 million increase over last year's budget will
    accelerate long-term research in the manipulation of matter
    down to the atomic and molecular levels, increasing our
    understanding of fundamental building blocks for both material
    and microscopic devices. Research at the nano-scale promises
    revolutionary advances in pharmaceuticals, more efficient
    manufacturing, higher performance materials, faster computers
    and networks, and a cleaner environment.
        Priority research areas for this year will range from
    research to enable efficient nano-scale manufacturing to
    innovative nano-technology solutions for the detection of and
    protection from bio, chemical, and radiological explosive
    agents.
        Roughly 70 percent of the funding proposed under the
    initiative continues to go to university-based research. These
    investments will help provide the education and training of a
    new generation of workers for future industries and
    partnerships to enhance industrial participation in the nano-
    technology revolution.
        Another quite different example of the diverse work of OSTP
    is our response to the anthrax contamination last fall. As I
    previously testified to, the office of homeland security
    requested that our office help resolve this issue. We assembled
    an irradiation technical team on short notice, which performed
    experiments at the U.S. Postal Service irradiation facilities
    to optimize the proper configuration of mail and to ensure the
    proper dose of sterilizing radiation is delivered.
        This team, which is still in existence, updates OSTP
    bimonthly and offers recommendations to the postal service to
    refine the irradiation process. We have added experts for the--
    from the Centers for Disease Control and Prevention on--to
    conduct ongoing experiments that have helped to eliminate some
    of the negative effects of irradiation.
        The ability of OSTP to coordinate rapidly the many Federal
    agencies involved in these issues allowed the generation of
    scientific data from which recommendations were made to the
    postal service within 1 month of the original contamination.
        While irradiation of the letters and flat mail solves one
    set of problems, irradiation may not be the answer for parcels
    and packages due to irregularities in thickness and density.
        OSTP has formed an ethylene-oxide technical team, with
    support from the Department of Justice, experts from FDA, EPA,
    AFRE, CIA, OSHA, U.S. Postal Service, have designed and are
    conducting experiments to test the ability of this ethylene to
    oxide gas to sterilize packages.
        The recommendations from this technical team will be
    presented to the postal service, and will include guidelines
    and parameters, by which to document the sterility of the
    packages and protect critical contacts from harm.
        While our work on nano-technology and mail irradiation are
    just two examples of the outstanding work that OSTP does for
    the Nation, over the past year, we have also played a critical
    role in developing coordinated interagency budgets and policies
    in the areas of the homeland security, plant genome, food
    safety, networking and information technology, educational
    research, as well as others.
        I ask today for your continued support of OSTP's role in
    coordinating science and technology policy for the executive
    branch for our Nation at large. Our budget request of $5.37
    million and 40 FTE's for the fiscal year 2003 represents no
    increase in the FTE level and a slight increase in budget
    authority of less than 2 percent.
        These additional resources are essential to continue to
    provide the highest quality of work across our broad spectrum
    of responsibilities.
        Madam Chairman and members of the subcommittee, I hope that
    this brief overview, combined with my written statement, convey
    to you the extent of this Administration's commitment to
    advancing science and technology in the national interest and
    the importance of OSTP's role in that enterprise. I ask, of
    course, not only for your support for our budget for OSTP, but
    also want to express my appreciation for the longstanding,
    bipartisan support of this committee for the Office of Science
    and Technology Policy and for the Science and Technology
    Research Enterprise.
        Madam Chairman, you mentioned a large number of issues and
    questions in your opening statement. I would be glad to respond
    to these now, as time permits, and would respond to others in
    writing, if that is necessary. Thank you.
        [The statement follows:]

                  Prepared Statement of John H. Marburger III

        Madam Chairman, Members of the Subcommittee, I am pleased to appear
    before you today to discuss the Office of Science and Technology
    Policy's (OSTP) budget request for fiscal year 2003.
        When I testified before the House Committee on Science prior to my
    confirmation by the Senate last October, I expressed my desire to
    ``form a close and productive relationship with Congress, which has
    long provided bipartisan and enduring support of our world-leading
    science and engineering enterprise. The counsel and support of Members
    of Congress is an essential element of continued U.S. leadership across
    the frontiers of scientific knowledge.'' I look forward to working with
    you, Madam Chairman, and your Subcommittee, to demonstrate this
    commitment to science and engineering excellence once again this year.
    President Bush has set forth an agenda for science funding in the
    forthcoming fiscal year that takes advantage of important opportunities
    for discovery and development and sustains the basic machinery of
    research and development that is necessary for continued national
    leadership in science and technology.
        Last October I also referred to the fact that we must make
    important choices together because we have neither unlimited resources
    nor a monopoly of the world's scientific talent. I continue to believe
    that wise choices among the multitudes of possible research programs
    are necessary and that we must decide which programs to launch,
    encourage, and enhance and which ones to modify, reevaluate, or
    redirect in keeping with our national needs and capabilities. The
    President's fiscal year 2003 Budget includes principles that will
    improve the management of the Nation's science and technology
    enterprise, taking advantage of best practices, and emphasizing the
    importance of good planning, execution, reinforcement of good
    performance, and changing poor performance. I look forward to working
    with Congress to ensure that the Federal Government's significant
    investment, now over $100 billion, in science and technology is
    deployed to optimal effect.
    President Bush's fiscal year 2003 R&D budget
        Shortly after I was confirmed the Director of OSTP at the end of
    October, the Director of the Office of Management and Budget invited me
    to attend and participate in internal OMB decision-making sessions
    involving science programs. This series of meetings gave me a greater
    appreciation for the issues and an opportunity to represent the science
    perspective on important aspects of the forthcoming budget, such as
    increased accountability and performance measures for R&D agencies.
    Following these meetings, my office has continued to work closely with
    OMB to share information and develop mutual understanding of the
    complex issues involved in establishing the Nation's science and
    technology budgets.
        As you well know, agency budget proposals are submitted to OMB in
    mid-September for their review. The terrorist attacks on September 11
    dramatically changed the context for this budget. The attacks laid bare
    vulnerabilities in our physical security and exacerbated weaknesses in
    our economy. The priorities of the Nation drastically changed in a
    matter of hours.
        The budget reflects the change in priorities by focusing on three
    primary goals:
      --Winning the war on terrorism;
      --Protecting the homeland;
      --Reviving our economy.
        Recognizing that science must play a role in these priorities, the
    President provides for an unprecedented level of investment in Federal
    R&D, marking the first time in history that a President has requested
    an R&D budget greater than $100 billion. The precise figure is $111.8
    billion, up 8 percent overall from last year--the largest requested
    increase for R&D in over a decade.
        In addition to the R&D budget, another compilation, the Federal
    Science and Technology Budget, was originally proposed by the National
    Academy of Sciences to highlight the Federal investment in research
    programs central to the creation of new knowledge. In this ''FS&T''
    portfolio, the President's budget is up 9 percent. The FS&T activities
    account for nearly all of Federal basic research, over 80 percent of
    Federal applied research, and about half of civilian development.
        Madam Chairman, this is a good budget for science, and I look
    forward to working with Congress to see it successfully enacted.
        These science and technology investments will enable the
    Administration to:
      --Enhance homeland defense, national security, and global stability;
      --Promote long-term economic growth that creates high-wage jobs;
      --Sustain a healthy, educated citizenry;
      --Harness information technology;
      --Improve environmental quality; and
      --Maintain world leadership in science, engineering, and mathematics.
            Now let me direct your attention to some specifics within this
            budget.
                Interagency Initiatives
        The budget increases funding for a number of priority research
    areas that require multi-agency efforts. Information technology,
    nanotechnology, and health research continue to be high priorities for
    our Nation. The past year also has seen an increase in priority for
    climate change R&D. After the events of September 11, antiterrorism
    efforts naturally lead the list.
      --Antiterrorism--our success in preventing, detecting, and responding
            to terrorist activities over the long term will depend on
            technology. The President's fiscal year 2003 Budget continues
            the Administration's strong support of research and development
            to counter emerging terrorist threats by increasing R&D funding
            for homeland security and combating terrorism (including
            protecting critical infrastructure) from nearly $1 billion in
            2002 to an estimated $3 billion in 2003.
      --The National Nanotechnology Initiative will increase by 17 percent
            over last year. This $679 million multi-agency initiative
            focuses on long-term research on the manipulation of matter at
            the atomic and molecular levels, giving us unprecedented
            opportunities for new classes of devices as small as molecules
            and machines as small as human cells.
      --Networking and Information Technology R&D will increase by 3
            percent. This brings the overall investment to $1.9 billion in
            this mature, but still critically important area. It provides
            the base technologies necessary for the U.S. to maintain its
            dominant position in the application of information technology
            to critical national defense and national security needs, as
            well as to scientific research, education, and economic
            innovation.
      --Improving human health depends on health research that draws on the
            capabilities of many agencies. During the Presidential
            campaign, the President promised to double the budget of NIH by
            2003 from its 1998 levels. That commitment is met in this
            budget, which includes the final installment, a $3.9 billion
            increase, paving the way toward better diagnostics, treatments,
            and cures that affect the lives of all Americans.
      --Climate Change research has become an important driver for the
            Nation's research agenda. The President created two new
            initiatives in this budget. The Climate Change Research
            Initiative will share $40 million among five agencies, and the
            National Climate Change Technology Initiative will receive $40
            million within the DOE budget. The ongoing U.S. Global Change
            Research Program will receive $1.7 billion, a $44 million (3
            percent) increase.
                Highlights of Agency FS&T Budgets
        The following examples provide a snapshot of the Administration's
    S&T request within the agencies under the jurisdiction of the
    Subcommittee.
      --National Aeronautics and Space Administration (NASA). The budget
            provides $8.7 billion (an 8 percent increase) for NASA's
            programs in the FS&T budget, including $3.4 billion for Space
            Science (a 13 percent increase) and $2.9 billion for Aerospace
            Technology. The latter includes planned funding increases for
            NASA's Space Launch Initiative ($759 million), which will lead
            to safer and lower cost commercial launch vehicles to replace
            the Space Shuttle.
      --National Science Foundation (NSF). The budget provides a $241
            million increase (5 percent) for NSF. This increase will
            provide $678 million for NSF's lead role in the Networking and
            Information Technology R&D program, and $221 million for NSF's
            lead role in the National Nanotechnology Initiative. The
            President's Math and Science Partnerships Initiative, aimed at
            increasing the quality of math and science education in Grades
            K-12, will increase by $40 million to $200 million. The budget
            also raises graduate level stipends from $21,500 to $25,000
            annually, in order to further attract and retain the most
            promising U.S. students into graduate level science and
            engineering. NSF is very effective at managing competitive
            research programs, and the budget proposes transferring to NSF
            programs that will benefit from their effective management.
            These programs include Sea Grants from the National Oceanic and
            Atmospheric Administration, Water Quality Research from the
            U.S. Geological Survey, and Environmental Education from the
            Environmental Protection Agency.
      --Environmental Protection Agency (EPA). The budget provides $797
            million (a 6 percent increase) for EPA's programs in the FS&T
            budget. The EPA budget funds research that provides a sound
            scientific and technical foundation for environmental policy
            and regulatory decision-making. The budget includes $75 million
            for R&D in technologies and procedures to cope with future
            biological or chemical incidents.
        In addition to the agencies that fall within your Subcommittee's
    jurisdiction Madam Chairman, the Department of Defense R&D efforts
    increase $5.4 billion (an 11 percent increase) to $54.5 billion and the
    National Institutes of Health budget increases by $3.9 billion (a 17
    percent increase) to $27.3 billion.
                The President's Management Agenda
        In addition to funding these priority areas, the budget places
    emphasis on spending dollars effectively. The budget includes a
    scorecard to rate agency performance and progress in five important
    management areas. I am pleased to point out that the only agency to
    achieve a green light in any category is the National Science
    Foundation. The President's Management Agenda is as relevant to science
    missions as to other agency operations, and I look forward to working
    with OMB to make its provisions a more useful tool for all the
    agencies.
        Among the other provisions of the President's Management Agenda are
    investment criteria for R&D programs, pilot-tested at DOE this past
    year. In consultation with agencies, industry, and academia, OMB and
    OSTP will broaden the design of the criteria to all R&D and apply them
    to other R&D agencies in the preparation of the 2004 budget.
    The OSTP mission
        In support of our Nation's science and technology priorities, OSTP
    has two primary responsibilities: advising the President on S&T and
    providing leadership and coordination for our government's role in the
    national S&T enterprise.
        In the 1950's, in response to Soviet advances, highlighted by the
    launch of Sputnik, President Eisenhower saw the need for expert S&T
    counsel, and he invited James Killian, then president of MIT, to
    Washington to serve as the head of the first President's Science
    Advisory Committee, an OSTP predecessor. Since then our Nation's
    Presidents have drawn on the expertise of our office for S&T policy
    advice, and I see this as a contribution that will continue to grow in
    value as the challenges we face become increasingly complex.
        Within our agency, a small staff of professionals analyzes
    developments at the frontiers of scientific knowledge and aids the
    President in shaping policy. OSTP also provides scientific and
    technical information and recommendations to the Vice President, the
    White House Offices, the Executive Branch Agencies, and Congress.
        A second responsibility of OSTP is to provide leadership and
    coordination across the Administration. OSTP plays this role for a
    range of Administration priorities, including national security and
    global stability, environment, science, and technology. The National
    Science and Technology Council has been an invaluable partner with OSTP
    in developing interagency evaluations and forging consensus on many
    crucial S&T issues.
                OSTP Budget Request
        I ask today for your continued support of OSTP's role in
    coordinating S&T policy for the Executive Branch and for our Nation at
    large. OSTP's budget request of $5,368,000 and 40 full-time equivalent
    positions in fiscal year 2003 represents a net increase of $101,000, or
    1.9 percent, over our fiscal year 2002 enacted budget. The number of
    full-time equivalent positions remains unchanged.
        The requested amount would allow OSTP to fulfill its
    responsibilities in a White House committed to an increased role for
    science and technology in achieving national goals, including
    strengthening the economy, creating high quality jobs, winning the war
    against terrorism, defending the homeland, protecting the environment,
    and improving health care.
        The requested fiscal year 2003 budget will support the Director and
    two Associate Directors plus a staff of seasoned professionals with
    diverse training and experience. Our requested increase is essential to
    continue to provide quality support to the President and information to
    the Congress. Since personnel costs constitute the largest portion of
    OSTP's budget, our fiscal year 2003 budget request reflects our
    commitment to operate more efficiently and cost-effectively without
    compromising the essential element of a top caliber science and
    technology agency--high quality personnel.
                National Science and Technology Council
        To meet the Administration's priority S&T goals, we must combine
    the efforts and the expertise of multiple agencies. OSTP personnel
    support the work of the NSTC, a Cabinet-level Council that sponsors
    interagency initiatives to advance key S&T objectives.
        Our distributed system of research funding also places a premium on
    coordination among complementary agency programs. The NSTC improves
    such coordination.
        NSTC membership includes Cabinet Secretaries, heads of science and
    technology agencies, and key White House officials with significant S&T
    responsibilities. In the process of generating specific budgetary and
    policy recommendations, NSTC routinely reaches beyond the Federal
    Government to seek input from a wide spectrum of stakeholders in the
    public and private sectors.
        An important objective of the NSTC is to guide individual agency
    budget priorities for R&D and orient the S&T spending of each Federal
    mission agency toward achieving national goals. To this end, in late
    2001 the NSTC established an interagency Task Force on Antiterrorism
    Research and Development with several working groups to address broad
    categories of issues. The four working groups focus on:
      --Biological and Chemical Preparedness
      --Radiological and Nuclear Detection and Response
      --Protection of Vulnerable Systems
      --Social, Behavioral, and Education Sciences A fifth working group--a
            rapid-response team--serves as an action-oriented team to
            grapple with emergencies that may arise.
        Other standing NSTC committees, along with ad hoc working groups
    within the NSTC, provide an effective forum to resolve crosscutting
    issues such as nanoscale science, engineering, and technology,
    information technology R&D, and plant genome research.
                The President's Council of Advisors on Science and
                        Technology
        As Director of the Office of Science and Technology Policy, I co-
    chair the President's Council of Advisors on Science and Technology
    with Floyd Kvamme. The PCAST, which consists of distinguished
    individuals from industry, education, research institutions, and other
    non-governmental organizations, serves as the highest level private
    sector advisory group for the President and the NSTC.
        President George Bush originally established PCAST in 1990 as a
    means to gain advice from the private sector and academic community on
    technology, scientific research priorities, and math and science
    education. The organization follows a tradition of Presidential
    advisory panels on science and technology dating back to Presidents
    Eisenhower and Truman.
        Madam Chairman and Members of the Subcommittee, I hope that this
    overview has conveyed to you the extent of this Administration's
    commitment to advancing science and technology in the national
    interest. I look forward to achieving bipartisan support for a national
    S&T strategy that will combine the resources of industry, academia,
    non-profit organizations, and all levels of government to protect our
    citizens, advance knowledge, promote education, strengthen
    institutions, and develop human potential.
        I ask not only for your support of OSTP's fiscal year 2003 budget
    request, but I also want you to know how much I appreciate the long-
    standing bipartisan support of the Subcommittee for the Office of
    Science and Technology Policy and for the science and technology
    enterprise. I would be pleased to answer any questions.

                          TRANSFERRED PROGRAMS TO NSF

        Senator Mikulski. Thank you all very much for your
    testimony. And each one of the aspects presented could be the
    subject of a hearing unto itself and so--but let me go right to
    the core of this hearing, which is an appropriations hearing.
        As I said in my opening statement, there is an apparent 5
    percent increase in the funding for the National Science
    Foundation, but one-third of it comes from the transfer of
    three programs. I would like to raise the issues around those
    three programs and these questions are really for you, Dr.
    Colwell.
        Why is the Administration proposing to transfer the Sea
    Grant program from NOAA to the National Science Foundation and
    what is it that we are trying to fix by doing this? The
    authorizers strongly object to the transfer of these three
    programs.
        Dr. Colwell. Let me say that the Administration views the
    management of the NSF, of which we are very proud, to be very
    strong and the merit review process to be consistent with the
    President's management agenda. The Administration believes that
    increased use of competitive merit-based processes will improve
    the performance and the effectiveness of the investments.
        But NSF, since the Sea Grant program originated at the
    National Science Foundation, will operate the program as a
    competitive merit-based research, education and outreach
    program.
        Senator Mikulski. It is not being operated that way at
    NOAA?
        Dr. Colwell. I am sure it is being operated effectively.
    Should it be transferred, we would continue the processes.
        Senator Mikulski. So what is the reason for moving it
    though, because you started it there?
        Dr. Colwell. It is a matter of merit-based review and the
    integration of the management with the National Science
    Foundation.
        Senator Mikulski. Well, Dr. Colwell----
        Dr. Colwell. This is not----
        Senator Mikulski. I am not going to debate this with you,
    because you did not make the decision, but the transfer so it
    could be merit based and peer reviewed and all that, we
    presumed that is going on at NOAA.
        And if it is not going on at NOAA, that needs to be done
    through the authorizing and appropriations, not a transfer to
    you.
        With all due respect. So I do not want to debate that
    point.
        Why are they moving the Environment Education Program? One
    of my concerns is that EPA graduate fellowship programs would
    have no funding.
        Dr. Colwell. Let me just point out that the overhead costs
    at NOAA are higher. They are lower at the National Science
    Foundation. That is not the sole justification, but is a point
    I would like to make.
        With the Environment Protection Agency transfer, we will
    work out the process with the EPA. And, again, it is the
    management process that fits with the President's agenda.
        The research grants program fits with the current
    educational program we have underway at NSF. And, again, I
    would have to say, this is not my highest priority.

                 PROPOSED NSF FISCAL YEAR 2003 BUDGET INCREASE

        Senator Mikulski. Well, as you know, there are very serious
    objections to these three transfers. It gives the illusion that
    the NSF has increased. You really are only getting a 3 percent
    increase here.
        Dr. Colwell. I have to agree that it is----
        Senator Mikulski. That is pretty spartan.
        Dr. Colwell. Three fourths percent increase.

                                 CORE SCIENCES

        Senator Mikulski. Which takes me, though, to the core
    sciences. And I know you have been so passionate--you and Dr.
    Kelly and I know Dr. Washington have been, ``We have got to do
    the core sciences.''
        Do you remember when you came over with your charts on how
    the funding has gone up for life science, but everything else
    was flat? Young people were being discouraged that there was no
    money either in stipends or the opportunity for research. And
    then zip, it is being cut here.
        Why are the core science programs being cut? And what do
    you think are the consequences of this?
        Dr. Colwell. Well, let me point out that the core areas
    benefit from the priority areas. In other words, each of the
    directorates participates in the information technology
    priority, similarly in nano-technology, so that if one adds the
    components of those initiatives that involve mathematics,
    chemistry, and physics, you will find that it is more like
    level funding for these disciplines.
        I agree that we need to invest in the future, very heavily
    in these areas. We are doing this in a planned step-wise
    process, working with OSTP and the Office of Management and
    Budget.
        The budget that has been given us addresses our priorities
    and it is a budget that can advance science and engineering.
        Senator Mikulski. Well, you know, we are looking at also a
    decade of decline. And we are hoping that through our doubling,
    which we are committed to, that these would be the areas of
    increase, which would be in the core sciences.
        Do you remember when I proposed my strategic research
    initiative and scientists all over America jumped all over me,
    and you and Dr. Brody and Dr. Vest, helped sort all of that
    out.
        Well, I am ready to fund the core, while we also look at
    those things that do maintain homeland security, competitive
    edge and all that. But this is the core.
        Dr. Colwell. Senator, I am married to a physicist. He
    reminds me daily of the necessity of funding physics,
    chemistry, and mathematics. I agree with you, Senator; I do.
        Senator Mikulski. I am going to turn to Senator Bond, but
    there has been a 3 percent cut in chemistry and a 3 percent cut
    in physics. And----
        Dr. Colwell. When one takes into account the participation
    I am not arguing. I am simply saying that when one takes into
    account IT and nano-tech, it is about level.
        Senator Mikulski. Senator Bond.

                              FEDERAL R&D SUPPORT

        Senator Bond. Thank you, Madam Chair.
        While we are on a roll, I thought I would turn to Dr.
    Marburger and continue this line of questioning.
        According to the National Research Council report on trends
    and Federal support of research and graduate education, there
    is ``cause for concern about the allocation of funding among
    fields, in the Federal research portfolio in particular, with
    respect to most of the physical sciences and engineering, whose
    funding in contrast with the biomedical sciences has, with few
    exceptions, stagnated or declined.''
        Dr. Marburger, would you agree with the Research Council's
    view on that?
        Dr. Marburger. Well, far be it from me to disagree with the
    National Research Council. The fact is that the balance issue,
    the issues that are assembled under the phrase balance are
    important issues. And we believe that it is necessary to tune
    the mechanism of science, so that it can move forward
    effectively.
        We do not believe that the right way to do that is to fix
    on arbitrary formulas of doubling or tripling, but rather to
    identify those areas that need funding and address them and
    fund them--give them priority and over a period of years bring
    back the necessary balance if there is an imbalance.
        In this budget for fiscal year 2003, the President has
    identified a priority for science spending and funded it quite
    substantially in the life sciences. And I believe that
    subsequent years will see an addressing of the balance issues
    that are being identified at this time.
        Senator Bond. I think I heard what you said, but I am not
    sure that I got an answer to my question. You said that
    arbitrary doubling or something like that, yes, well the Chair
    and I are pushing for an arbitrary doubling, because we started
    out with the NIH budget and the NSF budget here. And everybody
    agreed on the arbitrary doubling of NIH. And it has now so far
    outstripped NSF that we are absolutely falling behind.
        Do you agree that advances in biomedical science depend
    upon things like fundamental research and physics, chemistry,
    electrical engineering, chemical engineering, and the other
    things?
        Dr. Marburger. I do, indeed. It is interesting to note that
    in the accounting of the budget for fiscal year 2002, the
    current year, the annual study that is made by the American
    Association for the Advancement of Science, takes a look at
    each of these areas of science, life sciences, physical
    sciences, engineering, and so forth.
        And in that accounting, they show that NIH, for example,
    owns about 15 percent of the funding in the physical sciences;
    whereas NSF owns only 12 percent of the funding for physical
    sciences. The major player in the physical sciences game is the
    Department of Energy, then NASA, but actually NIH is quite
    substantially supporting the physical sciences, so that it is
    not the case that funding--increased funding for NIH
    necessarily means that there is not increased funding for the
    physical sciences as well, through their allocations.
        Through an interagency effort that was sponsored by my
    predecessor in the Office of Science and Technology Policy, we
    arranged for NIH to provide very substantial support in basic
    energy sciences through the Department of Energy, supporting
    beam lines at--synchrotron light sources around the country,
    which are heavily used by biological science researchers.
        So, the--my point is, and the point of the Administration
    is, that the balance issue is a complicated issue. Many
    agencies are involved; many fields of science are involved. And
    we would like to go at it in a sort of a rifle-shot approach,
    establishing priorities and funding them systematically. And I
    believe that--that is what is going to happen.

                           FUNDING PHYSICAL SCIENCES

        Senator Bond. Well, Dr. Marburger, as I understand it, what
    little I know about the NIH physical science, that is more
    applied science. We are talking about the need for basic
    science that only comes through NSF.
        And the White House has taken great pride in doubling the
    NIH budget.
        Can you sit here and tell me, as a scientist who is looking
    over the whole area, that there is not an imbalance between
    what we are putting in NIH and what we are putting in the basic
    physical sciences?
        Dr. Marburger. I would like to see more money in all of
    them. It is hard for me to tell----
        Senator Bond. No, no, no, no; that is not the question.
        Dr. Marburger. There is no doubt that priorities have been
    identified and that some areas are funded more than others, and
    there is no question that life sciences has received more
    support.
        Senator Bond. Thank you.
        Dr. Marburger. That was done intentionally.
        Senator Bond. I give up, Madam Chair, here.
        I turn the questions back to you.

                      UNDERGRADUATE AND MINORITY PROGRAMS

        Senator Mikulski. Well, I see I agree with that line of
    questioning, but let me also turn--first of all, in the areas
    of nano-technology, info technology and your bio-complexity. I
    think we are on the right track. We would like to pursue those,
    but, again, I am under very difficult time constraints this
    morning.
        I am going to go to the attraction of undergraduate
    students into science. Dr. Colwell, I am going to ask--and Dr.
    Washington, I would like you both to be able to respond.
        We are committed to K through 12, and the funding of
    informal science education. And, again, we could talk about
    those, but our undergraduates are now looking at business. They
    are looking at marketing. They are looking at areas other than
    science and technology.
        And I am not--I mean, everybody has got to follow their
    dream and their passion. But today, the foreign students do
    comprise 40 percent of our PhD's. You cannot go for a PhD
    unless you have an undergraduate major.
        Yet, this budget cuts undergraduate programs by over $10
    million. The community college program declines, which is also
    a way particularly for first generation people to go to college
    to get into it and maybe pursue the night school programs at
    wonderful places like University of Maryland and Hopkins. The
    the new undergraduate ``tech talent'' program declines by 60
    percent.
        My question is: What are the resources that are needed to
    truly fund undergraduate science programs in--I mean, really to
    be able to, again, attract more undergraduate students into
    science, and also the whole issue of recruiting the entire
    American community, which is women and minorities, who are
    often discouraged now because of the issue around money,
    particularly the minority students? And I am thinking of the
    Latino community, first generation, moving in.
        Dr. Colwell. Senator, you touch on one of the most
    perplexing, and one of the most difficult, international
    problems.
        I have just returned from a G-8 meeting of the heads of
    research councils. This problem is universal.
        In fact, in Japan, where the meeting was held, we learned
    that even though the Japanese students performed better in math
    and science, after they get to a university, they deflect off
    into business and other areas.
        Senator Mikulski. Just talk to me about our own country
    today----
        Dr. Colwell. Yes, I will.
        Senator Mikulski [continuing]. With all due respect.
        Dr. Colwell. I just wanted to point out that it is an
    international problem.
        Having said that, we are focusing on women and minorities,
    bringing them into science and engineering. Because, as you
    have pointed out, it is the human resources, that are going to
    make the difference if we have decreased participation in
    foreign students.
        We have taken a different approach--or we are beginning to
    take a different approach, at the National Science Foundation
    in integrating horizontally all of our efforts that address
    students, from K-12 through continuing education, and are
    focusing on undergraduate education, as well. And that is to
    link our programs and to link our efforts with those of other
    agencies.
        If you look only at the specific programs addressing women
    and minorities, it appears to be a decrease. In fact, we have
    programs within the directorates that are addressing bringing
    women and minorities, for example, into mathematics, physics
    and bio-sciences directorates, so that we have, in fact, a
    greater effort financially----

                       ADDITIONAL FISCAL YEAR 2003 FUNDS

        Senator Mikulski. So, you are talking about leveraging and
    synergistic effects of the money you have?
        Dr. Colwell. Yes.
        Senator Mikulski. Could you use more money in this area?
        Dr. Colwell. We can always use more money and, this is an
    area----
        Senator Mikulski. And I am not always talking about
    ``always use more money.'' Could you use more money in this
    area?
        Dr. Colwell. Let me answer by saying that this is the most
    important problem we address as a Nation. And I would quote the
    Hart-Rudman report, which says that second only to an invasion
    or an attack on one of our major cities, losing leadership in
    science and math and in science and math education.
        Senator Mikulski. Well, Dr. Colwell, I--again, not to cut
    you short. I am going to turn to Dr. Washington, because here
    is where I am. First of all, I agree it is a national problem.
    I believe it is an international problem. But my responsibility
    is to the United States of America, and then to the world.
        I have got to know what we really need here. Now, I know
    that you are a good soldier and you have to work under OMB and
    everything done as vetted and checked to see who has been
    naughty and who has been nice, but I really must know, and I
    know my colleague, here----
        Dr. Colwell. Yes.
        Senator Mikulski [continuing]. We believe in the farm team.
    You know, if sports can have a farm team, certainly science
    should.
        Dr. Colwell. So do I.
        Senator Mikulski. We spend more money on our academic
    institutions being a farm team for the NFL than for the Nobel
    prize. Now, I think we've got to get our priorities straight as
    a country, and I am ready to use whatever money muscle I have
    here to do that.
        Dr. Washington, how do you think we ought to do it?
        Dr. Washington. Well, first of all, let me say that the----
        Senator Mikulski. What would be required?
        Dr. Washington. I think I would actually like to sort of
    list several things. One is that the National Science Board
    regards education as one of our key priorities for the Nation
    and for the National Science Foundation.
        We are now in the process of preparing a report on the work
    force and that will be ready sometime in the summer or the
    fall.
        At the board meeting last week--we issued a diversity
    statement that deals with women and minorities, and it
    reaffirms a very strong commitment of the National Science
    Board to this issue and with regard to additional funds. There
    is a--the board feels very strongly that we can make very wise
    use of increased funding in the area of education.
        There are proposals out there that are very high merit
    and--however, with limited funding, we cannot fund them all.
    And I think that we could actually make----

                              NSB RECOMMENDATIONS

        Senator Mikulski. Well, Dr. Washington, I am going to turn
    to the board as we ponder how we are going to do this year's
    appropriations. We would like to hear from the board what their
    specific recommendations would be, particularly on this, what
    we consider, crisis issue. I view this as a crisis issue.
        And while we want to fund the research, we have got to fund
    the people who are going to do the research. And we believe
    that this excellent board of which you are a chair--I think you
    will continue the great tradition--we really would like to have
    like five ideas on what you think it would take to really keep
    the momentum going.
        I think Dr. Colwell, I know has had a great commitment, but
    we would like to really turn to the board to be able to do
    that, as well as, of course, you, Doctor. But you are shackled
    in a lot of ways for what you can ask for. So----
        Dr. Washington. I think that the board can----
        Senator Mikulski [continuing]. I am going to turn to the
    unfettered----
        Dr. Washington [continuing]. Easily--I should not say
    easily, but the board would--will be very happy to respond.
        Senator Mikulski. Thank you very much, Dr. Washington. I
    look forward to getting better acquainted.
        [The information follows:]

    National Science Board Activities on Science and Engineering Education
                                 and Workforce

        It is the National Science Board's position that ``there is no
    greater challenge and no more fundamental a need than the assurance of
    a skilled, highly educated, and diverse workforce (for science and
    engineering) and of a public that is not just well disposed toward
    science, but one that is also able to use its knowledge of science and
    mathematics for individual and collective improvement.'' \1\ Education
    and the development of our human resource base and workforce for
    science and technology is the most important science policy issue
    confronting the Nation today. Consistent with this view, the Board has
    been examining education and workforce issues from a number of
    perspectives, from K-12 through the graduate and postdoctoral levels.
    ---------------------------------------------------------------------------
        \1\ National Science Board. National Science Board Strategic Plan,
    p.11.
    ---------------------------------------------------------------------------
        The Board has made numerous statements addressing all levels of
    education within the last several years alone, and has developed a
    range of recommendations on nurturing the S&E workforce. A few of the
    most important include:
        (1) Preparing Our Children on K-16 education in science,
    mathematics, engineering, and technology, March 1999. The report
    focuses on the need for partnerships across sectors at the State and
    local levels to achieve a continuum of excellence in K-16 education,
    and recommends active participation of individual scientists and
    engineers and their institutions in creating a seamless K-16 system for
    science, mathematics, engineering and technology education (http://
    www.nsf.gov/pubsys/ods/getpub.cfm?nsb9931a);
        (2) The Federal Role in Science and Engineering Graduate and
    Postdoctoral Education (NSB 97-235), 1997, offers recommendations for a
    more productive Federal/university partnership in graduate and
    postdoctoral education (http://www.nsfgov/pubsys/ods/
    getpub.cfm?nsb97235);
        (3) Resolution NSB 01-167, October 2001, affirming the importance
    of Criterion Two for evaluating proposals for funding in the Merit
    Review process. Criterion Two addresses broader impacts of proposed
    research and education activities, including impacts on the workforce;
    \2\ and
    ---------------------------------------------------------------------------
        \2\ ``The National Science Board affirms the significance of both
    the intellectual merit and the broader impacts of projects supported by
    NSF, and endorses actions to raise awareness of the importance of both
    merit review criteria. These actions should include wide dissemination
    of generic examples of activities that address the broader impacts
    criterion, and amendments to policies and procedures for proposers,
    reviewers and NSF Program Managers on the use of both criteria in the
    proposal and award process.''
    ---------------------------------------------------------------------------
        (4) ``National Science Board Statement Concerning NSF's Continuing
    Role in Promoting Diversity in Science, Technology, Engineering and
    Mathematics'' (NSB-02-75) \3\ in May 2002, focusing on the importance
    of broad participation of U.S. citizens in the science and engineering
    workforce.
    ---------------------------------------------------------------------------
        \3\ ``The National Science Foundation (NSF) invests public
    resources to realize ``a diverse, internationally competitive and
    globally-engaged workforce of scientists, engineers and well prepared
    citizens"(NSF GPRA Strategic Plan for fiscal year 2001-2006, p.3). This
    goal, encompassing a variety of strategies, supports NSF's mission to
    strengthen scientific and engineering research and education and their
    integration. In this context, the National Science Board believes such
    a diverse science and engineering workforce is necessary to ensure the
    Nation's health, prosperity, and security.
        As Congress declared in the Science and Engineering Equal
    Opportunities Act of 1980, 42 U.S.C. 1885, ``the highest quality
    science and engineering over the long-term requires substantial
    support, from currently available research and educational funds, for
    increased participation in science and engineering by women and
    minorities.'' The National Science Board recognizes that an integral
    part of accomplishing NSF's strategic goals requires engaging all those
    who are under represented in the Nation's science and engineering
    enterprise. Therefore, the Board strongly supports the Foundation's
    commitment to developing and strengthening all of its programs for this
    purpose, ensuring broader individual and institutional participation
    across all research and education programs.''
    ---------------------------------------------------------------------------
        The National Science Board, primarily through its standing
    Committee on Education and Human Resources, \4\ exercises oversight of
    the National Science Foundation programs and activities to support the
    development of human resources for science and engineering and
    scientific and mathematical literacy for the general public. The Board
    fully supports the objectives of the new Math and Science Partnership
    initiative funded through the National Science Foundation, which is in
    accord with the work the Board has undertaken on K-16 math and science
    education policy and with the long-term NSF investment in State, rural,
    and urban systemic initiatives to reform math and science education at
    the K-12 level.
    ---------------------------------------------------------------------------
        \4\ Charge to Education and Human Resources Committee: http://
    www.nsfaov/nsb/committees/ehrcharve.htm; ``EHR Committee Workplan''
    (NSB 99-179): http://www.nsf.gov/pubsys/ods/getpub.cfin?nsb99179
    ---------------------------------------------------------------------------
        The Board's ongoing national policy efforts that concern the
    science and engineering workforce include the establishment in October
    2000 of a special Task Force on National Workforce Policies (NWP), \5\
    reporting to the Education and Human Resources Committee. The Task
    Force is charged with examining workforce development issues in a
    systemic framework that incorporates various levels of the educational
    process, industry roles and requirements, and national policies related
    to education and immigration. This is one of two current Task Forces
    charged by the Board to undertake special studies. The second is the
    Task Force on Science and Engineering Infrastructure, \6\ reporting to
    the Committee on Programs and Plans, which is charged to assess the
    quality and adequacy of the infrastructure for U.S. fundamental science
    and engineering.
    ---------------------------------------------------------------------------
        \5\ Charge to the Task Force on National Workforce Policies (NSB
    00-192) http://www.nsf.gov/nsb/committees/nwpcharge.htm.
        \6\ Charge to the Committee on Programs and Plans Task Force on
    Science and Engineering Infrastructure (NSB 00181): http://www.nsfgov/
    nsb/committees/infcharge.htm.
    ---------------------------------------------------------------------------
        In addition to the work of the NWP Task Force, the Education and
    Human Resources Committee is now focusing its attention on policies for
    undergraduate education in science, technology, engineering, and
    mathematics (STEM). I will be happy to keep you informed on our
    progress in ongoing policy activities related to the workforce,
    especially the recommendations of the Board pursuant to the completion
    of the work of the Task Force on National Workforce Policies, expected
    by the end of this year.

        Senator Bond.
        Senator Bond. Senator, if I could----
        Senator Mikulski. Okay.
        Senator Bond. All right.
        Senator Mikulski. I am going to turn the gavel over to
    Senator Bond. I have to be somewhere really on the topic of the
    digital divide with my colleague, Senator Cleland, our civil
    rights organizations. I know that Senator Bond--well, first of
    all, we--you know, we are like the Amen chorus here.
        Why do I not turn it to you, Senator Bond? I know you have
    management issues, and then would you please make sure that
    Senator Domenici has all rights for the committee?
        Thank you very much. And we look forward to further
    conversation on this.

                                 NSF IG REPORT

        Senator Bond [presiding]. Thank you.
        Might I invite the inspector general, Dr. Boesz, to come up
    please?
        I want to follow up on some of these questions I raised in
    my opening statement, particularly the audit of the NSF's major
    research equipment and facilities. Can you summarize for us,
    please, because I want to hear your side, and also I want to
    hear the Foundation's response and comments on it? I would like
    to get it out here in the open.
        Can you summarize your audit findings and illustrate those
    findings with some--perhaps some examples? And based on your
    observations, do you believe the NSF has the ability to provide
    a full cost accounting of each of its large facilities?
        Dr. Boesz. Good morning, Senator. I will be happy to
    respond to that. My name is Tina Boesz, I am the Inspector
    General.
        And we did do an audit of the large facility projects at
    NSF and we do recognize that in the past year, NSF has made a
    concerted effort to improve the general management and
    oversight of these projects. However, it still needs to do a
    lot of work on improving the financial management of the
    projects.
        NSF's current policies and practices do not yet provide
    adequate guidance to program managers to oversee and manage the
    financial aspects of the major research equipment and
    facilities projects.
        The current policies have allowed NSF to use multiple
    appropriation accounts to fund the acquisition, construction,
    and development cost of major research equipment and
    facilities. This has led to inconsistencies in the types of
    costs funded through the MRE account.
        And in addition, NSF's current practice is to track only
    those costs funded from the MRE account, and not the full costs
    of the projects. As a result, NSF today cannot ensure that it
    stays within the authorized funding limits that have been
    approved by Congress or by the National Science Board for any
    one particular project.
        This makes it impossible without having the total costs of
    a project--it is impossible for decision makers to monitor how
    well the projects are going. For example, in the report, I
    mention the large Hadron Collider as one project which the
    National Science Board approved, the construction of two
    detectors at an amount approximately of $81 million.
        We know that NSF has already spent $2 million from the R&RA
    research and related activities, account to develop software.
    We also have identified approximately $57 million that NSF
    intends to fund from the research and research affiliated
    account to fund additional software development--this is
    software that is necessary for the detectors to work. They
    also--this money would go for implementing or putting the
    detectors into the collider and also the commissioning costs.
        So it does not really--the $81 million does not get at a
    full functioning detector operating in a collider. That is one
    example.
        And I--so I think that the issue basically is how is NSF
    going to get at the issue of total project costs. At the
    present time, their systems are not able to do that.
        We are told by the end of the summer, they intend to have
    these policies and procedures in effect. We have reviewed some
    of the drafts. They are making progress. They intend to have a
    large facilities manager, a deputy to the CFO in place. And we
    think that by the end of the summer, we are hopeful that many
    of these items will be addressed.

                           NSF RESPONSE TO IG REPORT

        Senator Bond. Dr. Colwell, I raised this question
    previously and I had hoped to have it resolved. I would like to
    hear your comments on it.
        Dr. Colwell. Yes.
        Senator Bond. And where you think--what can be done and
    when?
        Dr. Colwell. Well, first, Senator, I genuinely want to say
    to you and Senator Mikulski that I deeply appreciate your
    commitment to the foundation.
        NSF believes in continued improvement of our financial
    management and policies. The recommendation of the inspector
    general is sound. The recommendations, in fact, endorse many of
    the changes we already are implementing as part of the new plan
    for management in oversight of the large facility projects.
        I would like to emphasize that it is vital to retain the
    flexibility that allows these projects to realize their full
    potential to the Nation, like encouraging participation by
    EPSCoR States and institutions.
        What we have done is complete our guidelines and
    procedures. We are instituting internal controls to prevent
    mixing of R&RA with MRE funds. We are revising our criteria for
    prioritizing large projects. We are hiring staff and providing
    travel funds for increased oversight of large facilities, and
    we are providing management reviews of each of the MRE projects
    to the committee of programs and plants of the National Science
    Board.
        I would say that the draft audit report of the I.G. does
    set forth several recommendations, but in part some are
    characterizations that do not fully and accurately describe our
    processes of the specific projects mentioned. And we will have
    a full report of our response no later than June 15, which we
    would be very pleased to provide you, Senator Bond, because I
    know you are keenly interested.
        Finally, let me say that the agency is recognized as one of
    the best managed in the entire Federal Government, if not the
    best managed. We are very proud of that.
        We can always do better. We are already taking these
    recommendations into account and changing processes
    accordingly.

                           NSB RESPONSE TO IG REPORT

        Senator Bond. Dr. Washington, any comments on this before
    we turn to Senator Domenici?
        Dr. Washington. No.
        Senator Bond. Okay. Well, that solves that. Well, thank
    you. Senator Mikulski and I are going to be the best friends of
    NSF. We are going to continue to fight. It looks like we have
    to fight some on our own team to get the resources. We want to
    make sure that we have solved all the management problems; and
    the accounting problem is a troubling one that needs to be
    resolved.
        With that, let me turn to Senator Domenici.
        Senator Domenici. Thank you very much, Senator.
        Dr. Colwell, how are you? It is nice to see you again.
        Dr. Colwell. Thank you, Senator. It is a pleasure to see
    you.

                      HOMESTAKE MINE AND NEUTRINO RESEARCH

        Senator Domenici. Last year when we met in June for this
    hearing, I had just been in Carlsbad, New Mexico, with the
    National Science Foundation Committee that was reviewing the
    potential for a new underground science facilit7 in the United
    States.
        In New Mexico, the waste isolation pilot project, commonly
    known as WIPP, was being looked at and evaluated. The NSF--the
    committee eventually came up with the Home Stake Mine in South
    Dakota as the best alternative, based on the advantages of a
    very deep facility for neutrino studies.
        I still am doubtful about that choice, but things have to
    move along. Certainly evident in the discussions at WIPP was
    that many experiments that benefit from an underground facility
    do not need an ultra-deep site.
        In fact, for many experiments, scientists have told me that
    the extremely low background radiation and very dry conditions
    of WIPP lend themselves to better experiments than relatively
    high radiation backgrounds and better experiments can take
    place.
        What is the current plan for the Home Stake Mine and the
    neutrino research?
        Dr. Colwell. Senator, we are in the process of reviewing
    scientifically, the proposal that has come to the NSF. There
    has been no decision. We are also awaiting, in concert with the
    Office of Science and Technology Policy, Dr. Marburger, a
    report from the National Academy of Sciences, which will
    convene a work shop, with participation by the physics
    community, to determine priorities for neutrino research.
        I do think since, to my right is an expert in physics, that
    I will ask Dr. Marburger also to comment.
        Senator Bond. Dr. Marburger.
        Dr. Marburger. There is no--thank you very much, Mr.
    Senator. There--the--there is no question that neutrino
    research is a very interesting area of fundamental science, and
    that there are a number of experiments ongoing in other
    countries, as well as in the United States.
        It--I believe that the choices among the different options
    available to us have to be made by the science community in the
    context of a considered review of all the factors. I am not
    prepared or--nor am I technically capable, despite my
    colleagues' confidence in my expertise, to make a statement
    about that at this time.
        I think it is going through the right process. We are
    asking the right people and I am certain that this decision
    will be made on the basis of good science.
        Senator Domenici. Doctor, while I have you. Why do I not
    just go through a couple of questions with you?
        First, it is nice to have you up here, too, and to visit
    with you.
        Dr. Marburger. It is a pleasure.

                    FEDERAL COORDINATION OF NANO-TECHNOLOGY

        Senator Domenici. One of the more recent scientific watch
    words is nano-technology. The DOE's Office of Science has a
    significant nano-technology program; and three centers are
    being constructed, including one center for integrated nano-
    technology, called CINT, which is a combination of Sandia
    National Laboratory at Los Alamos National Laboratory, and NSF.
        The NSF's budget includes $221 million for nano-science and
    engineering, and other departments of the government seem to be
    finding that nano-science fits them also. Do you think that the
    many different approaches to nano-technology by various
    agencies are coordinated and integrated to avoid duplication
    and to present our country with the maximum productivity?
        Dr. Marburger. Yes, I do, Mr. Senator. The National Nano-
    technology Initiative is coordinated through my office. There
    is an interagency working group that meets frequently and tries
    to understand the scope of the nano-technology field.
        As you probably know, nano-technology encompasses much of
    chemistry and the whole promise of being able to make materials
    and make what I call functional materials from scratch, atom by
    atom.
        Senator Domenici. Correct.
        Dr. Marburger. And the capabilities are--for doing this are
    distributed throughout a number of different agencies. And we
    believe that request in the 2003 budget accurately reflects the
    capabilities as they are distributed throughout the agencies.
        There is an 11 percent increase in this program in NSF.
    There is a 53 percent increase in the DOE program to address
    the centers that you described in your question.

                             VERY LARGE ARRAY (VLA)

        Senator Domenici. Dr. Colwell, this is my last question.
    Last year, the NSF included funding in its budget for the
    expansion and modernization of the Very Large Array, commonly
    known as the VLA.
        Dr. Colwell. Yes, sir.
        Senator Domenici. It is a world class center, in radio-
    astronomy, near Socorro, New Mexico. The project has been
    reviewed and approved by the National Science Board and also
    approved as a second priority for ground-based astronomy by the
    Decadal survey. It is my understanding that the budget request
    is $5.3 million short of providing the resources that are
    needed to operate the National Radio Astronomy Observatories
    and to continue with the plan and the VLA expansion. Is that
    number correct?
        Dr. Colwell. I am not sure about the exact number, but I
    must say that we do have a crunch in the major research
    equipment and that certainly is one of our priorities.
        As part of the ongoing project management, there has been a
    management peer review completed on the upgrade. The report is
    to be released in about 2 months.
        The upgrade presently is adhering to the projected time
    schedules and budgets, so we are on time and on budget for that
    particular project, Senator.
        Senator Domenici. Well, the same thing is happening with
    the National Solar Observatory at Sacramento, Peak, New Mexico.
    The way the monies are being applied be NSF there is not going
    to be enough for what it needs. I will just give you that
    question in writing and you can answer it.
        Dr. Colwell. Yes. Yes, sir. Thank you, Senator.
        Senator Bond. If you have--if you want to go ahead, you
    may.

                           PHYSICAL SCIENCES SUPPORT

        Senator Domenici. That is fine. Mr. Chairman, let me just
    say that I know you and the chairperson have already spoken to
    the fact that we have our national funding a little bit out of
    balance, in terms of the physical sciences versus the more
    readily supportable NIH.
        Some of us are trying to get the natural sciences back into
    a rhythm where they can be doubled within a given period of
    time, if that is what it takes around here to make progress.
        To me, we are doing a very big disservice by not pushing
    funding for the physical sciences up, as we let NIH go very,
    very alive with new ventures. I think one is going to stop the
    other. I think you are going to need more of the physical
    science break throughs to keep the NIH programs going, as we
    hope they will.
        We are going to continue in this subcommittee and elsewhere
    to do what we can to see that the National Science Foundation
    is funded.
        It is the one Agency that we know. It is not exactly like
    the Department of Energy, which runs the programs themselves.
    It is a different model. I believe it is very, very imperative.
    I would ask you, Doctor--many people are showing great respect
    for you when they ask you for your opinions.
        On the same token, you work for the President, and he
    produced the budget. We are all his friends. I mean, at least
    the two of us are his good friends.
        If it is not going to affect anybody out there, could--you
    tell me whether I am on the right track that we better put some
    more funding into the physical sciences.
        Dr. Marburger. I think the track is good. The fact that is
    balance is important and that the machinery of science--the
    pieces of the machinery have to work together.
        The issue that we have, this Administration has, with the
    concept of doubling is its lack of specificity, its lack of
    prioritization, and recognizing the differentiation among
    different areas of science.
        And there are certain things that need to be funded,
    probably deserve more money, and we will get it. We are getting
    the attention, and there may be other things in that mix of
    activities that we call science or even physical sciences, that
    are perfectly healthy and do not require the additional
    funding.
        So as I pointed out in response to Senator Bond's question,
    I believe, yes, that physical sciences are, in fact, supported
    by a number of different agencies. And they--it encompasses a
    very wide range of sciences.
        I think it is important for us to be--to have an
    intelligent approach that makes distinctions, establishes
    priorities and funds--pulls out the things that need funding
    and fund them.
        It includes nano-science, instrumentation. It includes
    basic computer sciences. We need all of these things to keep
    the machinery of science going.
        And many of these have been identified as priorities in the
    President's 2003 budget request and signal the intention to
    continue to tune up the funding in future years.
        Senator Domenici. Well, let me just close my comments and
    say to Senator Bond, and I am sure I am speaking to the
    chairperson just in the same manner, but I think it really
    behooves us to pursue funding of NSF to a larger extent than
    our President is able to do, and where we can to boost the
    physical sciences.
        And I close today by inviting you, Doctor, at some point in
    time to come out and see Sandia's Nano-Research Facility. Right
    now, they are in some old barracks from whence some of the best
    nano-science has evolved. And micro-engineering is going full
    blast there too in some broken-down buildings. But they will
    soon be the beneficiary of a very major $400 million facility,
    which would put them apparently at the cutting edge for most
    Americans who are interested in nano-science and micro-
    engineering.
        I thank you for your great work.
        Dr. Marburger. Thank you.
        Dr. Colwell. Senator, I would like to express my
    appreciation to you for your commitment and support of the
    National Science Foundation. We really very much appreciate it.
    Thank you, Senator Domenici.
        Senator Domenici. Thank you very much, Doctor.

                   ADDITIONAL NSF FUNDING IN FISCAL YEAR 2003

        Dr. Washington, I did not have any questions for you, but I
    do not want you to feel that is neglecting you.
        Dr. Washington. Well, I do want to just comment on one
    thing. In my oral presentation, I did mention that there are
    many unfunded proposals that are very high in their merit
    rating, but due to the lack of funds, we are not able to fund
    those. And I think that additional resources would help.

                         LARGE FACILITY PRIORITIZATION

        Senator Bond. Thank you very much, Senator Domenici. I like
    Senator Domenici's question and Dr. Washington's answer, and I
    think we will put those two together.
        I do not think there is any question and I do not have a
    science degree or a science background, but I do not think
    there is any problem finding very useful, fruitful investments
    that the NSF could make if we were able to get the dollars
    there, and I believe I speak for--on a bipartisan basis for
    this whole committee.
        But having said that, let me--let me get back to the
    questioning and one of the things that I thought we would go
    into is the priority setting for the large research projects.
    We have heard complaints about the Foundation's process for
    ranking and prioritizing large facility proposals. Some have
    said to us that it appears to be subjective and ad hoc.
        Now, I understand the House Science Committee's re-
    authorization bill requires NSF to submit a report to Congress,
    ranks the project, describes how each project was prioritized.
    It sounds like a good idea and, as I indicated, I wanted to ask
    the National Academy of Science to work with you to ascertain
    whether there is adequate criteria, what criteria should be
    used to rank and prioritize large research facilities.
        Dr. Colwell, I would like to hear your views on that. And
    what do you think about the House Science Committee's action?
        Dr. Colwell. I think that it is very, very important to
    note that priority setting is an integral part of the NSF
    budget and planning process. It is based really on a very
    rigorous internal review by NSF senior management.
        That is a project that comes out of the NSF to the Board to
    be considered can really usually take years.
        Senator Bond. Yes.
        Dr. Colwell. In the case of ALMA, there was about 8 years
    of really very careful review and analysis.
        The ultimate decision has to be made by the director with
    the OMB guidance. The dominant factors are readiness,
    timeliness, and appropriateness for funding in a given fiscal
    year.
        We have to take into account balance, including
    disciplinary balance. It is really critical that there be
    flexibility in order for us to address all of these factors.
        Having said that, we do have a priority that ongoing
    projects have the highest priority to ensure that they get
    completed, in order to be fiscally well managed and sound. Then
    to simply rank numerically, one, two, three, four, does not
    take into account the need to balance disciplines and the need
    to be flexible.
        Now, again, it means that the priority setting process that
    includes the community, the NSF, the director, senior
    management, the science board, and OMB, is complicated. I do
    believe it has served the Nation well for the past 50 years.

                          NATIONAL ACADEMY OF SCIENCES

        Senator Bond. Well, you have outlined things that may be
    legitimate criteria that go beyond the strict science ranking,
    but I think perhaps a problem may be that the--that it is not
    sufficiently transparent, because there is a sentiment that
    there is not an understanding of how it is done.
        You say, ``Okay. We have to have--we have to spread it out
    over disciplines to utilize for other reasons.'' I would like
    to see you work with the National Academy of Science. We would
    like to talk with you about that, to make sure that when you
    are applying the scientific criteria, it is readily
    understandable and the scientific community knows how you are
    going to rank them.
        Dr. Washington, any question--any comment on that?
        Dr. Washington. Well, I just want to point out that we have
    a standing committee of the board, a committee on programs and
    plans, and they do a very thorough review of each of these
    projects, and we have to explicitly approve them.
        And we have a set of guidelines for how the projects are
    approved inside of the Science Board processes.
        Dr. Colwell. Let me add, Senator, that we do indeed call on
    the National Academy of Sciences. A case in point is the Home
    Stake Mine issue.
        Neutrinos, I should say, to put it more appropriately, the
    neutrino research. There is, for example, a neutrino experiment
    in Japan. There is one in Italy. There is one in Sudbury,
    Canada. There is one in Antarctica, underway and to be
    extended, Ice Cube, for example.
        The question is how do we prioritize and how many neutrino
    experiments does the world need?
        Senator Bond. Yes.
        Dr. Colwell. We have called on the National Academy, so I
    agree with your suggestion.

                                  NSB MEETINGS

        Senator Bond. Yes. Well, I have a view on that one, too;
    but I will let the scientists reach that conclusion.
        Dr. Washington, you have only been on board a few days, so
    I want to ask you this question. You are coming in fresh. And I
    have--again, we have received complaints that the board holds
    most of its meetings, including committee meetings, where much
    of the board's work is done behind closed doors with a single
    session open to the public at the meetings' end.
        Do you think this is the right way to do its business? The
    House Science Committee apparently included something about
    opening up the meetings. What does your view on letting the
    public, but primarily the scientific community, which you
    serve, hear the debates and the discussions and the
    deliberations of the board?
        Dr. Washington. I think philosophically I agree that we
    should do as much of the business as we can in the--in public
    open meetings.
        I wonder if I could get back to you on this, because I
    think this will be one of the issues that I need to have a
    little bit more time to look into.

                                  PLANT GENOME

        Senator Bond. I think that would be a good idea, because
    this one may become a problem. If it can be dealt with, let us
    save the heartburn and not go down that path.
        Dr. Colwell, I want to thank you for holding the work shop
    at the Plant Science Center in St. Louis on the new math and
    science partnership program. From all accounts, it was very
    well received.
        How is the planning going for the program? What is your--
    what do you see the goals this year?
        Dr. Colwell. Senator, if I may, I would like to say that
    the Plant Science Genome Program is spectacular, and that we
    have had great success in completing the arabidopsis genome.
        We are in the process now also of establishing a microbial
    genomes program, because we need to look at plant pathogens----
        Senator Bond. Yes.
        Dr. Colwell.--As well as the plant genome itself. And that
    is a very rich area exploit what we know about the plant genome
    to determine how best to deal with resistance to disease and
    infection.
        It is going splendidly and I would be very happy to provide
    any additional information you would like.

                            MAIZE SEQUENCING PROJECT

        Senator Bond. The--of course, the sequencing grant--and we
    appropriated an initial $10 million for the plant genome
    program and for economically important crops such as maize,
    wheat, and barley. Is the sequencing project for maize still
    under consideration, and how are you using the additional funds
    and supporting the sequencing projects?
        Dr. Colwell. The maize project is continuing and it is my
    understanding that it is doing very well. I do not know of any
    difficulties and it is very exciting.
        The rice genome project has gone extremely well; that has
    been international. It is extremely useful to have partnerships
    with other countries and to have this be an open process, with
    the data shared in order to benefit all of humankind.
        Senator Bond. Well, thank you very much, Dr. Colwell, Dr.
    Marburger, Dr. Washington. We will have some additional
    questions for the record and I assume that maybe some other
    members of the committee will as well.

                             CONCLUSION OF HEARINGS

        I believe the Chair had said she would do it. And we thank
    you very much for your participation. And with that, the
    hearing is recessed.
        [Whereupon, at 11:25 a.m., Wednesday, May 15, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2003

                                  ----------

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.

                           NONDEPARTMENTAL WITNESSES

        [Clerk's note.--The following testimonies were received by
    the Subcommittee on VA, HUD, and Independent Agencies for
    inclusion in the record. The submitted materials relate to the
    fiscal year 2003 budget request.
        The subcommittee requested that public witnesses provide
    written testimony because, given the Senate schedule and the
    number of subcommittee hearings with Department witnesses,
    there was not enough time to schedule hearings for
    nondepartmental witnesses.

                 Prepared Statement of Alachua County, Florida

        Mr. Chairman: Thank you for allowing the Alachua County Board of
    County Commissioners to submit this written testimony before your
    Subcommittee regarding two innovative initiatives the County has
    undertaken: (1) Partners for a Productive Community Enhancement
    Initiative and (2) the Emerald Necklace Land Conservation Initiative.
           partners for a productive community enhancement initiative
        Alachua County seeks $2.3 million in federal funds to assist in the
    expansion of its award winning neighborhood revitalization program.
    This public/private program has been designed, developed and
    implemented to stabilize, revitalize and sustain specific at risk
    communities in Alachua County. Funding is being sought as an Economic
    Development Initiative (EDI) through the Department of Housing and
    Urban Development (HUD).
        In response to a spiraling crime rate in southwest Alachua County,
    the Alachua County Sheriff's Office requested help from the Board of
    County Commissioners in 1993. Specifically, the Sheriff reported that
    57 percent of its 911 calls came from an area that had only 3.2 percent
    of the County's population. The County Commission responded by
    providing $38,000 in funding for a Program Manager to staff the
    Partners for a Productive Community (PPC) Program in fiscal year 1994.
        The PPC was launched as a strategic planning effort with three
    goals: the establishment of neighborhood-based services, the
    development of public/private partnerships and a focus on crime
    prevention. The success of this project depends upon the coordinated
    efforts of the Alachua County Sheriff's Office, the Courts and the
    Alachua County Department of Community Support Services. The goal of
    the Sheriff's Office was to reduce the number of calls from the area,
    and to develop a relationship of trust with the area's residents. The
    goal of the Courts was to help with the swift prosecution of cases, and
    to increase personnel in key areas. Finally, the goal of the County's
    Department of Community Support Services was to develop and implement a
    neighborhood needs assessment process that would determine the social
    service needs in the targeted area. The Community Support Services
    Department was also responsible for developing public/private community
    partnerships, and community based organizations comprised of tenants,
    property owners and managers. Thus, this project represents a multi-
    agency strategy to stabilize, revitalize and sustain five specific
    neighborhoods of Alachua County.
        In addition to improving the area's basic infrastructure, federal
    funding is also being requested to provide community recreational
    programs for the area's youth. These activities will provide positive
    alternatives to crime, and allow youth to participate first hand in
    community improvement programs. In doing so, these programs will build
    and encourage positive self-esteem, leadership skills and academic
    achievement. To complement these programs, additional improvements will
    be made in the community Safe Havens.
        Finally, the requested funding will also allow the PPC to expand
    this successful demonstration program into other at-risk Alachua County
    communities such as Archer, Florida. Specifically, the PPC will develop
    a partnership strategy to address the unmet needs of health care,
    education, training, employment, youth recreation and transportation
    for the residents of Archer. This request for federal funding is
    justified by the tremendous improvements and accomplishments that have
    been made in the five targeted southwest neighborhoods since 1995.
    These achievements include: free community day care for 75 children, 30
    community day care slots, 24 in-home day care slots, the creation of 30
    new jobs by the Early Progress Center, the reduction in 911 calls from
    57 percent to 14 percent of total calls in the area, and substantial
    increases in the property values for four of the five neighborhoods.
        Furthermore, the implementation of seasonal recreation programs in
    the targeted Communities by the Y.M.C.A. has been instrumental in
    providing positive, character-building activities for children,
    teenagers and adults. Day camps are provided during the summer months,
    and backyard sports are provided at the end of the school day during
    the school year. In addition, two 4-H Clubs serving 60 neighborhood
    children were established along with after school and community
    designed teen programs. Adult literacy and GED classes were made
    available at a nearby school campus. Finally, other programs have been
    established for the purpose of creating a sustainable neighborhood.
        These programs include quarterly informational forums concerning
    small business development, educational opportunities, self-help
    seminars, budget management and landlord/tenant issues. With respect to
    community-wide improvement programs, a total of nine neighborhood
    cleanups were completed this year. With the active involvement of the
    residents of the neighborhoods, the Alachua County Office of Codes
    Enforcement has been able to reduce from twenty to two the number of
    abandoned and vandalized buildings. Furthermore, a new Waste Collection
    Ordinance, which was supported by the PPC, permits the efficient and
    timely citation of violators.
        The sustaining factor within this program is the formally organized
    Partners for a Productive Community Council. The Council is the guiding
    force that deals with issues and determines unmet needs. For example, a
    block captain organization was started this year with the assistance of
    the PPC Council, and the Alachua County Sheriff's Office. This group
    monitors and manages crime prevention programs block by block. In
    recognition of the numerous accomplishments described above, the PPC
    received the National Association of Counties' Achievement Award in
    1996 for distinguished and innovative contributions to improving county
    government.
        The League of Women Voters presented the County with a similar
    award for out-standing community service. Additionally, in December
    1999, Alachua County received Official Recognition from the Executive
    Office of Weed and Seed for two of the neighborhoods being served by
    the Partners for a Productive Community Program. Pursuant to this
    recognition, these communities have been awarded a $175,000 Weed and
    Seed Grant for prevention and intervention strategies focusing on Cedar
    Ridge and Linton Oaks neighborhoods. This grant will further strengthen
    the long-term efforts to improve the quality of life in these
    neighborhoods. As previously indicated, the federal funding requested
    will also be used to expand the successful Partners Initiative into the
    rural community of Archer. Incorporated in 1858, Archer is located in
    the southwestern portion of Alachua County. Archer and the rural areas
    surrounding it have a population of 16,348, of which 16 percent fall
    below the poverty level. The Town of Archer has one elementary school.
    Emergency rescue, fire and police services are contracted from
    Gainesville and Alachua County. There are also two public housing
    communities, and a small obsolete community center that is used as a
    congregate meal site for senior citizens. Consequently, many of
    Archer's residents travel to Gainesville for employment, social
    services, recreational activities, adult and continuing education and
    health care.
        Recently, the University of Florida School of Nursing received
    $200,000 from the Florida Legislature to provide primary health care
    through a clinic based in Archer. This minimal funding does not provide
    adequate funding for the primary health care needs for this area. Thus,
    a portion of the federal funding in this request could be channeled
    through the Alachua County Health Department in our continuing effort
    to develop partnerships, maximize resources and expand services to the
    citizens of Alachua County through our rural service initiative.
        Employment opportunities, recreation for teens and outreach social
    services continue to be a challenge for the community of Archer.
    According to the Alachua County Sheriff's Office, Archer's crime rate
    is disproportionately high for a community its size. In 2000, the
    Alachua County Sheriff's Office received 2,657 calls for service. Of
    the dispatched calls, 30 were assaults and batteries, and 5 were for
    sexual battery. The largest number of dispatched calls (869) concerned
    burglary and theft.
        In conclusion, Alachua County requests $2.3 million in federal
    funding to continue it's highly successful and award winning
    neighborhood revitalization programs; and to expand these successful
    model programs to other neighborhoods, including the Town of Archer,
    Florida.
                 emerald necklace land conservation initiative
        Alacua County is also seeking funding for its Emerald Necklace Land
    Conservation Initiative. This intergovernmental land conservation
    initiative will provide a publicly accessible, connected, and protected
    network of trails, greenways, open spaces and waterfronts surrounding
    the Gainesville urban area. The County is seeking $10 million to
    directly provide for multiple public uses and benefits, including
    passive recreation opportunities, protection of drinking water sources,
    watershed restoration, and preservation of diminishing fish and
    wildlife habitats.
        On November 7, 2000, a large turnout of Alachua County voters
    overwhelmingly endorsed passage of a local land acquisition bond
    referendum that provides up to $29 million in local funds to acquire
    and preserve environmentally significant lands. This local initiative
    received broad public support, with endorsements from diverse community
    interests including business, environmental and community
    organizations.
        Alachua County is seeking state and federal matching funds to
    leverage this substantial local commitment to land conservation.
    Property acquisitions are proposed to link existing conservation lands
    to provide for connected areas of protected water quality and wildlife
    habitat, as well as resource-based recreational opportunities. Federal
    matching funds will be critical to the success of this project. Alachua
    County is committed to responsible land use practices and conservation
    policies that encourage future growth to occur in areas of lesser
    environmental sensitivity with adequate infrastructure.
        Alachua County has five large-scale land acquisition projects
    (5,000+ acres) on Florida's Conservation and Recreation Lands (CARL)
    acquisition list.
      --Paynes Prairie Additions (a large freshwater wetland and watershed,
            managed as a state preserve)
      --San Felasco Hammock Additions (a mature hammock and sandhill
            forest, with ravines and unique sinkhole drainage features)
      --Watermelon Pond (an upland sandhill and scrub forest community with
            important ephemeral wetlands surrounding a relatively pristine
            lake)
      --Newnan's Lake (a diverse flatwoods forest surrounding a major
            community fishing lake with declining water quality)
      --Lochloosa Forest (a pine flatwoods forest, largely in commercial
            timber production surrounding two large fishing lakes)
        These tracts are under substantial land development pressures that,
    if left unchecked, will further fragment and diminish their
    environmental, water resource, and recreational values.
        A major portion of the larger tracts proposed for acquisition are
    currently timberlands. Timber production, where conducted in
    conformance with best management practices to avoid soil erosion and
    water quality degradation, is a land use considered to be generally
    compatible with Alachua County's land conservation goals. In these
    areas, the purchase of development rights and conservation easements,
    as opposed to fee simple acquisition, are proposed as key components of
    the Emerald Necklace acquisition strategy. These conservation
    alternatives, which stretch the available acquisition dollars, allow
    the properties to continue to be used for lower impact, more compatible
    land use activities while remaining under private ownership and
    management.
        In addition to these five larger tracts, acquisitions are proposed
    for smaller, but environmentally significant properties that will
    preserve vital connections between the larger tracts, creating the
    ``Emerald Necklace.'' These smaller, linking parcels, often overlooked
    by state and federal land acquisition programs, are easier to manage by
    a local land conservation program such as that established by Alachua
    County.
        Although most of the properties proposed to be included in this
    project are relatively undisturbed, an important objective of the
    Emerald Necklace initiative is to accomplish several critical
    restoration projects. Alachua County in consultation with the City of
    Gainesville has identified four priority restoration areas:
        Newnan's Lake; a large lake in a relatively natural setting with
    spectacular recreational, scenic, and wildlife resources that is being
    adversely affected by water quality degradation and sedimentation.
    Specific projects requiring federal assistance include: investigations
    to determine the source of water quality problems and appropriate
    remedies, mechanical removal of muck and sedimentation, land
    acquisition for surrounding properties, a multi-use trail system
    circling the lake and connecting two existing rail-trails, and the
    designation and enhancement of a canoe trail connecting Newnan's and
    Orange Lake via Prairie Creek and the River Styx. The St. Johns River
    Water Management District is another willing partner for this
    restoration project, having made substantial commitments in the past
    and demonstrating an interest to expand land conservation and water
    resources protection in the area while enhancing public access.
        Sweetwater Branch watershed restoration to improve water quality,
    reduce sedimentation, and to prevent adverse impacts on Paynes Prairie
    State Preserve (a designated National Natural Landmark) and the
    underlying Floridan Aquifer, the region's primary source of drinking
    water. Prior to draining into the drinking water aquifer via Alachua
    Sink on Paynes Prairie, this urban creek in eastern Gainesville is
    severely impacted by untreated stormwater runoff and further eroded by
    a major discharge of treated municipal waste-water.
        Tumblin Creek watershed restoration to improve water quality,
    reduce sedimentation and toxicity to fish, and to prevent adverse
    impacts to Paynes Prairie State Preserve and the Floridan Aquifer. This
    severely degraded urban creek flows through a minority neighbor-hood
    and a public school campus prior to transporting untreated stormwater
    and potentially toxic sediments into Bivens Arm Lake. This lake, a
    state-designated wildlife sanctuary, provides an increasingly rare
    opportunity for subsistence and recreational bank fishing for low
    income and unemployed residents.
        The restoration of Hogtown Creek, which drains the largest
    watershed in Gainesville. The City of Gainesville has acquired $3.0
    million in properties to establish the Hogtown Creek Greenway. Federal
    funding assistance is needed for the development of recreational trails
    and for water quality improvements.
        The Emerald Necklace initiative, with federal assistance, can serve
    as a model land conservation program, demonstrating a successful local,
    state, and federal environmental partnership as well as effective
    conservation alternatives to fee simple acquisition.
        We hope that the Subcommittee will look favorably upon these
    worthwhile and innovative projects as the appropriations process moves
    forward.
        Thanks you for your consideration.
                                     ______

               Prepared Statement of the Alliance to Save Energy

                                  introduction
        My name is David Nemtzow. I am the President of the Alliance to
    Save Energy, a bi-partisan, non-profit coalition of business,
    government, environmental, and consumer leaders dedicated to improving
    the efficiency with which our economy uses energy. Senators Charles
    Percy and Hubert Humphrey founded the Alliance in 1977. The leadership
    of the Alliance is also a partnership between the private sector and
    government chaired by Senator Byron Dorgan (D-ND) and co-chaired by
    Dean Langford the former CEO of Osram Sylvania. Over seventy companies
    currently participate in the Alliance's Associates program and with
    your permission Mr. Chairman, I would like to include for the record a
    complete list of the Alliance's Board of Directors and Associates. This
    list includes the nation's leading energy efficiency firms, electric
    and gas utilities, and other companies committed to promoting sound
    energy use.
        Thank you for the opportunity to testify regarding the energy-
    related components of the Environmental Protection Agency's fiscal year
    2003 budget request. Specifically, I respectfully urge you to
    significantly increase your support for Energy Star, a program of the
    Environmental Protection Agency (EPA) which uses energy efficiency to
    deliver significant environmental benefits to the nation while yielding
    significant economic benefits for businesses, state and local
    government institutions such as colleges and universities, public
    schools, and hospitals, and of course to millions of consumers who
    purchase Energy Star-labeled products.
        The Alliance has a long history of advocating for as well as
    researching and evaluating the effectiveness of federal efforts to
    promote energy efficiency. While many of these include laws passed by
    this Congress and federal regulations and standards issued pursuant to
    those laws, we especially applaud those that rely not on government
    mandates, but on cooperative partnerships between government and
    business and between the federal and state governments. The EPA Energy
    Star program is a shining example of these voluntary partnerships.
    President Bush and Vice President Cheney have referred to Energy Star
    for furthering national goals of broad-based economic growth,
    environmental protection, energy security and economic competitiveness
    simultaneously. The Climate Protection Division at EPA works closely
    with private sector manufacturers, retailers, building owners, and
    energy service providers, as well as state and local governments, non-
    profits, and other organizations to promote energy efficient products
    and buildings. And they do it extremely well for every tax dollar spent
    by the Energy Star program, 75 dollars worth of energy savings is
    returned.
    Energy Star Improves Energy Reliability
        Mr. Chairman, last year our nation faced emergencies in energy
    reliability. This could happen again. The dire situation surrounding
    electricity supply in California and the West brought renewed concern
    about America's energy needs. President Bush took a large step in
    issuing conservation orders for federal agencies in the midst of the
    crisis, yet this could do little to address demand. It was the help of
    Americans who stood up to the crisis and reduced their demand that
    helped prevent a further strain on supply. While this winter was mild,
    last year Americans staggered under massive increases in natural gas
    for their heating needs.
        Energy Star has an important role to play in reliability. By
    promoting energy-efficient buildings, appliances, and other products
    Energy Star is helping reduce peak demand for electricity in homes,
    businesses, hospitals, and government buildings. By giving consumers
    guidance on heating and cooling equipment, Energy Star is helping those
    homeowners take back control of their home finances.
    Energy Efficiency as a Potent Energy Resource
        Mr. Chairman, the debate over energy policy is in full swing on the
    Senate floor. Much of that debate can be boiled down to the simple
    elements of supply and demand. There are those who are focusing on the
    supply end, calling for increasing the supply of our energy resources
    through expanded drilling, power plant licensing, and through other
    avenues. Then, there are those Senators who have turned their backs to
    supply to focus on demand. While we at the Alliance to Save Energy
    applaud that endeavor we realize that we cannot save our way our out of
    our dependence on fossil and nuclear fuels. An effective energy policy
    must include a combination of measures that provides electricity,
    heating fuel, and motor fuel to Americans. But to do that we must first
    go after the resource that is cheapest, can be delivered most quickly,
    and can stand up to all environmental scrutiny that resource is energy
    efficiency.
        Energy efficiency isn't just a marginal activity by which we can
    chip a little bit off of our consumption and save a few bucks around
    the edges. Energy efficiency measures are powerful and dynamic policy
    tools through which prices, supply, and emissions can be radically
    changed. It seems that every year technological developments bring more
    and better measures at our disposal to reduce electricity demand, make
    homes more energy-efficient, and go further on less gasoline. But Mr.
    Chairman, a strategy to maximize these resources must begin with
    reasoned analysis of our energy situation, not a predisposition to one
    course or another.
    Energy Star Capitalize on this Resource
        Mr. Chairman, EPA's Energy Star has proven to be an extremely
    effective way for this nation to capitalize on the untapped potential
    of energy efficiency as a resource. In fact, Energy Star proves that
    environmental protection can not only be achieved without harming the
    economy, but also that such protections can act to boost consumer
    savings and economic growth.
        Energy Star is composed entirely of voluntary partnerships, and
    they have grown since the early 1990s to include thousands of
    partnerships with product manufacturers, private and public building
    owners and operators, homebuilders, small businesses, utilities, and
    retailers. The sheer number of these partnerships is a testament to the
    fact that energy efficiency delivers ``pollution prevention at a
    profit.''
        Recently, the Alliance to Save Energy asked many of Energy Star's
    partners if they would support our request for a significant increase
    in funding for these important programs. The response was remarkable.
    Hundreds of businesses, from large manufacturers like Canon USA in New
    York to smaller businesses like Mayer Electrical Supply Co. in Alabama,
    have pledged their company's support for these important programs. Each
    member of the Subcommittee with receive a copy of this letter with the
    list of businesses.
        Energy Star serves broad constituencies across every state in the
    country. Energy Star includes over 1,600 manufacturing partners of over
    30 different product types, who make and market over 11,000 different
    models of Energy Star compliant products. Energy Star assists over
    2,800 small businesses with their efforts to maximize the energy
    efficiency of their facilities. Energy Star's work with partners
    further advances the education of energy efficiency and the reduction
    in energy consumption. For example, by working with builders, Energy
    Star helps the customers of those builders make smart decisions
    decisions that will save the consumer money and the country pollution
    for as long as the home is standing. Energy Star counts more than 1,600
    builder partners and partners who supply products and services for
    energy-efficient home construction. To date, more than 25,000 Energy
    Star labeled homes have been built, locking in financial savings for
    homeowners of more than $7.5 million annually. Energy Star Buildings
    participants now include over 15 percent of the nation's total
    commercial, public, and industrial market, resulting in more than 25
    billion kilowatt hours of energy saved.
    Energy Efficiency Investments Pay Back for Years
        Energy efficiency improvements achieved through Energy Star are
    like ``the gift that keeps on giving.'' There are not only the
    immediate environmental and economic benefits, but also those that are
    achieved through the long term investments.
        While consumers who purchase Energy Star labeled products save
    through the life of the product, product manufacturers get the economic
    boost and incentives from the purchases of these products. EPA predicts
    expenditures on energy-efficient technology of almost $13 billion
    through 2010. In addition, EPA predicts cumulative net energy bill
    savings for consumer and businesses of $70 billion through 2010 an
    average net savings of more than $5 billion per year.
        Pollution savings are as dramatic as the financial savings. In 2001
    alone, reductions in greenhouse gas emissions totaled 38 million metric
    tons of carbon equivalent (MMTCE) that's similar to taking more than 25
    million cars off the road. Last year, emissions of 140,000 tons of
    nitrogen oxides (NOX) were also prevented. Because many of
    the investments in energy-efficient technology promoted by Energy Star
    offer a life of ten years or more, these investments will continue to
    deliver economic and environmental benefits through 2010 and beyond.
    EPA estimates that emissions reductions averaging more than 35 MMTCE
    per year between now and 2010 were locked in last year based on actions
    already taken by Energy Star partners.
        In considering the environmental value of the purchasing decisions
    that Energy Star helps consumers make more wisely, it is important to
    realize that over 50 percent of U.S. greenhouse gas emissions in 2010
    will be coming from products and capital equipment not yet purchased.
    The Energy Star program seeks to influence those capital investment
    decisions in a way that helps individual purchasers save money while
    simultaneously helping the nation meet its clean air and greenhouse gas
    emissions-reduction goals.
        All of this through voluntary participation in Energy Star, and the
    voluntary, market-based choices made by thousands of partners and
    millions of American consumers. No regulations, no government mandates.
    Energy Efficiency Enhances Electric System Reliability
        Mr. Chairman, Energy Star, and energy efficiency in general, also
    enhance the security of our energy supply in another very significant,
    but largely unappreciated, way. I am referring to the reliability of
    our electric system. As every member of Congress is aware, the nation
    is in the midst of a transition in the structure of our electric
    utility industry from a system of regulated monopolies to a competitive
    market for electricity generation and retail sales. While true
    competition should be a boon for efficiency on the generation side,
    this transition brings with it many uncertainties. Under regulation,
    utilities planned for and built power plants to meet a predetermined
    reserve generation capacity, and were assured of recovering costs plus
    a profit margin through the regulatory rate-setting process. Under
    competition, markets composed of electric generating businesses,
    investors, and consumers will decide which supplies will be needed and
    economical. The ability of markets to accurately forecast future demand
    and potential revenues and translate those into timely investments in
    supply capability remains to be seen.
        Compounding this problem, impending restructuring has put a chill
    on utilities' interest in helping their customers to use energy more
    efficiently. Since 1993, utilities have slashed spending on their
    ``demand-side management'' programs, the largest component of which is
    usually energy efficiency, by 45 percent. The reason for this is
    simple: in a competitive environment, electricity generators no longer
    have an interest in helping their customers reduce the consumption of
    their product. The foregone energy savings and peak demand reductions
    from energy efficiency programs have been substantial, and they have
    exacerbated the steady growth in demand for electricity created by our
    strong economy. Many summers have brought ``capacity crunches'' in
    various regions of the country; shortages of either electric supply or
    transmission and distribution capacity needed to deal with peak demand
    on hot summer days.
        Energy efficiency, by reducing demand, unquestionably contributes
    to system reliability. Quite simply, energy efficiency reduces both the
    base load, the amount of energy required to be supplied to an area or
    region, as well as the peak power demand. Different technologies may
    contribute primarily to one or the other, for example: lighting and
    refrigeration efficiencies reduce base load, while air conditioner
    efficiency improvements reduce summertime peak load. (Of course, any
    reduction in base load also reduces the ``height'' of peak loads.)
    Thus, energy efficiency in the aggregate helps maintain adequate
    margins of generation supply, and by reducing the load and stress on
    various points in the power distribution network, also enhances the
    security of the system. Energy Star, with its broad reach, covers all
    the bases. In fact, EPA works with more than 100 utilities and state
    energy efficiency providers that serve approximately 50 percent of the
    households in the United States in promoting energy efficiency with
    Energy Star.
        The Bush Administration's energy policy released last year also
    touted the benefits of the Energy Star program and called for an
    expansion of this important initiative. In their report to the
    President, the National Energy Policy Development Group recommended
    that: ``the President direct the EPA Administrator to develop and
    implement a strategy to increase public awareness of the sizable
    savings that energy efficiency offers to homeowners across the country.
    Typical homeowners can save about 30 percent (about $400) a year on
    their home energy bill by using Energy Star labeled products.'' The
    report further complimented the program. Noting not only that
    ``Conservation and energy efficiency are important elements of a sound
    energy policy'' but also that ``The federal government can also promote
    energy efficiency through programs like the Energy Star program, and
    search for more innovative technologies that improve efficiency and
    conservation through research and development.''
    The Need, and the Answer, Are Clear
        The need for energy efficiency to contribute even more strongly to
    our nation's economic growth and energy security is clear. The
    potential for energy efficiency programs like Energy Star to meet that
    need is just as clear, and just as strong. At the end of its first
    decade, Energy Star is now achieving widespread recognition. EPA's
    latest market research shows that not only do most American's recognize
    the unique Energy Star label, but it also is highly influential in
    influencing their purchases. Each year, Energy Star recognizes
    companies and organizations that go above and beyond to advance energy
    efficiency, and these honors speak volumes about the program itself.
        Corporations such as Maytag, located in Newton, Iowa, are being
    recognized this year for their products and public education efforts
    that demonstrate that, working with businesses, Energy Star can
    leverage private sector dollars to advance marketing efforts for
    efficient products. Maytag now offers 68 Energy Star qualified
    appliance models, which is almost 100 percent increase over last year.
    In 2001, Maytag concluded a concert tour with educational messages
    about energy and water savings and their ``Mother Earth'' float in the
    Macy's Day Parade displayed the Energy Star logo reaching millions of
    consumers around the country with messages of energy saving.
        In addition to marketing efforts with Energy Star partners, the
    Energy Star program participates in research and is always on the
    lookout for new and innovative ways to reduce energy use. This year, a
    West Virginia company will receive one of the special recognition
    awards for technical innovation. Royal Venders, Inc. located in
    Kearneysville, West Virginia has developed a new vending machine
    technology; Royal Vendors' customers use approximately 50 percent less
    energy. The technology consists of a more energy efficient T8 lighting
    package, cooling unit, GE evaporator fan, and software to further
    reduce consumption during non-peak hours. All new 2002 Royal Vendors
    machines are available with the optional energy efficiency package,
    which saves energy, money, and maintenance/service calls. With
    approximately one million Royal Vendors machines in place in the United
    States, upgrading the existing stock of machines will bring energy
    savings for years to come. Recognition of the technology is another way
    that Energy Star helps push energy efficiency advancements into more
    common use.
    Much Has Been Accomplished, but Huge Potential Remains Untapped
        The questions are often asked: ``If energy efficiency is so great,
    why don't consumers and businesses just do it on their own? Why do we
    need a government program to promote it and incent people to do it?''
    Well, we know that for reasons sometimes hard to understand, people
    often don't do what is in their own interest. For example, people
    should save for their retirement, right? It's certainly in their long-
    term self-interest. Yet, the government goes to great lengths, and
    great expense, to goad people into saving for their retirement, through
    tax breaks for 401(k)s and other retirement plans, IRA's etc. How about
    home ownership? It's the American dream to own your own home for peace
    of mind, long-term security, etc. yet Congress long ago enacted the
    home mortgage-interest tax deduction, to convince people to buy their
    home and help them afford it. Compared to things like these, the
    federal funds spent on Energy Star are a pittance.
        There are no tax breaks or subsidies in these programs.
    Appropriations go directly to fund the underlying research, program
    implementation, and technical assistance to partners. These funds are
    hugely leveraged through EPA's thousands of voluntary partnerships with
    product manufacturers, home builders, state and local government
    institutions, commercial building owners, and small businesses. For
    every federal dollar spent on these programs, EPA can show an average
    of $75 in utility bill savings to someone, $15 in private sector
    investment in energy efficient technology, reductions in greenhouse gas
    emissions of 1.0 MMTCE, and an addition of over $60 to the economy.
    Conclusion
        Over the past decade, the Energy Star programs have demonstrated
    their effectiveness by achieving great savings in the nation's
    collective energy bill and in energy-related pollution. But, as
    successful as these programs have been, much more could be accomplished
    with increased funding. It is estimated that if all consumers chose
    only Energy Star-labeled products over the next decade or so, the
    nation's energy bill would be reduced by about $100 billion, while
    avoiding 300 MMTCE in greenhouse gas emissions. If all commercial
    building owners took advantage of the cost-effective efficiency-
    improvement opportunities, they could achieve another $130 billion in
    energy savings and 350 MMTCE in emissions reductions over the next 10
    years.
        These programs are wildly successful by any measure. They are well-
    run, they are cost-effective, they have consistently exceeded their
    goals, and they have the support, even explicit endorsement of
    businesses across the country. Unfortunately, these important programs
    have received a virtual level funding request for the past 2 years,
    even as the number of products and manufacturers in the Labeling
    program has greatly expanded, the number of partners in the Buildings,
    Homes, and Small Business programs have soared, and both President Bush
    and Vice President Cheney have publicly touted the benefits of Energy
    Star and promoted voluntary pollution reduction.
        Energy Star's effectiveness in terms of national energy bill
    savings and pollution reduction are truly impressive. While there are
    many demands on the countries financial resources, I respectfully urge
    greater support to what works. Energy Star has proven tremendously
    cost-effective and it can deliver even greater benefits to the nation
    with increased funding resources.
        Thank you again for the opportunity to testify.
                                     ______

            Prepared Statement of the American Astronomical Society

                               executive summary
                astronomy and astrophysics in the new millennium
        In the first decade of the new millennium, we are poised to take a
    giant step forward in understanding the universe and our place within
    it. The decade of the 1990s saw an enormous number of exciting
    discoveries in astronomy and astrophysics. For example, humanity's
    centuries-long quest for evidence of the existence of planets around
    other stars resulted in the discovery of extrasolar planets, and the
    number of planets known continues to grow. Astronomers peered far back
    in time, to only a few hundred thousand years after the Big Bang, and
    found the seeds from which all galaxies, such as our own Milky Way,
    were formed. At the end of the decade came evidence for a new form of
    energy that may pervade the universe. Nearby galaxies were found to
    harbor extremely massive black holes in their centers. Distant galaxies
    were discovered near the edge of the visible universe. In our own solar
    system, the discovery of Kuiper Belt objects--some of which lie beyond
    the orbit of Pluto--opens a new window onto the history of the solar
    system. This report presents a comprehensive and prioritized plan for
    the new decade that builds on these and other discoveries to pursue the
    goal of understanding the universe, a goal that unites astronomers and
    astrophysicists with scientists from many other disciplines.
        The Astronomy and Astrophysics Survey Committee was charged with
    surveying both ground- and space-based astronomy and recommending
    priorities for new initiatives in the decade 2000 to 2010. In addition,
    the committee was asked to consider the effective implementation of
    both the proposed initiatives and the existing programs. The
    committee's charge excludes in situ studies of Earth and the planets,
    which are covered by other National Research Council committees: the
    Committee on Planetary and Lunar Exploration and the Committee on Solar
    and Space Physics. To carry out its mandate, the committee established
    nine panels with more than 100 distinguished members of the
    astronomical community. Broad input was sought through the panels, in
    forums held by the American Astronomical Society, and in meetings with
    representatives of the international astronomical community. The
    committee's recommendations build on those of four previous decadal
    surveys (NRC, 1964, 1972, 1982, 1991), in particular the report of the
    1991 Astronomy and Astrophysics Survey Committee, The Decade of
    Discovery in Astronomy and Astrophysics (referred to in this report as
    the 1991 survey; also known as the Bahcall report).
        The fundamental goal of astronomy and astrophysics is to understand
    how the universe and its constituent galaxies, stars, and planets
    formed, how they evolved, and what their destiny will be. To achieve
    this goal, researchers must pursue a strategy with several elements:
      --Survey the universe and its constituents, including galaxies as
            they evolve through cosmic time, stars and planets as they form
            out of collapsing interstellar clouds in our galaxy,
            interstellar and intergalactic gas as it accumulates the
            elements created in stars and supernovae, and the mysterious
            dark matter and perhaps dark energy that so strongly influence
            the large-scale structure and dynamics of the universe.
      --Use the universe as a unique laboratory for probing the laws of
            physics in regimes not accessible on Earth, such as the very
            early universe or near the event horizon of a black hole.
      --Search for life beyond Earth, and if it is found, determine its
            nature and its distribution.
      --Develop a conceptual framework that accounts for all that
            astronomers have observed.
        Several key problems are particularly ripe for advances in this
    decade:
      --Determine the large-scale properties of the universe: the amount,
            distribution, and nature of its matter and energy, its age, and
            the history of its expansion.
      --Study the dawn of the modern universe, when the first stars and
            galaxies formed.
      --Understand the formation and evolution of black holes of all sizes.
      --Study the formation of stars and their planetary systems, and the
            birth and evolution of giant and terrestrial planets.
      --Understand how the astronomical environment affects Earth.
        These scientific themes, all of which now appear to offer
    particular promise for immediate progress, are only part of the much
    larger tapestry that is modern astronomy and astrophysics. For example,
    scientists cannot hope to understand the formation of black holes
    without understanding the late stages of stellar evolution, and the
    full significance of observations of the galaxies in the very early
    universe will not be clear until it is clear how these galaxies have
    evolved since that time. Although the new initiatives that the
    committee recommends will advance knowledge in many other areas as
    well, they were selected explicitly to address one or more of the
    important themes listed above.
        In addition, the committee believes that astronomers can make
    important contributions to education. Building on widespread interest
    in astronomical discoveries, astronomers should:
      --Use astronomy as a gateway to enhance the public's understanding of
            science and as a catalyst to improve teachers' education in
            science and to advance interdisciplinary training of the
            technical work force.
       optimizing the return on the nation's investment in astronomy and
                                  astrophysics
        The United States has been generous in its support of astronomy and
    astrophysics and as a result enjoys a leading role in almost all areas
    of astronomy and astrophysics. So that the nation can continue to
    obtain maximum scientific return on its investment, the committee makes
    several recommendations to optimize the system of support for
    astronomical research.
    Balancing New Initiatives with the Ongoing Program
        An effective program of astronomy and astrophysics research must
    balance the need for initiatives to address new opportunities with
    completion of projects accorded high scientific priority in previous
    surveys.
      --The committee reaffirms the recommendations of the 1991 Astronomy
            and Astrophysics Survey Committee (NRC, 1991) by endorsing the
            completion of the Space Infrared Telescope Facility (SIRTF),
            the Millimeter Array (MMA; now part of the Atacama Large
            Millimeter Array, or ALMA), the Stratospheric Observatory for
            Infrared Astronomy (SOFIA), and the Astrometric Interferometry
            Mission (now called the Space Interferometry Mission, or SIM).
            Consistent with the recommendations of the Task Group on Space
            Astronomy and Astrophysics (NRC, 1997), the committee stresses
            the importance of studying the cosmic microwave background with
            the Microwave Anisotropy Probe (MAP) mission, the European
            Planck Surveyor mission, and ground-based and balloon programs.
        The committee endorses U.S. participation in the European Far
    Infrared Space Telescope (FIRST), and it endorses the planned
    continuation of the operation of the Hubble Space Telescope (HST) at a
    reduced cost until the end of the decade.
      --To achieve the full scientific potential of a new facility, it is
            essential that, prior to construction, funds be identified for
            operation of the facility, for renewal of its instrumentation,
            and for grants for data analysis and the development of
            associated theory.
        NASA already follows this recommendation in large part by including
    Mission Operations and Data Analysis (MO&DA) in its budgeting for new
    missions. The committee recommends that funds for associated theory be
    included in MO&DA as well. It recommends further that the National
    Science Foundation include funds for facility operation, renewal of
    instrumentation, and grants for data analysis and theory along with the
    construction costs in the budgets for all new federally funded, ground-
    based facilities. These recommendations are consistent with those of
    the 1991 survey. For the purpose of total project budget estimation,
    the committee adopted a model in which operation amounts to 7 percent
    of the capital cost per year and instrumentation amounts to 3 percent
    per year for the first 5 years of operation. The committee recommends
    that total project budgets provide for grants for data analysis and
    associated theory at the rate of 3 percent of the capital cost per year
    for major facilities and 5 percent per year for moderate ones. On the
    basis of this model, the committee has included funds for operations,
    instrumentation, and grants for a period of 5 years in the cost
    estimates provided in this report for most ground-based initiatives.
      --Adequate funding for unrestricted grants that provide broad support
            for research, students, and postdoctoral associates is required
            to ensure the future vitality of the field; therefore new
            initiatives should not be undertaken at the expense of the
            unrestricted grants program.
        Grants not tied to a facility or program--unrestricted grants--
    often drive the future directions of astronomy.
    Strengthening Ground-Based Astronomy and Astrophysics
        The committee addresses several structural issues in ground-based
    astronomy and astrophysics.
      --U.S. ground-based optical and infrared facilities, radio
            facilities, and solar facilities should each be viewed by the
            National Science Foundation (NSF) and the astronomical
            community as a single integrated system drawing on both federal
            and nonfederal funding sources. Effective national
            organizations are essential to coordinate, and to ensure the
            success and efficiency of, these systems. Universities and
            independent observatories should work with the national
            organizations to ensure the success of these systems.
      --Cross-disciplinary competitive reviews should be held about every 5
            years for all NSF astronomy facilities. In these reviews, it
            should be standard policy to set priorities and consider
            possible closure or privatization.
        The National Radio Astronomy Observatory (NRAO) and the National
    Astronomy and Ionosphere Center (NAIC) currently serve as effective
    national organizations for radio astronomy, and the National Solar
    Observatory (NSO) does so for solar physics. The National Optical
    Astronomy Observatories (NOAO) as currently functioning and overseen
    does not fulfill this role for ground-based optical and infrared
    astronomy. A plan for the transition of NOAO to an effective national
    organization for ground-based optical and infrared astronomy should be
    developed, and a high-level external review, based on appropriate,
    explicit criteria, should be initiated.
        The Department of Energy (DOE) supports a broad range of programs
    in particle and nuclear astrophysics and in cosmology. The scientific
    payoff of this effort would be even stronger with a clearly articulated
    strategic plan for DOE's programs that involve astrophysics.
      --Given the increasing involvement of the Department of Energy in
            projects that involve astrophysics, the committee recommends
            that DOE develop a strategic plan for astrophysics that would
            lend programmatic coherence and facilitate coordination and
            cooperation with other agencies on science of mutual interest.
    Ensuring the Diversity of NASA Missions
        NASA's Great Observatories have revolutionized understanding of the
    cosmos, while the extremely successful Explorer program provides
    targeted small-mission opportunities for advances in many areas of
    astronomy and astrophysics. The committee endorses the continuation of
    a vigorous Explorer program. There are now fewer opportunities for
    missions of moderate size, however, despite the enormous role such
    missions have played in the past.
      --NASA should continue to encourage the development of a diverse
            range of mission sizes, including small, moderate, and major,
            to ensure the most effective returns from the U.S. space
            program.
    Integrating Theory Challenges into the New Initiatives
        The new initiatives recommended below are motivated in large part
    by theory, which is also key to interpreting the results. Adequate
    support for theory, including numerical simulation, is a cost-effective
    means for maximizing the impact of the nation's capital investment in
    science facilities. The committee therefore recommends that
      --To encourage theorists to contribute to the planning of missions
            and facilities and to the interpretation and understanding of
            the results, one or more explicitly funded theory challenges
            should be integrated with most moderate or major new
            initiatives.
    Coordinating Programs among Federal Agencies
        Because of the enormous scale of contemporary astronomical projects
    and the need for investigations that cross wavelength and discipline
    boundaries, cooperation among the federal agencies that support
    astronomical research often has benefits. To determine when interagency
    collaboration would be fruitful, each agency should have in place a
    strategic plan for astronomy and astrophysics and should also have
    cross-disciplinary committees (such as DOE and NSF's Scientific
    Assessment Group for Experiments in Non-Accelerator Physics [SAGENAP]
    and NASA's Space Science Advisory Committee [SSAC]) available to
    evaluate proposed collaborations. The Office of Science and Technology
    Policy could play a useful role in facilitating such interagency
    cooperation.
    Collaborating with International Partners
        International collaboration enables projects that are too costly
    for the United States alone and enhances the scientific return on
    projects by bringing in the scientific and technical expertise of
    international partners. In many cases, international collaboration
    provides opportunities for U.S. astronomers to participate in major
    international projects for a fraction of the total cost, as in the case
    of the European Solar and Heliospheric Observatory (SOHO), XMM-Newton,
    Planck Surveyor, and FIRST missions, and the Japanese Advanced
    Satellite for Cosmology and Astrophysics mission. Valuable
    opportunities for international collaboration exist for smaller
    missions as well. Collaborations on major projects require the full
    support of the participating scientific communities, which can be
    ensured if the projects are among the very highest priorities of the
    participants, as is the case with ALMA.
        The committee affirms the value of international collaboration for
    ground- and space-based projects of all sizes. International
    collaboration plays a crucial role in a number of this committee's
    recommended initiatives, including the Next Generation Space Telescope,
    the Expanded Very Large Array, the Gamma-ray Large Area Space
    Telescope, the Laser Interferometer Space Antenna, the Advanced Solar
    Telescope, and the Square Kilometer Array technology development, and
    it could play a significant role in other recommended initiatives as
    well.
                 new investments in astronomy and astrophysics
        Many mysteries confront us in the quest to understand our place in
    the universe. How did the universe begin? What is the nature of the
    dark matter and the dark energy that pervade the universe? How did the
    first stars and galaxies form? Researchers infer the existence of
    stellar mass black holes in our galaxy and supermassive ones in the
    nuclei of galaxies. How did they form? The discovery of extrasolar
    planets has opened an entirely new chapter in astronomy, bringing a
    host of unresolved questions. How do planetary systems form and evolve?
    Are planetary systems like our solar system common in the universe? Do
    any extrasolar planetary systems harbor life? Even a familiar object
    like the Sun poses many mysteries. What causes the small variations in
    the Sun's luminosity that can affect Earth's climate? What is the
    origin of the eruptions on the solar surface that cause ``space
    weather''?
        To seek the answers to these questions and many others described in
    this report, the committee recommends a set of new initiatives for this
    decade that will substantially advance the frontiers of human
    knowledge. Table ES.1 presents these initiatives, combined for both
    ground- and space-based astronomy, in order of priority. The committee
    set the priorities primarily on the basis of scientific merit, but it
    also considered technical readiness, cost-effectiveness, impact on
    education and public outreach, and the relation to other projects. The
    initiatives were divided into three categories--major, moderate, and
    small--that were defined separately for ground- and space-based
    projects based on estimated cost (see Chapter 1). The estimated cost of
    the recommended program for the decade 2000 to 2010 is $4.7 billion in
    fiscal year 2000 dollars, about 20 percent greater than the $3.9
    billion inflation-adjusted cost of the recommendations of the 1991
    survey. Two of the recommended projects, the Terrestrial Planet Finder
    (TPF) and the Single Aperture Far Infrared (SAFIR) Observatory, could
    start near the end of this decade or at the beginning of the next. The
    committee has assumed that about 15 percent of the total estimated cost
    for these two projects will fall in this decade.
    Major initiatives
        The Next Generation Space Telescope (NGST), the committee's top-
    priority recommendation, is designed to detect light from the first
    stars and to trace the evolution of galaxies from their formation to
    the present. It will revolutionize understanding of how stars and
    planets form in our galaxy today. NGST is an 8-mclass infrared space
    telescope with 100 times the sensitivity and 10 times the image
    sharpness of the Hubble Space Telescope in the infrared. Having NGST's
    sensitivity extend to 27 m would add significantly to its
    scientific return. Technology development for this program is well
    under way. The European Space Agency and the Canadian Space Agency plan
    to make substantial contributions to the instrumentation for NGST.
        The Giant Segmented Mirror Telescope (GSMT), the committee's top
    ground-based recommendation and second priority overall, is a 30-m-
    class ground-based telescope that will be a powerful complement to NGST
    in tracing the evolution of galaxies and the formation of stars and
    planets. It will have unique capabilities in studying the evolution of
    the intergalactic medium and the history of star formation in our
    galaxy and its nearest neighbors. GSMT will use adaptive optics to
    achieve diffraction-limited imaging in the atmospheric windows between
    1 and 25 m and unprecedented light-gathering power between 0.3
    and 1 m. The committee recommends that the technology
    development for GSMT begin immediately and that construction start
    within the decade. Half the total cost should come from private and/or
    international partners. Open access to GSMT by the U.S. astronomical
    community should be directly proportional to the investment by the NSF.
        The Constellation-X Observatory is a suite of four powerful x-ray
    telescopes in space that will become the premier instrument for
    studying the formation and evolution of black holes of all sizes. Each
    telescope will have high spectral resolution over a broad energy range,
    enabling it to study quasars near the edge of the visible universe and
    to trace the evolution of the chemical elements. The technology issues
    are well in hand for a start in the middle of this decade.
        The Expanded Very Large Array (EVLA)--the revitalization of the
    VLA, the world's foremost centimeter-wave radio telescope--will take
    advantage of modern technology to attain unprecedented image quality
    with 10 times the sensitivity and 1,000 times the spectroscopic
    capability of the existing VLA. The addition of eight new antennas will
    provide an order-of-magnitude increase in angular resolution. With
    resolution comparable to that of ALMA and NGST, but operating at much
    longer wavelengths, the EVLA will be a powerful complement to these
    instruments for studying the formation of protoplanetary disks and the
    earliest stages of galaxy formation.
        The Large-aperture Synoptic Survey Telescope (LSST) is a 6.5-m-
    class optical telescope designed to survey the visible sky every week
    down to a much fainter level than that reached by existing surveys. It
    will catalog 90 percent of the near-Earth objects larger than 300 m and
    assess the threat they pose to life on Earth. It will find some 10,000
    primitive objects in the Kuiper Belt, which contains a fossil record of
    the formation of the solar system. It will also contribute to the study
    of the structure of the universe by observing thousands of supernovae,
    both nearby and at large redshift, and by measuring the distribution of
    dark matter through gravitational lensing. All the data will be
    available through the National Virtual Observatory (see below under
    ``Small Initiatives''), providing access for astronomers and the public
    to very deep images of the changing night sky.
        The Terrestrial Planet Finder (TPF) is the most ambitious science
    mission ever attempted by NASA. It is currently envisaged as a free-
    flying infrared interferometer designed to study terrestrial planets
    around nearby stars--to find them, characterize their atmospheres, and
    search for evidence of life--and to obtain images of star-forming
    regions and distant galaxies with unprecedented resolution. The
    committee's recommendation of this mission is predicated on the
    assumptions that TPF will revolutionize major areas of both planetary
    and nonplanetary science and that, prior to the start of TPF, ground-
    and space-based searches will confirm the expectation that terrestrial
    planets are common around solar-type stars. Both NGST and SIM lie on
    the technology path necessary to achieve TPF.
        The Single Aperture Far Infrared (SAFIR) Observatory is an 8-m-
    class space-based telescope that will study the important and
    relatively unexplored spectral region between 30 and 300 m. It
    will enable the study of galaxy formation and the earliest stage of
    star formation by revealing regions too enshrouded by dust to be
    studied by NGST, and too warm to be studied effectively with ALMA. As a
    follow-on to NGST, SAFIR could start toward the end of the decade, and
    it could form the basis for developing a far-infrared interferometer in
    the succeeding decade.
    Moderate Initiatives
        Ground-Based Programs.--The committee's recommended highest-
    priority moderate initiative overall is the Telescope System
    Instrumentation Program (TSIP), which would substantially increase NSF
    funding for instrumentation at large telescopes owned by independent
    observatories and provide new observing opportunities for the entire
    U.S. astronomical community. Its second priority among ground-based
    initiatives is the Advanced Solar Telescope (AST), which offers the
    prospect of revolutionizing understanding of magnetic phenomena in the
    Sun and in the rest of the universe. The committee's next
    recommendation is that a program be established to plan and develop
    technology for the Square Kilometer Array, an international centimeter-
    wave radio telescope for the second decade of the century. In order of
    priority, the other recommended moderate initiatives are the following:
    The Combined Array for Research in Millimeter-wave Astronomy (CARMA)
    will be a powerful millimeter-wave array in the Northern Hemisphere.
    The study of very-high-energy gamma rays will take a major step forward
    with the construction of the Very Energetic Radiation Imaging Telescope
    Array System (VERITAS). The Frequency Agile Solar Radio telescope
    (FASR) will apply modern technology to provide unique data on the Sun
    at radio wavelengths. The South Pole Submillimeter-wave Telescope
    (SPST) will take advantage of the extremely low opacity of the
    Antarctic atmosphere to carry out surveys at submillimeter wavelengths
    that are possible nowhere else on Earth.
        Space-Based Programs.--The committee's top recommendation for a
    moderate space-based mission is the Gamma-ray Large Area Space
    Telescope (GLAST). This joint NASA-DOE mission will provide
    observations of gamma rays from 10 MeV to 300 GeV with six times the
    effective area, six times the field of view, and substantially better
    angular resolution than the Energetic Gamma Ray Experiment aboard the
    Compton Gamma Ray Observatory. The committee's second-priority space-
    based project is the Laser Interferometer Space Antenna (LISA), which
    will be able to detect gravity waves from merging supermassive black
    holes throughout the visible universe and from close binary stars
    throughout our galaxy. The committee has assumed that LISA's cost will
    be shared with the European Space Agency. Four additional space-based
    missions have priority. The Solar Dynamics Observer (SDO), a successor
    to the path-breaking SOHO mission, will study the outer convective zone
    of the Sun and the structure of the solar corona. The highly variable
    hard-x-ray sky will be mapped by the Energetic X-ray Imaging Survey
    Telescope (EXIST), which will be attached to the International Space
    Station. The Advanced Radio Interferometry between Space and Earth
    (ARISE) mission is an orbiting antenna that will combine with the
    ground-based VLBA to provide an order-of-magnitude increase in
    resolution for studying the regions near supermassive black holes in
    active galactic nuclei.
    Small Initiatives
        Several small initiatives recommended by the committee span both
    ground and space. The first among them--the National Virtual
    Observatory (NVO)--is the committee's top priority among the small
    initiatives. The NVO will provide a ``virtual sky'' based on the
    enormous data sets being created now and the even larger ones proposed
    for the future. It will enable a new mode of research for professional
    astronomers and will provide to the public an unparalleled opportunity
    for education and discovery.
        The remaining recommendations for small initiatives are not
    prioritized. The committee recommends establishing a laboratory
    astrophysics program and a national astrophysical theory postdoctoral
    program for both ground- and space-based endeavors. Augmentation of
    NASA's Astrophysics Theory Program will help restore a balance between
    the acquisition of data and the theory needed to interpret it.
    Ultralong-duration balloon flights offer the prospect of carrying out
    small space-based experiments at a small fraction of the cost of
    satellites. The Low Frequency Array (LOFAR), a joint Dutch-U.S.
    initiative, will dramatically increase knowledge of the universe at
    radio wavelengths longer than 2 m. The Advanced Cosmic-ray Composition
    Experiment for the Space Station (ACCESS) will address fundamental
    questions about the origin of cosmic rays. Expansion of the Synoptic
    Optical Long-term Investigation of the Sun (SOLIS) will permit
    investigation of the solar magnetic field over an entire solar cycle.
    Technology
        Technological innovation has often enabled astronomical discovery.
    Advances in technology in this decade are a prerequisite for many of
    the initiatives recommended in this report as well as for initiatives
    in the next decade. For the recommended space-based initiatives,
    technology investment as specified in the existing NASA technology road
    map is an assumed prerequisite for the cost estimates given in Table
    ES.1. It is essential to maintain funding for these initiatives if NASA
    is to keep these missions on schedule and within budget. The committee
    endorses NASA's policy of completing a mission's technological
    development before starting the mission. The committee similarly
    endorses such a policy as the NSF is applying it to the design and
    development of ALMA.
        For possible ground-based initiatives in the decade 2010 to 2020,
    investment is required in very large, high-speed digital correlators;
    in infrared interferometry; and in specialized dark-matter detectors.
    Future space-based initiatives require investment in spacecraft
    communication and x-ray interferometry, as well as technology for the
    next-generation observatories. Such technology will include energy-
    resolving array detectors for optical, ultraviolet, and x-ray
    wavelengths; far-infrared array detectors; refrigerators; large,
    lightweight optics; and gamma-ray detectors.
                         astronomy's role in education
        Because of its broad public appeal, astronomy has a unique role to
    play in education and public outreach. The committee recommends that
    the following steps be taken to exploit the potential of astronomy for
    enhancing education and public understanding of science:
      --Expand and improve the opportunities for astronomers to engage in
            outreach to the K-12 community.
      --Establish more pilot partnerships between departments of astronomy
            and education at a few universities to develop exemplary
            science courses for preservice teachers.
      --Improve communication, planning, and coordination among federal
            programs that fund educational initiatives in astronomy.
      --Increase investment toward improving public understanding of the
            achievements of all NSF-funded science and facilities,
            especially in the area of astronomy.

    Table ES. 1.--Prioritized Equipment Initiatives (Combined Ground and
    Space) and Estimated Federal Costs for the Decade 2000 to 2010
    1}2

            Initiative                                              Cost \3\
    Major Initiatives:
        Next Generation Space Telescope (NGST) \4\.................... 1,000
        Giant Segmented Mirror Telescope (GSMT) \4\...................   350
        Constellation-X Observatory...................................   800
        Expanded Very Large Array (EVLA) \4\..........................   140
        Large-aperture Synoptic Survey Telescope (LSST)...............   170
        Terrestrial Planet Finder (TPF) \5\...........................   200
        Single Aperture Far Infrared (SAFIR) Observatory \5\..........   100
                                                                      ______
            Subtotal for major programs............................... 2,760
                            =================================================================
                            ________________________________________________
    Moderate Initiatives:
        Telescope System Instrumentation Program (TSIP)...............    50
        Gamma-ray Large Area Space Telescope (GLAST) \4\..............   300
        Laser Interferometer Space Antenna (LISA) \4\.................   250
        Advanced Solar Telescope (AST) \4\............................    60
        Square Kilometer Array (SKA) Technology Development...........    22
        Solar Dynamics Observer (SDO).................................   300
        Combined Array for Research in Millimeter-wave Astronomy
          (CARMA) \4\.................................................    11
        Energetic X-ray Imaging Survey Telescope (EXIST)..............   150
        Very Energetic Radiation Imaging Telescope Array System
          (VERITAS)...................................................    35
        Advanced Radio Interferometry between Space and Earth (ARISE).   350
        Frequency Agile Solar Radio telescope (FASR)..................    26
        South Pole Submillimeter-wave Telescope (SPST)................    50
                                                                      ______
            Subtotal for moderate initiatives......................... 1,604
                            =================================================================
                            ________________________________________________
    Small Initiatives:
        National Virtual Observatory (NVO)............................    60
        Other small initiatives \6\...................................   246
                                                                      ______
            Subtotal for small initiatives............................   306
                            =================================================================
                            ________________________________________________
            Total..................................................... 4,670

    \1\ Cost estimates for ground-based capital projects include technology
    development plus funds for operations, new instrumentation, and facility
    grants for 5 years.
    \2\ Cost estimates for space-based projects exclude technology
    development.
    \3\ Best available estimated costs to U.S. government agencies in
    millions of fiscal year 2000 dollars and rounded. Full costs are given
    for all initiatives except TPF and the SAFIR Observatory.
    \4\ Cost estimate for this initiative assumes significant additional
    funding to be provided by international or private partner; see Panel
    Reports (NRC, 2001) for details.
    \5\ These missions could start at the turn of the decade. The committee
    attributes $200 million of the $1,700 million total estimated cost of
    TPF to the current decade and $100 million of the $600 million total
    estimated cost of the SAFIR Observatory to the current decade.
    \6\ See Chapter 1 for details.

            Prepared Statement of the American Geological Institute

        To the Chairman and Members of the Subcommittee: I appreciate this
    opportunity to present testimony on behalf of the American Geological
    Institute (AGI) in support of fiscal year 2003 appropriations for the
    National Science Foundation (NSF). The fundamental research supported
    by NSF has fueled our present economic growth and contributed to
    improvements in our health, safety, and quality of life. This
    subcommittee has shown leadership in expanding the federal investment
    in fundamental research, and that leadership will be even more critical
    in the coming year. AGI urges the subcommittee to carefully examine the
    president's request. In particular, we encourage the Subcommittee to
    reconsider the requested program transfers, enhance support for core
    programs in the Geosciences Directorate, and expand the Major Research
    Equipment account to accommodate both existing projects and the
    requested new starts. Such increases represent an important investment
    in the future of our nation and our planet at a time when we can ill
    afford not to make that investment.
        AGI is a nonprofit federation of 40 geoscientific and professional
    societies representing more than 100,000 geologists, geophysicists, and
    other earth scientists. Founded in 1948, AGI provides information
    services to geoscientists, serves as a voice for shared interests in
    our profession, plays a major role in strengthening geoscience
    education, and strives to increase public awareness of the vital role
    the geosciences play in mankind's use of resources and interaction with
    the environment.
        The rationale for supporting geoscience research and education has
    never been stronger. Global climate change, natural disasters, energy
    resources, and water quality issues are reported daily by the news
    media. Geoscience research plays an increasingly important role in an
    ever- growing range of scientific and societal problems, and federal
    investments in geoscience research should increase accordingly. Federal
    investments in geoscience R&D continue to pay enormous dividends, and
    both the federal government and the nation clearly have a stake in
    maintaining the health of the basic science on which applications and
    policy decisions ultimately must be based.
        NSF support for geoscience research activities covers the entire
    spectrum from individual investigators to major research centers and
    large research programs. Many of the most creative and important
    advances in geoscience research continue to be made by individual
    investigators and small research teams that are the backbone of the
    research and graduate education system. NSF should maintain and enhance
    support for this vital component of geoscience research.
    NSF Geosciences Directorate
        The NSF Geosciences Directorate (GEO) is the principal source of
    federal support for academic earth scientists who are seeking insight
    into the fundamental earth processes that ultimately sustain and
    transform life on our planet. The president's request appears to
    provide a significant increase to this directorate, but the bulk of the
    increase is due to several proposed transfers. In fact, all of the
    proposed transfers into NSF go into this one directorate. As a result,
    an apparent 13.4 percent requested increase for GEO includes only a 1.2
    percent increase for existing programs. Whether or not the transfers
    are approved, we encourage the Subcommittee to provide real increases
    to existing programs in the Earth Sciences, Ocean Sciences and
    Atmospheric Sciences Divisions within GEO.
        AGI asks the Subcommittee to take a hard look at these proposed
    transfers to determine whether they fit the NSF mission or whether they
    are better left in their current agencies. We recognize that these
    transfers reflect the president's desire to reward agencies like NSF
    that have demonstrated good management practices. But there may be a
    mission mismatch, particularly in the case of the proposed transfer of
    the U.S. Geological Survey's Toxic Substances Hydrology program, which
    funds highly targeted, long-term, mission-oriented research that is
    very different from the fundamental, university-based research NSF
    supports.
    NSF Major Research Equipment Account: EarthScope
        AGI urges the subcommittee to support the NSF Major Research
    Equipment (MRE) budget request of $35 million for a new earth science
    initiative called Earthscope. Taking advantage of new technology in
    sensors and data distribution, this four-pronged initiative will
    systematically survey the structure of the Earth's crust beneath North
    America. The fiscal year 2003 request includes support for three
    components: a dense array of digital seismometers that will be deployed
    in stages across the country; a 4-km deep borehole through the San
    Andreas Fault, housing a variety of instruments that can continuously
    monitor the conditions within the fault zone; a network of state-of-
    the-art Global Positioning System (GPS) stations and sensitive
    strainmeters to measure the deformation of the constantly shifting
    boundary between the Pacific and North American tectonic plates. The
    fourth component will move forward in conjunction with NASA: a
    satellite-based Synthetic Aperture Radar mission that can measure
    changes in the Earth's crust after earthquakes and volcanic eruptions.
    All data from this project will be available in real time to both
    scientists and students, providing a tremendous opportunity for both
    research and learning about the Earth.
        EarthScope has broad support from the earth science community with
    endorsements from a number of AGI's member societies, including the
    Association of American State Geologists, Geological Society of America
    and Seismological Society of America. The National Science Board has
    not only endorsed EarthScope but has listed it as a priority for fiscal
    year 2003, a first for the Board. EarthScope has received a very
    favorable review from the National Academy of Sciences, which released
    a report last year entitled Review of EarthScope Integrated Science.
    Some key assertions from the report:

        ``The committee concludes that EarthScope is an extremely well
    articulated project that has resulted from consideration by many
    scientists over several years, in some cases up to a decade. During
    that time, the proponents have become experts, not just in the
    observing technology but in the data handling and retrieval systems
    that are necessary to manage information on this vast scale.''
        ``The committee concludes that EarthScope will have a substantial
    impact on earth science in America and worldwide. It will provide
    scientists with vast amounts of data that will be used for decades.''
        ``The time is right to undertake a full exploration of the nature
    of the continental crust of the United States and its underlying
    mantle. Such exploration is a critical requirement for understanding
    the nature of the earth on which we live and how society needs to
    manage and adapt to its rhythms and processes.''
        ``EarthScope provides an excellent opportunity to excite and
    involve the general public, as well as K-12 and college students, to
    work together with the earth science community to understand the earth
    on which they live.''
        ``The NSF should ensure that EarthScope's scientific potential is
    effectively realized and capitalized upon by continuing its support for
    the disciplinary and interdisciplinary programs within NSF's Division
    of Earth Sciences (EAR) that form the scientific foundation of the
    project.''
        ``The committee concludes that InSAR is an integral part of the
    EarthScope vision that will greatly enhance the effectiveness of the
    project, and it should not be viewed merely as a desirable add-on to
    the project. The committee urges NSF and NASA to collaborate to realize
    this goal at the earliest opportunity, so as to make [Interferometric
    Synthetic Aperture Radar] capability a reality during the lifetime of
    the other EarthScope components.''

        AGI applauds the Subcommittee's commitment to fund existing MRE
    projects, but at the same time we strongly encourage the Subcommittee
    to provide enough funding to accommodate the president's requested
    projects as well.
    NSF Support for Earth Science Education
        Earth science plays a unique and essential role in today's rapidly
    changing world. Most human activities involve interactions with the
    planet Earth, and citizens need a basic understanding of the Earth in
    order to make informed decisions about the delicate balance between
    resource use and environmental protection. NSF can improve the nation's
    scientific literacy by supporting the full integration of earth science
    information into mainstream science education at the K-12 and college
    levels. The inclusion of earth science as a key component in the
    National Science Education Standards developed by the National Academy
    of Sciences presents a tremendous opportunity to achieve this goal.
        AGI urges the subcommittee to support the 25 percent increase that
    the president has requested for the NSF Math and Science Partnerships
    program with the Directorate for Education and Human Resources (EHR).
    These partnerships will be awarded through competitive, merit-reviewed
    process, and will work to develop and implement plans to raise math and
    science standards at both the classroom level and above. Unlike the
    similar partnerships that would be provided to each state by the
    Department of Education, the NSF partnerships will provide an
    opportunity for university scientists to play an active role.
        We encourage the EHR directorate to expand its interaction with the
    Directorate for Geosciences to further integrate research and education
    activities in the geosciences. Improving geoscience education to levels
    of recognition similar to other scientific disciplines is important
    because:
      --Geoscience offers students subject matter that has direct
            application to their lives and the world around them.
            Civilization depends on responsible use of Earth's natural
            resources, including energy, minerals, and water. Moreover,
            geoscience plays a key role in environmental protection.
      --Geoscience exposes students to a diverse range of interrelated
            scientific disciplines. It is an excellent vehicle for
            integrating the theories and methods of chemistry, physics,
            biology, and mathematics.
      --Geoscience awareness is a key element in reducing the impact of
            natural hazards on citizens--hazards that include earthquakes,
            volcanic eruptions, hurricanes, tornadoes, and floods.
        We urge NSF to continue playing an active role in the major
    transformation that is taking place in geoscience education. For
    example, at the college level, geoscience curricula are changing to
    better incorporate environmental issues and changing employment
    opportunities. Improved teaching methods and new educational
    technology, combined with improvements in college and pre-college
    geoscience curricula, may help capture and hold the curiosity and
    enthusiasm of students and better prepare them for the workplace of the
    21st century. At the graduate and postdoctoral level, fellowships are
    increasingly critical in the geosciences because students, following
    the lead of industry and consumer needs, are conducting research that
    crosses traditional departmental, disciplinary, and funding boundaries.
        Yet some Americans, particularly those of lower income, are still
    significantly underrepresented in geoscience education. The problem is
    substantially worse at the graduate level. It is unlikely that any
    profession, including the geosciences, can flourish without greater
    participation by all Americans, including those from historically
    underrepresented groups such as ethnic minorities and women. Continued
    NSF leadership is needed to increase recruitment and retention of
    students from these groups through improved access to education and
    research experiences. We must all work together to address the
    underlying factors that prevent such participation.
        I appreciate this opportunity to provide written testimony to the
    Subcommittee and would be pleased to answer any questions or to provide
    additional information for the record. I can be reached at 703-379-2480
    ext. 228, 703-379-2480 fax, applegate@agiweb.org, or 4220 King Street,
    Alexandria VA 22302-1502.
                                     ______

     Prepared Statement of the American Indian Higher Education Consortium

        Mr. Chairman and Members of the Subcommittee, on behalf of this
    nation's 32 American Indian Tribal Colleges and Universities (TCUs),
    which comprise the American Indian Higher Education Consortium (AIHEC),
    thank you for the opportunity to express our views and requests for
    fiscal year 2003, to the Subcommittee.
                              summary of requests
        Department of Housing and Urban Development (HUD).--In fiscal year
    2001 a TCU initiative was established and funded within the Community
    Development Block Grant program. This competitive program is designed
    to help address the dire facilities and infrastructure needs at tribal
    colleges. We strongly urge the Subcommittee to support this program at
    a minimum $3 million, included in the President's fiscal year 2003
    budget request.
        National Science Foundation (NSF) Programs:
      --Tribal Colleges and Universities Program (TCUP).--This $10 million
            program is designed to encourage American Indians to pursue
            Information Technology and other science and technology fields
            by building capacity at eligible institutions and assisting
            them in strengthening teaching and learning in ways that
            improve student access, retention, and completion of science,
            technology, engineering and mathematics (STEM) programs. We
            request Congress expand the $10 million included in the
            President's budget request and fund this vital program at $15
            million, to help support the addition of the Alaska Native and
            Native Hawaiian serving institutions as eligible participants
            in the program.
      --Tribal College-Rural Systemic Initiative (TC-RSI) was created
            within NSF's Educational System Reform (ESR) division, to
            promote systemic change in the areas of science, technology,
            engineering and mathematics (STEM) at K-12 reservation schools
            through partnerships with tribal colleges. There are currently
            14 tribal college partners in this program. We strongly urge
            the Subcommittee to support the ESR division budget.
            Additionally, we seek report language reaffirming the expansion
            of the tribal college program to include the remaining 18
            tribal colleges.
      --Louis Stokes Alliances for Minority Participation (LSAMP)
            Program.--In fiscal year 2001, funding was secured for phase II
            of the All Nations Alliance for Minority Participation program,
            which provides services to tribal colleges and is based at
            Salish Kootenai College in Pablo, Montana. The goal of the
            program is to establish a comprehensive interactive network to
            substantially increase the number of American Indians receiving
            baccalaureate and graduate degrees in science, mathematics,
            engineering, and technology. We urge Congress to continue to
            support and build upon this program to help prepare all
            Americans for the 21st Century workforce.
        National Aeronautics and Space Administration (NASA).--In fiscal
    year 2001, the tribal colleges established a formal cooperative
    agreement with NASA for a $1.197 million project designed to increase
    access, participation, and success of American Indians in high quality
    pre-K to 16 mathematics, science, engineering, and technology programs.
    The agreement includes a tribal college liaison between AIHEC and NASA
    to oversee implementation of the project and provides modest program
    enrichment grants to the colleges. We urge Congress to include report
    language that encourages NASA faculty exchange programs and IPA
    contracts with TCUs to provide on-site expertise and partnerships. We
    respectfully request additional report language to encourage expansion
    of existing NASA programs, as well as new initiatives to address the
    critical technology infrastructure needs at TCUs.
                                   background
        The Tribal College Movement began in 1968 with the establishment of
    Navajo Community College, now Dine College, in Tsaile, Arizona. A
    succession of tribal colleges soon followed, primarily in the Northern
    Plains region. In 1972, the first six tribally-controlled colleges
    established AIHEC to provide a support network for member institutions.
    Today, AIHEC represents 32 Tribal Colleges and Universities located in
    12 states, begun specifically to serve the higher education needs of
    American Indian students. Collectively, they serve approximately 30,000
    full-and part-time students from over 250 Federally recognized tribes.
        All tribal colleges offer 2 year degrees, and several institutions
    offer baccalaureate and graduate-level degrees. The majority of the
    tribal colleges are fully accredited by independent, regional
    accreditation agencies.\1\ In addition to college level programming,
    TCUs provide much needed high school completion (GED), basic
    remediation, job training, college preparatory courses, and adult
    education. Tribal colleges fulfill additional roles within their
    respective communities functioning as community centers, libraries,
    tribal archives, career and business centers, economic development
    centers, public-meeting places, and child care centers. Each TCU is
    committed to improving the lives of students through higher education
    and to moving American Indians toward self-sufficiency.
    ---------------------------------------------------------------------------
        \1\ The Tribal Colleges and Universities are accredited by regional
    accreditation agencies and must undergo stringent performance review on
    a periodic basis. The higher education division of the respective
    regional accreditation agency accredits twenty-seven of the TCUs. Two
    TCUs are at the Pre-candidate stage as they complete work to attain
    Candidate status; one TCU is at Candidate status. Two TCUs are
    accredited as ``Vocational/Adult Schools'' by the ``schools'' division
    of the respective regional accreditation agency.
    ---------------------------------------------------------------------------
        Tribal colleges provide needed access to higher education for
    American Indians and others living in some of this nation's most rural
    and economically depressed areas. These institutions, chartered by
    their respective tribal governments, were established in response to
    the recognition by tribal leaders that local, culturally-based
    education institutions are best suited to help American Indians succeed
    in higher education. TCUs combine traditional teachings with
    conventional postsecondary courses and curricula. They have developed
    innovative means to address the needs of tribal populations and are
    successful in overcoming long-standing barriers to higher education for
    American Indians. Since the first tribal college was established on the
    Navajo reservation, these vital institutions have come to represent the
    most significant development in the history of American Indian higher
    education, providing access to under-represented students and promoting
    achievement among students who may otherwise never have known
    postsecondary education success.
        Despite their remarkable accomplishments, tribal colleges are the
    most poorly funded institutions of higher education in the country.
    Grossly inadequate funding levels remain the most significant barrier
    to their success. Funding for basic institutional operations for 25
    reservation-based colleges is provided through the Tribally Controlled
    College or University Assistance Act (TCCUAA), Public Law 95-471.
    Funding was first appropriated through the Act in 1981, and is still
    less than two-thirds of its authorized level of $6,000 per full-time
    Indian student. In fiscal year 2002, these colleges receive $3,916 per
    full-time Indian student. While mainstream institutions have a
    foundation of stable state tax support, TCUs must rely on annual
    appropriations from the Federal government for their institutional
    operating funds. Because tribal colleges are located on federal trust
    territories, states have no obligation to fund them. In fact, most
    states do not even pay our colleges for the non-Indian state-resident
    students who account for approximately 20 percent of TCU enrollments.
        Inadequate funding has left many of our colleges with no choice but
    to operate in severely distressed conditions. Many colleges operate in
    surplus trailers; cast-off buildings; and facilities with crumbling
    foundations, faulty wiring, and leaking roofs. Sustaining quality
    academic programs is a challenge without a reliable source of
    facilities maintenance and construction funding.
        Today, one in five American Indians live on reservations. As a
    result of more than 200 years of Federal Indian policy--including
    policies of termination, assimilation and relocation--many reservation
    residents live in abject poverty comparable to that found in Third
    World nations. Through the efforts of tribal colleges, American Indian
    communities receive services they need to reestablish themselves as
    responsible, productive, and self-reliant.
                                 justifications
        Department of Housing and Urban Development.--We are pleased that
    the President's budget request for fiscal year 2003 includes $3 million
    for HUD-TCUP, the TCU initiative funded under the Community Development
    Block Grant program. This competitive grants program enables our
    institutions to expand our roles and effectiveness in addressing
    development and revitalization needs in our communities. Some areas
    that currently receive support include housing rehabilitation, business
    development, job training, pre-employment counseling, and job creation.
    We strongly urge Congress to continue to fund this program at a minimum
    $3 million, included in the President's budget request, to help ensure
    that much needed community services and programs are continued.
        National Science Foundation Programs:
      --Tribal Colleges and Universities Technology Initiative.--In fiscal
            year 2001, NSF launched a new tribal college initiative
            designed to enhance the quality of science, technology,
            engineering and mathematics (STEM) instruction and outreach
            programs, with an emphasis on the leveraged use of information
            technologies at tribal colleges. Through the program, colleges
            are able to implement comprehensive institutional approaches to
            strengthen teaching and learning in ways that improve access,
            retention, and completion of STEM programs, particularly those
            that have a strong technological foundation. Through this
            program, colleges gain support their efforts to bridge the
            ``digital divide'' and prepare students for careers in
            information technology, science, mathematics, and engineering
            fields. Because this program was broadened to include Alaska
            Native and Native Hawaiian serving institutions in its first
            year, after the original TCU-based funding level had been
            determined, we request that Congress build upon the funds
            requested in the President's budget to better reflect the true
            needs of the greatly expanded eligible pool, and fund this
            program at $15 million.
      --Tribal College Rural Systemic Initiative.--NSF expanded its
            commitment to the High Plains Rural Systemic Initiative (HP-
            RSI) and created a tribal college component of the project.
            Currently there are 14 tribal colleges participating in this
            program. Each college is responsible for providing leadership
            to the K-12 school systems located on their respective
            reservations. All aspects of the school system are addressed in
            systemic reform, including community and parental
            participation, professional development activities, broad-based
            business community support, convergence of multiple resources
            to support the initiative, and coordinated student assessment
            systems. All of these activities are organized and implemented
            with careful consideration of the cultural academic needs of
            the respective tribe and students being served. We strongly
            urge Congress to support the ESR division budget. We request
            report language to reaffirm the expansion of the tribal college
            program to include the 18 remaining tribal colleges and to
            afford them greater access to other NSF programs.
      --Louis Stokes Alliances for Minority Participation (LSAMP)
            Program.--The All Nations Alliance for Minority Participation,
            which provides services to tribal colleges, is based at Salish
            Kootenai College in Pablo, Montana. The program brings together
            25 TCUs and 32 state colleges and universities in nine states
            and is designed to substantially increase the quantity and
            quality of American Indian students receiving baccalaureate
            degrees in science, technology, engineering and mathematics
            (STEM). Subsequently, AMP aims to increase the number of these
            students entering graduate school to attain doctorates in STEM
            fields. AMP supports undergraduate systemic reform within this
            Alliance with partners from both 2 and 4 year colleges;
            businesses and industries; national research laboratories; and
            local, state and federal agencies We strongly urge Congress to
            continue to support the Louis Stokes Alliance for Minority
            Participation program, at the highest possible level.
        National Aeronautics and Space Administration (NASA).--Through
    AIHEC, the tribal colleges have established a cooperative agreement
    with NASA to increase access, participation, and success of American
    Indians in high quality pre-K to16 science, mathematics, engineering,
    and technology programs. This cooperative agreement includes the
    appointment of a TCU liaison between AIHEC and NASA to serve as the
    focal point for implementation of the agreement. Additionally, the
    agreement provides modest funding to help improve the capacity of each
    TCU to help fulfill its technology objectives, as they relate to the
    mission and goals of NASA. We urge Congress to include report language
    that would encourage NASA faculty exchange programs and IPA contracts
    with TCUs to provide needed on-site expertise and partnerships.
    Additionally, we ask for report language to encourage expansion of
    existing programs, as well as new initiatives to address the technology
    infrastructure needs at the Tribal Colleges and Universities.
                                   conclusion
        In light of the justifications presented in this statement and the
    overwhelming evidence of inequitable access to technology in rural
    America, we respectfully request the Subcommittee to increase funding
    for Tribal Colleges and Universities to help bring economic self-
    sufficiency to Indian Country. Fulfillment of AIHEC's fiscal year 2003
    request will strengthen the missions of TCUs and the enormous, positive
    impact they have on their communities. Your support will help ensure
    that they are able to properly educate and prepare thousands of
    American Indians for the workforce of the 21st Century. Tribal colleges
    have been proven to be very responsible with the Federal support they
    have received in the last 21 years. It is important that the Federal
    Government now capitalize on its investment.
        Thank you again for this opportunity to present our views and
    requests to this Subcommittee. We respectfully request your continued
    support and full consideration of our fiscal year 2003 appropriations
    requests.
                                     ______

        Prepared Statement of the National Congress of American Indians

        On behalf of the National Congress of American Indians (NCAI) and
    its more than 200 member tribal Nations, we are pleased to have the
    opportunity to present written testimony on the fiscal year 2003 VA-HUD
    Independent Agencies appropriations bill.
        The tragic events of September 11 brought forth the strength and
    the determination of our Nation to survive in the face of adversity. It
    is this same spirit that has carried Indian Country through years of
    annihilation and termination. It is this same spirit that has propelled
    Indian Nations forward into an era of self-determination. And it is in
    this same spirit of resolve that Indian Nations come before Congress to
    talk about honoring the Federal Government's treaty obligations and
    trust responsibilities throughout the fiscal year 2003 budget process.
        The Federal trust responsibility represents the legal obligation
    made by the U.S. Government to Indian tribes when their lands were
    ceded to the United States. This obligation is codified in numerous
    treaties, statutes, Presidential directives, judicial opinions, and
    international doctrines. It can be divided into three general areas
    protection of Indian trust lands; protection of tribal self-governance;
    and provision of basic social, medical, and educational services for
    tribal members.
        NCAI realizes that Congress must make difficult budget choices this
    year. Aselected officials, tribal leaders certainly understand the
    competing priorities that members of Congress must weigh over the
    coming months. However, the fact that the Federal Government has a
    solemn responsibility to address the serious needs facing Indian
    Country remains unchanged, whatever the economic or political climate
    may be. We at NCAI urge you to make a strong commitment to meeting the
    Federal trust obligation by fully funding those programs that are vital
    to the creation of vibrant Indian Nations. Such a commitment, coupled
    with continued efforts to strengthen tribal governments and to uphold
    the government-to-government relationship, will truly make a difference
    in helping us to create stable, diversified, and healthy economies in
    Indian Country. NCAI's statement focuses on our key areas of concern
    surrounding the President's budget request. Of course, there are
    numerous other programs and initiatives within the VA-HUD-Independent
    Agencies appropriations bill that are important to American Indians and
    Alaska Natives. Attached to this testimony is a breakdown of key
    programs for which we urge your support at the highest possible funding
    level as the appropriations process moves forward.
                         department of veterans affairs
        Native American veterans have served the United States with honor
    and distinction since this Nation was founded, and Indian people have
    the highest percentage of veterans of any population within the United
    States. Native people also carry the proud distinction of being the
    most decorated group in this country's history. Today, Native veterans
    have many pressing needs such as housing, health care, benefits, and
    other concerns that include issues unique to Indian Country.
        We urge continued support for the Native American Veterans Housing
    Loan Program. While small, it serves an important function, providing
    direct loans to veterans living on trust land. Many times, these
    veterans are unable to secure such loans through local banks or credit
    unions. In these instances, the Native American Veterans Housing Loan
    Program provides the resources to help purchase, construct, or improve
    their homes. A VA direct loan can be used to purchase, construct, or
    improve a home on Native American trust land. These loans may also be
    used to simultaneously purchase and improve a home or to refinance
    another VA direct loan made under this program in order to lower the
    interest rate. The principal amount of loans under this authority is
    generally limited to $80,000 or the cost of the home, whichever is
    less.
                  department of housing and urban development
        According to statistics provided by the National American Indian
    Housing Council, 40 percent of the homes in tribal communities are
    overcrowded and have serious physical deficiencies. The comparable
    national average is 5.9 percent, almost six times lower. These types of
    conditions have a very real and detrimental impact. Respiratory
    illness, skin conditions, head lice, sleep deprivation that affects
    schooling, and a lack of privacy that sometimes leads to child physical
    and sexual abuse can all be traced back to the housing crisis that
    plagues some of our reservations.
        The fiscal year 2003 request for programs under the Native American
    Housing Assistance and Self-Determination Act (NAHASDA) block grant
    actually cuts funding for training and technical assistance and for
    loans and loan guarantees, and it fails to provide adequate base
    funding for the NAHASDA block grant program. Per NCAI Resolution #SPO-
    01-094, NCAI supports the NAIHC proposed request and urges Congress to
    address the real housing need in Indian Country by appropriating $1.1
    billion in fiscal year 2003 for the NAHASDA block grant.
                        environmental protection agency
        Tribes are sovereign entities with the ability to set environmental
    quality standards, make environmental policy decisions, and manage
    programs consistent with EPA standards and regulations. In order to
    preserve and enhance the environmental quality of Indian Country for
    present and future generations and sustain tribal cultures, tribes
    deserve equitable funding for their environmental regulatory programs.
    Therefore we urge support for the following funding levels:
        General Assistance Program.--Tribal environmental program managers
    view GAP activities, funded under the multimedia section of State and
    Tribal Assistance Grants, as their highest priority. We request that
    the program receive $75 million, a $25 million increase, which would
    provide the minimum coverage needed for all federally recognized tribes
    to build capacity for EPA-delegated environmental programs.
        Clean Water Act State Revolving Fund.--We request that Congress
    raise the program cap from 1.5 percent to 2 percent for tribal
    governments to help address the estimated $650 million in wastewater
    treatment unmet needs in Indian Country. Within the State Revolving
    Fund program, we urge continued funding for wastewater treatment
    facilities for Alaska Natives.
        Safe Drinking Water Act State Revolving Fund.--Section 1452(i)
    provides a tribal government allocation for public water system
    expenditures to facilitate compliance with the national primary
    drinking water regulations. NCAI urges Congress to provide an
    additional $5 million for tribal drinking water programs under this
    program and raise the program cap from 1.5 percent to 2 percent.
        Cooperative Agreements.--Congress in fiscal year 2001 and fiscal
    year 2002 authorized EPA to enter into cooperative agreements with
    tribal governments and tribal consortia to assist the agency in
    implementing Federal environmental programs. NCAI strongly recommends
    the permanent continuation of this authority and that $2 million be
    appropriated for tribal-EPA cooperative agreements.
                                   conclusion
        Thank you for this opportunity to present written testimony
    regarding VA-HUD-Independent Agencies programs that benefit Indian
    Country. The National Congress of American Indians calls upon Congress
    to fulfill the Federal Government's fiduciary duty to American Indians
    and Alaska Native people. This responsibility should never be
    compromised or diminished because of any political agenda or budget cut
    scenario. Tribes throughout the Nation relinquished their lands and in
    return received a trust obligation, and we ask that Congress maintain
    this solemn obligation to Indian Country and continue to assist tribal
    governments as we build strong, diverse, and healthy Nations for our
    people.
      Attachment A: VA-HUD-Independent Agencies Appropriations Benefiting
                                     Tribes
    Department of Veterans Affairs
        The President's budget increases the VA's discretionary budget
    authority from $24.7 billion to $26.4 billion, with much of the
    increase going toward health care for veterans.

                                                  (Dollars in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                        Fiscal year     Fiscal year     Fiscal year
                                   VA                                  2001 enacted    2002 enacted    2003 request
    ----------------------------------------------------------------------------------------------------------------
    Native American Veterans Housing Loan Program...................            $.54            $.54            $.56
    ----------------------------------------------------------------------------------------------------------------

    Department of Housing and Urban Development
        The President has requested $31.4 billion for HUD, a $2 billion
    increase in budget authority, including $204 million for 34,000 new
    housing vouchers to subsidize rental housing for the poor and a $238
    million increase to the HOME investment partnerships program for
    housing rehabilitation and to encourage home ownership among low- and
    moderate-income households. The budget cuts several NAHASDA programs,
    but provides a $3 million increase for the Indian Community Development
    Block Grant.

                                                  (Dollars in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                        Fiscal year     Fiscal year     Fiscal year
                                   HUD                                 2001 enacted    2002 enacted    2003 request
    ----------------------------------------------------------------------------------------------------------------
    Indian Housing Block Grant......................................          $650.0          $648.6          $647.0
    Title VI Loans..................................................             6.0             6.0             2.0
    Section 194 Indian Housing Loan Guarantee Program \1\...........             6.0             6.0             5.0
    Indian Community Development Block Grant \2\....................            71.0            70.0            73.0
    Rural Housing and Economic Development (small amt to tribes)....            25.0            25.0               0
    Empowerment Zones Round II......................................           200.0            45.0               0
    ----------------------------------------------------------------------------------------------------------------
    \1\ Fiscal year 2002 funding for the Section 184 Loan Guarantee Program will subsidize a loan principal of not
      more than $234.3 million. The fiscal year 2003 request will support a loan principal of not more than $197
      million.
    \2\ The $4.3 billion appropriated for the Community Block Grant Development program in fiscal year 2002 includes
      the following additional set-asides for Indian programs: $4 million for Alaska Native and Native Hawaiian-
      Serving Institutions; $2.6 million for the National American Indian Housing Council; and $3 million for
      competitive facilities grants for tribal colleges and universities. The fiscal year 2003 request of $4.4
      billion for CDBG includes level funding for tribal colleges, $2 million for Alaska Native and Native Hawaiian-
      Serving Institutions, and $2 million for the NAIHC.
    NCAI Resolution #SPO-01-094 Supports $1.075 billion for the Indian Housing Block Grant.

    Environmental Protection Agency
        The President's budget would cut EPA spending from $7.9 billion in
    fiscal year 2002 to $7.6 billion in fiscal year 2003, primarily by
    eliminating $300 million in Congressional earmarks and projects that
    were not requested in the Administration's fiscal year 2002 budget. The
    budget includes $4.1 billion for general operations, the highest
    funding level ever for regulatory, enforcement and State grants, but
    would freeze hiring to fill vacancies in the enforcement division while
    shifting $15 million to the States for increased enforcement
    activities.

                                                  (Dollars in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                        Fiscal year     Fiscal year     Fiscal year
                                   EPA                                 2001 enacted    2002 enacted    2003 request
    ----------------------------------------------------------------------------------------------------------------
    Environmental Programs and Management...........................          $2,083          $2,055          $2,048
    Water and Wastewater Grants for Alaska Natives and Rural Areas..              35              40              40
    Clean Water State Revolving Fund Tribal.........................            20.2            20.2            18.2
    Safe Drinking Water State Revolving Fund........................             823             850             850
    Superfund.......................................................           1,267           1,270           1,000
    Leaking Underground Storage Tank Facilities.....................              71              73              72
    State and Tribal Assistance Grants..............................           3,621           3,733           3,464
    Tribal General Assistance Grants................................            52.5            52.5            52.5
    American Indian Tribal Environmental Office.....................             n/a             9.9            10.2
    ----------------------------------------------------------------------------------------------------------------

        NCAI recommends that the 2003 appropriation for EPA include
    permanent authorization for tribal cooperative agreements; a $25
    million increase for the tribal General Assistance Program (GAP) to
    provide minimum coverage to all federally recognized tribes; $10
    million for Section 106 Clean Water Act grants; a $20 million earmark
    for tribes under the new watershed management grants to States;
    increased funding for tribal air quality programs; and, a permanent
    increase in the tribal set-aside from 1.5 percent to 2 percent for both
    the Clean Water Act State Revolving Fund and the Safe Drinking Water
    Act program.
                                     ______

          Prepared Statement of the American Psychological Association

        The American Psychological Association (APA) is a scientific and
    professional organization of more than 155,000 psychologists and
    affiliates. Because our behavioral scientists play vital roles within
    the National Science Foundation (NSF), the National Aeronautics and
    Space Administration (NASA) and the Department of Veterans Affairs
    (VA), APA will address the proposed fiscal year 2003 research budgets
    for each of these three agencies.
                          national science foundation
        As a member of the larger science community and an active leader in
    the Coalition for National Science Funding (CNSF), APA strongly
    recommends increasing NSF's overall budget by $718 million (or 15
    percent) above the fiscal year 2002 level of $4.79 billion, bringing
    the agency's budget to $5.508 billion in Fiscal Year 2003. We also
    would like to highlight the importance of fully funding two new NSF
    priorities in 2003, the special research initiative in the Social,
    Behavioral and Economic Sciences, slated to receive $10 million in its
    first year of support, and the Science of Learning Centers (SLCs),
    proposed at $20 million.
    Core Psychological Research at NSF
        NSF is the only federal agency whose primary mission is to support
    basic research and education in math, engineering and science including
    behavioral and social science. NSF's investment in basic research
    across these disciplines has allowed for extraordinary scientific and
    technological progress, ensuring continued economic growth, improved
    prevention of disease, and strengthened national security. NSF's
    concern for education from kindergarten through graduate school allows
    for what we know about developmental processes, cognition, learning,
    and the environment to best construct the schools in which our children
    learn and to well inform the teachers who educate them, enabling our
    citizens to meet the intellectual and social challenges of the Twenty-
    First Century.
        The necessity to support basic research continues to be paramount.
    With the increasing globalization of science, the U.S. faces greater-
    than-ever competition for scientific innovation and discovery. At the
    same time that we must work in international communities of researchers
    and scholars, we must find new ways to make our country safe from
    threats not only to our physical structures but to the American
    tradition of free and shared science and to the many challenges we face
    at home. Our best defense is an offensive strategy in which we continue
    to be the best producer of science, ideas, and technology. We can do
    this only on the basis of a solid foundation of basic research.
        APA and CNSF recommend that additional funds for NSF above the
    fiscal year 2002 baseline be devoted to achieving the following
    objectives: (1) increase by $220 million the funding for core programs
    of research and education; (2) increase funding by $220 million to
    continue supporting key initiatives, including nanotechnology,
    biocomplexity, information technology research, workforce development
    (including mathematics and science partnerships), mathematics research,
    and a new priority area in social, behavioral and economic sciences;
    (3) provide an additional $130 million to increase grant size and
    duration; (4) provide an additional $100 million for Major Research
    Equipment and Facilities Construction and Major Research
    Instrumentation; (5) provide an increase of $25 million to assist with
    homeland security and anti-terrorism efforts; and (6) provide $23
    million to increase graduate student stipends.
        Although psychologists receive funding from diverse programs within
    NSF, most core psychological research is supported by the Social,
    Behavioral and Economic Sciences Directorate (SBE), with its focus on
    the variables that determine human behavior across all ages, affect
    interactions among individuals and groups, and decide how social and
    economic systems develop and change. A number of psychological
    scientists funded through SBE also lead ongoing basic research efforts
    with direct relevance to the events of September 11 and their
    aftermath, and APA applauds SBE for moving quickly to provide
    psychological researchers with emergency grants (through the agency's
    Small Grants for Exploratory Research program) to address time-critical
    issues such as trauma prevention and intervention and large-scale risk
    management.
        The Biological Sciences Directorate provides support for
    psychologists who ask questions about the very principles and
    mechanisms that govern life at the level of the genome and cell, or at
    the level of a whole individual, family or species. Our increasing
    sophistication about the genetic mechanisms of life allows us to ask
    increasingly complex questions about brain functioning. It also can
    lead us to ask how the genome is translated into a functioning,
    thriving organism that is, what is the exchange of gene and environment
    that decides whether the individual is more likely to learn than to
    forget, to love than to hate? These kinds of question cannot be
    answered by biology alone. An understanding of behavior requires
    analysis at all levels of functioning, from the cell to the whole
    organism, and an appreciation of the complex ways in which the
    environment impacts on the individual. It also requires description of
    the manner in which such interactions are written into the individual's
    history, and then serve to shape its behavior in the future.
    Special Research Priority in the Social, Behavioral and Economic
            Sciences
        Given the pace and demands of our increasingly technological
    society, APA strongly supports NSF's proposed $10 million initial
    investment in fiscal year 2003 for a new priority area in Social,
    Behavioral and Economic Sciences to further explore the complex
    interactions among society, its institutions, and technology. This
    priority area will examine human issues in the design and development
    of technological advances along with human adaptation to these dramatic
    changes, enabling us to develop technologies which enhance human
    capabilities while giving us tools to take greater advantage of
    technology and better anticipate and prepare for its consequences. The
    rapidly changing societal capabilities associated with technological
    development provide us with new opportunities to interact with the
    natural environment as well as with social and economic systems, and
    the new SBE priority area also will seek to address questions about
    these human-ecosystem interactions in support of the Administration's
    climate change research program. APA expects that the initial level of
    support for the special SBE research priority area will be a ``down
    payment'' on more significant investments in future years.
    New Science of Learning Centers
        Investment in research on the learning process, the context of
    learning and learning technologies is crucial to both successful
    educational reform and effective workforce development, and the new NSF
    Science of Learning Centers (SLCs) will serve as the foundation-wide
    centerpiece of the Learning for the 21st Century Workforce priority
    area in fiscal year 2003. These multidisciplinary, multi-institutional
    centers will build collaborative research communities of scientists,
    educators, community groups and industries capable of addressing
    fundamental questions in learning and applying that knowledge to
    schools and workforce contexts.
        APA strongly recommends that Congress support the new SLCs, with
    the longer-term goal of making strides in math and science education
    analogous to the tremendous leaps forward we currently are making by
    applying research on reading. These improvements in our understanding
    of how children learn to read and how teachers can better help them are
    due in large part to research sponsored by the National Institute of
    Child Health and Human Development at the National Institutes of
    Health. NSF is uniquely poised to support similar breakthroughs in the
    critical areas of math and science learning, skills which are
    particularly critical in our technologically-sophisticated world. NSF
    scientists can engage investigators from the range of disciplines it
    supports, from cognitive psychology and neuroscience to geography,
    engineering and robotics, and examine learning in adult and child
    populations to support both workforce and formal education needs.
                 national aeronautics and space administration
        Humans perform critical functions throughout all aspects of every
    NASA mission from concept development, system design and acquisition
    through operations. People are critical elements of complex aerospace
    systems. The ability to measure and predict human performance through
    all mission phases enhances mission safety and mission success. NASA
    Human Factors research and technology enhance the national capability
    to explore the stars and understand our own planet while contributing
    to the safety, affordability and efficiency of aerospace operations.
    Office of Biological and Physical Research
        In order to continue advancing our understanding of human
    adaptation to space, APA joins the Federation of American Societies for
    Experimental Biology (FASEB) in recommending an annual increase of $100
    million for investigator initiated, peer reviewed research in fiscal
    year 2003 for the Office of Biological and Physical Research (OBPR).
        NASA is demonstrating an unprecedented interest in psychological
    and behavioral research. That interest stems from historical
    observations of astronauts and cosmonauts living aboard Mir and the
    recognition that a multicultural workforce is building and occupying
    the International Space Station. Psychologists are involved at many
    levels within NASA, studying everything from basic neuroscience in rats
    to optimization of the habitability of next-generation space suits.
    Much of this research has been funded OBPR.
        The Biomedical Research and Countermeasures and Advanced Human
    Support Technologies Programs are both involved in reducing threats to
    humans exposed to physiological and psychological health risks during
    space flight. NASA has focused considerable energy on sleep and
    circadian rhythms, performance related to neurovestibular function,
    psychophysiological monitoring, and cognitive performance on short-
    duration missions. There is increasing recognition, however, that NASA
    needs to devote greater attention to behavioral health and psychosocial
    adaptation as these factors could significantly impact the success of
    long- duration missions.
        Human factors considerations for long-duration spaceflight extend
    far beyond physical crew interfaces into considerations of behavioral,
    psychological, physiological, and operational factors' influence on
    human performance and safety. The use of isolation chambers such as the
    Bioplex facility at Johnson Space Center offer the potential, and have
    been used successfully, to study behavior and performance under
    conditions of extended isolation and confinement. As such, it
    represents a high fidelity simulation facility for the development of
    advanced technologies and methodologies for monitoring individual and
    interpersonal behavior, as well as for studies of countermeasure
    testing and evaluation.
    Office of Aero-Space Technology
        This arm of NASA makes good use of psychological science closer to
    Earth. APA applauds NASA for its attention to human factors research
    and recommends at least the $220.1 million requested for the Office of
    Aeronautics and Space Technology (OAST) to allow for critical Aviation
    Systems Safety and Airspace Systems programs to continue as planned.
        Two of NASA's long-term interests have been to reduce the aircraft
    accident rate and increase the aviation throughput. The vast majority
    of accidents are attributed to human error. Recent increases in air
    traffic volume and airport delays make these challenges especially
    daunting. NASA will need to make an extraordinary investment in human
    factors research to achieve these ambitious milestones. Fortunately,
    several NASA programs support these important goals most notably the
    Aviation Safety Program but also Aerospace Operations Systems,
    Engineering for Complex Systems, Advanced Air Transportation
    Technologies and Virtual Airspace Modeling Systems. Critical research
    focuses on data mining, modeling and visualization for the proactive
    management of aerospace system risk, allowing for the monitoring of
    incidents and normal operations to identify precursors of error and
    mitigate risk before accidents happen.
        However, in order to do this, enormous volumes of qualitative and
    quantitative data must be transformed into useful information for
    expert analysts through the application of new information technology
    tools. For example, the Aviation Safety Reporting System (ASRS) is a
    national aviation safety resource consisting of first-hand verbal
    reports of accidents and mishaps from a broad spectrum of aviation
    professionals (e.g., pilots, controllers, mechanics, dispatchers,
    flight attendants). These reports provide critical data for expert
    trend analyses and queries that are then made available to the public
    and private sector. Further, the Aviation Performance Measuring System
    (APMS) provides a set of information technology tools to support
    content analysis of the hundreds of flight data recorder parameters
    (even thousands in the case of the Boeing 777) that are collected on
    every commercial airline flight. These tools allow the reconstruction
    of problems and entire flights from the collected data set and can
    identify common problems across flights. Finally, from the control
    tower, the Performance Data Analysis and Reporting System (PDARS)
    routinely collects, processes and disseminates Air Traffic Control
    radar track data for use in identifying normal operations and anomalous
    flightpaths.
        Collectively, such data tracking systems will become part of a
    model to assess the impact of perturbations in the National Airspace
    System.
        Perturbations could include proposed technical innovations (such as
    advanced automation-assisted decision support) and changes in
    organizational structure or procedures, as well as accidents or
    terrorist attacks. Such a model will require a distributed simulation
    capability that can represent the full range of system behaviors at
    multiple levels of analysis, including people the current backbone of
    the aviation system.
                         department of veterans affairs
        Investment in investigator-initiated research projects at the VA
    have led to an explosion of knowledge that promises to advance our
    understanding of disease and unlock new strategies for prevention,
    treatment and cures. Psychological researchers play crucial roles in
    addressing the many health challenges still confronting the veteran
    community. APA joins the Friends of VA Medical Care and Health Research
    (FOVA), a coalition of over 50 organizations concerned about veterans'
    health, in recommending $460 million for the VA Medical and Prosthetic
    Research Account in fiscal year 2003. We also strongly support the
    Subcommittee's recommendation to expand the VA's Mental Illness
    Research, Education and Clinical Center (MIRECC) program.
    Psychological Research in the VA
        Through its Medical and Prosthetic Research Account, the VA funds
    intramural research that supports its clinical mission to care for our
    nation's veterans. VA psychologists play a dual role in providing care
    for veterans and conducting research in all areas of health, including
    high-priority areas such as mental health, aging-related disorders and
    substance abuse. Psychological researchers continue to make great
    strides in: improving the diagnosis and treatment of Post Traumatic
    Stress Disorder; developing more sensitive diagnostic tools to detect
    the early stages of Alzheimer's disease and other dementias (problems
    increasingly seen both in our veterans and our aging population in
    society at large); and developing and implementing important substance
    abuse prevention programs. Because research has such a positive impact
    on the quality of care, APA strongly encourages the VA to ensure that
    neither research nor care suffers by developing mechanisms to designate
    time for clinicians to conduct research.
    Mental Illness Research, Education and Clinical Centers
        APA supports the important work being conducted by the eight VA
    Mental Illness Research, Education and Clinical Centers (MIRECCs)
    currently in existence throughout the country, but is disappointed that
    the VA did not increase the number of MIRECCs in fiscal year 2002 as
    directed by the Senate in last year's report. These MIRECCs sponsor
    important basic and applied research as well as educational outreach to
    the VA community, and have been particularly effective in translating
    the findings of basic research into improved treatment protocols. The
    MIRECCs substantially support and upgrade the provision of mental
    illness services in their areas, but they exist in only eight of 22
    networks and are clustered on the East and West coasts. We recommend
    that the Subcommittee provide funds for the establishment of three
    additional MIRECCs in fiscal year 2003.
    Summary
        APA appreciates this opportunity to provide written testimony in
    support of psychological research sponsored by NSF, NASA and the VA,
    and strongly encourages the Subcommittee to reaffirm its commitment to
    basic behavioral science at all three agencies. We recognize that this
    year there is a special need to strengthen research programs and
    operations related to national security, and we hope that Congress also
    will reinvest in the longer-term basic research which enables us to
    meet the full range of social, economic, health, and security
    challenges ahead.

                     Prepared Statement of American Rivers

        This year, American Rivers was joined by over 600 local, regional
    and national conservation organizations \1\ from all 50 states in
    calling for significantly increased funding for the following
    Environmental Protection Agency (EPA) programs and other programs
    funded through the Veteran's Affairs, Housing and Urban Development,
    and Independent Agencies (VA-HUD) Appropriations bill. I urge that
    these requests be incorporated in the VA-HUD Appropriations bill for
    fiscal year 2003.
    ---------------------------------------------------------------------------
        \1\ These groups have endorsed ``The River Budget 2003'', a report
    of national funding priorities for local river conservation. A list of
    groups endorsing the River Budget can be viewed at http://
    www.americanrivers.org/riverbudget/default.htm
    ---------------------------------------------------------------------------
           enforcement of discharge permits under the clean water act
        The Environmental Protection Agency's (EPA) ability to enforce
    environmental laws is critical to our nation's efforts to fulfill the
    Clean Water Act's clearly stated objective of restoring waters to
    fishable and swimmable conditions. While our nation has made great
    progress toward cleaning up our water, 40 percent of waters remain
    unsafe for fishing or swimming, illustrating a continuing need for
    enforcement.
        The Clean Water Act prohibits discharges of pollutants through
    point sources into U.S. waters without a National Pollution Discharge
    Elimination System permit. These permits contain limits on what can be
    discharged, monitoring and reporting requirements, and other provisions
    to ensure that discharge does not harm water quality or human health.
    To ensure that the permits are current and properly complied with, EPA
    engages in enforcement activities, including inspections, sampling, and
    testing, as well as civil and criminal enforcement actions. Civil and
    criminal enforcement activities result in real improvements in
    environmental quality. For instance, in fiscal year 1999, EPA's civil
    enforcement actions achieved over 6.8 billion pounds of pollutant
    reductions.
        For the last 2 years, the Administration has proposed significant
    reductions in funding for EPA's Office of Enforcement and Compliance.
    Last year the Congress rejected this initiative, yet the Administration
    has again recommended cuts for fiscal year 2003 that would reduce EPA
    staff in the enforcement office by over 200 employees. It is essential
    that Congress fund the EPA Office of Enforcement and Compliance at a
    level sufficient to retain fiscal year 2001 staffing levels with
    adequate increases to allow for cost of living increases. Congress
    should fund EPA's enforcement programs at $485 million.
                        clean water state revolving fund
        The Clean Water State Revolving Fund (SRF) provides capitalization
    grants to states, who in turn provide low-cost loans to communities for
    a variety of programs to clean up impaired water bodies and protect
    pristine waters. This program has been extremely effective in helping
    communities to improve water quality and provide safe drinking water.
    However, the needs to improve, repair and replace the nation's aging
    water infrastructure are tremendous. EPA and the WIN (Water
    Infrastructure NOW) coalition estimate that between $450 billion and
    $600 billion will need to be spent over the next 20 years just to
    ensure that water quality standards are met and that drinking water
    supplies are safe. Although the Federal Government should not be
    expected to bridge that funding gap, higher SRF funding is a clear and
    urgent priority. Postponing necessary water infrastructure investments
    will only defer and increase costs that must eventually be met.
    Congress has recognized this fact, giving strong bipartisan support to
    legislation authorizing substantially higher SRF funding in bills
    currently pending in the House and Senate.
        Despite the pressing need for more water infrastructure funding and
    strong support for the SRF program across the nation, the
    Administration's budget calls for a 10 percent cut in SRF funding for
    fiscal year 2003. We urge Congress to fund the Clean Water and Drinking
    Water SRF programs at the full authorization levels called for in any
    bill eventually passed this year by Congress. At a minimum, Congress
    should sustain past funding levels: $1.35 billion for Clean Water SRFS,
    and $859 million for Drinking SRFs.
           total maximum daily loads, clean water act section 303(d)
        One of the most powerful tools to reduce nonpoint source
    pollution--the leading cause of impairment of the nation's waters--is
    the Clean Water Act's Total Maximum Daily Load (TMDL) provision. The
    TMDL provision is unique because it addresses the total level of
    pollution regardless of its source and requires the EPA to step in if a
    state fails to combat chronic water pollution problems. EPA
    conservatively estimates that there are an average of 300 impaired
    water bodies in every state in need of a TMDL plan. The polluted waters
    include approximately 300,000 miles of river and shoreline and
    approximately 5 million acres of lakes.
        Given the scope of water body impairment across the nation, and the
    need to help states develop and implement TMDL plans, we urge Congress
    to ensure that the TMDL program, receives an increase in funding.
    Congress should appropriate $250 million for EPA's State Program
    Management Grants (Section 106 of the Clean Water Act) for grants to
    states for funding for pollution control activities, surveillance,
    monitoring, enforcement, and advice and assistance to local agencies to
    meet TMDL development and implementation deadlines.
                       nonpoint source management program
        Another tool for reducing nonpoint source pollution is the Clean
    Water Act Section 319 Nonpoint Source Management Program. This program
    provides grant money to states, territories, and Indian tribes that can
    be used for a variety of nonpoint source pollution reduction activities
    including technical and financial assistance, education, training,
    technology transfer, demonstration projects, and monitoring.
        Congress should fund the Section 319 Nonpoint Source Management
    Program at $250 million.
                          watershed assistance grants
        Solving today's water quality challenges, especially habitat loss
    and nonpoint source pollution, requires the active involvement of
    citizens who care about the water quality where they live and are
    willing to take action to improve it. In most cases, solutions will be
    most effective when they address problems on watershed-wide bases and
    all affected parties are included in the development of the solutions.
        To facilitate such solutions, EPA teamed up with citizen activists
    to institute the Watershed Assistance Grants program. To date, 1,162
    proposals (requesting approximately $15 million) have been submitted;
    68 awards have been made to locally initiated watershed partnerships in
    36 states.
        In order to build the capacity of this program in fiscal year 2003,
    Congress should fund the Watershed Assistance Grants program at $2
    million.
                                 project impact
        The 20th century approach to flood control--trying to contain
    rivers with dams and levees and allowing excessive development in
    flood-prone areas--has devastated many river ecosystems while failing
    to adequately protect communities. Dams and levees that break during
    floods release even more devastating torrents, while those that hold
    often merely shift the brunt of a flood to other areas. Poorly planned
    floodplain development has put countless people in harm's way and
    eroded natural flood protections. According to the Federal Emergency
    Management Agency (FEMA), flood damages average more than $4 billion a
    year.
        Project Impact, run by FEMA, is changing how the nation deals with
    floods by turning nature into an ally instead of an enemy. Project
    Impact helps communities dramatically reduce disruption and loss caused
    by floods and other natural disasters by restoring and protecting
    healthy, more natural ecosystems.
        FEMA estimates that every dollar spent on damage prevention in its
    250 Project Impact communities saves two dollars in repairs. In fiscal
    year 2003, Congress should appropriate $50 million to expand FEMA's
    Project Impact to safeguard people and the environment.
                             chesapeake bay program
        The Chesapeake Bay is the nation's largest estuary and one of the
    most productive in the world, home to 3,600 species of plants and
    animals. The 64,000 square mile watershed drains more than 100,000
    rivers and streams; provides important opportunities for recreation and
    refuge for fish and wildlife; and is a key resource for the prosperity
    of the region.
        Unfortunately, the ecological integrity and productivity of the
    Chesapeake's watershed have been severely compromised by development,
    agriculture, over-harvesting of resources, and more than 2,500 small
    dams that block migratory fish from their historic spawning habitats.
        Concern over these threats culminated in the creation of the
    Chesapeake Bay Program in 1983, establishing what is now a national and
    international model for estuarine research and restoration. In fiscal
    year 2003, Congress should provide the Chesapeake Bay Program with $30
    million to better protect and restore this valuable ecosystem.
                                   beach act
        The Administration's budget proposes $10 million for the Beaches
    Environmental Assessment and Coastal Health Act (BEACH Act) of 2000,
    equal to the amount approved by Congress for fiscal year 2002. While
    $10 million was a helpful start for the BEACH Act program's first year,
    it represents only one-third of what Congress originally authorized for
    the Act. Under the BEACH Act, grants are provided to states to help
    them improve water quality monitoring and public notification programs.
    When it created the program in 2000, Congress unanimously authorized
    $30 million for these grants. Congress should fund the BEACH Act grant
    program at $30 million.
                                     ______

           Prepared Statement of the American Water Works Association

    Introduction
        The American Water Works Association (AWWA) appreciates the
    opportunity to present AWWA views on the Environmental Protection
    Agency (EPA) budget for fiscal year 2003 (fiscal year 2003). AWWA and
    its members are dedicated to providing safe, reliable drinking water to
    the American people.
        Founded in 1881, AWWA is the world's largest and oldest scientific
    and educational association representing drinking water supply
    professionals. The association's 57,000 plus members are comprised of
    administrators, utility operators, professional engineers, contractors,
    manufacturers, scientists, professors and health professionals. The
    association's membership includes over 4,500 public water systems that
    provides over 80 percent of the nation's drinking water.
        AWWA utility members are regulated under the Safe Drinking Water
    Act (SDWA) and other statutes. AWWA believes few environmental
    activities are more important to the health of this country than
    assuring the protection of water supply sources, and the treatment,
    distribution and consumption of a safe and healthful adequate supply of
    drinking water. We strongly support adequate levels of funding for
    EPA's drinking water, ground water protection and clean water pollution
    prevention programs in fiscal year 2003.
        The events of September 11, 2001, have added a new dimension to the
    protection of drinking water. In addition to protecting drinking water
    from contamination, America's homeland security requires a secure water
    supply. Public health, fire protection, and sanitation depend on it.
    The role of public water systems for first responders has been largely
    overlooked in the discussions concerning homeland security funding
    priorities. AWWA strongly urges both the Congress and the
    Administration to correct this oversight and make the protection of
    public water systems a high priority for homeland security. The al
    Qaeda terrorists network and others are known to have conducted
    research on public water systems in the United States. If the intent is
    to create terror in our society, water systems are targets of
    opportunity for terrorists, not only to contaminate the water supply,
    but also to deny first responders water for fire protection in a
    coordinated terrorist attack.
        Drinking water suppliers have a long history of security
    preparedness. However, the post-September 11, world has added a new
    understanding of security and has added an unprecedented financial
    burden on public water systems for immediate steps needed to protect
    our citizens. AWWA does not believe that the President's Budget request
    for EPA is adequate for EPA to meet the homeland security needs of our
    Nation's public water system infrastructure. We respectfully request
    the Congress to appropriate significantly increased funds for public
    water system security efforts that are essential to help provide a
    secure water supply for our citizens and first responders in either an
    emergency supplemental appropriation for fiscal year 2002 for security
    needs that require immediate funding or in the EPA fiscal year 2003
    appropriation. Our testimony today will highlight some of the major
    public water system security needs.
    Request Overview
        AWWA recommends that the following funding be specifically
    appropriated for the indicated purpose:
      --For public water system water vulnerability assessments.--
            $450,000,000 to complete vulnerability assessments for systems
            serving over 3,300 peopleas required in H.R. 3448.
      --For immediate public water system security upgrades.--
            $1,600,000,000 for capital improvements to ensure security of
            access to critical public water system assets through barriers,
            detection devices and cyber security systems.
      --For public water system security training.--$2,500,000 designated
            for AWWA to develop and initiate peer-review or third party
            certification programs to assure ongoing vigilance against
            terrorist acts and educate water systems in distribution system
            security and vulnerability assessments.
      --For public water system security research.--$15,000,000 to develop
            technologies and methodologies to help prevent and respond to
            the contamination or disruption of public water systems.
            (Funding expected to be authorized in H.R. 3448.)
      --For the drinking water State revolving fund.--A minimum of
            $1,000,000,000 as authorized in the SDWA.
      --For the AWWA Research Foundation (AWWARF) drinking water
            research.--$7,000,000.
      --For public water system supervision (PWSS) grants to States.--
            $100,000,000 as authorized in the SDWA.
      --For drinking water research.--As requested in The President's
            fiscal year 2003 Budget.
      --For the EPA drinking water program.--As requested in The
            President's fiscal year 2003 Budget.
    Public Water System Vulnerability Assessments
        Congress should appropriate $450 million to complete vulnerability
    assessments for public water systems. The cost of completing
    vulnerability assessments and revise emergency plans in all drinking
    water systems serving more than 3,300 people as mandated in the House
    version of H.R. 3448 is approximately $450 million, in addition to
    funds already appropriated. The Defense appropriations bill for fiscal
    year 2002 provided $83 million for assessment for the largest public
    water systems.
      --Recommended Action in the Fiscal Year 2002 Emergency Supplemental
            or Fiscal Year 2003 Budget.--Appropriate $450,000,000 to
            complete vulnerability assessments for public water systems.
    Immediate Public Water System Security Upgrades
        Congress should appropriate $1.6 billion specifically for capital
    improvements to ensure security of access to critical public water
    system assets through barriers, detection devices and cyber security
    systems. AWWA research has determined the cost of immediate security
    upgrades for public water systems to ensure secure control of access to
    critical utility assets is approximately $1.6 billion. This will
    provide initial security improvements for about 53,800 water systems
    serving more than 264 million people. This does not include future
    capital costs of upgrades to address vulnerabilities identified in
    vulnerability assessments such as hardening pumping stations, chemical
    storage buildings, transmission mains, add redundant infrastructure or
    relocate facilities and pipelines.
      --Recommended Action in the Fiscal Year 2002 Emergency Supplemental
            or Fiscal Year 2003 Budget.--Appropriate $1,600,000,000 for
            capital improvements to ensure security of access to critical
            public water system assets.
    Public Water System Security Training
        Congress should appropriate $2.5 million for AWWA to develop and
    initiate peer-review or third party certification programs to assure
    ongoing vigilance against terrorist acts; educate water systems in
    distribution system security and vulnerability assessments; and teach
    emergency communications and legal issues. The details of this proposal
    are in a letter previously sent to the subcommittee. As the world's
    largest educational and scientific organization dedicated to safe
    drinking water, AWWA is uniquely qualified and has the proven expertise
    to accomplish these important tasks more effectively and in a more
    timely manner than any other entity in the United States. Before
    September 11 and since then, AWWA has been providing information and
    training to prepare water utilities for terrorist attacks and measures
    to prevent such attacks. With Federal assistance, AWWA can continue to
    deliver this training at little or no cost to participants. With our
    broad membership of over 57,000 members, AWWA can reach a large
    audience of water suppliers and utilities of all sizes--small, medium,
    and large. AWWA believes that these programs will significantly improve
    the security of the Nation's public water supply.
      --Recommended Action in the Fiscal Year 2002 Emergency Supplemental
            or fiscal year 2003 Budget.--Appropriate $2,500,000
            specifically designated for the American Water Works
            Association for drinking water security training.
    Public Water System Security Research
        Congress should appropriate $15 million for a new program to
    improve the technologies and processes that provide security for public
    water systems. Funding for this program is expected to be authorized in
    H.R. 3448 that is currently in a joint conference committee. One of the
    most pressing needs facing public water systems is to develop
    technologies and methodologies to help prevent and respond to terrorist
    actions to contaminate or disrupt the water supply. Now is the time to
    strategically invest in water security research and development in
    order to deploy real-time detection, identification and response tools
    to the field as soon as possible. Critical research needs are for the
    identification and characterization of biological and chemical agents,
    biological and chemical agent detectors, and security of cyber command
    and control systems. This new program will promote the transfer of
    results of research on critical infrastructure protection to the
    private sector, public water systems and other parts of the Nation's
    infrastructure. AWWA believes that public water system security
    research is an essential part of homeland defense and strongly urges
    Congress to fund this new program.
      --Recommended Action in the Fiscal Year 2003 Budget.--Appropriate
            $15,000,000 to develop technologies and methodologies to help
            prevent and respond to the contamination or disruption of
            public water systems.
    Drinking Water State Revolving Fund (DWSRF)
        AWWA believes that past funding to capitalize the DWSRF is not
    adequate to meet the Nation's drinking water needs. The SDWA Amendments
    of 1996 authorized for the DWSRF $599,000,000 for fiscal year 1994 and
    $1,000,000,000 for fiscal years 1995 through 2003. Through fiscal year
    2002, Congress has appropriated approximately $5.2 billion--which is
    approximately $3.4 billion less than authorized for the DWSRF up to
    this fiscal year. According to the 1999 EPA Drinking Water
    Infrastructure Needs Survey released in February, 2001, $150.9 billion
    is needed over the next 20 years just to comply with the requirements
    of the SDWA. We believe that the EPA Needs Survey is conservative. More
    recent comprehensive estimates developed by EPA in the Gap Analysis,
    AWWA and the Water Infrastructure Network (WIN) indicate that the need
    is much higher. WIN estimates that the Federal share to meet the needs
    of replacing aging drinking water pipes should be approximately $28.5
    billion over the next 5 years. We urge Congress to appropriate at least
    the $1 billion authorized for the DWSRF in fiscal year 2003 to assist
    States and public water systems in meeting current public health
    related infrastructure needs. Although it represents only a fraction of
    the need, the amount recommended by AWWA for the DWSRF will be a start
    and provide a source of much needed loans for financial disadvantaged
    communities that cannot obtain financing through other means. The
    Federal funds will leverage State and local resources, thus helping
    communities to comply with the mandates of the SDWA.
      --Recommended Action in the Fiscal Year 2003 Budget.--Appropriate a
            minimum of $1,000,000,000 as authorized in the SDWA.
    AWWA Research Foundation
        In a separate statement, the American Water Works Association
    Research Foundation (AwwaRF), (an organization independent of AWWA),
    requested that $7,000,000 in drinking water research funds be
    designated specifically for AwwaRF for drinking water research. AwwaRF
    proposes to allocate $5,000,000 of this amount for its ongoing research
    programs that address issues such as the link between disinfection by-
    products and miscarriages, compliance with the new arsenic regulation,
    emerging contaminants such as perchlorate, infrastructure needs, and a
    host of other drinking water public health related issues. The other
    $2,000,000 will be allocated to high-risk security issues identified by
    a comprehensive workshop. AwwaRF will produce the May workshop that
    will include stakeholders from State and Federal Government, water
    utilities, and leading academic institutions. A research plan will
    emerge from this expert workshop on how to best protect public water
    systems from terrorism. Since fiscal year 1984, when Congress
    appropriated the first grant for AwwaRF, the Foundation has leveraged
    an additional $228,000,000 from its subscribers to support research
    projects across the country. Each dollar appropriated by Congress for
    AwwaRF produced over $6.00 in drinking water research. AWWA strongly
    believes that this kind of local/Federal research partnership is a wise
    and cost effective use of public funds and the only way to secure
    science-based drinking water regulations in these difficult budgetary
    times.
      --Recommended Action in the Fiscal Year 2003 Budget.--Appropriate
            $7,000,000 specifically designated for the American Water Works
            Association Research Foundation for drinking water research.
    Public Water System Supervision Grants
        To comply with the SDWA, Congress intended that EPA develop
    drinking water regulations and that the States implement and administer
    the program to ensure compliance with and enforcement of its
    provisions. Implementation, administration, compliance and enforcement
    activities are collectively known as ``primacy'' requirements and
    Federal grants to the States are known as Public Water System
    Supervision (PWSS) grants. The massive demands on States arising from
    the SDWA have become increasingly apparent because of the dramatic
    increase in the number of regulated contaminants over the past few
    years. As each regulation is added, State resource shortfalls become
    more acute. Additional regulations are scheduled to be promulgated over
    the next few years and the SDWA Amendments of 1996 added new
    responsibilities for the States such as source water assessments, a
    consumer confidence report program and alternative monitoring programs.
    The SDWA authorizes a Federal share of up to 75 percent, but Federal
    funding has approximated only 35 percent. EPA's budget requests for the
    last several years for PWSS funding for States has remained essentially
    static in the face of increasing requirements. We strongly urge
    Congress to appropriate the $100,000,000 authorized for PWSS grants to
    States as the minimum necessary .
      --Recommended Action in the Fiscal Year 2003 Budget.--Appropriate
            $100,000,000 for Public Water System Supervision (PWSS) grants
            to States.
    Drinking Water Research Funding
        Over the past several years, public water suppliers have worked
    together with EPA and the Congress to secure increased research funding
    for the Nation's drinking water program. We believe that, through this
    cooperative effort, needed increases in research dollars have been
    obtained for drinking water over the past few years after several years
    of steady decline. The use of good science as the foundation of the new
    drinking water standard-setting process under the SDWA amendments of
    1996 will require extensive drinking water research--particularly
    health effects research. Funding for drinking water research is
    becoming more of a critical issue. Every 5 years EPA is required by the
    SDWA to select at least five contaminants from the Contaminant
    Candidate List (CCL) and determine whether to regulate them. To
    determine whether to regulate a contaminant and establish a maximum
    contaminate level (MCL) or another regulatory approach, EPA will need
    good health effects research. Recognizing the serious burden this
    regulatory mandate presents, the drinking water community has offered
    its time, resources and expertise to work with EPA to develop a
    research plan for the contaminants on the CCL. Given the enormous need
    for immediate research to meet the deadlines of the SDWA amendments of
    1996, AWWA urges Congress to appropriate at least the amount requested
    in the President's fiscal year 2003 Budget for drinking water research
    and specifically designate it in the appropriation.
      --Recommended Action in the Fiscal Year 2003 Budget.--Appropriate
            funding for the EPA drinking water research program as
            requested in the President's fiscal year 2003 Budget.
    EPA Drinking Water Program
        EPA's drinking water program took on greatly increased
    responsibilities in the 1996 SDWA amendments. In satisfying these
    requirements, EPA has involved the public in the regulatory process to
    an extent not equaled by another Federal agency and stands as a model
    for Federal rule making.. EPA and the Office of Drinking Water and
    Ground Water are to be commended for taking this new approach which
    should result in better regulations that protect public health. AWWA
    believes that funding the EPA drinking water program is vital to
    continue this new regulatory approach and urges Congress to appropriate
    the funds requested in the President's fiscal year 2003 Budget for the
    drinking water program to continue to implement the new provisions of
    the SDWA.
      --Recommended Action in the Fiscal Year 2003 Budget.--Appropriate
            funding for the EPA drinking water program as requested in the
            President's fiscal year 2003 Budget.
        This concludes the AWWA statement on the fiscal year 2003 EPA
    budget.
                                     ______

       Prepared Statement of the American Society of Mechanical Engineers

        ASME International is a worldwide engineering society focused on
    technical, educational and research issues. It conducts one of the
    world's largest technical publishing operations, holds some 30
    technical conferences and 200 professional development courses each
    year, and sets many industrial and manufacturing standards.
                       national science foundation (nsf)
        The National Science Foundation Task Force of the American Society
    of Mechanical Engineers (ASME International) is pleased to provide the
    following comments on the NSF fiscal year 2003 budget request.
    NSF Fiscal Year 2003 Budget Request Overview
        The National Science Foundation plays a critical leadership role in
    directing the nation's non-defense related scientific and engineering
    research. Through thoughtful and visionary planning, NSF has greatly
    contributed to advancements in science, engineering and technology. The
    Task Force shares NSF's broad-based, cross-cutting vision for basic
    engineering and scientific research. As such, we strongly endorse the
    Foundation's efforts to continually improve and expand the ``innovative
    ideas, outstanding people, and cutting-edge tools'' that comprise the
    nation's technological and scientific infrastructure.
        The Budget Request for fiscal year 2003 reflects a 5.0 percent
    increase over the fiscal year 2002 Current Plan to $5.04B. Within this
    request, funding for the Engineering Directorate would increase 3.3
    percent to $488M.
        NSF has identified six initiative areas to headline the fiscal year
    2003 budget request. These are:
      --Information Technology Research (ITR),
      --Nanoscale Science and Engineering (NSE),
      --Biocomplexity in the Environment (BE),
      --Learning for the 21st Century Workforce (STEM),
      --Mathematical Sciences,
      --Social, Behavioral and Economic Sciences (SBE).
        Though not specifically identified as such, the Math and Science
    Partnerships (MSP) is essentially a seventh initiative area. This
    program began in fiscal year 2002 as part of President Bush's
    initiative to enhance K-12 math and science education contained in his
    ``No Child Left Behind'' proposal.
        Funding has been requested to create two new initiative areas,
    Mathematical Sciences ($60.1M) and SBE ($10M) while expanding the four
    ongoing areas: ITR by 3.0 percent (to $286M), NSE by 11.3 percent (to
    $221M), BE by 36.3 percent (to $79M) and STEM by 27.5 percent (to
    $185M). Each of these priorities, NSE and STEM in particular, continue
    to be strongly supported by the Task Force.

                           TABLE 1.--NSF BUDGET OVERVIEW WITH AND WITHOUT THE INITATIVE AREAS
                                                 [In million of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                   NSF Agency Wide                       Engineering (ENG)
                                       -----------------------------------------------------------------------------
                                        Fiscal year
                                            2002     Fiscal year    Percent    Fiscal year  Fiscal year    Percent
                                          current        2003        change      current    2003 reqest     change
                                            plan       request                     plan
    ----------------------------------------------------------------------------------------------------------------
    Total Budget......................    $4,795.88    $5,035.79          5.0      $472.32      $487.98          3.3
        Salaries and Expenses.........       176.40       210.16         19.1          n/a          n/a          n/a
        Inspector General.............         7.04         8.06         14.5          n/a          n/a          n/a
    Total Program Budget..............     4,612.44     4,817.57          4.5       472.32       487.98          3.3
        ITR...........................       277.52       285.83          3.0        10.23        11.17          9.2
        NSE...........................       198.71       221.25          1.3        86.30        94.35          9.3
        BE............................        58.10        79.20         36.3         3.69         6.00         62.6
    STEM..............................       144.82       184.69         27.5         3.40         4.87         43.2
        Mathematical Sciences.........        30.00        60.09        100.3            0         0.91          n/a
        SBE...........................         0.00        10.00          n/a            0            0          n/a
    Remaining Funds...................     3,903.29     3,976.51          1.9       368.70       370.68         0.5
    ----------------------------------------------------------------------------------------------------------------
    Comparisons include both agency-wide and engineering directorate.

        In spite of the requested 5.0 percent overall increase in the total
    NSF budget, expansions in the initiative areas significantly inhibit
    growth in other programs. Table 1 clearly shows the impact on funding
    for core programs. Agency-wide, there will only be a 1.9 percent
    increase in funding available for core programs relative to current
    year plans. If one accounts for the $76M in programs being transferred
    from the Environmental Protection Agency (EPA), National Oceanic and
    Atmospheric Administration (NOAA) and the United States Geological
    Service (USGS), there will actually be a slight net loss in overall
    funds for core programs. Flat funding for core programs is reflected
    within the Engineering Directorate (ENG). After initiative areas are
    removed, there will be a mere 0.5 percent increase in funding for core
    research programs.
    Position
        The Task Force endorses the leadership role that NSF has played in
    guiding the nation's basic research activities. Combining exciting new
    developments with core programs to incubate such breakthroughs, NSF has
    built an outstanding record of supporting a broad spectrum of research
    of the highest quality. This record has been made possible only through
    strict adherence to the independent peer review process. We recognize
    the importance and timeliness of NSF's initiative areas that address
    major national needs for the 21st century. However, as will be
    discussed in the next section, it is not clear that an optimum balance
    has been achieved.
        There are a number of particularly positive items in the fiscal
    year 2003 budget request, beginning with the planned increase in
    graduate fellowship stipend levels. Ensuring a continuous stream of
    well-trained, highly qualified research scientists into leadership
    positions is critical to our economic growth and national security. In
    this respect, we strongly endorse NSF's planned increase in stipends
    for graduate fellows from $21,500 to $25,000. Making fellowship
    stipends attractive to the nation's best and brightest students is
    certainly a positive step. This serves to enhance the nation's pool of
    science, engineering and technology educators and leaders.
        The increase in numbers of graduate fellowships is also especially
    positive. NSF is the only Federal agency directly chartered to train
    graduate students for research and development careers. It is therefore
    imperative that this be a major priority area in perpetuity. It is
    interesting to note however that $80.6M is requested for the Graduate
    Research Fellowship (GRF) program to support 2,350 students
    in fiscal year 2003 while $41.4M for the GK-12 Fellowship program will
    support only 800 students. It is not clear that the GK-12 program has
    sufficient value added to justify its higher cost. Nor is it clear that
    the correct balance between types of graduate fellowships has been
    struck. It is critically important that education-based programs do not
    jeopardize funding for research programs at NSF.
        In general, the Task Force also supports and applauds activities
    within ENG. NSF's vision of a committed balance between people, ideas
    and tools is exemplified within ENG. It is important to recognize that
    fundamental sciences and engineering funded by NSF quite frequently
    spawns next generation technologies. Examples of successes emerging
    from ENG include development of an artificial retina and, a biocapsule
    for insulin delivery. ENG is also funding work on microscopic chains
    for magnetized particles that may be precursors of materials that will
    protect buildings from earthquakes.
        ASME has strongly supported the nanotechnology initiative since its
    inception as an NSF emphasis area in fiscal year 2000. In the past two
    years, funding for this initiative has grown substantially. With a
    growing record of research and development successes, the transitioning
    of nano-science and engineering into commercially viable technologies
    is becoming a pressing challenge for NSE. For this reason, it is
    important that multi-institutional tools be developed in the near term
    in which access, maintenance and staffing issues have been resolved.
        Finally, the Task Force continues to endorse NSF's participation in
    K-12 math, science and engineering education initiatives consistent
    with the agency's broader mandate to lead the nation's research and
    development enterprise. Most notably, NSF has included $200M in its
    fiscal year 2003 budget request for the Math and Sciences Partnership
    (MSP) program. The goal of MSP is coupling K-12 and higher education
    STEM education into a single integrated effort by encouraging
    universities to adopt STEM into their core missions.
        In this technological age, providing the highest quality math,
    science and technology education to all children should be a national
    imperative. We applaud the ``No Child Left Behind'' Act and NSF's role.
    However, the Task Force cautions that a proper balance' must be struck
    to preserve the integrity of NSF's fundamental research and development
    mission.
    Concerns
        Maintaining a fundamental knowledge base is essential for
    intelligent and effective response to rapidly evolving technological
    challenges facing the nation. Events since September 11th highlight the
    impossibility of predicting what scientific and engineering disciplines
    will be needed in response to future technology challenges. Because of
    its commitment to core programs, ENG was able to rapidly respond to the
    World Trade Center collapse by funding work on the failure of one of
    the steel beams hit by a hijacked plane. However, the track record on
    funding core programs over the past few years has not been strong. As
    noted earlier, funds available for core programs are essentially flat
    across NSF in fiscal year 2003. Thus, as in previous years, Our key
    questions and concerns arising from the fiscal year 2003 budget request
    center on matters of balance. In particular, the Task Force is
    concerned with:
      --the gross funding imbalance in the Federal R&D portfolio,
      --inadequate funding levels for existing grants.
      --insufficient support for core engineering programs at NSF, and
        The overall imbalance in the Federal R&D portfolio remains a major
    concern. The requested increase for NIH this year is equal to the
    entire requested appropriation for Research and Related Activities at
    NSF. Focusing purely on health issues while the nation faces threats
    from dwindling energy supplies, aging infrastructure and geopolitical
    instability, to name but a few, is entirely inconsistent with a
    balanced leadership plan. Failure to adequately support broad, cross-
    cutting fundamental research inherent to most NSF programs continues to
    undermine the long-term health and vitality of the nation.
        To date, NSF has had considerable success in stretching its funds
    to bridge (i.e. mask) this imbalance. Indeed, NSF richly deserves the
    governmental acclaim it has received for its efficiency and impact in
    managing basic research and development. However, this efficiency is
    coming at the expense of partial payment for the research. The
    projected median research award size for fiscal year 2003 is estimated
    to be $87,400 per year. This is in general sufficient to support one
    graduate student and a senior investigator with only a limited amount
    remaining to actually conduct the research. An extended period of
    constant grant sizes has eroded buying power and the ability to
    adequately support professional development. Further, forming small
    teams (2-3 senior investigators) to pursue and define the major
    initiative areas of the future is virtually impossible. Thus, to truly
    advance the frontiers of science, engineering and technology,
    significant increases must be made not only to the number of grants,
    but to the size of each grant as well. By way of reference, NIH's
    projection for the average size of new research project grants (RPGs)
    in fiscal year 2003 will be $370,000; this is coupled with
    an estimated 4 percent increase in the total number of RPGs funded.
        As indicated in Table I, growth in NSF for fiscal year 2003 is
    targeted at initiative areas and the transfer of programs from other
    agencies. After inflation, there will be a net decrease in funding for
    core programs. As an illustration of the imbalance this creates,
    consider the World Trade Center disaster of September 11. In its budget
    request documents, NSF points to the analytic and diagnostic tools
    available to examine failure of structural steel beams at the point of
    impact by the hijacked airliners. Funding for this work would come from
    the Civil and Mechanical Systems (CMS) subactivity within ENG, an area
    of strong interest to mechanical engineers. Yet CMS has seen, at best,
    minimal growth over the past five years. It appears that this is
    principally because steel (for example) is not tied to one of the
    initiative areas and has not been included in the growth plan of the
    Federal R&D portfolio.
    Summary
        The Task Force continues its enthusiastic support for the National
    Science Foundation and its leadership in articulating the nation's
    basic research and development vision. In fiscal year 2003, NSF has
    requested funding to expand major, cross cutting initiatives addressing
    pivotal technological issues facing the nation. This includes the
    nanotechnology initiative strongly endorsed by ASME. Expansion of the
    graduate fellows programs coupled with increases in stipend levels
    reinforces NSF's commitment to graduate education. The focus on
    developing people and ideas in general is certainly reflected
    throughout the ENG directorate's budget request as well. The challenge
    for this year appears to be maintaining a healthy balance between core
    research programs and new initiatives such as the new K-12 Math and
    Science Partnerships.
        There is also great concern over continued growth in the imbalance
    between Federal funding of life sciences and the physical sciences and
    engineering. Crises, such as those occurring in the gasoline and power
    production industries, reflect long term failure to value and support
    core research focused at advancing the nation's technological
    infrastructure. In addition, recent events strongly underscore the fact
    that it is impossible to know what part of the science, engineering and
    technology base will be needed on short notice to respond to rapidly
    developing opportunities or crises. The current budget plan does not
    appear to permit NSF to meet key fiscal year 2003 Performance Goals
    (i.e. Goals III-1a and III-2). Increasing the number and size of its
    awards will enable NSF to better position itself to fulfill its
    leadership responsibility in directing the nation's research and
    development activities.
              national aeronautics and space administration (nasa)
        The American Society of Mechanical Engineers (ASME International)
    Aerospace Division and the Aviation Research and Technology Task Force
    are pleased to provide their views on the NASA fiscal year 2003 budget
    request as it affects the aeronautics research and technology programs.
        In recent years, the Task Force has written at length about our
    concerns that reducing Federal funding for aviation research and
    technology will jeopardize the nation's leadership in providing the
    technologies needed to develop the next generation aircraft, improve
    aviation safety and security, and attract the next generation of
    scientists and engineers. Over the last decade, funding for NASA's
    aeronautics research and technology program has fallen by approximately
    50 percent, and unfortunately, this trend is continuing. The
    Administration's fiscal year 2003 request of $541.4M for aeronautics is
    a reduction of $58M from fiscal year 2002 appropriated funding.
        Although we continue to view with concern the level of government
    investment related to aeronautics in NASA, we would like to commend the
    NASA Leadership for their strategic plan called the ``Aeronautics
    Blueprint.'' NASA's Aeronautics Blueprint not only describes the issues
    and challenges facing U.S. aviation, but describes a vision for
    reshaping the future architecture of the U.S. aerospace industry.
        The Aeronautics Blueprint acknowledges many of the same concerns
    our Task Force has addressed in earlier testimony, particularly our
    concerns about the declining investment in aeronautics research and
    development, the aeronautics infrastructure, and the aerospace
    workforce. It is important to note that the Aeronautics Blueprint
    states ``. . .the steady erosion of U.S. leadership in aeronautics,
    which is being directly challenged by international competitors, must
    be reversed'' and ``. . .the cost of inaction is gridlock, constrained
    mobility, unrealized economic growth, and loss of U.S. aviation
    leadership.''
        NASA has taken the first step toward articulating a vision for
    aviation research and technology. But that vision cannot be realized
    unless the continued decline in aeronautics funding is reversed and
    sufficient funding provided to develop near-term and revolutionary
    technologies. We are disappointed with the reductions to the
    aeronautics programs. We are also disappointed with the elimination of
    the rotorcraft program from NASA's budget. NASA has eliminated from its
    vision all rotary wing related activity, despite the fact that rotary
    wing vehicle technology is substantially less mature (by approximately
    four decades) than its fixed wing counterpart. Rotary wing vehicles
    have a potential for revolutionizing our air transportation system and
    make an important contribution to our national security.
        The ``Commission on the Future of the U.S. Aerospace Industry,'' a
    congressionally mandated Commission, recently issued their interim
    report calling for the creation of ``a multi-agency task force with the
    leadership to develop and implement an integrated plan to transform our
    air transportation system.'' The Commission recommends ``significant
    increases (in NASA R&D) to start developing a new air transportation
    system for the nation. R&D investments should focus on: security, noise
    and emission reductions, high bandwidth communications, precision
    navigation and surveillance, small aircraft transportation
    technologies, ground and airborne control automation, and advanced
    weather sensing. New mechanisms and incentives need to be developed to
    accelerate the application of existing and new technologies and
    concepts into the marketplace.''
        We heartily endorse the Commission's recommendations, and we urge
    Congress to provide sufficient funds to enable the development of new
    technologies that would reduce aviation gridlock, increase the margin
    of safety for the flying public, and reduce the impact of aviation on
    the environment.
        Last year, in testimony to this Subcommittee, our Task Force noted
    with concern the release of a report called the ``European Aeronautics:
    A Vision for 2020.'' This strategy document charts the path for the
    European Union to become a global leader in aeronautics, estimating
    that total funding required to achieve their vision--from all public
    and private sources over the next 20 years--could go beyond $95 billion
    over the next 20 years.
        Is there evidence to support the European Union's objective to
    become a world leader in aerospace technology? In February 2000, the
    National Research Council reported that the U.S. has been losing ground
    in world aerospace market share, falling from over 70 percent in the
    1980's to 55 percent in 1997. Today this situation continues, as U.S.
    aerospace industries are being severely challenged by the European
    aerospace industry, which is garnering a significant portion of the
    U.S. market as well as of the world market.
        In the past, large investments in evolutionary significant-risk
    technologies, such as the transition to commercial jet aviation, have
    been accomplished through a partnering among industry, NASA (and its
    predecessor NACA), DOD and the FAA. These partnerships have proven to
    be an efficient means for maintaining the past U.S. lead in
    aeronautical technology with concomitant economic benefits. We are not
    suggesting that the government share the cost of specific commercial
    aviation developments, as has been the case in other countries. Rather,
    we recommend that NASA undertake high-risk, potentially high-payoff
    R&D, which then can become the basis for commercial enterprises. In our
    view, NASA must resume its intellectual and financial support for
    partnerships that sustain mid- and long-term innovative basic research
    in core technologies (fluids, structures, materials) applicable not
    only to spacecraft, but also to future fixed and rotary wing vehicles.
    Partnerships between government and the private sector are essential to
    meeting these growing challenges.
        Turning the Aeronautics Blueprint into reality will require
    sustained partnerships between NASA, the Department of Defense,
    Department of Transportation, and the Federal Aviation Administration
    to develop a national aviation research and technology policy to plan
    and provide adequate resources that will ensure sustained U.S. world
    leadership in civil and military aviation.
        For the past 75 years American universities have provided creative,
    skilled engineers for national defense and aeronautical commerce. The
    development of an efficient global air transportation system has been
    driven by American engineering. Students who have come from American
    university campuses to industrial and governmental facilities have been
    the source of an undisputed American commercial success; sales of
    aircraft and aircraft equipment accounts for one of the largest single
    positive balance of trade with other nations.
        The nation is experiencing a diminishing pipeline of qualified
    aeronautical engineering students at both the undergraduate and
    graduate levels; young engineers and scientists do not consider
    aerospace a growth industry. Therefore, they are pursuing careers in
    life sciences, bioengineering, and other growth fields. We are very
    concerned about this issue and look to NASA leadership to make a course
    correction for the future.
        In recent testimony before the Commission, Dr. John Marburger, the
    Director of the Office of Science and Technology Policy stated ``the
    President wants to make sure that U.S. aerospace leadership continues
    in the 21st century,'' and ``Improvements in homeland defense, national
    defense and civil aviation require the same core suite of technologies.
    We can enhance the security while creating greater mobility for
    America. This is what the Administration wants and what our country
    needs.''
        Aviation and aerospace are vital to the U.S.' future. If Americans
    fail to support aeronautics and aviation-related research, there will
    be no next generation of professionals to solve the obvious looming
    problems and create products the world will demand. And without that,
    the U.S. puts at risk a linchpin of its economy, national security and
    quality of life.
    Conclusions
        Air transportation is a key ingredient to economic growth and
    prosperity. Therefore, the decline of U.S. global market share in air
    transportation products and services over the past two decades,
    combined with European determination to become the dominant supplier of
    such products and services within the next two decades, should be of
    major concern to U.S. policy makers.
        The need for adequate funding for NASA and DOD aviation R&T must be
    addressed, not only with respect to the fiscal year 2003 budget, but
    also--and even more significantly--with respect to the preservation of
    U.S. capability and leadership in long term aeronautics research and
    technology.
        It is essential that the aeronautics research and technology
    programs at key agencies (NASA, DOD and FAA) continue to be clearly
    identified and defined as a separate line item, as required by Congress
    in the fiscal year 2002 budget.
        A fully coordinated National Aviation R&T policy--combining the
    efforts of NASA, DOD, DOT, and FAA--is essential to plan and provide
    adequate resources that will ensure sustained U.S. world leadership in
    civil and military aviation.
                     environmental protection agency (epa)
        The Environmental Protection Agency (EPA) Task Force of the ASME
    Environmental Engineering Division (EED) of the Council on Engineering,
    is pleased to have this opportunity to provide comments on the fiscal
    year 2003 budget request for the Environmental Protection Agency (EPA).
        Sound science is one of the key underpinnings of credible and
    defensible policy formulation and decision making in environmental
    management. The Task Force believes that the EPA's risk-based approach,
    which engages all interested parties (i.e., ``stakeholders'') provides
    a good framework for the formulation of environmental policies. We
    support EPA's continuing effort to implement a research program aimed
    at expanding the role, and improving the state-of-the-art, of
    environmental science as it pertains to decision-making and policy
    formulation. Overall, the requested increase in fiscal year 2003 budget
    over fiscal year 2002 levels in most key R&D areas contributing to
    environmental decision-making is fully supported by the Task Force.
        One area that the Task Force believes deserve more attention is the
    development and implementation of a decision-making framework that
    integrates scientific information with socio-economic values and
    issues. The continuous focus on strong, fundamental scientific research
    is essential; however, increased understanding is needed in the non-
    scientific (e.g. social/societal) aspects of risk-based decision-
    making. We recommend that efforts in the latter should commence.
        The Task Force is encouraged by the fact that the Science Advisory
    Board's (SAB) budget will remain fundamentally steady from fiscal year
    2002 to 2003. The SAB plays a key role in the prioritization of EPA's
    research activities and addressing key emerging issues. We believe
    that, given the SAB's pivotal role, the funding for SAB could be
    increased.
        Specific, focused research areas representing significant
    challenges to the environment and human health have been identified in
    the fiscal year 2003 budget request. We strongly support efforts in
    these research thrust areas due to the potential impact that may be
    generated by the substantial resources involved.
        Climate Change Research.--The Task Force believes that the EPA
    should commit more resources to the problem of greenhouse gas emissions
    and climate change. The fiscal year 2003 appropriations request for
    climate change research is $21.7M, a slight increase of $0.4M (1.9
    percent) over the fiscal year 2002 appropriation. Climate change is an
    issue of global significance. With the U.S. not participating in the
    Kyoto framework regarding climate change, we must ensure that we
    maintain and advance our scientific credibility and technological
    leadership in climate change research and in the development of
    technologies that reduce or eliminate the emissions associated with
    climate change. It is imperative that the complex interplay of
    increased energy demand and the environmental impacts that this
    produces be addressed on a scientific and technological basis. We
    strongly recommend increased funding in this area, which we project to
    be one of the most significant environmental issues for the next decade
    or more.
        Particulate Matter Research.--The Task Force supports continued
    research on the formation, migration, and mitigation of fine
    particulate matter (particulate matter smaller than 2.5 micrometers,
    termed PM2.5). These particles, primarily from combustion sources, have
    been shown to have significant acute and chronic impact on human
    health. The appropriation requested, $66.6M, is a slight increase (1.8
    percent) from the fiscal year 2002 enacted budget of $65.7M. We believe
    that EPA's commitment to ongoing research to address this significant
    health concern is essential.
        Tropospheric Ozone Research.--The Task Force supports continued
    research into the formation and mitigation of troposhperic (ground-
    level) ozone. Repeated exposure to ozone pollution can cause permanent
    damage to the lungs, even at low levels. Ground-level ozone damages
    plant life and is responsible for $500 million in reduced crop
    production in the United States each year. The appropriation requested,
    $6.8M, is a 4.6 percent increase from the fiscal year 2002 enacted
    budget of $6.5M. We support EPA's commitment to ongoing research to
    address this costly environmental and health problem.
        Air Toxics Research.--The Task Force supports continued research in
    the identification, reduction, and mitigation of air toxics. Humans and
    animals can experience health problems when exposed to sufficient
    concentrations of air toxics over time. Numerous studies conclude that
    deposited air toxics are contributing to birth defects, reproductive
    failure, and disease. Persistent toxic air pollutants are of particular
    concern in aquatic ecosystems because the pollutants accumulate in
    sediments and may bioaccumulate in tissues of animals at the top of the
    food chain to concentrations many times higher than in the water or
    air. The fiscal year 2003 appropriation request for Air Toxics
    Research, $19.8M, is a 4.8 percent increase from the fiscal year 2002
    enacted budget of $18.1M. We support EPA's commitment to ongoing
    research to reduce the formation of air toxics.
        Pollution Prevention.--The Task Force strongly supports EPA's
    commitment to pollution prevention research and strategies. The
    appropriation requested, $25.1M, represents a significant increase
    (16.2 percent) from the fiscal year 2002 enacted budget of $21.6M.
    However, the fiscal year 2003 request is still substantially lower (-
    8.4 percent) than the fiscal year 2000 enacted budget of $27.4M.
    Pollution prevention technologies can provide both environmental and
    economical benefits while also avoiding the damage to human health and
    the ecosystem that arises from the release of toxic and hazardous
    substances. We urge EPA to increase funding for pollution prevention to
    at least fiscal year 2000 levels and to maintain strong support for
    this critical area of research.
        Watershed and Drinking Water Research.--The Task Force remains
    concerned regarding overall Federal funding necessary to protect
    watersheds and drinking water supplies. Watershed protection comprises
    a key issue, especially since severe drought conditions exist in both
    Eastern and Western states. Competing needs in agriculture, protection
    of endangered species, and water rights represent just a few of these
    issues. The President's fiscal year 2003 budget proposal for EPA in the
    areas of ecosystem protection remains essentially flat from fiscal year
    2002 levels at $38M. We are encouraged by the proposed increase (18.6
    percent, to $38.3M) in the Environmental Monitoring and Assessment
    Program (EMAP), designed to provide watershed data for key inland
    waterways, and by a proposed increase of 8.6 percent, to $49.5M in
    funding for safe drinking water research. While EPA's proposed research
    program addresses important needs, we are concerned that proposed
    funding reductions for collaborative Federal agencies (USGS, USACE,
    USDA) pose significant risks to improvement of the technical basis of
    watershed protection. We suggest that the overall Federal budget for
    watershed research be considered as a whole, and urge increased funding
    over the overall levels proposed for fiscal year 2003.
        Hazardous Waste Research/Superfund Innovative Technology
    Research.--Hazardous waste cleanup, especially at Federal sites (i.e.,
    Department of Defense and Department of Energy facilities) represents a
    significant challenge for the EPA. Many of these challenges relate to
    gaps in the scientific basis for risk assessment strategies and ongoing
    needs for both policy changes and technology advances to achieve
    cleanup at complex sites. For example, many hazardous waste streams
    resulting from decades of nuclear weapons research lack identified
    disposal methods. Through partnership agreements with industry and
    other governmental entities, EPA traditionally leverages its own
    research efforts. The Task Force supports these collaborative efforts,
    but further recommends a more aggressive approach, such that the Agency
    assumes a leadership role in the resolution of hazardous (including
    radioactive) waste disposition. Target areas for this recommendation
    are provided within the specific Agency funding objectives.
        The budget request for hazardous waste research (science and
    technology) for fiscal year 2003 is $9.6M, including continuation of
    SITE (Superfund Innovative Technology Evaluation). The Task Force
    supports these efforts, and recommends that the Agency continue to
    leverage its own research funding to support related efforts at the
    State and local level. We also note, with approval, that EPA recognizes
    the need to reconsider policy decisions in the Resource Conservation
    and Reclamation Act in view of recent technical advances or identified
    needs. The Agency also proposes implementation of National Academy of
    Sciences recommendations in contaminated sediment remediation. In view
    of potential funding reductions for the USGS and USACE, measurable
    progress in this effort remains at risk for 2003.
        The EPA's environmental education program has been transferred to
    the National Science Foundation (NSF) for fiscal year 2003. We are
    concerned with regard to the possible adverse impact this transfer
    could have on environmental education. In particular, the STAR
    Fellowship Program has been eliminated in the EPA's fiscal year 2003
    budget. In the past, this program provided a funding source for
    graduate students interested in the solution of environmental problems
    and allowed them to undertake research in areas directly relevant to
    EPA's mission and objectives. It is the opinion of the Task Force that
    EPA has a vested interest in environmental education and therefore EPA
    would be a better steward of the environmental education initiatives.
        The mechanism must be in place to train substantial numbers of
    graduate students in areas relevant to EPA's core research areas if the
    Agency is to maintain or strengthen its Science and Technology base.
    Sound public policy requires a strong scientific and technological
    basis. The overall decline in funding for physical sciences and
    engineering within the Federal budget over the past decade must be
    reversed in order to assure that the complex problems associated with
    issues such as environmental contamination and public health can be
    solved. In this vein, the Task Force recommends that extramural
    research funding, such as the STAR Grants Program, allocated to the EPA
    should increase, concomitant with the leadership role the Agency must
    play. Furthermore, the research portion of the Federal budget is the
    largest share of support for U.S. graduate students in fundamental
    science and engineering disciplines, through both fellowships and
    research grants to Universities. In areas such as environmental science
    and national defense, a broad view across agencies, rather than a
    programmatic view, is necessary to ensure sufficient graduates and
    continuing quality in graduate programs to solve science and technology
    problems of the future. The Task Force encourages lawmakers to consider
    not only current programmatic needs, but also the number of graduate
    students to be funded by Federal programs in particular science and
    engineering disciplines, as vital to ensuring future success in
    addressing national science and technology issues.
    Conclusions
        Because of the complex, multidisciplinary nature of environmental
    issues, it is imperative that EPA base its actions on sound science.
    The change from a command-style regulatory/compliance model to a
    participatory risk-based model only heightens the need for a keen
    awareness of the environmental science in making policy decisions and
    recommendations. A strong R&D program is essential for the ongoing
    development of science- based decision-making. The Task Force supports:
      --Strong input and involvement of the Science Advisory Board in
            helping set EPA research priorities;
      --Focusing on national environmental priorities that impact human
            health, ecosystem health, and climate, particularly particulate
            matter, greenhouse gases, and water quality;
      --Education of future environmental professionals, and building
            interdisciplinary teams through the support of extramurally-
            funded research; and
      --Building a strong science and technology base, both within EPA, and
            through partnerships with industry and other Federal and State
            government agencies.
        These collective comments represent the views of the NSF Task Force
    of the Council on Education, the Aviation Research and Technology Task
    Force of the Aerospace Division and the Environmental Protection Agency
    (EPA) Task Force of the Environmental Engineering Division, of the
    Council of Engineering, of the ASME International and are not
    necessarily a position of the Society as a whole.
                                     ______

     Prepared Statement of the American Thoracic Society and the American
                                Lung Association

        The American Thoracic Society (ATS) and the American Lung
    Association are pleased to present our recommendations for programs in
    the Environmental Protection Agency and the Department of Veterans
    Affairs medical and prosthetic research program.
        The American Thoracic Society founded in 1905, in an independently
    incorporated, international education and scientific society which
    focuses on respiratory and critical care medicine. The Society's
    members help prevent and fight respiratory disease around the globe
    through research, education, patient care, and advocacy. The Society's
    long-range goal is to decrease morbidity and mortality from disorders
    and life-threatening acute illnesses.
        The American Lung Association, established in 1904, is the nations
    oldest voluntary health association. The ALA is committed to improving
    the nation's lung-health through programs of education, community
    service, advocacy and research.
        The ATS and the ATS are united in our support for programs that
    protect the lung-health of the American public.
        Lung disease is a significant health problem in the U.S. Lung
    disease is the third leading cause of death in the U.S.--responsible
    for one in every seven deaths. More that 25 million Americans suffer
    from a chronic lung disease. Lung diseases cost the U.S. economy an
    estimated $89.1 billion annually. Lung disease represent a spectrum of
    chronic and acute conditions that interfere with the lung's ability to
    extract oxygen from the atmosphere, protect against environmental and
    biological assaults, and regulate a number of vital metabolic
    processes. Lung diseases include: chronic obstructive pulmonary disease
    (COPD--which includes emphysema and chronic bronchitis) lung cancer,
    tuberculosis, pneumonia, influenza, sleep-disordered breathing,
    pediatric lung diseases, occupational lung diseases, sarcoidosis,
    asthma and acute lung injury.
        Nearly all lung diseases are impacted by air pollution. How well or
    poorly our lungs perform is contingent on the quality of air around us,
    making the impact of air pollution inescapable. Air pollution remains a
    primary contributor to a high prevalence of respiratory diseases.
        For nearly 40 years, the American Thoracic Society and the American
    Lung Association have conducted scientific, public health and
    educational programs to fight air pollution and to improve the quality
    of the air we breathe. We remain strong supporters of the Clean Air Act
    and its amendments. We can attest to the significant impact that the
    Clean Air Act has had in improving the quality of our nation's air.
        However, much remains to be done. It is estimated that millions
    American's live in counties that do not meet current Clean Air Act
    health-standards, including our nation's Capitol. The American Lung
    Association State of the Air 2001 report estimates that 141 million
    Americans live in areas that expose them to unsafe levels of ozone.
    Millions live in areas that experience unsafe levels of particulate air
    pollution.
        Research has shown that air pollution is causing the premature
    death of literally thousands of people due to complications from
    exposure to air pollution.
                        environmental protection agency
    Federal Enforcement Funding
        The ATS and the ALA are extremely concerned that the Administration
    has proposed dramatic reductions in EPA federal enforcement budget. We
    are extremely concerned that the proposed reductions in the federal
    enforcement program are a calculated attempt to weaken enforcement
    efforts of the Clean Air Act. Without strong federal leadership in the
    EPA enforcement, increases in funding for State, Tribal and local
    government enforcement efforts will ineffective and will ultimately
    erode recent gains in the quality of our nations air.
        The American Thoracic Society and the American Lung Association
    strongly encourage the Subcommittee to reject the Administration's
    proposed cuts to EPA Clean Air federal enforcement budget.
    NAAQS Research
        The American Thoracic Society and the American Lung Association
    strongly supports the EPA National Ambient Air Quality Standards
    (NAAQS) research program. The NAAQS research program provides value
    information the health effects of exposure to polluted air. The NAAQS
    also helps develop the monitoring and pollution control technology that
    will ultimately lead to cleaner air of all of America.
        The American Thoracic Society and the American Lung Association
    recommend a $50 million increase in the EPA NAAQS research program.
    Fine Particulate Matter and Ozone
        Recent studies have confirmed the significant adverse impact that
    existing levels of smog and fine particles have on health. Two recent
    studies have made clear the need to proceed with enforcement of the
    health-based Clean Air standard established 1997. A study published in
    the February 2, 2002 issue of Lancet showed a relationship between
    exposure to high levels of ozone and the development of asthma in
    children.\1\ A second study published in the March 6, 2002 edition of
    the Journal of the American Medical Association establishes a
    correlation between exposure to fine particulate air pollution and
    increased mortality from lung cancer and cardiopulmonary diseases.\2\
    Despite the growing body of evident that air pollution plays a direct
    role in causing lung disease, the EPA has yet to implement the new more
    protective standards finalized in July 1997.
    ---------------------------------------------------------------------------
        \1\ R. McConnell et. al, Asthma in Exercising Children Exposed to
    Ozone: A Cohort Study, Lancet, Feb. 2, 2002, p.386-391.
        \2\ C. Pope, et.al., Lung Caner, Cardiopulmonary Mortality, and
    Lung-term Exposure to Fine Particulate Air Pollution, JAMA, March 6,
    2002, p. 1132-1141.
    ---------------------------------------------------------------------------
        The American Thoracic Society and the American Lung Association
    urge the Subcommittee to oppose any amendments, which would impair the
    expeditious implementation and enforcement of these standards.
    New Source Review
        We are extremely concerned about the Administration initiatives to
    weaken the Clean Air Act and undermine the enforcement of the law. In
    particular, we are concerned about the effort to undercut the Clean Air
    Act's New Source Review Program. New Source Review (NSR) is a simple
    concept, made extremely complicated by those who want to avoid
    complying with the law. Simply stated, the NSR program requires
    facilities that undergo modification that significantly increase
    emissions, to install pollution control equipment. If the facility does
    not increase pollution, NSR does not apply. Do not buy the rhetoric.
    This program only applies when pollution increases. The NSR program is
    reducing pollution that is saving lives this year and every year.
    Legislative proposals promising greater air pollution reductions are no
    substitute for NSR. Such proposals must be implemented in concert with
    NSR, just as the current acid rain reduction program is. The public
    demands cleaner air and this program provides substantial public health
    benefits.
        The American Thoracic Society and American Lung Association urge
    the Subcommittee to resist efforts by the Administration to weaken the
    implementation or enforcement of the EPA New Source Review program.
    Tier 2 and Heavy Duty Vehicles Standards
        In 1999 the Environmental Protection Agency established new
    tailpipe and gasoline standards for cars, light trucks, minivans and
    SUVs. The EPA also established new limits on sulfur in gasoline. When
    fully implemented, this program would be the equivalent of taking 164
    million cars off the road. EPA calculates that the final rule will
    prevent as many as 4,300 deaths, more than 10,000 cases of chronic and
    acute bronchitis, and tens of thousands respiratory problems a year.
        In 2000, EPA established new emission standards for heavy-duty
    vehicles and diesel fuel. These standard provide dramatic pollution
    reduction from heavy-duty vehicles. As a result of this program, each
    new truck and bus will be more than 90 percent cleaner than current
    models. The clean air impact of this program will be dramatic when
    fully implemented. This program will provide annual emission reductions
    equivalent to removing the pollution from more than 90 percent of
    today's trucks and buses, or about 13 million trucks and buses.
        The American Thoracic Society and the American Lung Association
    encourage the Subcommittee to provide EPA the resources necessary to
    proceed with implementation and enforcement of the Tier 2 and Heavy-
    Duty Vehicle Standards.
                   va medical and prosthetic research program
        The ATS/ALA recommends $460 million for the VA medical and
    prosthetic research program for fiscal year 2003. The fiscal year 2003
    2003 recommendations build on the $20 million increase provided for the
    current year. The Administration's fiscal year 2003 budget request for
    a $38 million (10 percent) increase in research program dollars is
    notable for being the first time in many years that an administration
    has proposed funding sufficient to maintain VA's current level of
    effort in advancing treatments for conditions particularly prevalent in
    the veteran population including prostate chronic obstructive lung
    disease (COPD) lung cancer, pneumonia and other pulmonary related
    diseases that impact the America's veterans. We applaud the
    Administration and Department of Veterans Affairs Secretary Anthony J.
    Principi for recognizing the invaluable contribution VA research makes
    to delivering high quality care for veterans and toward improving the
    health of veterans and the nation.
        The American Thoracic Society and the American Lung Association
    recommend the Subcommittee provide at least 4460 million for the VA
    medical and prosthetic research program.
        Please note that the Administration's budget request for a $38
    million increase for VA research includes a shift from OPM to VA of $15
    million in accrued government health and retirement benefit funds.
    Consequently, the Administration's budget proposes a $23 million (6
    percent) increase in research program funds plus $15 million in federal
    employee benefit expenses previously paid by an OPM account, for a
    total increase of $38 million (10 percent) over current year funding of
    $371 million. We strongly recommend that the entire $38 million
    increase be allocated to VA research's programmatic needs and that
    accrued benefits continue to be paid out of the OPM trust fund.
        However, even a $38 million increase would not allow VA to address
    all of the opportunities it has to improve care for veterans, nor to
    meet the new challenges presented by the tragedies of September 11 and
    subsequent events. We strongly encourage the VA-HUD Subcommittee to
    recommend an fiscal year 2003 appropriation of at least $460 million
    for the VA medical and prosthetics research program. This represents
    growth in program dollars of $89 million (24 percent).
    Four core needs justify the ATS/ALA recommendation of $460 million:
        Investments in investigator-initiated research projects at the VA
    have led to an explosion of knowledge that promises to advance our
    knowledge of disease and unlock new strategies for prevention,
    treatment and cures. Attachment 1 is a list of just a few of VA's
    recent achievements and initiatives. However, many health challenges
    still confront the veteran community. Additional funding is needed to
    take advantage of the burgeoning scientific opportunities and to
    improve quality of life for our nation's veterans as well as the
    general public. We urge the Committee to support additional funding for
    the following research priority areas identified by the VA for fiscal
    year 2003:
      --Special Populations.--VA would expand research in quality of care,
            community access and restoration of function to achieve greater
            understanding of existing racial, ethnic and gender disparities
            in health care.
      --Micro Technology.--In the area of low vision, work in retinal
            prostheses is an emerging science and may restore sight lost as
            a result of a variety of disorders including age-related
            macular degeneration and retinal pigmentosa.
      --Patient Outcomes in Rehabilitative Care.--Specific areas of
            emphasis include long-term care strategies to enhance patients'
            independence and activities of daily life, consequences of
            community reintegration and the impact of assistive technology
            on quality and functionality of life.
      --Chronic Disease Management.--VA is proposing two major initiatives
            in comparing clinical efficacy of (1) vascular surgery
            conducted on and off cardiopulmonary bypass machines, and (2)
            open versus endovascular surgery for abdominal aortic
            aneurysms. The ATS/ALA are working with the VA to expand the
            Chronic Disease Management concept to include COPD--a major
            cause of morbidity and morality in the veteran's population.
        The complexity of research combined with biomedical research
    inflation has increased the costs of research. The average cost of each
    VA research project is now $150,000, a 9 percent increase in just 2
    years. As a result, VA requires an increase of at least $15 million
    just to maintain a stable number of programs.
        In response to the events of September 11, VA seeks to establish a
    research portfolio to address the threats of bio-terrorism. This
    objective is consistent with VA's statutory obligation to provide
    medical back-up services in times of national emergencies. VA has an
    established history of research accomplishments in the areas of
    infectious diseases and immunology, including vaccine development. The
    laboratories of VA research scientists are disseminated nationwide, and
    are affiliated with top-flight universities. VA research provides a
    unique national resource that can be readily adapted and quickly
    mobilized in response to diverse biological threats.
        To meet this emerging challenge, consistent with H.R. 3253, the
    National Medical Emergency Medical Preparedness Act of 2001, we
    strongly support VA's proposal to establish four new centers of
    research excellence focusing on fundamental issues critical for
    responding to chemical, biological and radiological threats to public
    safety. The targeted research portfolio would include pathogen
    detection, disease diagnosis and treatment, protection, and vaccine
    development. The mission of these centers would also encompass the
    evaluation and management of illnesses consequent to military service,
    especially in our current conflict.
        VA's career development programs are a national resource for
    training the next generation of clinician scientists, those doctors who
    treat patients and address questions that have a direct impact on
    patient care. Additional funding is needed to expand this program in
    order to address the growing national shortage of clinician-
    investigators.
        In 1997, NIH conducted site visits of six VA research facilities
    and concluded that, ``VA has had increasing difficulty in providing
    sufficient resources via its congressional appropriation to
    satisfactorily fund the infrastructure necessary to support research at
    the VAMCs.'' It is our understanding that VA has made no significant,
    centrally administered investment in its existing research facilities
    since this finding. Ventilation, electrical supply and plumbing appear
    frequently on lists of needed upgrades along with space
    reconfiguration. Substandard facilities make VA a less attractive
    partner in research collaborations with affiliated universities; reduce
    VA's ability to leverage the R&D appropriation with other federal and
    private sector funding; and make it difficult to attract cutting edge
    researchers, both clinician investigators and laboratory scientists, to
    careers in VA. Facility R&D Committees regularly disapprove projects
    for funding consideration because the facility does not have the
    necessary infrastructure and has little prospect of acquiring it.
        Under the current system, research must compete with other medical
    facility and clinical needs for basic infrastructure and physical plant
    support. Unfortunately, the minor construction appropriation is
    chronically inadequate to meet facility needs for clinical improvements
    much less research upgrades, and year after year the list of urgently
    needed research repairs and upgrades grows longer. VA has identified 18
    sites in urgent need of minor construction funding to upgrade their
    research facilities. These sites plus the many facilities with smaller,
    but no less important needs, provide more than sufficient justification
    for an appropriation of $45 million specifically for research facility
    improvements.
        We recommend that a new funding mechanism, such as a minor
    construction appropriation specifically for research facilities, be
    developed to provide a permanent, steady stream of resources dedicated
    to upgrading and renovating existing research facilities. State-of-the-
    art research requires state-of-the-art facilities.
        Separate from its recommendations for the VA research
    appropriation, ATS/ALA strongly encourage the Committee to address the
    increasingly urgent need for improvements in VA's research facilities
    by providing $45 million to address research facility improvements.
        The America Thoracic Society and the America Lung Association thank
    the Committee for consideration of its views. We look forward to
    working with the Subcommittee to further promote and protect the health
    of the American public.
                                     ______

             Prepared Statement the American Psychological Society

        Madam Chair, Members of the Committee: Thank you for this
    opportunity to present the views of the American Psychological Society
    (APS) on the fiscal year 2003 appropriations of the National Science
    Foundation (NSF). I am Alan Kraut, Executive Director of APS. We are a
    15,000-member organization of scientists and academics, most of whom
    are located in colleges and universities across the country. Many
    members of the American Psychological Society are supported by the NSF,
    and much basic research in our field could not exist without NSF
    funding.
        APS strongly supports the Coalition for National Science Funding's
    recommendation of $5.5 billion for the National Science Foundation in
    fiscal year 2003. This would be a 14.7 percent increase over fiscal
    year 2002.
        Both Congress and the Administration have expressed a high degree
    of confidence in NSF's mission and its efficient management of
    resources. As the only government agency to receive a ``green light''
    rating from the Office of Management and Budget (OMB) for financial
    management in the President's budget, NSF has proven that this would be
    an investment that pays off for Congress and America. OMB's praise did
    not end there--its director, Mitch Daniels, added last November that
    ``The National Science Foundation is one of the true centers of
    excellence in this government It has supported eight of the 12 most
    recent Nobel Prize awards earned by Americans at some point in their
    careers. Programs like these. . . deserve to be singled out, deserve to
    be fortified and strengthened.''
        More recently, the House Budget Committee proposed an increase of
    11 percent for NSF in the fiscal year 2003 budget resolution passed on
    March 13th. Chairman Boehlert's assessment, that ``the federal
    investment in science and technology is absolutely vital to our
    nation's economic stability and national security,'' could not be more
    accurate. However, it should be noted that $76 million of this increase
    is due to the transfer into NSF of three programs formerly operated run
    by other agencies.
        The increase that you and your colleagues in the Senate provided
    for NSF in fiscal year 2002, and the increase that we are recommending
    in fiscal year 2003, are important steps in offsetting the comparative
    under-funding that has characterized NSF's budget in the past several
    years. The scientific community is grateful for your support and it is
    our hope that you will continue to approve the much-needed expansion of
    NSF's budget.
        Within the NSF budget, we ask the Committee to continue its history
    of support for behavioral and social science research at NSF. This
    Committee was instrumental in encouraging NSF to establish its Social,
    Behavioral, and Economic Sciences (SBE) Directorate a decade ago, and
    over the years has encouraged many of the initiatives coming out of
    that directorate. The fiscal year 2003 budget request to Congress
    contains a 15.9 percent increase for SBE as a whole, and an 11.6
    percent increase in the Behavioral and Cognitive Science program.
        These increases reflect the high regard in which NSF holds these
    fields. For the first time at NSF, the budget calls for funding of a
    Foundation-wide priority area in the Social, Behavioral and Economic
    Sciences, which will explore the complex interactions between society
    and technology. NSF's budget recommendation calls for $10 million in
    ``seed money'', with this goal in mind: for our society to take greater
    advantage of the technology available to it, and to prepare for further
    advances. There will be an emphasis on studies of decision-making,
    cognition, and learning. The money is there, and the time is now.
        Before addressing specific activities of the SBE directorate, I
    first want to provide a brief overview of basic psychological research,
    to give you an idea of the scope and breadth of the field that I
    represent.
        An Overview of Basic Psychological Research: Programs and
    initiatives that involve psychological science are our best chance to
    solve the enigma that has perplexed us for so long: How does the human
    mind work and develop? APS members include thousands of scientists who
    conduct basic research in areas such as learning, cognition, and
    memory, and the linked mechanisms of how we process information through
    visual and auditory perception. Others study decision-making and
    judgment; mathematical reasoning; language development; the
    developmental origins of behavior; and the impact of individual,
    environmental and social factors in behavior. The basic psychological
    research conducted by APS members has implications for a wide range of
    applications, including designing technology that incorporates the
    perceptual and cognitive functioning of humans; teaching math to
    children; improving learning through the use of technology; developing
    more effective hearing aids and speech recognition machines; increasing
    workforce productivity; and ameliorating social problems such as
    prejudice or violence. While this is a diverse range of topics, all of
    these areas of research are bound together by a simple notion: that
    understanding the human mind, brain, and behavior is crucial to
    maximizing human potential. That places these pursuits squarely at the
    forefront of several of the most pressing issues facing the Nation,
    this Congress, and the Administration.
        Progress and investments in psychological science will not simply
    lead us to a better understanding of how humans think, decide,
    evaluate, and adapt. It will lead us to revolutionary advances in our
    powers to predict, detect, and prevent. In this time of uncertainty,
    where we can come to rely so heavily on technology to keep us safe and
    confident, we must turn to cognition in order to maximize this
    technology. An understanding of how people process information will
    enable us to design technology and computers that fit our needs and
    make us comfortable when using them. The potential for advances would
    be limitless.
        Turning now to the SBE Directorate, I'd like to highlight some of
    its programs, specifically those cognitive neuroscience, and those in
    child development. These initiatives exemplify SBE's essential
    leadership on the cutting-edge frontiers of research, and they
    illustrate the important work that will only flourish if funded to the
    levels that they deserve.
        NSF's Cognitive Neuroscience Initiative.--Basic behavioral science
    supported by SBE traditionally has included research in cognition,
    perception, language, development, emotion/affect, and social
    psychology. These have been funded primarily through its Division of
    Behavioral and Cognitive Sciences. Theoretical work in behavioral
    science has greatly advanced our understanding of the basic mechanisms
    underlying memory, emotion, learning, and other psychological and
    cognitive processes. Recognizing the potential contributions of
    neuroscience to these and related areas, the directorate has added
    funds to these programs for the express purpose of bringing more
    neuroscience perspectives to bear on these topics to map these
    psychological mechanisms onto the physical dimensions of the brain.
        NSF, with the right support, will have the ability to link advances
    in human thought and behavior to the natural and social sciences. Now,
    with brain imaging and other non-invasive techniques, we are poised to
    confirm and extend these theories through studies of the living brain.
    Scientists from a range of areas will be able to test theories about
    normal brain functioning; assess the behavioral consequences of brain
    damage; and reach new levels of understanding of how the brain develops
    and matures, in terms of both structure and function. NSF is currently
    seeking highly innovative, interdisciplinary proposals aimed at
    advancing the understanding of how the brain supports thought,
    perception, action, social process, and other aspects of behavior.
        One final point on this topic: Investment in new technologies is no
    longer the sole domain of the physical sciences. A stable, long-term
    commitment to the study and development of new technology ensures
    continued advances in all fields, including our own discipline of
    psychological science, which is part of the broader behavioral and
    social science research enterprise. Emerging fields, such as behavioral
    genetics and cognitive neuroscience--which employ the latest in imaging
    and computing technology to unlock the mysteries of the mind and the
    origins of behavior--are examples of where gains in technology are
    necessary if we are to see a return on our investment in science. In
    addition, addressing human factors in the design of technology is
    essential; advances in technology would be severely undermined unless
    we incorporate what we know about perception, learning and memory, and
    other behavior-based processes that people draw on in using technology.
    Advances in science and technology will not only make the U.S. a world
    leader in many arenas, but will also contribute to better homeland
    security and a stronger economy.
        NSF's Children's Research Initiative.--Recognizing that a
    combination of perspectives--cognitive, psychological, social, and
    neural--is needed to fully understand how children develop and how they
    acquire and use knowledge and skills, the SBE directorate will support
    new interdisciplinary research centers that will focus primarily on
    integrating traditionally disparate research disciplines concerned with
    child development. Known as the Children's Research Initiative (CRI),
    this program will bring together such areas as cognitive development,
    cognitive science, developmental psychology, linguistics, neuroscience,
    anthropology, social psychology, sociology, family studies, cross-
    cultural research, and environmental psychology, to name only some of
    the relevant disciplines. Basic researchers from these areas will focus
    on problems that cannot be solved through single investigator studies.
    This initiative aims to enhance the content knowledge of the fields
    involved; build an intellectual infrastructure within and among
    disciplines; and build a program of research in relevant aspects of
    developmental, learning, and human sciences.
        One of the CRI's four research centers is the one led by principal
    investigator and psychology researcher Stephen J. Ceci, of Cornell
    University. The Cornell Institute for Research on Children will conduct
    rigorous multi-disciplinary research on issues of significance to
    children and their families. Specifically, the center will commission
    national teams of the nation's most distinguished developmental
    scientists to study policy relevant questions, and to create a
    consensus position for dissemination to the public. Ultimately, this
    project will place science-based information in the hands of Congress
    and other policymakers.
        The two initiatives I just described are in the Division of
    Behavioral and Cognitive Science. SBE's other main component, the
    Division of Social and Economic Sciences, also supports a substantial
    amount of basic psychological science. Examples of research topics
    being addressed in that division include: human dimensions of global
    change, group and individual decision making, risk management, and
    human factors. Research in these areas has the potential to increase
    employee and organizational productivity, improve decision making in
    critical military or civilian emergency situations, and inform the
    public policymaking processes across a range of areas.
        The Science of Learning.--How people think, learn and remember is a
    core area of interest at NSF. Known as the science of learning, this
    field draws from a variety of research topics across psychology, such
    as brain and behavior, learning, memory, perception, social psychology,
    and development. The basic challenge for both the science and education
    communities is this: How can we apply and extend our knowledge of how
    people think, learn and remember to improve education?
        NSF's program has two broad goals: improving our understanding of
    the learning process, and then transferring that understanding into
    application. We have the knowledge base and a critical mass of top-
    flight scientists to help solve the educational and learning issues
    that have been identified by the government as high priorities. But
    getting that knowledge into the classroom is going to require a multi-
    disciplinary, multi-agency effort. This will be facilitated via
    investigations in human-computer interactions, cognitive psychology,
    cognitive neuroscience, and other activity related to child learning
    and cognitive development. Through the establishment of three or four
    multi-disciplinary Science of Learning Centers, NSF will for the first
    time attempt to focus the full range of science and research onto a
    scientific workforce objective. These centers will also provide a
    research base for the President's Math and Science Partnership.
        I'm pleased to report to the Committee that two recent editions of
    the APS journal Psychological Science in the Public Interest (PSPI) are
    excellent examples of how psychological science can be used to enhance
    the education of our children. One of three scientific journals we
    publish, PSPI presents reports modeled after those generated by the
    National Academy of Sciences. Developed by panels of distinguished
    scientists, our reports focus on issues where psychological science can
    contribute to our understanding of topics of national importance, such
    as education and education research.
        The May 2001 issue of PSPI, entitled ``Does Class Size Matter,''
    describes what we know about the effects of class size on children's
    learning. Of all the ideas for improving education, few are as simple
    or attractive as reducing the number of pupils per teacher. With its
    uncomplicated appeal, class-size reduction has lately gone from being a
    subject of primarily academic interest to a policy juggernaut. In the
    United States, more than 20 states and the federal government have
    adopted policies aimed at decreasing class sizes, and billions of
    dollars have been spent or committed in the past few years. But those
    policies are based on anecdotal assumptions. The research summarized in
    this report indicates that class size alone is not the only determinant
    of effective learning.
        Similarly, in the November 2001 issue of PSPI, ``How Psychological
    Science Informs the Teaching of Reading,'' the authors examine
    research, theory, and practice relevant to how children learn to read
    English, summarizing research from developmental psychology on
    children's language competency when they enter school and on the nature
    of early reading development. Two inescapable conclusions emerged: (a)
    Mastering the alphabetic principle (Phonics) is essential to becoming
    proficient in the skill of reading, and (b) methods that teach this
    principle are more effective than those that do not. Using whole-
    language activities to supplement phonics for instruction does help to
    make reading fun and meaningful for children, but ultimately, phonics
    instruction is critically important because it helps beginning readers
    understand the alphabetic principle and learn new words. Thus,
    elementary-school teachers who make the alphabetic principle explicit
    are most effective in helping their students become skilled,
    independent readers. I'm pleased to provide copies of these reports to
    the Committee. In addition, they are available online at our website:
    www.psychologicalscience.org/journals. You should also know that NSF
    has supported the development and dissemination of PSPI.
        These are just two examples among a range of others that illustrate
    how important the science of learning is when it comes to getting the
    most out of education. We ask this Committee to monitor and support
    NSF's efforts to bring the science of learning to bear on the nation's
    educational needs. Congress has demonstrated that it understands the
    importance of education research by introducing such legislation as HR
    3801, which will provide for education research, and HR 3130, the
    Technology Talent Bill. The expanded budget we recommend for fiscal
    year 2003 will allow NSF to capitalize on the growing momentum
    surrounding this issue both at NSF and in the field. Last year,
    Congress passed the historic ESEA, promising to leave no child behind.
    Using the science of learning and education research to develop
    education will make sure that none are.
        In closing, I want to note that building and sustaining the
    capacity for innovation and discovery in the behavioral and social
    sciences is a core goal of the National Science Foundation. We ask that
    you encourage NSF's efforts in these areas, not just those activities
    I've described here, but the full range of activities supported by the
    SBE directorate and by NSF at large. Your support in fiscal year 2003
    will help NSF lay the groundwork for this long-overdue emphasis on
    these sciences.
        Thank you again for the opportunity to appear before you to present
    our recommendations. I would be pleased to answer questions or provide
    additional information.
                                     ______

         Prepared Statement of the Association of American Universities

        Madam Chair and Members of the Subcommittee: My name is Nils
    Hasselmo and I am president of the Association of American Universities
    (AAU), which includes 63 of North America's most prominent public and
    private research universities. These universities are among the main
    recipients of research and education grants provided by the National
    Science Foundation (NSF) and the National Aeronautics and Space
    Administration (NASA).
        While policymakers disagree over precisely the right mix of fiscal
    and monetary policy to ensure a continuation of our nation's
    prosperity, many now recognize that continued investment in basic
    scientific research and in the people who do this research is an
    essential catalyst for progress. A study released last year by the
    prestigious Council on Competitiveness, which includes some of our
    nation's leading chief executives in industry and academia, called for
    an increasing commitment to innovation, particularly to Federal
    investments in research and development funding. The study said these
    investments were necessary ``just to maintain the position of the
    United States, much less improve in relative terms.''
        Basic research in each field of science expands the knowledge base
    in that field and, increasingly, creates new opportunities and raises
    new questions that can only be addressed by interdisciplinary research.
    Thus, a thriving research base in many scientific disciplines is
    important to the vitality of them all: research advances in the
    physical sciences, mathematics and engineering are increasingly
    interdependent. There is also growing interdependence between these
    disciplines and the biological and medical sciences. Medical
    technologies such as magnetic resonance imagery, ultrasound, and
    genomic mapping could not have occurred without underlying knowledge in
    biology, physics, mathematics, chemistry and engineering. Continuing
    significant medical advances in our lifetime will require concomitant
    advances in other sciences.
                          national science foundation
        The National Science Foundation (NSF) is at the heart of the
    Federal investment in basic scientific research. Since its founding in
    1950, NSF has had an extraordinary impact on American scientific
    discovery. Despite its small size, it is the only Federal agency with
    responsibility for research and education in all major scientific and
    engineering fields.
        NSF is also widely recognized for excellence in the management of
    Federal funds. Approximately 95 percent of the agency's total budget
    goes directly to support the actual conduct of research and education,
    while less than five percent is spent on administration and management
    at NSF. NSF was the only agency in the entire Federal government to
    receive a ``green light'' for Financial Management in a review
    utilizing the ``traffic light'' grading system by the Treasury
    Department, General Accounting Office and Office of Management and
    Budget. The review was published in the Administration's fiscal year
    2003 budget request. All other agencies were graded either with
    ``yellow'' or ``red'' lights.
        Two years ago, congressmen and senators from both parties began to
    pursue the objective of doubling the budget of NSF from its funding
    level in fiscal year 2000 ($3.9 billion) to approximately $8 billion by
    2005. This process began in the fiscal year 2001 appropriation with the
    largest increase that Congress has provided NSF in a single year an
    increase of $519 million, or 13.3 percent, over the fiscal year 2000
    level. Last year, although President Bush had requested an increase of
    only one percent for the Foundation above the fiscal year 2001
    appropriation, the Congress provided an increase of $374 million, or
    8.5 percent. You and Senator Bond played a critical role in securing
    these increases, Madam Chair, and the university community is
    enormously grateful for your support. This year, we believe it is
    critical not to lose the opportunity to build on this strong start, and
    we strongly hope the fiscal year 2003 appropriation will continue this
    effort.
        The Administration has requested $5.036 billion for NSF in the
    fiscal year 2003 NSF budget request. AAU recommends $5.508 billion, an
    increase of $718 million (or 15 percent) above the fiscal year 2002
    appropriation. We suggest that the additional funds, above the fiscal
    year 2002 appropriation, should be devoted to achieving the following
    objectives:
        Advance core programs for research and education.--Presently, 13
    percent of highly rated proposals to NSF are not funded because of
    inadequate resources. High quality NSF research contributes to the
    development of new knowledge and the preparation of the next generation
    of scientists and engineers. NSF education programs contribute to
    improved student learning at all levels in science, engineering and
    mathematics. The proposed increase would provide $220 million to enable
    more highly rated proposals to be funded and to strengthen NSF's
    important education programs.
        Continue supporting key initiatives.--Nanotechnology;
    biocomplexity; information technology research; workforce development
    (including math and science partnerships); mathematics research; and
    social and behavioral sciences have all been identified as fields ripe
    for advances. An increase of $220 million would continue progress in
    these critical areas.
        Increase grant size and duration.--The average NSF grant in the
    year 2001 was for $93,000 and lasted for just under three years. By
    comparison, the average NIH grant in 2000 was for $338,000 and lasted
    for just over four years. Increasing the size and time period of grants
    will enable researchers to concentrate on discovery rather than
    paperwork. Of the proposed increase, $135 million would be devoted to
    increasing grant size and duration.
        Add funding for Major Research Equipment and Facilities
    Construction and Major Research Instrumentation.--Several proposals are
    pending for large-scale research resources that would provide benefits
    not only to the institution or region where the research project is
    located, but also to researchers throughout the United States and the
    world. An increase of $50 million to the Major Research Equipment and
    Facilities Construction program would hasten progress on these
    important capital projects. In fiscal year 2001, the NSF Major Research
    Instrumentation program awarded $75 million, but many worthy
    applications could not be funded. NSF could easily and quickly award an
    additional $50 million for needed research instrumentation in fiscal
    year 2003. If additional funds were made available, this equipment
    (virtually all of which is supplied by American companies) could be
    purchased rapidly from American vendors. Not only would these purchases
    advance important scientific research goals, but they would also
    benefit the domestic economy.
        Assist with Homeland Security and anti-terrorism efforts.--The
    September 11 calamity has greatly increased recognition of the role of
    science and engineering in preventing and/or mitigating future
    disasters. Working closely with other Federal agencies, NSF can enhance
    support for groundbreaking research into information security,
    detection of airborne hazards, structural studies to improve building
    safety, psychological effects of living with terrorism, wireless
    communications, and a broad range of other relevant issues. Of the
    proposed increase, $25 million would support grants in critical areas
    related to the War on Terrorism.
        Increase graduate student stipends.--Providing better compensation
    to graduate students will attract more qualified Americans to science
    and engineering careers, thereby addressing long-term workforce needs.
    With an additional $23 million above the fiscal year 2002
    appropriation, NSF can increase these stipends from $21,500 per year in
    fiscal year 2002 to $25,000 in fiscal year 2003.
                international traffic in arms regulation (itar)
        Universities engaged in space science research have been concerned
    over the past 2 years by Executive Branch and space contractors
    interpretations of the International Traffic in Arms Regulation (ITAR)
    that place increasingly strict restrictions on unclassified, civilian
    research collaborations with foreign-born scientists. Science is an
    international activity, and space science, in particular, has thrived
    through such interactions. Indeed, Congress has encouraged such
    partnerships in the past. Although we recognize that security
    considerations have changed dramatically since September 11, we
    continue to believe that scientists carrying out unclassified research
    on civilian spacecraft do not pose a threat to national security.
        In both the fiscal year 2001 and fiscal year 2002 conference
    reports, the VA-HUD-Independent Agencies Appropriations Subcommittees
    directed the Office of Science and Technology Policy (OSTP) to work
    jointly with other government agencies, including the National Security
    Council, NASA, and the State Department, to expeditiously issue
    clarification of ITAR in order to allow important university
    collaborations and personnel exchanges to continue. A report was issued
    on March 18, and while we have not yet had time to determine whether
    this will adequately address the universities' concerns, we appreciate
    the Subcommittee's support in this area.
                 national aeronautics and space administration
        Both the current and former NASA Administrators have publicly
    expressed concern on NASA's ability to continue to attract and retain
    qualified scientists and engineers. Within the next 5 years, one third
    of NASA's workforce will be eligible for retirement. At the same time,
    the pipeline of the next generation of space scientists and engineers
    is declining. The consequence could be an inability to ensure success
    in any challenging future NASA program. In some fields the problem is
    acute, with the major scientists all in their sixties, and limited
    enrollments of graduate students to follow them. In other areas, there
    is expected growth major new initiatives to be undertaken and yet no
    certainty that the required educated workforce will be available.
        The workforce problem is seen in another area as well. Over the
    last decade there has been a growing recognition of the need for
    infusion of new technology to execute the space program, and
    considerable funds to pursue this new technology have been applied. And
    yet new and better technology is only one part of the problem. Unless
    there is an adequate workforce that is well trained, with imagination
    and vigor, the space program cannot succeed. However, NASA's investment
    in producing the required workforce has been minimal.
        The nation's security also depends on a space program, both for
    surveillance and active defense, and the economic impact of space
    communications and remote sensing is large. An educated workforce can
    be seamlessly applied to any and all space applications, for defense or
    for economic growth. Undergraduate education is often not sufficient,
    however. Graduate education, at the Master's and Doctoral level is
    required, and for the graduate training to be most effective, the
    students must participate in forefront research during their graduate
    studies.
        At the inception of the space program, NASA recognized that the
    talent necessary to pursue the science and engineering for the space
    program resided in the universities, and that in universities the
    required future workforce would be developed. NASA invested heavily, in
    infrastructure and capabilities, in research and education, and
    virtually every success that the nation has enjoyed in space can be
    traced back to this investment. This includes scientific discoveries,
    new instrumentation, or simply the graduate student support that
    allowed individuals who have devoted their careers to the pursuit of
    space to be trained.
        These initial investments have run their course. The current aging
    workforce benefited greatly from it, as did the nation, but it is time
    for a new generation to be developed. It is time to invest again in the
    capabilities of the nation's universities to pursue forefront research,
    to have faculty who are leaders in space science and engineering, to
    have students who are well- supported, well-trained, and determined to
    continue this nation's exploration and utilization of space.
        The Administration has requested $8.918 billion for NASA's Science,
    Aeronautics and Technology (SA&T) account in fiscal year 2003. The AAU
    recommends $9.054 billion for these activities. Within the SA&T
    account, the following items are of particular interest to research
    universities.
        Space Science.--AAU supports the Administration's request of
    $3,428.3 billion for the Office of Space Science (OSS). This represents
    a 19 percent increase over fiscal year 2002, although since $210
    million of this is due to the transfer of the Deep Space Network to
    OSS, the net increase is 11.7 percent. Space science missions produce
    basic knowledge about our environment, the solar system, and the
    universe. This information gives us a deeper understanding of the
    history and condition of our world that enables us to make better
    decisions about how to sustain and improve it.
        The most substantial proposed changes in NASA's budget concern
    planetary exploration. The Administration has proposed an unprecedented
    long-term plan for planetary science and exploration. For the first
    time in a decade, the budget provides a real, albeit small, increase in
    Research and Analysis funds. This line has long been a priority of the
    space science community. The request also maintains a vigorous program
    to explore Mars, adds a line (New Frontiers) for moderate-size
    missions, and supports the development of nuclear power and propulsion
    technologies to allow longer-lived landers and more capable space
    missions. The Explorer and Discovery programs, both of which have
    strong university components, would receive increases as well. We
    applaud these developments that augur well for future solar system
    exploration.
        The New Frontiers activity will be competitively selected and,
    according to current guidelines, are restricted to missions concerned
    with origins and the outer solar system. We appreciate the focus on
    competitive selection but suggest that the scientific priorities being
    established by the ongoing National Research Council planetary decadal
    survey be used to guide selections. This program will re-invigorate our
    exploration of the solar system.
        The development of nuclear capabilities should revolutionize the
    type of planetary missions that can be flown a decade hence. We are
    enthusiastic about this revitalization and believe that the support of
    other technologies may also yield significant benefits to the planetary
    program. We caution that these improvements, however, will not be
    available for a decade or more.
        Biological and Physical Research.--Last year, significant cost
    overruns were identified in the International Space Station (ISS). In a
    report released last November, the ISS Management and Cost Evaluation
    Task Force reaffirmed the importance of research as a primary rationale
    for the ISS and emphasized the indispensable role of the ISS life
    science centrifuge facility.
        The quality of the ISS research facilities is a crucial factor in
    determining the value of its scientific program. There is already a
    queue of over one hundred flight investigations waiting their turn for
    access to these on-orbit facilities. These investigations encompass
    five disciplines in the physical sciences in addition to biological and
    biomedical research. Although NASA emphasizes the biomedical research
    associated with crew health maintenance and preservation, a large
    number of investigations address cutting-edge scientific problems of
    fundamental importance, but also with direct application to Earth-based
    technological, industrial, and health issues. Advances in the
    scientific understanding of these issues can be significantly advanced
    through low-gravity experiments.
        Ground-based research is also essential for developing the
    knowledge base and for validating experimental approaches for
    spaceflight experiments. NASA currently funds approximately five
    ground-based investigations for each flight investigation, and hopes to
    eventually reach an eight to ten-to-one ratio to guarantee that the
    highest quality research goes on for further testing on a flight
    platform.
        NASA's Office of Biological and Physical Research (OBPR) currently
    provides multi-year grant support to approximately 450 investigators.
    Last year, OBPR received roughly 430 investigator-initiated grant
    applications. Of this amount, over one-third were judged as meritorious
    and worthy of funding by the peer-review system. However, due to budget
    constraints, less than 20 percent of the submitted proposals were
    funded. Increased funding for OBPR extramural research would permit
    grants to be funded at higher levels for longer periods of time and
    would allow a second review cycle to be added. AAU recommends an
    increase of $100 million to enhance these research opportunities.
        AAU also recommends that the National Space Biomedical Research
    Institute receive $25 million in fiscal year 2003, a $2.5 million
    increase over fiscal year 2002. These two recommended augmentations to
    the budget would increase overall funding for OBPR to $953.8 million.
        Earth Science.--AAU urges that the Earth Science Enterprise (ESE)
    receive an increase equal to inflation. The Administration requested
    $1.64 billion, which is $14 million, or 0.9 percent below the fiscal
    year 2002 level. A 2 percent inflationary increase would be $29.5
    million, raising the total for the office to $1.67 billion. ESE is in
    the midst of deployment of the Earth Observing System (EOS), a set of
    spacecraft and associated interdisciplinary science investigations to
    initiate a long-term data set of key parameters required for the study
    of global climate change. A number of academic institutions and other
    partners are also working with ESE to develop the next generation of
    new instruments and smaller, more capable spacecraft. Increased funding
    would help achieve these goals.
        Space Grant.--The Space Grant College system continues to play an
    important and successful role in workforce development through its
    university programs and its K-12 outreach. Its matching funds result in
    a highly leveraged program. AAU urges Congress to fund the Space Grant
    program at its authorized level of $28 million. The Administration has
    requested $19.1 million for this program in fiscal year 2003, while
    Congress appropriated $24.1 million for it last year.
        Competitive Merit Review.--Finally, NASA's numerous scientific
    achievements are due both to the hard work of agency and university
    scientists and to the agency's use of merit review for allocating
    research funding. We believe that merit review should continue to be
    the method NASA uses to allocate research funds, since this system has
    helped produce the discoveries and advances from which the nation has
    benefited.
        Thank you for your attention to these matters, and for the
    opportunity to provide this testimony.
                                     ______

     Prepared Statement of the Association of Minority Health Professions
                                    Schools

        Mr. Chairman and members of the subcommittee, thank you for the
    opportunity to express the views of the Association of Minority Health
    Professions Schools (AMHPS).
        I am Dr. John E. Maupin, Jr, President of Meharry Medical College,
    and President of the Association of Minority Health Professions
    Schools. AMHPS is an organization which represents twelve (12)
    historically black health professions schools in the country. Combined,
    our institutions have graduated 50 percent of African-American
    physicians and dentists, 60 percent of all the nation's African-
    American pharmacists, and 75 percent of the African-American
    veterinarians.
        AMHPS has two major goals (1) to improve the health status of all
    Americans, especially African-Americans and other minorities; and (2)
    to improve the representation of African-Americans and other minorities
    in the health professions. We are working toward achieving this goal by
    seeking to strengthen our institutions and fortify other programs
    throughout the nation that will improve the role of minorities in the
    provision of health care and research.
                agency for toxic substances and disease registry
        Congress created the Agency for Toxic Substances and Disease
    Registry (ATSDR) to implement the health-related sections of law that
    protect the public from hazardous wastes and environmental spills of
    hazardous substances. The mission of ATSDR is to prevent exposure and
    adverse human health effects and diminished quality of life associated
    with exposure to hazardous substances from waste sites, unplanned
    releases, and other sources of pollution. ATSDR works in partnership
    with Environmental Protection Agency, the Centers for Disease Control
    and Prevention, and the National Institute of Environmental Health
    Sciences to carry out its public health activities.
        ATSDR is performing critical work in the field of environmental and
    toxicological studies that has a profound impact on public health. In
    order to carry out the level of activity that is called for in its
    mission statement, AMHPS recommends an appropriation of $85,000,000 for
    ATSDR in fiscal year 2002, an increase of $6,765,000 over fiscal year
    2002.
       the atsdr/amhps cooperative agreement on environmental health and
                              toxicology research
        In 1992, ATSDR identified a need for enhanced information on 38
    hazardous substances. Through a cooperative agreement between ATSDR and
    the Minority Health Professions Foundation (MHPF), the historically
    black health professions schools that I represent are engaged in
    research on twelve of these priority hazardous substances. They
    include: Lead; Mercury; Benzene; Cadmium; Benzo (a) pyrene;
    Flouranthene; Trichlorocthylene; Toluene; Zinc; Manganese; Chlordane;
    and Di-n-butylphthalate.
        Mr. Chairman, I would like to express my appreciation to the
    subcommittee for its support again last year of the ATSDR/MHPF
    Cooperative Agreement. The productivity of this research program is
    evidenced by the number of publication and scientific presentations
    made by the funded investigators. To date, more that 55 manuscripts
    reporting the finding of the various research projects have been
    published in peer-reviewed and prestigious scientific journals. These
    journals include: Brain Research, Neurotoxicology, Journal of
    Neurochemistry, and Environmental Health Prospectives.
        Moreover, investigators have made more than 120 presentations at
    national and international scientific meetings, including the annual
    meeting of the Society of Toxicology, the Experimental Biology meeting,
    the International Congress of Toxicology meeting, and the International
    Society of Psyschoneuropharmacology meeting. Finally, the ATSDR/MHPF
    Cooperative Agreement has contributed significantly to the training of
    students in toxicology and environmental health. Annually, more than 30
    students, both graduate and undergraduate, are actively involved in the
    research program.
        Mr. Chairman, MHPF and ATSDR are completing 10 years of successful
    research. We expect to continue with a new cooperative agreement in
    fiscal year 2003, to not only conduct toxicological research, but to
    also engage in health services and health disparity research. For
    fiscal year 2003, we ask that the subcommittee provide $4 million for
    this important research collaboration.
        Thank you very much for the opportunity to present the views of the
    Association of Minority Health Professions Schools. I would be pleased
    to answer any questions that you may have.
                                     ______

      Prepared Statement of the Aerospace Engineering Division, American
      Society of Mechanical Engineers; Aerospace Industries Association;
      American Association of Engineering Societies; American Helicopter
     Society; American Institute of Aeronautics and Astronautics; American
    Society of Civil Engineers; General Aviation Manufacturers Association;
        Institute of Electrical and Electronics Engineers-U.S.A.; NASA
                Aeronautics Support Team; and NASA Alumni League

        In 1947, the American Institute of Biological Sciences was
    federally chartered as a non-profit scientific organization to advance
    research and education in the biological sciences. Today the American
    Institute of Biological Sciences comprises 86 scientific societies with
    a collective membership of over 240,000 scientists in disciplines
    spanning all of biology--from basic to applied, from molecular to
    landscape ecology, from agronomy to zoology. AIBS facilitates
    communication and interactions among biologists, biological societies,
    and biological disciplines in order to serve and advance the interests
    of organismal and integrative biology in the broader scientific
    community and other components of society on issues related to
    research, education, and public policy.
        We appreciate the opportunity to provide testimony on these
    important matters. If we may be of further assistance, please do not
    hesitate to contact Dr. Adrienne Froelich at the AIBS Public Policy for
    further assistance (afroelich@aibs.org or 202-628-1500 x232).
    The need for biological science funding from NSF
        Much has been said about the need for more balance in funding
    between the various scientific disciplines. At a recent House Science
    committee hearing on the future of the NSF budget, several witnesses
    presented charts documenting funding in physical sciences and
    engineering, as compared to the life sciences. While funding for a
    portion of the life sciences, that related to human health, has
    steadily increased in recent years due to increased funding for the
    NIH, funding for the biology of the natural world has not matched that
    pace. The NSF remains the principal federal supporter of academic, non-
    medical research in biology and ecology. In the fiscal year 2002
    appropriations, most of NSF's research directorates received increases
    (over fiscal year 2001 appropriations) greater than 8 percent, except
    for the Biology Directorate, which increased by only 4.9 percent from
    fiscal year 2001 to $509 million.
        In many cases, the link between hot issues like West Nile Virus and
    pesticides, and work funded by the biological sciences directorate at
    NSF, may not be immediately obvious. For instance, we have seen
    ridicule of NSF funding for research into the sexual behavior of
    insects, which can lead to the development of non-chemical pest
    control. In fact, one of the earliest Golden Fleece awards targeted a
    research grant entitled ``The Sexual Behavior of the Screw-worm Fly.''
    Former NSF deputy director Richard Atkinson, in a 1999 talk at UC
    Berkeley, recalled that Sen. William Proxmire, who created the Golden
    Fleece award, got tremendous attention for this particular award.
    However, Atkinson recalled, Proxmire later admitted that the study of
    the sex life of the screw-worm fly had been of major importance in the
    field of non-chemical pest control. (Colloquium Series on the History
    of Science and Technology, University of California at Berkeley, 10
    November 1997, and published in the Proceedings of the American
    Philosophical Society, Vol. 143, No. 3, September 1999).
        Similarly, in 1996 The Conference of the Parties to the Convention
    on Biodiversity (COP) requested a report from the Subsidiary Body on
    Scientific, Technical and Technological Advice (SBSTTA) on ways to
    overcome the shortage of taxonomists available to inventory and
    characterize the world's biodiversity a word that is now in everyday
    usage by the general public. Yet, the Association for Systematics
    Collections (now the Natural Science Collections Alliance) says
    taxonomy is largely outside the world economy. It and reliable
    knowledge about the natural world are taken for granted as a free good
    by governments, resource managers, drug and seed companies, and even by
    many scientists. People want taxonomy, but do not see the connection
    between that need and the need for increased funding at the National
    Science Foundation.
        In our testimony, we address funding levels for NSF's Research and
    Related Activities, with particular emphasis on the Biological Sciences
    directorate and the Geological Sciences directorate. A summary of
    funding requests is below, followed by a detailed explanation of each
    request.
    Summary of budget requests
        The American Institute of Biological Sciences requests the
    following items:
      --$5.2 billion for NSF, $4.0 billion of which would be for ``Research
            and Related Activities,'' as included in the House Budget
            Resolution;
      --$550 million for the Biology Directorate;
      --$15 million for the National Ecological Observatory Network;
      --$79.2 million for the Biocomplexity in the Environment initiative;
      --$37 million to increase the annual stipend for graduate students
            from $21,500 to $25,000;
      --$200 million for the Math and Science Partnership program;
      --$185 million for the Learning for the 21st Century Workforce
            program.
      --Funding for the core programs of the GeoSciences Directorate should
            be increased at the same rate as other directorates of NSF,
            independent of any funds that may be transferred from other
            agencies.
      --AIBS does not support the transfer of programs from NOAA, USGS or
            EPA. However, should the transfer of Sea Grant to NSF remain in
            place, we request that it be funded at a minimum of the fiscal
            year 2002 appropriation of $62.4 million. Likewise, we request
            the fiscal year 2002 appropriated level for the USGS Toxic
            Substances Hydrology program, which would be downsized to $10
            million under the President's budget.
    Overall funding for the National Science Foundation
        At the March 2002 House Science Committee hearing on the NSF
    budget, Dr. Stephen Director of the University of Michigan told the
    committee that of the NSF proposals receiving ``Very good'' to
    ``Excellent'' reviews, only 56 percent are actually funded. Even more
    disturbing, 14 percent of the proposals receiving an evaluation of
    ``Excellent'' were not funded. Dr. Director noted that low funding
    rates ``discourage faculty from submitting good ideas because of the
    low probability of success Success rates below one-third are generally
    viewed as detrimental to encouraging the submission of best ideas, and
    the NSF rate is now below this level.'' He also told the committee that
    one impact of low NSF funding is that researchers are tailoring their
    research programs to meet the needs of more ``mission-oriented''
    research agencies such as the Department of Defense. In the long-term,
    low funding rates are also influencing career decisions of future young
    scientists. Dr. Irwin Feller from Pennsylvania State University told
    the committee that:
        ``students with talents and aptitudes for research perceive
    research as life on a treadmill, one that constantly requires them to
    run in place to stand still, much less progress. Being at a formative
    period of their career, graduate students are apt to focus on those
    aspects of academic life that involve constantly writing proposals
    rather than the challenge and excitement of finding answers to
    intrinsically and extrinsically rewarding questions. Talented and
    flexible as they are, they opt out of academic careers and indeed
    careers in research in other settings, becoming in many ways productive
    members of society, but also failing to replenish or add to the
    nation's pool of scientific and engineering personnel.''
        While we support the move to double the research budget at NSF, we
    acknowledge that initiating a 5-year doubling effort under the current
    budget scenario may not be possible. However, we believe that a
    substantial increase in funding for core NSF programs is long overdue.
    We support the House Budget Resolution funding levels for the National
    Science Foundation, which would provide $5.2 billion for the agency,
    $4.0 billion of which would be for NSF's ``Research and Related
    Activities''. This represents an 11.1 percent increase in the major
    grant programs, but assumes the inclusion of the programmatic transfers
    included in the President's budget. AIBS does not support the transfer
    of these programs and respectfully requests that the entire 11.1
    percent increase in funding for NSF's grant programs be distributed
    equally among the existing, core programs for each directorate.
    Biological Sciences Directorate
        Advances in understanding the biology of the natural world are
    dependent on advances in each of the disciplines represented by our
    member societies. To provide an example, the field of parasitology is a
    classic example of the interaction of the many disciplines of biology
    it draws from taxonomy, epidemiology, ecology, wildlife biology,
    genetics, molecular biology, physiology, biochemistry and other
    disciplines and has a wide range of applications. The various
    disciplines of biology are not mutually exclusive and increased funding
    for one sector of the field should not come at the expense of other
    disciplines.
        Advances in ecology and interdisciplinary programs such as
    biocomplexity depend on a foundation of biological studies at the
    organismal level, as well as taxonomy and systematics. Ecological
    theory and large-scale projects enable managers to evaluate impacts of
    various activities on a system, and thus enhances their ability to
    provide useful recommendations regarding policy.
        Traditional, single-organism zoological and botanical studies are
    essential not only to investigators working at larger scales, but to
    natural resource managers who must make decisions with the data that is
    available. While managers use ecological theories to predict impacts of
    human activities, management of threatened and endangered species is
    first dependent on basic biological information for those species
    (e.g., range of occurrence, life span, food habits, reproductive rate).
    Having a foundation of rigorous, peer-reviewed studies on the basic
    biology of those species is essential for agencies tasked with
    determining critical habitat and imposing regulations on activities in
    that area. Unfortunately, managers must make decisions with or without
    quality science to guide their decisions. Decisions made without
    adequate scientific information have proven to be extremely costly, and
    could have been avoided with a better investment in the biological
    research programs funded by the National Science Foundation.
        A high-profile controversy regarding an endangered species
    highlights this point. In late 2000, a lawsuit by environmental groups
    prompted the National Marine Fisheries Service (NMFS) to issue strict
    fishing regulations in habitat used by steller sea lions, an endangered
    species of marine mammal. Acting on the assumption that Alaskan pollock
    was the preferred food source of the mammals, NMFS issued strict
    regulations that severely threatened the nearly $1 billion pollock
    fishery. In March 2002, the Anchorage Daily news reported that
    approximately $80 million of federal funding is being spent to study
    the sea lions to determine the cause of their decline. Hundreds of
    scientists from at least 25 institutions have initiated over 150
    studies on the sea lions in the past 2 years. In one such study,
    scientists have discovered that even where pollock is abundant, sea
    lions forage only on a different species of fish, herring. Thus,
    harvest restrictions on pollock would not aid recovery of steller sea
    lions. This instance highlights that even basic biological studies on
    the feeding habits of a single species are of extremely high value.
    Having that information available before controversies erupt could save
    American taxpayers a substantial amount of money spent on lawsuits.
        In addition to the societal benefit to funding research at the
    organismal level, studies of this type are ideal for smaller
    universities and undergraduate research projects. Organismal studies
    are typically of a shorter duration and smaller spatial scale than
    ecological studies. To attract top talent into the pool of U.S.
    scientists, students must have first-hand experience with what
    scientists do. For students to be involved in all aspects of conducting
    research (hypothesis formation, study design, data collection and
    analysis), there must be funding available for small, short-term
    projects.
        In the fiscal year 2002 appropriations, most of NSF's research
    directorates received increases (over fiscal year 2001 appropriations)
    greater than 8 percent, except for the Biology Directorate (BIO; up 4.9
    percent from fiscal year 2001 to $509 million). It is difficult to
    determine how much funding is necessary for research in the various
    disciplines. However, given the immediate relevance of studies funded
    by NSF-BIO to natural resource management, we believe that BIO should
    receive an increase of at least that received by other directorates in
    fiscal year 2002. Therefore, we request an 8 percent increase in
    funding for the Biology Directorate in fiscal year 2003 to a level of
    approximately $550 million.
    Transfer of programs from NOAA, EPA and USGS
        Whatever the merits of the proposed transfers, we are concerned
    that the probable costs have not been adequately considered. These
    changes may have dire effects on these programs. In some cases, the
    effect may be tantamount to termination and valuable research efforts
    will be lost. It can be difficult and costly to rebuild strong
    scientific research programs, if it can be done at all, so it is
    important to assess carefully the costs and benefits of major
    structural changes such as those under consideration by OMB.
        We appreciate the fact that this administration values competitive
    research, and we also agree with Mr. Daniel's view that the National
    Science Foundation has an excellent record of supporting the Nation's
    research. We whole-heartedly support NSF. However, NSF is legislatively
    mandated to fund basic research. Therefore, we question whether NSF is
    the best place for the USGS and Sea Grant. Sea Grant's research agenda
    is based on the needs of marine industry, government, resource managers
    and the public. We question whether NSF can and will fund this kind of
    research. The National Research Program of the USGS Water Resources
    Division, as well as the entire USGS research program, are commonly
    characterized as ``applied'' research. Indeed, it is the very research
    that is needed for management of the quality and quantity of the
    natural resource that is vital to our very existence. We are concerned
    that NSF cannot and will not fund much of the research underway at
    USGS, not because it is not valuable or of high-quality, but because it
    is of a different nature from that typically funded at NSF. Therefore,
    AIBS does not support the transfer of these programs.
        Within the transferred programs, we note that Sea Grant only
    receives $55.8, a 10 percent decrease from its fiscal year 2002
    appropriation. Should the transfer of Sea Grant to NSF remain in place,
    we request that it be funded at a minimum of the fiscal year 2002
    appropriation of $62.4 million. Likewise, we request the fiscal year
    2002 appropriated level for the USGS Toxic Substances Hydrology
    program, which would be downsized to $10 million under the
    administration's budget.
    GeoSciences Directorate (GEO) and Ocean Research Funding
        While it appears that GEO will receive a 13.4 percent increase of
    approximately $82 million in fiscal year 2003, $74.0 million of that
    increase is due to the transfer of programs from NOAA, EPA and USGS.
    The remaining $8.0 million represents a mere 1 percent increase in
    funding. We are particularly concerned about the funding level for the
    Ocean Sciences Division, which is slated for an approximate decrease of
    2 percent in funding, notwithstanding transfers of programs from other
    agencies. Combined with the decrease in funding for the Sea Grant
    Program, total funding for ocean science and research would decrease by
    3.5 percent. The decreases in ocean research funding for NSF and Sea
    Grant proposed in the President's budget are in stark contrast to the
    testimony presented before the President's Commission on Ocean Policy,
    which was created through the Oceans Act of 2000. While the Commission
    will not issue its recommendations until next year, numerous credible
    witnesses have testified before the Commission that funding for ocean
    research and education is sorely inadequate. Therefore, we oppose the
    administration's decrease in ocean research funding and respectfully
    request that funding for the core programs of the GeoSciences
    Directorate be increased at the same rate as other directorates of NSF,
    independent of any funds that may be transferred from other agencies.
    National Ecological Observatory Network (NEON)
        With NEON, NSF hopes to improve scientific understanding of complex
    ecosystem dynamics and to enhance the ability to predict the effects of
    changes from such trends as climate change. Because of its ultimately
    wide network across the nation, NEON would have the potential to detect
    threats ranging from invasive species to chemical or biological
    terrorist activities. NEON has gone through peer review, with the
    National Science Board recommending its funding. Through its Major
    Research Equipment budget area, NSF is requesting $12 million to launch
    to NEON prototype sites. An additional $3 million for operational
    support of the two prototype sites is included in the Biological
    Sciences Directorate under Biological Infrastructure. AIBS strongly
    supports the administration's total request of $15 million for NEON-
    related expenses.
    Biocomplexity in the Environment
        The Biocomplexity initiative is designed to respond to the demand
    for new approaches to investigating the interactivity of biota and the
    environment. It will result in more complete understanding of natural
    processes, of human behaviors and decisions in the natural world. The
    Biocomplexity initiative encourages collaboration among investigators
    in multiple fields of science, extending questions of sustainability
    beyond biology to include, among others, mathematicians, social
    scientists and economists. AIBS supports the administration's request
    of $79.2 million for the Biocomplexity in the Environment initiative.
    Investing in the future U.S. scientific workforce
        Graduate Student Stipends.--The average starting salary for
    students holding a Bachelor's degree in science or engineering are
    nearly twice the level of current stipends for graduate students. The
    amount of debt incurred by U.S. undergraduates has more than doubled in
    the 1990's. The low level of stipends, combined with the increasing
    burden of debt, acts as a deterrent, limiting the number of students
    choosing to pursue advanced studies. A student's time in graduate
    school will be much more effective if they are not constantly worrying
    about making ends meet. Therefore, we support the administration's
    request for $37 million to increase the annual stipend for graduate
    students from $21,500 to $25,000.
    Math and Science Partnership and Learning for the 21st Century
            Workforce
        AIBS believes that safeguarding the biosphere and promoting
    sustainable global development increasingly depends upon understanding
    the earth's biological interactions. Maintaining the integrity of the
    biosphere therefore depends upon a strong research, education, and
    outreach program with resources adequate to support the increasing
    demand for biological scientists and students, as well as a
    scientifically-literate public. NSF's programs, Math and Science
    Partnership and Learning for the 21st Century Workforce, will result in
    a more scientifically- literate public and will increase the number of
    talented young people entering the U.S. scientific workforce.
    Therefore, we support the administration's request for $200 million for
    the Math and Science Partnership program and $185 million for the
    Learning for the 21st Century Workforce program.
                                     ______

           Prepared Statement of the Aviation Research and Technology

               the crisis in u.s aviation research and technology
        We are deeply concerned about the lack of a national commitment to
    sustain U.S. leadership in aviation research and technology. While
    public demand for aviation transportation services is expanding,
    federal funding for civil and military aviation research is declining.
    Since 1998, the combined NASA and DOD investment in aeronautics
    research and technology programs has been reduced by one-third, and
    this trend is continuing. Advanced technologies are needed to assure
    public safety and on-time flight schedules. Without continued
    investment in aviation R&T, U.S. market share in aviation products and
    services will decline, as will employment in the nation's aviation
    industry.
        The NASA and DOD aeronautics R&T budgets have been cut dramatically
    over more than a decade, and tens of thousands of skilled workers have
    left the industry. U.S. graduates at the bachelor and master degree
    levels in aerospace engineering and related disciplines have dropped by
    57 percent and 39 percent, and Electronics respectively, since 1990.
    These facts, combined with the fact that the average age of those
    employed in the aerospace industry is in the mid-to-upper 40s and
    climbing, suggest a potentially catastrophic loss of one of the
    nation's most important sources of societalbenefits.
        NASA and DOD have taken the first steps toward clearly articulated
    visions for aviation research and technology. These visions must now be
    supported by national aviation research and technology strategy that
    maintains and builds U.S. market share in aviation products and
    services, ensures our national security, provides a continuing supply
    of qualified people to meet the nation's future aviation workforce
    needs and creates an environment conducive to a healthy U.S. aviation
    industry.
        While U.S. government support for aviation research is declining,
    foreign government funding is increasing. European and Asian countries
    recognize the value of the aviation industry and its quality jobs to
    their economies. National will, available capital, and investments in
    leading edge technology are determining winners in this global
    competition.
        According to a 1999 National Research Council report, ``Recent
    Trends in U.S. Aeronautics Research and Technology,'' the U.S. aviation
    and rotorcraft industries (Boeing, Pratt & Whitney, General Electric,
    General Dynamics, Lockheed Martin, Textron, and others) contribute
    approximately $436 billion per year of total output to the U.S.
    economy. Of this amount, air transportation and aircraft manufacturing
    account for approximately $339 billion, accounting for over half a
    million manufacturing and engineering jobs. If the American public
    expects the U.S. aviation industry to continue to be the largest
    positive contributor to U.S. balance of trade, then we must have the
    ability to develop the next generation of aircraft that will enable
    them to compete internationally.
        The future of U.S. aviation, with respect to both global
    competition and societal benefits, depends on new technology and new
    concepts. Government research establishments have conducted essential
    fundamental and applied research, which were high risk, high cost, and
    long term. The uncertainty and risk inherent in revolutionary concepts
    cannot be undertaken solely by the private sector. The future demands a
    clear statement of national policy, establishing U.S. leadership both
    in aircraft and rotorcraft technology development that assures national
    security with additional societal benefits, such as:
      --Advanced vehicle technologies for innovative applications;
      --Increased safety;
      --Efficient air traffic management systems to reduce delays;
      --Reduced air transportation cost and travel time;
      --Increased fuel efficiency; and
      --More environmentally friendly aircraft.
        Historically, the government's support of aeronautics and
    rotorcraft research and technology (in collaboration with industry and
    universities) has been indispensable in for attracting highly talented
    people whose contributions have made possible the societal benefits
    that we have seen to date. If America fails to support aviation R&T, it
    may well fail to provide an essential nucleus of next generation
    professionals for the nation's aviation future.
        Recommended Actions:
      --Adequate funding for NASA and DOD aviation R&T must be addressed,
            not only with respect to the fiscal year 2001 budget, but
            also--and even more significantly--with respect to the
            preservation of U.S. capability and leadership in long term
            aeronautics research and technology, as required by law.
      --As the fiscal year 2000 federal budget has generally subsumed
            aeronautical research and technology programs within an all-
            encompassing category termed ``Aerospace Research and
            Technology,'' it is essential that the aeronautics R&T programs
            at the key mission agencies (NASA, DOD and FAA) be clearly
            identified and adequately funded within this category.
      --The establishment of a National Aviation R&T policy to plan and
            provide adequate resources that will ensure sustained U.S.
            world leadership in civil and military aviation.
        As we approach the centennial of the Wright Brothers' first flight,
    it is more important than ever that America renews our national
    commitment to leadership in aviation. In order to do so, we must ensure
    the strength and stability of the nation's aviation infrastructure by
    formulating and committing to a national aviation research and
    technology policy that incorporates adequate federalfunding for long-
    term aviation research.
                                     ______

              Prepared Statement of Babyland Family Services, Inc.

        Mr. Chairman: Thank you for giving me an opportunity to submit
    written testimony on behalf of Babyland Family Services, Inc. about two
    economic development initiatives: (1) Project NET-TO-WORK: A
    Neighborhood Employment and Technology Initiative for Healthy Children
    and Self-Sufficient Families and (2) the Babyland Pediatric Health
    Center.
                              project net-to-work
        Babyland Family Services seeks $1 million through the Department of
    Housing and Urban Development (HUD) and the Economic Development
    Initiative (EDI).
        Project NET-TO-WORK is a 1-year capital and program start-up
    request in which federal funding will enable the agency to complete the
    construction or renovation of a major facility (approximately 36,000
    square feet) that will thereafter offer the ongoing employment
    training, placement and support services necessary to promote economic
    development. It will also provide the necessary seed funds for program
    operations, which will be sustained through the generation of program
    income, local and state government contracts and grants from
    foundations.
        Project NET-TO-WORK will provide a comprehensive safety net and
    partnership--one-stop employment and self-sufficiency services that
    eliminate common barriers to employment for TANF recipients and low to
    very low-income families in Newark and surrounding areas. Babyland's
    current service area includes those portions of Newark (Central, West
    and North Wards) and East Orange that are still economically
    distressed. The project will target low-income African-American and
    Latino families who are receiving or at risk of receiving public
    assistance. In particular the initiative will be addressing the needs
    of single mothers, teenage parents and males involved in or at risk of
    involvement in the criminal justice system.
        The project will create 50 new child care jobs and will provide
    employment training and placement services for 150 residents. In
    addition, the project will address multiple barriers to job training
    and employment retention, including: (1) Full-day, year-round child
    care, especially for infants; (2) Pediatric health care services,
    including asthma management and preventive health education; (3) Family
    counseling, especially substance abuse and mental health services and
    (4) Quality of life and violence issues, especially family violence,
    crime and dilapidated housing.
        The main components of the project include the following:
      --Employment training, placement and follow-up support services--
            which includes individualized assessment, planning, basic
            skills development including literacy and computer skills,
            mentorship, peer counseling, support service referrals,
            classroom instruction, internship placements, job placements
            and ongoing mentorship after placement.
      --Child care and early childhood education services for 198 children,
            from infant to 5 years old, and their families through center-
            based and family child care options.
      --Preventive health services will be provided onsite at the facility,
            including assessment, screening and examination, education,
            referral and follow-up for children and families.
      --Access to Computer Technology for community residents through the
            creation of computer labs and training programs.
      --Family counseling to prevent and address family violence and child
            abuse issues, with an emphasis on parent education, substance
            abuse counseling and mental health counseling.
      --Neighborhood safety and quality of life initiative that trains and
            empowers residents to develop a five-block safety zone around
            their neighborhood through the creation and development of
            block associations, community policing, local business
            associations and other community organizing efforts.
        The goal of Project NET-TO-WORK is to help eliminate physical and
    economic distress in the communities that the agency serves. Through
    this project, Babyland expects to create at least 200 new jobs,
    especially in the areas of education, security, medical child care,
    human services and food preparation. The agency also expects to create
    a facility that will serve as a stabilizing force in an economically
    distressed neighborhood. A child care component will promote the
    healthy development of 198 children as well as serve as a job-
    supporting service for 198 parents.
        A health component will directly benefit over 1,500 at-risk
    children in the Babyland service area through the prevention and
    management of childhood illnesses, thereby further preventing parent
    absenteeism from work. A computer technology component will provide
    over 300 low-income residents with access to basic and individualized
    computer technology knowledge that is essential to their long-term
    success at work. Finally, a grass-roots neighborhood violence reduction
    component will promote partnerships among residents, law enforcement,
    churches, businesses and other stakeholders and achieve the following:
    the reduction of physical blight (graffiti and dilapidated housing),
    prostitution, drug dealing, car jacking, domestic violence and various
    forms of crime.
        There is widespread support for this very important initiative.
    Babyland Family Services, Inc. expects to receive funding for the
    project from the following sources:
      --The Annie E. Casey Foundation Families Count Award--$166,000
            unrestricted funds
      --The Newark Public Schools--approximately $1 million for early
            childhood education
      --Private lending institutions--$1 million for capital support
      --Local government (City and County)--$250,000 for employment
            training and employment support services.
      --Local Foundations--$70,000 for health and community organizing
            projects.
      --United Way--$200,000 for program operations
      --Other potential funders include The Healthcare Foundation of New
            Jersey and the Prudential Foundation.
                      the babyland pediatric health center
        Babyland Family Services seeks $1 million as an Economic
    Development Initiative (EDI) through the Department of Housing and
    Urban Development (HUD). The project is a 1-year capital and program
    start-up request that will enable the construction or renovation of a
    facility that will offer direct family health services and employment
    training in the pediatric health care field. Federal funding will also
    provide the seed funds for program operation which will be sustained
    through local and state government contracts, third-party affiliations
    and foundations.
        Background.--Babyland provides child care and early childhood
    education services for 750 children (0 to 5 years old) at eight child
    care centers and provides emergency shelter and family support services
    to 750 other at-risk and low-income children and families. Babyland is
    currently Newark's Early Head Start grantee (serving children 0 to 3
    years old, pregnant teenagers, young fathers and families living with
    HIV/AIDS) and has a partnership with the Newark and East Orange Public
    Schools to provide Abbott preschool services to over 250 children. The
    agency has an extensive partnership with the New Jersey Department of
    Human Services for the provision of child welfare, family violence and
    child care services.
        Babyland is a lead agency for the United Way's Success By 6
    Initiative and the State's Family and Children Early Education Services
    (FACES) Initiative which, combined, provides early childhood support
    services to 2,000 children and over 30 other child care agencies and
    schools. The agency provides employment training and placements in the
    areas of child care and medical day care for TANF recipients as well as
    accreditation support for local teachers and child care centers.
    Babyland is implementing the Open Airways Asthma Education Program at
    eight elementary schools through a grant from the Centers for Disease
    Control. Finally, the agency's newly established Technology Initiative
    is providing early computer education to preschool children, a
    Technology Center for computer-related employment skills to local
    residents and an agency intranet that will develop an outcome and
    service-based model for family support services.
    Project Description
        Babyland is in a unique position, as the lead agency for several
    collaborative initiatives that promote the development of young
    children under 6 years old, to launch a pediatric health initiative
    that will prevent and manage childhood illnesses in Newark. In
    partnership with over 30 child care agencies, elementary schools and
    local health care providers, Babyland will develop a coordinated
    community-based approach for residents to gain access to health care
    services. As part of the agency's new multipurpose building, this grant
    will enable the agency to include a pediatric and family health center
    that will directly provide basic health services to over 1,000 families
    and provide health education, assessments, screening and follow-up
    services to 2,000 families with children under 6 years old.
        In addition to the pediatric and family health center, the new
    multipurpose building will include a child care center for 198 children
    (0 to 5 years old), a computer technology center, an employment
    training and placement center and family resource center. The new
    health center will particularly focus on increasing immunizations,
    screening for lead poisoning, asthma management, preventive dental care
    services, nutrition, prenatal care, home safety, parent education and
    child development, HIV/AIDS prevention and other preventive health
    education.
        Increased access to health care services will be achieved through
    the following methods: training and placing 45 low income residents in
    the medical day care/special needs field; training for over 50 Abbott
    Family Workers who provide case management services for 2,000
    preschoolers; parent-to-parent workshops that will be part of a series
    of parent and health education workshops; and creative grass-roots
    efforts that will encourage families to utilize the health center's
    resources. Community outreach workers, parents, nurses and a team of
    other health professionals will provide health outreach, education and
    services. Services will be coordinated with existing partners that
    include the Newark Department of Health, the Newark Public Schools,
    child care agencies and other local health care service providers.
        In conclusion, the project will also eliminate physical distress by
    developing a facility that will serve as a stabilizing center that will
    help revitalize a distressed neighborhood. The health center will
    prevent illnesses and provide health maintenance support for young,
    sick, low-income children. In addition, the center will serve as an
    onsite employment-training center for TANF recipients who will enter
    the health-related field for children with special needs. The project's
    health services will reduce the need for emergency services and lost
    time and wages for working parents.
        Matching Funds.--$1 million capital funding from the following: The
    Annie E. Casey Foundation ($166,000 unrestricted award) and $500,000
    from a lender. Operating funds will come from the United Way, Essex
    County and the State of New Jersey. Other potential funders could
    include previous health-related supporters such as the Robert Wood
    Johnson Foundation, the Johnson and Johnson Company and the Healthcare
    Foundation of New Jersey.
        We hope the Subcommittee will support these two critically
    important economic development initiatives as the appropriations
    process gets underway.
        Thank you for your consideration.
                                     ______

     Prepared Statement of the California Industry and Government Central
                    California Ozone Study (CCOS) Coalition

        Mr. Chairman and Members of the Subcommittee: On behalf of the
    California Industry and Government Central California Ozone Study
    (CCOS) Coalition, we are pleased to submit this statement for the
    record in support of our fiscal year 2003 funding request of $2.5
    million from the Environmental Protection Agency (EPA) for CCOS as part
    of a Federal match for the $8.7 million already contributed by
    California State and local agencies and the private sector.
        Most of central California does not attain federal health-based
    standards for ozone and particulate matter. The San Joaquin Valley is
    developing new State Implementation Plans (SIPs) for the federal ozone
    and particulate matter standards in the 2002 to 2004 timeframe. The San
    Francisco Bay Area has committed to update their ozone SIP in 2004
    based on new technical data. In addition, none of these areas attain
    the new federal 18-hour ozone standard. SIPs for the 8-hour standard
    will be due in the 2007 timeframe and must include an evaluation of the
    impact of transported air pollution on downwind areas such as the
    Mountain Counties. Photochemical air quality modeling will be necessary
    to prepare SIPs that are approvable by the U.S. Environmental
    Protection Agency.
        The Central California Ozone Study (CCOS) is designed to enable
    central California to meet Clean Air Act requirements for ozone State
    Implementation Plans (SIPs), as well as advance fundamental science for
    use nationwide. The CCOS field measurement program was conducted during
    the summer of 2000 in conjunction with the California Regional PM10/
    PM2.5 Air Quality Study (CRPAQS), a major study of the origin, nature,
    and extent of excessive levels of fine particles in central California.
    CCOS includes an ozone field study, a deposition study, data analysis,
    modeling performance evaluations, and a retrospective look at previous
    SIP modeling. The CCOS study area extends over central and most of
    northern California. The goal of the CCOS is to better understand the
    nature of the ozone problem across the region, providing a strong
    scientific foundation for preparing the next round of State and Federal
    attainment plans.
        The study includes six main components:
      --Developed the design of the field study
      --Conducted an intensive field monitoring study from June 1 to
            September 30, 2000
      --Developing an emission inventory to support modeling
      --Developing and evaluating a photochemical model for the region
      --Designing and conducting a deposition field study
      --Evaluating emission control strategies for upcoming ozone
            attainment plans
        The CCOS is directed by Policy and Technical Committees consisting
    of representatives from Federal, State and local governments, as well
    as private industry. These committees, which managed the San Joaquin
    Valley Ozone Study and are currently managing the California Regional
    Particulate Air Quality Study, are landmark examples of collaborative
    environmental management. The proven methods and established teamwork
    provide a solid foundation for CCOS. The sponsors of CCOS, representing
    state, local government and industry, have contributed approximately
    $8.7 million for the field study. The federal government has
    contributed $2,150,000 to support some data analysis and modeling. In
    addition, the CCOS sponsors are providing $2 million of in-kind
    support. The Policy Committee is seeking federal co-funding of an
    additional $6.75 million to complete the remaining data analysis and
    modeling portions of the study and for a future deposition study.
    California is an ideal natural laboratory for studying deposition given
    the scale and diversity of the various ground surfaces in the region
    (crops, woodlands, forests, urban and suburban areas).
        There also exists a need to address national data gaps, and
    California should not bear the entire cost of addressing these gaps.
    National data gaps include issues relating to the integration of
    particulate matter and ozone control strategies. The CCOS field study
    took place concurrently with the California Regional Particulate Matter
    Study previously jointly funded through Federal, State, local and
    private sector funds. Thus, CCOS was timed to enable leveraging the
    efforts of the particulate matter study. Some equipment and personnel
    served dual functions to reduce the net cost. From a technical
    standpoint, carrying out both studies concurrently was a unique
    opportunity to address the integration of particulate matter and ozone
    control efforts. CCOS was cost-effective since it builds on other
    successful efforts including the 1990 San Joaquin Valley Ozone Study.
    Federal assistance is needed to address these issues effectively.
        For fiscal year 2003, our Coalition is seeking funding of $500,000
    from the Department of Energy (DOE) Fossil Program.--The California
    Energy Commission is a key participant, having contributed $3 million.
    Consistent with the memorandum of understanding between the California
    Energy Commission and the DOE, joint participation in the CCOS will
    result in: (1) enhanced public interest in programs on energy research,
    development, and demonstration; (2) increased competitiveness and
    economic prosperity in the United States; and (3) further protection of
    the environment through the efficient production, distribution, and use
    of energy.
        The CCOS program coincides with DOE's initiative to develop the
    Federal Government's oil technology program. In fact, the oil industry
    in California has been working for several years with DOE to identify
    innovative partnerships and programs that address how changes in those
    sectors can cost-effectively reduce particulate matter and ozone-
    related emissions. This approach will likely result in new ideas for
    technologies to improve oil recovery technologies, as well as improve
    environmental protection in oil production and processing operations.
    The overlap of CCOS and the California Regional Particulate Matter Air
    Quality Study provides a unique opportunity to perform research related
    to petroleum-based VOC and particulate matter emissions as well as
    methods to characterize these categories of emissions. The CCOS program
    is utilizing modeling, instrumentation, and measurement to obtain
    results that can be used to better understand the impact of oil and gas
    exploration and production operations on air quality. CCOS program
    results might also be applied to identify the most efficient and cost-
    effective methods of reducing emissions from oil and gas operations.
        The Department of Energy has been a key participant in many
    programs with the oil and agricultural sectors. By becoming a partner
    in this program, DOE will be furthering its own goals of ``Initiatives
    for Energy Security'' by aiding domestic oil producers to enhance their
    environmental compliance while reducing their costs. DOE will also be
    building upon an established and effective partnership between state
    and local governments, industry, and institutional organizations.
        For fiscal year 2003, our Coalition is also seeking funding of
    $250,000 from the National Park Service (NPS) and $250,000 from the
    Forest Service.--The National Park Service and Forest Service conduct
    prescribed burns that contribute to both ozone and particulate matter
    pollution. Prescribed burns are needed for forest health or to reduce
    fuel loads, and must be carefully managed to minimize public health and
    visibility impacts.
        Improving the fundamental science related to emissions,
    meteorological forecasting, and air quality modeling will help in
    designing effective smoke management programs. In addition, attainment
    of air quality standards is an important goal for protecting national
    parks and forests. Ozone damage to trees and vegetation in national
    parks and forests is well documented in California and nationwide. The
    National Park Service and Forest Service are key stakeholders relying
    on the success of SIPs in achieving the emission reductions needed to
    attain air quality standards. The participants in the CCOS have been
    partners in regional study efforts addressing visibility and haze
    impacts on national parks and forests in the West. The results of this
    study will provide valuable information that will further those efforts
    on a regional basis.
        Scientists at the University of Nevada, Desert Research Institute
    (DRI) are involved with the CCOS. To expedite research studies related
    to biomass burning and smoke management for CCOS, it is requested that
    funds provided by the National Park Service and Forest Service be
    allocated directly to DRI.
        Thank you very much your consideration of our requests.
                                     ______

             Prepared Statement of the City of Gainesville, Florida

        Mr. Chairman: On behalf of the City of Gainesville, Florida, I
    appreciate the opportunity to present this written testimony to you
    today. The City of Gainesville is seeking Federal funds in the fiscal
    year 2003 HUD Appropriations bill to assist with the following two
    innovative projects the City is undertaking:
      --The Depot Regional Stormwater Park, to provide stormwater treatment
            for approximately 125 acres of the Downtown and allow the
            redevelopment of existing buildings and parking lots within
            Downtown into mixed residential, commercial, and office uses.
            This project will serve as a mechanism not only to further the
            revitalization of Downtown but also to treat the stormwater
            runoff prior to discharging to Sweetwater Branch and ultimately
            Paynes Prairie and the Floridan Aquifer, and
      --The Underserved Neighborhood Improvement Project, to upgrade the
            public infrastructure in particular older neighborhoods in east
            Gainesville. Specifically, the City has identified the
            neighborhoods that are encompassed in the newly designated
            Eastside Redevelopment District and the Porter's Neighborhood,
            which is included in the Downtown Redevelopment District
            Expansion Area. The Eastside Redevelopment District is
            primarily residential in nature but includes commercial
            sections along NE Waldo Road, East University Avenue and SE
            Hawthorne Road. Except for a few businesses on the periphery,
            the Porter's Neighborhood is strictly residential.
    Depot Regional Stormwater Park
        The Depot Regional Stormwater Project is a U.S. Environmental
    Protection Agency (USEPA) and Florida Department of Environmental
    Protection (FDEP) designated Brownfield pilot project. The project
    includes the cleanup of contaminated soils, construction of the
    regional stormwater management facilities, installation of reuse water
    system for irrigation, and development of the recreational components
    of the park.
        The Depot Regional Stormwater Project is located on the southern
    boundary of Downtown. The Downtown area is located within the
    Sweetwater Branch watershed, which contains approximately 3 square
    miles of Gainesville. The Sweetwater Branch drains into Paynes Prairie
    Preserve, which is part of the State of Florida Park System and has
    been designated as an Outstanding Florida Water. An earthen levee
    segregates creek flow to a small area of the prairie before discharging
    into Alachua Sink, a natural sinkhole located on the northeast boundary
    of the prairie. Alachua Sink is an active sink with direct hydraulic
    connection to the Floridan aquifer.
        Urbanization of the watershed has resulted in significant pollution
    loads entering the creek from non-point sources. Land use within the
    urban sections of the Sweetwater Branch watershed includes commercial,
    industrial and residential types. Most of the surfacewater runoff is
    discharged directly to the creek without receiving treatment or
    attenuation. The urbanization of eastern Gainesville took place prior
    to implementation of regulations requiring on site treatment of
    surfacewater. The Saint Johns River Water Management District's
    (SJRWMD) non-point source-screening model indicates that the non-point
    pollution load to Sweetwater Branch is significant. The water quality
    within Sweetwater Branch adversely impacts the Paynes Prairie ecosystem
    and contributes to the degradation of the Floridan aquifer.
        The Paynes Prairie Preserve provides habitat to a variety of
    wildlife, including threatened species and species of special concern
    including the, bald eagle, white ibis, roseate spoonbill, and Florida
    sandhill crane. It is believed that the degraded water quality within
    Sweetwater Branch has had an adverse impact on vegetative communities
    in Paynes Prairie. A diagnostic study is currently underway to
    determine the extent of this problem.
        Water quality within Sweetwater Branch is described as fair
    according to the Water Quality Index (WQI) presented in the State of
    Florida Department of Environmental Protection's (FDEP) 1996 305(b)
    Report, see Appendix E. The WQI is the arithmetic mean of anywhere from
    1 to 6 water quality index categories (water clarity, dissolved oxygen,
    oxygen demanding substances, nutrients, bacteria, and biological
    diversity).
        The Depot Regional Stormwater Park will provide stormwater
    treatment for approximately 125 acres of the Downtown and allow the
    redevelopment of existing buildings and parking lots within Downtown
    into mixed residential, commercial, and office uses. This project will
    serve as a mechanism not only to further the revitalization of Downtown
    but also to treat the stormwater runoff prior to discharging to
    Sweetwater Branch and ultimately Paynes Prairie and the Floridan
    Aquifer.
        The regional stormwater management facility is being planned as a
    landmark stormwater park that will not only serve as a functional
    stormwater management facility, but will return unusable brownfield
    property into an active land use. The project is located on the
    southern boundary of Downtown adjacent to the City's Historic Train
    Depot (built in 1907) and the City's Electric Utility's historic Kelly
    Power Plant, which has recently been repowered. The Historic Train
    Depot was purchased by the City and is in the process of being
    renovated in accordance with Federal and State Historic requirements
    and using Transportation Enhancement Program and State Historic
    Preservation funding. The Historic Train Depot will be a vital
    component of the regional stormwater park to allow a center of activity
    that is complementary of the overall goals of the Depot Regional
    Stormwater Management Project and the Revitalization of Downtown.
        The Stormwater Park will also function as a Rail Trail Hub to
    provide linkage of four primary existing and proposed rail trail
    systems. From the south the existing Gainesville Hawthorne Rail Trail
    provides a linkage to the Historic Boulware Springs facility and
    proposed park owned by the City, the State Payne's Prairie Preserve and
    further out to the City of Hawthorne. The proposed Downtown Connector
    will connect the Gainesville Hawthorne Rail Trail through the
    Stormwater Park and is being implemented with funding through the
    Transportation Enhancement Program. From the east the existing Waldo
    Road Beautification Trail connects the Stormwater Park with the City's
    recently completed Martin Luther King Multipurpose Center, a community
    sports complex that provides much needed community meeting space and
    recreational programs. In addition, the Waldo Trail provides a linkage
    to many predominately African American neighborhoods including the
    City-developed Cedar Grove residential affordable housing neighborhood.
    The proposed 6th Street Rail Trail will provide access to the north and
    west through three historic, and predominantly African American
    communities: the Porters, Pleasant Street, and Grove Street
    Neighborhoods. The 6th Street Trail will be constructed using a
    combination of local, State and Federal dollars. The existing Depot
    Avenue Rail Trail connects these trails along the borders of the
    Stormwater Park and Depot Avenue. The trail and enhanced roadway will
    provide a primary multi-modal transportation corridor connecting the
    University of Florida and Shands Medical Complexes to Downtown.
        The Depot Regional Stormwater Park component will provide
    stormwater treatment for Depot Avenue, the proposed Rail Trails, as
    well as the Downtown portion of the Sweetwater Branch watershed located
    upstream of the park. The site of the proposed Park served as the rail
    transportation hub linking Fernandina Beach on the east coast of
    Florida to Cedar Key on the west coast in the mid-1800's. The Historic
    Train Depot's under-roof, otherwise open loading docks will provide
    open vistas to the proposed Sweetwater Urban Stormwater Park. The
    historic Depot building's unique character and location will serve to
    make it both a lively destination hub for the neighborhood and a
    catalyst for further redevelopment of Downtown. The building is a
    standing testament to and a significant visual emblem of Gainesville's
    rich history. The restoration of this building in conjunction with the
    restoration of the 22-acre Sweetwater Urban Stormwater Park is expected
    to provide a major community destination and regional ``eco-tourism''
    attraction for the community.
        The remaining unfunded costs of the Depot Regional Stormwater Park
    are estimated at $10,700,000.00. The City of Gainesville has acquired
    approximately 25 acres for the project and anticipates completing
    acquisition of the balance of the property by summer of 2002. The City
    has set aside $1 million of the Stormwater Management Utility revenues
    for construction of the stormwater management components. Grant funding
    from a variety of Federal, State and local sources totals
    $3,111,365.00. Among these are a Florida Communities Trust grant to
    assist with acquisition costs, State and Federal Brownfield grants for
    site investigation and design activities currently underway, and an EPA
    grant for $500,000 for preliminary engineering and environmental work
    for a portion of the stormwater component of the project. The City's
    Federal funding request is for $10,700,000.00 to complete the Depot
    Regional Stormwater Park.
    The Underserved Neighborhood Improvement Project
        The City of Gainesville is pursuing a strategy to assist in
    upgrading the public infrastructure in its older neighborhoods.
    Gainesville has a significant number of older, predominantly low- and
    moderate-income neighborhoods that lack adequately paved roadways,
    curbs and gutters, and sidewalks. The population of these neighborhoods
    tends to include a disproportionately large percentage of children and
    youth, single-parent families and the elderly. Due to income
    limitations of the residents, it is not feasible to utilize special
    assessment districts as a funding mechanism for upgrading the
    infrastructure in these neighborhoods.
        The City currently allocates 15 percent of its annual Community
    Development Block Grant (CDBG) entitlement for upgrading public
    infrastructure in eligible neighborhoods. This year (fiscal year 2001-
    02), that amounted to about $230,000. However, due to the significant
    numbers of neighborhoods that need assistance, this funding strategy is
    inadequate to meet the demand.
        To make a meaningful impact on the problem, the City is requesting
    $1 million to upgrade the public infrastructure in particular older
    neighborhoods in Gainesville. Specifically, the City has identified the
    neighborhoods that are encompassed in the newly designated Eastside
    Redevelopment District and the Porter's Neighborhood, which is included
    in the Downtown Redevelopment District Expansion Area. The Eastside
    Redevelopment District is primarily residential in nature but includes
    commercial sections along NE Waldo Road, East University Avenue and SE
    Hawthorne Road. Except for a few businesses on the periphery, the
    Porter's Neighborhood is strictly residential.
        According to the 1990 Census, the Eastside Redevelopment District
    had a total population of 4,043 persons, with 71 percent qualifying as
    low- and moderate-income under HUD's definition (80 percent of median
    family income). The Porter's Neighborhood had a total population of 441
    persons in 1990, with 87 percent low- and moderate-income. This
    compares with about 49 percent low- and moderate-income for the city as
    a whole in 1990.
        As part of the City's November 2000 Finding of Necessity for the
    4th Redevelopment District (now known as the Eastside Redevelopment
    District), the City Public Works Department identified approximately 11
    miles of semi-paved local streets and seven miles of local streets with
    pavement only meaning no sidewalks or storm drainage facilities in the
    District. The total cost to repave or reconstruct all of these semi-
    paved streets and streets with pavement alone, including providing
    sidewalks where needed, was estimated to be $9 million. The Department
    estimated that it would cost another $1 million to repave the
    approximately 6.5 miles of streets with curb and gutter in the
    District.
        Similarly, the Porter's Neighborhood has numerous deficiencies in
    its public infrastructure. The December 2000 Assessment of Need Study
    prepared for the Downtown Redevelopment District Expansion Area noted a
    general lack of sidewalks in the neighborhood, narrow streets with
    deteriorated pavement surfaces and a widespread absence of stormwater
    management and pollution control facilities. While the cost to upgrade
    the infrastructure in the broader Downtown Redevelopment District
    Expansion Area is estimated at upwards of $4.4 million, a sizable
    portion of this cost (approximately $1 million) can be attributed to
    just the Porter's Neighborhood.
        Street and structure (mainly residences) flooding is known to occur
    at several locations in the Eastside Redevelopment District and the
    Porter's Neighborhood due to inadequate and non-existent storm drainage
    facilities. This results in unsafe and unsanitary conditions. None of
    the semi-paved streets in either area have curbs and gutters, as most
    of these neighborhoods pre-date local government requirements for
    stormwater management and treatment.
        In order to address these critical needs in the Eastside
    Redevelopment District and the Porter's Neighborhood, the City proposes
    to replace open drainage swales with closed drainage systems, build
    sidewalks in locations where they are needed, and continue work on
    master stormwater management systems. An infusion of $1,000,000.00
    additional capital would allow the City to make a significant impact in
    both areas.

             Prepared Statement of the City of Miami Beach, Florida

        Mr. Chairman: On behalf of the City of Miami Beach, Florida, I
    appreciate the opportunity to submit this written testimony to you
    today on three extremely important initiatives, currently underway
    within our city, for which we are requesting Federal assistance.
    HUD Requests
        Initiative on the Homeless.--Miami Beach seeks $1 million in
    assistance for the development of a Homeless Assistance program under
    the sole jurisdiction of the City of Miami Beach. (Priority #1)
        North Beach Cultural Center.--The City seeks $5 million for the
    rehabilitation of a large downtown theater to serve as a cultural and
    community center. (Priority #3)
    EPA Request
        Stormwater Infrastructure Improvements.--The City is seeking a 90
    percent-10 percent local/Federal split of the total cost through the
    wastewater account within the EPA, with the total Federal share for
    this project being $9 million. (Priority #2)
    The Homeless Issue on Miami Beach
        Every day, by some accounts, many Miami Beach residents are
    homeless. Homeless individuals and families live in substandard
    conditions in places usually not suitable from human habitation, and
    face violence, sickness and despair; as well as the attendant issues
    resulting from abject poverty. Public health and safety are affected,
    and community concerns spur the City to undertake service enhancements
    such as additional police, fire, rescue, parks and street maintenance,
    sanitation services, and others. Within the Miami-Dade County area, the
    City of Miami Beach is singularly attractive to homeless migration.
    Routinely, the City receives a number of homeless that have left
    neighborhood municipalities in search for a place to sleep. With its
    tropical climate and beautiful beaches, the City provides a comfortable
    environment for encampments to take root. To address this continuing
    challenge, the City of Miami Beach provides funds to local nonprofit
    organizations and service providers, who attempt to serve the needs of
    the homeless population. The City also funds the enhancements that
    result from this activity.
        In 1994, homeless individuals in Miami settled a historic lawsuit
    with the City of Miami. Although not a party to this lawsuit, the City
    of Miami Beach is, however, directly affected by it. City of Miami
    Beach homeless individuals and families were left out of the zoning for
    the Homeless Assistance Center built by the Miami-Dade County Homeless
    Trust. In practical terms, this means that on any given day, homeless
    found in Miami Beach will only have access to a limited amount of
    shelter beds, which are shared by all other municipalities in the
    County. In 1999, the City Administration, the City of Miami Beach
    Police Department and the Committee on the Homeless developed a 3-year
    pilot program to further address the needs of homeless individuals and
    families on Miami Beach.
        The program tied into the City's adopted ``Continuum of Care''
    Plan, which is a part of the City's Consolidated Plan for Federal
    Funds. Services included outreach and emergency shelter for homeless
    individuals identified by the Police Department and local service
    providers. The program served a total of 185 individuals and families.
    At the end of the first 3 years of the program, several obstacles have
    been identified that have an impact on the ability of the City of Miami
    Beach to meet the needs of its homeless population.
        First and foremost is the lack of funds. Current Federal programs
    for the homeless are allocated on a competitive basis rather than to
    each community. This has benefited the Miami-Dade County community;
    however, there are still significant needs that are not being addressed
    in Miami Beach. The County allocates funds received under the
    SuperNOFA, to address countywide priorities that may not coincide with
    local, municipal priorities, such as the need for emergency shelter and
    transitional housing. It is estimated that approximately $1,000,000
    will be needed over the next 3 years to fund a sufficient amount of
    emergency shelter beds in available facilities, to address the needs of
    the Miami Beach homeless population. An additional amount of $1,300,000
    will be needed to fund transitional housing over the next 3 years. To
    complete the Continuum of Care System for Miami Beach, permanent
    housing must also be funded, at an estimated amount of $1,500,000 over
    the next 3 years.
        The second largest obstacle is the need for coordination of housing
    and supportive services, regardless of funding source. In addition to
    its funding of homeless activities, the City also expends approximately
    $2 million each year in Federal funds for affordable housing
    initiatives for very low, low and moderate-income residents. The City
    funds approximately $500,000 each year in social services for low and
    moderate-income residents, which includes homeless individuals.
    Although the City of Miami Beach's homeless individuals and families
    are currently participating and benefiting, in part, by the countywide
    Continuum of Care system, better linkages and coordination between the
    City's Federally-funded affordable housing, social services and
    homeless activities--and the SuperNOFA-funded programs at the County
    level needs to take place. The City estimates that the development of
    such service coordinators and the establishment of an intake facility
    will represent an expenditure of approximately $900,000 over the next 3
    years.
        The third and final obstacle is the lack of data on the homeless
    population in Miami Beach and its treatment needs. The information is
    key to tracking the progress or failure of the homeless person after a
    shelter intake; report on and evaluate results; and recommend program
    changes, treatment gaps, and funding needs. The development and
    implementation of an information tracking system is estimated at
    approximately $300,000 over the next 3 years.
        A total of $1,560,173 is currently being targeted from diverse
    sources to assist the homeless in Miami Beach. The County applies for,
    and receives the City's Pro-Rata share from the HUD-funded SuperNOFA
    each year. This amounted to $766,963 last year. Additionally, the City
    has set aside approximately $752,750 for activities that include
    homeless prevention activities, outreach, emergency shelter and
    transitional housing for homeless individuals. Approximately $40,500 of
    City of Miami Beach Police Department funds are used to support these
    activities.
        The City of Miami Beach has identified that need exists for
    $1,000,000 for emergency shelter beds, $1,300,000 for transitional
    treatment beds, $1,500,000 for permanent housing for formerly homeless
    individuals and families; $900,000 for the development of intake and
    outreach facility and staffing for the City; and finally $300,000 for
    an information system. This cost of this program is estimated at
    $5,000,000 over the next 3 years.
        The City of Miami Beach requests Federal assistance in the amount
    of $3,439,000 for the development of a 3-year Homeless Assistance
    Program on Miami Beach, beginning with an appropriation of $1 million
    in the 2003 VA, HUD and Independent Agencies Appropriations Bill.
    Stormwater Infrastructure Improvements
        The City of Miami Beach is facing a significant financial challenge
    in its attempts to provide adequate potable water and stormwater
    treatment/protection to its citizens. The City Commission has approved
    a local expenditure of $60,000,000 for the water and stormwater
    improvements, which has resulted in water and sewer rate increases to
    126 percent of national averages in fiscal year 2000 with approved
    increases bringing rates to 144 percent by fiscal year 2006.
    Unfortunately, the estimated cost to complete construction of these
    water and stormwater improvements is $90,000,000. The City does not
    have the ability to fund this entire amount. We are here today to ask
    for supplemental funding of $9,000,000 from U.S. EPA's State and Tribal
    Assistance Grant Account. This figure represents 10 percent of the
    project cost. The funds will be spent in the most socio-economic
    disadvantaged neighborhoods in the City.
        The City is responsible for distribution of potable water and
    providing stormwater conveyance, treatment and disposal to a diverse
    permanent population of 87,933 people, and a seasonal population of
    approximately 140,000 people. During the mid to late 1990s, the City of
    Miami Beach commissioned the preparation of a Water Master Plan, Sewer
    Master Plan and Comprehensive Stormwater Management Master Plan. These
    planning efforts evaluated the existing infrastructure and recommended
    improvements to meet the needs created by changes in land use and aging
    infrastructure. These Master Plans led to the creation of the City of
    Miami Beach Neighborhood Right-of-Way Infrastructure Program
    (``Program''), the funded portions of which the City anticipates to
    complete in late 2006. The City is reconstructing aged watermain and
    stormwater infrastructure in existing neighborhoods to maintain safe
    and reliable potable water service, improve water quality in the
    Biscayne Bay aquatic preserve and minimize stormwater flooding damage
    to public and private property. Individual neighborhoods will benefit
    from infrastructure upgrade projects relating to watermain replacement,
    sanitary sewer rehabilitation, and stormwater collection, treatment and
    disposal facility improvements.
        The majority of existing watermains in the City were installed
    anywhere from 50 to 80 years ago, and have reached the end of their
    useful life. Planned enhancements will replace corroded galvanized
    pipes and pipes installed with lead joints and will improve safety
    issues related to potable water distribution. Some water mains have
    become almost ``blocked'' by a process called tuberculation, where
    deterioration of a pipe's interior wall lining has occurred as result
    of chemical reactions with potable water. Excessive tuberculation has
    significantly decreased the effective pipe diameter, thereby affecting
    public safety through inadequate fire flows and by decreasing water
    pressure at the household tap, or more drastically, causing pipe
    collapse or failure. The new or rehabilitated watermains will improve
    water pressure and provide appropriate internal pressure to safeguard
    against backflow contamination during fire flows or other peak use
    situations.
        With regard to the City's stormwater system, the Master Plan
    identified over 160 drainage basins throughout the City of Miami Beach.
    Approximately 34 basins were identified as a priority based upon
    pollutant loading, pollutant concentration, flooding potential, citizen
    complaints and City operational staff rankings. The City experiences
    various levels of flooding, depending on the extremity of the rain
    event. With many of the City's priority drainage basins barely above
    sea level, and the system not being capable of handling a 5-year storm
    event, flooding occurs in many of the basins during a regular rain
    event, with higher flooding levels occurring during high tide or a
    major storm. Due to high groundwater elevations, drainage is slow,
    requiring extensive periods of time to dissipate. Continuous excessive
    ponding over the long term causes the deterioration, and ultimately
    failure, of paved roads, and can lead to mosquito breeding areas. When
    the proposed improvements are completed, these priority basins will
    dispose of a 7.2-inch rainfall (5-year storm) event over a period of 24
    hours.
        All of the City's stormwater runoff is drained into Biscayne Bay, a
    nationally recognized aquatic preserve. Biscayne Bay was identified as
    one of Florida's highest priority water bodies and was the subject of a
    specific plan developed to help protect and enhance it. This plan is
    referred to as the Biscayne Bay Surface Water Improvement and
    Management (SWIM) Plan. One of the main goals of the plan is to
    maintain and improve water quality to protect and restore natural
    ecosystems and compatible human uses of Biscayne Bay. The City's plan
    to construct and/or enhance existing systems for stormwater conveyance,
    treatment and disposal facilities helps achieve that goal. As a
    municipality within Miami-Dade County, the City is a National Pollutant
    Discharge Elimination System (NPDES) Phase I permittee, and is required
    to eliminate pollutants to the maximum extent practical. The proposed
    stormwater improvements will enhance treatment of runoff prior to
    discharge, minimizing pollutant loadings into the Bay and help the City
    fulfill its requirement.
        While the majority of the Program is currently locally funded,
    requesting Federal cost sharing is reasonable. The City is one of the
    few large Dade County communities to embark on such a program before
    regulatory pressures require it. Typically, municipalities have waited
    to make such improvements until either State or Federal officials used
    regulatory reform or enforcement actions to force the issue through a
    consent degree, administrative order or court judgments. In contrast,
    the City has already bonded $60,000,000 for these improvements from
    local resources, which represents two-thirds of the total Program cost.
    The City is considered a major vacation spot in the County, as well as
    the nation. Regular flooding impedes the commercial uses of the City
    and detracts from the City's reputation as a tourist destination. The
    City's system is not even capable of expelling stormwater at a 5-year
    storm level, whereas most places in the nation are able to expel
    stormwater at that level.
        The City has limited its Funding Request to four neighborhoods that
    comprise the City's North Beach area. These neighborhoods, including
    Biscayne Point, North Shore, Normandy Shores and Normandy Isle, have
    very low Median Household Incomes (MHI). The targeted neighborhoods'
    average MHI is approximately $18,000, or 70 percent of the State of
    Florida average. These neighborhoods include a variety of land uses,
    including highly urban commercial, residential, recreational and multi-
    family areas, with some pockets of single-family residential, and are
    eligible for such Federal funding as the US Department of Housing and
    Urban Development (HUD) Community Development Block Grant and Section
    108 funds.
        As discussed earlier, the City seeks to have funding in the amount
    of $9,000,000 for this Program approved in the fiscal year 2003 VA,
    HUD, and Independent Agencies Appropriations Act's STAG Account by
    having the following language included:
        ``A $9,000,000 grant to the City of Miami Beach, Florida for the
    watermain reconstruction and stormwater improvements in the
    neighborhoods of Biscayne Point, North Shore, Normandy Shores and
    Normandy Isle.''
        The City is in a position to accept the traditional local match
    share requirement of 45 percent and will make the $7,000,000 in local
    funds available upon approval of the funding. However, without the
    approval of this grant, portions of the Program will be in jeopardy of
    not being constructed because of lack of local financing.
        To date, this Appropriations Act has granted $4,894,812,625 in
    ``special needs'' water related grants between fiscal year 1992 and
    fiscal year 2002 to similar projects in municipalities across the
    nation. During this same time frame, Florida has received $117,945,000
    of the total monies granted. This is the City of Miami Beach's first
    request for funding from this source. This Program truly impacts the
    health and safety of City residents by replacing deteriorated
    watermains that will improve fire flows and prevent backflow
    contamination during peak use. In addition, enhanced stormwater
    collection, treatment and disposal will provide residents and property
    with adequate storm protection, facilitate the dissipation of standing
    water, and remove pollutants from stormwater runoff flows prior to
    disposal to the Biscayne Bay, a nationally recognized aquatic preserve.
    North Beach Cultural Center
        The Byron Carlyle Theater was an abandoned 7-screen movie theater
    that is located in the central business district of Miami Beach's North
    Beach area. The theater was closed by Regal Cinemas in 1999, and was
    vacant until the City purchased it and leased a small portion to four
    local non-profits in late 2001. The City of Miami Beach has begun the
    implementation of a strategic plan for the revitalization of the North
    Beach area, which includes approximately $124 million in capital
    improvement projects that will be implemented during the next 6 years.
    The redevelopment of vacant buildings such as the theater is crucial to
    the economic and business development components of the North Beach
    Strategic Plan. However, due to the unique layout and structural nature
    of older movie theaters, such as this, redevelopment options are
    limited and expensive.
        There are two reasons that Miami Beach is transforming this
    building into the North Beach Cultural Center. First, the redevelopment
    of this theater is an integral component of the Strategic Plan for the
    economic revitalization of the North Beach area of Miami Beach. While
    other areas of Miami Beach have enjoyed tremendous economic success
    over the last 10 years, the North Beach area has lagged in its growth
    and continues to evidence a concentration of low-income households and
    a lack of private sector investment. The emergence of cultural
    institutions during the beginnings of the economic revitalization of
    South Beach's Art Deco District directly contributed to the area's
    continued success. Secondly, the success that cultural organizations
    helped create in South Beach is also a reason for the creation of a
    cultural facility in North Beach. As South Beach boomed, local cultural
    institutions became self sufficient and successful, area market trends
    began to improve and property values appreciated significantly. In
    1993, the primary cultural area in South Beach was on Lincoln Road,
    where rental rates averaged $12 per foot. In 2000, rental rates reached
    $75 per square foot, and many small businesses and cultural
    organizations were forced to either relocate or dissolve. Additionally,
    many cultural organizations currently housed in City-owned facilities
    will soon have to relocate as the City expands to meet the ever-
    increasing service levels expected by the citizens. A central facility
    that accomplishes both goals is critical to the economic revitalization
    of North Beach. To date, the City has completed the Phase I renovation
    of the former lobby area, and has leased this new office space to three
    cultural organizations that were displaced from South Beach. The City
    has leased additional space in the facility to the North Beach
    Development Corporation.
        The development of the North Beach Cultural Center will also help
    transform the entire City of Miami Beach into a world-renowned center
    for the creation and consumption of culture. Miami Beach is home to
    many internationally acclaimed cultural organizations, such as the New
    World Symphony, the Miami City Ballet, and the Bass Museum. These
    organizations, however, are located in a small concentrated area of
    South Beach. The City also has over 75 smaller cultural groups that are
    the true cultural heart of Miami Beach. Organizations such as the
    Concert Association of Florida, Ballet Flamenco La Rosa, and the
    Performing Arts Network continue to struggle for their economic
    survival. The ability to provide a facility that allows these groups to
    remain in Miami Beach will provide a venue where many emerging small
    organizations can continue to grow and prosper and at the same time
    provide a catalytic cultural component to the revitalization effort in
    North Beach.
        In 1999, in an economic impact report to the City of Miami Beach's
    Mayor's Economic Council, Florida International University identified
    that investment in the cultural arts has the highest economic output
    multiplier of all local industries. The challenge for cities such as
    Miami Beach, however, is, providing the level of Cultural Arts
    investment that is required to generate this ``biggest bang for the
    buck.''
        The City of Miami Beach purchased the facility for $1.7 million,
    and spent an additional $500,000 on the Phase I renovations. Phases II
    and III are much more extensive and costly, and projected costs are
    approximately $6 million. These phases will include renovation of two
    of the former movie theater spaces into a single use space capable of
    accommodating 250 people. The City has applied to the State of Florida
    for a $460,000 grant for this project, and the North Beach Development
    Corporation, the Miami Beach Community Development Corporation, and
    Miami-Dade County have committed a total of $750,000 to the Phase II
    renovations. The City has also identified funding sources that will be
    committed to the annual operation of the facility once it opens. When
    completed, the Facility will interact with the nearby North Beach Youth
    Center, a $6 million project that is currently under development one
    block away. The City of Miami Beach requests an appropriation of $5
    million for the North Beach Cultural Center in the 2003 VA, HUD and
    Independent Agencies Appropriations Bill.
                                     ______

              Prepared Statement of the City of Newark, New Jersey

        The City of Newark, NJ hereby submits for the record, testimony
    regarding three projects that are of great importance to the State of
    New Jersey's largest City. The projects described below each address an
    aspect of the needs of Newark's low income population. The third oldest
    major city in America, Newark is also one of the most densely
    populated. The provision of educational, cultural and recreational
    opportunities for our residents continues to be critical to the
    economic and social growth of the City. Through partnerships with other
    levels of government and the non-profit and private sectors, Newark is
    involved in expansive change. Your assistance is sought on the three
    projects described below.
                             newark public library
        The Newark Public Library system is one of the unsung foundations
    of the City. It has serviced every segment of the Newark community for
    over 100 years. Located in the heart of the city's James Street
    Historic District, the Newark Public Library has since 1888 served as a
    major influence in the intellectual and cultural life of this great
    American city. The Newark Public Library system, anchored by the Main
    Library on Washington Park, includes 10 branches one in every
    neighborhood of the city. The library system offers service to 270,000
    city residents, to 175,000 people who commute to Newark every day to
    work or attend college and university classes, and to many individuals
    and libraries from the surrounding region and throughout the state.
        The Newark Public Library's mission is to be Newark's premier
    center for education and learning. Fulfilling this mission, it serves
    as an education and learning support center, a reference and research
    library, a popular materials library, and a community center. The
    Library offers encouragement and support to all people in the
    achievement of their educational goals and their pursuit of lifelong
    learning. It provides people of all ages with abundant opportunities
    for enrichment and supports them in the discovery of the joy of
    reading.
        During the past several years, the Newark Public Library has
    systematically improved and modernized each of its ten branches, which
    serve as homework centers and Internet access sites, in addition to
    more traditional library functions. Indeed, the City's $5 million
    capital allocation has enabled the Library to completely renovate one
    branch in each of the City's five wards.
        With an operating budget of approximately $12 million dollars, the
    Library still relies upon foundation, corporate, individual and State/
    Federal grants to meet the increasingly diverse needs of the patrons.
    With grants from funders like the Prudential Foundation, the Victoria
    Foundation, Lucent, MCI, and the Turrell Fund, the Library is able to
    augment its operating budget by approximately $2 million dollars per
    annum.
        Now the Library, recognizing that Newark requires and deserves a
    first rate downtown facility, will undertake a major renovation of its
    landmark main building. The Library needs to add environmentally
    controlled collection space, accessible reader areas, parking
    facilities, and upgraded systems to support expanding technology
    capabilities. A comprehensive fundraising campaign has been planned and
    adopted by Library leadership to reach out to private donors,
    corporations, foundations and government sources. The Library's current
    donor base, including the 13-year old organization, Friends of the
    Library, will also be asked to make significant pledges over a 5-year
    period. The Library has hired professional fundraising counsel, a
    feasibility study has been completed and the leadership gift phase of
    the campaign is underway with its first gift of $1 million.
        In addition to the lead gift from The Prudential Foundation, the
    Library has received $289,733 from the Public Library Construction Bond
    Fund, and $90,000 in project support from the Victoria Foundation.
    Federal funds are sought to support the renovation initiatives and to
    act as a critical incentive for private source giving.
        An investment in the Main Library facility is also an investment in
    its services and programs. For decades, the Newark Public Library has
    provided significant programming for its entire community. The
    Library's summer educational program for children is a model for the
    nation. That program provides unique weekly activities for thousands of
    children throughout the summer. During the academic year, the Library,
    together with the Newark School District, provides daily educational
    services for children in grades K-12.
        Evening cultural programs include lectures by significant authors
    and other educational and cultural figures. Performances conducted in
    Library facilities encompass the full spectrum of the arts including,
    dance, theater, film, and music. Adults have been attending in record
    numbers in recent years.
        Classes for adults include English as a Second Language, literacy,
    and computer skills training. The Library is, appropriately, the city's
    primary source for Hispanic collections and translation services. Sign
    language classes are also conducted on a regular basis to assist the
    deaf community. The Library's facilities are a significant resource for
    local organizations. The Main Library provides free meeting rooms and
    program space for many local organizations.
                            fiscal year 2003 request
        An appropriation of $5 million is sought to assist in the
    implementation of the Newark Public Library renovation and
    modernization.
                          nat turner field development
        Nat Turner Field is an undeveloped tract of land that the City of
    Newark acquired with NJ Green Acres funding so that it would be
    preserved as parkland rather than undergo development. It is surrounded
    by newer housing developments on the west, a City pool/recreation
    center and elementary school on the east, and an elementary school to
    the south. To the north was a large abandoned factory, which was a
    troublesome brownfield site for many years. It has recently been
    demolished, and has been selected by the Newark Public Schools as the
    site of a new high school, to be built through the State Abbott
    District program. This activity presents a unique opportunity for
    partnership between the Schools and the City.
        It is proposed that Nat Turner Field be developed into a
    recreational facility that will jointly serve the needs of the two
    elementary schools and the new high school, as well as the community
    at-large beyond school hours. The existing pool and recreation center
    could be renovated to be part of a larger, more comprehensive complex,
    and serve the schools as well. The schools will educate approximately
    1,800 students. The summer recreation program will serve over 2,000 low
    to moderate income families from the neighborhood.
                            fiscal year 2003 request
        The City of Newark is seeking $3,000,000 in order to take the
    conceptual design to an implementable plan, and construct the Nat
    Turner Field. It will serve as the recreation focus for thousands of
    students and families in a redeveloping neighborhood, as part of a
    comprehensive revitalization plan.
                john f. kennedy recreation center modernization
        The JFK Recreation Center was built in the 1960's, and serviced the
    population of several high-rise public housing projects. The Newark
    Housing Authority has proceeded with the demolition of those failed
    projects, and has recently received $35,000,000 for its HOPE VI
    Redevelopment plan. The 45 acre site is being completely renovated,
    with 755 new townhouse and low-rise public housing units, which will
    become a part of the fabric of the City. The State of New Jersey is
    committed to building new schools in the neighborhood through its
    Abbott District program, and new commercial facilities are planned
    nearby.
        The City of Newark proposes to modernize and improve its
    neighborhood recreation facility so that it can serve as the
    neighborhood center for the newly rehabilitated area. The JFK
    Recreation Center has, in two buildings, a full sized gymnasium, and an
    Olympic-sized swimming pool under a retractable roof. But the buildings
    are not connected children must walk outside to get from the pool to
    the gym. This causes difficulty in programming and management, as well
    as potential health problems for young, as well as elderly, program
    participants. In addition, the buildings present fortress-like brick
    walls to the street; rather than being a neighborhood beacon, the
    facility appears forbidding. There is no green space or outdoor play
    areas, and no parking facilities. Equipment modernization is also
    needed for the pool filtration and air systems, so that activities can
    go on 365 days a year. To date, the City of Newark has allocated
    Capital Budget funds of $6,731,173 to this project.
                            fiscal year 2003 request
        The City of Newark is seeking $3,000,000 in order to upgrade
    mechanical systems, construct a new entryway, and make other
    improvements to make the JFK, Jr. Recreation Center a full-service
    community facility for the HOPE VI neighborhood.
        The consideration of this committee will be greatly appreciated by
    the citizens of the City of Newark.
                                     ______

     Prepared Statement of the Coalition for Indian Housing and Development

        On behalf of the members and Board of Directors of the Coalition
    for Indian Housing and Development, I would like to thank Chairwoman
    Mikulski, Ranking Member Bond and other distinguished members of the
    Subcommittee for the opportunity to submit public witness testimony.
                              hud's budget request
        As Chairman of the Coalition for Indian Housing and Development and
    the National American Indian Housing Council, and Executive Director of
    the Navajo Housing Authority, I come to you representing Americans who
    daily endure the most deplorable housing conditions in the country.
    These are people within America's borders who commonly live 15 to 20
    people in one small house. These are people for whom proper sewage
    facilities, roads, and indoor plumbing is often a luxury, rather than a
    standard. These are people who, like many other Americans, dream of
    owning their own homes.
        Indian housing is at a crucial stage. Many of the housing problems
    that have long plagued Indian communities remain unresolved. The
    passage of the Native American Housing Assistance and Self-
    Determination Act of 1996 (NAHASDA) has given tribes and Tribally
    Designated Housing Entities (TDHEs) incredible new opportunities, and
    with adequate funding, NAHASDA can be the most important tool in
    building sustainable, healthy communities in Indian Country.
        President Bush has requested roughly $646 million for the NAHASDA
    block grant for fiscal year 2003. This is four million dollars less
    than was proposed in fiscal year 2002, and roughly two million less
    than appropriated for fiscal year 2002. In light of current events, the
    Coalition recognizes the new priorities of the Federal government in
    terms of homeland security; however, it is important intrinsic needs
    like housing for Americans are not sacrificed for the wartime effort.
    In times of peace or conflict, homeland security begins with a home,
    and it is only through steady increases in the NAHASDA block grant that
    the Native American population may begin to realize a home life outside
    of third-world-like destitution.
                        funding needs for indian housing
        CIHD believes Indian housing could be in more need of federal
    support than any other housing program in this country. The lack of
    significant private investment and the dire conditions faced in many
    communities mean that federal dollars make up a larger portion of the
    total housing resources than in other areas. NAHASDA has been one key
    to housing improvement and homeownership in Indian country. By direct
    application of NAHASDA funds, or by leveraging their tribe's NAHASDA
    allocation for large-scale projects, tribal housing authorities have
    been able to use NAHASDA to dramatically improve the severe living
    conditions on their reservations.
        CIHD supports NAHASDA and believes it has been effective in
    providing better housing for American Indians and Alaska Natives.
    Housing production under NAHASDA has more than tripled since its
    passage in 1996. Before NAHASDA, there were only around 2000 homes
    being built per year, now more than 25,000 homes are complete or under
    construction.
        For NAHASDA to continue to be effective, however, an increase in
    funding is necessary to meet existing housing shortages. CIHD estimates
    71,000 units need renovation or replacement, with an average cost of
    $26,000 each. New housing needs are at least 4,500 new units per year
    at an average cost of $96,000 per unit. Finally, existing housing
    operation and program operating costs are expected to be over $300
    million.
        The Coalition for Indian Housing and Development estimates that, to
    meet the suitable housing shortage as presented to us now, we need at
    least $1.0752 billion in funding for the NAHASDA block grant.
    Increasing the size of the block grant given to the office of Housing
    and Urban Development through the Native American Housing Assistance
    and Self-Determination Act (NAHASDA) from $650 million per year to $1
    billion per year is necessary to provide the nearly 200,000 housing
    units currently needed in Indian Country.
        Native communities are in dire need of improved housing. The
    Coalition for Indian Housing and Development and the National American
    Indian Housing Council estimate more than 40 percent of the Native
    American population lives in over-crowded or physically inadequate
    housing. For the Navajo Nation alone, the immediate need is between
    20,000 and 30,000 housing units. Spanning over 18 million acres of
    land, the Navajo Nation suffers from chronic unemployment and massive
    housing need. Over 56 percent of Navajos live below the poverty level.
    As for many other tribes across the nation, this is a situation that
    requires drastically increased federal assistance to remedy.
        Indian housing needs are many and varied. Basic infrastructure,
    low-rent housing, homeownership and housing counseling services are all
    crucial. The NAHASDA block grant allows tribes to determine their own
    needs and their own course of action. In this respect, NAHASDA is a
    model program and should be supported. In supporting NAHASDA, however,
    the Congress must also support improved technical assistance for tribes
    seeking to efficiently and effectively utilize NAHASDA's unique
    features.
        Although fully funding NAHASDA to meet the existing needs would
    require an increase in funds of $350 million, Native Americans would be
    well served if the Congress chose to increase the program incrementally
    over the next 5 years. For fiscal year 2003, $700 million, for fiscal
    year 2004 $775 million, for fiscal year 2005 $850 million, for fiscal
    year 2006 $925 million and for fiscal year 2007 $1 billion.
        Without an increase in funding, tribes and tribally designated
    housing entities will not be able to provide housing for the 1.6
    million Native Americans and Alaskan Natives who live without proper
    shelter. CIHD urges you to support an increase in NAHASDA block grant
    funding to at least $1 billion over the next five fiscal years.
                         the effect of new census data
        Recently released census data for 2000 confirm a major increase in
    the Native American population. Data show a doubling of the number of
    Native Americans and Alaska Natives from 1.96 million to 4.1 million,
    including Americans of mixed-race Native descent. For Native Americans
    and Alaska Natives that are not of mixed-race, data show an increase of
    over 28 percent for a total of 2.5 million.
        For a population struggling intensely to provide adequate shelter
    for its families, an increase of this magnitude puts an incredible
    strain on the restricted funds tribes rely on. These census figures
    only confirm what tribal leaders and tribal housing administrators have
    known for some time--housing needs on reservations have outgrown
    available funding. While not all Native Americans live on reservations
    where housing needs are the most severe, tribal leaders attest to
    population increases across the board, including on reservations.
        In light of this new data, it is the Coalition's hope that Native
    communities will receive the funding increases outlined to offset
    hardship brought on by rapidly growing need.
                                toxic black mold
        The growth of black mold in tribal homes has been linked to health
    risks ranging from flu-like symptoms, skin rashes, fever, and headaches
    to inflammation of the respiratory tract, neurological problems and
    suppression of the immune-system. In more recent years, black mold is
    also suspected to blame for several deaths, particularly of children.
    As of August 1, 2001, HUD compiled a list of over 20 tribal areas
    experiencing mold problems, including 320 federally-subsidized homes on
    the Turtle Mountain Indian Reservation. Other areas affected are
    concentrated in the northeast, northwest, and northern plains where wet
    seasons and flooding have exacerbated the mold growth. Tribal housing
    officials say black mold is ravaging their homes, putting a terrible
    strain on already tight housing funds, since many homes with black mold
    must be remodeled or completely destroyed to remedy the situation.
        No specific funding currently exists for addressing black mold in
    tribal homes, but estimates are that $20 million is needed to fix the
    situation at Turtle Mountain alone. Tribes have been trying to address
    the problem with their NAHASDA block grant funds (approximately $650
    million for fiscal year 2002), but this block grant was not created for
    disaster relief. It was created for new construction and normal
    rehabilitation of aging homes. Under objection from CIHD, $5 million
    was taken from NAHASDA in fiscal year 2001 specifically for Turtle
    Mountain for black mold. NAHASDA is not large enough to support this
    sort of set-aside, particularly since so many other tribes across the
    country are experiencing the same problem.
        Black mold is not only a problem for tribes, however. It has also
    be causing problems for the rest of America, but to date, no particular
    agency or program has been able to fill in the gaps.
        Recently, HUD Secretary Mel Marinez authorized the use of a new
    weapon for tribes and other affected groups to battle Black Mold.
    Secretary Martinez is opening up the Lead Based Paint Hazard Control
    Grant Program and Healthy Homes Initiative to those homes and families
    being harmed by Black Mold. Having been highly successful program in
    dealing with the lead based paint crisis, the Coalition is excited by
    the prospect of a new awareness and remedy of Black Mold on
    reservations; with adequate funding, the incorporation of Black mold
    into the accepted uses of the Lead Based Paint Hazard Control Grant
    Program could mean its eradication. The Coalition for Indian Housing
    and Development supports budget increases for HUD's Lead Based Paint
    Hazard Control Grant Program and Healthy Homes Initiative to a total
    allocation of $30 million.
               public and indian housing drug elimination program
        Eliminating funding for the Public and Indian Housing Drug
    Elimination Program (PIHDEP) would abruptly halt successful efforts by
    tribes around the country to combat drug abuse and its resulting
    effects on tribal communities. The President has put an end to this
    important program with a redistribution of funds to increase operating
    subsidies for public housing authorities in hopes that PHAs will use
    the funds for more effective anti-drug activities or for other
    priorities.
        Tribes and TDHEs do not participate in public housing programs and
    therefore receive no public housing operating subsidies. The
    Administration claims the program should be eliminated because of
    general misuse of funds and ineffective anti-drug activities, but in
    Indian Country, these programs have seen remarkable success.
        According to an eleven-month study conducted by NAIHC in 1999 and
    2000, the PIHDEP has created an opportunity for TDHEs to develop
    innovative, creative, unique solutions to crime reduction in Native
    communities. A National American Indian Housing Council study noted
    that, prior to the Public and Indian Housing Drug Elimination Programs,
    tribes reported feeling overwhelmed with the burden of having to
    address these problems on their own, without knowledge of how to solve
    the problems or money with which to build an infrastructure of programs
    and services designed to address these community issues.
        HUD Secretary Mel Martinez has said that the PIHDEP is too open-
    ended and that HUD has no business being involved in such a program.
    While it is not possible at this point to come to quantitative
    conclusions about the percentage of improvement in these communities in
    regard to any decrease in crime or substance abuse, the NAIHC study
    indicates that the PIHDEP is having a positive effect in tribal
    communities. Decreased crime and improvements in community values can
    do much to support sustainable housing conditions on reservations.
        The Coalition for Indian Housing and Development feels it was an
    oversight on the part of the Administration to end this program without
    arranging for supplemental funding for tribes elsewhere. A blanket
    verdict on the Drug Elimination Program does not take into account
    several successful programs around the country, including Indian Drug
    Elimination activities. If this is the direction the Department chooses
    to go, providing operating subsidies to take the place of PIHDEP, then
    the tribes must be compensated with an increase in the NAHASDA block
    grant to support drug elimination programs on reservations.
                 rural housing and economic development program
        CIHD is also concerned with the elimination of the Rural Housing
    and Economic Development Program from the President's budget for the
    second year in a row. We are grateful to the Senate Appropriations
    Committee for insuring that the program was funded in fiscal year 2002
    despite it being left out of the President's budget and the House
    appropriations bill.
        Although funded at only $25 million for the past 2 years, a large
    portion of RHED grant recipients have been tribes and TDHEs.
    Furthermore, although RHED has been said to duplicate USDA programs, on
    the contrary, this program has been able to fill in for tribes where
    other programs have not. It has been a new and useful tool in capacity
    building and for supporting innovative housing and economic development
    activities. Taking into consideration the limited resources available
    in Indian Country, removing useful programs is counter-productive. If
    the goal is to increase the capacity of tribes and other rural
    communities in order to make them self-sustaining, this is just the
    sort of program that ought to be supported by the Congress and
    Administration.
                      funding for native hawaiian housing
        In 2000, Congress enacted the Native Hawaiian Housing Assistance
    program (Title II, Public Law 106-568). This is the first such effort
    to provide aid for Native Hawaiians since the Hawaiian Homes Commission
    Act of 1920. Modeled after the NAHASDA, the new Native Hawaiian Housing
    Assistance program provides tools desperately needed to improve Native
    Hawaiian housing.
        Although housing conditions for the greater Native American
    population are appalling, Native Hawaiians continue to have the
    greatest unmet need and the highest rates of overcrowding in the United
    States. Overcrowding is seen in Native Hawaiian homes at a rate of 36
    percent as opposed to 3 percent for all other homes in the United
    States. While housing problems are seen in 44 percent of American
    Indian and Alaska Natives homes, the number is actually higher at 49
    percent for Native Hawaiians, and only 27 percent for other homes in
    the United States. Right now there are 13,000 Native Hawaiians, or 95
    percent of those eligible to live on the Hawaiian Home Lands, who are
    in need of housing.
        In light of these desperate conditions in Hawaii, the President has
    authorized $10 million in fiscal year 2003 for the Native Hawaiian
    Housing Block Grant. The Coalition for Indian Housing and Development
    supports this request, and is encouraged by the Administration's
    support of this new program.
                       community development block grants
        The Community Development Block Grant (ICDBG) program is a crucial
    tool in the development of infrastructure and economic opportunities in
    tribal communities. The Indian set-aside under the CDBG program has
    been 1.5 percent of the total appropriation for several years. The
    Coalition for Indian Housing and Development believes that to both
    develop effective housing strategies and to stimulate economic
    development needed to support homeownership and necessary to job
    creation, this ICDBG amount should be expanded. The President's budget
    reflects an increase of $2.5 million to the Indian Community
    Development Block Grant program. While CIHD is encouraged by the
    President's recognition of the need to increase ICDBG, the Coalition
    feels that to adequately meet the basic needs of tribes, the fiscal
    year 2003 increase should be boosted to reflect at least 3 percent of
    the total CDBG program allocation, or $144 million.
                                   conclusion
        In closing, I would again like to thank all the members of this
    subcommittee, in particular Chairwoman Mikulski and Ranking Member Bond
    for their continuing support for Indian housing programs and the
    tribes. CIHD looks forward to working with each of you in this and
    future sessions of Congress and I am happy to answer any questions you
    may have.
                                     ______

                  Prepared Statement of College Partners, Inc.

        Madame Chairwoman and members of the subcommittee, thank you for
    opportunity to submit testimony on behalf of College Partners, Inc
    (CPI) regarding fiscal year 2003 appropriations for the Department of
    Housing and Urban Development. CPI is a not-for-profit organization
    comprised of Spelman College, Morehouse College, and the Morehouse
    School of Medicine in Atlanta, Georgia.
        CPI evolved out of a shared commitment to enhance the
    revitalization of Atlanta's West End community which sits at the
    boundary of the Atlanta University Center (AUC), and is less than three
    miles from downtown. Our principal objective is to acquire and
    revitalize an eleven acre plot of land in Atlanta's West End which
    holds tremendous potential for our institutions and the surrounding
    community. With the acquisition of this property we will blend the
    colleges with the community and create sustainable development through
    activities focused on quality housing, youth and adult education, job
    training, health services, and public awareness.
        We would like to express our appreciation for the $200,000 that was
    provided for this important initiative in the fiscal year 2002 VA-HUD
    appropriations conference report. With respect to fiscal year 2003, we
    request that the subcommittee provide $5 million from the Economic
    Development Initiatives account to support this innovate project.
        We would now like to discuss in greater detail the CPI partnership,
    and what we are trying to accomplish for our institutions and the West
    End community.
    The West End Community
        The immediate West End includes the now-demolished Harris Homes
    public housing project, minor retail and commercial properties, an
    insurance field office, and a MARTA rail and bus line. Moving outward,
    the property is three miles southwest of prime commercial developments
    such as Phillips Arena, the Georgia Dome, and the World Congress
    Center. Despite the West End community's strategic location, however,
    the area has been unable to significantly capitalize on the current
    renewed interest in ``in town'' residential and commercial development.
    Recent reports profile the West End as a community with high
    unemployment, low educational attainment, deteriorating and/or vacant
    housing, and a preponderance of families that live at, or below, the
    federal poverty level. According to the 1990 U.S. Census data,
    statistics show that this community suffers from an unemployment rate
    of over 25 percent, while the median income of the Harris Homes
    community in particular was a staggering $5,912. Moreover, while 61
    percent of the families are living below the poverty level, over 70
    percent of the female-headed households are similarly situated.
    Additionally, these and other statistics significantly affect the
    health and mortality rates of city residents. Subsequently, the overall
    mortality rate of Atlanta African American residents, which are the
    overwhelming majority in the West End community, is almost one and one-
    half times that of white residents.
    The Vision
        Our vision includes transforming the under-developed property in
    the Lee Street Corridor into an inviting entrance to a vibrant learning
    and living environment. The development will integrate the colleges
    with the surrounding neighborhoods to create an educational corridor or
    ``College Town'' and will provide an improved physical linkage between
    the neighborhoods and adjacent college campuses. Ashby Street,
    traditionally a dividing line between the Colleges and neighborhoods
    west of the campuses, will be redesigned with a fabric of public
    spaces, landscaping and local-serving retail uses. Ashby Street will
    become a ``seam'' joining the neighborhoods and the Colleges, as
    opposed to the divider it has been in the past.
        CPI is working in partnership with the Atlanta Housing Authority
    (AHA) to acquire the 11-acre tract of land in a value-for-value land
    swap. As part of an agreement signed in May 1999, CPI agrees to
    purchase real estate in other parts of southwest Atlanta in exchange
    for the 11-acre tract held by AHA. Acquisition of this property is
    critical to our efforts to expand the campuses for future growth. Such
    expansion is currently curtailed by Interstate Highway 20 and the 2,700
    public housing units that are within a one-mile radius of our campuses.
    The requested land will enable the surrounding community development
    process to continue and remain on target with the objectives of the
    city's Empowerment Zone, which already has improved the neighborhoods
    east and north of the campuses.
        With the acquisition of the requested land, the Colleges will be in
    a stronger position to expand their capabilities and establish and/or
    expand programs in our institutional areas of expertise and experience.
    For example;
        Spelman College, through its Education department, plans to provide
    local residents with training in early childhood development and
    childcare while simultaneously providing a hands-on laboratory for
    student education majors. Through the College's Continuing education
    program, Spelman would be able to work with single heads-of-households
    to transition from welfare to work. Additionally, Spelman would be able
    to expand it's Entrepreneurial Business Development Program, which
    already has provided nearly 200 local community residents with training
    on how to establish, maintain, and expand a home- based or micro-
    enterprise in retail, service, and manufacturing industries.
        Morehouse College anticipates expanding its partnership with the
    Fannie Mae Foundation and HUD to provide leadership training to
    community organizers, local nonprofit organizations, and the members of
    the Neighborhood Planning Units (NPUs). The Fannie Mae project is
    designed to establish mutually beneficial relationships with adjacent
    communities that will result in sustained economic and social
    improvement and provide students with service- learning opportunities
    that cultivate civic growth and development. Additionally,
        Morehouse, in partnership with each of the other AUC institutions,
    has already taken the lead to work with the Atlanta Public Schools in
    the development of an application to establish a charter school, which
    will have an emphasis on mathematics and science and will provide
    clinical experiences for aspiring teachers from each of the AUC
    institutions.
        The Morehouse School of Medicine has made health services an
    integral part of its focus in developing primary care physicians and
    anticipates expanding its Community Health and Preventive Medicine
    Programs. Several components of the program include a Health Promotion
    Resource Center, a Center for Public Health Practice, and a Preventive
    Medicine Residency Program. Each of these programs is designed to
    partner with communities to provide services to assist with health
    related issues. Additionally, the School would like to expand its
    Benjamin Carson Science Academy, an initiative to introduce minority
    elementary and middle school students to health and science careers
    early in their education. The program, which has worked aggressively
    with youth from Harris Homes, consists of a Saturday academy and a
    four-week summer component.
        Additionally, the acquisition of the property will allow all three
    CPI institutions to expand their campuses, helping to alleviate
    problems associated with projected student enrollment increases and
    limited space within the AUC generally. The combined student enrollment
    for all six AUC institutions is approximately 12,700, up from 8,400 in
    1990, an increase of over fifty percent. Moreover, combined enrollment
    is expected to grow by approximately 2,000 students over the next
    twenty years. All six AUC institutions are in full support of CPI and
    this initiative.
        A study conducted by real estate appraisers Pritchett, Ball, & Wise
    comments on the West End community that, ``within the life cycle of a
    neighborhood, including growth, stability, decline, and revitalization,
    we place this neighborhood in the early stages of revitalization.'' The
    West End's geographic proximity to the downtown epicenter, coupled with
    its balanced set of land uses, lends the area to reap secondary
    benefits from housing to entertainment to small-, mid- and large-scale
    commercial development. CPI acknowledges and appreciates the academic,
    community, and municipal support that it has received from the City of
    Atlanta generally and the West End community specifically. By acquiring
    this land and utilizing it, CPI will be able to give back to the West
    End community and assist it in its development efforts.
        Madame Chairwoman, thank you for the opportunity to submit
    testimony to the subcommittee and for your support of this important
    initiative. If you have any questions or need additional information,
    please do not hesitate to contact us.
                                     ______

      Prepared Statement of the Consortium of Social Science Associations
                                    (COSSA)

        The Consortium of Social Science Associations (COSSA) represents
    over 100 professional associations, scientific societies, universities
    and research institutes concerned with the promotion of and funding for
    research in the social, behavioral and economic sciences (SBE). COSSA
    functions as a bridge between the research world and the Washington
    community. A list of COSSA's Members, Affiliates, and Contributors is
    attached.
        COSSA appreciates the Subcommittee's past strong support for NSF,
    particularly last year's substantial increase over the President's
    proposed budget. We are well aware that every year the Subcommittee
    confronts difficult choices among competing agencies under its
    jurisdiction in a budget constrained by the desires of some to limit
    Federal spending. COSSA hopes that NSF will remain an important
    priority for the Subcommittee.
        COSSA strongly believes that investing in NSF's research and
    education efforts will help ensure this country's future economic well-
    being and national security. Therefore, COSSA finds the
    administration's proposal for a 5 percent increase for NSF in fiscal
    year 2003 inadequate. In agreement with Coalition for National Science
    Funding (CNSF), recommends a fiscal year 2003 budget for NSF of $5.5
    billion. COSSA strongly endorses this recommendation. This budget
    enhancement will return many-fold its value in economic growth, help
    save lives, promote prosperity, improve society, and provide more
    excellent science from more excellent scientists.
        Over the past half century science has been the engine that has
    driven the nation's economic success and quality of life improvements.
    Fundamental university-based science has clearly delivered the great
    technological advances that provided new methods and products that have
    advanced our nation forward. These include: geographic information
    systems, World Wide Web search engines, automatic heart defibrillators,
    product bar codes, computer aided modeling, retinal implants, optical
    fibers, magnetic resonance imaging, and composite materials used in
    aircraft.
        A substantial increase for NSF in fiscal year 2003 will help
    prepare us for the great advances in the 21st Century. It would provide
    NSF a much-needed boost for the size and duration of its research and
    education grants. It would also lead to improving the scientific
    literacy of the nation's students and general population. As our
    business leaders continually point out, without improvements in
    education and training and new innovations and scientific findings,
    economic growth stagnates. NSF needs a significant influx of new funds.
    The Fiscal Year 2003 Budget and the Social, Behavioral, and Economic
            Sciences (SBE)
        COSSA supports a substantial increase for the Research and Related
    Activities account, so that SBE and the other directorates can continue
    to fund important research seeking scientific breakthroughs to help
    secure a better life for people and society. A significant increase
    will also provide enhanced support of the fundamental research that
    social, behavioral, and economic scientists conduct to understand
    economic, social, and political behavior.
        COSSA is delighted with the substantial percentage increase in the
    President's proposed budget for the SBE directorate. However, because
    of its small base, the absolute dollar increase remains smaller than
    the research opportunities in the areas this directorate supports. In
    addition, for Fiscal 2003, NSF has designated the SBE directorate a
    ``priority area,'' and provided it with a down-payment on significant
    increases in the future. As Norman Bradburn, the Assistant Director for
    SBE, told COSSA's 20th Anniversary symposium, new tools will enable the
    social and behavioral sciences to expand their research and produce new
    breakthroughs. These tools include: neuroimaging, collaboratories,
    wireless computers, web-based surveys, geographic information systems,
    and statistical techniques like data mining and hierarchical analysis.
    In particular, the importance of data mining techniques grows more
    important as the quantity and complexity of data grows immense.
    SBE Research and Technological Change
        SBE will support research with the use of these new tools to study
    how technology and society advance through continual interactions.
    Rapid technological change impacts all areas of our lives. We need to
    know how this alters our economic, political and social systems. It has
    clearly led to the growth of new businesses in areas of biotechnology,
    geographic information systems, and now nanotechnology. Social and
    behavioral scientists continue to study how these new tools have
    impacted business organizations and the SBE's Innovation and
    Organizational Change program is at the forefront of supporting this
    research.
        As members of Congress know, the new technologies have changed how
    we communicate with our decision-makers, and have also raised the
    possibilities of voting through the Internet. We have also tragically
    learned that these tools also create opportunities for anti-government
    groups to communicate and plan acts of destruction. They also raise
    questions of how governmental policies regarding intellectual property
    and privacy can be sustained in the face of all this change. SBE
    continues to support research in all of these areas.
        Our educational system has been overwhelmed by the introduction of
    technologies in the classroom and their use as a pedagogical tool. Yet,
    we still know little about its impact on learning. The social
    consequences of the Internet and other new forms of interpersonal
    communication also need investigation. How individuals interact with
    each other and with their society are also being affected by
    technology. Robert Putnam in Bowling Alone suggests that Americans have
    become less community oriented. September 11 may have changed that.
    However, we need to study the manifestations of that change and whether
    it has staying power.
        SBE stands ready to support studies on the social, political, and
    economic consequences of all of these changes and needs a significant
    influx of funds to do it. We urge you to support the SBE priority with
    a substantial increase for the SBE directorate.
    SBE Research and Terrorism
        The tragic events of September 11 have certainly changed how
    Americans look at the world and their country. Utilizing hypotheses and
    tools derived from research on reactions to earlier disasters, natural
    and man-made, SBE investigators have studied the reactions of people to
    the World Trade Center and Pentagon bombings.
        Using Small Grants for Exploratory Research (SGER), NSF's SBE
    directorate was able to rapidly fund post-September 11 research in
    Social Psychology, studying such issues as: predicting affective
    reactions to collective loss; how individuals respond to a salient and
    pervasive health threat such as anthrax; resiliency and coping in the
    wake of the attacks and ongoing threats. SGER awards were also made in
    other SBE programs: Human Cognition and Perception, Geography,
    Sociology, and Political Science. The sociology awards included one for
    a supplement to the General Social Survey for field work starting on
    September 13 to assess attitudes towards a number of issues, including
    confidence in government, civil liberties, and health issues. Another
    award was for a post-crisis analysis of attitudes and values of the
    Islamic public in Egypt, Iran and Morocco.
        The SBE directorate's long-term approach to research on terrorism
    includes the expectation of increased funding for basic research in a
    number of areas, including: the communication of risk; decision-making
    and responses of institutions, governments, organizations and social
    groups to extreme events including terrorism, natural and human-
    generated disasters; the structure, formation, and behavior of social
    groups and networks; formation, mobilization, trajectories and
    consequences of social protest; social identities of immigrant, racial,
    and ethnic groups; experimental studies on the formation of status
    beliefs, trust and cooperation; fundamental research on
    democratization; multi-linguality (basic linguistic research on the
    structure of languages underlying natural language understanding,
    speech recognition and automatic translation); corpus linguistics, the
    statistical and linguistic analysis of bodies of text, including
    written documents e-mail correspondence to discover patterns and
    regularities that can be used for analysis, including source
    attribution; developmental research, including research on adolescence,
    to examine attitude formation, group behavior and the effects of
    mediators of learning, transfer of learning and environmental factors
    on behavior, emotion, cognition, and perception.
        Since terrorists are people, and terrorism is behavior, SBE
    scientists are participating in the National Academy of Sciences'
    efforts to help understand terrorism, terrorists, and how to stop
    further destructive actions. There is a sub-panel, chaired by Neil
    Smelser, of the Branscomb-Klausner committee, that is investigating the
    social/behavorial aspects of terrorism. In addition, the National
    Research Council's Committee on Law and Justice has instituted a
    roundtable chaired by Assistant Attorney General Michael Chertoff and
    former Deputy Attorney General Philip Heymann, which explored many
    issues at its first meeting on March 18. One of these used basic
    research on adolescent behavior to examine how young men are recruited
    into terrorist groups. The other focused on criminal deterrence
    research to look at disincentives for participating in terrorist
    activity. Also at the meeting Martha Crenshaw, a political scientist
    presented a history of terrorist activities in the past 30 years, that
    puts September 11 into perspective.
        NSF has also funded a workshop that helped geographers develop a
    research agenda on terrorism. Geographers were instrumental in helping
    New York City respond to the attacks on September 11 by using
    geographic information systems to dispatch rescue teams and disaster
    response units. The geographers will employ their experience in
    researching hazards and natural disasters, regional and international
    activities, and the tools of geospatial data and technologies to
    examine all aspects of terrorism. In the past few weeks, psychologists,
    political scientists and others have met with the FBI Behavioral
    Science Unit at Quantico, VA to their expertise from their research
    experiences to combating terrorism in the U.S. Much of the basic
    research that contributes to these activities has been supported by
    NSF's SBE directorate.
    Social and Behavioral Science Research Contributions to Public Policy
        As part of the Consortium's 20th Anniversary, late last year we
    published Fostering Human Progress: Social and Behavioral Contributions
    to Public Policy. In the book, COSSA discussed how social and
    behavioral research has impacted six societal goals: Creating A Safer
    World; Increasing Prosperity, Improving Health, Educating the Nation,
    Promoting Fairness, and Protecting the Environment. Many of the
    research studies cited either had initial NSF support or grew out of
    the basic research supported by the Foundation. This includes the
    training of researchers and policy makers.
        One example of the NSF supported research under Creating A Safer
    World focuses on the difficulties nations have had with their
    transitions to democracy. Research conducted by James Gibson of
    Washington University, St. Louis, Donna Bahry of Vanderbilt, and Brian
    Silver of Michigan State have examined the struggles in Russia, while
    Gibson has also looked at South Africa.
        Another aspect of Creating A Safer World deals with reductions in
    personal violence. The NSF-supported National Consortium on Violence
    Research continues to research into the causes and correlates of crime
    and the impacts of various policies on big city crime reduction in
    recent years.
        Nobel Prizes validate research that helped Increase Prosperity. The
    2001 award went to three NSF supported economists--George Ackerlof,
    Michael Spence, and Joseph Stiglitz--for their fundamental
    contributions to the understanding of asymmetric markets. These are
    markets in which one side has more information than the other. The film
    and book ``A Beautiful Mind,'' illustrated that game theory and its
    applications have also played a significant part in our understanding
    of prosperity and markets. Robert Solow's Nobel winning work on
    economic growth and the importance of technology to that growth is
    still studied and refined today. Another Nobel prize winner, Robert
    Mundell, researched exchange rates, which helped lay the intellectual
    groundwork for Europe's common currency.
        Improving Health is not just a biomedical research endeavor, nor
    does it just result from discoveries in the physical sciences and
    engineering. Basic research in the social/behavioral sciences has
    examined the importance of lifestyle and behavior to good health.
    Interventions to change behavior stem from basic research in social
    psychology and other behavioral sciences. Studies of aging also utilize
    research in linguistics to examine how older people communicate and use
    language.
        Enormous contributions from the social and behavioral sciences
    influence how we Educate the Nation. The discoveries in basic cognitive
    science have determined how children learn. Research on childhood
    development focuses on the importance of early social relationships as
    a source of either support and adaptation or risk and dysfunction. The
    NSF support for Science of Learning Centers, Research on Learning and
    Education (ROLE), and the Interagency Education Research Initiative
    (IERI) carry on this research and merits support. In addition, the
    Children's Research Initiative deserves enhanced funding.
        In Promoting Fairness, the study of how our legal system works has
    been a province of NSF's Law and Social Science program for many years.
    Support for research of the jury system has resulted in landmark
    studies on how those bodies make their decisions. Research into police
    investigation practices has also discovered the difficulties of using
    eyewitness identifications and line-ups as evidence in criminal trials.
        In studies associated with Promoting the Environment, social
    scientists have played a significant role in researching various
    responses to environmental degradation. Economists, such as William
    Nordhaus of Yale, have developed models to examine the economics of
    global climate change. Geographers have demonstrated the importance of
    mitigation and adaptation strategies. The NSF-supported Center for
    Integrative Assessment at Carnegie Mellon University discovered that
    slowly changing environmental conditions did not tend to motivate
    adaptation and mitigation strategies. Other scientists have looked at
    societal responses to environmental challenges. Economists have
    developed cost/benefit analysis that has been an important tool in
    regulatory responses to environmental problems. Elinor Ostrom and her
    colleagues at Indiana's Center for the Study of Institutions,
    Population and Environmental Change have had NSF support to devise ways
    for institutions to equitably manage common pool resources such as
    fisheries, grazing grounds, and water supplies.
        On all these issues of public policy and others, NSF support for
    basic research in the social, behavioral and economic sciences has been
    vital. COSSA urges the Subcommittee to enhance that support.
    Other Issues
        COSSA also supports increased funding for the Graduate Research
    Fellows program. It is time to provide the funds to increase the
    stipends to make them competitive with other Federal agencies' graduate
    fellows. Increasing the stipends should not occur as a trade off with
    the number of fellowships available. The stipends should be increased
    without a corresponding reduction in the number of these prestigious,
    portable, student controlled support for graduate training.
        The SBE directorates' Science, Resources and Statistics division is
    slated for a significant increase. This boost would allow for the once-
    per-decade incorporation of the results of the decennial census to
    redesign the samples and surveys used to collect data on the scientific
    and engineering workforce. We urge the Subcommittee to support this
    increase.
        COSSA is concerned that the proposed project for neutrino research
    for the Homestake Mine in South Dakota, if funded without peer review
    and National Science Board approval, would create a dangerous precedent
    for NSF. The NSF budget must remain free of directed spending to a
    specific project that has not been through the merit review process. We
    are also concerned that the indemnification and liability costs, if
    incurred by NSF without large infusions of new funds, would dwarf NSF's
    other programs. We urge the Subcommittee to examine this project and
    ensure that NSF's integrity and budget are protected.
    Conclusion
        The National Science Foundation remains the key funding agency for
    fundamental research in the social and behavioral sciences. Indeed, it
    is the premier funding agency in the world for basic research across
    all the sciences and engineering. The SBE community joins with the rest
    of the science community and the business and industrial community in
    supporting a substantial increase for NSF. We urge the Subcommittee to
    be as generous as it can in providing NSF with the support it needs to
    keep the U.S. on top in science and engineering to provide this nation
    and the world with the scientific and technological advances that will,
    as John Kennedy said, ``light the world,'' and bring us back from the
    darkness of September 11.
        Thank you for the opportunity to present COSSA's views on the
    fiscal year 2003 budget for the National Science Foundation and its
    Social, Behavioral, and Economic Sciences directorate.
                                     ______

               Prepared Statement of the Doris Day Animal League

        Mrs. Chairwoman and members of the Subcommittee, thank you for the
    opportunity to present testimony relevant to the fiscal year 2003
    budget request for the U.S. Environmental Protection Agency's (EPA)
    Office of Research and Development (ORD) and the Endocrine Disruptor
    Screening Program (EDSP). I hope the Subcommittee willconsider the
    concerns of the 300,000 members and supporters of the Doris Day Animal
    League and take steps to ensure the EPA recognizes the necessity of
    sound science approaches in its research, development and validation of
    non-animal, alternative toxicological test methods. These methods can
    significantly reduce the numbers of, and ultimately replace, animals in
    its testing programs.
    Research, Development and Validation of Non-Animal, Alternative Test
            Methods
        In recent fiscal years, the enacted budget for the ORD has hovered
    at approximately $500 million, comprising just 9 percent of EPA's total
    budget. In a report filed by the agency's own Science Advisory Board,
    fiscal year 2002 Presidential Science and Technology Budget Request for
    the Environmental Protection Agency: An SAB Review, the SAB urged
    Congress to increase the proportion to 12 percent by 2004. However,
    within these appropriations, we have found it difficult, if not
    impossible, to track funding by ORD for specific non-animal,
    alternative test methods to meet the EPA's needs in new testing
    programs. It is our contention that many emerging technologies, which
    often prove to be faster to run, less expensive and at least as
    predictive as current animal tests used for hazard and risk assessment,
    would benefit from research and development dollars.
        Thanks to the leadership of Chairman James Walsh, House
    Subcommittee on VA, HUD and Independent Agencies Appropriations, the
    House inserted a $4 million directive for the EPA to research, develop
    and validate non-animal, alternative test methods in the fiscal year
    2002 bill. Ultimately, the conference committee for the VA, HUD and
    Independent Agencies fiscal year 2002 bill agreed to the request.
        The animal advocacy community is greatly appreciative of this
    first-ever directive to the EPA. However, we have had significant
    difficulty in obtaining concrete information from the agency on the
    expenditure of funds to date and the plans for the rest of the fiscal
    year. Should this committee decide to champion a request for a
    directive for fiscal year 2003, I strongly urge you to include a
    reporting requirement in the language.
        I request that $10 million, from the current budget request, be set
    aside for research, development and validation for regulatory
    acceptance of non-animal, alternative test methods. Activities funded
    by these allocations shall be designed in consultation with the Office
    of Pollution Prevention and Toxic Substances. It is our preference that
    these test methods have direct relevance to new EPA testing programs,
    including the High Production Volume chemical testing program, EDSP and
    Children's Health initiative. Our request for $10 million represents
    just 2 percent of the total ORD budget and would be perceived by all
    stakeholders as a genuine commitment by EPA to new non-animal,
    alternative test methods.
        I also request that the Subcommittee require the EPA report to the
    Subcommittee by March 30, 2003 regarding expenditures and plans for
    additional expenditures for fiscal year 2003 funds.
    Endocrine Disruptor Screening Program (EDSP)
        The Environmental Protection Agency has been mandated, under the
    Food Quality Protection Act and the Safe Drinking Water Act Amendments
    of 1996, ``to determine whether certain substances may have an effect
    in humans that is similar to an effect produced by a naturally
    occurring estrogen, or such other endocrine effects as EPA may
    designate.'' This statutory requirement was in response to concerns
    about abnormal reproductive and developmental effects in wildlife
    exposed to various chemicals in their natural environments. The EDSP is
    an effort to primarily assess the health effects to humans, with
    wildlife concerns a component of the program. On its face, it is a
    worthy endeavor.
        However, as currently proposed by the agency, thousands of
    chemicals may be tested by a protocol comprised of 16 test methods,
    most which are animal tests. It has been estimated that as many as 1.2
    million animals will be killed per every 1,000 chemicals tested under
    the current structure of the EDSP. These projections make this proposed
    program the largest use of animals in toxicological testing by a
    federal agency. For this reason, it is being carefully scrutinized by
    concerned animal protection organizations wanting to ensure that all
    concrete steps are taken with this new science to protect animals both
    wildlife and animals in the laboratories.
        The very language in the FQPA on which the EDSP is based can
    strongly address one of the concerns of the animal protection
    community. To my knowledge, this is the first time that the word
    ``validation'' has been used as a requirement for sound science in
    developing test methods for a federal toxicological program. The
    statutory language required the screens and tests used in the EDSP to
    be validated to ensure appropriately relevant, reliable and
    reproducible tests and screens for the best science. The EPA, as co-
    chair of the Interagency Coordinating Committee for the Validation of
    Alternative Methods, supports the following definition of validation:
    the process by which the reliability and relevance of a procedure are
    established for a specific purpose. (``Validation and Regulatory
    Acceptance of Toxicological Test Methods,'' NIH Report 97-3981).
        In 1996, when the Acts were passed, the Interagency Coordinating
    Committee for the Validation of Alternative Methods (ICCVAM) was in its
    infancy. Since then, federal regulatory and research agencies,
    including the EPA, have benefited from the effective assessment of
    validity of new screens and tests afforded by ICCVAM. The ICCVAM
    assesses the validity of new and revised test methods, including
    alternatives, that have cross-agency application. In light of the
    interagency agreements between EPA and the Food and Drug
    Administration's National Center for Toxicological Research and the
    National Institute of Environmental Health Sciences and the fact that
    the proposed test methods for the EDSP are new or revised for new
    endpoints, the ICCVAM could clearly provide a uniform assessment of the
    validity of all EDSP test methods. Indeed, the ICCVAM was permanently
    authorized by Congress in recognition of the continuing crucial role it
    can play to facilitate assessment of test methods that have cross-
    agency application, while giving a level of confidence in the
    scientific assessment to various stakeholders.
        The Advisory Committee on Alternative Toxicological Methods for the
    National Toxicology Program, comprised of scientists from the public
    and private sectors, passed unanimous resolutions on two occasions
    strongly supporting the ICCVAM assessment. However, EPA continues to
    assert that the non-animal, alternative test methods can be reviewed by
    ICCVAM, while the animal test methods will solely be reviewed by the
    agency's Science Advisory Board/Scientific Advisory Panel (SAP/SAB).
    This approach gives animal protection advocates and other stakeholders
    cause to believe that two different standards of scientific validity
    may be applied. And while the agency claims it will use the same
    criteria for assessment of validation as the ICCVAM, the level of
    confidence in the ICCVAM is stronger. Also, any claim made by the
    agency that ICCVAM assessment may slow down implementation of the EDSP
    is simply hyperbole.
        I urge the Subcommittee to support the assessment of validation of
    tests and screens for the EDSP by the ICCVAM with appropriate fiscal
    support from the EPA. This interagency process can provide appropriate
    peer review of new tests and screens proposed for the EDSP. The ICCVAM
    should work with the EPA's SAB/SAP to avoid unnecessary delay in the
    program. Among other things, ICCVAM's assessment can serve to ensure
    due consideration is given for the replacement, reduction and
    refinement of the use of animals in these new tests and screens. This
    request should in no way be perceived as calling for a reduction of the
    President's request for activities in the Science and Technology
    account addressing endocrine disruption.
        I would also request that the Subcommittee require the Agency
    provide a report to the Subcommittee by March 30, 2003 regarding
    expenditures and plans for additional expenditures for fiscal year 2003
    funds under the EDSP.
    Conclusion
        I respectfully request that the Subcommittee direct the EPA provide
    $10 million for the ORD to research, develop and validate non-animal,
    alternative toxicological test methods for regulatory acceptance.
        I also respectfully request that the Subcommittee direct the EPA to
    provide appropriate fiscal support to the ICCVAM for assessment of
    validation of all tests and screens to be incorporated into the EDSP.
                                     ______

        Prepared Statement of the Federation of American Societies for
                              Experimental Biology

        Madam Chair and distinguished Members of the Subcommittee, I am
    Robert R. Rich, M.D., President of the Federation of American Societies
    for Experimental Biology (FASEB) and Executive Associate Dean at Emory
    University School of Medicine in Atlanta, GA.
        FASEB is the largest coalition of biomedical research associations
    in the United States and is comprised of 21 societies with more than
    60,000 scientist-members. FASEB's mission is to enhance the ability of
    biomedical and life scientists to improve, through, their research, the
    health, well-being and productivity of all people.
        It is my privilege to join my colleagues in other fields of science
    and engineering in thanking you for the Subcommittee's strong support
    for the National Science Foundation over the past years. Your
    commitment, Madam Chair, and that of Ranking Member Bond to a doubling
    of the NSF budget has inspired the research community to join with you
    in advocating such a worthy goal.
        We join with you, Madam Chair, and Senator Bond in urging the
    Subcommittee to recognize the vital contribution of NSF basic science
    research to our economy and our national security by increasing funding
    for NSF by at least $718 million, or 15 percent, over the $4.8 billion
    appropriated in Fiscal 2002.
                                    mission
        NSF supports the ideas, people and tools necessary to maintain our
    leadership in science and engineering, which in turn significantly
    contribute to improvements in the nation's health, prosperity and
    welfare. NSF support has been central to the development of new
    technologies, promotion of national economic growth and establishment
    of the world's premier graduate research and education system. Although
    NSF's share of the federal research and development budget is less than
    4 percent, NSF provides nearly a quarter of all Federal support for
    basic research at academic institutions.
                             recent accomplishments
        Since its establishment in 1950, the NSF has served the nation by
    investing in the core disciplines of science, mathematics and
    engineering. Over the years, NSF's investments in research and
    education have helped the nation achieve an unmatched capability in
    scientific and technical fields. From 1960 to the present, a total of
    117 NSF-funded scientists have won the Nobel Prize. This prestigious
    group includes three physicists, three economists, a chemist and a
    biologist. One of the physicists, Eric Cornell, was awarded the NSF
    Alan T. Waterman Award for Outstanding Young Scientists in 1997. The
    biologist, yeast geneticist Leland Hartwell, was awarded the Nobel
    Prize in Physiology or Medicine for his contributions toward the
    discovery and understanding of genes that regulate cell division in all
    living organisms. This seminal research that began in the 1960s, paved
    the way for understanding how healthy cells divide and how errors in a
    cell division may lead to cancer and related diseases.
        Included below are a few examples of the bold and practical
    initiatives funded in the last year. These illustrate NSF's
    accomplishments in the generation, communication and translation of
    science in the United States.
      --An NSF-funded biomedical engineer at the University of Illinois at
            Chicago has developed an implantable capsule that releases a
            steady supply of insulin into the bloodstream of diabetics. The
            capsule contains insulin-secreting cells that are protected
            from the immune system by a silicon membrane containing
            nanoscale pores that allow insulin to flow out while preventing
            antibody access to the pancreatic cells.
      --The NSF investment in plant genomics has yielded a wealth of new
            information about the genomes of economically important crop
            plants, including corn, barley, soybean and tomato. Newly
            funded projects focus on the complex gene networks that
            regulate plant responses to drought, disease and changing
            climate conditions.
      --Training professionals to handle cyber-threats that have the
            potential to breach internet security is a national priority.
            This year the NSF announced the establishment of the
            Scholarships for Service Program to educate college students in
            information assurance.
      --The program will offer Federal internships and will require a
            commitment of working for the Federal Government for 1 year for
            each year of scholarship received upon graduation.
      --Building on its longstanding sponsorship of basic research in
            engineering, robotics, and social sciences, NSF was able to
            respond promptly to the events of September 11, 2001.
            Immediately after the terrorist attacks, NSF issued grants for
            studies of structural failures, search robots and social
            responses to the terrorist attacks.
                            scientific opportunities
        Recent investments in science, engineering and mathematics have
    given us revolutionary new products and technologies that will enhance
    our quality of life. The potential to create, improve and harness
    technology for the betterment of humankind has never been greater. We
    must continue our investments in basic research, instrumentation and
    education in order to ensure continued improvement in our quality of
    life.
    Research and Related Activities
        The NSF Research and Related Activities budget supports fundamental
    research in science, engineering and mathematics through research
    grants awarded to scientists from research institutions across the
    nation on the basis of competition. NSF grants provide support for
    research in core disciplines as well as for interdisciplinary projects.
    Currently, the budget of the NSF is insufficient to support all of the
    meritorious proposals submitted. These unfunded proposals represent
    lost opportunities for advancing our knowledge in important fields of
    research. In order to maximize the number of proposals funded, NSF is
    forced to make smaller awards. Adjusting for inflation, the average
    size of an NSF grant is now worth less than it was 40 years ago. NSF
    grants are also shorter than those awarded by many other research
    sponsors. This means that NSF-supported scientists must apply for
    funding frequently, spending a higher fraction of their time seeking
    support and less time in the laboratory and classroom.
    Research Instrumentation as Science Infrastructure
        Cutting edge technology and instrumentation have become far too
    expensive for many individual laboratories. Examples of such advanced
    instrumentation include mass spectrometers, DNA sequencers, and the
    computers and software for the analysis of data derived from use of
    this instrumentation. Extensive training in the use of this technology
    is necessary and costly. Complicated, state-of-the-art instrumentation
    also requires expensive maintenance and operation.
        The continued progress of science and engineering in the U.S. is
    dependent on the availability of advanced research equipment. NSF
    provides support to more than 2,000 colleges, universities and other
    research and education institutions for multi-user instrumentation, the
    development of new instrumentation and the improvement of research
    facilities at biological field stations and marine laboratories. NSF
    also invests in internet-based and other computer resources that
    advance research capabilities, allowing the U.S. to remain at the
    forefront of research.
    Human Resources as Science Infrastructure
        At NSF, research and science education go hand in hand. Over 100
    U.S. Nobel laureates have had research funded by NSF and future Nobel
    laureates benefit from the many science education programs it sponsors.
    NSF provides educational support for almost 200,000 individuals,
    including teachers, students in primary and secondary schools,
    undergraduates, graduates and post-doctorates. NSF is a leader in
    reforming the science curriculum, and its innovative efforts are a key
    ingredient in the recipe for sustained progress in biomedical science.
        NSF support for science education programs is also critical for the
    general citizenry. Only a scientifically knowledgeable public will
    understand the social and cultural changes resulting from advances in
    science and technology. NSF continues its commitment to bring the best
    in science education to the general public, reaching over 150 million
    people through its programs.
                                recommendations
        FASEB supports a significant increase in the NSF budget to allow
    this agency to provide greater support for the fundamental research and
    interdisciplinary workforce training that has been its hallmark. Such
    an investment will allow larger and longer grants resulting in
    increased productivity and reduced administrative expenses. In
    addition, more proposals should be funded.
        To address these pressing needs, provide access to major research
    instrumentation and continue to educate Americans in the crucial fields
    of science, engineering and mathematics, we recommend that the NSF
    budget be increased by $718 million (15 percent) in fiscal year 2003.
        FASEB recommends a return to the commitment to double the NSF
    budget, in 5 years and therefore FASEB recommends that the NSF budget
    for fiscal year 2003 be increased by at least 15 percent, to $5.5
    billion.
                                     ______

           Prepared Statement of the Fleet Reserve Association (FRA)

        Madame Chairman: The Fleet Reserve Association (FRA) is grateful to
    have been invited to submit a statement on its request for funding the
    Department of Veterans Affairs for fiscal year 2003. On behalf of more
    than 140,000 shipmates, I extend gratitude for the concern and active
    interest generated by the Subcommittee in protecting, improving, and
    enhancing benefits that are richly deserved by our Nation's veterans.
        FRA was established in 1924 and its name is derived from the Navy's
    program for personnel transferring to the Fleet Reserve or Fleet Marine
    Reserve for the Marine Corps after 20 or more years of active duty but
    not 30 years to fully retire. During the required period of service in
    the Fleet Reserve, assigned personnel earn retainer pay and are subject
    to recall by the Secretary of the Navy.
        FRA is the oldest and largest professional military enlisted
    association exclusively serving and representing men and women of the
    three Sea Services. It continues to seek protection and equity for
    those who serve in or have retired from the United States Navy, Marine
    Corps, and Coast Guard, plus those veterans requesting assistance. The
    Association has been active over the past 78 years in pursuing
    Congressional and the respective Administration's support for enlisted
    quality of life and veterans' programs for Sea Services' personnel. FRA
    is also the leading enlisted association in The Military Coalition,
    which is compromised of thirty-two military and veterans' organizations
    representing 5.5 million Active Duty, Reserve, Guard, Retired, and
    Veterans, their families and survivors.
                           legislative goals in brief
        FRA's membership has an average age of 68 years, all veterans of as
    many as three wars, mostly retired and from the Sea Services. They have
    tasked the Association to seek Congressional action to authorize and
    fund the following:
      --Expand health care benefits for all veterans to include Medicare
            Subvention.
      --Funds for the construction and leasing of additional nursing and
            long-term care facilities.
      --Appropriate funds for the repeal of the statute requiring the
            repayment of separation pay if the service member becomes
            entitled to VA compensation.
      --Enhance educational programs and provide voluntary open enrollment
            in the GI Bill for all current active duty military personnel,
            including military personnel who never enrolled in VEAP or
            MGIB.
             department of veterans affairs fiscal year 2003 budget
    Fiscal Year 2003 Budget
        FRA continues its quest for a DVA budget that will provide adequate
    funding to care for the Nation's veterans, their families and
    survivors. Although the fiscal year 2003 budget is the largest increase
    ever for the DVA, FRA has listed the following veterans' programs it
    believes should be authorized and funded in full. The Association urges
    their consideration and adoption to assure America's veterans they will
    be fully compensated for their sacrifices while in the uniform of the
    Armed Forces of the United States, and that their families and
    survivors will be cared for as prescribed in the mission of the
    Department of Veterans Affairs.
                         veterans health administration
    Expand Access to Veterans Health Care
        VA treatment facilities should be accessible to military retirees'
    use at no cost to the veteran. The Veterans Millennium Heath Care and
    Benefits Act (Public Law 106-117) Section 113 authorizes the Department
    of Defense (DOD) to reimburse the Department of Veterans Affairs (VA)
    for medical care provided to eligible military retirees. However,
    recent benefit changes under Public Law 106-398 with regard to TRICARE
    and Medicare eligible retirees have delayed retirees' who are enrolled
    as Priority Category 7 from utilizing the VA facilities without cost.
    This especially affects non-disabled military retirees under 65 years
    old, who do not have access to military treatment facilities (MTF).
        Eligibility Reform and the Uniform Benefits Package are appealing
    concepts offering our veterans a comprehensive health care plan that
    provides the care they need. However, the annual enroll ment
    requirement is of concern in addition to the uncertainty about what
    priority levels will be enrolled each year. FRA believes the Veterans
    Health Administration (VHA) medical treatment and care centers should
    be open to all veterans regardless of their ability to pay. The
    Association agrees there must be a system granting priority access for
    certain veterans; i.e., service-connected disabled at 30 percent or
    more; however, all veterans rated 20 percent or less, or non-rated,
    should be granted access on an equal basis first come, first served.
    FRA commends Secretary Principi for retaining Category 7 veterans in
    the VA Health system. Unfortunately, FRA strongly disagrees with the
    Department's proposal to change its policy to include a $1,500 yearly
    deductible for higher income, non-service-connected veterans. This
    would mandate forced choice between the VA and DOD Health systems. FRA
    opposes the forced choice proposal. Military retirees shouldn't have to
    choose, if they are eligible for both systems. The mission of these two
    systems is dissimilar in many ways, and focused on serving different
    populations with diverse needs.
        The Association supports continued collaborative efforts between
    the DOD and VA, to enhance the Defense Health System and provide the
    necessary care for a very deserving population. The Conference Report
    for the National Defense Authorization Act for fiscal year 2002 (H.R.
    2620), requests both the Secretaries of VA and DOD to submit to the
    Committees on Appropriations a credible plan to fully integrate
    facilities at three demonstration sites. FRA is opposed to a complete
    integration of these two Health systems, (per H.R. 2667). Before
    Congress considers this issue any further, it should wait until the
    President's Task Force to Improve Health Care for Our Nation's Veterans
    (PTF) issues its findings. (Please note that a copy of FRA's testimony
    to the PTF is available upon request.)
    Medicare Subvention
        FRA is concerned about dwindling access to health care. When
    military retirees made decisions to retire in certain areas of our
    country, they did so with the thought of being close to a military
    installation or military treatment facility. Now because of BRAC
    actions, many of those military installations and MTF's are no longer
    available.
        In recent years, the House and Senate have passed VA Subvention in
    separate sessions of Congress, but have not been able to agree on a
    plan to test the use of Medicare funds in VA facilities. Medicare
    Subvention could prove beneficial to the government and stakeholders.
    For veterans, VA Subvention would mean improved access to care, as
    nearly 60 percent of enrolled veterans are Medicare eligible. These
    beneficiaries have paid into Medicare throughout their working lives.
    One important question that needs to be evaluated is whether the VA can
    deliver Medicare-sponsored services more efficiently than Medicare in
    the private sector.
        FRA recommends a demonstration project for the VA to test the
    feasibility of establishing Medicare Subvention programs within its
    health care facilities. FRA believes that VA Subvention could enhance
    older veterans' access to VA health care and determine whether
    government resources can be used more efficiently to pay for the care
    of growing numbers of older Medicare-eligible veterans. FRA also
    believes with Medicare Subvention, the VA can withdrawal its proposal
    for a $1,500 deductible for Category 7 veterans a proposal the
    Association strongly opposes.
    Nursing Homes, Long Term Care, and other Health Care Programs
        FRA believes Public Law 106-117, Section 101, The Veterans
    Millennium Health Care Act makes great strides in providing the long-
    term care our veterans deserve. However, this program is only
    authorized for a period of 4 years, and only for veterans who need care
    for a service-connected disability, and/or those with service-connected
    disability ratings of 70 percent or more. The Association urges the
    extension of this program and expansion to include veterans with
    service-connected disability ratings of 50 percent or more.
        Veterans of World War II and Korea are in their 60s or older, as
    are some Viet Nam veterans, and many require a greater level of long-
    term care. As our veterans are aging, more will become dependent upon
    the VA to provide the necessary care in nursing homes, domiciles, state
    home facilities, and its underused hospital beds.
        The methodology used in collecting funds for the Millennium Act and
    then transferring the money over to the Treasury is flawed. VA's
    rationale for this practice is to allow more discretionary VA spending
    under the current caps set in the Balanced Budget Act. This is slight
    of hand rather than a reliable business practice and FRA firmly
    believes any money collected from veterans for veteran's health care
    should remain within the VHA.
    Tobacco-related Illnesses
        In 1998, Congress changed the law prohibiting service-connection
    for disabilities related to smoking. Many veterans began using tobacco
    during their military service. It was a way of life and information on
    health risks associated with tobacco use and nicotine addiction was
    nonexistent. In earlier years it could be said that the Armed Services
    facilitated smoking by including cigarettes in meal rations, and
    selling cigarettes at discounted prices in military exchanges. FRA
    recommends that the Subcommittee urge the oversight panel to repeal the
    1998 decision not to review tobacco-related claims and, if adopted, to
    provide the necessary appropriations.
    Medical and Prosthetic Research
        VA is widely recognized for its effective research program. FRA
    continues to support adequate funding for medical research and for the
    needs of the disabled veteran. In particular, FRA supports the fiscal
    year 2002 Senate Appropriations Committee report language that states,
    ``Prostate cancer research has not kept pace with scientific
    opportunities and the proportion of the male population who are
    afflicted with the disease.'' FRA urges Congress to fund new research
    opportunities through inter-institutional collaboration.
    TRICARE
        The VA's role as a TRICARE network provider is a potential source
    for increased access to quality health care for all DOD beneficiaries.
    If VA's capacity allows, and its core mission is not compromised, then
    the VA should play a vital role in offering primary and specialized
    care to TRICARE beneficiaries as a network provider.
        In a June 1995 Memorandum of Understanding, TRICARE contractors
    were authorized to include VA medical centers (VAMCs) in provider
    networks and, therefore, TRICARE contrac tors were encouraged to use VA
    facilities. Due to persistent billing and reimbursement problems, VA's
    potential as a network provider has not been fully realized. Despite 80
    percent of VAMC's currently being considered TRICARE network providers,
    three-quarters of the activity occurs in only 26 facilities and the
    total level-of-effort was miniscule according to the GAO (May 2000).
        Current TRICARE contracts will begin to expire over the next few
    years, and FRA is pleased that the VA is represented in the new
    contract development. TRICARE Management Activity (TMA) has
    acknowledged the importance of considering the VA in the next
    generation of contracts. In light of the growth of VA's Community Based
    Outpatient Clinics (CBOCs), the VA could be a service delivery
    alternative for TRICARE beneficiaries where capacity exists.
        The Association supports greater utilization of VA networks in
    partnership with TRICARE. Although many VA providers are also TRICARE
    network providers, actual usage has been marginal. Some reasons why
    this partnership has not been fully realized include:
      --VA providers are not qualified in specialties most in demand by DOD
            beneficiaries. I.e. pediatrics and obstetrics and gynecology.
      --VA providers often cannot meet TRICARE Prime access standards.
      --Business practices in the areas of claims processing, IM/IT
            systems' incompatibility, conflicts over pricing of services,
            various administrative limitations and a lack of aligned
            incentives impede use of VA providers by TRICARE Managed Care
            Support Contractors.
        Expanding the use of VA providers as TRICARE-authorized providers
    to care for all TRICARE beneficiaries may improve active duty and
    retirees' access to care in areas where TRICARE Prime is not available.
                        veterans benefits administration
    Separation Pays
        Under current law, service members released from active duty who
    fail to qualify for veterans' disability payments and are not accepted
    by the National Guard or Reserve, never have to repay any portion of
    separation pay. If, however, qualified for either, it's time for
    payback. FRA can not understand why an individual awarded service-
    connected disability compensation should have to repay the Federal
    government for that privilege.
        FRA is totally opposed to the repayment requirement. The
    Association recommends the Subcom mittee to seek repeal of the
    applicable provisions in Chapters 51 and 53, 38 USC, to terminate the
    requirement to repay the subject benefits and, if necessary, to provide
    the required funding.
    Court-Ordered Division of Veterans Compensation
        Service-connected disability payments are intended to financially
    assist a veteran whose disability may restrict his or her physical or
    mental capacity to earn a greater income from employment. FRA believes
    this payment is exclusively that of the veteran and should not be a
    point at issue in any States' Civil Actions. If a Civil Court finds the
    veteran must contribute financially to the support of his or her
    family, let the court set the amount allowing the veteran to choose the
    method of contribution. If the veteran chooses to make payments from
    the VA compensation award, then so be it. The Federal government,
    however, should not be involved in enforcing collections ordered by the
    states. Let the states bear the costs of their own decisions. FRA
    recommends the Subcommittee seek the adoption of stronger language
    offsetting the provisions in 10 USC, now authorizing Federal
    enforcement of state court ordered divisions of veterans' compensation
    payments.
    Montgomery GI Bill (GI Bill)
        The Montgomery GI Bill is one of the major enticements for
    enlisting in the United States Armed Forces. FRA believes that
    continued improvements to the GI Bill are necessary in order to
    continuously attract new recruits per congressionally mandated
    recruitment levels each year.
        The Association is grateful for the passage of Public Law 106-419
    during the first session of the 107th Congress, which included the
    enhancement of MGIB benefits. However, FRA believes Congress should
    increase MGIB annually based on a benchmark of the current average cost
    of a 4-year state run college education.
        Would be participants in the MGIB are not permitted to enroll into
    the new MGIB because they never enrolled in the VEAP program. During
    the VEAP era, that program was considered to be insufficient in
    providing adequate funding for a college education. Therefore, current
    active-duty military personnel that never enrolled in VEAP or MGIB
    should be given an opportunity to participate. FRA recommends that if
    authorized, the Subcommittee provide the necessary funding.
        The Association continues to believe that veterans who take
    advantage of the GI bill will eventually return more money to the U.S.
    Treasury than was spent by the Federal government for their education.
    A concept once offered by the Treasury Department.
    Disability Compensation Claims Processing
        Among veterans, VA's inability to process claims in a timely,
    accurate fashion continues to be one of its most serious problems and a
    primary source of dissatisfaction with the Federal government.
        The Veterans Benefits Administration (VBA) reports the average
    processing time for initial claims is 225 days. If that claim is
    appealed to the Board of Veterans Appeals (BVA), as many are, the
    average time for a decision is 620-plus days. Speed is an issue. More
    important is accuracy, a component of processing ignored for years and
    the cause of many delays in finalizing claims.
        As then Chairmen of the VA Claims Processing Task Force, Daniel L.
    Cooper stated on 8 November 2001, ``I must say that I think the VA has
    the necessary resources right now to do the job the Agency can't
    justify asking for more people right now.'' To improve quality, VBA
    must devote adequate resources for training personnel. It needs
    additional staff to conduct quality reviews of the work of each of its
    claims adjudicators in order to assess performance, impose
    accountability, and remedy deficiencies on the individual employee
    level. FRA believes the recommendations and changes proposed by the
    Task Force should be implemented and funded in order to improve the way
    VA does business.
                     national cemetery administration (nca)
    Cemetery Systems
        The NCA has undergone many changes since its inception. Currently,
    the administration maintains more than 13,850 acres of developed and
    undeveloped land containing more than 2.3 million grave sites as well
    as 33 soldier's lots and monument sites. That equates to 120 cemeteries
    throughout 39 states, the District of Columbia, and Puerto Rico. One
    quarter of the nation's 26 million veterans alive today are over the
    age of 65. Rapidly aging veteran populations coupled with the death
    rate of World War I, World War II, and Korean veterans create resource
    chal lenges within the NCA. It was estimated that the number of deaths
    in 2001 were 674,400 veterans, and by 2006 that number will increase to
    687,000 annually, or an average of 1,900 funerals a day. During this
    time period, the interment rate will continue to rise thereby placing
    even greater strain on NCA's workforce and equipment.
        FRA is grateful to Congress for its increased funding for the new
    construction of future cemeter ies. The NCA is doing much to meet
    resource challenges and the demand for burial spaces for aging
    veterans. It could do more, but without sustained additional funding,
    the system will never meet the demand. FRA urges increased funding, so
    the NCA has exclusive rights for the purchase of land, preparation,
    construction and operation of new cemeteries, the maintenance of
    existing cemeteries, and the expansion of grants to states to construct
    and operate their own cemeteries.
        As part of the Veterans Education and Benefits Act of 2001, the
    government also will provide grave markers for veterans whenever
    requested, even if there is another marker on the grave. However, as it
    stands the law only applies to new burials, FRA believes the grave
    marker rule should be amended and funds appropriated to include the
    thousands of families denied grave markers in the past decade.
                    other recommendations for consideration
        The following miscellaneous goals are offered for your support.
      --Continue to monitor implementation and ensure adequate funding of
            military health care program enhancements.
      --Amend SBP to increase the annuity to 55 percent and shift the paid
            up coverage effective date from 2008 to 2003.
      --USFSPA Support legislation eliminating inequities in the Uniformed
            Services Former Spouses Protection Act (USFSPA).
      --Increase military manpower commensurate with demanding operational
            commitments.
      --Improve compensation for career noncommissioned and petty officers
            of the U.S. Armed Forces.
      --Provide adequate funding for military commissaries and continue
            supporting its exchange systems.
      --Support equity in cost-of-living adjustments for all beneficiaries.
      --Protect personnel benefits for retirees and families residing at or
            near BRAC sites.
      --Authorize and fund construction and maintenance of family and
            bachelor housing, child care centers, and MWR facilities.
      --Support permanent change of station (PCS) process reform.
      --Support full funding for the Impact Aid Program for schools
            enrolling children of military personnel.
      --Ensure parity for Coast Guard personnel with DOD pay and benefits.
      --Amend the tax code to exclude taxation on residential sales for
            active duty members returning from overseas assignments.
      --Support enactment of a Flag desecration statute.
                                   conclusion
        Madame Chairman. In closing, allow me to again express the sincere
    appreciation of the Association's membership for all that you, the
    Subcommittee, have done for our Nation's veterans over these many
    years.
        FRA is grateful to address its recommendations for funding of the
    Department of Veterans Affairs. Granted, not all veterans' issues are
    cited in this statement; however, the Subcommittee does have the
    Association's support for the improvement or enhancement of any
    veterans programs not addressed herein.
                                     ______

        Prepared Statement of the Friends of VA Medical Care and Health
                                    Research

        The Friends of VA Medical Care and Health Research (FOVA), a
    coalition of 78 medical research, specialty, physician, academic,
    patient advocacy and industry organizations committed to quality care
    for veterans, is pleased to provide recommendations regarding fiscal
    year 2003 funding for the Department of Veterans Affairs (VA) medical
    and prosthetics research program. FOVA strongly encourages the Senate
    Subcommittee on Veterans, Housing and Urban Development to support VA
    research by recommending an fiscal year 2003 appropriation of at least
    $460 million.
        FOVA's fiscal year 2003 recommendations build on the $20 million
    increase provided for the current year. The Administration's fiscal
    year 2003 budget request for a $38 million (10 percent) increase in
    research program dollars is notable for being the first time in many
    years that an administration has proposed funding sufficient to
    maintain VA's current level of effort in advancing treatments for
    conditions particularly prevalent in the veteran population including
    prostate cancer, diabetes, heart diseases, Parkinson's disease, mental
    illnesses, spinal cord injury and aging related conditions. We applaud
    the Administration and Department of Veterans Affairs Secretary Anthony
    J. Principi for recognizing the invaluable contribution VA research
    makes to delivering high quality care for veterans and toward improving
    the health of veterans and the nation.
        Please note that the Administration's budget request for a $38
    million increase for VA research includes a shift from OPM to VA of $15
    million in accrued government health and retirement benefit funds.
    Consequently, the Administration's budget proposes a $23 million (6
    percent) increase in research program funds plus $15 million in federal
    employee benefit expenses previously paid by an OPM account, for a
    total increase of $38 million (10 percent) over current year funding of
    $371 million. FOVA strongly recommends that the entire $38 million
    increase be allocated to VA research's programmatic needs and that
    accrued benefits continue to be paid out of the OPM trust fund.
        However, even a $38 million increase would not allow VA to address
    all of the opportunities it has to improve care for veterans, nor to
    meet the new challenges presented by the tragedies of September 11 and
    subsequent events. FOVA strongly encourages the VA-HUD Subcommittee to
    recommend an fiscal year 2003 appropriation of at least $460 million
    for the VA medical and prosthetics research program. This represents
    growth in program dollars of $89 million (24 percent).
        Four core needs justify the FOVA recommendation of $460 million:
        Investments in investigator-initiated research projects at the VA
    have led to an explosion of knowledge that promises to advance our
    knowledge of disease and unlock new strategies for prevention,
    treatment and cures. Attachment 1 is a list of just a few of VA's
    recent achievements and initiatives. However, many health challenges
    still confront the veteran community. Additional funding is needed to
    take advantage of the burgeoning scientific opportunities and to
    improve quality of life for our nation's veterans as well as the
    general public. FOVA urges the Committee to support additional funding
    for the following research priority areas identified by the VA for
    fiscal year 2003:
      --Quality of Care.--Additional funding for the Quality Enhancement
            Research Initiative (QUERI) program would be used to fund
            centers in prostate cancer and dementia/Alzheimer's.
      --Special Populations.--VA would expand research in quality of care,
            community access and restoration of function to achieve greater
            understanding of existing racial, ethnic and gender disparities
            in health care.
      --Diseases of the Brain.--Additional studies are needed on the impact
            of different classes of psychiatric drugs on cognitive and
            behavioral function.
      --Treatment Strategies in Chronic Progressive Multiple Sclerosis.--
            Recent studies have shown that immunotherapy of acute MS can
            reduce disability. More studies are needed to determine the
            optimal therapy for patients.
      --Micro Technology.--In the area of low vision, work in retinal
            prostheses is an emerging science and may restore sight lost as
            a result of a variety of disorders including age-related
            macular degeneration and retinal pigmentosa.
      --Patient Outcomes in Rehabilitative Care.--Specific areas of
            emphasis include long-term care strategies to enhance patients'
            independence and activities of daily life, consequences of
            community reintegration and the impact of assistive technology
            on quality and functionality of life.
      --Chronic Disease Management.--VA is proposing two major initiatives
            in comparing clinical efficacy of (1) vascular surgery
            conducted on and off cardiopulmonary bypass machines, and (2)
            open versus endovascular surgery for abdominal aortic
            aneurysms.
        The complexity of research combined with biomedical research
    inflation has increased the costs of research. The average cost of each
    VA research project is now $150,000, a 9 percent increase in just 2
    years. As a result, VA requires an increase of at least $15 million
    just to maintain a stable number of programs.
        In response to the events of September 11, VA seeks to establish a
    research portfolio to address the threats of bio-terrorism. This
    objective is consistent with VA's statutory obligation to provide
    medical back-up services in times of national emergencies. VA has an
    established history of research accomplishments in the areas of
    infectious diseases and immunology, including vaccine development. The
    laboratories of VA research scientists are disseminated nationwide, and
    are affiliated with top-flight universities. VA research provides a
    unique national resource that can be readily adapted and quickly
    mobilized in response to diverse biological threats.
        To meet this emerging challenge, consistent with H.R. 3253, the
    National Medical Emergency Medical Preparedness Act of 2001, FOVA
    strongly supports VA's proposal to establish four new centers of
    research excellence focusing on fundamental issues critical for
    responding to chemical, biological and radiological threats to public
    safety. The targeted research portfolio would include pathogen
    detection, disease diagnosis and treatment, protection, and vaccine
    development. The mission of these centers would also encompass the
    evaluation and management of illnesses consequent to military service,
    especially in our current conflict.
        VA's career development programs are a national resource for
    training the next generation of clinician scientists, those doctors who
    treat patients and address questions that have a direct impact on
    patient care. Additional funding is needed to expand this program in
    order to address the growing national shortage of clinician-
    investigators.
        Separate from its recommendations for the VA research
    appropriation, FOVA strongly encourages the Committee to address the
    increasingly urgent need for improvements in VA's research facilities.
        In 1997, NIH conducted site visits of six VA research facilities
    and concluded that, ``VA has had increasing difficulty in providing
    sufficient resources via its congressional appropriation to
    satisfactorily fund the infrastructure necessary to support research at
    the VAMCs.'' It is FOVA's understanding that VA has made no
    significant, centrally administered investment in its existing research
    facilities since this finding. Ventilation, electrical supply and
    plumbing appear frequently on lists of needed upgrades along with space
    reconfiguration. Substandard facilities make VA a less attractive
    partner in research collaborations with affiliated universities; reduce
    VA's ability to leverage the R&D appropriation with other federal and
    private sector funding; and make it difficult to attract cutting edge
    researchers, both clinician investigators and laboratory scientists, to
    careers in VA. Facility R&D Committees regularly disapprove projects
    for funding consideration because the facility does not have the
    necessary infrastructure and has little prospect of acquiring it.
        Under the current system, research must compete with other medical
    facility and clinical needs for basic infrastructure and physical plant
    support. Unfortunately, the minor construction appropriation is
    chronically inadequate to meet facility needs for clinical improvements
    much less research upgrades, and year after year the list of urgently
    needed research repairs and upgrades grows longer. VA has identified 18
    sites in urgent need of minor construction funding to upgrade their
    research facilities. These sites plus the many facilities with smaller,
    but no less important needs, provide more than sufficient justification
    for an appropriation of $45 million specifically for research facility
    improvements.
        FOVA recommends that a new funding mechanism, such as a minor
    construction appropriation specifically for research facilities, be
    developed to provide a permanent, steady stream of resources dedicated
    to upgrading and renovating existing research facilities. State-of-the-
    art research requires state-of-the-art facilities.
        FOVA thanks the Committee for consideration of its views. For
    questions or additional information, please contact any member of the
    FOVA executive committee listed on this letterhead. Thank you for your
    consideration.
        Organizations that have endorsed FOVA's fiscal year 2003
    recommendations: Administrators of Internal Medicine; Alliance for
    Aging Research; Alzheimer's Association; American Academy of Child and
    Adolescent Psychiatry; American Academy of Neurology; American Academy
    of Opthalmology; American Academy of Orthopaedic Surgeons; American
    Association of Colleges of Osteopathic Medicine; American Association
    of Colleges of Pharmacy; American Association of Neurological Surgeons;
    American Association of Spinal Cord Injury Nurses; American Association
    of Spinal Cord Injury Psychologists and Social Workers; American
    College of Clinical Pharmacology; American College of Physicians-
    American Society of Internal Medicine; American College of
    Rheumatology; American Dental Education Association; American
    Federation for Medical Research; American Gastroenterological
    Association; American Geriatrics Society; American Gold Star Mothers of
    America; American Heart Association; American Lung Association;
    American Military Retirees Association; American Nurses Association;
    American Optometric Association; American Osteopathic Association;
    American Paraplegia Society; American Physiological Society; American
    Psychiatric Association; American Psychological Association; American
    Society for Pharmacology and Experimental Therapeutics; American
    Society of Hematology; American Society of Nephrology; American
    Thoracic Society; American War Mothers; Association for Assessment and
    Accreditation of Laboratory Animal Care International; Association for
    Research in Vision and Ophthalmology; Association of Academic Health
    Centers; Association of American Medical Colleges; Association of
    Pathology Chairs; Association of Professors of Medicine; Association of
    Program Directors in Internal Medicine; Association of Schools and
    Colleges of Optometry; Association of Subspecialty Professors;
    Association of VA Chiefs of Medicine; Blinded Veterans Association;
    Blue Star Mothers of America; Clerkship Directors in Internal Medicine;
    Coalition for American Trauma Care; Coalition for Heath Services
    Research; Congress of Neurological Surgeons; Digestive Disease National
    Coalition; Gerontological Society of America; Independence Technology,
    Inc.; Johnson & Johnson; Juvenile Diabetes Research Foundation
    International; Legion of Valor; Medicine-Pediatrics Program Directors
    Association; National Alliance for the Mentally Ill; National
    Association for Biomedical Research; National Association for the
    Advancement of Orthotics and Prosthetics; National Association for
    Uniformed Services; National Association of State Universities and Land
    Grant Colleges; National Association of VA Dermatologists; National
    Association of VA Physicians and Dentists; National Association of
    Veterans' Research and Education Foundations; National Mental Health
    Association; National Multiple Sclerosis Society; National Organization
    of Rare Disorders; Nurses Organization of Veterans Affairs; Paralyzed
    Veterans of America; Partnership Foundation for Optometric Education;
    Research Society on Alcoholism; Research!America; Society for
    Investigative Dermatology; Society for Neuroscience; Society of General
    Internal Medicine; Veterans Affairs Physician Assistant Association;
    and Veterans of the Vietnam War.
         Attachment 1--VA Research--Recent Achievements and Initiatives
        Promise for TB Vaccine.--Researchers at the Portland VA have found
    a unique mechanism by which human T cells recognize cells infected with
    Mycobacterium tuberculosis, the bacteria that cause TB. They have found
    that the molecule HLA-E can present TB antigens to cytotoxic T cells. A
    further understanding of this mechanism may facilitate the development
    of an improved TB vaccine. Worldwide, over 2 million people die each
    year from TB. Advancement towards an effective TB vaccine has
    significant potential to improve both national and global health.
        New Centers to Study Parkinson's Disease.--VA created six new
    centers specializing in research, education and clinical care for
    Parkinson's disease. The centers--in Houston, Philadelphia, Portland
    (Ore.), Richmond (Va.), San Francisco and West Los Angeles--will
    conduct research covering basic biomedicine, clinical trials,
    rehabilitation, and health services. In addition, each center will take
    part in a major VA clinical trial to assess the effectiveness of
    surgical implantation of deep brain stimulators to reduce symptoms.
    (Feb. 2001)
        Key to Wasting Syndrome Discovered.--Researchers at the San Diego
    VA Medical Center have unraveled the biological chain of events that
    causes wasting syndrome in mice, and identified the same process in
    liver and tissue from cancer patients. Wasting syndrome or cachexia,
    affects about half of all cancer and HIV/AIDS patients, as well as
    those with bacterial and parasitic diseases, rheumatoid arthritis, and
    chronic diseases of the bowel, liver, lungs and heart. By noting the
    similarities between animal and human models, researchers hope to
    expedite the development of treatments to help patients. (Dec. 2001)
        VA Evaluating Robotic Walker for Vision-Impaired.--VA researchers
    in Pittsburgh and Atlanta are testing a new high-tech walking frame
    designed to promote mobility and independence for the vision-impaired
    frail elderly. Using laser range finders, sonar sensors, steering
    motors and a motion controller, the Personal Adaptive Mobility Aid
    (PAM-AID) seeks to build the functionality of a guide dog into a robust
    walking frame. (Oct. 2001)
        VA Establishes New HIV Research Center.--VA is the nation's largest
    single provider of health care to HIV-infected persons. A new Center of
    HIV Research Resources at the Palo Alto VA Health Care System seeks to
    improve health care for veterans by assessing research and clinical
    trials throughout VA and other agencies and determining their potential
    for further research and clinical application. (Oct. 2001)
        Rehab Researchers Collaborate in Artificial Retina Trials.--VA
    researchers from the Rehabilitation Research and Development Service
    have recently collaborated with colleagues at the Louisiana State
    University Medical Center on studies to implant silicon-chip retinas in
    the eyes of patients blinded by retinal disease. About the size of a
    pinhead, the artificial silicon retinas are completely self-contained
    and require no wires or batteries. They contain 3,500 microscopic solar
    cells that generate electrical current in response to light. The
    implants stimulate healthy retinal cells underneath the retina in a
    pattern that resembles the light images focused on the chips. These
    images are then transmitted to the brain via the optic nerve. The
    implants are designed to treat retinitis pigmentosa and macular
    degeneration. (Sept. 2001)
        New Blood Test Speeds Diagnosis of Heart Attacks.--Researchers at
    the San Diego VA Medical Center have developed a simple, inexpensive
    blood test to increase the speed at which heart attacks are diagnosed
    in hospital emergency rooms. The new blood tests can rule out a heart
    attack with 100 percent accuracy within 90 minutes by looking for three
    cardiac enzymes released by distressed heart tissue during an attack.
    Ruling out a heart attack by traditional methods usually takes 6 to 24
    hours. As a result, critical care admissions dropped 40 percent and
    overall hospital admissions dropped 20 percent. (Sept. 2001)
        Chronic Lymphocytic Leukemia May Be Underestimated.--VA researchers
    at the Central Arkansas Veterans Healthcare System have found that the
    true incidence of Chronic Lymphocytic Leukemia (CLL) is substantially
    higher than estimated from the tumor registry database. Researchers
    credited the VA's Computerized Patient Record System (CPRS) as making
    the study possible by allowing researchers to review data from a large
    patient population without handling paper records. Revision in the data
    may show CLL to be the most common lymphoid malignancy in the United
    States. (Sept. 2001)
        Friendly Virus May Slow Replication of HIV.--VA researchers at the
    University of Iowa have shown that a form of the hepatitis virus called
    GPV-C may prolong the life of patients with HIV by preventing the HIV
    from replicating. GPV-C does not appear to cause any symptoms and may
    provide future therapy options for HIV. Specifically, the VA team
    showed that infecting human blood cells with GPV-C in the laboratory
    slowed the rate at which HIV multiplies. (Sept. 2001)
        Higher Estrogen Doses May Enhance Memory for Alzheimer's
    Patients.--VA researchers have found that higher doses of estrogen may
    enhance memory and attention for post-menopausal women with Alzheimer's
    Disease. Building on previous research showing the positive effects of
    estrogen administered by a skin patch, the researchers showed that a
    short-term administration of a higher dose of estrogen was found to
    significantly improve verbal and visual memory as well as attention in
    post-menopausal women. Although estrogen therapy does not show improved
    brain function for patients with mild to moderate Alzheimer's, it may
    slow the progression or prevent the disease. (Aug. 2001)
        Diet and Exercise Reduce Risk and Delay Onset of Type 2 Diabetes.--
    As part of the Diabetes Prevention Program (DPP), researchers at the VA
    Puget Sound Health Care System and the University of Washington have
    collaborated in a major clinical trial that showed at least 10 million
    Americans can reduce their risk of contracting Type 2 diabetes with a
    regimen of diet and exercise. Funded by a wide group of federal
    agencies, private associations, pharmaceutical companies and product
    manufacturers, the DPP was ended a year early because the data had
    clearly answered the major research questions. (Aug. 2001)
        VA Researcher Identifies Breast Cancer Gene.--A VA researcher at
    the San Francisco VA Medical Center and the University of California at
    San Francisco led a study that showed that women who have a specific
    sequence of a transforming growth-factor gene have a 60 percent lower
    risk of developing breast cancer. (June 2001)
        Increased ``Good'' Cholesterol Reduces Rate of Strokes.--A VA
    Cooperative Study at 20 VA Medical Centers has found that treatment
    aimed at raising levels of high-density lipoproteins (HDL), commonly
    called ``good'' cholesterol, substantially reduces the incidence of
    strokes in some patients. Patients who received the drug Gemfibrozil
    had a 31 percent lower incidence of stroke. The result is part of a
    larger study aimed at showing that higher HDL levels reduce the risk of
    major cardiovascular events. (June 2001)
        Brain Development Continues into Late 40's.--An inter-agency study
    led by a VA researcher at the Central Arkansas Veterans Healthcare
    System has shown that the brain continues to develop in late 40-year
    olds. This view contradicts the current view that brain maturation ends
    before age 20 and may shed light on brain ailments such as Alzheimer's
    Disease, schizophrenia and drug addiction. Using magnetic resonance
    imaging (MRI) to measure brain development, the study showed that so-
    called white matter--where memory, higher reasoning, and impulse
    functions take place--continues to develop until the age of 48, on
    average. (May 2001)
        Reduced Opiate Treatment May Increase Efficacy of Chronic Pain
    Treatment.--Researchers at the Tampa VA Medical Center have found that
    patients taking opiates for chronic pain conditions reported no greater
    pain intensity than those not taking the drugs. Those receiving opiate
    treatment did report increased impairment. The program gradually phased
    out opiate use and those who remained off the drugs reported less pain
    and increased functionality and reduced depression. (May 2001)
        New Technique to Evaluate Corneal Tissue for Implants.--Researchers
    at the Central Arkansas Veterans Healthcare System and the Jones Eye
    Institute at the University of Arkansas for Medical Sciences have
    developed a new technique to evaluate the surface of a cornea to
    determine suitability for transplantation. The new technique allows for
    evaluation of the entire surface of the cornea; current inspection is
    done visually or by methods that detect only large lesions. (May 2001)
        Old Drug Resists Pull of Cocaine.--Researchers at the Philadelphia
    VA Medical Center and the University of Pennsylvania report that
    Propranolol, a drug currently used to treat high blood pressure, helps
    addicts remain in treatment when the withdrawal effects of cocaine are
    especially high and treatment dropout rates are otherwise high. The
    research suggests that the drug reduces withdrawal symptoms by lowering
    the anxiety causing effects of adrenaline. (April 2001)
        New Method to Treat Osteoporosis, Grow Bone Tissue.--By using a
    synthetic form of estrogen that promotes bone growth without affecting
    the reproductive system, researchers at the Central Arkansas Veterans
    Healthcare System and the University of Arkansas for Medical Sciences
    may have discovered a new way to treat osteoporosis. Existing estrogen
    replacement therapy for osteoporosis is associated with several side
    effects including uterine cancer. This conceptual breakthrough could
    lead to a new generation of drugs and hormone therapies. (March 2001)
        Natural Recovery from Spinal Cord Injury Shown in Rats.--
    Researchers at the San Diego VA Medical Center have found that rats
    with spinal cord injuries develop some spontaneous re-growth of nerves
    leading to increased motor function. In rats where 97 percent of the
    spinal cord connections are severed, rats were able to regain function
    within four weeks of surgery. Further research in continuing to
    determine how this process of ``sprouting'' can be enhanced. (March
    2001)
        Flu Vaccines Could Save the Nation $1.3 Billion Annually.--Routine
    influenza vaccinations of all working adults could save the nation as
    much as $1.3 billion each year according to a study led by researchers
    at the Minneapolis VA Medical Center and the University of Minnesota
    Medical School. By examining both the direct and indirect costs
    associated with influenza, researchers estimated that health care costs
    could be reduced by an average of $13.66 per person vaccinated. (March
    2001)
        Implanted Electrodes Help Stroke Patients Walk.--Using a technique
    known as Functional Neuromuscular Stimulation (FNS), VA scientists
    implanted electrodes in the leg muscles of stroke patients and used
    sophisticated software to electrically stimulate the muscles over a 6-
    month course of treatment. The patients experienced significant
    improvements in gait and other abilities, with no adverse effects. The
    research was described in the Journal of Rehabilitation Research and
    Development and other journals. (Feb. 2001)
                                     ______

    Prepared Statement of the Great Lakes Indian Fish & Wildlife Commission

        Environmental Protection Agency Appropriations.--GLIFWC seeks
    $310,000 from various EPA programs for its ceded territory treaty
    rights environmental protection program:
        Ceded Territory/Crandon Mine Assessment Project.--$160,000 for
    hydrological modeling, contaminant transport analysis, baseline
    biomonitoring studies, and participation as a ``cooperating agency'' in
    the preparation of a Federal EIS by the Army Corps of Engineers for a
    proposed zinc and copper mine near Crandon, Wisconsin.
        Lake Superior Bi-National Program, Great Lakes Strategy for 2002,
    and Lake Superior LaMP.--$80,000 for continued GLIFWC participation in
    the Bi-National Program, in the recently announced U.S. Policy
    Committee's Great Lakes Strategy for 2002 A Plan for the New
    Millennium, in the preparation and implementation of the Lake Superior
    LaMP, and in IJC, SOLEC and other Great Lakes forums.
        Habitat and Human Health Research.--$70,000 for research projects
    on invasive species, including zebra mussels, on potentially
    contaminated whitefish and lake trout spawning grounds in Lake
    Superior, and on contaminant levels in Lake Superior lake trout.
        EPA Budget Categories and Priorities.--Over the past 7 years,
    Congress and EPA have funded GLIFWC's treaty rights environmental
    protection program under a variety of budget categories, including:
    wetlands (Section 104(b)(3) funds), coastal environmental management
    (CEM), the Great Lakes National Program Office (GLNPO), the Office of
    Pollution Prevention and Toxics, and environmental justice grants.\1\
    The Clean Water Act (33 U.S.C. Sec. 1268) requires the EPA and GLNPO to
    integrate tribal agencies in the development and implementation of
    action plans to carry out the United States' responsibilities under the
    Great Lakes Water Quality Agreement. In addition, GLIFWC and its member
    tribes are among the partners that will be implementing the Great Lakes
    Strategy for 2002 A--Plan for the New Millennium.
    ---------------------------------------------------------------------------
        \1\ The Administration casts its proposed fiscal year 2003 budget
    in terms of the EPA strategic plan's goals. For GLIFWC's ceded
    territory purposes, the relevant goals and related funding categories
    appear to be: Goal 2: Clean and Safe Water; Goal 4: Preventing
    Pollution and Reducing Risk in Communities, Homes, Workplaces and
    Ecosystems; Goal 6: Reduction of Global and Cross-Border Environmental
    Risks; Goal 7: Quality Environmental Information; and Goal 8: Sound
    Science, Improved Understanding of Environmental Risk and Greater
    Innovation to Address Environmental Problems.
    ---------------------------------------------------------------------------
        Ceded Territory Treaty Rights and GLIFWC's Role.--GLIFWC was
    established in 1984 as a ``tribal organization'' within the meaning of
    the Indian Self-Determination Act (Public Law 93-638). It exercises
    authority delegated by its member tribes to implement Federal court
    orders and various interjurisdictional agreements related to their
    treaty rights. GLIFWC assists its member tribes in:
      --securing and implementing treaty guaranteed rights to hunt, fish,
            and gather in Chippewa treaty ceded territories; and
      --cooperatively managing and protecting ceded territory natural
            resources and their habitats.
        For the past 15 years, Congress and Administrations have funded
    GLIFWC through the BIA, EPA and other agencies to meet specific Federal
    obligations under: (a) a number of U.S./Chippewa treaties; (b) the
    Federal trust responsibility; (c) the Indian Self-Determination Act,
    the Clean Water Act, and other legislation; and (d) various court
    decisions, including a 1999 U.S. Supreme Court case, affirming the
    treaty rights of GLIFWC's member Tribes. GLIFWC serves as a cost
    efficient agency to conserve natural resources, to effectively regulate
    harvests of natural resources shared among treaty signatory tribes, to
    develop cooperative partnerships with other government agencies,
    educational institutions, and non-governmental organizations, and to
    work with its member tribes to protect and conserve ceded territory
    natural resources.
        Under the direction of its member tribes, GLIFWC operates a ceded
    territory hunting, fishing, and gathering rights protection/
    implementation program through its staff of biologists, scientists,
    technicians, conservation enforcement officers, and public information
    specialists. Its activities include: natural resource population
    assessments and studies; harvest monitoring and reporting; enforcement
    of tribal conservation codes into tribal courts; funding for tribal
    courts and tribal registration/permit stations; development of natural
    resource management plans and tribal regulations; negotiation and
    implementation of agreements with State, Federal and local agencies;
    invasive species eradication and control projects; biological and
    scientific research; and development and dissemination of public
    information materials.
        Tribal members rely upon fish, wildlife, and plants for religious,
    cultural, medicinal, subsistence, and economic purposes. Their treaty
    rights mean little if contamination of these resources threatens the
    health, safety, and economy of tribal members, or if the habitats
    supporting these resources are degraded.
        GLIFWC Programs Currently Funded by EPA.--GLIFWC currently
    administers EPA funding for a variety of ceded territory environmental
    protection programs and studies.
      --Study of Proposed Crandon Mine in Wisconsin.--GLIFWC's work related
            to the proposed mine includes hydrological modeling,
            contaminant transport analysis, and baseline biomonitoring
            studies. In fiscal year 2002, GLIFWC will administer $68,700 in
            EPA wetlands (Section 104(b)(3)) funds to continue its
            technical studies and assessments.
      --Participation in the Lake Superior Bi-National Program.--Since
            fiscal year 1996, EPA has provided CEM funds for a 1 FTE
            equivalent to facilitate GLIFWC's participation in the Bi-
            National Program to Restore and Protect Lake Superior,
            including preparation of the Lake Superior LaMP and
            participation in various International Joint Commission (IJC)
            and State of the Lake Ecosystem Conference (SOLEC) forums. In
            fiscal year 2002, GLIFWC will administer $76,800 in EPA CEM
            funds to facilitate participation in these forums as well as in
            the implementation of the Great Lakes Strategy for 2002 A Plan
            for the New Millennium.
      --Research and Special Projects.--Since fiscal year 1997, EPA has
            provided a combination of CEM, GLNPO, and Environmental Justice
            funds for GLIFWC to conduct scientific research to produce data
            relevant to the Bi-National Program/Lake Superior LaMP and to
            human health. In fiscal year 2002, GLIFWC will administer
            $62,400 from EPA's Pollution Prevention and Toxics program to
            test several Lake Superior fish species for dioxin.
        Fiscal year 2003 Funding Needs/Rationale.--GLIFWC would use fiscal
    year 2003 funds for these same purposes.
      --Work on the Proposed Crandon Mine.--$160,000 for GLIFWC's review,
            analysis and GIS mapping related to the mine, particularly as
            to completion of an ongoing baseline biomonitoring project,
            participation as a ``cooperating agency'' in the preparation of
            the Federal EIS, and maintenance of hydrological and
            contaminant transport expertise.
        --Rationale.--The mine will impact ceded territory natural
                resources that are subject to the tribes' treaty rights to
                hunt, fish, and gather. State and Federal permit processes
                are moving toward Environmental Impact Statements (EIS),
                with the State EIS expected within a year and the Federal
                EIS about 6 months later. GLIFWC needs to be ready to fully
                participate both in the State and Federal EIS processes and
                in the permit hearings that will follow. With the requested
                fiscal year 2003 funds, GLIFWC will:
            --Complete Baseline Biomonitoring Studies ($53,000).--GLIFWC
                must complete the final year of its 3-year study to
                establish baseline data for contaminants found in surface
                water, plants and animals near the proposed mine site.
                GLIFWC used EPA funds provided pursuant to Congress' fiscal
                year 2001 $168,000 Crandon mine appropriation and EPA
                wetlands (Section 104(b)(3)) funds to collect data in the
                study's first 2 years. It does not have funding for the
                third year.
            --Serve as a ``Cooperating Agency'' in the Federal EIS Process
                ($67,000).--GLIFWC is participating as a ``cooperating
                agency'' from the ceded territory perspective for its
                member tribes in the preparation of the Federal EIS under
                Sec. 404 of the Clean Water Act. As such, GLIFWC has the
                opportunity to develop and present independent analyses of
                a variety of potential mine impacts for inclusion in the
                Federal draft EIS. This will require a substantial amount
                of staff time for computer modeling and analysis,
                preparation of written comments and assessments, and
                attendance at various meetings.
            --Maintain Hydrological and Contaminant Transport Expertise
                ($40,000).--Through Congress' fiscal year 2001 Crandon Mine
                appropriations, GLIFWC received funds to enlist the help of
                outside experts in specific technical areas, including: (1)
                The hydrology of water flowing through the mine and methods
                (such as grouting) to slow down that flow; (2) The
                uncertainty associated with various impact predictions and
                monitoring programs proposed by the mining company; (3)
                Contaminant transport issues related to water flowing
                through the mine and potential contamination of the
                groundwater; and (4) Mercury contamination that may result
                from wetlands drying up. This initial funding is not
                sufficient to cover the costs of the much more in-depth
                analyses that will be necessary as the mine's design and
                engineering proposals are finalized and fully scrutinized
                during the EIS processes and permit hearings.
      --Participation in the Lake Superior Bi-National Program.--$80,000
            for continued funding of GLIFWC staff (1 FTE equivalent, and
            related travel and other expenses) who will participate in the
            Bi-National Program, in the preparation and implementation of
            the Lake Superior LaMP, in IJC and SOLEC forums, and in the
            implementation of the recently announced Great Lakes Strategy
            for 2002 A Plan for the New Millennium.
        --Rationale.--GLIFWC has been actively involved in the Bi-National
                Program since 1993. However, it was not able to adequately
                participate until EPA first provided CEM funds for this
                purpose in fiscal year 1996. As a result, GLIFWC currently
                serves on the Bi-National Program's Task Force and
                Workgroup, and on the Workgroup's chemical, terrestrial and
                habitat committees. It is participating in the preparation
                of the LaMP 2002. It also helps to liaison with other
                relevant Great Lakes institutions, such as the Great Lakes
                Fishery Commission, on issues of mutual concern between
                environmental and natural resource managers.
            As for IJC forums, GLIFWC staff regularly attend the biennial
                IJC meetings and provide periodic comments when issues
                arise in the interim, such as on the matter of Great Lakes
                water diversions. As for SOLEC, GLIFWC staff addressed the
                2000 plenary session on the topic of wild rice and
                organized a breakout session on wild rice.
            This funding is necessary for GLIFWC to live up to its
                partnership responsibilities under the Great Lakes Strategy
                for 2002 A Plan for the New Millennium.
      --Continuing Research and Special Projects.--$70,000 for Lake
            Superior habitat and human health research projects related to
            the Bi-National Program and the Great Lakes Strategy for 2002 A
            Plan for the New Millennium.
        --Rationale.--GLIFWC has undertaken a number of studies over the
                years related to the Lake Superior ecosystem. For example,
                with GLNPO and CEM funds, GLIFWC is preparing a report on
                the threat of wetland and terrestrial exotic plants to Lake
                Superior, has studied sturgeon in the Lake Superior basin,
                and has prepared GIS maps of fish spawning and nursery
                locations for both native and exotic species. In addition,
                as part of its ongoing natural resource contaminant/human
                health research, GLIFWC used Environmental Justice grants
                to update its fish consumption advisory database and to
                undertake wild rice contaminant research for heavy metals.
        For fiscal year 2003, GLIFWC would explore EPA funding for four
    projects:
      --Assess impacts from mining waste (stamp sands) dumped into Lake
            Superior during the late 1800s, map an important whitefish and
            lake trout spawning reef in Keweenaw Bay, and determine the
            distribution of stamp sands in relation to the spawning reef.
      --Assess whether seed mixtures currently used in northern upland
            forest re-vegetation projects contain exotic invasive species,
            and identify and recommend native plant species that would be
            appropriate substitutes.
      --Inventory zebra mussels in Chequamegon Bay and establish an
            interagency workgroup to inventory, monitor, and develop
            strategies to minimize the spread of zebra mussels in Lake
            Superior and inland waters.
      --Assess mercury, PCB and organochlorine levels in lake trout
            harvested by tribes in the 1842 ceded territory waters of Lake
            Superior, and evaluate how the new data compares to the
            advisories currently being issued by the States of Wisconsin,
            Minnesota and Michigan.
                                     ______

         Prepared Statement of The Humane Society of the United States
        On behalf of our 7 million members and constituents, The Humane
    Society of the United States (HSUS) appreciates the opportunity to
    submit testimony regarding fiscal year 2003 appropriations for the
    Environmental Protection Agency (EPA). We wish to thank the
    Subcommittee for directing the EPA to spend $4,000,000 for the
    research, development, and validation of non-animal, alternative
    chemical screening and prioritization methods. Prioritizing funding for
    non-animal test methods is a critical step, encouraging the EPA to
    promote and support these more humane, often faster, less expensive,
    and more scientifically sophisticated procedures. We wish to commend
    the Subcommittee for improving federal regulatory decision-making
    processes on chemical safety and for helping to reduce needless animal
    suffering. Our testimony for fiscal year 2003 focuses on the EPA's
    Office of Research and Development (ORD) and the agency's Endocrine
    Disruptor Screening Program (EDSP).
        The EDSP is the largest of several chemical testing programs
    administered by the EPA. These programs will collectively subject
    millions of animals to suffering and death in painful toxicity tests.
    Indeed, the EDSP itself is perhaps the largest government-sponsored
    animal testing program in history. Yet without the Subcommittee's
    intervention, the EPA's ORD budget has no identifiable program to
    develop alternative tests that can replace, reduce, or refine existing
    animal-based tests. Eli Lilly and Company eliminated its cat test for
    glucagon, replacing it with an alternative test, and calculated that it
    was saving $1 million a year as a result of the new test. However,
    there may need to be some up-front investment--it cost Eli Lilly $2
    million to develop and validate the alternative. We are still not
    seeing sufficient commitment from EPA to provide the initial
    investments needed to produce alternatives (or batteries of
    alternatives) to address issues such as the Endocrine Disruptors.
        The EPA, moreover, is not taking full advantage of an existing
    interagency committee with expertise in assessing new testing methods
    to evaluate their acceptability for regulatory use. The Interagency
    Coordinating Committee on the Validation of Alternative Methods
    (ICCVAM) is the federal government's focal point for assessing the
    validation and regulatory acceptability of new test methods. The EPA is
    a participating member of ICCVAM and was very involved in developing
    and approving the ICCVAM structure. Yet the EPA is bypassing the
    ICCVAM's review mechanism for many of the new tests in its EDSP,
    instead relying on in-house assessments. This move has worried many
    animal protectionists as well as other stakeholders.
        The HSUS respectfully urges this Subcommittee to request that the
    ORD establish a substantial program to research and develop alternative
    methods (as it already committed to do for the High Production Volume
    chemical testing program but has not yet pursued), and that the EPA
    take full advantage of ICCVAM's expertise in evaluating new testing
    methods of multi-agency interest.
      research and development of alternative testing methods at epa's ord
        The ORD budget in recent years has been approximately $500 million.
    Within these appropriations, it has been nearly impossible to identify
    funding by the ORD for non-animal alternative testing methods to meet
    EPA's specific needs in new testing programs. We believe that
    innovative non-animal alternative testing technologies would benefit
    from research and development funding. Therefore, we respectfully
    request that at least $10 million either from the existing budget or
    over and above the President's budget request be appropriated for
    research, development and validation of non-animal, alternative testing
    methods. Given the potential long-term benefits of such investment in
    alternatives development, it is surprising to us that the EPA is not
    already actively pursuing this approach. Activities funded by these
    allotments should be designed in consultation with the Office of
    Pollution Prevention and Toxic Substances.
        It would be appropriate for this funding to be targeted at testing
    methods with direct application to recent and new EPA testing programs,
    which include the EDSP, High Production Volume (HPV) chemical testing
    program, and the Voluntary Children's Chemical Evaluation Program
    (VCCEP). For example, there is a specific rat neurological development
    test that is widely regarded as inadequate but is still being proposed
    as one of the battery of tests under the VCCEP.
        The HSUS also asks that the Subcommittee require the EPA to submit
    a report to the Subcommittee by March 30, 2003 regarding expenditures
    and plans for additional expenditures for fiscal year 2003 funds under
    the EDSP.
        The request for $10 million represents approximately 2 percent of
    ORD's total budget, a modest but nonetheless significant commitment by
    EPA to alternative test methods. The HSUS would like to emphasize that,
    in making this request, we believe this course of action would also be
    in the best interests of human and environmental safety.
                the endocrine disruptor screening program (edsp)
        Under the 1996 Food Quality Protection Act (FQPA) and the Safe
    Drinking Water Act Amendments, Congress mandated that EPA determine
    whether certain substances may have an effect in humans that is similar
    to an effect produced by a naturally occurring estrogen, or such other
    endocrine effects as EPA may designate. The congressional mandate came
    as a response to public concern that exposures to synthetic chemicals
    in the everyday environment may be adversely affecting the endocrine
    systems of wildlife and humans, thereby causing reproductive and
    developmental anomalies.
        In response to Congress' mandate, the EPA formed the Endocrine
    Disruptor Screening and Testing Advisory Committee at the close of
    1996. This entity devised the testing framework for the EDSP.
    Currently, the proposed EDSP testing scheme consists of a battery of 16
    tests designed to assess the toxicity of up to 80,000 chemicals. These
    tests are largely animal-based. Some scientific estimates have
    projected that between 600,000 and 1.2 million animals will be killed
    for every 1,000 chemicals tested.
        Animal protection organizations and members of the public have
    serious concerns about the process by which the proposed EDSP tests
    will be evaluated. The FQPA stated that all screens and tests used in
    the EDSP should be properly validated, to ensure the their relevance
    and reliability for assessing endocrine disruption. The proposed EDSP
    testing methods are all either new or revised for new endpoints, and
    therefore each should be evaluated for the EDSP as a matter of sound
    science. The natural entity to conduct this evaluation is the ICCVAM.
    Since its creation in 1994, the ICCVAM has benefited EPA and many other
    federal agencies, as well as research entities, by successfully
    evaluating the validity of new and revised testing methods
    (alternatives included) that have cross-agency relevance.
        In December of 2000, Congress upgraded ICCVAM from an ad hoc
    committee to a standing body, thereby solidifying its crucial role. It
    is clear that ICCVAM can provide a standardized assessment of the
    validity and regulatory acceptability of all EDSP tests and screens.
    This would be particularly appropriate given the level of interest in
    these methods by other federal agencies such as the Food and Drug
    Administration and other national and international organizations,
    including the Organization for Economic Cooperation and Development.
        However, EPA has developed a bifurcated validation plan for the
    EDSP that calls upon its own Science Advisory Board (SAB)/Science
    Advisory Panel (SAP) to review all the animal-based tests and screens,
    while asking the ICCVAM to review only the non-animal testing methods.
    This approach has many observers worried that the animal-based methods
    will be evaluated using lower standards than the non-animal methods. In
    addition to qualms voiced by animal protection advocates, the Advisory
    Committee on Alternative Toxicological Methods (ACATM) for the National
    Toxicology Program passed two unanimous resolutions questioning the
    EPA's plan and supporting the mission of ICCVAM. The Committee's
    primary concern is that both in vitro and in vivo methods be subjected
    to the same rigorous peer review and validation process to ensure the
    highest likelihood of acceptance by the regulatory agencies, the
    scientific community and the public.
        The HSUS strongly urges the Subcommittee to call on the EPA to use
    ICCVAM's expertise to assess the validity and regulatory acceptability
    of all EDSP tests and screens, with appropriate fiscal support from the
    EPA. Furthermore, ICCVAM should collaborate with EPA's SAB/SAP to avoid
    any unnecessary delay in the program. Among other things, ICCVAM's
    review of the EDSP testing methods can serve to ensure that proper
    consideration is granted for the replacement, reduction, and refinement
    of the use of animals in these proposed tests and screens.
                                   conclusion
        The HSUS respectfully requests that the VA-HUD Appropriations
    Subcommittee provide funding to the EPA with the direction that the ORD
    expand its research and development activities to include alternative
    methods. We also urge the Subcommittee to ensure that any new or
    revised testing methods with multi-agency or international interest be
    evaluated through the Congressionally-established ICCVAM for sound
    science and consistency with the replacement, reduction, or refinement
    of animal use.
                                     ______

                Prepared Statement of the Joslin Diabetes Center

                                  introduction
        Mr. Chairman, thank you for this opportunity to provide a status
    report on the Diabetes Project conducted jointly by the Joslin Diabetes
    Center in Boston, MA and the Department of Veterans Affairs (Medical
    Care account), for which you provided $5 million each in the fiscal
    year 2001 and the fiscal year 2002 Appropriations Acts.
        Our request for fiscal year 2003 to continue this project with the
    VA is $5 million in the Medical Care account, of which the VA's costs
    represent approximately 50 percent.
        I am Dr. Sven Bursell, Principal Investigator of the project and
    Associate Professor of Medicine at the Harvard Medical School.
                                   background
        Joslin Diabetes Center has been involved with the Department of
    Defense and the Department of Veterans Affairs in a pilot demonstration
    project for the advanced detection, prevention, and care of diabetes.
    The Joslin Vision Network (JVN) has been deployed in VA sites in VISN
    21 in Hawaii (Honolulu, Hilo and Maui), VISN 1 in New England (Boston,
    Brockton in Massachusetts, and Togus, Maine) and VISN 19/20 (Seattle
    and Tricities in Washington, Anchorage in Alaska and Billings in
    Montana). The JVN employs telemedicine technology to image the retina,
    through an undilated pupil, of patients with diabetes, and produces a
    digital video image that is readable in multiple formats.
        This project was funded initially through the Department of Defense
    Appropriations Act. The Department of Veterans Affairs medical staff
    was eager to expedite the deployment of this advanced diabetes
    technology beyond the limited resources available through participation
    in the DOD funded project. We petitioned this Subcommittee for
    additional resources to be made available to the VA for discretionary
    diabetes detection and care.
        This Committee provided $2 million in fiscal year 2000 and $5
    million each in fiscal year 2001 and fiscal year 2002 for expansion of
    this project within the VA. The VA has indicated a desire to continue
    expansion, citing the JVN as the model of the future telemedicine in a
    recent conference of the Association of Military Surgeons-General of
    the U.S. (AMSUS). We are seeking $5 million to continue this expansion,
    and are supported by the VA medical policy staff.
        The leadership shown by this Subcommittee has enabled the VA to
    provide its patient population the best diabetes care, prevention, and
    detection in the world. We extend our sincere appreciation to you for
    your response to that request.
                          fiscal year 2002 activities
        The policy and program officials of the VA have established the
    appropriate contracts and statements of work that resulted in consensus
    with respect to deployment of the Joslin Vision Network (JVN)
    technology to three sites: Anchorage, Alaska, TriCities, Washington,
    and Billings, Montana. A Reading Center will be created and utilized in
    Seattle, Washington. In addition, the refinement of JVN technology,
    both hardware and software, will move toward developing a scalable
    system that is capable of widespread deployment agency-wide. This
    system was completed and it is anticipated that this next generation of
    the system will be completely integrated into the VA's VISTA Medical
    Records System and the VA communications infrastructure.
        Results from our various demonstration installations have shown
    that appropriate clinical resources can be efficiently allocated with
    respect to appropriate ophthalmology referral. For example, the
    installation in Togus Maine where there is no ophthalmology resources
    on site has shown that the use of the JVN system can effectively
    prioritize patients that need to be seen by the opthalmologist at the
    time when the ophthalmologist plans to visit that clinic. This site is
    imaging approximately 10 patients per day and they find the JVN program
    extremely resource efficient in providing the appropriate eye care to
    their patients.
        The same experience was noted from the VA clinics in Hilo and Maui
    where the Optometrist from the Honolulu VA visits these island clinics
    once a month and was able to effectively focus his time on the patients
    that really needed his expertise for managing their diabetes eye
    complications.
        An equally important concentration of resources in fiscal year
    2001-2002 was focused on refining the technical core using outcomes
    based medical and case management scenarios to develop a diabetes
    healthcare model that is modular, customizable and that can be
    seamlessly integrated into the existing VA telemedicine systems. This
    is the stated goal of the medical leadership in the VA, DOD and HIS
    health care systems. The overarching vision for the VA/JVN project is a
    web-based comprehensive diabetes health care system that can be
    interactively used by both patients and providers, that incorporates
    diagnosis specific education and training modules for patients and
    providers and that incorporates software applications that allow
    outcome measures to be statistically assessed and individual treatment
    programs to be interactively adjusted based on these outcome measures.
    The JVN Eye Health care system exists as a component of a comprehensive
    diabetes management system, incorporating other clinical disciplines
    such as endocrinology, vascular surgery and internal medicine.
        The effort for fiscal year 2002 will result in the development of
    modular applications associated with different aspects of total
    diabetes disease management such as clinical risk assessment, outcomes
    assessments, behavior modification in an interactive electronic
    environment, and education programs. These applications will be
    designed in collaboration with participating VA sites to provide an
    ultimate product that appropriately assesses the clinical diabetes risk
    and provides treatment plans and behavior modifications that are
    tailored to any particular patients needs. The programs will also be
    designed so that they can realize a significant cost and resource
    efficiency with respect to support and maintenance of the JVN component
    and the diabetes management programs that will facilitate an
    accelerated deployment in the future.
        Technologically, we will be providing an application that
    automatically detects retinal pathology from the JVN images. Using this
    first step approach it is anticipated that we can reduce the load on
    the reading center by as much as 50 percent. This is achieved through
    the use of a computer application that scans the images and detects any
    abnormalities that may be associated with the development of diabetic
    retinopathy. In those cases where the computer detects pathology a
    reader will be notified to perform the appropriate reading for
    retinopathy assessment. In the case where the computer does not detect
    any pathology the patient can be assigned to a low risk priority where
    the computer findings can be rapidly confirmed by the reader and the
    patient asked to return for repeat JVN imaging in a year.
                            fiscal year 2003 request
        For fiscal year 2003, we request that in the VA Medical Account $5
    million be allocated to continue and expand this project. The positive
    response within the VA system indicates that with sufficient resources,
    the JVN technology would be deployed in a number of sites with the
    ultimate goal of incorporating the JVN technology throughout the VA
    Medical Care system. The VA Budget Request by the fiscal year 2004
    cycle will include provisions for full deployment for the JVN
    throughout the VA Medical Care system. As the technology, systems and
    production of equipment are standardized to off the shelf
    specifications, the expense per site will decrease.
        The specific goals for fiscal year 2003 include the following:
        --Establish specific medical codes that will allow the VA to track
    performance with respect to these JVN examinations and to ensure that
    it conforms with VA performance criteria in multiple remote VA
    outpatient settings;
        --Improve adherence to scientifically proven standards of diabetes
    eye care and diabetes care;
        --Improve/promote access to diabetes eye care;
        --Increase number/percentage of patients with Diabetes Mellitus
    obtaining eye care;
        --Provide education patients and providers in the clinical setting.
        The use of the JVN equipment and expansion of screening
    opportunities are a continuing major focus for fiscal year 2003
    activities. The actual number of sites deployed to will be determined
    on the locales with the greatest need for diabetes care in conjunction
    with the telecommunications infrastructure at the identified sites and
    the ease and costs associated with interfacing the JVN technology into
    the existing infrastructure.
        We have expended considerable effort in migrating the JVN
    demonstration technology platform into an application that is totally
    compliant with existing medical informatics infrastructures and the
    existing VISTA infrastructure of the VA system. This will encompass the
    integration of hardware and software in close collaboration with
    available resources from the VA VISTA program that will allow a highly
    scaleable transparent integration of the JVN Diabetes Eye Health Care
    system into the existing health informatics infrastructures of the VA
    system.
        For the fiscal year 2002-2003 project phase, we have established
    the following tasks, targets, and activities:
        --Deployment of a viable, sustainable, and refined operating JVN
    Diabetes Eye Health Care model and Comprehensive Diabetes Management
    program.
        --Develop a modularized medical outcomes based telemedicine
    diabetes management program in continued collaboration with the VA with
    outcome measures incorporated into software based on clinical results
    and research experiences of the fiscal year 2001 efforts.
        --Develop curriculum based patient and provider educational
    modules.
        --Integrate internet based portals that are accessed by patients
    for reporting of glucose values and receiving feedback with respect to
    goals for self management of their diabetes and adjustments of their
    treatment plans based on these goals. These portals will also provide
    regular education modules for the patients that are customized to their
    particular needs and clinical diabetes risk assessment.
                                   conclusion
        We request continuation and maintenance of this Committee's policy
    of support for the improvement of the diabetes care in the VA medical
    system. Through funding of
        This $5 million request, the benefits by the close of fiscal year
    2003 will include:
        --Deployment of JVN detection and care at 5 different VA centers
    where each center will provide services for 6 different remote sites
    for a total 35 sites;
        --JVN accessibility to increase VA capability to achieve patient
    compliance to eye examinations to at least 95 percent of the diabetic
    patient population in any area being serviced. From an estimate of the
    VA diabetic patient population we would estimate that the JVN would be
    accessing an estimated patient population of 196,000, or an estimated
    11 percent of the total VA Diabetic population after completing
    anticipated 2002 deployments.
        --The model for VA's deployment of the JVN as a diabetes detection
    and Disease management platform for expansion to availability for the
    entire VA Patient population.
        Thank you for this opportunity to present this request for $5
    million for fiscal year 2003 and status report for fiscal year 2002 on
    a medical technology breakthrough for the patients and health care
    system within the Department of Veterans Affairs.
                                     ______

       Prepared Statement of the Metropolitan Water District of Southern
                                   California

        The Metropolitan Water District of Southern California (MWD) is
    pleased to submit comments for the record regarding programs contained
    in the U.S. Environmental Protection Agency's (EPA) fiscal year 2003
    budget for your Subcommittee's hearing.
        MWD is responsible for meeting the supplemental water requirements
    of 17 million people living in the Southern California coastal plain
    and the economy which supports them. Our sources of water supply are
    the Colorado River and surface waters from Northern California. Of
    particular interest to MWD and our 26 member agencies are those federal
    programs that provide assistance and facilitate partnerships for
    addressing critical water resources issues.
        One of the most challenging water resource issues in Southern
    California is ensuring adequate supply of high quality water. To
    increase our ability to achieve these goals, we strongly urge that you
    designate $2 million of funding appropriated for State and Tribal
    Assistance Grants (STAG) to ensure the continuation of the Desalination
    Research and Innovation Partnership (DRIP). DRIP is a major applied
    research program which seeks to develop and demonstrate next-generation
    desalination and disinfection technologies to economically treat large
    volumes of water for potable and non-potable uses.
        MWD also asks that you support adequate funding for another STAG
    program, the Drinking Water State Revolving Fund (DWSRF). The
    President's budget request of $850.0 million falls short of the $1
    billion authorized by Congress in the 1996 Amendments to the Safe
    Drinking Water Act. We urge that you support funding at the authorized
    level. Water supplies, treatment facilities, and distribution systems
    also require adequate protection from terrorist activities. We strongly
    urge you to support the President's request of $5.0 million for
    homeland security for public water systems.
        We further ask that you fully support the $49.5 million request for
    safe drinking water research in the President's budget. Lastly, we ask
    that you designate $7 million for the American Water Works Association
    Research Foundation (AWWARF) for research and studies, including those
    related to the protection of drinking water supplies from terrorist
    acts. These and several other requests to support funding are discussed
    in more detail below.
    State and Tribal Assistance Grants (STAG)
        Desalination Research and Innovation Partnership (DRIP) Funding.--
    Water quantity and quality are priority issues in Southern California
    where approximately half of the water used is imported. Much of our
    imported supply is from the Colorado River, a source that is high in
    salinity (i.e., mineral content). Although not a health concern, high
    salinity can cause scaling and corrosion of plumbing fixtures,
    adversely affect salt-sensitive agricultural crops, and limit the
    ability to recycle water. Local groundwater supplies cannot always be
    utilized, in part because of high salinity.
        Several years ago, MWD and its partners embarked on a public-
    private partnership (DRIP) to develop innovative technologies for cost-
    effectively reducing salinity in Colorado River and other non-
    traditional sources such as brackish groundwater, municipal wastewater
    and agricultural drainage water. The program was subsequently expanded
    to evaluate new technologies for the inactivation of pathogens
    resistant to commonly used disinfectants. In its first 5 years, DRIP
    has investigated pretreatment to optimize the performance of reverse
    osmosis for reducing salinity in Colorado River water and municipal
    wastewater, the use of ultra-low pressure membrane technologies to
    improve the economics of salinity removal from a variety of water
    sources, brine minimization and disposal strategies, and the
    effectiveness of ultraviolet light as a disinfectant for resistant
    pathogens like Cryptosporidium. In part because of these early
    successes and to address the statewide concern with high salinity, the
    partnership now includes water utilities from Northern California. MWD
    asks that you identify $2 million of the STAG appropriation to support
    the continuation of DRIP. This funding will leverage the financial
    commitments made by the DRIP partners and support near-term activities
    aimed at demonstrating large-scale desalination and ultra-violet light
    technologies for Colorado River water and municipal wastewater,
    increasing the amount of water recovered from RO processes, and
    improving methods for concentrating brine.
        Drinking Water State Revolving Fund.--STAG funding is also critical
    for the DWSRF. In California, water suppliers have identified drinking
    water infrastructure projects totaling in excess of $17.5 billion that
    could benefit from low-cost DWSRF financing. This amount likely
    understates the true needs since these estimates do not take into
    account the infrastructure costs of complying with a maximum
    contaminant standard nor the costs of other drinking water standards
    likely to be promulgated over the next several years. Low-cost
    financing for projects which ensure safe drinking water supplies is
    critical for protecting the health of the more than 240 million
    Americans served by public water systems, and MWD strongly urges that
    you provide $1 billion, the amount authorized by Congress for fiscal
    year 2003. This amount, while greater than the amount requested in the
    President's budget, is still only a small fraction of the funding
    needed by drinking water suppliers to meet existing Safe Drinking Water
    Act requirements.
        Clean Water State Revolving Fund.--Significant investments are
    needed to repair and replace aging municipal wastewater infrastructure
    and combined sewer systems. Low-cost financing is necessary to support
    substantial municipal water quality infrastructure needs over the next
    20 years. The President has requested $850.0 million for fiscal year
    2003 for the CWSRF to support these activities, many of which are vital
    for ensuring protection of drinking water sources. MWD asks that you
    support funding at least at the level in the President's budget.
        Non-point Source Grants.--Another critical source of funding for
    source water protection projects is grants under the Clean Water Act's
    Section 319 Non-point Source Program (NPS). The President has requested
    $180.4 million for NPS grants for fiscal year 2003 and MWD requests
    your support at the level in the President's budget. Non-point source
    pollution is the primary cause of impairment of our nation's waterways.
    Homeland Security
        We are pleased that the President's budget provides for funding to
    protect public water systems from terrorist attacks through support of
    a public-private partnership to safeguard the nation's water supplies
    and wastewater systems. We urge you to support funding at least at the
    $5 million level requested in the President's budget.
    Safe Drinking Water Research
        Scientifically sound research provides the underpinnings for
    effective drinking water quality programs. EPA's fiscal year 2003
    budget, under its strategic goal of clean and safe water, includes
    $49.5 million for safe drinking water research. Of particular interest
    to Metropolitan is EPA's research on emerging pathogens, including the
    development of dose-response relationships and evaluation of cost-
    effective treatment technologies for removal and inactivation. Several
    pathogens are on the Contaminant Candidate List (CCL), and further
    research is needed to support decisions of whether or not to proceed
    with the rulemaking process. We ask that you fully support the
    President's request of $49.5 million.
    Drinking Water--Public Water Systems Supervision Program Grants
        EPA's 2003 budget allocates $93.1 million for Public Water Systems
    Supervision Program grants. This funding is necessary for states with
    primary enforcement responsibilities to carry out their duties,
    including implementation of the 1996 SDWA regulations, and we ask that
    you support this funding level.
    Designation of Funding for AWWARF
        EPA has an opportunity to leverage its research budget through
    designating part of EPA's appropriation for AWWARF. Any EPA funding
    will be matched up to 100 percent from AWWARF and participating public
    water suppliers. We ask that you designate $7 million for AWWARF for
    research, including research that will lead to better protection of
    public drinking water supplies from acts of terrorism.
        We look forward to working with you and your Subcommittee. Please
    contact Brad Hiltscher, MWD's Legislative Representative in Washington,
    D.C. at (202) 296-3551, if we can answer any questions or provide
    additional information.
                                     ______

        Prepared Statement of the National Council for Science and the
                                  Environment

                                    summary
        The National Council for Science and the Environment (NCSE)
    strongly supports bipartisan efforts to double the budget of the
    National Science Foundation (NSF). To that end, we encourage Congress
    to appropriate at least $5.5 billion for NSF in fiscal year 2003, an
    increase of $718 million or 15 percent relative to the fiscal year 2002
    level.
        We encourage Congress to strongly support full and effective
    implementation of the National Science Board (NSB) report,
    Environmental Science and Engineering for the 21st Century: The Role of
    the National Science Foundation, within the context of efforts to
    double the budget of the NSF. The NSB report calls for significant
    improvements in the way that NSF supports environmental research,
    assessment and education, and proposes that the Foundation invest an
    additional $1 billion per year in these areas, to be phased in over
    five years. NSF has begun to implement the NSB report and deserves full
    support from Congress. We also emphasize the need for increased funding
    for NSF's priority area on Biocomplexity and the Environment. In
    addition, we recommend full funding for two large projects the National
    Ecological Observatory Network (NEON) and EarthScope which are included
    in NSF's budget request for Major Research Equipment and Facilities
    Construction. These projects would create unprecedented opportunities
    for environmental research.
        We urge Congress to restore full funding for the Environmental
    Protection Agency's (EPA) Science to Achieve Results (STAR) graduate
    fellowship program. EPA's budget request for fiscal year 2003 would
    eliminate funding for new STAR fellowships.
                                  introduction
        The National Council for Science and the Environment thanks the
    Senate Appropriations Subcommittee on VA, HUD and Independent Agencies
    for the opportunity to provide testimony on the National Science
    Foundation's budget request for fiscal year 2003.
        NCSE is a nonprofit, nonpartisan organization that has been working
    since 1990 to improve the scientific basis for environmental
    decisionmaking. Our work is endorsed by nearly 500 organizations,
    ranging from the U.S. Chamber of Commerce to the Sierra Club, including
    the National Association of Attorneys General, National Association of
    Counties, some 300 colleges and universities, and more than 80
    scientific and professional societies. As a neutral science-based
    organization, NCSE promotes science and its relationship with
    decisionmaking but does not take positions on environmental issues
    themselves.
        We greatly appreciate the Subcommittee's sustained support for the
    National Science Foundation. We are especially grateful for the
    Subcommittee's support over the past six years for NCSE's efforts to
    encourage the NSF to expand scientific activities that can help to
    improve environmental decisionmaking.
                    federal investments in environmental r&d
        Federal investments in R&D and science education are essential to
    the future well-being and prosperity of the nation and deserve the
    highest priority of the Congress. The long-term prosperity of the
    nation and the maintenance of our quality of life depend on a steady
    and growing commitment of Federal resources to science and technology.
        Environmental R&D is a critical component of the nation's R&D
    portfolio. Based on NCSE's Handbook of Federal Funding for
    Environmental R&D, we estimate that Federal funding for environmental
    R&D in fiscal year 2002 is approximately $7.5 billion, an increase of
    $315 million or 4.4 percent relative to fiscal year 2001 (Table 1).
    Federal funding for environmental R&D grew at less than one-third the
    rate of total R&D, which increased by 13.5 percent to $103.7 billion in
    fiscal year 2002.
        Appended to our testimony is a letter signed by more than 120
    university and college presidents, as well as business, scientific and
    environmental leaders calling for significantly increased funding for
    scientific programs about the environment at the National Science
    Foundation, EPA, NASA, and other Federal agencies. We encourage
    Congress to support this initiative.

                                      TABLE 1.--ENVIRONMENTAL R&D BY FEDERAL AGENCY
    ----------------------------------------------------------------------------------------------------------------
                                                      Environmental R&D (millions of dollars)    Change from fiscal
                                                   --------------------------------------------  year 2001 (percent)
                                                                                               ---------------------
                        Agency                        Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     Fiscal
                                                    year 2000  year 2001  year 2002  year 2002  year 2002  year 2002
                                                      actual    estimate   request    enacted    request    enacted
    ----------------------------------------------------------------------------------------------------------------
    National Aeronautics and Space Admin..........     $1,690     $1,716     $1,515     $1,573      -11.7       -8.3
    Department of Energy..........................      1,502      1,774      1,398      1,862      -21.2        5.0
    National Science Foundation \1\...............        671        752        829        829       10.2       10.2
    Environmental Protection Agency...............        558        609        569        702       -6.5       15.4
    Department of Defense.........................        399        450        382        410      -15.1       -9.0
    Department of Commerce--NOAA..................        643        726        772        836        6.4       15.3
    Department of the Interior....................        618        631        593        673       -6.1        6.5
    U.S. Department of Agriculture................        370        410        411        451        0.2        9.9
    National Institutes of Health.................         60         63         70         81       11.7       28.4
    Department of Transportation..................         37         41         61         71       47.0       72.2
    Smithsonian Institution.......................         14         14         14         14        1.4        1.4
    Corps of Engineers............................         11         10         11         11        1.4        1.4
                                                   -----------------------------------------------------------------
          Total...................................      6,573      7,197      6,624      7,512       -8.0       4.4
    ----------------------------------------------------------------------------------------------------------------
    \1\ NSF Environmental R&D provided by NSF.
    Source: AAAS/NCSE estimates of environmental R&D based on enacted appropriations bills, OMB R&D data, Budget of
      the United States Government, agency budget documents, and information from agencies.

        national science foundation budget request for fiscal year 2003
        The National Council for Science and the Environment strongly
    supports bipartisan efforts to double the budget of the National
    Science Foundation. We commend the Chair and Ranking Minority Member of
    the Subcommittee for their leadership. We encourage Congress to
    appropriate at least $5.508 billion for NSF in fiscal year 2003, an
    increase of $718 million or 15 percent relative to the fiscal year 2002
    level. This level of support is recommended by the Coalition for
    National Science Funding, which includes NCSE and 70 other scientific
    organizations and academic institutions.
        Biocomplexity in the Environment Priority Area.--NCSE is
    particularly supportive of NSF's priority area on Biocomplexity in the
    Environment. This initiative provides a focal point for investigators
    from different disciplines to work together to understand complex
    environmental systems, including the roles of humans in shaping these
    systems. The resolution of many important environmental and societal
    problems is lagging, in part, because of insufficient scientific
    understanding of complex issues that span the boundaries of traditional
    scientific disciplines.
        NSF is already a leading Federal sponsor of peer-reviewed research
    regarding the environment, with a portfolio exceeding $700 million.
    Most of this investment is directed at scientific advances within
    particular disciplines. An interdisciplinary approach is needed to
    build on this base to truly understand the environment and the
    relationships between people and the environment. The Biocomplexity in
    Environment priority area is an important step towards a comprehensive
    understanding.
        NSF proposes to increase funding for its priority area on
    Biocomplexity in the Environment by 35.6 percent to $79 million. This
    priority area would be expanded to include research in two new areas
    this year microbial genome sequencing and ecology of infectious
    diseases to help develop strategies to assess and manage the risks of
    infectious diseases, invasive species, and biological weapons. We urge
    Congress to support this critical initiative and to consider funding it
    at a level of $136 million, as proposed in fiscal year 2000 budget
    request for NSF.
        Major Research Equipment.--The NSF budget request includes initial
    funding for two large projects, the National Ecological Observatory
    Network (NEON) and EarthScope, under its account for Major Research
    Equipment and Facilities Construction (MRE). These projects would
    provide major new opportunities for environmental research.
      --National Ecological Observatory Network.--NEON would be a
            continental scale research instrument consisting of 10
            geographically distributed observatories, networked via state-
            of-the-art communications, for integrated studies to obtain a
            predictive understanding of the nation's environments. In
            addition, NEON would serve as a ``biological early detection
            system'' that is designed to provide an invaluable resource and
            a front line of homeland defense both for its scientific
            potential and for enabling rapid detection of chemical and
            biological terrorist threats. NSF is requesting $12 million in
            initial funding for this project for proof of concept
            prototyping and for construction and networking of two initial
            sites.
      --EarthScope.--EarthScope would be a distributed, multi-purpose
            geophysical instrument array that is designed to make major
            advances in our knowledge and understanding of the structure
            and dynamics of the North American continent. Three components
            of the project would be the United States Seismic Array
            (USArray), the San Andreas Fault Observatory at Depth, and the
            Plate Boundary Observatory. NSF is requesting $35 million for
            initial funding of this project.
        Both NEON and EarthScope were included in NSF's budget request for
    fiscal year 2001 but funding for the projects was not included in the
    enacted appropriations bill. NSF's budget request for fiscal year 2002
    did not contain any new starts for the MRE account. We urge Congress to
    provide full funding for NEON and EarthScope.
     national science board report on environmental science and engineering
        The National Council for Science and the Environment is the primary
    proponent of an effort to expand, improve and enhance the relevancy of
    the scientific efforts of the National Science Foundation regarding the
    environment. We believe that NSF as an independent, non- regulatory
    science-funding agency is an important source of credible scientific
    knowledge about the environment.
        NCSE's efforts have had considerable support from Congress. The
    House Appropriations Committee report accompany the fiscal year 1998
    appropriations bill directed NSF to study how it would establish and
    operate a National Institute for the Environment that, ``provides a
    major role for stakeholders in defining questions needing scientific
    attention and which funds ongoing knowledge assessments, extramural
    research, on-line information dissemination, and education and training
    through a competitive peer reviewed process.''
        The National Science Board responded to Congress by unanimously
    approving a report, Environmental Science and Engineering for the 21st
    Century: The Role of the National Science Foundation, on February 2,
    2000. The NSB report sets out a bold, ambitious set of recommendations
    that could dramatically improve the scientific basis for environmental
    decisionmaking. The first keystone recommendation is as follows:
        ``Environmental research, education, and scientific assessment
    should be one of NSF's highest priorities. The current environmental
    portfolio represents an expenditure of approximately $600 million per
    year. In view of the overwhelming importance of, and exciting
    opportunities for, progress in the environmental arena, and because
    existing resources are fully and appropriately utilized, new funding
    will be required. We recommend that support for environmental research,
    education, and scientific assessment at NSF be increased by an
    additional $1 billion, phased in over the next 5 years, to reach an
    annual expenditure of approximately $1.6 billion.''
        The National Council for Science and the Environment encourages
    Congress to support full and effective implementation of the National
    Science Board's report, Environmental Science and Engineering for the
    21st Century: The Role of the National Science Foundation, within the
    context of a doubling of the budget for the NSF.
        NSF has begun to implement the recommendations of the NSB. It has
    appointed an environmental coordinator and created a new position in
    the Office of the Director. NSF has formed an Advisory Committee on
    Environmental Research and Education. It has established a priority
    area on Biocomplexity and the Environment that provides new
    opportunities for multidisciplinary research on the interactivity of
    biota and the environment.
        The NSB recommendations are consistent with the direction provided
    by the Appropriations Committee. Full implementation of the NSB report
    will require strong support from Congress and a significant increase in
    funding for NSF's portfolio of environmental science, engineering and
    education.
                               epa's star program
        NCSE urges Congress to restore full funding for the Environmental
    Protection Agency's Science to Achieve Results (STAR) graduate
    fellowship program. EPA's budget request for fiscal year 2003 budget
    request for EPA would eliminate funding for new STAR fellowships. This
    is the only Federally supported fellowship program specifically aimed
    at graduate students in the environmental sciences and policy areas.
    From 1995 to 2001, EPA funded over 800 STAR fellows at 168 colleges and
    universities, including 28 STAR fellows in Maryland and 8 STAR fellows
    in Missouri. The STAR program is highly competitive, with a success
    rate of only 10 percent. Like the environmental programs at NSF, the
    STAR fellowship program suffers from a serious imbalance between
    resources and highly qualified applicants. Investment in environmental
    scientists, engineers, policymakers and professionals is essential for
    the nation to reap the benefits of scientific advances.
                    homeland security and environmental r&d
        Environmental R&D is a critical component of homeland security. For
    example, understanding the dispersal of toxic substances in water and
    air is directly relevant to counterterrorism. NSF has supported
    research in these areas for many years. NSF is requesting funding for
    new environmental projects that could strengthen homeland security. For
    example, NSF Director Rita Colwell said that NSF's proposed National
    Ecological Observatory Network (NEON) could detect abrupt changes or
    long-term trends in the environment and could also serve as ``an early
    warning and detection system for a wide array of chemical and
    biological warfare agents.'' We encourage Congress to explore the role
    of environmental R&D in homeland security and counterterrorism and to
    recommend actions that would improve the nation's capacity in this
    area. Thank you very much for your interest in improving the scientific
    basis for environmental decisionmaking.
                                   Attachment
        Letter calling for significant funding increases for environmental
    science, engineering, and education programs signed by more than 120
    national leaders of academic, scientific, environmental, and business
    organizations.

                National Council for Science & the Environment,
                                         Washington, DC, March 8, 2001.
    President George W. Bush
    The White House, 1600 Pennsylvania Avenue NW, Washington, DC 20500.
        Dear President Bush: During your recent election campaign, you
    talked about the importance of basing environmental decisions on
    science. We, as a diverse coalition of academic, business,
    environmental, governmental and community leaders, working with the
    National Council for Science and the Environment agree with you in this
    regard.
        We are writing to urge you to implement your campaign commitment by
    making investment in science for environmental decisionmaking a
    priority in your administration. In particular, we are asking you to
    provide significantly increased funding for scientific programs to:
      --Assess what is known about the environment;
      --Better understand the environment;
      --Provide scientific information about the environment; and
      --Support science-based education about the environment.
        These programs include:
      --National Science Foundation's biocomplexity in the environment
            initiative and portfolio of environmental science, engineering
            and education programs
      --U.S. Geological Survey's biological, geological, hydrological, and
            mapping divisions
      --U.S. Environmental Protection Agency's Office of Research and
            Development, especially the Science To Achieve Results (STAR)
            research and fellowship programs
      --National Oceanographic and Atmospheric Administration
      --U.S. Department of Agriculture's environmental research programs
            through CSREES and the Agricultural Research Service,
            particularly the Natural Resource Initiative
      --U.S. Forest Service forestry research
      --Department of Energy's environmental science programs
      --National Aeronautics and Space Administration earth exploration
            programs.
      --National Institute of Environmental Health Sciences
        We hope that your initial budget will support science as an
    investment that will lead to a stronger economy, healthy people, and a
    healthy environment.
                Sincerely,
                                       Peter D. Saundry, Ph.D.,
    Executive Director, National Council for Science & the Environment.
                                     ______

      Prepared Statement of the National Emergency Management Association

                                  introduction
        Thank you Chair Mikulski, Ranking Member Bond, and distinguished
    members of the Committee for allowing me the opportunity to provide you
    with testimony on the Federal Emergency Management Agency (FEMA) fiscal
    year 2003 budget. I am Dale Shipley, the Director of the Ohio Emergency
    Management Agency and I am here today representing the National
    Emergency Management Association (NEMA). Currently, I am the Chairman
    of the NEMA Legislative Committee and I come before you today to
    represent the state emergency management directors in the 50 states and
    the U.S. territories who are its core members. NEMA's members are
    responsible to their governors for emergency preparedness, mitigation,
    response and recovery activities.
        The FEMA budget provides critical support to State and local
    emergency management programs through actual dollars, grants, and
    program support. This year, NEMA would like to address three main
    issues with the proposed Federal budget for FEMA.
      --The first is our concern for the lack of attention to building
            emergency management capabilities through the Emergency
            Management Performance Grant (EMPG) program and our request for
            supplemental assistance;
      --The second is our support for the First Responder Grant program and
            the intention to coordinate these grants through the States;
            and
      --The third is our concern about the proposal to fold the Hazard
            Mitigation Grant Program (HMGP) into the pre-disaster
            competitive mitigation grant program.
                      supplemental appropriations and empg
        The existing national emergency increases demands on State and
    local governments to provide heightened preparedness and response for
    domestic terrorism and has stretched or exhausted emergency management
    functions in local jurisdictions. While States had been contributing
    significantly more towards emergency management over the last decade,
    the national emergency declaration and State and local budget demands
    and deficits make that continued effort impossible.
        Emergency management is heartened by the proposal to make $3.5
    billion available to the nation's first responders, but we cannot wait
    until Fall to address these immediate needs. Building a statewide
    emergency management capability is key to ensuring national
    preparedness. Resources for personnel both at the State and local level
    to manage the programs are critical to completing the preparedness
    mission.
        NEMA and emergency management directors from the States and
    territories respectfully request that Congress provide additional
    funding for State and local emergency management programs through FEMA
    in the Spring fiscal year 2002 supplemental appropriations bill. We ask
    that $200 million be added to the Emergency Management Performance
    Grant Program (EMPG) in the FEMA budget to address unmet needs and to
    assist in capacity building.
        A recent NEMA survey revealed total program support needs in the
    amount of $2.1 billion. The $200 million urgent request specifically
    represents a $117 million EMPG shortfall and $83 million to address
    facilities and communications needs. NEMA's Report on Local Emergency
    Management Program Capability Requirements and Shortfalls details the
    survey results identifying shortfalls in emergency management. The $117
    million shortfall identified represents data from 38 States. It will
    likely increase as the remaining State data is received.
        The current Emergency Management Performance Grant system of
    funding State/territory and local governments has its history dating to
    World War II Civil Defense programs and through the Cold War years. As
    the threat was perceived we funded Civil Defense and Disaster Services
    programs to the level needed to meet the threat. As the Cold War
    diminished and the threat was perceived as lessening, the funding
    system was kept in place, but the funding levels did not keep pace with
    expanding programs and capability requirements.
        Now the nation is faced with a new threat of terrorism and the
    necessity for increased planning and coordination with public health,
    law enforcement, agriculture and other State and local organizations
    plus significant grants management responsibilities with all response
    organizations cannot be accomplished effectively with current
    capabilities. An additional $200 million in funding for EMPG in the
    Spring supplemental appropriations package would essentially be a down
    payment for addressing emergency management needs.
        The Emergency Management Performance Grant (EMPG) are ``pass
    through'' grants to State and local governments to provide a foundation
    for basic emergency capabilities. EMPG is intended to be a 50/50
    matching contribution program for Federal and State Governments.
    Unfortunately, EMPG funds have been virtually the only area where FEMA
    has not received an increase in the past 8 years, thus eroding State
    and local emergency management capabilities. EMPG funding is the
    lifeblood for State and local governments to prepare for, respond to,
    recover from, and mitigate losses from future disasters.
                         first responder grant program
        Long before September 11, 2001, NEMA had established itself as a
    leader in providing input to Congress and Federal agencies on issues of
    domestic preparedness. States have been in the forefront of preparing
    for and responding to all types of disasters, both natural and man-
    made. We take an all-hazards approach to disaster preparedness and have
    integrated our domestic preparedness efforts into the proven systems we
    already use for dealing with both man-made and natural disasters. We
    also recognize clearly the value of prevention and mitigation in
    minimizing the consequences of disasters and we incorporate those
    considerations in all our efforts.
        NEMA supports Federal efforts to increase emergency management
    capacity building at the State, territory, and local level for
    personnel, planning, training, equipment, coordination, and exercising.
    A significant Federal commitment must be made to give State,
    territorial, and local governments the tools to ensure adequate
    preparedness. While States have significantly increased their
    commitment to emergency management over the last decade, States are
    struggling with budgetary issues and the increased investments
    necessary to meet new demands.
        There are five issues that we would like to bring to your attention
    as you address the proposed First Responder Grant program:
      --All efforts need to be coordinated through the States;
      --State and local governments need funding to be flexible enough for
            personnel to manage the program;
      --Standards must be developed to ensure interoperability of
            equipment, communications, and training;
      --Mutual aid both intrastate and interstate--is a key component to
            capacity building; and
      --State and local government must be fully, directly and continuously
            involved and consulted in the development of the National
            Domestic Preparedness Strategy.
    State Coordination
        All efforts to increase emergency management capacity building must
    be coordinated through the States to ensure harmonization with the
    State emergency operations plan, ensure equitable distribution of
    resources, and to synthesize resources for intra-state and inter-state
    mutual aid. Also, the Stafford Act, which governs the way disaster
    assistance is allocated, successfully uses States and Governors as the
    managers of Federal disaster relief funds for local governments which
    are over-taxed and need assistance when disasters occur. States
    understand the need to get funding to the first responders and have
    long coordinated statewide and regionally to ensure adequate State
    assistance to local governments for emergency preparedness and
    response. There is no question that most of the $3.5 billion proposed
    first responder grant funds need to get to police, fire fighters,
    emergency medical workers, and other front-line local responders after
    all, disasters are local in nature. The health community must not be
    forgotten and must be integrated into all planning, training, and
    exercising under the State emergency operations plan. We can
    effectively ensure this by working through the States to build on the
    needs identified in the plans that FEMA, the Department of Justice, and
    other agencies have required statewide.
        Further, because this is a national emergency and States and local
    governments are in difficult fiscal situations, we must we wary of
    programs that would require significant matches. In fact, for local
    governments to meet the match would be even more difficult given their
    fiscal constraints. If a significant match is required, the application
    of this initiative will only go to those agencies and governments that
    can fiscally afford the match and not necessarily where the need is
    greatest. If a match is necessary, we would suggest that the match be
    non-fiscal or in the form of a deliverable as opposed to soft or hard
    dollars.
    Flexibility for Personnel to Manage the Program
        State emergency managers need to have a commitment for sustained
    Federal resources and the flexibility to insure the hiring and training
    of sufficient professional personnel to manage the expanding
    antiterrorism programs. We are concerned that an influx of funding
    programs from the Federal Government could detract from the ``all
    hazards'' approach and we will have to turn our focus away from natural
    disaster preparedness and response and thereby actually reduce overall
    preparedness and efficiency. Building a statewide emergency management
    capability is key to ensuring preparedness across the board.
    Flexibility to use some of the first responder grants for personnel
    both at the State and local level to manage the programs is critical to
    completing the preparedness mission.
        NEMA has long advocated an increase in the only flexible source of
    federal emergency management funding, the Emergency Management
    Performance Grant (EMPG). EMPG is the only line item in the FEMA budget
    that has not received an increase in the last decade, yet it is the
    only consistent source of Federal funding for State and local capacity
    building. As an existing funding stream, EMPG could be used to hire
    State and local staff to manage critical programs and build the
    incremental emergency management capacity to prepare for the first
    responder grants and the coordination that will be required to
    effectively execute the program. State and local government emergency
    management is already over-stressed and working to capacity.
    Standards
        Standards must be developed to ensure interoperability of
    equipment, communications, and training across state, regional, and
    local jurisdictions. In terms of establishing voluntary minimum
    standards for the terrorism preparedness programs of State and local
    governments, NEMA offers itself as a resource in this area. Our
    organization, along with other stakeholder groups such as the Federal
    Emergency Management Agency, the International Association of Emergency
    Managers, National Governors' Association, National League of Cities,
    International Association of Fire Chiefs, and others, has developed and
    is implementing an Emergency Management Accreditation Program (EMAP).
    EMAP is a voluntary standards and accreditation program for State and
    local emergency management that is based on NFPA (National Fire
    Protection Association) 1600 Standard for Disaster/Emergency Management
    and Business Continuity Operations (an ANSI or American National
    Standards Institute approved standard) and FEMA's Capability Assessment
    of Readiness (CAR). Consequence management preparedness, response and
    recovery standards are being developed in conjunction with those for
    the traditional emergency management functions. NEMA suggests that
    these standards already being collaboratively developed through EMAP be
    considered in the development of minimum standards for training,
    exercises and equipment. Additionally, EMAP acceptance would provide
    the natural mechanism for Federal and State agencies to meet the
    requirements of the Government Performance Results Act (GPRA). EMAP has
    already completed a pilot phase in North Carolina and North Dakota and
    will begin receiving State program applications in April. Pilot
    assessment of county and city programs will begin this Spring. Mutual
    Aid Mutual aid is one key to capacity building. A proven system we need
    to take advantage of for all domestic preparedness planning is the
    Emergency Management Assistance Compact (EMAC). EMAC is an interstate
    mutual aid agreement that allows States to assist one another in
    responding to all kinds of natural and man-made disasters. EMAC offers
    a quick and easy way for States to send personnel and equipment to help
    disaster relief efforts in other States. There are times when State and
    local resources are overwhelmed and Federal assistance is inadequate,
    inappropriate, too far away or unavailable. Out-of-state aid through
    EMAC helps fill such shortfalls. There are 46 States and two
    territories that are members of EMAC and other States and territories
    are planning to join. In response to the September 11 tragedy,
    emergency managers from several States provided technical assistance
    and personnel support to New York through EMAC. A system like this
    enables experts and specialized equipment to be used across
    jurisdictions and regions based on the nature of a particular event.
    NEMA and FEMA are currently working together to standardize resource
    typing. By having commonly understood descriptions of resource
    packages, impacted jurisdictions will know just what they are going to
    get when they request each standard package.
    National Domestic Preparedness Strategy
        NEMA has long requested for Congress to put in place an inclusive
    national framework for developing a National Domestic Preparedness
    Strategy and a single point of contact within the Federal Government
    that is accountable to Congress to coordinate the Federal efforts in
    implementation of that strategy. Please also note that we espouse a
    collaboratively developed national strategy, not just a Federal one. We
    now look forward to working with the Office of Homeland Security
    towards the development and implementation of that strategy. In
    addition to NEMA's ``Ten Principles for a National Domestic
    Preparedness Strategy'' adopted in 2000, we also developed a White
    Paper on Domestic Preparedness in the aftermath of 9/11 that is also
    supported by the Adjutants General Association of the U.S., the Council
    of State Governments, International Association of Emergency Managers,
    and the National Guard Association of the U.S. A copy of this White
    Paper is attached, along with NEMA's ``Ten Principles''.
        In any way possible, the Federal Government needs to coordinate
    efforts for domestic preparedness and avoid duplication of efforts and
    programs. The Office of Homeland Security assured that State emergency
    managers and first responders from the State and local level will be
    invited to participate in development of the national preparedness
    strategy.
            hazard mitigation grant program & predisaster mitigation
        The Administration's budget proposal includes a request to create a
    new pre-disaster mitigation program that will combine the predisaster
    mitigation program authorized by the Disaster Mitigation Act of 2000
    and the post-disaster Hazard Mitigation Grant Program (HMGP). While
    Federal costs towards disasters remain a concern, significant
    commitments must be made towards both pre-disaster and post-disaster
    mitigation in order to lower overall disaster costs in the long run.
        Replacing the HMGP program, which may provide up to 20 percent of
    total disaster costs towards post-disaster mitigation grants, would
    prevent the lessons learned from disasters from being immediately
    incorporated into mitigation projects to prevent losses of life and
    destruction of property.
        The HMGP was authorized under Section 404 of the Stafford Act, and
    administered by FEMA. The program provides grants to States and local
    governments to implement comprehensive and long-term hazard mitigation
    measures after a major disaster. Examples of risk reduction measures
    include: acquisition, relocation or elevation of flood damaged homes
    and businesses; relocation and fortification of critical public
    infrastructure; rebuilding at a higher building code level, for
    purchasing repetitive loss properties, and for the development of local
    mitigation plans, projects and strategies to make communities more
    disaster resistant and resilient. The months immediately following
    disasters provide unique opportunities to efficiently incorporate risk
    reduction measures in a very cost-effective manner, in many cases
    lowering the overall cost of the project by leveraging other funding
    sources including insurance settlements.
        The HMGP has proven to be a highly effective tool in steering
    communities toward risk reduction measures, in many cases breaking
    repetitive loss cycles that have cost other Federal disaster relief
    programs multiple times. Cost-benefit analysis is currently a
    requirement for predisaster mitigation programs.
        In a purely competitive grant program, lower income communities,
    often those most at risk to natural disaster will not effectively
    compete with more prosperous cities. Also, disasters graphically and
    vividly expose the need for and value of mitigation projects. We must
    not lose these opportunities to initiate projects to enhance our
    communities and reduce future disaster costs. Damage caused by
    disasters would go largely unrepaired thereby further impacting the
    economic and social recovery of particular areas. There are not enough
    mitigation dollars available to address all of the vulnerabilities that
    exist in this country.
        Making mitigation funds available only in a predisaster competitive
    environment will set this country's mitigation efforts back by removing
    the prime motivation factor, the disaster itself, as the motivation.
    The proposal is not a cost-savings initiative, as disaster costs to the
    Federal Government would be expected to significantly increase. HMGP
    could be modified to include performance measures, but HMGP should not
    be rolled into the predisaster mitigation program.
        Probably the best recent example of post-disaster hazard mitigation
    in the recent years is the $836 million appropriated by the North
    Carolina General Assembly after Hurricane Floyd. This funding was
    nearly equal to the entire Federal contribution. Without State level
    funding to provide all the non-Federal cost share for programs, and the
    financing of innovative risk reduction programs to compliment Federal
    programs, mitigation techniques would never have been incorporated into
    the rebuilding process. In excess of $200 million in State funds was
    committee to relocate over four thousand families, dozens of businesses
    and agricultural operations from the floodplain, thus guaranteeing they
    will not be devastated by future floods. In addition, North Carolina
    and other States are now undertaking the task of updating Flood
    Insurance Rate Maps, a traditional Federal responsibility and expense,
    to ensure communities have the best available information on where
    flood hazards exist.
        By the same token, predisaster mitigation is also a key component
    to effective disaster mitigation. Over the last 5 years, predisaster
    mitigation programs and initiatives have proven their value in not only
    saving lives and property in recent disasters, but also in many cases
    have negated the need for any emergency response and recovery. Pre-
    disaster mitigation is essential, but we need to ensure that pre-
    disaster mitigation corresponds with the Disaster Mitigation Act of
    2000 that was passed overwhelmingly by the House and Senate and signed
    into law. NEMA worked with Congress to draft the Disaster Mitigation
    Act of 2000 (DMA2K), which authorized predisaster mitigation; works
    with small impoverished communities to lessen their vulnerability to
    natural disasters; established a National Pre-disaster Mitigation Fund
    in the Treasury of the United States; and provided for the development
    of multi-hazard advisory maps. It took many years for Congress to agree
    on language to amend the Stafford Act and we are so grateful that the
    Disaster Mitigation Act was signed into law. As FEMA implements DMA2K,
    we must not lose the opportunity to prevent the loss of life and
    destruction of property prior to disasters.
        NEMA calls on Congress to maximize the benefits of both HMGP and
    predisaster mitigation, while including provisions for increased
    accountability. NEMA supports increasing funding for predisaster
    mitigation, but maintains that HMGP should be retained as a separate
    and funded post-disaster program.
                                  other issues
        Congress should support funding for modernization of floodplain
    mapping, since many of the flood plain maps are 15-30 years old and
    considered out of date. Any updates to flood maps should be made with
    the coordination of State and local governments. Flood maps play a key
    role in disaster reduction, mitigation, and community planning and
    development activities. Many of the flood maps in place do not reflect
    recent development, and may contain inaccurate information about the
    floodplains as a result. FEMA has estimated the cost of a comprehensive
    multi-year map modernization plan at $750 million over a 7-year period.
    Congress has recognized the need to update the floodplain maps in the
    fiscal year 2002 budget and the commitment should continued in fiscal
    year 2003 and beyond to insure currency in our mapping. NEMA supports
    the proposed $300 million for flood mapping modernization included in
    the President's Budget
        NEMA is currently looking closely at the proposal in the
    Administration's budget that would end State taxation of insurance
    premiums to the National Flood Insurance Program. Current estimates
    from FEMA anticipate that eliminating the tax would reduce State
    revenue nationwide by $29 million. We would like to reserve the right
    to report back to you with information on how this proposal may impact
    the States as you consider the FEMA appropriations bill in the coming
    months, but we see no rationale for the Federal Government to eliminate
    this tax revenue to States.
                                   conclusion
        While emergency management has been the driving force in our
    nation's preparedness, we must not forget the lessons learned on
    September 11, 2001 that translate into the need for increased
    preparedness and response capabilities. If in fact we want to truly
    commit our nation to preparedness, we must tale advantage of the
    memories still fresh in our mind of both man-made and natural
    disasters. Retaining the ``all-hazards'' approach will prevent our
    nation from losing focus on the daily perils that we face and translate
    into double value in preparedness.
        Whether it is a hurricane in Florida, earthquakes in the pacific
    northwest, or tornadoes in Maryland, States need a Federal commitment
    to recognize that each State and local government has unique disaster
    preparedness and response needs that require flexible, predictable, and
    adequate funding assistance that is coordinated with the State
    emergency management plan.
        While we cannot completely prevent events and natural disasters
    from occurring we can be prepared for them and help our communities
    minimize the impact of lives lost and destruction of our critical
    infrastructure. I ask that you please consider our recommendations as
    you consider difficult budget decisions this year.
        I thank you for the opportunity to testify on behalf of NEMA and
    welcome any questions that you might have. Only through a partnership
    of Federal, State, and local governments, can our country prepare and
    respond to emergencies and disasters. Thank you for your consideration.
             White Paper on Domestic Preparedness--October 1, 2001
    Background
        Emergency management as a discipline has been shaped by historical
    events, both nationally and internationally. During World War II, it
    became apparent for the first time that our nation was susceptible to
    enemy attack. As a result, the first organization and function of what
    is called Civil Defense was established. The majority of civil
    preparedness and disaster response capability at the local level had
    its foundation in the Civil Defense program. Federal financial
    assistance to State and local jurisdictions for civil defense programs
    was begun in 1958 and provided Federal matching funds (50/50) for
    personnel and administrative expenditures for civil defense
    preparedness. Attack preparedness was mandated as a joint Federal-
    State-local responsibility. This funding base provided the very
    foundation upon which civil preparedness (what we now refer to as
    emergency management) was built.
        The recent terrorist attacks demonstrate the fact that the nation
    needs to develop a capability reminiscent of the past when there
    existed a robust State and local emergency management and response
    capability. A strengthened national program incorporating today's all
    hazards approach to emergency preparedness is imperative. Congress,
    Federal agencies, governors, State and local emergency management
    directors, other local officials and all disciplines of emergency
    responders must work together to develop a strategy for standardized,
    bottom-up national capabilities to effectively respond to catastrophic
    disaster situations.
        In addition to the States Principles for a National Domestic
    Preparedness Strategy, adopted in February 2000, NEMA thinks it
    critical that the following enhancements be incorporated into a
    nationwide strategy for catastrophic disaster preparedness. Items are
    listed by category and not necessarily by priority.
    Emergency Preparedness and Response
        Congress should provide to the States immediate Federal funding for
    full-time catastrophic disaster coordinators in moderate and high-risk
    local jurisdictions of the United States, including the 120 largest
    cities where training and equipment was provided under the Nunn-Lugar-
    Domenici domestic preparedness programs. These personnel will have
    responsibility for developing and maintaining terrorism consequences
    plans, procedures, exercises, and resources. For those states with
    appropriate jurisdictional staffing levels already in place, the
    flexibility to utilize Federal funds to enhance the overall emergency
    preparedness program based on identified priorities is critical.
    Measures should be implemented to ensure this funding does not supplant
    existing State and local emergency management funding commitments.
        States need financial assistance to improve catastrophic response
    and Continuity of Operations Plans (COOP) and Continuity of Government
    (COG) for States. FEMA should be provided additional funding to
    develop, construct and/or retrofit Federal/State/local command and
    control centers (Emergency Operating Centers) for NBC events. These
    coordination centers must exist at each level of government. Alternate
    EOC locations must be available should the primary center be damaged or
    destroyed by the event.
        Interstate and intrastate mutual aid assistance must be recognized
    and supported by the Federal Government as an expedient, cost-effective
    approach to disaster response and recovery. The Emergency Management
    Assistance Compact (EMAC) has been adopted by 41 States and two
    territories with additional States planning to join. EMAC is an
    interstate mutual aid agreement ratified by Congress, passed by state
    legislatures and signed into law by governors, and is well coordinated
    with the Federal Response Plan. Other States utilize the existing
    Interstate Civil Defense and Disaster Compact as well as regional
    compacts that are similarly coordinated with existing plans. These
    complementary operational systems should be linked as the framework and
    procedures for all response and recovery activities.
        The Emergency Management Accreditation Program (EMAP) should be
    implemented and recognized by Federal agencies as a strategic tool to
    build greater multi-discipline/all-hazards capabilities at the state
    and local level, including domestic terrorism. EMAP is a voluntary,
    national standards and accreditation program for state and local
    emergency management programs. The initiative is being developed in
    partnership by NEMA, FEMA and the International Association of
    Emergency Managers and is currently in the pilot phase.
        FEMA, State and local emergency managers must implement renewed
    emphasis on family and community preparedness to ensure Americans have
    necessary skills to survive a catastrophic disaster.
        A standardized national donations management protocol is needed to
    address the outpouring of food, clothing, supplies, and other items
    that are commonly sent to impacted states and localities following a
    disaster. If not handled properly, large amounts of unnecessary or
    inappropriate donations can add another level of complication to the
    disaster itself. We believe the shoring up of State and local emergency
    management agencies will provide the necessary organization to improve
    this system; however, additional planning and an information management
    capability are desperately needed.
    Health and Medical
        The medical surge capacity must be strengthened. The emergency
    management, medical and public health professions must work with
    lawmakers to ensure each region of our nation has a certain minimum
    surge capacity to deal with mass casualty events. Hospitals should
    agree to provide defined and standardized levels of resources,
    capabilities and assistance to handle mass casualties, especially those
    contaminated by chemical/biological agents. Funding for equipment and
    supplies to accomplish this mission should be provided to develop this
    additional capability, in exchange for their agreeing to participate as
    a local receiving hospital and as part of the U.S. Public Health
    Service's National Disaster Medical System (NDMS). Funding for the
    health care system for emergency planning and extraordinary operation
    response costs that are not available from any other means must be
    provided by the Federal Government. Additionally, the Federal
    government needs to provide the equipment and supplies to accomplish
    this mission and develop this additional capability; also, states need
    assistance to complete the National Pharmaceutical Stockpile
    distribution response plan.
        State-Local Disaster Medical Assistance Teams should be developed
    across the country with standardized equipment, personnel and training.
    These teams would serve as the first line of response to support
    impacted communities within impacted states, and could be required to
    respond outside the state as a mutual aid resource upon request. Self-
    contained capability to respond outside their jurisdiction should be
    provided by military Reserve Component assets available in each state.
        The current sixty U.S. Public Health Service NDMS Disaster Medical
    Assistance Teams (DMAT) should be uniformly enhanced for Weapons of
    Mass Destruction (WMD) response, including focus on personnel
    protection and training for WMD. Currently only four of the teams have
    been upgraded and equipped to serve as National Medical Response Teams
    (NMRTS).
    Additional WMD Recommendations
        The Department of Justice should immediately release the fiscal
    year 2000 and fiscal year 2001 equipment funds in order to begin
    implementation of these recommendations, and then require a basic
    statewide strategy in order to receive fiscal year 2002 funds; and
    further, provide funding to states to administer the equipment program.
    Also, allow greater flexibility with the approved equipment list in
    order to accomplish any of these recommendations. Specifically, this
    should include the use of funds for the purchase of necessary equipment
    for hospitals and the health care industry, regardless of the private
    sector ownership of these critical first receiver response system
    components. In addition, Congress should increase funding to DOJ to
    provide detection, personnel protection and decontamination equipment
    for the nation's emergency response agencies. Lastly, Federal training
    and maintenance money must be included in any national terrorism
    response program.
        Congress and the Department of Defense should authorize homeland
    defense as a key Federal defense mission tasking for the National
    Guard. By providing this authorization and removing restrictive
    language and funding on utilization of National Guard assets and
    personnel, the civil-military integrated response will be dramatically
    improved. In addition, Congress should provide funding to DOD for full-
    time staffing of state joint civil-military emergency operations
    centers. Further, Congress should provide funding to National Guard
    Bureau to complete fielding of National Guard Civil Support Teams in
    additional states and territories.
        State-Local Urban Search and Rescue capabilities should be
    developed across the country with standardized equipment, personnel and
    training. These teams would serve as the first line of response to
    support impacted communities within impacted states, and may be
    required to respond outside the state as a mutual aid resource upon
    request. Self-contained capability to respond outside their
    jurisdiction should be provided by National Guard assets available in
    each state. Further, standardization of the national USAR format and
    approach should be accomplished in such a way that there is a gradation
    in the USAR response teams to enhance overall national capability.
        The Department of Defense should undertake a review of the
    distribution of aviation assets to the National Guard in each state,
    territory and District of Columbia.
        National interagency and intergovernmental information management
    protocols are needed to support information sharing (ie. Damage/
    Situation Reports, Warning/Intelligence Reports, Resource
    Coordination). Further, an unclassified version of INTELINK needs to be
    developed for use by the greater emergency response community.
        Better Federal interagency coordination is needed to assist states
    in identifying and accessing the full range of Federal resources and
    assistance available to them. Currently, states are left on their own
    to identify individual agency programs and then contact each agency to
    determine programs and resources available.
        Security clearances must be more standardized and reciprocal
    between agencies and levels of government. Use of a compartmented,
    need-to-know system would greatly facilitate secure sharing of critical
    intelligence. Additionally, a critical need exists to enhance the
    ability of local and state officials to receive Federal security
    clearances more expediently.
        FEMA's fire grant program should be expanded and modified to
    strengthen regional and national, not just local, fire protection
    capabilities to respond to catastrophic disasters. State level
    involvement in the program would allow increased coordination and
    prioritization of resource needs within each state. A comprehensive
    national strategy would ensure best use of available funding provided
    to local fire departments to enhance regional and national response
    capabilities.
        The National Warning System (NAWAS), maintained by FEMA, has been
    downsized in recent years. This system was designed to provide rapid
    communications and warning capabilities between Federal, State and
    local emergency management agencies. The Congress should provide
    funding to rapidly upgrade and expand a sustainable national
    intergovernmental communication and warning system.
        FEMA, in collaboration with state, local, private and other Federal
    agency emergency response partners, should rapidly develop a
    standardized emergency responder identification and accounting system
    to improve personnel credentialing and accountability at scenes of
    catastrophic disasters.
        The Environmental Protection Agency should be provided funding to
    develop additional guidance on shelter in-place strategies for nuclear/
    biological/chemical (NBC) events, especially in urban centers.
        There is a need for technology transfer from the Federal Government
    and its contractors to state and local governments to support an
    automated decision support system. Several Federal agencies have data
    that is unclassified that could be used for planning, response and
    recovery activities. These Federally developed systems would contribute
    immensely to accomplishing many of the recommendations set forth in
    this paper and do so in a cost effective manner.
     Resolution on States Principles for a National Domestic Preparedness
                                    Strategy
        WHEREAS, The National Emergency Management Association (NEMA),
    represents the state emergency management directors in the 50 states,
    territories and District of Columbia who are responsible to their
    governors for preparing for, responding to and recovering from natural
    and manmade disasters, as well as consequence management for incidents
    of domestic terrorism; and
        WHEREAS, NEMA believes the following principles provide the
    necessary framework for a National Domestic Preparedness Strategy:
        1. The United States needs to have a viable national vision to
    guide the development of a clear, comprehensive and integrated national
    domestic preparedness strategy to prepare for and manage the
    consequences of terrorism--one that utilizes the nation's existing all
    hazards emergency management and response system. The strategy must
    clearly define federal, state and local government roles and
    responsibilities and articulate a clear direction for federal
    priorities and programs to support state and local responders. The
    strategy must be developed in coordination with state and local
    entities, include measurable performance objectives, and address
    sustainable infrastructure.
        2. There must be increased and productive coordination of all
    federal domestic preparedness programs and resources and improved
    interface with governors and states. A single, visible point of
    coordination is essential at the federal level with the appropriate
    degree of authority to ensure that all federal agency resources,
    programs, and policies are consistent with and supportive of the
    national strategy. A mechanism must be provided to this coordination
    point in order to influence federal agency budgets and program
    authorizations to ensure consistency with the national strategy. This
    entity must be codified in authorizing legislation rather than the
    current practice of appropriations language, and the entity must be
    appropriately resourced to fulfill its mission.
        3. All federal resources, programs, and activities must be
    coordinated through the nation's governors and their state emergency
    management agencies to ensure a comprehensive state-wide domestic
    preparedness strategy that reflects the unique characteristics and
    needs of each individual state.
        4. Government at all levels must ensure that the protection of
    civil liberties and states' rights remain the highest priority within
    the context of national security as the United States prepares for and
    addresses the consequences of terrorism.
        5. There are at least fifteen different Congressional committees
    with jurisdiction over components of the domestic preparedness issue.
    There should be a special committee on domestic preparedness to better
    ensure the coordination of federal programs, coordination of funding,
    avoid duplication of programs, and to provide centralized, coordinated
    oversight.
        6. Credible, timely threat information is needed by state and local
    governments that is based upon solid research, analysis, and sound
    science rather than worst-case scenarios.
        7. The issue of increased tactical and strategic capabilities for
    communication and information sharing between and among all levels and
    disciplines of government is essential to effective domestic
    preparedness. Information sharing by law enforcement must be addressed
    to allow emergency responders at the state and local level the ability
    to deter, interdict or respond to a potential terrorist incident.
        8. The nation's public health and medical system capabilities,
    including that of private hospitals, must be substantially enhanced and
    fully integrated into the domestic preparedness program with increased
    and improved coordination between emergency management, law enforcement
    and the fire community.
        9. National standards should be developed for responders at all
    levels of government, particularly in the areas of planning, training,
    equipment and communications, in order to ensure common approaches
    between communities and states. In addition, a standardized approach to
    preparing for and respond to terrorist events, including cyber
    terrorism, is critical to local, state and the federal government's
    ability to work effectively as a team and therefore NEMA recommends
    that all states and all federal agencies adopt the incident command/
    management system as a way to ensure an integrated and coordinated
    local, state and Federal response.
        10. The National Emergency Management Association offers to partner
    with Congress and the federal government to develop the national
    domestic preparedness strategy--one that can be implemented effectively
    by all levels of government. NEMA has the ability to facilitate the
    input of all state and local responder groups into the development of
    such a strategy.
        NOW THEREFORE BE IT RESOLVED, that NEMA encourages Congress and the
    federal government to adopt these ten principles in developing a
    National Domestic Preparedness Strategy.
        MOVED: Keven Leuer (MN)
        SECOND: Ed Gleason (WI)
        DISPOSITION: Passed unamiously
        Authenticated: Myra Thompson Lee, NEMA Secretary NEMA 2000 Annual
    Conference, August 20-25, 2002, Palm Beach, Florida
                                     ______

     Prepared Statement of the People for the Ethical Treatment of Animals
                                     (PETA)

        Chairwoman Mikulski and Members of the Subcommittee: People for the
    Ethical Treatment of Animals (PETA) is the world's largest animal
    rights organization, with more than 750,000 members and supporters. We
    greatly appreciate this opportunity to submit testimony regarding
    fiscal year 2003 appropriations for the Environmental Protection Agency
    (EPA).
        My testimony will focus on the EPA's use of animals in chemical
    testing programs. We are grateful to the Subcommittee for providing the
    first-ever appropriation for the development of non-animal test methods
    by the EPA in fiscal year 2002. We cannot overstress the importance of
    this initiative, as the EPA requires more chemical toxicity tests on
    animals than any other federal agency. Each year thousands of animals
    are subjected to painful procedures in which pesticides and industrial
    chemicals are forced into their lungs, throats, or stomachs. These
    animals include pigs, dogs, rabbits, rats, guinea pigs, hamsters, mice,
    birds, turtles, frogs, and fish.
        Frequently, non-animal test methods are more economical, more
    reliable, and more relevant to human health than animal tests. They are
    obviously more humane. Despite its rhetoric to the contrary, the EPA
    has steadfastly refused to spend funds on the development of methods
    that could replace the animal tests it currently requires. In the
    international arena, the United States (as represented by the EPA) has
    been a main obstacle to the acceptance of alternative methods by the
    Organization for Economic Cooperation and Development.
        In one example of needless animal testing, the EPA spent more than
    $400,000 to fund studies in which pigs were fed toxins in an attempt to
    estimate human exposures to arsenic and lead from the soil of sites of
    former mines, mills, and smelter waste facilities. Non-animal test
    methods utilize a simulated gastrointestinal tract in which
    contaminated soils are ``incubated'' in acidic solutions that mimic
    gastrointestinal fluids. The fraction of the metals that dissolve
    represents the fraction capable of causing toxicity. These approaches
    to the assessment of metal bioavailability have been available and in
    widespread use since 1994, and can be conducted for a small fraction of
    the cost of animal tests. Yet the EPA chooses to use animals.
        The EPA's Office of Pesticide Programs requires at least 14
    individual tests for pesticide active ingredients, some of which kill
    thousands of animals at a time. The EPA's high production volume (HPV)
    chemical testing program will kill more than 1 million animals. And the
    agency's proposed Endocrine Disruptor Screening Program (EDSP) is the
    largest animal-testing plan in U.S. history. Tens of thousands of
    chemicals are slated to be included in the EDSP, and scientific
    estimates are that between 600,000 and 1.2 million animals will be
    killed for every 1,000 chemicals tested.
        These programs require a variety of animal tests including assays
    for genetic toxicity, acute toxicity, reproductive toxicity, and
    hormone ``disruption.'' Amazingly, not one of these tests has ever been
    formally validated for its relevance to human health effects.
        There is tremendous potential for non-animal methods to replace
    animal tests in these programs. Several non-animal test methods have
    recently been formally validated as total replacements for animal
    studies, including four skin corrosion assays, in vitro tests for skin
    penetration and phototoxicity, and three in vitro/ex vivo tests for
    embryotoxicity. Basic genetic toxicity can also be studied entirely
    without the use of animals. Three methods in particular (the Bacterial
    Reverse Mutation Test, In Vitro Cell Gene Mutation Test and In Vitro
    Chromosomal Aberration Test) have been accepted by government
    regulators worldwide as valid alternatives to using animals.
        There is also a great deal of work under way to develop and
    validate non-animal methods for assessing other health effects. For
    example, acute toxicity can be studied using cell culture systems,
    since the actions of toxic chemicals are often focused at the cellular
    level. For example, a series of four cell culture tests can predict
    toxicity in humans with nearly 85 percent accuracy (compared to an at
    best 65 percent in acute toxicity studies using animals). This method
    should, within several years, be able to replace the horrendously cruel
    use of animals in acute lethal poisoning testing.
        Reproductive toxicity studies, which are required under all of the
    EPA's animal-testing programs, can kill anywhere from 800 to several
    thousand animals per test. Computer models are currently the most
    promising prospects for replacing animals in these studies. For
    example, the MULTICASE expert system, which is currently undergoing
    development and prevalidation by the Food and Drug Administration
    (FDA), reduces a compound to all possible 2- to 10-atom fragments and
    identifies ``structural alerts'' associated with chemical reactivity.
    The model then applies a weight-of-evidence approach to evaluate the
    toxic potency of structural alerts, both individually and collectively,
    to determine the likelihood of toxic effects in a living system. The
    results of FDA prevalidation studies have been promising, but
    additional development, in collaboration with the EPA, will be needed
    before this model is likely to achieve widespread regulatory
    acceptance.
        For estrogen, androgen, and thyroid hormones, receptor binding and
    transcriptional activation assays are rapid, non-animal methods of
    detecting and measuring chemical interactions with cellular receptors.
    Many endocrine-disrupting chemicals function by binding to hormone
    receptor sites on cells, often out-competing the body's naturally-
    occurring hormones for access to these receptor sites. Receptor binding
    assays model this activity in vitro. Transcriptional activation assays
    measure the presence of ``gene products,'' which are created as a
    result of receptor binding. Both types of assays are rapid, inexpensive
    and highly effective in detecting chemicals that mimic estrogen and
    androgens and interact with their receptors in the cell. In fact, one
    receptor binding assay was found to be five orders of magnitude more
    sensitive than the uterotrophic animal test currently proposed by the
    EPA.
        High throughput screens (HTPS) are automated systems capable of
    rapid screening of thousands of chemicals. One particularly promising
    example of an HTPS model is the CALUX (Chemically Activated Luciferase
    Expression) assay. This method is based on a genetically engineered
    cell line that responds to specific compounds by producing a chemical
    called firefly luciferase. For example, when a target chemical enters
    the cell, it binds to the cellular receptor, which turns on the
    luciferase, lighting up like a firefly. This assay is currently being
    adapted to screen for androgen and thyroid active hormones in addition
    to estrogenic chemicals.
        A HTPS could screen out many chemicals from further testing in the
    EDSP. Without it, millions of animals will be killed to test chemicals
    that would have been eliminated early on in the program. Congress
    appropriated $4 million in fiscal year 1999 to develop and implement
    the EDSP, including a HTPS. After spending only $70,000 and conducting
    one feasibility study, the EPA is not applying the balance of the funds
    to develop a HTPS. The EPA appears to have abandoned further
    development of a HTPS, despite the ongoing progress being made on this
    technology by researchers in Japan. Although the EPA claims it will use
    structure activity relationship (SAR) modeling in place of a HTPS, the
    agency fails to recognize that SAR models rely on data generated by a
    HTPS.
        Another area of research that the EPA ignores is the very valuable
    discipline of epidemiology. Epidemiological studies do not involve
    experiments or tests on people. They are observational studies of
    people who have been (or are likely to have been) exposed to an agent
    to see if they March 22, 2002 People for the Ethical Treatment of
    Animals Page 4 have differential rates of a given outcome than people
    who have not been exposed to the agent. There are generally two types
    of studies: (1) prospective--when researchers know a population has
    been exposed, and then they follow the population over time to see
    whether the rates of an adverse outcome happen in the population that
    has been exposed more than it happens to a population that has not been
    exposed; and (2) retrospective--if researchers have a suspicion of the
    kind of health problem associated with exposure to a particular agent,
    they find a population with that problem, and compare its rate of
    exposure to that agent with that of a population that does not have the
    problem.
        Epidemiological studies are the premiere method of gathering
    medical information. It is through epidemiological studies that we have
    learned most of what we know about public health--that smoking causes
    cancer (contrary to many conclusions from animal experiments), that
    cholesterol causes heart disease, that fruits and vegetables prevent
    disease, that obesity leads to diabetes, that lead paint leads to
    developmental problems in children, and that chromium in water causes
    cancer, to cite just a few examples.
        The irony is that animal experimentation often impedes the ready
    acceptance of evidence found through epidemiology. The chemical
    industry has long approved of the EPA's near-exclusive reliance on
    animal testing, since the results of these tests are always subject to
    interpretation. The controversy over arsenic is a perfect example of
    how animal studies delayed regulation of a dangerous chemical. For
    years, epidemiological studies have shown that arsenic in drinking
    water causes cancer in humans. Yet the EPA dragged its feet for more
    than 20 years while thousands of animals were killed in tests that
    attempted to reproduce the effects already seen in humans.
        As a case in point, take the fact that the EPA paid the National
    Institute of Environmental Health Sciences (NIEHS) $400,000 to
    immobilize rats in small bottle-like devices and conduct inhalation
    studies with mercury vapor. Scientists have known the hazards of
    mercury for decades and have seen reproductive effects illustrated in
    epidemiological studies of dental hygienists exposed to mercury in
    fillings.
        Yet the EPA spent our tax dollars unsuccessfully attempting to
    duplicate these effects that have already been seen in epidemiological
    studies of humans by forcing rats into contraptions that resemble
    medieval torture devices. As stated in the researchers' own words in a
    feature article in NIEHS' publication Environmental Health Perspectives
    (April 2000):
        Says NIEHS toxicologist Dan Morgan, ``The first mercury study we
    did was in response to studies . . . that showed that female dental
    hygienists, who are exposed to mercury quite often in preparing
    fillings, had more problems conceiving than women who were not exposed.
    So in order to study the mechanism of this effect, we tried to
    duplicate the results in animals.'' Of the results, Morgan says, ``We
    weren't able to reproduce any of those effects in our animal model.''
    (our emphasis)
        What possible purpose did this experiment and gross waste of funds
    serve?
        In addition to the ethical and scientific problems associated with
    animal tests, another issue is whether or not they are being
    appropriately validated. At present, none of the animal tests planned
    for the EDSP are being validated for their relevance to human health
    effects. Therefore, the resulting data will not prompt any meaningful
    regulatory action to protect human health. The same is true with
    respect to ``ecotoxicity'' tests, which examine chemical effects in one
    species of wildlife and extrapolate these observations to hundreds, or
    perhaps thousands, of other species. Many scientists now agree that
    such broad and sweeping generalizations are simply not credible or
    valid scientifically (i.e. what is true in Mallard ducks may not be
    relevant to other species of ducks, let alone to songbirds or birds of
    prey).
        It is also important to recognize that Congress' intent for the
    EDSP, as articulated in the Food Quality Protection Act (FQPA), was for
    the EPA to examine chemical effects on human health, not ecotoxicity.
    Therefore, the EPA's inclusion of ecotoxicity effects in the EDSP
    represents both an unnecessary and useless massive amount of additional
    animal testing. Moreover, it is simply unrealistic to believe that the
    detection of adverse health effects in wildlife will lead to the
    regulation of a chemical where adverse health effects in humans have
    not. Given the profound scientific and practical limitations associated
    with ecotoxicity studies, and the lack of a Congressional mandate for
    their inclusion in the EDSP, it is inappropriate for the EPA to
    continue its development of such studies at this point in time.
        The EPA does not plan to require the rigorous validation of the
    animal tests that is required of all non-animal tests. Indeed, the
    agency awarded a $34 million contract to a laboratory for the
    development and validation of tests for the EDSP from a proposal in
    which validation experience was barely even mentioned.
        The Advisory Committee on Alternative Toxicological Methods (ACATM)
    for the National Toxicology Program (NTP) has expressed ``grave
    concern'' over the EPA's double standard in validation and has twice
    unanimously recommended that all proposed test methods for the EDSP be
    validated through the Interagency Coordinating Committee on the
    Validation of Alternative Methods (ICCVAM).\1\ However, the EPA
    rejected this recommendation. Although it does indeed require the
    validation of all non-animal tests to be assessed through ICCVAM with
    very rigorous and thorough standards, the EPA follows a dangerous
    double standard by not requiring this same validation assessment of the
    animal tests. Allowing quicker and less rigorous validation procedures
    for animal tests not only creates a bias against non-animal tests, it
    compromises the reliability of the resulting data as well.
    ---------------------------------------------------------------------------
        \1\ National Toxicology Program Advisory Committee on Alternative
    Toxicological Methods, resolution passed unanimously at its meeting on
    28 November 2000.
    ---------------------------------------------------------------------------
        We were pleased to see that last year's appropriations for the EPA
    included a $4 million earmark in the Science and Technology account for
    the research, development, and validation of non-animal, alternative
    chemical screening and prioritization methods. We respectfully make the
    following requests for the EPA's fiscal year 2003 appropriations:
      --that $10 million in the Office of Research and Development budget
            be allocated for the research, development, and validation of
            non-animal screens and tests;
      --that the EPA be required to report to Congress on how the above
            funds are utilized;\2\
    ---------------------------------------------------------------------------
        \2\ This reporting mechanism is critical due to the fact that the
    EPA has repeatedly ignored requests from the animal protection
    community regarding expenditures for non-animal methods. A coalition of
    animal protection groups is identifying and prioritizing the non-animal
    tests that are close to being ready for use and which desperately need
    funding and other resources. We hope the Subcommittee will encourage
    the EPA to meet with us to discuss the manner in which funds can best
    be put to use to effect the most rapid and substantial reduction
    possible in animal suffering and death at the EPA.
    ---------------------------------------------------------------------------
      --that no funds for the EDSP be used for animal tests until the
            development of a HTPS has been completed, and no funds be used
            to conduct animal testing on a chemical until that chemical has
            been analyzed by a HTPS;
      --that because the current state of the science precludes
            ``appropriate validation,'' as required by the FQPA, for
            ecotoxicity tests (which are not covered by the FQPA), no funds
            be used for ecotoxicity test development at this point in time;
      --that the EPA provide to Congress an analysis of the cost
            requirements for the epidemiological studies recommended as
            part of the EDSP by the National Academy of Sciences in its
            1999 report ``Hormonally Active Agents in the Environment''
            along with an explanation as to why the EPA decided on an
            animal-testing program instead of epidemiological studies;
      --that the EPA provide the necessary funds to ICCVAM for the
            validation assessment of all screens and tests proposed for the
            EDSP.
        These steps will promote the sound scientific practices needed for
    the tangible protection of human health and the environment, as well as
    a significant reduction in the use of animals. Thank you for your
    consideration of our request.
                                     ______

               Prepared Statement of the Society for Neuroscience

        Mr. Chairman and members of the Committee, I am Dr. Fred H. Gage,
    the president of the Society for Neuroscience and a professor at the
    Salk Institute for Biological Studies, a private, non-profit research
    organization located in La Jolla, California. I am here today to
    testify on behalf of the Society for Neuroscience, the largest
    scientific organization in the world dedicated to the study of the
    brain and nervous system. Neuroscience forms the fundamental basis of
    the medical specialties of psychiatry, neurology, neurosurgery, and an
    important portion of many other medical specialties.
        The Society for Neuroscience is comprised of more than 29,000 basic
    and clinical researchers affiliated with universities, hospitals and
    scientific institutions throughout North America and in other
    countries. The Society's primary goal is to promote the exchange of
    information among researchers. We are also devoted to education about
    the latest advances in brain research and the need to make neuroscience
    research a funding priority.
        Mr. Chairman, the Society appreciates this opportunity to testify
    and to discuss some of the important VA and NSF-sponsored research
    being conducted in the field of neuroscience. We thank the members of
    this Subcommittee for their dedication to biomedical research at the
    National Science Foundation (NSF) and the Veterans Administration (VA).
        The Society for Neuroscience requests increased research funding
    for the National Science Foundation and for the Department of Veterans
    Affairs to facilitate the progress of research already being conducted
    at these institutions.
    National Science Foundation
        As the Committee is aware, the President's fiscal year 2003 budget
    request for the National Science Foundation is $5.036 billion. This is
    an increase of $240 million, or 5 percent, over the fiscal year 2002
    request. As our nation progresses, a more solid foundation of science
    will be necessary to support growing technological advances including
    those integral to conducting biomedical research. The Society for
    Neuroscience endorses the Coalition for National Science Funding's
    (CNSF) request for an increase of $718 million, or 15 percent, above
    the fiscal year 2002 level. This would bring the agency's budget to
    $5.508 billion.
        Interdisciplinary research funded by NSF complements research
    currently conducted by other federal agencies. The nature of
    interdisciplinary scientific research has allowed investigators from
    each of the separate scientific disciplines to benefit and expand upon
    research conducted by colleagues in other fields. NSF-supported
    research embodies a collaborative enterprise and the results have
    provided immense benefits in our search for treatments and cures to
    deadly diseases.
        NSF-supported neuroscience research has played a major role in
    improving our understanding of neurological and mental disorders. NSF
    funds hundreds of studies in the area of basic neuroscience, and these
    studies have contributed immensely to our knowledge of the brain and
    central nervous system. The cross-disciplinary approach employed by NSF
    is particularly beneficial to research on the brain and central nervous
    system. New engineering advances, for example, have led to new and more
    powerful imaging technologies, which have greatly aided researchers in
    their study of the brain.
        In the wake of the tragic events of September 11th, our nation has
    become more aware of potential lapses in national security; such
    concerns affect our mental well-being. In addition to research
    conducted on bioterrorism, NSF can enhance support for research on the
    psychological effects in the aftermath of terrorist attacks, anthrax
    threats and living with terrorism.
        As the Committee is aware, nearly all NSF-appropriated funds are
    received through competitively awarded grants, with only 5 percent
    going to salaries and expenses. NSF is unique in its ability to channel
    the majority of its funding to the specific goal of acquiring knowledge
    and conducting research. To promote this worthy endeavor, the Society
    supports an increase in NSF grant size and duration. The average 2000
    NSF award was $93,000 and lasted for just under 3 years, whereas the
    average 2000 NIH award was $283,000 and lasted for just over 4 years.
    By increasing the award duration, valuable time is spent conducting
    actual research rather than submitting proposals. Lapse time in
    research is reduced and a trained and knowledgeable staff can be more
    easily retained. In addition, less NSF staff time is dedicated to
    reviewing and approving research which has already been deemed
    valuable.
        We are pleased with the NSF request for $37 million to increase
    graduate student stipends from $21,500 per year in fiscal year 2002 to
    $25,000 in fiscal year 2003. We believe this is critical to ensuring
    that the best students continue with graduate and postgraduate study in
    the scientific fields. The Society for Neuroscience supports continued
    funding for Nanoscale Science and Engineering. In its third year of
    funding, this priority area holds great promise of discovery for the
    future of neuroscience as well as other scientific endeavors.
    Department of Veterans Affairs
        As you know, the Veterans Administration (VA) is the nation's
    largest direct provider of healthcare services and the nation's most
    clinically focused setting for medical and prosthetics research. As a
    result of the VA's ability to integrate clinical and basic research
    application by research physicians, the nation's medical research
    enterprise benefits our nation's veterans with rapid transfer of new
    medical knowledge.
        The President's budget request for VA health research is $409
    million. This recommendation includes a $23 million increase in actual
    research funding from the fiscal year 2002 level of $371 million. The
    Society for Neuroscience supports the Friends of VA (FOVA) and the
    Independent Budget for the Veteran's Administration request $460
    million for the Medical and Prosthetic Research account for fiscal year
    2003. This increase is necessary to offset the higher costs of
    administration resulting from inflation and wage increases.
        In order to continue to provide our nation's veterans with the best
    possible care, the VA needs to attract highly qualified researchers and
    clinicians. The VA Research and Development program, one of the
    nation's premier research endeavors, was established to improve health
    care for veterans and focus research on injuries and illnesses
    specifically relevant to veterans. In keeping with progress on other
    medical research initiatives through the National Institutes of Health,
    the Society believes research focused specifically on improving the
    health and quality of life for our nation's veterans is a worthwhile
    investment.
        The VA has delineated several areas of research which are funding
    priorities for fiscal year 2003. Included in this list is the Quality
    Enhancement Research Initiative (QUERI) program, a portion of which
    would be used to fund centers in dementia/Alzheimer's and diseases of
    the brain, where the VA has indicated additional studies are needed on
    the impact of different classes of psychiatric drugs on cognitive and
    behavioral function.
        The Quality Enhancement Research Initiative (QUERI) was launched in
    1998 by the Office of Research and Development to create and implement
    a national system to translate research discoveries, and innovations of
    known effective and efficient diagnostic and treatment strategies into
    high-quality patient care and system-wide improvements. QUERI is a
    multidisciplinary, data driven, outcomes-based quality improvement
    program that promotes the use of evidence in the provision of
    outpatient, inpatient, and long term care.
        QUERI is based on a strategic framework that supports a
    comprehensive process for translating research evidence into action.
    The QUERI process includes the following six steps:
      --Identify high-risk/high volume diseases or problems
      --Identify best practices
      --Define existing practice patterns and outcomes across VA and
            current variation from best practices
      --Identify and implement interventions to promote best practices
      --Document that best practices improve outcomes
      --Document that outcomes are associated with improved health related
            quality of life
    Conclusion
        Mr. Chairman, the National Science Foundation and the VA medical
    system serve a critically important role by providing our nation's
    researchers the opportunity to learn more about the diseases and
    conditions that affect our quality of life. With advanced research
    performed collaboratively with NSF or with the VA, all Americans stand
    to benefit. We would encourage the committee to include increased
    funding within NSF and VA research programs among the Subcommittee's
    highest priorities. We thank you for your interest and consideration.
                                     ______

      Prepared Statement of the Upper Mississippi River Basin Association

        The Upper Mississippi River Basin Association (UMRBA) is the
    organization created in 1981 by the Governors of Illinois, Iowa,
    Minnesota, Missouri, and Wisconsin to serve as a forum for coordinating
    the five States' river-related programs and policies and for
    collaborating with Federal agencies on regional water resource issues.
    As such, the UMRBA has an interest in the budget for both the U.S.
    Environmental Protection Agency (EPA) and the Federal Emergency
    Management Agency (FEMA).
                        environmental protection agency
    State Pollution Control Grants (Section 106)
        Funding for Section 106 State Pollution Control Grants would
    decline by $12.1 million under the Administration's fiscal year 2003
    budget request. This cut would translate into a loss of $1.482 million
    to State water quality programs in the five Upper Mississippi River
    Basin States. The Federal Section 106 funds, in combination with the
    States' matching dollars, support the core State water quality
    programs, including water quality assessment and monitoring, surface
    and ground water standards, point source permitting, and training and
    public information. Adequate funds are particularly critical to
    supporting the States' development and implementation of total maximum
    daily loads (TMDLs). The tasks associated with developing TMDLs for
    impaired waters include watershed characterization, computer modeling
    and related analyses, allocation of permissible loads, development of
    TMDL reports and plans, and public outreach and stakeholder
    development. These responsibilities have the potential to overwhelm
    State agency resources that are in many cases already strained. At a
    minimum, UMRBA supports maintaining Section 106 funding at the fiscal
    year 2002 level of $192.5 million. To the extent possible, funding
    should be enhanced to $200 million.
    Clean Water State Revolving Funds
        The UMRBA is deeply concerned about the lack of support in the
    Administration's fiscal year 2003 budget proposal for the Clean Water
    State Revolving Fund (CWSRF), which helps address wastewater
    infrastructure needs. The CWSRF has made tremendous contributions to
    improving the nation's water quality. In fiscal year 2002, the five
    Upper Mississippi River Basin States received a total of $177 million
    in CWSRF funding. However, the CWSRF is proposed to be cut by 10.2
    percent in fiscal year 2003, funding it at $1.212 billion, rather than
    at its authorized historical level of $1.35 billion. Given the
    flexibility to redirect wastewater funds to the Drinking Water State
    Revolving Fund (DWSRF), even less than $1.212 billion might well be
    available for the wastewater SRFs. While the flexibility to shift among
    these programs can help the States address their most pressing needs,
    it is no substitute for adequate funding. Estimates of the nation's
    wastewater infrastructure needs certainly vary, as evidenced in the
    Congressional deliberations on new water infrastructure financing
    legislation (H.R. 3930 and S. 1961). However, there is absolutely no
    doubt there are substantial unmet needs. The high demand for these
    funds underscores the need to reauthorize CWSRF funding and increase
    annual Federal appropriations to $2 billion.
    State Nonpoint Source Grants (Section 319)
        The Administration has requested $238.5 million for the Section 319
    State nonpoint source (NPS) grant program, a modest increase of $1
    million above fiscal year 2001 and 02 funding levels. Nonpoint sources
    are one of the major causes of water pollution in the Upper Mississippi
    River Basin, which drains the nation's agricultural heartland. Adequate
    funding for Section 319 and complementary efforts, including the USDA's
    conservation programs, is essential to meeting the region's major water
    quality challenges. While the UMRBA is pleased that the Administration
    is seeking a slight increase in Section 319 funding, it should be
    recognized that continued progress in addressing nonpoint pollution
    will require significantly increased resources.
    Watershed Initiative
        The Administration has proposed $20 million in fiscal year 2003 for
    a new targeted Watershed Initiative. While the details of how the
    program will be implemented are not yet available, the intent is to
    provide grants to approximately 20 local watershed efforts on a
    competitive basis. Although UMRBA supports funding for watershed
    planning and management, it should not come at the expense of well-
    established programs such as Section 106 and Section 319. Redirecting
    this funding to existing State grant programs would also obviate the
    need to establish new bureaucratic mechanisms within EPA to administer
    this new grant program. The fiscal year 2003 budget identifies $1
    million and 10 additional FTEs to simply administer the new program.
    These resources could be much more productively employed in existing
    programs.
    Environmental Monitoring and Assessment (EMAP)
        EPA's fiscal year 2003 budget includes $38.26 million for its
    Environmental Monitoring and Assessment Program (EMAP). Of this amount,
    $4.875 million is proposed as a new initiative to extend the EMAP
    approach to large rivers in the Mississippi River Basin (Central
    Basin). Initially, under such an initiative, the scientific principles
    developed by EMAP for regional scale assessment and monitoring will be
    applied to the Missouri and Upper Mississippi Rivers. These rivers are
    challenged by long term loadings of nutrients, 2 sediments, and toxic
    chemicals, as well as extensive habitat alternatives. The Central Basin
    EMAP initiative is intended to fill the scientific gaps (indicators,
    sampling design, and sampling methodology) that currently limit our
    ability to assess baseline conditions and measure the performance of
    environmental protection activities. The resulting advancements in
    monitoring technology and approaches could be potentially useful in
    guiding the development of TMDLs on major rivers such as the Missouri
    and Mississippi Rivers. UMRBA thus supports proposed funding of $4.875
    million for the Central Basin EMAP.
    Hypoxia Action Plan
        The UMRBA is disappointed that the Administration's fiscal year
    2003 budget proposal does not include additional new resources to
    address the recommendations in the Hypoxia Action Plan, submitted by
    the Mississippi River/Gulf of Mexico Watershed Nutrient Task Force in
    January 2001. The States in the Upper Mississippi River Basin have
    consistently said that reductions in nutrient inputs to the Gulf of
    Mexico and monitoring to evaluate the effectiveness of these efforts
    will only be possible if significant new budgetary resources are
    provided by the Federal Government. While the States continue to
    support the goals and strategies set forth in the Action Plan, little
    progress will be made to reduce the Gulf hypoxic zone and improve water
    quality conditions throughout the basin without a major Federal
    financial commitment.
                      federal emergency management agency
        Mitigation--Of particular interest to UMRBA is funding for
    mitigation of future flood hazards. Mitigation, which is the on-going
    effort to reduce or eliminate the impact of disasters like floods, can
    include measures such as relocating homes or community facilities off
    the floodplain, elevating structures, and practicing sound land use
    planning. Mitigation planning and implementation measures are essential
    to reducing the nation's future disaster assistance costs. Given the
    importance of mitigation, UMRBA supports the new Pre-Disaster
    Mitigation grant program proposed by FEMA and funded at $300 million in
    the President's proposed fiscal year 2003 budget. Such a program would
    significantly enhance communities' ability to prevent future damages,
    particularly in areas that have not experienced a major disaster and
    thus have not had access to postdisaster mitigation assistance through
    the Disaster Relief Fund. In addition, pre-disaster mitigation
    assistance is an effective means of meeting the on-going need in--all
    communities to plan for future floods and reduce their vulnerability
    before the next flood disaster.
        Unfortunately, the Administration's proposal for a new Pre-Disaster
    Mitigation Program is based on the premise that the existing post-
    disaster Hazard Mitigation Grant Program (HMGP) will be eliminated. The
    HMGP has been a particularly popular and enormously helpful program.
    Authorized under Section 404 of the Stafford Act, the HMGP provides
    grants to States and local governments to implement long-term hazard
    mitigation measures after a major disaster declaration. Because grant
    funds are made available during the immediate recovery from a disaster,
    it offers a particularly attractive option for communities that may not
    otherwise consider mitigation. It is critical to maintain this post-
    disaster option, in addition to creating a new pre-disaster mitigation
    option. Local communities need both. In addition, by retaining the
    HMGP, mitigation assistance specifically for flood damages would
    continue to be available to communities that experience disastrous
    flooding. In contrast, flood mitigation projects under FEMA's new pre-
    disaster program will need to compete for funding with mitigation
    projects for a wide variety of other potential disasters, thus
    diminishing the likelihood that flood mitigation needs will be met.
        Therefore, UMRBA supports funding of $300 million for a new Pre-
    Disaster Mitigation Program and urges Congress to reject the
    Administration's proposal to eliminate the postdisaster HMGP.
        Flood Map Modernization--UMRBA enthusiastically supports the
    Administration's proposal to provide $300 million to modernize and
    digitize flood maps. Among other things, flood maps are used to
    determine risk-based NFIP premium rates and develop disaster response
    plans for Federal, State, and local emergency management personnel.
    However, most flood maps are over 15 years old and axe rapidly becoming
    obsolete. Many flood maps are outdated by the effects of land use
    changes in the watersheds. When out-dated maps underestimate flood
    depths, it can often lead to floodplain development in high risk areas.
    It is therefore important that flood maps be updated on an ongoing
    basis and in a timely way.
        The Corps of Engineers is currently conducting a Flow Frequency
    Study that will update the discharge frequency relationships and water
    surface profiles of approximately 2,000 river miles of the Upper
    Mississippi, Lower Missouri, and Illinois Rivers. This data will have a
    variety of uses, including updating Flood Insurance Rate Maps (FIRMs)
    used by hundreds of flood prone communities along these rivers. The
    Corps and FEMA have estimated that 4,237 map panels in the 130 counties
    along these rivers will need to be revised at a cost of approximately
    $30 million. Using data from the Corps study will be a far more cost-
    effective way to update FIRMs than having FEMA independently study
    flood hazards and update the maps. UMRBA therefore urges Congress to
    designate funding specifically for the Upper Mississippi flood mapping
    project and direct FEMA and the Corps to coordinate their efforts to
    advance FIRM updates.
                                     ______

       Prepared Statement of the University Corporation for Atmospheric
                                    Research

        On behalf of the University Corporation for Atmospheric Research
    (UCAR) and the university community involved in weather and climate
    research and related education, training and support activities, I
    submit this written testimony for the record of the U.S. Senate
    Committee on Appropriations, Subcommittee on VA, HUD and Independent
    Agencies for the fiscal year 2003 budget.
                university corporation for atmospheric research
        UCAR is a consortium of 66 universities that manages and operates
    the National Center for Atmospheric Research (NCAR) and additional
    research, education, training, and research applications programs in
    the atmospheric and related sciences. The UCAR mission is to support,
    enhance, and extend the research and education capabilities of the
    university community, nationally and internationally; to understand the
    behavior of the atmosphere and related systems and the global
    environment; and to foster the transfer of knowledge and technology for
    the betterment of life on earth. In addition to its member
    universities, UCAR has formal relationships with approximately 100
    additional undergraduate and graduate schools including several
    historically black and minority-serving institutions, and 40
    international universities and laboratories. UCAR is supported by the
    National Science Foundation (NSF) and other federal agencies including
    the National Aeronautics and Space Administration (NASA).
                                  introduction
        Recent events that have shaken our nation's physical and economic
    well-being, point unequivocally to the fact that we must depend now,
    more than at any time in the country's history, on investments in
    science and technology. In his remarks at his confirmation hearing, Dr.
    John Marburger, the President's Science Advisor, stated that, ``More
    than any other nation, we have used science and technology wisely to
    create peace, advance democracy, and provide for the well-being of our
    citizens Economists tell us that fully half of our economic growth in
    the last half-century has come from technological innovation and the
    science that supported it. . . The Federal role is crucial If we
    sustain our investments in basic research, we can ensure that the
    United States remains at the forefront of scientific capability,
    thereby enhancing our ability to shape and improve the world's
    future.'' The science agencies funded by the VA, HUD and Independent
    Agencies budget have an enormous role to play in shaping that future. I
    would like to comment on the budget requests for two of those agencies,
    NSF and NASA.
                       national science foundation (nsf)
        The President's fiscal year 2003 Budget Request of $5.02 billion
    for NSF, a 4.9 percent increase from fiscal year 2002, includes $76.0
    million in transfers from other agencies. Subtracting those transfers,
    the real increase for NSF is $155.0 million, or 3.4 percent over fiscal
    year 2002. When inflation is taken into consideration, this is
    essentially a flat budget. Yet the President's NSF Budget Request
    states that the established priorities, ``take into account both
    growing needs and expanding opportunities for high-impact investments
    to strengthen world leadership in science, engineering and technology.
    They aim to keep the nation's science and engineering enterprise
    healthy, dynamic and relevant.'' Last year, 54 U.S. Senators signed a
    ``Dear Colleague'' letter to the Senate leadership supporting doubling
    the NSF budget over 5 years. If that formula is followed, then
    addressing the priorities that have been established by the
    Administration could be within reach. If the numbers in the Budget
    Request prevail, then we will fail to address those priorities, as
    critical as they are to the current and future health and security of
    our nation. The productivity of the U.S. science and engineering
    enterprise, and to some extent, the technology used for national
    security applications, depend on NSF support of fundamental research. I
    agree with the call from the American Association of Universities (AAU)
    and the Coalition for National Science Funding (CNSF) to appropriate
    for the agency a 15 percent increase thereby continuing the momentum of
    the NSF doubling effort begun in fiscal year 2001 and continued at a
    more constrained level in fiscal year 2002. However, I also understand
    that these are extraordinary times with extraordinary fiscal pressures.
    Therefore, I ask the Committee to continue in fiscal year 2003, to the
    extent possible, the effort to double the NSF budget by supporting at
    least a 10.0 percent increase for a total budget of at least $5.34
    billion. (This figure includes the proposed transfers in addition to a
    real 10.0 percent increase over fiscal year 2002.)
        This is an increase that the science community has the capacity to
    use immediately and well. A 10 percent increase can be productive in
    terms of the NSF grant size and duration. The average grant size has
    been falling in constant dollars over many years. According to the
    CNSF, ``The average NSF grant in the year 2000 was for $93,000 and
    lasted for just under 3 years. By comparison, the average NIH grant in
    2000 was for $283,000, and lasted for just over 4 years. Increasing the
    size and time period of grants will enable researchers to concentrate
    on discovery rather than paperwork.'' Each year, NSF receives
    approximately 30,000 proposals and has the resources to fund only one
    third of them. Nearly $2.0 billion worth of proposals rated very good
    to excellent through the merit review process go unfunded. Recent
    national competitions have produced success rates as low as 7.0
    percent, not because of a paucity of excellent proposals, but because
    of lack of adequate funding. These low proposal success rates reflect a
    capacity for progress in this country that is not being realized.
        Within the NSF, I would like to comment on the following specific
    initiatives and programs that are of great importance to the country's
    global scientific leadership and to the advancement of the atmospheric
    and related sciences:
    Research and Related Activities (R&RA)
        When the transfers mentioned above are subtracted from the fiscal
    year 2003 budget request for NSF's R&RA, the heart of this nation's
    non-medical basic research budget, the numbers are increased by only
    3.0 percent over fiscal year 2002 levels. This amount, barely enough to
    cover inflation, is then reflected in the budgets of most of the NSF
    Research Directorates. The peer-reviewed work supported by these
    directorates represents a major portion of the nation's scientific
    research achievement and technological advancement. I urge the
    Committee to allocate for Research and Related Activities an amount
    that reflects an overall increase of at least 10.0 percent for NSF as
    requested above.
        Geosciences (GEO) Directorate.--The Budget Request for RRA's GEO
    Directorate shows a 13.0 percent increase over fiscal year 2002. When
    the proposed external agency transfers, all of which affect the GEO
    budget, are removed from the request, the apparent real increase for
    GEO is $4.0 million, or 0.65 percent much less than inflation. However,
    when fiscal year 2003 mandated programs (these include the proposed
    transfers and the Climate Change Research Initiative detailed below)
    are subtracted from the GEO total, the Directorate's funding is
    actually down by $22.0 million from the fiscal year 2002 Current Plan
    total. This represents a significant decrease for core research that is
    of direct importance to the physical safety of our citizens, our
    economic health, and global issues of national security relevance, such
    as climate change and the environmental health of the planet.
        The GEO Directorate is this country's principal source of funding
    for university-based research in the atmospheric, earth and ocean
    sciences. As the Budget Request states, ``GEO plays a critical role in
    addressing the nation's need to understand, predict and respond to
    environmental events and changes and to use the Earth's resources
    wisely.'' Through involvement in such interagency programs as the U.S.
    Weather Research Program (USWRP), the National Space Weather Program
    (NSWP), and the U.S. Global Change Research Program (USGCRP), GEO core
    research advances our ability to predict natural phenomena of economic
    and human significance such as severe storms, solar variability, and
    climate patterns and change that affect food production, potable water
    supplies, human migration, the survival of plant and animal species,
    and the security of coastal zones. The fiscal year 2003 Budget Request
    lists GEO involvement in a new program of the Administration, the
    Climate Change Research Initiative (CCRI--see below for more detail),
    at a total of $10.0 million. While the CCRI activities listed are of
    importance to climate research, there appears to be no new money in the
    request to cover this worthy, proposed work. The CCRI mandated research
    is therefore part of the $22.0 million total in Administration-
    requested programs that will negatively affect the funds available for
    the core GEO program.
        Both the Federal government and the private sector estimate that
    over $2.0 trillion of the $10.0 trillion U.S. gross national product is
    affected annually by weather and climate. Given the current struggles
    within our energy sector and within the economy as a whole, this is an
    unfortunate time to decrease research efforts that could help to
    anticipate weather and climate variability more effectively. I urge the
    Committee to allocate for the GEO Directorate an amount that reflects
    an overall real increase of at least 10.0 percent for NSF as requested
    above. I further urge the Committee to take into consideration in final
    allocations, the impact of the proposed agency transfers on GEO. If the
    language of the final bill allocates any increased RRA funding to NSF
    scientific directorates in proportion to percentages in the original
    request, but fails to include the amount of the proposed transfers if
    they are not accomplished, then the academic community funded by the
    GEO Directorate will be at a great disadvantage since its requested
    real increase is the lowest of all the NSF directorates.
        Atmospheric Sciences (ATM).--Within the GEO Directorate, the
    Division of Atmospheric Sciences supports research that contributes new
    understanding of the behavior of the Earth's atmosphere and its
    interactions with the sun. The fiscal year 2002 Current Plan total is
    $202.0 million. The Budget Request includes as ATM responsibilities two
    of the agency transfers. Once those are subtracted from the total
    request, ATM must still reduce its base by $7.4 million from fiscal
    year 2002 Current Plan numbers in order to accommodate additional
    requested mandates such as the new CCRI. Therefore, while it appears
    that ATM's Atmospheric Sciences Research Support line receives an 11.3
    percent increase (once $8.56 million in agency transfers is
    subtracted), this amount is quickly eroded by the Administration's CCRI
    new initiative. ATM funds fuel a major percentage of the country's
    university research in weather, climate, and the solar-terrestrial
    system. The ATM programs highlighted in the fiscal year 2003 request
    include enhancing computer systems and numerical models; continuing to
    evolve our understanding of the processes that control the atmospheric
    distribution of carbon, water, and other nutrients; and continuing to
    develop an upper atmospheric radar system to mitigate society's
    vulnerability to space storms. I question whether these advances are
    possible in the face of no real funding increase.
        Also funded within ATM, the world-class National Center for
    Atmospheric Research (NCAR) supports the country's entire atmospheric
    and related sciences community through observational and computer
    facilities, instrumented research aircraft, and an extensive visiting
    scientist program. In fiscal year 2002, more than 1,500 researchers and
    students will use the NCAR facilities and approximately 150 visiting
    scientists will stay for extended periods. NCAR has just been given
    excellent marks in a rigorous peer review conducted by NSF with heavy
    involvement from the university community. The center's research spans
    areas that are of great significance to the safety of our citizens, the
    health of our economy, and the security of our communications
    infrastructure, yet, apparently in order to accommodate the
    Administration's mandated programs, the President's Budget Request for
    fiscal year 2003 decreases the NCAR budget by 3.9 percent based on
    Current Plan fiscal year 2002 amounts. This reduction, when combined
    with the effects of inflation, will significantly reduce the productive
    and highly valued programs of NCAR that support the national,
    university-based atmospheric sciences community.
        I urge the Committee to allocate for ATM an amount that reflects a
    real overall increase of at least 10.0 percent for NSF as requested
    above, in order to enable the agency to adequately fund the university
    community involved in atmospheric sciences research and to provide a
    super-inflationary increase for the National Center for Atmospheric
    Research to preserve and enhance its highly valued, community-
    supporting programs. I further urge the Committee to take into
    consideration in final allocations, the effect of two proposed agency
    transfers on ATM. If the language of the final bill allocates any
    increased RRA funding to NSF scientific directorates and programs in
    proportion to percentages in the original request, but fails to include
    the amount of the proposed transfers if they are not accomplished, then
    the academic community funded by ATM, including NCAR, will be at a
    great disadvantage since its requested real increase is extremely low.
        As a contribution within the GEO budget to the NSF Learning for the
    21st Century overall NSF priority area, we appreciate the funding being
    allocated for innovative approaches to education including the
    continued development of the geosciences community's Digital Library
    for Earth Systems Science (DLESE). We would also like to call your
    attention to the UCAR program, Significant Opportunities in Atmospheric
    Research and Science (SOARS), which is funded directly by ATM within
    GEO. Recipient of a 2001 Presidential Award for Excellence in Science,
    Mathematics, and Engineering Mentoring, SOARS is having a positive
    impact on the number of ethnically diverse atmospheric sciences
    graduate students through its model mentoring approach and research
    orientation, and is an excellent example of NSF's efforts to produce a
    diverse, internationally competitive workforce to meet the challenges
    of this new century.
    Major Research Equipment and Facilities Construction (MREFC) Programs
        The Tools section of the NSF Budget Request states that, ``NSF
    provides support for large, multi-user facilities which give
    researchers access to essential state-of-the-art facilities. Support
    for these unique national facilities is necessary to advance U.S.
    capabilities required for world-class research.'' Yet NSF's MREFC
    account, the major NSF resource for non-medical research facilities in
    this country, is decreased by 9.3 percent from the fiscal year 2002
    actual level. I urge the Committee to examine the Major Research
    Equipment and Facilities Construction account cuts and to add funding
    for programs that have been planned carefully, that have been partially
    funded already, and that promise tremendous advances in this country's
    research capabilities.
        Terascale Computing Systems.--The multi-agency terascale effort is
    a key component of this country's strategy to gain leading edge access
    to computing capabilities. For years, this country has lagged behind
    other developed nations in high-end computing, a situation that has
    adversely affected the atmospheric science community's ability to run
    the complex models necessary to understand and predict regional and
    global climate change. Advances that accompany the completion of the
    terascale effort will return significant scientific advancements in all
    fields. I urge the Committee to support the President's fiscal year
    2003 request of $20.0 million for Terascale Computing Systems that will
    enable U.S. researchers to gain access to leading edge computing
    capabilities, and to support the budget request for NSF's Directorate
    for Computer and Information Science and Engineering (CISE) in its
    oversight of the terascale project through the Advanced Computational
    Infrastructure Subactivity.
        High-performance Instrumented Airborne Platform for Environmental
    Research (HIAPER).--While we support the great advances in science and
    technology that all MREFC-funded programs represent, we are
    disappointed as a community to see that HIAPER is not included in the
    fiscal year 2003 Budget Request. Following approval of the program by
    the National Science Board, funding for this modern research aircraft
    was begun by Congress in fiscal year 2000 and continued in fiscal year
    2001 and fiscal year 2002, for a total of $55.97 million of the $81.5
    million project total. We sincerely hope that funding is completed in
    fiscal year 2003 since NSF has just retired one other research aircraft
    and all delays in instrumenting the already procured Gulfstream
    airframe for HIAPER will result in higher completion costs. We look
    forward to HIAPER's vital contribution to our understanding of how
    severe weather and other weather and climate phenomena develop and
    impact the nation and the globe.
        Earthscope.--This multi-purpose geophysical instrument array will
    allow scientists to make major advances in our knowledge and
    understanding of the structure and dynamics of the North American
    continent. The initial Earthscope activity, deployment of high-
    capability seismometers throughout the United States, will improve our
    resolution of the subsurface structure and lead to advances in
    understanding fault conditions and the rupture processes of
    earthquakes. I applaud the Administration's inclusion of Earthscope in
    the fiscal year 2003 MREFC request and urge the Committee to support
    this program.
    Education and Human Resources (EHR)
        Nothing is more important for the future of our nation than the
    education of next generations of leaders, of a work force skilled in
    uses of technology, and of citizens who can make informed decisions in
    our democratic society. I applaud the long overdue request for
    increased stipends (to $25,000 annually) to attract our best graduates
    for research and teaching fellowships and ask the Committee to make
    sure that this stipend increase is included in the final budget bill.
        I support also the Administration's call to strengthen NSF's
    ability to leverage institutional partnerships for the systemic
    improvement of math and science education. However, I ask the Committee
    to ensure that EHR existing programs are complemented and strengthened,
    not compromised, by the expansion of the Math and Science Partnership
    program. This EHR program receives an additional $40.0 million in this
    year's request while all of EHR is increased by only $33.0 million, an
    obvious and significant $7.0 million gap.
        While the 3.8 percent requested overall increase for EHR may not
    seem adequate to meet the country's needs, it is my belief that the NSF
    science directorates and the MREFC account are in far greater need of
    enhancements this year. Therefore, I urge the Committee to support the
    President's request of $908.0 million in fiscal year 2002 for Education
    and Human Resources, a 3.8 percent increase over fiscal year 2002.
        National STEM Education Digital Library (NSDL).--The NSDL goal is
    to produce a digital library of high-quality educational materials at
    all levels in science, technology, engineering and mathematics (STEM,)
    that enables the development of virtual learning communities. This
    research, teaching and learning resource is being developed by a broad
    range of universities and UCAR in response to needs articulated by the
    academic community. NSDL presents a tremendous opportunity to improve
    access to superior instructional materials and advanced classroom
    technologies. The fiscal year 2003 NSDL request represents a cut of
    $960,000, or 2.0 percent below fiscal year 2002 levels. This decrease
    will cause a 10.0 percent reduction in collections supported. I urge
    the Committee to support the National STEM Digital Library (NSDL) by
    appropriating at least the President's fiscal year 2003 request of
    $23.6 million, and ask that the momentum to fund this important
    activity be resumed at a higher level in fiscal year 2004.
    U.S. Global Change Research Program (USGCRP)
        The President's request for USGCRP activities within NSF is $188.0
    million for fiscal year 2003. This amount has been absolutely flat
    since fiscal year 2000 and therefore represents the continued erosion
    of NSF's contribution to this interagency program that addresses
    interactions among physical, biological, ecological, and human systems
    at various scales. Working with national and international research
    institutions, this program allows the atmospheric sciences community to
    improve prediction capabilities for climate fluctuations between
    excessively wet and dry periods, and for long-term climate change. This
    research is a critical investment for the future of this nation, its
    economy, and the health and safety of its citizens.
        In fiscal year 2003, the Administration will institute the Climate
    Change Research Initiative (CCRI) as part of a new interagency effort.
    CCRI deliverables will be targeted at information of strategic use to
    policy-makers, such as advanced understanding of the carbon cycle,
    improved ability to manage risk associated with climate change, more
    and better measurements of greenhouse gases, and improvements of
    climate models. It is critical, for both financial and scientific
    reasons, that the CCRI build on the extensive knowledge already gained
    under USGCRP activities, and that Initiative and Program activities be
    coordinated and leveraged to the greatest extent possible. Therefore, I
    urge the Committee to support the establishment of the Climate Change
    Research Initiative with new funding so that this initiative does not
    compromise existing core research programs, to enable to the fullest
    extent possible CCRI enhancement of and collaboration with USGCRP
    research, and to support the Initiative's and the Program's needed
    growth in years to come in order to provide continuous knowledge and
    guidance that contributes to the nation's security and well-being.
    NSF Priority Areas
        Information Technology Research (ITR).--The ongoing ITR investment
    is enabling the development of tools to strengthen all-pervasive
    information technology applications in science, commerce, education,
    and government. Advances include the creation of new integrative
    software for high-end computing, applications to provide security for
    cyberinfrastructure in the academic, government, and business
    communities; support for the creation of digital library collections;
    and the strengthening of large-scale computer networks. The initiative
    promises innovations that will provide efficiencies in the way
    university researchers process and access data, communicate with
    collaborators, and share research results. Given the enormous Earth
    systems and solar-terrestrial data sets that are critical to
    atmospheric sciences research, it is possible that the ITR
    computational effort could advance our field of science through
    innovative processing, archiving, and networking methods which we have
    not yet imagined. I urge the Committee to support the President's
    fiscal year 2003 request of $285.8 million, a 3 percent increase, for
    Information Technology Research, to increase funding, if possible, for
    this initiative that has direct applications to our national security
    and economic well-being, and to support the NSF in its role as leader
    of this multi-agency initiative.
        Mathematical Sciences.--Mathematics is a basic and indispensable
    tool for many scientific fields including the atmospheric sciences;
    recent progress in climate science in particular has been made possible
    by new mathematical and statistical tools and applications. One of the
    great challenges to advancing climate change research, weather
    prediction, and the study of solar-terrestrial interactions is the
    incredible amount of data that must be captured, organized, and
    analyzed. I applaud the Mathematical Sciences focus on investigating
    the challenges posed by large data sets such as those generated by
    today's sophisticated sensors and satellite observations systems. I
    urge the Committee to support the Administration's scale-up efforts in
    Mathematical Sciences by allocating the $6.0 million request, a 100.3
    percent increase, for Mathematical Sciences.
        Social, Behavioral and Economic (SBE) Sciences.--This new priority
    area seems to take a creative approach toward achieving the goal of
    enabling this country to take greater advantage of technology while
    anticipating and preparing for the very real and significant
    accompanying challenges and consequences. As part of the Climate Change
    Research Initiative (CCRI) mentioned above, SBE priority area support
    is requested by the Administration for research on decision-making
    under uncertainty within the context of global change research. While
    much is known about climate change and its potential societal impacts,
    much is left to be discovered and much may remain unknowable given the
    great difficulties inherent in attempting to reproduce the entire Earth
    system in computer models. If the $10.0 million requested for this
    priority area is new money to be added to the SBE Directorate, then I
    urge the Committee to approve the request to establish the Social,
    Behavioral and Economic Sciences priority area.
        Learning for the 21st Century.--In order to remain a global leader
    in most scientific fields and competitive in all areas, and to maintain
    national security at the highest possible level, this country must
    offer the opportunity for all of our citizens to increase their
    understanding of science, mathematics, and technology and to meet the
    challenges of the dramatic global transition to a technology-literate
    workforce. The goals of this initiative in fiscal year 2003 are to
    establish national centers to expand our understanding of the learning
    process and demonstrate effective workforce preparation strategies, and
    to explore the potential of information technology to strengthen links
    between formal and informal education across all levels. I urge the
    Committee to support the President's fiscal year 2003 request of $184.7
    million, a 27.5 percent increase, for the Learning for the 21st Century
    initiative.
        Biocomplexity in the Environment (BE).--This interdisciplinary
    initiative is rapidly advancing our ability to understand the complex
    systems that are structured or influenced by living organisms and the
    interactions within biological systems and physical processes. We are
    confident that BE efforts will lead eventually to better understanding
    of human impacts on the environment and enhanced predictability of
    environmental systems, including climate, that will assist
    environmental decision makers and contribute to society's ability to
    adapt to natural hazards. I urge the Committee to support the
    President's fiscal year 2003 request of $79.2 million, a 36.3 percent
    increase, for Biocomplexity in the Environment.
        Nanoscale Science and Engineering.--Nanotechnology promises to
    revolutionize our control of matter in areas such as information
    technology and to change the way in which most products are made. We
    look forward to the manner in which it may advance research in the
    field of the atmospheric sciences, particularly through possible major
    breakthroughs in the development of technology such as computers,
    radars, and satellites. I urge the Committee to support the President's
    fiscal year 2003 request of $221.2 million, an 11.3 percent increase,
    for Nanoscale Science and Engineering.
              national aeronautics and space administration (nasa)
        NASA supports science, technology, and exploration that enables us
    to better understand the origin and evolution of the universe, better
    comprehend Earth's climate and other environmental forces, study living
    and physical systems in the environment of space, and improve aviation
    safety and efficiency. The agency provides crucial support for research
    and education by awarding, through the competitive selection of merit-
    reviewed proposals, approximately $1.0 billion annually to colleges and
    universities across the country.
        The Administration's fiscal year 2003 overall request for NASA is
    $15.1 billion, a 1.4 percent increase over fiscal year 2002 estimates.
    (This includes pension expenses that NASA now may have to incur.) This
    request reflects less, in real dollars, than the investment our country
    made in NASA's science 10 years ago. While I understand that
    significant budgetary issues exist, and that the nation's resources are
    stretched during these extraordinary times, I believe that NASA's
    current and potential contributions to the nation's security and
    scientific knowledge are so great that the agency should be given some
    budgetary flexibility and room for growth. I urge the Committee to
    support NASA with a modest 5.0 percent increase, or a total of $15.7
    billion, for fiscal year 2003.
        NASA's Science, Aeronautics and Technology (SAT) appropriation
    provides funding for all of the research and development activities of
    NASA including the application of technologies critical to the
    economic, scientific, and technical competitiveness of the nation. The
    Budget Request for SAT is $8.84 billion. This appears to be a 9.9
    percent increase over fiscal year 2002, however approximately half of
    this amount consists of operations transfers formerly budgeted under
    the Human Space Flight account. Therefore, I urge the Committee to
    appropriate for the fiscal year 2003 Science, Aeronautics and
    Technology budget a real 5.0 percent increase, or a total of $9.28
    billion, an amount that reflects an overall increase of 5.0 percent for
    NASA as requested above.
        I would like to comment on the budgets of the following SAT
    programs that contribute to the health and well-being of the nation, in
    part through the achievements of the atmospheric and related sciences
    community:
    Earth Science Enterprise (ESE)
        The goal of the Earth Science Enterprise is to understand Earth's
    environmental system and its response to natural- and human-induced
    changes, thus enabling improved prediction of climate, weather, and
    natural hazards as well as responsible stewardship of the planet. NASA
    ESE missions play a pivotal role for the entire national environmental
    research community in providing critical data sets on key parameters
    that describe the Earth system and the human influences on that system.
    In the past 3 years, Earth Science has successfully launched 11
    missions and six more are scheduled for launch this year. The fiscal
    year 2003 Budget Request proposes a total of $1.62 billion for Earth
    Science. This is a 0.17 percent increase over fiscal year 2002 that
    does not even cover inflation and essentially mirrors increases to this
    crucial NASA program in recent years. Therefore, I urge the Committee
    to support the Earth Science Enterprise at $1.75 billion, a 5.0 percent
    increase, in fiscal year 2003 so that NASA may have the flexibility to
    enhance ESE programs that are crucial to understanding our planet's
    environmental system.
        ESE contains several programs that are of great benefit to society,
    and are of particular importance to the atmospheric sciences community,
    including the following:
        Earth Observing System (EOS).--As part of NASA's contribution to
    the interagency U.S. Global Change Research Program (please see details
    below), the Earth Observing System (EOS) satellites have been deployed
    to collect data on the major interactions of the land, oceans,
    atmosphere, ice, and life that comprise the Earth system in order to
    answer questions about how the Earth is changing and what the
    consequences of those changes are for life. EOS data sets are used
    broadly by scientists and are crucial for research in a number of
    scientific fields. I urge the Committee to support the fiscal year 2003
    request of $410.9 million, a 6.6 percent increase over fiscal year 2002
    levels, for the next phase of EOS programming that includes the
    following components:
      --EOS Data and Information System (EOSDIS).--EOSDIS is operating the
            EOS satellites now in orbit and retrieving flight data and
            converting it into useful scientific information. Development
            of EOSDIS is nearly complete with remaining activities timed to
            support the upcoming launches of EOS missions through AURA in
            2004, therefore the EOSDIS request is decreased appropriately
            from that of past years. I urge the Committee to support the
            President's request of $74.3 million for EOSDIS in fiscal year
            2003.
      --AURA (Mission of the EOS Common Spacecraft).--In the troposphere
            and lower stratosphere (altitudes up to 20 km), the four
            instruments of the AURA mission will measure ozone, aerosols,
            and several other key atmospheric constituents that play an
            important role in atmospheric chemistry, air quality, and
            climate. Scheduled to launch in January 2004, this mission will
            provide data to answer such critical questions as whether the
            Earth's ozone layer is recovering and whether air quality is
            deteriorating around the globe. These are issues that affect
            environmental policies and international agreements. I urge the
            Committee to support the fiscal year 2003 budget request of
            $85.3 million, a necessary 21.0 percent increase over fiscal
            year 2002 levels, for AURA instrument completion.
      --EOS Follow-On.--As the first cycle of EOS missions comes to a
            close, EOS Follow-On missions are being planned to continue to
            meet the scientific needs of the NASA Earth science projects.
            This next generation of missions will provide new technology
            and space systems to continue global climate change
            observations, extend the global land cover change data set, and
            create improved observations of atmospheric phenomena such as
            global precipitation, ocean wind vectors, and aerosol levels.
            Much of the fiscal year 2003 EOS Follow-On requested increase
            is directed to the NPOESS Preparatory Project (NPP), which will
            fulfill NASA's commitment to obtain and make available a 15-
            year data record for fundamental global climate change
            observations. I urge the Committee to support the
            Administration's fiscal year 2003 request of $238.5 million, a
            117 percent increase, for EOS Follow-On programs.
    Space Science Enterprise
        The extraordinary mission of the Space Science Enterprise to chart
    the evolution of the universe and understand its galaxies, stars,
    planetary bodies, and life; to discover planets around other stars; and
    to understand the behavior of the sun and its interaction with Earth,
    is of great interest to the public as well as the academic community.
    These challenges form the basis of the country's space science program
    over the next several decades. While Space Science appears to receive a
    19.1 percent increase in the Budget Request, $200.0 million of the
    $547.0 million increase consists of the transfer from the Human Space
    Flight account of the operations for the Deep Space Network and the
    Mission Services for Space Science missions. This transfer results in
    no significant budgetary impacts. I urge the Committee to support the
    Administration's fiscal year 2003 request for the Space Science
    Enterprise of $3.4 billion, a 10.0 percent increase over fiscal year
    2002 once transfers are subtracted.
        Sun Earth Connections (SEC).--The SEC program within the Space
    Science Enterprise formulates missions to investigate the effects of
    solar phenomena on Earth and on the space environment. Its overall goal
    is to understand the changing sun and its effects on the Solar System,
    life, and society. I urge the Committee to support the Administration's
    request for growth within Sun Earth Connections by appropriating the
    request of $117.8 million, a 107.0 percent increase over fiscal year
    2002 levels.
        SEC contains several missions within its Solar Terrestrial Probes
    program that promise great benefit to society, and are of particular
    importance to our community, including the following:
      --Thermosphere, Ionosphere, Mesosphere Energetics and Dynamics
            (TIMED), the first science mission of Solar Terrestrial Probes
            within SEC, was successfully launched last December. Data are
            being now collected for the first time on the composition of
            the Mesosphere and Lower Thermosphere/Ionosphere (MLTI) region
            of the Earth's atmosphere, the layer that is the fragile
            gateway between the Earth's environment and space. Through data
            analysis, TIMED will investigate the influences of the sun and
            humans on this region of the atmosphere (60-180 km altitude) in
            order to understand MLTI variability and the potential impact
            of these changes on satellite tracking, spacecraft lifetimes,
            degradation of spacecraft materials, and re-entry of piloted
            vehicles. I urge the Committee to support the fiscal year 2003
            request of $3.1 million for continued TIMED operations as well
            as the $6.9 million request for TIMED mission data analysis.
      --Solar-B, scheduled to launch in 2005, is a U.S./Japan collaboration
            to investigate the interaction between the Sun's magnetic field
            and its corona. The mission will provide space weather data to
            help understand events such as solar mass ejections that can
            endanger astronauts in orbit and impact Earth's atmosphere with
            enough force to cause expensive communications disruptions.
            Much of the instrument development phase of this mission is
            complete, therefore the fiscal year 2003 request shows a
            decline from fiscal year 2002. The amount requested may be
            adequate for the current program phase, but reviews are
            underway now to determine if the delay of another program (the
            Astro-E Mechanical Thermal Model) has adversely affected Solar-
            B. Given information available now, however, I urge the
            Committee to support the fiscal year 2003 request for $16.2
            million for the continued NASA development of the Solar B
            mission's instrument subsystems.
        Focused Technology Programs.--The Office of Space Science
    Technology Program has as its goal the development of new technologies
    to enable innovative and less expensive research and flight missions.
    The Focused Programs component enables the most effective alignment of
    technology development programs with future missions in order to ensure
    that proposed mission studies are realistic and can be implemented.
    Solar Probe, a mission that has the potential to unlock some of the
    mysteries of the energetic solar coronal material, is an example of the
    important future programs being evaluated by the Focused Technology
    Program. I am concerned that funding for the Office of Science Focused
    Technology Program is essentially flat and I urge the Committee to
    provide better support for this crucial, mission-oriented function.
    Office of Aerospace Technology
        Aviation Safety Program Weather Safety Technologies.--While the
    rate of commercial aviation accidents is very low worldwide, recent
    dramatic increases in air traffic (with the exception of the months
    following September 11) have resulted in an increase in the number of
    accidents. If the recent rate of increase were to stay constant over
    the next 15 years, the result will be an average of 50 catastrophic
    accidents per year--almost one per week. According to the National
    Transportation Safety Board, approximately 30 percent of all aviation
    accidents, and 37 percent of the fatal accidents, are weather related.
        The goal of NASA's Aviation Safety Program (AvSP), within the
    Office of Aerospace Technology, is to develop and demonstrate
    technologies that contribute to a reduction in the aviation fatal
    accident rate by a factor of five (compared to the 1994 1996 average)
    by the year 2007 and by a factor of ten by the year 2022. The Aviation
    Safety Program encompasses three areas, one of which is Weather Safety
    Technologies. In partnership with the FAA, the Department of Defense
    and the aviation industry, this program develops and supports the
    implementation of technologies to reduce fatal aviation accidents and
    delays caused by weather hazards. I urge the Committee to uphold the
    goal of reduced aviation accidents and fatalities by supporting the
    fiscal year 2003 request for the Weather Safety Technologies program of
    $20.9 million, a 17.0 percent increase over fiscal year 2002 levels.
    U.S. Global Change Research Program (USGCRP)
        NASA is a major contributor to the interagency USGCRP. NASA
    research efforts in global change involve space-based, satellite
    studies of the Earth as an integrated system with remotely-sensed
    observations carried out as part of additional flight missions. With
    USGCRP efforts concentrated within the Earth Science Enterprise, NASA
    studies are expected to yield improved weather forecasts, tools for
    managing agriculture and forests, information for fishermen and local
    planners, and eventually, the ability to predict how the climate will
    change. This research is a critical investment for the future of this
    nation, its economy, and the health and safety of its citizens. I urge
    the Committee to support the President's request of $1.09 billion, a
    2.0 percent increase over fiscal year 2002 levels, for NASA U.S. Global
    Change Research Program activities.
        As stated above in the testimony presented for the NSF budget, the
    Administration will institute in fiscal year 2003 the Climate Change
    Research Initiative (CCRI) as part of a new interagency effort. The
    President's fiscal year 2003 request for CCRI activities within NASA is
    $3.0 million. As stated in the NSF testimony, it is critical for both
    financial and scientific reasons, that the CCRI build on the extensive
    knowledge already gained under USGCRP activities, and that Initiative
    and Program activities be coordinated and leveraged to the greatest
    extent possible. Therefore, I urge the Committee to support the
    establishment of the Climate Change Research Initiative with new
    funding, to enable to the fullest extent possible CCRI enhancement of
    and collaboration with USGCRP research, and to support the Initiative's
    and the Program's needed growth in years to come in order to provide
    continuous knowledge and guidance that contributes to the nation's
    security and well-being.
    NASA Education Programs
        Since the creation of NASA through the Space Act of 1958, the
    agency has made a substantial commitment to education at all levels.
    Because of NASA's inspiring mission, the agency's work is of great
    interest to people of all ages. NASA is in a unique position to recruit
    the education community to help leverage the agency's scientific
    achievements, to interest students and citizens in the scientific
    enterprise, and to motivate many to pursue scientific study and
    careers. NASA's comprehensive portfolio of education programs includes
    teacher/faculty preparation and enhancement, student support,
    educational technology, support of systemic improvement, curriculum
    support and dissemination, and research and development. I urge the
    Committee to support NASA's continuing contributions to this country's
    broad education interests by appropriating the education programs
    imbedded throughout the strategic enterprises and offices delineated in
    NASA's fiscal year 2003 Budget Request.
                                   conclusion
        I ask that the Committee continue the commitment made last year to
    invest steadily in our country's future. During this extraordinary time
    in our history, we must continue to support science in order to reap
    the benefits that accrue from the best research the world has to offer.
    History has shown that these investments will pay tremendous dividends
    to the country in lives saved, technologies developed, the economic
    health of the nation expanded, national security enhanced, and American
    leadership sustained throughout the world.
        On behalf of the UCAR community, I want to thank the Committee for
    the important work you do for U.S. scientific research, education, and
    training. We appreciate your attention to the recommendations of our
    community concerning the fiscal year 2003 budget of the National
    Science Foundation and the National Aeronautics and Space
    Administration.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Aerospace:
        Engineering Division, prepared statement.....................   629
        Industries Association, prepared statement...................   629
    Alachua County, Florida, prepared statement......................   575
    Allbaugh, Joe M., Director, Federal Emergency Management Agency..   481
        Prepared statement...........................................   487
    Alliance to Save Energy, prepared statement......................   578
    American:
        Association of Engineering Societies, prepared statement.....   629
        Astronomical Society, prepared statement.....................   582
        Geological Institute, prepared statement.....................   589
        Helicopter Society, prepared statement.......................   629
        Indian Higher Education Consortium, prepared statement.......   592
        Institute of Aeronautics and Astronautics, prepared statement   629
        Lung Association, prepared statement.........................   617
        Psychological:
            Association, prepared statement..........................   598
            Society, prepared statement..............................   620
        Rivers, prepared statement...................................   604
        Society of:
            Civil Engineers, prepared statement......................   629
            Mechanical Engineers, prepared statements..............609, 629
        Thoracic Society, prepared statement.........................   617
        Water Works Association, prepared statement..................   606
    Asrar, Dr. Ghassem, Associate Administrator for Earth Science,
      National Aeronautics and Space Administration..................   409
    Association of:
        American Universities, prepared statement,...................   624
        Minority Health Professions Schools, prepared statement......   628
    Aviation Research and Technology, prepared statement.............   633
    Ayres, Judith, Assistant Administrator, Office of International
      Activities, Environmental Protection Agency....................   177

    Babyland Family Services, Inc., prepared statement...............   634
    Barile, Vincent, Deputy Under Secretary for Management, NCA,
      Department of Veterans Affairs.................................     1
    Boesz, Tina, Inspector General, National Science Foundation......   533
        Prepared statement...........................................   548
    Bohmbach, James W., Chief Financial Officer, Veterans Benefits
      Administration, Department of Veterans Affairs.................     1
    Bond, Senator Christopher S., U.S. Senator from Missouri:
        Opening remarks..............................................    16
        Opening statement............................................   178
        Prepared statements....................................28, 342, 413
        Questions submitted by..................86, 149, 235, 389, 404, 516
        Statements of..........................112, 305, 340, 411, 482, 536
    Bostock, Robert, Chief Senior Advisor to the Administrator,
      Environmental Protection Agency................................   177
    Brown, Tony T., Director, Community Development Financial
      Institutions Fund, Department of the Treasury..................   354
        Prepared statement...........................................   357
    Bryson, Jeffrey, General Counsel, Neighborhood Reinvestment
      Corporation....................................................   337

    California Industry and Government Central California Ozone Study
      (CCOS) Coalition, prepared statement...........................   636
    Cassidy, Sean G., General Deputy Assistant Secretary for Housing,
      Deputy Federal Housing Commissioner, letter from...............   139
    Catlett, D. Mark, Principal Deputy Assistant Secretary for
      Management, Department of Veterans Affairs.....................     1
    City of:
        Gainesville, Florida, prepared statement.....................   638
        Miami Beach, Florida, prepared statement.....................   643
        Newark, New Jersey, prepared statement.......................   647
    Clark, Eligah D., Chairman, Board of Veterans' Appeals,
      Department of Veterans Affairs.................................     1
    Coalition for Indian Housing and Development, prepared statement.   649
    Cobb, Robert W., Inspector General, National Aeronautics and
      Space Administration...........................................   409
    College Partners, Inc., prepared statement.......................   652
    Colwell, Dr. Rita, Director, National Science Foundation.........   533
        Prepared statement...........................................   547
        Statement of.................................................   545
    Combs, Linda M., Chief Financial Officer, Environmental
      Protection Agency..............................................   177
    Consortium of Social Science Associations (COSSA), prepared
      statement......................................................   654
    Cragin, Maureen P., Assistant Secretary for Public and
      Intergovernmental Affairs, Department of Veterans Affairs......     1
    Craig, Senator Larry E., U.S. Senator from Idaho:
        Prepared statements.........................................27, 416
        Questions submitted by................................104, 171, 477
        Statements of..............................................114, 415

    DeWine, Senator Mike, U.S. Senator from Ohio:
        Prepared statement...........................................   417
        Statement of.................................................   417

    Dillon, Joseph L., Comptroller, Office of the Chief Financial
      Officer, Environmental Protection Agency.......................   178
    Domenici, Senator Pete V., U.S. Senator from New Mexico:
        Prepared statement...........................................    30
        Questions submitted by......................100, 174, 298, 478, 526
        Statement of.................................................   180
    Doris Day Animal League, prepared statement......................   658
    Duffy, Dennis, Principal Deputy Assistant Secretary for Policy
      and Planning, Department of Veterans Affairs...................     1

    Egan, Nora E., Chief of Staff, Department of Veterans Affairs....     1

    Fabricant, Robert, General Counsel, Office of General Counsel,
      Environmental Protection Agency................................   177
    Federation of American Societies for Experimental Biology,
      prepared statement.............................................   660
    Feussner, John R., M.D., Chief Research and Development Officer,
      Veterans Health Administration, Department of Veterans Affairs.     2
    Fisher, Linda, Deputy Administrator, Environmental Protection
      Agency.........................................................   177
    Fleet Reserve Association (FRA), prepared statement..............   662
    Friends of VA Medical Care and Health Research, prepared
      statement......................................................   666

    Gauss, John A., Assistant Secretary for Information and
      Technology, Department of Veterans Affairs.....................     1
    Gelb, Nanci E., Director, Annual Planning and Budget Division,
      Environmental Protection Agency................................   178
    General Aviation Manufacturers Association, prepared statement...   629
    Gibson, Thomas, Associate Administrator, Office of Policy,
      Economics and Innovation, Environmental Protection Agency......   178
    Great Lakes Indian Fish & Wildlife Commission, prepared statement   671
    Griffin, Richard J., Inspector General, Department of Veterans
      Affairs........................................................     2
    Grumbles, Benjamin, Deputy Assistant Administrator, Office of
      Water, Environmental Protection Agency.........................   177
    Grunsfeld, Dr. John, Astronaut, National Aeronautics and Space
      Administration.................................................   409

    Harkin, Senator Tom, U.S. Senator from Iowa, questions submitted
      by.............................................................    93
    Hazen, Susie, Deputy Assistant Administrator, Office of
      Prevention, Pesticides and Toxic Substances, Environmental
      Protection Agency..............................................   177
    Higgins, Robin, Under Secretary for Memorial Affairs, Department
      of Veterans Affairs............................................     1
    Holmstead, Jeffrey, Assistant Administrator, Office of Air and
      Radiation, Environmental Protection Agency.....................   177
    Horinko, Marianne, Assistant Administrator, Office of Solid Waste
      and Emergency Response, Environmental Protection Agency........   177
    Humane Society of the United States, prepared statement..........   674

    Independent Budget, letter from..................................    13
    Institute of Electrical and Electronics Engineers-U.S.A.,
      prepared statement.............................................   629
    Isakowitz, Steve, Comptroller, National Aeronautics and Space
      Administration.................................................   409

    Johnson, Senator Tim, U.S. Senator from South Dakota:
        Questions submitted by......................................98, 403
        Statement of.................................................   540
    Joslin Diabetes Center, prepared statement.......................   676

    Kelly, Margo, Deputy Executive Director, Neighborhood
      Reinvestment Corporation.......................................   337
    Klein, Art, Director of Budget Office, Veterans Health
      Administration, Department of Veterans Affairs.................     2
    Kohl, Senator Herb, U.S. Senator from Wisconsin:
        Questions submitted by.......................................   146
        Statement of.................................................   200
    Krenik, Edward D., Associate Administrator, Office of
      Congressional and Intergovernmental Relations, Environmental
      Protection Agency..............................................   178

    Lazar, Ellen, Executive Director, Neighborhood Reinvestment
      Corporation....................................................   337
        Prepared statement...........................................   346
    Leahy, Senator Patrick J., U.S. Senator from Vermont, questions
      submitted by...................................................   515
    Lenkowsky, Leslie, Chief Executive Officer, Corporation for
      National and Community Service.................................   303
        Prepared statement...........................................   309
    Longest, Henry L., II, Acting Assistant Administrator, Office of
      Research and Development, Environmental Protection Agency......   177
    Lowrance, Sylvia K., Acting Assistant Administrator, Office of
      Enforcement and Compliance Assurance, Environmental Protection
      Agency.........................................................   177

    Mansfield, Gordon, Assistant Secretary for Congressional and
      Legislative Affairs, Department of Veterans Affairs............     2
    Marburger, John H., III, Office of Science and Technology Policy,
      Executive Office of the President:
        Prepared statement...........................................   553
        Statements of..............................................533, 551
    Martinez, Hon. Mel, Secretary of Housing and Urban Development,
      Department of Housing and Urban Development....................   109
        Prepared statement...........................................   119
        Statement of.................................................   115
    Martyak, Joseph, Acting Associate Administrator, Office of
      Communications, Education and Media Relations, Environmental
      Protection Agency..............................................   178
    McClain, Tim S., General Counsel, Department of Veterans Affairs.     1
    McMichael, Guy H., III, Acting Under Secretary for Benefits,
      Department of Veterans Affairs.................................     1
    Metropolitan Water District of Southern California, prepared
      statement......................................................   678
    Mikulski, Senator Barbara A., U.S. Senator from Maryland:
        Opening statements.............2, 109, 187, 303, 337, 409, 481, 533
        Prepared statements................................3, 111, 190, 339
        Questions submitted by..................62, 136, 225, 379, 398, 452
    Miller, Laura, Associate Under Secretary for Health, Veterans
      Health Administration, Department of Veterans Affairs..........     2
    Murphy, Frances M., M.D., Acting Under Secretary for Health,
      Department of Veterans Affairs.................................     1
    Murray, Senator Patty, U.S. Senator from Washington, questions
      submitted by...................................................   300

    NASA:
        Aeronautics Support Team, prepared statement.................   629
        Alumni League, prepared statement............................   629
    National:
        Congress of American Indians, prepared statement.............   595
        Council for Science and the Environment, prepared statement..   680
        Emergency Management Association, prepared statement.........   684
    Nelson, Kimberly T., Assistant Administrator, Office of
      Environmental Information, Environmental Protection Agency.....   177
    Norris, Jimmy, Chief Financial Officer, Veterans Health
      Administration, Department of Veterans Affairs.................     2

    O'Keefe, Sean, Administrator, National Aeronautics and Space
      Administration.................................................   409
        Prepared statement...........................................   422
        Statement of.................................................   418
    Ogden, John, Chief Consultant, Pharmacy Benefits Management
      Strategic Health Group, Department of Veterans Affairs.........     1
    Opfer, George, Inspector General.................................   481

    People for the Ethical Treatment of Animals (PETA), prepared
      statements.....................................................3, 693
    Principi, Hon. Anthony J., Secretary of Veterans Affairs,
      Department of Veterans Affairs.................................     1
        Prepared statement...........................................     7
        Statement of.................................................     4

    Reed, Rita A., Deputy Assistant Secretary for Budget, Department
      of Veterans Affairs............................................     2
    Regas, Diane, Acting Assistant Administrator, Office of Water,
      Environmental Protection Agency................................   177
    Ryan, Michael W.S., Deputy Chief Financial Officer, Environmental
      Protection Agency..............................................   177

    Shelby, Senator Richard C., U.S. Senator from Alabama, statement
      of.............................................................   484
    Snuggs, Clarence J., Deputy Executive Director/Treasurer,
      Neighborhood Reinvestment Corporation..........................   337
    Society for Neuroscience:
        Prepared statement...........................................   696
        Statement of.................................................   417
    Stevens, Senator Ted, U.S. Senator from Alaska:
        Questions submitted by......................................97, 478
        Statement of.................................................   414

    Tinsley, Nikki, Inspector General, Environmental Protection
      Agency.........................................................   177
    Tucker, Daniel, Director, Budget and Planning Service, National
      Cemetery Administration, Department of Veterans Affairs........     1

    University Corporation for Atmospheric Research, prepared
      statement......................................................   700
    Upper Mississippi River Basin Association, prepared statement....   698

    Washington, Dr. Warren, Chair, National Science Board, National
      Science Foundation.............................................   533
        Prepared statement...........................................   543
        Statement of.................................................   541
    Weiler, Dr. Edward J., Associate Administrator for Space Science,
      National Aeronautics and Space Administration..................   409
    Whitman, Christine Todd, Administrator, Environmental Protection
      Agency.........................................................   177
        Prepared statement...........................................   184
    Winn, Morris X., Assistant Administrator, Office of
      Administration and Resources Management, Environmental
      Protection Agency..............................................   177

                                 SUBJECT INDEX

                                  ----------

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

                                                                       Page
    AmeriCorps, strengthening........................................   311
    Budget request, fiscal year 2003.................................   311
    Challenge grants...............................................325, 331
    Citizen Corps..................................................319, 328
    Community service in rural areas.................................   332
    Effective service-learning.......................................   314
    Establishment of ECORPS..........................................   332
    Evaluation.......................................................   315
    Freedom Corps....................................................   317
    Homeland security................................................   328
    Literacy and technology..........................................   334
    Management and administrative improvements.......................   315
    National:
        Programs.....................................................   323
        Service trust fund...........................................   327
        Service vs. National Guard...................................   329
    Other budget requests............................................   315
    Part-time model for national service.............................   330
    Principles for a Citizen Service Act of 2002.....................   310
    Senior Corps.....................................................   318
    Specifics of the President's budget..............................   321
    USA Freedom Corps................................................   310

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Accelerated claims process.......................................   144
    Additional committee questions...................................   136
    Asset control area (ACA) partnership program...................139, 141
    Budget highlights, fiscal year 2003..............................   117
    Chronic homelessness, elimination of.............................   147
    Community development:
        Block grants...............................................137, 174
        Corporations.................................................   134
    Comparison of per unit amount of operating subsidy...............   170
    Confirmation of Inspector General................................   125
    Conventional home mortgages, default rate for....................   169
    Core HUD programs................................................   121
    D.C. SFPD fraud and abuse........................................   167
    Departmental grants management system............................   146
    Downpayment assistance program...................................   146
    Elderly:
        And disabled housing.........................................   145
        Housing......................................................   122
    Emergency food and shelter program...............................   156
    Empowerment zones and enterprise communities...................139, 175
    Equal opportunity and access to housing..........................   172
    Fair housing initiatives program.................................   174
    FHA:
        Default rate.................................................   169
        Multifamily premium reduction................................   168
        Single family property disposition program, report on
          implementation of..........................................   140
    Home downpayment assistance initiative...........................   146
    Homeless assistance..............................................   155
    Homelessness.....................................................   122
    HOPE VI...................................................123, 144, 166
    Housing counseling...............................................   145
        Program......................................................   171
    HUD:
        Assisted housing in foreclosure and in inventory.............   159
        Integrated Information Processing Service (HIIPS)............   168
    Incremental vouchers.............................................   136
    Interagency Council on the Homeless..............................   133
    Lack of affordable housing.......................................   167
    Management infrastructure at public housing......................   129
    Market-to-market.................................................   132
        Opt-outs.....................................................   156
        Savings......................................................   156
    Millennium Commission............................................   128
    MMI reserves.....................................................   169
    Multifamily accelerated processing...............................   168
    Native American housing block grants fund........................   166
    Naturally occurring retirement communities.......................   134
    Office of Federal Housing Enterprise Oversight...................   133
    Opt-outs.........................................................   155
    Predatory lending................................................   134
    Preservation of assisted units...................................   156
    Project-based opt-outs...........................................   154
    Public housing:
        Authorities..................................................   130
        Capital funds................................................   126
        Reinvestment and financial reform............................   149
    Puerto Rico:
        Housing Authority............................................   170
        Public Housing Authority, per unit amount of operating
          subsidy for................................................   170
    Report requirement...............................................   140
    Results..........................................................   142
    Rural housing....................................................   171
    Shelter Plus Care................................................   138
    Single family property disposition holding costs.................   170
    601 Program......................................................   169
    Specific implementation steps....................................   142
    Staffing issues..................................................   125
    Status of implementation of:
        Section 601..................................................   140
        Section 602..................................................   141
    Utilization of vouchers..........................................   131

                           DEPARTMENT OF THE TREASURY

               Community Development Financial Institutions Fund

    Aditional committee questions....................................   398
    Aging............................................................   387
    Board of directors...............................................   384
    Capacity building................................................   382
    CDC mergers......................................................   397
    CDFI fund programs...............................................   360
    Certification of nonprofit organizations.........................   384
    Community development financial institutions fund activities:
      tracking rural outcomes........................................   375
    Elderly needs....................................................   396
    Federal programs, overlapping,...................................   393
    George Knight Scholarship Program................................   396
    Land trusts......................................................   397
    Management and operations........................................   360
    Monitoring awardees..............................................   406
    Multifamily housing..............................................   389
    Native American:
        Assistance for...............................................   390
        CDFI technical assistance program..........................404, 406
    NeighborWorks:
        Affiliation of organizations.................................   382
        Multifamily initiative.......................................   385
    New markets tax credit program...................................   356
    Overlapping Federal programs.....................................   405
    Oversight........................................................   394
    Performance:
        For rural and reservation communities........................   404
        Measures.....................................................   404
        Of the CDFI fund: 2003 and beyond............................   358
    Predatory lending................................................   379
    President's fiscal year 2003 budget..............................   359
    Resident involvement.............................................   397
    Rural communities and the BEA program............................   403
    Section 8 homeownership..........................................   391
        Option.......................................................   388

                         DEPARTMENT OF VETERANS AFFAIRS

    $400 million budget shortfall....................................14, 62
    $1,500 deductible proposal....................................... 5, 20
    Alaska:
        Housing Finance Corporation..................................    17
        Medical services in..........................................    18
        Veteran issues...............................................    17
    Capital asset realignment for enhanced services (CARES).......... 9, 50
        Funding for..................................................    88
        Next steps...................................................    87
        Study........................................................    51
        VISN 12 implementation.......................................    87
    Claims processing........................................24, 32, 75, 91
    Clinic funding process...........................................    24
    Collections......................................................72, 86
    Construction funding.............................................    88
    Discretionary funding needs......................................    25
    Enterprise architecture..........................................     7
    Federal bond rate, maximum.......................................    18
    Fort Howard......................................................    77
    Geriatrics.......................................................    84
    Homeland security................................................84, 93
    Homelessness.....................................................    90
    Hot Springs surgical unit........................................19, 20
    Independent budget, letter from the..............................    13
    Intellectual property rights.....................................    93
    Job training veterans............................................    60
    Kenosha, WI, clinic..............................................    23
    Legislative mandates.............................................    52
    Long term care...................................................    76
    Major:
        And minor construction programs..............................     9
        Construction.................................................    79
    Management improvements..........................................    11
    Medical:
        And prosthetic research......................................     9
        Care.........................................................     7
            Funding needs............................................    16
            Other funding options for................................    21
            Supplemental.............................................    19
        Research.....................................................    85
        Supply cost containment measures.............................    55
    Minor construction...............................................    80
    National Cemetery Administration................................. 7, 11
    New veterans employment grants program...........................    11
    Nursing shortage.................................................    70
    Pharmaceutical costs.............................................54, 55
    Physician for Pocatello, ID clinic...............................    31
    Physicians pay and medical school affiliations...................    92
    Prescription:
        Benefit......................................................    53
        Drugs........................................................    67
    Priority 7:
        Demographic profile..........................................    35
        Household income of enrollees................................    65
        Veterans.....................................................    32
            $1,500 deductible........................................15, 63
            Demographic profile of...................................33, 52
            Income profile of........................................    34
    Procurement reform task force....................................     6
    Recruitment and retention........................................    58
    VA-DOD cost-sharing..............................................    89
    VA's Medical Care Program........................................     4
    Veterans:
        Benefits Administration......................................     6
        Department and DOD coordination..............................   101
        Employment:
            Grants for............................................... 6, 59
            Opportunities............................................    61
        Equitable resource allocation (``VERA'').....................    91
    Veterans' benefits...............................................    10
    Waiting times....................................................    73
    Wartime veterans, average age of.................................    27

                        ENVIRONMENTAL PROTECTION AGENCY

    Additional committee questions...................................   225
    Agency's response to incorrect data in TRI database..............   271
    Asbestos:
        Broadening and changing the definition of....................   302
        Libby, Montana asbestos clean-up.............................   301
    Assistance to small business with compliance to TRI lead rule....   274
    Brownfields:
        Increase in funding for fiscal year 2003.....................   234
        Questions raised concerning effective use of funding.........   234
    Carbon dioxide emissions: voluntary vs. mandatory regulation.....   211
    Chesapeake Bay research program: recruitment.....................   203
    Clean:
        Air Act/New Source Review Enforcement Activity...............   219
        Water:
            Funding..................................................   194
            Revolving loan program...................................   203
    Clear skies initiative and new source review.....................   210
    Climate change Kyoto Accord......................................   289
    Coeur d'Alene basin:
        Final record of decision (ROD)...............................   300
        National Academy of Science study of children's health.......   198
        Superfund site...............................................   197
    Compliance assistance:
        Activity plan................................................   238
        Analysis of:
            New regulatory requirements and compliance assistance
              tools in fiscal year 2003..............................   238
            Prospective enforcement activities in fiscal year 2003...   239
        Analysis in analytic blueprint for new regulations in fiscal
          year 2003..................................................   240
        Cuts proposed by fiscal year 2003--President's budget for
          compliance assistance and centers key program..............   242
        Documenting and measuring environmental improvements.........   239
        Dollars and FTE for compliance assistance activities within
          and outside of OECA........................................   241
        Estimate of cost to develop compliance assistance tools......   236
        List of rules for developing compliance assistance tools.....   235
        Ranking of top ten compliance assistance needs...............   236
        Resources for implementation and performance and assessments.   240
        Status of total resources devoted to compliance assistance...   240
        Targeting compliance assistance to constituencies in fiscal
          year 2003..................................................   241
    Distinction between ``having no knowledge'' and ``not reporting''
      under TRI lead rule............................................   277
    Enforcement:
        Acceptance of multiple proposals from States for new
          enforcement grants.........................................   246
        Appropriate balance, roles, and responsibilities between
          State and Federal enforcement agencies.....................   245
        Civil enforcement activities to areas that pose the greatest
          risk to human health or the environment in fiscal year 2003   244
        Competitive grant program....................................   224
        Determining impact on environment by enforcement FTE cuts
          from information from States...............................   247
        EPA's Inherent conflict between desire to meet inspection and
          case output performance goals and strategies...............   244
        Federal inspections to areas that pose greatest risk to human
          health or the environment in fiscal year 2003..............   243
        FTE ceiling and on-board levels as of October 1, January 1,
          March 1, and July 1 for OECA...............................   242
        FTE reduction................................................   219
        Geographic areas subject to decrease in Federal enforcement
          FTE realize increase in State enforcement resources........   246
        Grant Programs...............................................   187
        Impact of reduction of enforcement FTES and additional State
          enforcement resources on:
            Enforcement output.......................................   246
            Environmental indicators.................................   246
        Information obtained from States measuring outputs or
          outcomes from usage of new enforcement grants..............   247
        New enforcement grant program grants award to States and/or
          used by EPA................................................   247
        Of environmental laws:
            Budget cuts affect on enforcing environmental laws.......   225
            Budget proposal..........................................   225
            Consequences of budget reduction on catching prosecuting
              polluters..............................................   226
            GAO report on State enforcement weaknesses...............   226
            Monitoring States' use of funds..........................   227
            New State grant enforcement program......................   226
            Special or new authority legislation.....................   226
            States' use of funds for enforcement activities vs other
              activities.............................................   227
            Work with States with poor records.......................   226
        Process used to choose and employ the most effective
          regulatory tool............................................   245
        Program......................................................   218
        State grant program..........................................   193
        Verification and validation of actual accomplishments from
          enforcement activities.....................................   247
    Environmental air quality:
        Contribution to public health burden.........................   298
        Effect of air pollutants and contaminants....................   298
        Incorporating national environmental respiratory center
          research strategy into agency's assessment of public health
          burden and future regulatory strategies....................   299
        National environmental respiratory center incorporated into
          agency's strategy for understanding effects of complex air
          pollutant mixtures.........................................   300
        Research to understand health effects........................   299
    Environmental education:
        Rationale for elimination of approximately $10M from K-12....   233
        Transfer to National Science Foundation......................   202
    Fox River cleanup project........................................   200
        Cost and public acceptance...................................   201
    General awareness of reporting requirements among those required
      to re-
      port...........................................................   273
    Global and cross-border environmental risks......................   290
    Grants:
        Dollars of non-profit recipients of non-construction grant
          awards in last three years.................................   248
        Number of:
            Bench reviews conducted of non-profit non-construction
              grantees from fiscal year 2000 to fiscal year 2002--by
              region.................................................   249
            FTEs and on-board personnel conducting on-site reviews of
              grantees in fiscal year 2002 and fiscal year 2003......   250
            Hours of paperwork burden imposed on businesses..........   250
            Non-profit recipients of non-construction grant awards in
              last three years.......................................   248
            On-site reviews conducted of non-profit non-construction
              grantees in fiscal year 2000 to fiscal year 2002 by
              region.................................................   249
        OEI work with program offices to tailor new rules to impose
          less paperwork burden......................................   251
        Program offices review of current paperwork requirements to
          reduce burden on businesses in fiscal year 2002............   251
        Top twenty non-profit grant recipients by:
            Number of awards in fiscal year 2002.....................   248
            Total amount of funds awarded in fiscal year 2002........   248
    Guidelines for screening new rules for compliance assistance...237, 238
    Homeland security................................................   230
        Anthrax decontamination:
            Full reimbursement.......................................   231
            Spending.................................................   231
        Development of outcome-based measures and specific spending
          plans......................................................   230
        Lessons learned from the anthrax decontamination at the Hart
          Building...................................................   231
        Progress:
            For improving homeland security..........................   229
            Made assuring clarity of roles and safety................   231
        Status of funding for homeland security and activities
          undertaken.................................................   228
        Technologies and methodologies...............................   195
    Homestake mines in South Dakota: indemnification.................   207
    Hydraulic fracturing:
        Landowners...................................................   284
        Peer review:
            Panel....................................................   284
            Process..................................................   283
        State oil and gas agencies...................................   284
        Timetable....................................................   283
    Identification of business required to report under TRI lead rule   271
    Inspector General draft report: pollution enforcement............   206
    IRIS/residual risk rulemaking....................................   277
    Lead:
        Bio-availability of lead sulfides vs lead oxides.............   285
        Lead sulfide in galena form vs lead in oxide form affect on
          human body.................................................   285
        Potential risk of different forms of lead to regulatory
          decisions..................................................   286
    MACT standard setting..........................................279, 280
    New source review..............................................206, 268
        Agency relaxation of enforcement.............................   213
    NPDES permitting:
        Level of resources devoted to reduce NPDES backlog from
          fiscal year 2002 and fiscal year 2003 request..............   261
        Status of efforts to reduce Federal and State NPDES permits
          backlog....................................................   252
    Pesticides.......................................................   297
    Pharmaceutical pollution of waterways............................   231
    President's directive for technical assistance to small business
      regarding TRI lead rule........................................   273
    Program specifics................................................   291
    Reformulated gas price increase..................................   200
    Reinvention:
        Environmental benefits of regulatory flexibility vs. status
          quo regulatory schemes.....................................   263
        Examples of directing program offices and OECA to reduce
          barriers, transaction costs and approval time for
          reinvention projects.......................................   262
        Spreading the culture of reinvention by limiting its
          application................................................   262
        Status of review of reinvention programs.....................   261
    Report says many major polluters operate without required permits   208
    Roles and responsibilities of EPA'S regional offices.............   235
        Analysis performed to determine size of regional offices.....   235
        Workforce analysis and projections...........................   234
    Small and rural water systems vulnerabilities....................   196
    Small business:
        Concerns with data TRI data quality..........................   271
        Ensure program offices' economic analysis of small business
          impacts do not omit small business or industry sectors in
          fiscal year 2003...........................................   268
        Examples of program offices tailoring analysis and regulatory
          proposals to realities of given industrial sectors.........   263
        Increase knowledge of:
            Delivery of information about regulatory requirements in
              fiscal year 2003.......................................   266
            Impact of regulatory requirements in fiscal year 2003....   263
        Increase knowledge of impact of rulemaking in fiscal year
          2003.......................................................   264
        Program offices considering rulemakings determining impact on
          potential small business in fiscal year 2003...............   266
        TRI reporting................................................   274
            Without computers........................................   274
        Unaware of reporting requirements............................   272
    Spokane River hot spots..........................................   199
    Standardizing data elements......................................   251
    Star fellowship..................................................   234
        Citation.....................................................   233
        Graduate students completing fellowships?....................   233
        Rationale for shift from EPA to NSF..........................   233
        The Star program?............................................   233
    States with poor records.........................................   226
    Superfund cleanup:
        Adequate funding in fiscal year 2003 for Washington State
          superfund cleanups.........................................   301
        Adequate funds to continue superfund cleanups................   289
        Pace of superfund cleanup....................................   288
    Superfund tax: administration's opposition to tax chemical and
      petroleum industries...........................................   301
    Toxics release inventory (TRI) program and the TRI lead rule.....   269
    TRI:
        Assistance to small companies................................   275
        Burden of proof in an enforcement context....................   277
        How has the guidance document received by the small business
          community..................................................   275
        Knowledge in:
            An enforcement context...................................   277
            Context of TRI reporting.................................   276
        Lead rule data quality.......................................   271
        Small business:
            And the 100-pound threshold..............................   276
            Reporting responsibility in the case of ``no knowledge''.   276
        Unusual aspects of the TRI lead rule.........................   275
    U.S. Geological Survey: contaminents in water....................   205
    Wall Street Journal article:
        Inspector General draft report...............................   208
        Non-profit grants............................................   207
    Water infrastructure funding:
        Prioritizing funding needs...................................   287
        Reasonable level of funding to preserve existing
          infrastructure.............................................   286
        Infrastructure funding.......................................   227
        Methods for detecting security violations....................   228
        Watery security improvement..................................   227

                       EXECUTIVE OFFICE OF THE PRESIDENT

    Federal:
        Coordination of nano-technology..............................   568
        R&D support..................................................   559
    Funding physical sciences........................................   560
    Homestake mine and neutrino research.............................   567
    Physical sciences support........................................   569

                      FEDERAL EMERGENCY MANAGEMENT AGENCY

    Additional committee questions...................................   515
    Buyouts..........................................................   517
    Cerro Grande:
        Assistance...................................................   518
        Audits.......................................................   507
        Fire.........................................................   504
    Chemical stockpile emergency preparedness program (CSEPP)........   498
    Citizen Corps.............................................490, 496, 511
        And volunteers...............................................   513
    Delivery of assistance...........................................   495
    Disaster assistance:
        Criteria.....................................................   525
        Relief fund..................................................   492
        Response & recovery..........................................   493
    Emergency food and shelter program.............................493, 522
    FEMA:
        Concern for..................................................   515
        Disaster relief fund.........................................   517
        Role in CSEPP................................................   500
        Team.........................................................   487
    Fire:
        Act grants...................................................   524
        Fighter grants...............................................   513
        Grant program................................................   501
        Management assistance........................................   510
    First responder:
        Grant process................................................   506
        Grant program................................................   509
        Initiative...................................................   485
        Training budgets.............................................   514
    Fiscal year:
        2001 independent auditor's report............................   523
        2003 request.................................................   488
    Flood:
        Fund.........................................................   491
        Insurance participation......................................   514
        Insurance program............................................   520
        Map modernization..........................................486, 519
        Mapping......................................................   511
    Goals for assisting disaster victims.............................   517
    Hazard mitigation grant program..................................   497
    Independent auditor's report, fiscal year 2001...................   493
    Inter-agency fire center.........................................   501
    Interoperability and mutual aid..................................   503
    La Plata, Maryland, disaster.....................................   495
    Legislation......................................................   525
    Missouri, tornado damage in......................................   498
    National:
        Flood insurance program......................................   492
        Preparedness--Homeland security responsibilities.............   488
    New pre-disaster mitigation grant program........................   491
    New York:
        City 9/11 losses from terrorism..............................   519
        Investigations...............................................   507
    ODP transfer.....................................................   485
    Office for Domestic Preparedness to FEMA, transfer of the........   489
    Pre-disaster mitigation..........................................   486
    Prevention and consequence management............................   514
    Prevention vs. homeland security.................................   523
    Project impact...................................................   500
    QHMGP plans......................................................   516
    Supplemental:
        Appropriation request........................................   486
        Request, fiscal year 2002....................................   494
    Training programs, merger of.....................................   508
    U.S. Fire Administration.........................................   490

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    Additional committee questions...................................   451
    Aeronautics:
        Blueprint....................................................   452
        Industry, mergers in the.....................................   466
        Research.....................................................   464
    Air Force/space launch initiative................................   444
    Beyond core complete configuration...............................   433
    Civil service reform.............................................   444
    Contract management/integrated financial management program......   460
    Core completion--crew size.......................................   431
    Dreamtime........................................................   472
    Earth science:
        Enterprise...................................................   470
        Missions.....................................................   450
    Environmental community--nuclear power...........................   438
    Gilmore Creek tracking station...................................   478
    Hubble:
        Mission......................................................   429
        Space telescope..............................................   417
            Images...................................................   427
    Human capital....................................................   443
    Integrated financial management program..........................   442
    International space station......................................   454
        Prioritizing research for the................................   434
    Management:
        Effectiveness................................................   479
        Reforms of the station.......................................   429
    National security issues.........................................   445
    Next generation:
        Of space telescopes..........................................   449
        Space telescope..............................................   464
    Non-proliferation................................................   446
    Nuclear propulsion.............................................466, 478
    Nuclear systems initiative.....................................435, 477
        Program/Energy Department....................................   436
    Orbital debris...................................................   471
    Orbiter major modifications......................................   468
    Pluto mission....................................................   447
    Radiation exposure...............................................   469
    Re-examining head centers........................................   437
    Reliability of the shuttle.......................................   439
    Reusable launch vehicle..........................................   472
    Russian commitments, status of...................................   467
    Science research, prioritizing...................................   432
    Scientists, attracting and retaining.............................   479
    Shuttle privatization............................................   440
    Space launch initiative...................................436, 452, 459
        Nuclear propulsion program...................................   441
        Reserves.....................................................   460
    Space shuttle....................................................   457
        Safety/astronauts............................................   465
    Space station cost overruns......................................   430
    Workforce issues.................................................   462

                          NATIONAL SCIENCE FOUNDATION

    Contact information..............................................   551
    Core sciences....................................................   558
    Federal investment in science and engineering....................   544
    Fiscal year 2003:
        Additional NSF funding in....................................   571
        Funds, additional............................................   562
    Homestake mine and neutrino research.............................   567
    Large facilities:
        Management plan..............................................   550
        Prioritization...............................................   571
    Maize sequencing project.........................................   573
    National:
        Academy of Sciences..........................................   572
        Science Board activities on science and engineering education
          and workforce..............................................   563
        Workforce policies for science and engineering...............   545
    NSB:
        Meetings.....................................................   572
        Recommendations..............................................   563
        Response to IG report........................................   567
    NSF:
        IG report....................................................   565
            Response to..............................................   566
        Proposed fiscal year 2003 budget increase....................   558
        Transferred programs to......................................   557
    Plant genome.....................................................   573
    Post-award management............................................   548
    U.S.:
        Government role in international science and engineering.....   544
        Science and engineering infrastructure.......................   545
    Undergraduate and minority programs..............................   561
    Very large array (VLA)...........................................   569
    Workforce planning...............................................   549

                     NEIGHBORHOOD REINVESTMENT CORPORATION

    Additional committee questions...................................   379
    Community development laboratory.................................   349
    Solutions to a range of challenges...............................   351
    Stewardship of Federal resources...............................344, 347
    NeighborWorks system...................................   346

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