    [Senate Hearing 108-274]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 108-274

      DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
              RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

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

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                       on

                               H.R. 2989/S. 1589

    AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF TRANSPORTATION AND
    TREASURY, AND INDEPENDENT AGENCIES FOR THE FISCAL YEAR ENDING SEPTEMBER
                        30, 2004, AND FOR OTHER PURPOSES

                                   __________

                           Department of the Treasury
                          Department of Transportation
                           Nondepartmental witnesses

                                   __________

             Printed for the use of the Committee on Appropriations

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

                                   __________

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                                WASHINGTON : 2003
    ____________________________________________________________________________
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                          COMMITTEE ON APPROPRIATIONS

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

     Subcommittee on Transportation, Treasury and General Government, and
                                Related Agencies

                      RICHARD C. SHELBY, Alabama, Chairman
    ARLEN SPECTER, Pennsylvania          PATTY MURRAY, Washington
    CHRISTOPHER S. BOND, Missouri        ROBERT C. BYRD, West Virginia
    ROBERT F. BENNETT, Utah              BARBARA A. MIKULSKI, Maryland
    BEN NIGHTHORSE CAMPBELL, Colorado    HARRY REID, Nevada
    KAY BAILEY HUTCHISON, Texas          HERB KOHL, Wisconsin
    MIKE DeWINE, Ohio                    RICHARD J. DURBIN, Illinois
    SAM BROWNBACK, Kansas                BYRON L. DORGAN, North Dakota
    TED STEVENS, Alaska (ex officio)

                               Professional Staff

                                  Paul Doerrer
                                  Lula Edwards
                                 Shannon Hines
                            Peter Rogoff (Minority)
                            Kate Hallahan (Minority)
                       Diana Gourlay Hamilton (Minority)

                             Administrative Support

                                Jacqueline Esai
                         Meaghan L. McCarthy (Minority)

                                C O N T E N T S

                                  ----------

                            Wednesday, April 2, 2003

                                                                       Page
    Department of Transportation:
        Federal Aviation Administration..............................     1
        Office of the Inspector General..............................    13
        Office of the Secretary......................................    29

                            Wednesday, April 9, 2003

    Department of the Treasury: Internal Revenue Service.............    73

                             Thursday, May 8, 2003

    Department of Transportation.....................................   119

                             Tuesday, May 20, 2003

    Department of the Treasury: Office of the Secretary..............   175

                             Thursday, May 22, 2003

    Department of Transportation:
        National Highway Transportation Safety Administration........   221
        Federal Motor Carrier Safety Administration..................   235
    Nondepartmental Witnesses........................................   242

    Nondepartmental Witnesses........................................   301
    Material Submitted Subsequent to Conclusion of Hearings..........   325

      DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
              RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                            WEDNESDAY, APRIL 2, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:33 a.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Richard C. Shelby (chairman)
    presiding.
        Present: Senators Shelby, Bennett, Murray, and Dorgan.

                          DEPARTMENT OF TRANSPORTATION

                        Federal Aviation Administration

    STATEMENT OF MARION C. BLAKEY, ADMINISTRATOR

                 opening statement of senator richard c. shelby

        Senator Shelby. Good morning. The hearing is called to
    order.
        Every year when it comes time to hold hearings on the
    upcoming fiscal year's budget request, it is likely that we
    will cover some of the same old ground. But, unlike other
    agencies or departments, the nature of the industry and
    facilities that the FAA regulates seem to be in a constant
    state of change.
        A few years ago we were concerned about hub concentration
    and the anti-competitive behavior. More recently, we turned our
    concern to airline treatment of passengers and system-wide
    delays. Now, we wonder where all the passengers have gone,
    whether the hubs will survive, and if the traditional airline
    structure will remain intact or if we will see something
    substantially different emerge as a result of all the upheaval.
        This is a very difficult time for virtually everyone
    involved in aviation: the passengers, communities, airports,
    airlines, aircraft manufacturers and the FAA. Passengers are
    anxious about flying in the aftermath of the September 11th
    attacks. The terrorist threat alerts exacerbate people's fears
    about the vulnerability of our air transportation system to
    terrorism attack, and military operations to free Iraq have
    further increased the public's concern about the safety of
    flying.
        In addition, passengers are facing fewer choices in flight
    options as the air transportation market undergoes the first
    significant service contraction since deregulation.
        Airports face increased operational and capital costs as
    they respond to increased security requirements at the same
    time that their revenues are declining because of reductions in
    flights, reduced revenues from concessionaires, and fewer
    passengers.
        Communities that were struggling to maintain service levels
    are finding that challenge even more daunting as the fixed
    costs of initiating or maintaining a marginally justified
    service continue to rise.
        Airlines not already in bankruptcy or headed into
    bankruptcy have little to be optimistic about. As an industry,
    air carriers did not have time to recover after the September
    11th attacks and the sluggish economy that we have experienced
    for the past 3 years has compounded an already difficult
    financial situation.
        Most carriers are not predicting meaningful growth in
    traffic or bookings for several months after the Iraq war is
    favorably concluded, and many more are not anticipating a
    firming in the yields for more than a year. Clearly, this is an
    industry on the ropes.
        Aircraft manufacturers, for their part, are typically the
    first to feel the slowdown and the last to recover from it.
    Neither Boeing nor Airbus anticipates an upturn in the demand
    for aircraft until the middle of 2004 at the earliest. Airbus
    is struggling with the challenges of keeping the new A-380
    within their revised cost and weight estimates, and Boeing is
    undertaking an aggressive new aircraft program with the 7E7 and
    is marshalling $10 billion to develop it. Clearly, both
    manufacturers are feeling the pressure of the industry
    downturn, but both are looking to the future.
        This brings us to the FAA. Administrator Blakey, you have
    now been at the FAA just long enough to start putting your
    imprint on that organization and begin shaping your vision of
    what you want that agency to achieve under your stewardship.
        I feel certain that you have begun turning the programs,
    budgets, policy, and regulatory processes and directed the
    career personnel to your vision of where the agency should head
    to support a safe and efficient air transportation system.
        I know that this budget was largely completed before you
    became administrator, and I know that the budget constraints
    that we face make your job even more difficult. But I would
    like to explore with you where we are going to take the FAA in
    the next several years. The budget request for FAA operations
    anticipates an 8.1 percent growth, but it seems to me to be a
    current services budget with few new initiatives.
        That kind of growth to deliver the same services, I
    believe, will be hard to justify or secure in the current
    environment.
        I believe it is important to show what the FAA is doing to
    foster a safe and efficient system as we move forward. We need
    to show how the FAA is responding to the evolving air
    transportation system. We need to show what works in the FAA.
    We need to know where we need to reinvigorate our efforts. And
    we need to show where we can save and redirect sources to
    higher priorities.
        More importantly, we need to show how the FAA program is
    changing in the aftermath of the 9/11 terrorist attacks. I am
    told that the agency's Operational Evolution Plan (OEP) has not
    evolved since that time and that troubles me. None of these
    things can be done if we sit passively by and expect that
    things will just work themselves out. It is imperative that the
    FAA, that our government, implement innovative and aggressive
    approaches to dealing with our rapidly changing world.
        I want to work with you to help make the FAA responsive to
    the needs of the public and the industry it regulates.
        Today we are pleased to have Marion Blakey, the
    Administrator of the Federal Aviation Administration; Ken Mead,
    the Department of Transportation Inspector General; and Jeff
    Shane, the Under Secretary for Policy at the Department of
    Transportation as our witnesses.
        Senator Murray?

                       STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Thank you, Mr. Chairman, and I want to
    thank you for calling this hearing on the aviation industry.
        Our airlines, our airports, and our employees are facing an
    immediate crisis and they need our help. Thousands of hard-
    working Americans are being put out on the streets every week
    by the airlines or their suppliers. At home, tens of thousands
    of my constituents have lost their jobs because of the downturn
    in air travel. Together, these companies and their employees
    have faced the triple whammy of September 11th, a deteriorating
    economy, and now the war with Iraq. It is difficult to
    overstate the seriousness of the crisis facing this vital part
    of our Nation's transportation infrastructure.
        Some carriers are emerging from bankruptcy. Others are
    entering it. And still others are desperately trying to avoid
    it. Some retired airline employees are seeing their monthly
    pension checks cut dramatically. And one of our Nation's
    largest carriers is facing the very real possibility of
    liquidation.
        In just a half an hour from now the Senate will begin
    debating the war supplemental that we marked up in the
    Appropriations Committee yesterday. Yesterday, during markup, I
    offered an amendment to increase the size of the aviation
    relief package from $2.8 billion to $3.5 billion dollars. I am
    pleased that that amendment was adopted and that the full bill
    passed the committee on a unanimous and bipartisan basis. My
    amendment expanded the amount of relief provided to our
    airlines and addressed two gaping holes in the original
    proposal, the absence of assistance for our airports and the
    absence of help for the workers who have suffered the most
    during this crisis.
        While our committee was reporting the war supplemental with
    $3.5 billion dollars in overall aviation relief, the House
    Appropriations Committee reported its version of the
    supplemental with roughly $3.2 billion in assistance. The House
    Committee version, however, did not include any help for
    workers.
        The Administration's supplemental budget request included
    absolutely nothing for our airlines, our airports, or our
    aviation workers. Since then we have heard from the OMB
    Director and others that the Administration would not close the
    door on some form of aviation relief.
        Unfortunately, it has not been clear what, if anything, the
    Bush Administration wants to do to address the crisis in our
    aviation industry.
        That was until today. Today, we read that senior Bush
    Administration officials think that the packages approved by
    the House and Senate committees were too large and wrong-
    headed. Transportation Secretary Norm Mineta is quoted in the
    New York Times this morning saying that our committee's actions
    yesterday--and I quote--``show that a considerable gulf remains
    between Congress and the Administration regarding the amount
    and structure of this assistance.''
        Commerce Secretary Don Evans was quoted in an Associated
    Press (AP) story today saying we will work with the Congress to
    ensure that the airlines receive more reasonable assistance.
        I fear that the Administration is long on rhetoric but
    short on detail. Time and again we hear that the Administration
    has a position, but they just do not tell Congress or the
    American people what it is.
        Workers have lost their jobs. They are trying to figure out
    how to pay the mortgage this month. But instead of offering
    support, the Administration is failing them.
        Mr. Chairman, this morning we are joined by President
    Bush's Under Secretary for Transportation Policy. I hope that
    this morning we will find out what the Bush Administration
    finds unreasonable in the committees' assistance package.
        I have carefully reviewed the Under Secretary's formal
    testimony and I did not find any answers to those questions. I
    did find some nice multicolored charts documenting the problem,
    and a commitment by the Administration to continue to monitor
    the situation.
        I hope the President does not object to helping thousands
    of workers who have lost their jobs through no fault of their
    own.
        I want to put this in context. At a time when the President
    has proposed $700 billion more in tax cuts, I would hope he
    could find it in his heart to support less than \1/20\ of 1
    percent of that amount for our laid off workers.
        And I would remind the Administration that 10,000 aviation
    industry workers have gotten pink slips since the start of the
    Iraq war.
        I hope during our questions this morning we will finally
    get some clear answers on precisely where the Bush
    Administration stands on Congressional efforts to help this
    industry and its workers.
        Let me close, Mr. Chairman, with another area where the
    Administration can do more, and that is carefully monitoring
    aviation safety. Many years ago, as we all know, during the
    bankruptcy and liquidation of Eastern Airlines, we learned that
    air carriers in difficult financial condition could be tempted
    to cut corners in the critical areas of maintenance and safety
    compliance.
        It is the job of Administrator Blakey, who is here with us,
    to see that does not happen again. And it is the job of the
    Inspector General to make sure that Mrs. Blakey is doing her
    job.
        So I look forward to asking both of them whether we should
    be concerned that the financial downturn in this industry could
    impact the overall safety of our aviation system.
        Thank you, Mr. Chairman. I look forward to the questions.
        Senator Shelby. Senator Bennett.
        Senator Bennett. Thank you, Mr. Chairman. I do not have an
    opening statement and I look forward to hearing the witnesses
    and I will have some questions.
        Senator Shelby. Ms. Blakey, you will be first. Your written
    statement will be made part of the record, all of your written
    statement in its entirety. You can proceed as you wish. We
    welcome you to the committee.

                         STATEMENT OF MARION C. BLAKEY

        Ms. Blakey. Thank you very much, Chairman Shelby, Senator
    Murray, Senator Bennett.
        I very much appreciate the opportunity to testify before
    you today. And it is a pleasure because this is my first
    opportunity as the Administrator of the Federal Aviation
    Administration.
        Before I begin, I have to acknowledge the new Chairman of
    this committee, Senator Shelby, who hails from the great State
    of Alabama. Since that is where I got this accent, you can
    appreciate the fact that I am really looking forward to working
    with you.
        Senator Shelby. I was enjoying your speech.
        Ms. Blakey. I hope so. I also would like to thank Ken Mead
    and our Under Secretary for Policy, Jeff Shane for the enormous
    amount of work they put into working with us at the FAA to
    ensure that we are doing the right thing for the aviation
    system.

                            REAUTHORIZATION PROPOSAL

        On March 25th, Secretary Mineta sent to Congress the
    Administration's new reauthorization proposal. The Centennial
    of Flight Aviation Authorization Act or Flight 100, as we like
    to call it. Secretary Mineta has challenged the Department and
    the FAA to be safer, simpler, and smarter, as he puts it. And I
    think these guiding principles, you will find, do form the
    basis for Flight 100, as we move to provide better performance,
    more flexibility, and increased accountability.
        To that end, we believe the Administration's proposal will
    serve as a strong foundation for the development of the
    reauthorization legislation because it builds on AIR-21, which
    I know you all worked very hard on. It also provides the kind
    of funding levels that will support important infrastructure
    improvements, safety initiatives, system efficiencies, and
    important research in the safety area. Most importantly, I
    would stress to you that Flight 100 adds no additional taxes,
    no economic demands on the ailing industry, and no new
    financial burdens for the American flying public.

                        FISCAL YEAR 2004 BUDGET REQUEST

        Now, let me turn my attention to the purpose of today's
    hearing, or at least in part the purpose, and that is the
    President's 2004 budget for the FAA. The President has proposed
    a budget of $14 billion for the FAA, a lean budget but I
    believe a generous one, given these challenging times.
        Specifically, his budget requests $7.6 billion for
    Operations, $2.9 billion for Facilities and Equipment, $3.4
    billion for Airport Improvement Grants, and $100 million for
    Research, Engineering and Development. This represents a 3.7
    percent increase from the 2003 enacted budget and provides
    funding for the 49,745 employees that work for the FAA.

                                     SAFETY

        Let me turn initially and most importantly to not only my
    number one priority, but I firmly believe the number one
    priority of this committee, and that is safety. The United
    States has a remarkable safety record in aviation. Almost 100
    years after the Wright brothers first took to the skies, I am
    pleased to report that 2002 was one of the safest years in
    aviation history. Not a single fatality occurred on a U.S.
    commercial airline.
        We are all proud of this achievement, but I know that none
    of us think we can rest on our laurels on this, either. Every
    day at the FAA we help to ensure the safety of an airline
    industry that is in serious economic peril. I know we all agree
    that safety cannot be shortchanged. No matter how tough the
    economic circumstances become, we have got to keep it in front
    of us.
        For this reason, out of a total budget request of $14
    billion, $8.7 billion will be used to support the FAA's safety
    goals. Full funding of the President's budget will provide
    needed funds for inspecting aircraft, operating and maintaining
    the air traffic control system, including hiring 302 additional
    air traffic controllers in anticipation of the retirements that
    we expect in that workforce.
        Funds are also provided for inspecting hazardous materials,
    making additional AIP grants for airport safety, capacity, and
    security investments, noise mitigation, safety research, and I
    could go on.
        But the point here is that specifically in the area of
    commercial aviation, we have a number of programs and
    initiatives that have been particularly responsible for the
    remarkable safety record I was alluding to. The FAA's Runway
    Safety Program has helped significantly reduce the number of
    high risk runway incursions, which of course lowers the risk of
    collisions. Runway incursions declined from 407 in 2001 to 339
    in fiscal year 2002. The number of high risk incursions fell
    from 58 to 37.
        The Airport Movement Area Safety System, AMASS, is now
    operational in 31 airports. And I am happy to say it has
    occasioned saves in San Francisco, Boston, and Detroit.
        The Safer Skies Initiative is a joint Government and
    industry effort to reduce commercial fatal accidents by 80
    percent by 2007. We have made significant progress on this very
    aggressive goal, and we are on track to meet it.
        Now, I know no one here can forget the tragedy of TWA 800.
    This accident focused national attention on the critical need
    to improve fuel tank safety. For a number of years my old
    agency, the National Transportation Safety Board (NTSB), and
    others have been calling for a way to remove flammable oxygen
    from fuel tanks and substitute inert gas which would, of
    course, eliminate the explosion potential. But the designs were
    always deemed too heavy, too complicated, and too expensive to
    be viable.
        Building on previous research on ground-based inerting, the
    FAA's researchers recently developed a relatively simple but
    effective way to generate nitrogen enriched air in flight. That
    is why I have this in front of me. It is a very, very simple
    solution, one that involves no moving parts, one that is not
    heavy. Even at full scale, the inerting system that the FAA's
    research has developed will be less than a single passenger on
    board a flight, in terms of weight.
        We are going to flight test the system next month. If it
    goes as we expect, it is going to be a major improvement in
    terms of aviation safety. So it is just one example of the kind
    of things that the funds that you all appropriate, make a real
    difference.

                                    CAPACITY

        Let me turn to capacity for a moment. I am very fond of the
    saying that the Aircraft Owner and Pilots Association likes,
    which is that a mile of road will get you a mile. A mile of
    runway will get you anywhere. It is something I think we have
    to remember as we are looking at capacity issues.
        Given the current downturn, we do have a unique opportunity
    right now to increase capacity before we return to the pre-9/11
    traffic levels. Increasing capacity, as you well know, can be
    accomplished in basically three ways: new technology, new
    operations, new pavement. That is what it really comes down to.
    We have to have all three. If we invest in them wisely, I am
    convinced that we are going to have the capacity we need.
        Our Operational Evolution Plan calls for a 31 percent
    increase in capacity by 2010, and it is yielding results. We
    have a brand new version of the plan that I would love an
    opportunity to brief you all on, because it has identified
    choke points in the system and developed a much more intensive,
    dynamic communication system with the airlines that is really
    yielding a lot of results. We are seeing real changes in terms
    of bottom line efficiencies for the airlines in a way we never
    did before.
        From the standpoint of new technology, and new procedures,
    the User Request Evaluation Tool gives controllers the ability
    to approve direct routes and is saving time and saving fuel.
        We are also seeing terrific results from our new Traffic
    Management Advisor which gives us a way to control traffic at
    our busiest airports, in a way again that is promoting great
    efficiency.
        What about the tough one, which is new pavement? The FAA's
    Operational Evolution Plan is tracking now on 12 airport
    projects that are scheduled for completion in the next 10
    years. And the terrific news is four of them are going to come
    online this year--Houston, Denver, Miami and Orlando. They are
    all still on track to open this year. So that is really a major
    improvement for the system.
        Additionally, the President's Executive Order on
    Environmental Streamlining, and the $3.4 billion investment
    included in the budget for AIP program funding, demonstrates
    the Administration's commitment to expanding capacity. With
    this level of funding and with some structural changes in the
    AIP formulas, the Administration is going to be better able to
    target projects of national significance while at the same time
    helping our smaller airports.

                     FINANCIAL MANAGEMENT AND COSTS CONTROL

        Finally, it is clear to all of us at the FAA, that we have
    to do a better job managing our finances and controlling our
    costs. Certainly, the Inspector General has called this to our
    attention and, as they say, we get it. I am pleased to report
    that the FAA has recently received another unqualified or clean
    audit opinion on our 2002 consolidated financial statements. I
    am also proud to say it is the second year in a row that this
    has happened. It gives us a firm foundation that we need to
    implement a new financial system that is coming online this
    fall, DELPHI, which will continue to help us implement a cost
    accounting system that means something.
        Just as our safety decisions have to be driven by data, so
    must our management decisions as well. We now track 80 percent
    of our costs on a monthly basis at the FAA. But we have got to
    do a better job of using the data to manage those costs. As
    part of the cost accounting system, we are implementing a labor
    distribution system as well in the Air Traffic Services line of
    business. It is called Cru-X.
        It is our commitment to also track, control, and look at
    the issue of how we are distributing our labor costs. Our air
    traffic controller workforce will use this data to assess
    controllers' workload and figure out whether we are hitting the
    performance measures we want to.
        Recently, the Inspector General noted that the system needs
    to be improved. We agree. I am committed to making the changes
    we need to ensure the integrity of the cost information. With
    budget shortfalls and depleting trust fund revenues, we have to
    be diligent stewards of the public funds.

                          PERFORMANCE-BASED PAY SYSTEM

        Furthermore, the FAA has worked hard to implement a
    performance-based pay system. You all gave us personnel reform
    and we are working very hard to take advantage of the
    flexibility it provides. But we have got a ways to go.
    Approximately 36 percent of our workforce right now is
    currently under the performance-based system. It is intended
    and will link the organizational goals that we are developing
    in the strategic planning process we are undertaking right now,
    so that every single individual has a clear line of sight from
    their job to what the organization sets out to do. I pledge you
    my commitment to implementing this system across the entire
    FAA.

                               PREPARED STATEMENT

        With that, I will conclude the prepared statement and look
    forward to questions. Thank you.
        [The statement follows:]
                     Prepared Statement of Marion C. Blakey
        Chairman Shelby, Senator Murray, Members of the Subcommittee: Thank
    you for the opportunity to appear before you today to discuss the
    Federal Aviation Administration (FAA) and our budget request for fiscal
    year 2004. Before we begin, I would like to acknowledge the new
    Chairman of this Subcommittee, Senator Shelby from the great State of
    Alabama. I look forward to working closely with you as well as the
    other Members of this Subcommittee during my tenure as FAA
    Administrator. Finally, I would also like to recognize Kenneth Mead,
    Inspector General for the Department of Transportation. Thank you, Ken,
    for your commitment to work jointly with us to tackle our most pressing
    financial and performance challenges.
        In the seven months I have served as Administrator, I have had the
    privilege to lead an agency whose mission is second to none--the safety
    of our Nation's aviation system. Our mission is carried out by
    thousands of talented, energetic, and dedicated employees who care
    about the safety of the American people and our mission. It is an honor
    to represent them here today.
        We at the FAA operate and maintain the Nation's complex air traffic
    control system and the facilities and equipment that enable its optimal
    operation. Our controllers control and monitor more than half of the
    world's air traffic--up to 5,000 aircraft in U.S. airspace at any given
    moment. FAA conducts state-of-the art research to continually improve
    safety and efficiency. We help improve the safety and capacity of more
    than 5,000 public-use airports in the United States. Our inspectors
    oversee more than 7,000 operators, including 139 major air carriers.
    Our maintenance technicians perform the maintenance, repair and
    engineering of over 62,000 facilities and pieces of equipment.

                                REAUTHORIZATION

        I am pleased to say that on March 25, Secretary Mineta sent to
    Congress the Administration's reauthorization proposal--the Centennial
    of Flight Aviation Authorization Act, or Flight-100. I would like to
    thank Secretary Mineta and Deputy Secretary Jackson for their
    commitment and dedication to developing and supporting Flight-100.
        I also want to thank them for their tremendous efforts in
    challenging the Agency to be Safer, Simpler, and Smarter. These three
    principles form the basis of Flight-100, but they also form the
    cornerstone of the entire Agency's mission--better performance, more
    flexibility, and increased accountability. Later in my remarks, I will
    address several of the Agency initiatives designed to meet these
    challenges.
        To that end, we believe that the Administration's proposal will
    serve as a strong foundation for the development of reauthorization
    legislation. It builds upon AIR-21 in that it maintains our commitment
    to safety, capacity, and system efficiency. The funding levels in
    Flight-100 continue to support important infrastructure improvements,
    safety initiatives, system efficiencies and safety research. It adds no
    additional taxes, no economic demands on an economically troubled
    industry, and it provides no new financial burdens on the American
    people. I thank you for your consideration of Flight-100, and I look
    forward to continuing the dialogue on this, our blueprint for aviation
    in the future.

                                     BUDGET

        Let me now turn my attention to the purpose of our meeting today--
    the 2004 President's Budget. Our budget supports Flight-100 in that it
    contributes to our efforts to be Safer, Simpler, and Smarter.
        To support our operations and capital investments, the President
    has proposed a fiscal year 2004 budget of $14 billion--a lean budget,
    but generous given these challenging times. Specifically, his budget
    requests $7.6 billion for operations, $2.9 billion for facilities and
    equipment, $3.4 billion for airport grants, and $100 million for
    research and development.
        This represents a 3.7 percent increase from the 2003 enacted
    budget. Funding will support 49,748 employees.
        I want to thank all the members of this Subcommittee for your
    tireless efforts and continued dedication to supporting the FAA's
    funding needs. Fully enacting the President's budget will permit the
    FAA to hire more controllers to prepare for an expected surge in
    retirements, make needed improvements in the National Airspace System
    (NAS), and fund safety, capacity, and security improvements at our
    Nation's airports. Your support for these investments will reap
    benefits for years to come, as FAA provides a safe and efficient
    aviation system that contributes to national security, promotes
    economic growth, and encourages the recovery of civil aviation.

                            SAFER, SIMPLER, SMARTER

    Safety
        First, let me address my number one priority, and that of every FAA
    employee--safety, both in the skies and on the ground. Under the superb
    leadership of Secretary Mineta, the Department's emphasis on safety has
    never been greater. The United States has a remarkable safety record.
    Almost 100 years after the Wright Brothers first took to the skies, FAA
    is proud to report that calendar year 2002 was one of the safest years
    in the history of the U.S. airlines, not a single fatal air carrier
    accident, and we continue to make progress in reducing the number of
    general aviation fatal accidents. We are proud of this achievement, but
    we will not rest on our laurels.
        Safety must always be our top priority, especially with the airline
    industry in serious economic trouble. As a carrier reduces its
    schedule, its fleet and its personnel, we must evaluate the impacts of
    these reductions and amend our surveillance plans as necessary. I
    recently met with the FAA managers overseeing USAirways and United
    Airlines to ensure that we have appropriately expanded our review of
    these carriers. The approach we are taking with these carriers is to
    focus our safety oversight on areas that may be more at risk during a
    financial crisis.
        We will support the resurgence of the airline industry with some of
    our most effective mechanisms--continuing our investments in building
    capacity at our Nation's airports and putting safety first.
        Out of a total budget request of $14 billion, $8.7 billion will be
    used to support FAA safety goals. Full funding of the President's
    Budget will provide needed funds for inspecting aircraft, expanding
    safety programs and hiring an additional 20 safety staff; operating and
    maintaining the air traffic control system; hiring 302 additional air
    traffic controllers (in anticipation of the first wave of controller
    retirements); returning the Hazardous Materials Program from TSA;
    purchasing airport surface movement detection equipment; making AIP
    grants for airport safety, capacity and security investments, as well
    as for noise mitigation and research on aviation safety.
        In commercial aviation safety, several programs and initiatives
    were instrumental in reaching last year's high level of aviation
    safety. The Runway Safety Program helped reduce the number of high-risk
    runway incursions significantly, which in turn lessened the risk of
    collisions. Runway incursions declined from 407 in fiscal year 2001 to
    339 in fiscal year 2002 due to our aggressive actions to reduce these
    incidents, and the number of high risk incursions fell from 53 in
    fiscal year 2001 to 37. The Airport Movement Area Safety System
    (AMASS), now operational at 31 major airports, has been officially
    credited with saves at San Francisco, Boston, and Detroit.
        Our Safer Skies initiative, a joint government and industry effort
    to reduce commercial fatal accidents by 80 percent by 2007, made
    significant progress in addressing a number of factors that cause air
    carrier accidents. I am pleased to say that we are on track to
    accomplish this goal.
        The Air Transportation Oversight System (ATOS) is another tool to
    increase air travel safety and, like Safer Skies, is targeted for
    increased funding in the President's Budget. Under ATOS, in addition to
    comparing carriers' performance to all the requirements of our
    regulations, aviation safety inspectors evaluate air carrier systems
    that impact safety. Using ATOS, we have identified weaknesses in air
    carrier programs and made sure that the carrier took corrective
    actions.
        In fiscal year 2002, the FAA research program focused on key areas
    to reduce the size, weight and complexity of fuel tank inerting system
    designs. We developed a simple system to inert the critical fuel tanks
    (heated center tanks) in transport airplanes. The system has virtually
    no moving parts, resulting in high reliability, low installation
    weight, and low operating costs. The FAA's R&D program and the sharing
    of the data and system design have helped the industry, including the
    Boeing Company pursue inerting systems for the transport airplane
    fleet. The availability of a practical inerting system provides for a
    balanced approach of ignition prevention and flammability reduction. In
    fiscal year 2004, the research program will focus on high priority
    safety projects.
        We have also strengthened our international safety focus. We are
    working with the International Civil Aviation Organization (ICAO), as
    well as other members of the international aviation community, to
    strengthen and further aviation safety. For example, ICAO and the Joint
    Aviation Authorities are both involved in the Commercial Aviation
    Safety Team (CAST), the commercial aviation side of Safer Skies. FAA
    also initiated the Global Aviation Information Network (GAIN), a
    program that promotes the global collection and sharing of safety
    information.
        Though progress has been made, we agree with the Inspector General
    that more can be accomplished. We will continue to build upon our 2002
    successes.
    Security
        Since the events of September 11, the focus of Congress and the
    American people has been on security, and understandably so. You and
    your colleagues should be applauded, along with TSA, on your joint
    efforts to improve aviation security. By federalizing baggage
    screeners, ensuring that all checked baggage is screened, and expanding
    the Federal air marshal program, your efforts have made air travel much
    more secure.
        The FAA has played an important role by providing resources and in
    successfully transitioning our former security programs to TSA. And we
    continue to work closely with TSA to assure that our safety programs
    are interrelated and coordinated with their security programs--without
    redundancy and complications. We look forward to the healthy
    continuation of our partnership to restore the faith of the American
    people in aviation.
        The President's Budget requests $198 million to secure FAA
    facilities and electronic systems. This includes $145 million in
    Operations to fund internal FAA security, including securing our many
    information systems and background checks of staff. Internal security
    is not a new activity, but was temporarily transferred to TSA in the
    fiscal year 2003 budget. Fully funding the President's Budget request
    would also provide 26 new controllers to support the North American Air
    Defense command and its expanded airspace security programs.
    Capacity Building
        While safety remains our first concern, we must also remain
    committed to expanding capacity throughout the aviation system--in the
    air and on the ground. While demand for passenger travel is down, it
    will return. The FAA must be ready for this recovery. Now is the time
    to focus on increasing airport capacity, while air traffic is
    temporarily reduced. Both the President's Executive Order on
    environmental streamlining and the $3.4 billion investment included in
    the budget for the AIP program demonstrate the Administration's
    commitment to expanding capacity. With this level of funding, coupled
    with some structural changes in AIP formulas, the Administration will
    be able to better target projects of national significance that provide
    the greatest system benefit and, at the same time, provide additional
    funding to airports that rely most on Federal assistance.
        Even after September 11, FAA's Operational Evolution Plan (OEP)
    remains fundamentally sound--with a planned 31 percent increase in
    capacity by 2010. In response to the costly, frustrating, and
    unacceptable delays that plagued the system in the summers of 1999 and
    2000, FAA made needed changes, such as identifying and addressing choke
    points in the system and developing and refining regular communications
    between the airlines and the FAA Command Center to deal with daily
    problems in the system.
        The User Request Evaluation Tool (URET) gives controllers the
    ability to approve more direct routes and is saving airlines time and
    fuel. With this tool everyone wins. We're also seeing terrific results
    from the Traffic Management Adviser (TMA), which makes more efficient
    use of our busiest airports.
        We believe that new runways added at the right airports are the
    single most effective way to increase capacity. Thus, FAA's OEP tracks
    12 runways scheduled for completion in the next 10 years. During
    calendar years 2003 and 2004, Denver, Houston, Miami, and Orlando
    airports are expected to complete runway projects.
        The importance of investing in airport infrastructure cannot be
    discussed only in terms of alleviating a congestion problem at a
    specific location. These investments provide relief to the entire air
    system. The economy relies on aviation to move people and products, and
    aviation relies on an efficient NAS to accommodate the capacity demands
    placed upon it. We must all work together--Congress, Federal, State and
    local governments, and industry stakeholders--to ensure that the future
    does not catch us unprepared for the return of air traffic to pre-
    September 11 levels and higher. Future generations depend upon us.

              A SAFER, SIMPLER, SMARTER AND MORE BUSINESS-LIKE FAA

        In my tenure as Administrator, it has become apparent that FAA's
    operational costs must be brought under control. Since any future
    growth must be manageable, our decisions must be made in an informed
    manner. Just as our safety decisions should be driven by data, so
    should all our management decisions. Consequently, we must accelerate
    our efforts to set up our new financial system, DELPHI, and complete
    the implementation of our Cost Accounting System (CAS) and Labor
    Distribution Reporting (LDR) initiative, and use these tools to drive
    analysis toward better decisions.
        We will improve our cost accounting and acquisition processes, and
    we will become a performance-based organization. Currently, FAA has
    implemented cost accounting in two lines of business and several
    support organizations. And while we track 80 percent of our costs on a
    monthly basis, we still have a lot of work to do.
        As part of our cost accounting system, we are implementing a labor
    distribution system in air traffic services called Cru-X, to account
    for and distribute labor costs. Our air traffic controller workforce
    will use this data to better assess their workload and performance.
    Recently, the Inspector General noted that we have additional work to
    do on internal controls related to this system. I am committed to
    making this change, and to assuring the integrity of our cost
    information. With budget shortfalls and depleting trust fund revenues,
    we must be diligent stewards of the public's funds.
        Though we have made great strides, there is still much to be done.
    FAA received another unqualified or ``clean'' audit opinion on our
    fiscal year 2002 Consolidated Financial Systems. I am proud to say that
    this is the second year in a row that the Agency has received such an
    opinion. This gives us the firm foundation that we need to implement
    DELPHI effectively and to continue to build our cost accounting system.
        The Agency has worked hard to implement a performance based pay
    system. Approximately 36 percent of our employees are currently under
    the system--a system that links organizational goals with individual
    performance goals at every level. We must fully embrace a new way of
    thinking: pay equals performance. I pledge to you my full commitment to
    implementing such a system FAA-wide.

                                   CONCLUSION

        To ensure that FAA moves forward in all these areas, one of my top
    priorities is to provide consistency and predictability in the way FAA
    works with industry. I do not want any variations in FAA policy or
    practice in the regions or field offices. I want our industry partners
    in the United States and around the world to know what they can expect
    and count on when dealing with the FAA. The future of aviation is
    dependent upon all of us leveraging our reduced resources in support of
    the common goal: a safe and efficient aviation system for our children
    and generations to follow.
        This year marks the centennial of the Wright Brothers' historic
    flight at Kitty Hawk. When you look back on those early days of
    aviation and compare how dangerous air travel was to its safety record
    of today, it is easy to congratulate ourselves and feel content with
    how far we've come. Yet, our pride should not give way to complacency.
    We must continue to set and work to achieve goals on safety, capacity
    and efficiency. Though we will face countless obstacles and difficult
    decisions, we must draw upon the strength and courage of great aviation
    pioneers, such as Lindbergh and Earhart, who set difficult goals and
    attained them. I am proud to take part in the future of aviation, and I
    stand ready to work with you, as together we enter the second century
    of flight. Thank you.
        This concludes my prepared statement. I am happy to answer your
    questions at this time.
                                     ______

                    Biographical Sketch of Marion C. Blakey

        Marion Clifton Blakey was sworn in September 13, 2002 as the 15th
    Administrator of the Federal Aviation Administration. As Administrator,
    Blakey is responsible for regulating and advancing the safety of the
    Nation's airways as well as operating the world's largest air traffic
    control system. Prior to being named FAA Administrator, Blakey served
    as Chairman of the National Transportation Safety Board.
        During her tenure as Chairman, Blakey managed a number of accident
    investigations including the crash of American Airlines flight 587.
    Blakey worked to improve the Board's accident reporting process and
    increased industry and regulatory responsiveness to NTSB safety
    recommendations. Additionally, Blakey strengthened the Board's advocacy
    and outreach programs to promote safer travel throughout all modes of
    transportation. She also furthered development of the NTSB Academy as a
    national and international resource to enhance aviation safety and
    accident investigations.
        At the FAA, Ms. Blakey, continues a long career of public service.
    In addition to NTSB Chairman, Blakey has held four previous
    Presidential appointments, two of which required Senate confirmation.
    From 1992 to 1993, Blakey served as Administrator of the Department of
    Transportation's National Highway Traffic Safety Administration
    (NHTSA). As the Nation's leading highway safety official, she was
    charged with reducing deaths, injuries, and economic losses resulting
    from motor vehicle crashes. Prior to her service at NHTSA, she held key
    positions at the Department of Commerce, the Department of Education,
    and the National Endowment for the Humanities, the White House, and the
    Department of Transportation.
        From 1993 to 2001, Blakey was the principal of Blakey & Associates,
    a Washington, DC public affairs consulting firm with a particular focus
    on transportation issues and traffic safety.
        Ms. Blakey, born in Gadsden, Alabama, received her bachelor's
    degree with honors in international studies from Mary Washington
    College of the University of Virginia. She also attended Johns Hopkins
    University, School of Advanced International Studies for graduate work
    in Middle East Affairs.

        Senator Shelby. Mr. Mead?

                        Office of the Inspector General

    STATEMENT OF KENNETH M. MEAD, INSPECTOR GENERAL

        Mr. Mead. Thank you, Mr. Chairman, Senator Murray, Senator
    Dorgan, Senator Bennett.
        It is good to be here with Administrator Blakey and Under
    Secretary Shane, very good people and great to work with.
        In your packages you have some slides. It has a blue wheel
    on the front. I will refer to those a couple of times.
        This hearing is occurring, of course, against the backdrop
    of an industry in financial distress. As I was writing my
    statement, I had to change it by the hour because it is hard to
    know who is in bankruptcy and who is out. But as Senator Murray
    was pointing out, they are either in or right on the brink of
    bankruptcy, or just coming out of it.
        I think it is important, though, for us all to recognize
    that this is due to a confluence of factors that include an
    unsustainable cost and fare structures that predate 9/11 by a
    long time. That pattern persisted and became more pronounced
    after 9/11 and now, with the war in Iraq, we are experiencing
    an even greater precipitous decline in bookings, particularly
    in the international area.
        Of course, the airlines also point to increased security
    related expenditures.
        This first chart, I tried to map out on this first chart
    the yellow and blue, what has happened with respect to business
    travel both before and after 9/11. You can see the steep drop
    in September, 2001.
        But look to the left of that axis and you will note that
    business travel was down 20 percent just before 9/11. And in
    November 2002 compared to November 2000, leisure travel was
    down 19 percent and business was down 32 percent. What we are
    seeing, to some degree, is a continuation of some problems that
    existed before 9/11.
        Even before the war with Iraq, major carriers were
    projecting losses of about $6 or 7 billion for 2003. With the
    war, and their assumption is a 90-day war, major carrier
    projections are about $10 to $11 billion. And the end is not in
    sight. We do not think you are going to see a recovery to the
    2000 levels until 2005, 2006, which is consistent with FAA's
    aviation forecast.
        Here are some other interesting metrics. In February 2003
    actual flight operations were down 10 percent compared to
    February 2000. And an interesting dimension to that is there
    has been a huge increase in the use of regional jets, a 156
    percent increase compared to a 17 percent decline in larger
    aircraft and a 46 percent decline in the use of turboprop
    aircraft.
        Domestic emplanements are down nearly 8 percent in 2003
    compared to January 2000. Much of the reduced demand represents
    what had been the highest fare business travelers. An
    interesting statistic here relates to the network carrier cost
    structure. About 10 to 20 percent of their passengers, the
    business travelers, were providing between 40 and 50 percent of
    the revenues. So when the business travel part of the market
    began to fall out, you can see why the airlines were hurting so
    much.
        Another interesting statistic, last year break-even load
    factors, that is the average percentage of paying passengers on
    all flights that are needed to cover an airline's costs. For
    the industry as a whole it was 87 percent. In other words, 87
    percent of that plane had to be full before an airline would
    start talking about turning a profit.
        Actual load factors, though, were only averaging about 74
    percent. One airline had a break-even load factor of over 100
    percent. And you might say well, how can an airline fill more
    than 100 percent of its seats? The answer is it cannot. And
    that is why that airline is teetering on the edge of
    bankruptcy.
        I know you are considering some relief packages and you and
    your staffs must be exhausted from the last few days. I would
    say that great care has got to be taken in framing a relief
    package. I think a relief package is warranted. But take care
    to not provide a cash subsidy that is going to simply allow the
    airlines to avoid making hard calls that many of them are
    already in the process of making. We do not want it to be a
    bailout.
        And I might add, I think it has been pretty unseemly for
    airlines to come up here to Congress and ask for financial aid
    from the taxpayers for not the first, but the second time when
    the senior executives are getting very large bonuses. I think
    the American taxpayer would wonder what is wrong with this
    picture.
        The second factor is that you require any airline security
    costs that Congress judges are eligible be documented. And that
    the airlines have some evidence of that $4 billion that they
    are claiming is justifiable. I do not think we want a repeat of
    what happened last year when Congress thought it was going to
    be $1 billion and it eventually ended up being about $300
    million.
        Third. That it be a limited duration. This is an important
    issue, a limited duration package will allow you to come back
    to revisit it if it is necessary.
        And finally, I am not sure that the packages consider how
    we are going to treat the foreign carriers that come here and
    pay these fees. We want to make sure that we do not develop an
    equity argument whereof they pay a fee and we reimburse
    domestic carriers. I would expect that there would be some
    expectation that they be reimbursed as well.
        I would like to move to a word on small communities. You
    hear a lot of anecdotal evidence that service to small
    communities is declining. It is not just anecdotal. I have a
    chart, chart 2 cuts up the United States into quadrants. And
    you can see that on the average you have lost about 19 percent
    of service to your small, medium non-hub communities. The
    Northeast is particularly hard hit--about 33 percent of their
    service has been lost. I know an important matter on your
    agenda is the essential air service program.
        I now would like to turn to FAA. I think it is very
    important to recognize that this agency oversees the largest
    and safest air transportation system in the world. FAA deserves
    a lot of credit for that. I think Ms. Blakey's safety
    background is going to serve the Nation extremely well in that
    regard.
        But this agency urgently needs to get its costs under
    control. Why? Well, projected tax receipts to the Aviation
    Trust Fund for 2004 have dropped from approximately $12.5
    billion to around $10 billion. Over the next 4 years the
    projected trust fund tax revenues are down and you are going to
    have about $10 billion less than you were counting on.
        While these projections have dropped precipitously, FAA's
    spending has not. Budgets increased from about $8 billion in
    1996 to $14 billion in 2004. That is about 70 percent. Over
    half of that, though, is for increased operations cost, which
    are mostly payroll costs.
        The committee should know that personnel reform was a key
    element of the move to make FAA performance-based. But to date,
    the reality has been increasing workforce costs and
    significantly higher salaries.
        The new compensation system for controllers, FAA's largest
    workforce, was a big cost driver. They have a very good pay
    package. The average base salary for fully certified
    controllers, exclusive of overtime, is now about $106,000. In
    1998 it was about $72,000. That is a 47 or 48 percent increase.
        Even though FAA is supposed to be a performance-based
    organization, only 36 percent of the employees actually get
    paid based on individual performance. The rest is largely
    automatic.
        In terms of acquisitions, for air traffic control, five
    major acquisitions out of 20 that we tracked have experienced
    cost growth of over $3 billion and that cost growth alone is
    equivalent to 100 percent of a full year's appropriation for
    acquisitions. I do not think continued cost growth of that
    magnitude is sustainable, especially given the decline in
    revenues.
        In some ways, it is the same picture the airlines were
    facing. I think FAA, under Ms. Blakey's leadership, needs to
    redouble its efforts to be a performance-based organization.
        On the safety front, there are a couple of areas I would
    like to mention. One is FAA has had some progress in reducing
    operational errors and runway incursions, but they are still
    much too high. They are experiencing one involving a commercial
    airliner every 10 days. That means that once every 10 days a
    commercial airliner is coming very close to just barely
    avoiding a collision, either on the ground or in the air. And
    so more progress is needed there.
        Close attention also is needed with respect to the level of
    oversight being provided to repair stations. Some metrics, in
    1996, 36 percent of airline maintenance costs went to repair
    stations. Now it is 47 percent, and you can expect it to grow.
    For some airlines, 64 to 77 percent of their maintenance is
    being outsourced. So we should expect a corresponding shift in
    the FAA's vigilance and attention to that area.
        And finally, a pending wave of controller retirements.
    There is some debate about how many controllers will retire and
    when. And that is one reason we need this Cru-X cost accounting
    system or labor distribution system so we can find out where
    the controllers are that are going to retire and how to plan
    accordingly.
        But the number that some are using is that by 2010 you
    could lose about 7,000 controllers. This is about half the
    controller workforce. It takes about 5 years right now to train
    a controller to full proficiency.

                               PREPARED STATEMENT

        And finally, a security related matter on the airports that
    I would encourage the Congress to resolve. Nobody knows who
    will pay for the installation of these SUV-sized explosive
    detection machines at airports. The airports, I am sure, have
    visited you. And when they say this is of concern to them, they
    have a legitimate point. This is not an inconsequential cost
    item, Mr. Chairman. We peg it at about $3 to $4 billion. So
    some resolution is needed on that point.
        That concludes my statement, sir.
        [The statement follows:]

                     Prepared Statement of Kenneth M. Mead

        Mr. Chairman and Members of the Subcommittee, we appreciate the
    opportunity to testify today as the Subcommittee begins deliberations
    on the fiscal year 2004 appropriation for the Federal Aviation
    Administration (FAA).
        This hearing is occurring against the backdrop of an industry in
    financial distress--two airlines representing more than 20 percent of
    the industry are in bankruptcy, and several others are teetering on the
    brink. This is due to a confluence of factors that include
    unsustainable cost and fare structures that clearly predate 9/11 and,
    with the advent of the war in Iraq, precipitous declines in travel
    bookings. The airlines also point to increased security-related
    expenditures for passenger screening, insurance, and Federal security
    taxes as contributing factors to their financial condition.
        Great care must be taken to ensure that any relief package provided
    by Congress (1) does not provide a cash subsidy that allows a way for
    airlines to avoid making the hard calls necessary to become
    sustainable, including lowering labor costs (including management
    salaries and bonuses) and increasing productivity of capital; (2)
    require that any airline security-related costs that Congress judges
    are eligible for reimbursement be supported by documentary evidence
    that clearly demonstrates that claimed costs were actually incurred;
    and (3) be of limited duration.
        The issue of service to small- and medium-sized communities is
    related to the financial condition of the airline industry. In an
    effort to stem losses, airlines have reduced service in the smallest
    communities by 19 percent in the past 5 years. Funding levels for the
    Essential Air Service Program (EAS), which is one vehicle for restoring
    access to air service in small communities, will be an important issue
    for the Committee's consideration this year. It should be noted,
    however, that maintenance of service in small communities will be most
    successful where restructuring of the cost structures of the network
    carriers is most successful.
        As for FAA, it is important to recognize that the agency oversees
    the largest and safest air transport system in the world, but FAA
    urgently needs to do considerably more to bring its costs under
    control. FAA's budget has increased from $8.2 billion in 1996 to $14
    billion in fiscal year 2004--an increase of $5.8 billion, or over 70
    percent. Over half of this increase is attributable to sharply rising
    costs in FAA's operations, which are made up primarily of salaries
    (about 74 percent of FAA's fiscal year 2004 Operations budget). From
    1998 (when FAA began implementing new pay systems), salaries within the
    agency have increased 41 percent whereas the overall increase for the
    Federal workforce in Washington, DC, for example, was about 30 percent.
        In terms of acquisitions, 5 major acquisitions out of 20 that we
    track have experienced substantial cost growth totaling more than $3
    billion, which is equivalent to an entire year's budget for FAA's
    modernization account. These same 5 acquisitions have also experienced
    schedule slips of 3 to 5 years.
        Continued cost growth of this magnitude is unsustainable given the
    financial state of the airline industry, multi-billion dollar declines
    in projected Aviation Trust Fund receipts, and greater dependence on
    the General Fund to pay for FAA's operations. We do not believe the
    answer to cost growth at FAA lies in an increase in taxes, fees, or
    other charges, which are already significant. Given the weak demand
    environment, any further increases are likely to reduce airline
    revenues and further threaten the financial health of the industry.
    Just as the airlines have had to rethink the basics of their business,
    FAA also must re-examine how it does business and redouble its efforts
    to become performance based in deed as well as in word. Administrator
    Blakey is taking steps to move the agency in that direction.
        In terms of safety, we feel the imperatives for FAA are: (1)
    further reducing operational errors (when planes come too close
    together in the air) and runway incursions (potential collisions on the
    ground)--in 2002, a commercial aircraft was involved in at least one
    serious runway incursion or operational error every 10 days; (2)
    providing adequate oversight of air carrier maintenance in view of
    shifts in carrier practices from in-house to outsourced (from 1996 to
    2001, outsourcing maintenance by major air carriers increased from 37
    percent of total maintenance costs to 47 percent); and (3) addressing
    pending controller retirements.
        On the security front, an important issue will be resolving who
    will pay for the next phase of explosives detection systems integration
    into airport baggage systems. This is a multi-billion dollar item.

                         STATE OF THE AIRLINE INDUSTRY

        Most of the major domestic airlines are in a precarious financial
    condition. Several airlines are in bankruptcy and others are teetering
    on the brink. \1\ As a group, the major carriers reported net losses
    totaling over $11 billion in 2002, which followed a year where their
    combined losses totaled $7.5 billion. For 2003, even before the United
    States went to war with Iraq, major carriers were projecting losses of
    between $6 billion and $7 billion. Now that the United States is at
    war, the airlines have increased their estimated losses to between $10
    billion and $11 billion, based on a 90-day war. And the end is not yet
    in sight, as current forecasts now extend the timeframe for recovery
    from 2004 to 2005 or 2006.
    ---------------------------------------------------------------------------
        \1\ As of April 1, 2003, the two carriers in bankruptcy were United
    Airlines and Hawaiian Airlines. USAirways emerged from bankruptcy
    protection on March 31, 2003.
    ---------------------------------------------------------------------------
        In February 2003, actual flight operations were down 10 percent
    compared to February 2000. Overall, domestic enplanements were down
    nearly 8 percent in January 2003 compared to January 2000. Much of the
    reduced demand represents what had once been the higher fare business
    travelers. By some estimates, business travelers account for 50 percent
    of airline revenues although they typically represent only 20 percent
    of airline travel. As the following figure illustrates, business travel
    in November 2002 was nearly one-third less than it was in November
    2000.

        In the third quarter 2002, breakeven load factors \2\ for the
    industry as a whole were 87 percent, while actual load factors averaged
    only 74 percent. One airline in that period experienced breakeven load
    factors of over 100 percent. How can an airline fill more than 100
    percent of its seats? The answer is it cannot, which is why that
    carrier is on the brink of bankruptcy.
    ---------------------------------------------------------------------------
        \2\ The average percentage of paying passengers on all flights
    needed to cover airline costs.
    ---------------------------------------------------------------------------
        In response to the economic downturn and increased costs following
    9/11, airlines have reduced their workforces, modified schedules,
    eliminated flights, closed offices and facilities, and retired
    aircraft. Negotiations are underway to reduce employment expenses
    throughout the industry by an additional $10 billion. Several airlines
    have used the bankruptcy process to restructure their costs, including
    renegotiating their labor contracts and their debt instruments. Still,
    financial conditions continue to be weak, exacerbated now by the
    ongoing war in Iraq.
        Based on a scenario of a 90-day war, the airlines project that
    their losses will be $4 billion higher in 2003 than the $6.7 billion
    they had originally projected. The losses would be driven by decreased
    passenger demand, higher fuel prices, and lower airfares. The airlines
    attest that they have already incurred over $4 billion in additional
    security costs since 9/11, including passenger screening fees, new
    security taxes, increased insurance costs, freight restrictions,
    cockpit door fortification, and the Federal Air Marshall program.
        A case could be made for providing some form of financial relief to
    assist airlines in the short term; such as extending the Federal war
    risk insurance program and extending the Air Transportation
    Stabilization Board loan guarantee program. Loan guarantees, if
    prudently incurred, can help to stabilize the financial condition of
    the industry. They may also prove a prudent, short-term market
    intervention if used to finance a realistically restructured airline's
    exit from bankruptcy.
        Other forms of potential relief, including reimbursing the airlines
    for security improvements, eliminating or reducing the Passenger
    Security Tax and Air Carrier Security Fee, and drawing down the
    Strategic Petroleum Reserve, should be considered in the following
    context.
        The airlines are requesting a very large sum of money from the
    American taxpayers. In that regard, we are concerned, as are American
    taxpayers, about the appearance of large executive pay packages that
    are still in place for top executives at some of the airlines with
    large operating losses. Financial aid is not a substitute for self-
    help. This must come in the form of restructuring labor costs and
    management salaries, as well as increasing productivity of capital.
        Policy decisions are being made that could affect the competitive
    balance of the airline industry, and the implications of providing
    financial assistance for any reason need to be carefully considered.
    The airline industry is important to the economy of the United States
    and certainly financial assistance at this juncture would help preserve
    the industry in the short term. But it should be noted that while all
    airlines have had to incur the increased financial burden of operating
    in a post 9/11 environment, not all airlines are suffering equally. In
    fact, two airlines. Southwest and JetBlue, earned profits last year.
    These airlines were successful because their cost structures represent
    a more realistic picture of a post-deregulation competitive airline
    industry. Care should be taken not to penalize carriers who have
    adapted or revised their cost structures to forms that are sustainable,
    even during an economic crisis.
        Consideration should also be given to how financial assistance to
    the airline industry will be viewed by our international counterparts.
    To the extent possible, any relief package should be structured to
    limit the possibility of being criticized as an unfair airline subsidy.
        The airlines are especially vulnerable to the effects of this war
    and the terrorist attacks that may accompany it. But it should not be
    forgotten that during wartime, many industries suffer financial losses-
    travel agents, retail outlets, cruise lines, and hotels--to name a few.
    Therefore, it is essential that a financial aid package designed to
    assist just one affected industry--the airlines--include narrowly
    defined relief terms and be of limited duration.
        If the decision is made to provide some sort of assistance to the
    airlines, the following guidelines should apply.
      --The effects of 9/11 and the war in Iraq have no doubt affected the
            airlines' costs and revenues, but the fact is that many
            airlines had unsustainable cost structures long before these
            events took place. Any financial assistance that is forthcoming
            should not result in a bail-out for failures in the competitive
            marketplace that occurred prior to 9/11. Funding that is not
            tied specifically and demonstrably to direct security-related
            costs simply postpones the restructuring that will be necessary
            in order for the major network carriers to remain viable. Most
            of the current financial woes of the industry should be solved
            by the marketplace.
      --Documentation of which costs are being claimed and in what amount
            must be provided by the airlines and verified to ensure that
            funds provided under a security relief package are not
            subsidizing financial losses unrelated to security. Clarity is
            needed concerning whether financial assistance will be
            restricted to future war-related costs or security-related
            costs already incurred by the industry. Whichever costs are
            deemed eligible, the airlines must be held absolutely
            accountable for documenting the costs the aid is applied
            towards.
      --Financial assistance aimed at providing short-term war relief
            should be just that: short term. Aid, if provided, should be of
            limited duration and should not come to be expected by the
            industry on a recurring basis. Given the uncertainty of what
            could happen over the course of the coming year, an aid program
            should terminate at the end of a firmly fixed time period with
            the option to revisit the terms of the program if conditions
            warrant.

                 SERVICE TO SMALL AND MEDIUM SIZED COMMUNITIES

        Financial problems for major airlines may ultimately affect the air
    service to small- and medium-sized communities. The major network
    carriers serve these communities through their mainline service and
    regional affiliates by connecting passengers from these communities to
    the major airlines' hubs. At the current time, low-cost carriers are
    not a solution for many small- and medium-sized communities if their
    service declines. The low-cost carrier business models focus on serving
    dense markets that make it economical to fly multiple frequencies in
    large-volume jets. That model would not be sustainable in these small-
    or medium-sized communities. Maintenance of service in these markets
    will be most successful where the restructuring of the network carriers
    is most successful.
        In the smallest communities--those served by non-hub airports--
    service has been declining for the past 5 years. Between March 1998 and
    March 2003, non-hub airports nationwide lost 19 percent of their
    commercial air service as measured by available seat miles. Between
    March 2000 and March 2003, non-hub airports in the Northeast and
    Midwest lost approximately one-third of their service.

        The Essential Air Service Program is a tool that these small
    communities rely on for attracting air service to their communities.
    The funding levels for this program will be an important matter for the
    Committee's consideration this year.

                              GENERAL STATE OF FAA

        As a result of the slow economy and the decline in air travel,
    there has been a significant decrease in tax revenues coming into the
    Aviation Trust Fund. Projected tax receipts to the Aviation Trust Fund
    for fiscal year 2004 have dropped from approximately $12.6 billion
    estimated in April 2001 to about $10.2 billion estimated in February
    2003. Over the next 4 years, Aviation Trust Fund tax revenues are
    expected to be about $10 billion less than projections made in April
    2001. Although Trust Fund projections are down for next year, FAA's
    spending request is not; increasing from $13.6 billion this year to
    $14.0 billion next year. If this $3.8 billion gap between Trust Fund
    revenues and FAA's budget ($10.2 billion to $14.0 billion) is financed
    by the General Fund, it would represent a rough doubling of such
    spending compared to recent years.

        While there have been suggestions that this gap could be closed by
    increasing taxes or fees on airlines and air passengers, we urge
    extreme caution in this area. Taxes and fees are already high. For
    example, a non-stop round-trip ticket costing $200 may consist of
    nearly $33 in taxes, fees, and airport passenger facility charges or 16
    percent of the fare. On a connecting flight, the taxes on a $200 ticket
    could be up to $51, or nearly 26 percent of the fare. Any further
    increases are likely to reduce airline revenues, given the weak demand
    environment and will further threaten the financial health of the
    industry.
        Over the past 5 years, FAA has had some notable accomplishments--
    successfully managing the Y2K computer problem, obtaining a clean
    opinion on agency-wide financial statements, bringing new Free Flight
    controller tools on-line, deploying the Display System Replacement on
    time and within budget, and expeditiously shutting the system down
    safely on 9/11. However, a key focus for FAA now must be effective cost
    control. This, in our opinion, is a primary challenge facing FAA for
    the next several years.
        Operating as a Performance Based Organization.--In 1996, Congress
    acted to make FAA a performance-based organization by giving the agency
    two powerful tools-personnel reform and acquisition reform. The
    expectation was that FAA would operate more like a business--that is,
    services would be provided to users cost effectively and major
    acquisitions would be delivered on time and within budget. FAA was also
    directed to establish a cost accounting system so that FAA and others
    would know where funds were being spent and on what. It is now over 6
    years later and we do not see sufficient progress toward FAA's becoming
    performance-based or toward achieving the outcomes that Congress
    envisioned.
      --Personnel Reform.--Personnel reform was a key element of the move
            to make FAA performance-based. But to date, the reality has
            been increasing workforce costs and significantly higher
            salaries. From 1998 (when FAA began implementing new pay
            systems), salaries within the agency have increased 41 percent
            whereas the overall increase for the Federal workforce in
            Washington, D.C., for example, was about 30 percent.
              The new pay system for controllers (FAA's largest workforce)
            was a significant cost driver. The average base salary for
            fully certified controllers is now over $106,000, which is
            exclusive of premium pay and overtime. That figure represents a
            47 percent increase over the 1998 average of $72,000, and
            compares to an average salary increase of about 32 percent for
            all other FAA employees during the same period. Although
            linking pay and performance was a key tenet of personnel
            reform, only about 36 percent of FAA employees receive pay
            increases based on individual performance. The remaining FAA
            employees receive largely automatic pay increases.
              In our work, we also found there are between 1,000 and 1,500
            side bar agreements or Memorandums of Understanding (MOUs) that
            are outside the national collective bargaining agreement with
            controllers. Many serve very legitimate purposes, but some can
            add millions to personnel costs. For example, one MOU we
            reviewed allows controllers transferring to larger consolidated
            facilities to begin earning the higher salaries associated with
            their new positions substantially in advance of their transfer
            or taking on new duties. At one location, controllers received
            their full salary increases 1 year in advance of their transfer
            (in some cases going from an annual salary of around $54,000 to
            over $99,000). During that time, they remained in their old
            location, controlling the same air space, and performing the
            same duties.
              We found that controls over MOUs are inadequate. FAA
            management does not know the exact number or nature of these
            agreements, there are no established procedures for approving
            MOUs, and their cost impact on the budget has not been
            analyzed. It is important for FAA to get a handle on this
            process because many MOUs involve issues pertaining to
            deploying new equipment. We briefed Administrator Blakey on our
            concerns regarding MOUs; FAA is now in the process of
            identifying those MOUs that are problematic or costly and has
            begun a dialogue with the controller's union to address them.
      --Acquisition Reform.--FAA has learned from past mistakes and its
            ``build a little, test a little'' approach has clearly avoided
            failures on the scale of the multi-billion dollar Advanced
            Automation System acquisition. But the bottom line is that
            significant schedule slips and substantial cost growth for
            major air traffic control acquisitions are all too common. The
            following chart provides cost and schedule information on 5 of
            20 projects we track that were largely managed since FAA was
            granted acquisition reform.

    ----------------------------------------------------------------------------------------------------------------
                                                  Estimated program                    Implementation  schedule
                                                 costs  (dollars in     Percent ------------------------------------
                    Program                           millions)          cost
                                              ------------------------  growth    Original           Current
                                                Original     Current
    ----------------------------------------------------------------------------------------------------------------
    Wide Area Augmentation System............      $892.4  \1\ $2,922       227   1998-2001  2003-\2\ \3\
                                                                   .4
    Standard Terminal Automation Replacement        940.2  \2\ 1,690.        80   1998-2005  2002-\2\ \3\
     System.                                                        2
    Airport Surveillance Radar-11............       752.9       916.2        22   2000-2005  2003-2008
    Weather and Radar Processor..............       126.4       152.7        21   1999-2000  2002-2003
    Operational and Supportability                  174.7       251.0        44   1998-2001  2002-2005
     Implementation System.
    ----------------------------------------------------------------------------------------------------------------
    \1\ This includes the cost to acquire geostationary satellites and costs are under review.
    \2\ Costs and schedules are under review by FAA.
    \3\ To be determined.

              These five acquisitions have experienced substantial cost
            growth totaling more than $3 billion, which is equivalent to an
            entire year's budget for FAA's modernization account
            (Facilities and Equipment). These same five acquisitions have
            also experienced schedule slips of 3 to 5 years. Problems with
            cost growth, schedule slips, and performance shortfalls have
            serious consequences. They result in costly interim systems, a
            reduction in units procured, postponed benefits (in terms of
            safety and efficiency), or ``crowding out'' other projects. For
            example, in fiscal year 2002 alone, FAA reprogrammed over $40
            million from other modernization efforts to pay for cost
            increases in the Standard Terminal Automation Replacement
            System (new controller displays for FAA's terminal facilities).
              FAA needs to set priorities and link the Operational
            Evolution Plan (OEP) (FAA's blue-print for enhancing capacity),
            with the agency's budget and address uncertainties with how
            quickly airspace users will equip with new technologies in the
            Plan (estimated at $11 billion). FAA is retooling the OEP, and
            both FAA and industry officials told us that considerable
            benefits may be obtained through airspace changes, new
            procedures, and taking advantage of systems currently onboard
            aircraft--all of which do not require major investments by
            airlines. According to senior FAA officials, hard decisions
            about funding OEP initiatives and related major acquisitions
            will need to be made. In addition, FAA needs to develop metrics
            to assess progress with major acquisitions.
      --Cost Accounting System.--To effectively operate as a performance-
            based organization, FAA needs an accurate cost accounting
            system to track agency costs and provide managers with needed
            cost data by location. Without a reliable cost accounting
            system, FAA cannot credibly claim to be, nor can it function
            as, a performance-based organization.
              At the direction of Congress, FAA began developing its cost
            accounting system in 1996, which was estimated at that time to
            cost about $12 million and be completed in October 1998. Now,
            after nearly 7 years of development and over $38 million, FAA
            still does not have an adequate cost accounting system, and it
            expects to spend at least another $7 million to deploy the cost
            accounting system throughout FAA. Although FAA's cost
            accounting system is producing cost data for two of its lines
            of business, it still does not report costs for each facility
            location. For example, for the Terminal Service in fiscal year
            2001, about $1.3 billion of $2.4 billion was reported in lump-
            sum totals and not by individual facility locations.
              FAA also needs an accurate labor distribution system to track
            the costs and productivity of its workforces. Cru-X is the
            labor distribution system FAA chose to track hours worked by
            air traffic employees. As designed, Cru-X could have provided
            credible workforce data for addressing controller concerns
            about staffing shortages, related overtime expenditures, and to
            help determine how many controllers are needed and where. That
            information in turn is especially important given projections
            of pending controller retirements. Unfortunately, Cru-X has not
            been implemented as designed. We hope it will be in the coming
            year.
        Aviation Safety.--After several years of continuous increases in
    operational errors and runway incursions, FAA has made progress in
    reducing these incidents. In fiscal year 2002, operational errors
    decreased 11 percent to 1,061 and runway incursions decreased 17
    percent to 339 from fiscal year 2001 levels. Despite FAA's progress,
    the number of these incidents is still too high considering the
    potential catastrophic results of a midair collision or a runway
    accident. On average, in fiscal year 2002, at least one commercial
    aircraft was involved in a serious runway incursion or operational
    error (in which a collision was barely avoided) every 10 days. We will
    be issuing our report on operational error and runway incursions
    shortly.
        FAA also needs to pay close attention to the level of oversight it
    provides for repair stations. Since 1996, there has been a significant
    increase in air carriers' use of these facilities. In 1996, major air
    carriers spent $1.6 billion for outsourced maintenance (37 percent of
    total maintenance costs), whereas in 2001, the major air carriers
    outsourced $2.9 billion (47 percent of total maintenance costs). As of
    September 2002, four major carriers were outsourcing between 64 and 77
    percent of their maintenance.
        In spite of this increase in the use of repair stations, FAA's
    surveillance continues to target more resources on air carriers' in-
    house maintenance facilities than repair stations. In fact, repair
    stations are required to be inspected by FAA only once annually. In
    addition, some FAA-certified foreign repair stations are not inspected
    by FAA inspectors at all because foreign civil aviation authorities
    review repair stations on FAA's behalf.
        This trend in outsourcing maintenance is likely to continue, and
    FAA needs to consider the shift in maintenance practices when planning
    its safety surveillance work. We will be issuing our report on FAA's
    oversight of repair stations shortly.
        Another significant issue is the pending wave of controller
    retirements. In May 2001, FAA estimated almost 7,200 controllers could
    leave the agency by the end of fiscal year 2010. In general, the
    training process to become a certified professional controller can take
    up to 5 years. Given that time lag, FAA needs to take actions now to
    address when and where new controllers will be needed. The pending
    retirements underscore the need for an accurate labor distribution
    system. We will be starting an audit of controller training in the next
    several weeks.
        Mr. Chairman, let me conclude by discussing a major issue for
    airports--funding the next phase of explosives detection systems (EDS)
    integration. Thus far, nearly all EDS equipment has been lobby-
    installed. The planned next step (integrating the EDS equipment into
    airport baggage systems) is by far the most costly aspect of full
    implementation. We have seen estimates that put the costs of those
    efforts between $3 and $5 billion. A key question is who will pay for
    those costs as well as other costs still to be determined, such as
    improving access controls and acquiring new screening technologies.

     MAKING FAA A PERFORMANCE-BASED ORGANIZATION THROUGH CONTROLLING COSTS
                      IN OPERATIONS AND MAJOR ACQUISITIONS

        Controlling Operating Cost Increases.--Although Congress envisioned
    that personnel reform would result in more cost-effective operations,
    this has not occurred. Since 1996, FAA's operating costs have increased
    substantially. As shown in the following graph, FAA's operations budget
    has increased from $4.6 billion in fiscal year 1996 to $7.6 billion in
    fiscal year 2004. Given the decline in Aviation Trust Fund revenues and
    the financial situation of the airlines, a continuation of this growth
    can no longer be sustained.

        Much of the increase in operations costs has been a result of
    salary increases from collective bargaining agreements negotiated under
    FAA's personnel reform authority. The 1998 collective bargaining
    agreement with the National Air Traffic Controllers Association
    (NATCA), which created a new pay system for controllers, was a
    significant cost driver. Under the agreement, most controllers'
    salaries increased substantially. For example,
      --The average base salary for fully certified controllers has now
            risen to over $106,000--a 47 percent increase over the 1998
            average of about $72,000 (as shown in the table below). This
            compares to an average salary increase for all other FAA
            employees during the same period of about 32 percent, and for
            all Government employees in the Washington, D.C. area of about
            30 percent.

                     AVERAGE BASE SALARIES FOR FAA EMPLOYEES
    ------------------------------------------------------------------------
                                                   Fully
                                               certified air  Non-controller
    Average base salary (including locality)      traffic      FAA employees
                                                controllers
    ------------------------------------------------------------------------
    2003....................................    \1\ $106,580         $78,080
    1998....................................         $72,580         $59,200
    Percentage Increase From 1998 to 2003...            46.8            31.9
    ------------------------------------------------------------------------
    \1\ After 4.9 percent increase.

        Following the NATCA agreement, other FAA workforces began
    organizing into collective bargaining units as well. Today, FAA has 48
    collective bargaining units as compared to 19 collective bargaining
    units in 1996.
        The increase in bargaining units has complicated FAA's plans for
    fielding its agency-wide compensation system (created in April 2000),
    because FAA's 1996 reauthorization requires that FAA negotiate
    compensation with each of its unions. This has also complicated FAA's
    plans to create a link between pay and performance. Although linking
    pay and performance was a key tenet of personnel reform, only about 36
    percent of FAA employees receive pay increases based on individual
    performance. The remaining FAA employees receive largely automatic pay
    increases.
        We also found, that outside the national collective bargaining
    agreement with NATCA, FAA and the union have entered into hundreds of
    side bar agreements or MOUs. These agreements can cover a wide range of
    issues such as implementing new technology, changes in working
    conditions and, as a result of personnel reform bonuses and awards, all
    of which are in addition to base pay. We found that FAA's controls over
    MOUs are inadequate. For example, there is:
      --no standard guidance for negotiating, implementing, or signing
            MOUs;
      --broad authority among managers to negotiate MOUs and commit the
            agency;
      --no requirement for including labor relations specialists in
            negotiations; and
      --no requirement for estimating potential cost impacts prior to
            signing the agreement.
        In addition, FAA has no system for tracking MOUs, but estimates
    there may be between 1,000 and 1,500 MOUs agency-wide. While most MOUs
    serve very legitimate purposes, we reviewed a number of MOUs that had
    substantial cost implications. For example,
      --As part of the controller pay system, FAA and NATCA entered into a
            national MOU providing controllers with an additional cost of
            living adjustment. As a result, at 111 locations, controllers
            receive between 1 and 10 percent in ``Controller Incentive
            Pay,'' which is in addition to Government-wide locality pay. In
            fiscal year 2002, the total cost for this additional pay was
            about $27 million.
      --One MOU we reviewed allows controllers transferring to larger
            consolidated facilities to begin earning the higher salaries
            associated with their new positions substantially in advance of
            their transfer or taking on new duties. At one location,
            controllers received their full salary increases 1 year in
            advance of their transfer (in some cases going from an annual
            salary of around $54,000 to over $99,000). During that time,
            they remained in their old location, controlling the same air
            space, and performing the same duties.
        Administrator Blakey is aware of our concerns regarding MOUs and
    has begun a dialogue with NATCA to address this issue.
        Improving Management of Major Acquisitions.--FAA spends almost $3
    billion annually on a wide range of new radars, satellite-based
    navigation systems, and communication networks. Historically, FAA's
    modernization initiatives have experienced cost increases, schedule
    slips, and shortfalls in performance. While progress has been made with
    Free Flight Phase 1, problems persist with other major acquisitions. In
    1996, Congress exempted FAA from Federal procurement rules that the
    agency said hindered its ability to modernize the air traffic control
    system. Now, after nearly 7 years, FAA has made progress in reducing
    the time it takes to award contracts, but acquisition reform has had
    little measurable impact on bottom line results--bringing large-scale
    projects in on time and within budget. The following chart provides
    cost and schedule information on 5 of 20 projects we track that have
    been managed since FAA was granted acquisition reform.

    ----------------------------------------------------------------------------------------------------------------
                                                  Estimated program                    Implementation  schedule
                                                 costs  (dollars in     Percent ------------------------------------
                    Program                           millions)          cost
                                              ------------------------  growth    Original           Current
                                                Original     Current
    ----------------------------------------------------------------------------------------------------------------
    WAAS.....................................      $892.4   \1\ $2,92       227   1998-2001  2003-\2\ \3\
                                                                  2.4
    STARS....................................       940.2  \2\ 1,690.        80   1998-2005  2002-\2\ \3\
                                                                    2
    ASR-11...................................       752.9       916.2        22   2000-2005  2003-2008
    WARP.....................................       126.4       152.7        21   1999-2000  2002-2003
    OASIS....................................       174.7       251.0        44   1998-2001  2002-2005
    ----------------------------------------------------------------------------------------------------------------
    \1\ This includes the cost to acquire geostationary satellites and costs are under review.
    \2\ Costs and schedules are under review.
    \3\ To be determined.

        These five acquisitions have experienced cost growth of over $3
    billion and schedule slips of 3 to 5 years. Problems with cost growth,
    schedule slips, and performance shortfalls have serious consequences--
    they result in costly interim systems, a reduction in units procured,
    postponed benefits (in terms of safety and efficiency), or ``crowding
    out'' other projects.
        For example, STARS, which commenced operations at Philadelphia this
    past year, has cost FAA more than $1 billion since 1996. Most of these
    funds were spent on developing STARS, not delivering systems. When the
    STARS development schedule began slipping, FAA procured an interim
    system, the Common Automated Radar Terminal System (Common ARTS) for
    about $200 million. FAA is now operating Common ARTS (software and
    processors) at approximately 140 locations.
        Moreover, in fiscal year 2002 alone, FAA reprogrammed over $40
    million from other modernization efforts (data link communications,
    oceanic modernization, and instrument landing systems) to pay for cost
    increases with STARS. As a result of these cost and schedule problems,
    in March 2002, FAA officials proposed scaling back the program from 182
    systems for $1.69 billion to a revised estimate of 73 systems for $1.33
    billion. No final decision has been made, and FAA is currently
    reevaluating how many STARS systems it can afford.
        Cost growth of this magnitude must be avoided because only 60
    percent of FAA's fiscal year 2004 request for Facilities and Equipment
    is expected to be spent on new air traffic control systems, whereas the
    remaining funds are requested for FAA facilities, mission support
    (i.e., support contracts), and personnel expenses.

        There are large-scale acquisitions--both old and new--whose cost or
    schedule baselines need to be revised because the programs have changed
    considerably or benefits have shifted. For example, the Integrated
    Terminal Weather System (ITWS) provides air traffic managers with
    enhanced weather information. FAA planned to complete deployment of the
    new weather system in 2004 at a cost of $286 million. However, unit
    production costs have skyrocketed from $360,000 to over $1 million; FAA
    cannot execute the program as scheduled and may extend the deployment
    by 4 years.
        In addition, FAA intended to have the Local Area Augmentation
    System (Category I)--a new precision approach and landing system--in
    operation in 2004. It is now clear that this milestone cannot be met
    because of additional development work, evolving requirements, and
    unresolved issues regarding how the system will be certified as safe
    for pilots to use. Moreover, the more demanding Category II/III
    services (planned for 2005) are now a research and development effort
    with an uncertain end state. This means that benefits associated with
    the new precision approach and landing system will be postponed.
        Our work has also found that FAA has not followed sound business
    practices for administering contracts. We have consistently found a
    lack of basic contract administration at every stage of contract
    management from contract award to contract closeout.
        For example, we found that Government cost estimates were:
      --prepared by FAA engineers, then ignored;
      --prepared using unreliable resource and cost data;
      --prepared by the contractor (a direct conflict of interest); or
      --not prepared at all.
        FAA has stated that it will take actions to address these
    concerns--the key now is follow through.
        In addition to strengthening contract oversight, FAA needs to
    develop metrics to assess progress with major acquisitions, make
    greater use of Defense Contract Audit Agency audits, and institute cost
    control mechanisms for software-intensive contracts. FAA needs to
    obtain these audits from the Defense Contract Audit Agency for contract
    costs billed by private companies for research and development,
    production, and all costs related to system development. FAA should get
    these audits to ensure that the amounts billed are reasonable and that
    the government's interest is properly protected. By ensuring that only
    acceptable costs are paid to contractors, FAA will be able to stretch
    its procurement dollars further.
        With schedule slips and cost overruns in major acquisitions, it
    should be noted that FAA is not getting as much for its $3 billion
    annual investment as it originally expected.
        Tracking Costs.--An effective cost accounting system is fundamental
    to measuring the cost of FAA activities and provides the basis for
    setting benchmarks and measuring performance. Without a reliable cost
    accounting system, FAA cannot credibly claim to be, nor function as, a
    performance-based organization. It represents the underpinning for
    FAA's operation as a performance-based organization through the
    development of good cost information for effective decision-making. At
    the direction of Congress, FAA began developing its cost accounting
    system in 1996, which was estimated at that time to cost about $12
    million and be completed in October 1998. Now, after nearly 7 years of
    development and spending over $38 million, FAA still does not have an
    adequate cost accounting system, and expects to spend at least another
    $7 million to deploy the cost accounting system throughout FAA.
        Although FAA's cost accounting system is producing cost data for
    two of its lines of business, it still does not report costs for each
    facility location. For example, for the Terminal Service in fiscal year
    2001, about $1.3 billion of $2.4 billion was reported in lump-sum
    totals and not by individual facility locations.
        FAA also needs an accurate labor distribution system to track the
    costs and productivity of its workforces. Cru-X is the labor
    distribution system FAA chose to track hours worked by air traffic
    employees. As designed, Cru-X could have provided credible workforce
    data for addressing controller concerns about staffing shortages,
    related overtime expenditures, and to help determine how many
    controllers are needed and where. That information in turn is
    especially important given projections of pending controller
    retirements. Unfortunately, Cru-X as designed has not been implemented.
    We hope it will be in the coming year.
    building aviation system capacity and more efficient use of airspace to

                     PREVENT A REPEAT OF THE SUMMER OF 2000

        FAA needs to be strategically positioned for when demand returns
    through a combination of new runways, better air traffic management
    technology, airspace redesign, and greater use of non-hub airports. It
    would be shortsighted to do otherwise. FAA estimates that domestic
    passenger numbers are expected to return to 2000 levels by 2005,
    although the recovery in passenger traffic will lag by a year for major
    carriers. FAA also reports large increases in the use of regional jets
    (from 496 in 2000 to over 900 in 2002)--this bears careful watching
    because of their impact on FAA operations and modernization efforts.
        FAA's OEP is the general blueprint for increasing capacity. As
    currently structured, the plan includes over 100 different initiatives
    (including airspace redesign initiatives, new procedures, and new
    technology) and is expected to cost in the $11.5 to $13 billion range,
    excluding the costs to build new runways, but the true cost of
    implementing the plan is unknown. FAA estimates the plan will provide a
    30 percent increase in capacity over the next 10 years assuming all
    systems are delivered on time, planned new runways are completed, and
    airspace users equip with a wide range of new technologies.
        While airspace changes and new automated controller tools will
    enhance the flow of air traffic, it is generally accepted that building
    new runways provides the largest increases in capacity. The OEP now
    tracks 12 runways scheduled for completion in the next 10 years. Four
    of the runway projects are expected to be completed in 2003 at Denver,
    Houston, Miami, and Orlando airports. However, construction on several
    other airports has been delayed from 3 months to 2 years. There are
    other new runway projects not in the plan but important for increasing
    capacity, such as Chicago O'Hare. These runway projects are not in the
    plan because airport sponsors have not finalized plans or developed
    firm completion dates. FAA needs to continue to closely monitor all new
    runway projects.
        Progress has been made with OEP initiatives, but much uncertainty
    exists about how to move forward with systems that require airlines to
    make investment in new technologies. FAA and the Mitre Corporation
    estimate the OEP would cost airspace users $11 billion to equip with
    new technologies. For example, FAA and Mitre estimate the cost to equip
    a single aircraft with Automatic Dependent Surveillance-Broadcast
    ranges from $165,000 to almost $500,000, and the cost for Controller-
    Pilot Data Link Communications ranges from $30,000 to $100,000
    excluding the cost to take the aircraft out of revenue service.
        FAA is working to retool the OEP. With the slow down in the demand
    for air travel, FAA has an opportunity to synchronize the OEP with
    FAA's budget and set priorities, and address uncertainties with respect
    to how quickly airspace users will equip with new technologies in the
    plan. Senior FAA officials noted that hard decisions will need to be
    made. Further, some large-scale, billion-dollar acquisitions are not in
    the Plan but critical for its success. For example, the Enroute
    Automation Replacement Modernization project (new software and hardware
    for facilities that manage high altitude traffic with an estimate cost
    of $1.9 billion) is not an OEP initiative but needs to be fully
    integrated with the Plan and considered when setting priorities.
        It is a good time to rethink what reasonably can be accomplished
    over the next 3 to 5 years, and what will be needed by FAA and industry
    given the decline in Trust Fund revenue and the financial condition of
    the airlines. According to the Associate Administrator for Research and
    Acquisition, it is likely that the OEP will shift from a plan that
    relied heavily on airspace users to equip their aircraft to one that
    places greater emphasis on airspace changes and procedural changes that
    take advantage of equipment already onboard aircraft.
    striking a balance between how airport funds will pay for capacity and

                              SECURITY INITIATIVES

        A major issue for airports is funding the next phase of EDS
    integration. Thus far, nearly all EDS equipment has been lobby-
    installed. TSA's planned next step (integrating the EDS equipment into
    airport baggage systems) is by far the most costly aspect of full
    implementation. The task will not be to simply move the machines from
    lobbies to baggage handling facilities but will require major facility
    modifications. We have seen estimates that put the costs of those
    efforts at over $5 billion, and this is an almost immediate issue
    facing the airports.
        A key question is who will pay for those costs and how. While the
    current Airport Improvement Plan (AIP) has provided some funding in the
    past for aviation security, we urge caution in tapping this program
    until we have a firm handle on airport safety and capacity
    requirements.
        In fiscal year 2002, airports used over $561 million of AIP funds
    for security-related projects. In contrast, only about $56 million in
    AIP funds were used for security in fiscal year 2001. Continuing to use
    a significant portion of AIP funds on security projects will have an
    impact on airports' abilities to fund capacity projects. The following
    chart shows how AIP funds were used and for what type of project in
    fiscal year 2002.

        AIP funds as well as passenger facility charges (PFCs) are eligible
    sources for funding this work. However, according to FAA, PFCs are
    generally committed for many outlying years and it would be difficult,
    requiring considerable coordination among stakeholders (i.e. airports
    and airlines), to make adjustments for security modifications at this
    point. The following chart shows how PFC funds have been used since
    1992.

        There have also been proposals to raise the cap on PFCs; however,
    we urge caution before adding additional fees or taxes for air travel.
    Consumers already pay a significant amount in aviation taxes and fees.
    For example, a non-stop round-trip ticket costing $200 may consist of
    nearly $33 in taxes and fees, or 16 percent of the fare. On a
    connecting flight, the taxes on this ticket could be up to $51, or
    nearly 26 percent of the fare. Any further increases are likely to
    reduce airline revenues, given the weak demand environment and will
    further threaten the financial health of the industry.

                                AVIATION SAFETY

        The U.S. air transport system is the safest in the world and safety
    remains the number one priority for FAA. Until the recent Air Midwest
    crash in Charlotte, there had not been a fatal commercial aviation
    accident in the United States in 14 months.
        Progress has been made this past year in reducing the risk of
    aviation accidents due to operational errors and runway incursions.
    Operational errors (when planes come too close together in the air) and
    runway incursions (potential collisions on the ground) decreased by 11
    percent and 17 percent, respectively, in fiscal year 2002.
    Notwithstanding these improvements, operational errors and runway
    incursions should remain an area of emphasis for FAA because at least
    three serious operational errors and one serious runway incursion (in
    which collisions were narrowly averted) occur, on average, every 10
    days.
        In the current financially-strapped aviation environment, FAA must
    remain vigilant in its oversight to sustain a high level of aviation
    safety. FAA has recognized this need and has taken steps to heighten
    surveillance during times when airlines are in financial distress. For
    example, FAA has increased the number of inspections planned for
    distressed air carriers' internal aircraft maintenance operations. We
    are beginning an audit of this issue in the next several weeks.
        FAA also needs to pay close attention to the level of oversight it
    provides for repair stations. In the past 5 years, there has been a
    significant increase in air carriers' use of these facilities. In 1996,
    major air carriers spent $1.6 billion for outsourced maintenance (37
    percent of total maintenance costs), whereas in 2001, the major air
    carriers outsourced $2.9 billion (47 percent of total maintenance
    costs).

        Even as air carriers currently outsource close to half of their
    maintenance work, FAA has continued to focus its surveillance on air
    carriers' in-house maintenance operations with no comparable shift
    toward increased oversight of repair stations. For example, FAA assigns
    a team of as many as 27 inspectors to continuously monitor air
    carriers' internal maintenance operations, while typically, only one to
    two inspectors that have other collateral duties are assigned to
    monitor work performed at aircraft repair stations. Because use of
    repair stations represents a less costly way of getting maintenance
    work completed, the trend in outsourcing maintenance is likely to
    continue. FAA needs to consider this shift in maintenance practices
    when planning its safety surveillance work.
        Another significant issue is the pending wave of controller
    retirements. In May 2001, FAA estimated a total of 7,195 controllers
    could leave the agency by the end of fiscal year 2010. In general, the
    training process to become a certified professional controller can take
    up to 5 years. Given that time lag, FAA needs to take actions now to
    address when and where new controllers will be needed. The pending
    retirements underscore the need for an accurate labor distribution
    system. We will be starting an audit of controller training in the next
    several weeks.
        That concludes my statement, Mr. Chairman. I would be pleased to
    address any questions you or other members of the Subcommittee might
    have.

        Senator Shelby. Secretary Shane, welcome to the committee.

                            Office of the Secretary

    STATEMENT OF JEFFREY N. SHANE, UNDER SECRETARY FOR
                POLICY

        Mr. Shane. Thank you, Mr. Chairman, and ranking member
    Murray, Senators Bennett and Dorgan. It is always a pleasure to
    appear before you, and it is today. We appreciate very much
    your holding this hearing.
        I believe I can summarize my prepared remarks referred to
    by Senator Murray earlier, and do them fairly briefly. I will
    skip the part where I talk about how closely the Administration
    is monitoring industry developments. And I think Ken Mead has
    also covered a little bit of the ground, so I can be quick.
        Almost 3 months ago, in testimony before another Senate
    committee, I outlined the challenges facing the industry and
    pointed at the record losses that had occurred during calendar
    year 2001 and that were continuing into 2002.
        Wall Street analysts, even before the war in Iraq, were
    predicting about $6.5 billion dollars in additional industry
    losses for 2003. We now know that these losses could be even
    higher if the conflict results in an extended period of reduced
    demand for air travel.
        The airline industry has proven over the years to be
    remarkably resilient, however, and it is important to note that
    the news even now is not all bad. Despite heavy losses for the
    industry overall, for example a number of low fare airlines
    have remained profitable, and have been expanding their
    operations despite the downturn in demand.
        At the same time, our largest network airlines are making
    progress in controlling their costs. USAirways, as we all read
    the other day, emerged from bankruptcy 2 days ago. And
    American, despite a lot of concern in the market, has been able
    to avoid bankruptcy. That is because both carriers have found
    ways to reduce their cost structures dramatically and to retool
    their business plans. Other airlines are making similar
    progress.
        I have appended to my prepared statement some charts that
    illustrate the current state of the industry and the challenges
    that it is facing, particularly since the start of the war in
    Iraq. What I would like to do is summarize those charts very,
    very quickly.
        I apologize, I did not bring blow ups of the charts. I
    believe that we have made sufficient copies available so that
    everybody has copies. If that is not the case, please let us
    know and we will supply them right now.
        Chart 1 really covers ground that Inspector General Mead
    covered. It really just demonstrates how, in fact, the long
    period of record profits during the 1990s was transformed into
    a period that we now know to be record losses beginning in late
    2000 and early 2001.
        Chart 2 shows system operating profits or losses over the
    last 3 calendar years. But it is important because the airlines
    are divided, in that chart, into three different groups. The
    first group includes our largest network carriers. And the
    third group are low fare carriers.
        I apologize for the airline codes that we used to identify
    the airlines. We actually have a legend. They are not all self-
    evident. So we can supply you that to make clear who the
    airlines are that we are talking about.
        The important message from this chart is that while the
    industry as a whole has sustained operating losses approaching
    $10 billion for each of the past 2 years, the low fare
    carriers, as I indicated earlier, have indeed continued to earn
    profits.
        Chart 3 shows system-wide operating margins. Note the
    contrast between the double-digit negative operating margins
    for the large network airlines and the low fare carriers'
    positive operating margins during this time.
        Our review of recent information suggests that the
    financial trends observed in the quarterly data throughout 2002
    are continuing into 2003.
        Chart 4 compares weekly traffic levels, beginning in mid-
    December 2002, for those Air Transport Association member
    carriers that have international routes with traffic levels
    from a year earlier. It shows that from mid-December of last
    year to the end of January, traffic was up slightly over a year
    before. A pronounced downward trend begins in February,
    however, and accelerates after the start of the conflict in
    Iraq, especially for trans-Atlantic traffic.
        Finally, chart 5 compares daily traffic for the same
    carriers beginning March 12th of this year with traffic a year
    earlier. Initially the trend is up slightly but then declines
    sharply at the start of the hostilities. By March 26th, traffic
    was down about 20 to 25 percent for each of the regions shown
    on the chart.
        So where does this leave us? Many airlines have suffered
    large losses for more than 2 years, are heavily leveraged, and
    are now dealing with steep declines in demand. Does this mean
    that the airline industry is doomed to fail? Certainly not. But
    there will be change. Airlines are working hard to do what they
    must do to survive and to eventually return as viable
    competitors.
        We are going to get through this. My personal conviction is
    when we do, the industry will look a lot like the industry we
    have today except that it will be more cost-effective, more
    competitive, and more robust.
        Let me just say one thing particularly in response to
    Ranking Member Murray's comments about Secretary Mineta's
    statement for the press last night. Secretary Mineta, I hope
    everybody knows, has been a consistent champion of some limited
    temporary assistance to the airline industry. There has never
    been any question about that. My testimony was prepared at a
    time that productive negotiations were already underway between
    the Administration and Congressional leadership. Those
    negotiations, I hope, are continuing.
        There is, as the secretary said, a considerable gulf
    between where the Administration believes we should come out
    and where the House and the Senate votes yesterday set the
    numbers.
        We should continue to negotiate. I think the biggest
    difference, if I can just comment on this briefly, and I know
    we will have a colloquy about it afterwards, is that it is
    important to recognize that USAirways came out of bankruptcy on
    Monday. It is important to recognize that through heroic
    efforts American Airlines has been able to reduce its cost
    structure such that it did not have to go into bankruptcy.
    Other airlines are doing exactly the same thing.
        The question for the Congress and for the Administration
    must be what measure of assistance is appropriate given the
    absolute duress the industry is in without compromising or
    interfering with a process that this industry has to go
    through. Otherwise, if it does not go through this process now,
    if it does not retool itself, if it does not fix itself for the
    future, we will face this issue every time there is another
    crisis and it will be a perennial albatross for every
    administration and for every Congress that succeeds us.

                               PREPARED STATEMENT

        That is really the discussion that we should be having. We
    believe that some assistance is appropriate. The level of that
    assistance is the only thing that separates the Administration
    and Congress right now.
        Let me stop right there and I do look forward to any
    questions you may have. Thank you.
        [The statement follows:]

                     Prepared Statement of Jeffrey N. Shane

        Chairman Shelby, Ranking Member Murray, and Members of the
    Subcommittee, I appreciate the opportunity to appear here today to
    discuss the state of the airline industry.
        As you are well aware, these are extraordinary times for the
    airline industry. Significant challenges are occurring virtually every
    day. The Administration is working hard to keep up with these
    developments and to assess their near-term and longer-term
    implications.
        Almost three months ago, on January 9, in testimony before the
    Senate Committee on Commerce, Science, and Transportation about the
    future of the airline industry, I pointed to record losses during
    calendar year 2001, continuing heavy losses during 2002, and into 2003.
        We now know that the predictions for large losses during 2002 were
    correct, and Wall Street analysts, even before the war in Iraq, had
    changed their loss predictions for 2003 from the range of $2.5 to $3.0
    billion to about $6.5 billion. The large network airlines that today
    account for a major part of our domestic passenger air transportation
    system account for most of these losses. The war in Iraq may both
    reduce their revenue and increase their losses in 2003.
        In my testimony three months ago I also pointed to the fact that
    the airline industry has proven to be remarkably resilient over the
    years, and that not all news was bad. Despite the overall heavy losses
    for the industry, and in stark contrast to the experience of the large
    network airlines, a cadre of low-fare airlines had remained profitable
    and was rapidly expanding. This trend has continued as well.
        In addition, we now see individual large network airlines making
    progress in getting their costs under control. For example, USAirways
    has emerged from bankruptcy, and American has thus far avoided it, in
    part because they have been successful in reducing their costs by
    restructuring labor costs and overhauling their business plans. Other
    large network carriers have also progressed with their cost control
    efforts.
        Many issues are now at play--structural issues that emerged before
    September 11, the aftermath of the September 11 terrorist attacks, the
    sluggishness of the return of air travel demand, and the war in Iraq.
    How all of this is resolved will have major consequences for the
    airline industry and related industries, and, indeed, our economy for
    many years to come.
        To provide context, before getting into more specific details about
    what is driving the financial plight of much of the industry, an
    important deregulation development must be briefly discussed.
    Specifically, two very different types of carriers have evolved--large
    network carriers and low-cost carriers. Generally speaking the former
    are pre-deregulation carriers and the latter are new airlines that
    evolved after deregulation. To a certain extent these two types of
    airlines serve different types of markets, have different business
    strategies, and focus on different customers, even when they operate in
    the same geographic regions.
        A basic reason for the emergence of the low-fare airlines is that
    this was the only effective response to the powerful networks that were
    quickly built by the pre-deregulation airlines. Low costs allowed the
    new carriers to charge such low fares that they could profitably serve
    a demand sector that was mostly unserved by the large network airlines.
    While these airlines, other than Southwest, struggled for years to
    establish a competitive toehold, several have now done so. Almost
    ironically, while the low-cost strategy was initially pursued as a
    vehicle for coexisting with the larger, dominant network airlines, the
    success of this strategy now poses a challenge to the continuing
    viability of the larger airlines unless they too are successful in
    their own efforts to control costs.
        But both types of operation are vital components of our Nation's
    air transportation system. Low-cost airlines are an increasingly
    important element of our commercial air travel system. Their
    substantially lower costs enable them to provide capacity for price
    sensitive passengers, and to price compete for time sensitive
    passengers who are otherwise faced with substantially higher prices.
    But the traditional ``major'' airlines, through their feeder systems,
    serve an unmatched variety of markets--including a great many smaller
    communities that would not be on the aviation map without them. Over
    the course of many decades our largest airlines have established
    critical international franchises as well--links to foreign markets
    that are essential to trade and economic growth.
        The simple truth is that the markets for air travel are best served
    by airlines pursuing diverse strategies, and just one category or the
    other is unlikely to adequately and efficiently serve demand. That is
    why we cannot be cavalier about any part of the industry, and why the
    Administration is watching developments so closely.
        With this background I will now briefly address the various changes
    and events that have contributed to the situation facing our major
    airlines today by directing your attention to a series of charts. Chart
    1 shows why a long period of record profits for the airline industry
    abruptly came to an end well before the September 11 terrorist attacks.
    This chart shows trends both in unit revenues, or operating revenues
    per available seat mile, known as RASM, and in unit costs, or operating
    expenses per available seat mile, known CASM. Note that for several
    years CASM increased very slightly, compared with much larger increases
    in RASM. These trends portray a period of solid revenue growth and cost
    control underpinning continual profitable operations, indeed several
    years of record profits. But the combination of increasing costs
    beginning in 1999, and declining demand starting in early 2001, turned
    record profits into losses. Indeed, the decline in industry
    profitability for the year ended June 30, 2001, compared with a year
    earlier, was the largest year-over-year decline ever, before September
    11. The losses for the year ended June 30, 2001, were not record
    losses, but that too changed abruptly with the terrorist attacks.
        Chart 2 shows system operating profits or losses by quarter for the
    last 3 calendar years for the large network carriers, and a number of
    other airlines including a group of low-cost carriers. These carriers
    account for over 90 percent of the passenger industry. Note first, that
    these carriers collectively have sustained operating losses approaching
    $10 billion for each of the past 2 years.\1\ Observe, however, that the
    group of low-fare carriers has continued to earn profits during this
    same time, and that this is not just attributable to Southwest. Five of
    the six low-fare carriers earned profits in 2001, and half of them
    earned profits in 2002, while two of the other three were close to
    break even. Note next, that the last profitable quarter for the large
    network carriers was the third quarter of 2000, and also, these
    carriers continued to suffer sizeable losses throughout 2002. It is
    especially important to note that these carriers' losses have
    accelerated since the second quarter, including the third quarter,
    which is normally their best quarter of the year. Despite the
    disastrous losses during the last two quarters of 2001, total losses
    for calendar 2002 approach the same levels. Indeed, in reality 2002
    losses were even greater given that these six large network carriers'
    operations were considerably smaller.
    ---------------------------------------------------------------------------
        \1\ Fourth quarter 2002 data are preliminary and subject to change.
    ---------------------------------------------------------------------------
        Chart 3 shows systemwide operating margins (operating profit or
    loss divided by total revenues), and, as just indicated, the negative
    operating margins of the large network carriers were even greater in
    2002 than a year earlier. Note also that this varies greatly from
    carrier to carrier. During 2001, for every $5 collected by American and
    United in revenues, they had $6 of costs. You can also see that during
    the first three quarters in 2002 for which we have final results these
    tendencies do not change much for either carrier. Finally on this
    chart, note that in contrast to the double-digit negative operating
    margins for the large network airlines, the low fare carriers earned
    very respectable positive operating margins. Indeed, the margins for
    these carriers in 2001 exceeded those for the network carriers for
    2000.
        In addition to the financial information the airlines file with the
    Department every quarter, they also file preliminary data on a monthly
    basis. While this information is subject to change, we believe it can
    be relied upon to reveal general tendencies. Our review of this
    information suggests that the financial trends you have just observed
    in the quarterly data throughout 2002 are continuing into 2003. Indeed,
    the results for the large network carriers in January 2003, or 16
    months after the September 11 terrorist attacks, are no better than a
    year earlier, despite the fact that travel demand was still severely
    depressed.
        With this context, please look at Chart 4. This compares weekly
    traffic, in terms of revenue passenger miles, for Air Transport
    Association member carriers that provide international service,
    beginning for the week ended December 15, 2002 with traffic a year
    earlier. This shows that from mid December 2002, to the end of January
    2003, traffic was up slightly over a year earlier. Then note the rather
    marked downward trends beginning with early February. Next, note the
    increased rate of decline at the time of the first strikes in the war.
    This information is broken down into four major traffic categories,
    and, as would be expected, transatlantic traffic has suffered the
    greatest decline.
        Chart 5 compares daily traffic for the same carriers beginning
    March 12, 2003 with traffic a year earlier. Initially the trend is up
    slightly until the Azores Summit. Traffic then plummets after the 48-
    hour ultimatum, and again as the war starts. Note that by March 26,
    traffic is down from about 20 to 25 percent for each category.
    Subsequently, the year-over-year declines eased up for several days
    before worsening again for all but the domestic category.
        So where does this leave us? Many airlines, including the large
    network airlines that now provide the bulk of airline service in the
    United States, have consistently suffered large losses for more than 2
    years, they are heavily leveraged, and now, once again, they see
    airline demand in steep decline for some unknown period. Does this mean
    that the airline industry as we know it today is doomed to fail? No,
    but there will be change. Airlines that are in trouble are all working
    hard at what they must do to survive and eventually return as viable
    competitors. How quickly and to what extent they recover will depend
    largely on three factors: how much they are able to reduce their costs,
    the recovery of travel demand, and the extent to which carriers reduce
    capacity in light of the now-diminished level of demand.
        While my focus here today is the financial state of the airline
    industry, this painful process affects everyone in the aviation
    industry: aircraft lessors and investors, aviation vendors, airports
    and their concessionaries, and--more than anyone else--airline
    employees. Since September 11, more than 100,000 airline employees have
    lost their jobs. Just in the past 2 weeks airlines have announced an
    additional 10,000 layoffs. The aircraft industry has also been hard
    hit. Of the 7,525 jet aircraft available for service today, 971 are
    either stored or temporarily inactive.
        We are going to get through this. My personal conviction is that
    when we do, the industry will look a lot like the industry we have
    today, except that it will be more cost-effective, more competitive,
    and more robust.
        As many of you know, the Administration has recently unveiled its
    proposal, Centennial of Flight Aviation Authorization Act as a
    successor of AIR-21, which expires at the end of this fiscal year. A
    lot of people at FAA and in the Office of the Secretary have spent a
    lot of time over the past several months developing those proposals,
    and we are proud of them. They would promote the industry's growth and
    vitality while retaining safety as our top priority. We plan to
    reinforce our commitment to safety by making substantial investments in
    National Airspace System infrastructure and ensuring that our highly
    trained controller workforce is fully capable of sustaining its high
    levels of performance over the course of the next reauthorization
    period and beyond.
        Our proposal will also ensure that we are prepared for the demand
    levels predicted in the FAA's recent industry forecast by continuing to
    fund airport capacity enhancements at record levels and restructuring
    Airport Improvement Program formulas and set-asides.

                                   CONCLUSION

        Mr. Chairman and members of the Subcommittee, thank you for the
    opportunity to testify here today. I look forward to responding to any
    questions you may have.

                         RELIEF TO THE AIRLINE INDUSTRY

        Senator Shelby. Secretary Shane, as you know, the committee
    reported a Supplemental Appropriations Act yesterday that
    included provisions to provide some relief and assistance to
    the aviation industry for relief to the airlines. Do you
    believe it is better to lower carrier costs in the form of a
    temporary suspension of security fees prospectively for a
    period of time or to reimburse carriers for security fees that
    they have already paid to the government?
        Mr. Shane. Well, either formulation will deliver relief to
    the industry and I am not sure the industry itself is of a view
    about which is preferable. I would evaluate those two scenarios
    essentially in terms of ease of administration.
        The most important lesson we took from the compensation
    program that Congress enacted immediately after 9/11 was that
    the process of evaluating claims, if you are creating a system
    in which airlines are required to document costs, document
    claims in a complicated way, and then the Department of
    Transportation necessarily has to validate all of those claims,
    the amount of time that we simply have to expend in order to
    validate the claims is such that it is inconsistent with what
    we are trying to do with the program, which is deliver the
    relief in real-time.
        The reason we have to do it is that my friend, Ken Mead,
    right here will have something to say about it if we are not
    vigilant in the way we evaluate those claims.
        Senator Shelby. He should have something to say about it.
        Mr. Shane. That is right. That is why I think if we are
    looking at various forms of assistance to the industry right
    now, the Department of Transportation would strongly favor a
    system in which we simply either reimburse or forgive fees that
    the industry incurs. It does not require subjective evaluation
    of whether these are really the amounts that we should be
    paying. We know what those amounts are. They are written down
    someplace. We just write checks.

                         REIMBURSEMENT TO THE CARRIERS

        Senator Shelby. Let me follow up on that.
        One of my concerns with the reimbursement to the carriers
    is that the payment would include the fees that are paid by the
    passengers. I do not know why we would levy a fee first on the
    flying public and then pass that directly to the airlines.
        Mr. Shane. The airlines, in this environment, maintain that
    they are not able to pass that fee along to the carriers, in
    fact, that there is no market power whatsoever in this market,
    and that, in fact, they are absorbing that fee. It is supposed
    to be passed along and in a normal environment you would expect
    it to be passed along and tacked onto the ticket.
        The fact is the prices in the market right now are what the
    market sets and there is no incremental amount that you could
    say is, in fact, passing on a fee to the passengers.

                           OPERATIONAL EVOLUTION PLAN

        Senator Shelby. The FAA has a plan for enhancing capacity
    called the Operational Evolution Plan or the OEP. Since the OEP
    was first published, the aviation industry has been hard-hit by
    the economic downturn of 9/11, increased security costs, and
    rising fuel prices. I want to address this question to you,
    Madame Administrator.
        With the industry in such upheaval, what changes are being
    made to the OEP to adjust to the new realities in airline
    operations and the market environment?
        Ms. Blakey. It is a good question because certainly there
    is a dynamic there that I think we have to respond to in real-
    time. For an organization like the FAA that depends
    tremendously on consultation with the industry and the research
    community to construct a solid plan, this is certainly calling
    us to really step up real-time on this.
        We just issued a new version of OEP, 5.0, which does stay
    the course for a 10-year period to get 31 percent additional
    capacity at the end of 10 years. It is a good plan. It is one
    that there is a remarkable degree of consensus in the industry
    and in the affected communities that it makes sense.
        That said, what I have asked that we do is develop a very
    intensive approach. We call it the skunk works, to look at the
    OEP and say okay, what could we put on the fast-track here that
    number one, will not burden the industry; number two, is
    develop technology; and number three, could be implemented in
    the next 1, 3, 5 years at the outside. Not the 10-year horizon.
    Let us see what we can do in terms of really fast-tracking some
    of this.
        So far the staff has come up with some very interesting,
    and I think productive, avenues. We are going to vet them in
    the next month or 2 with the industry and with others before
    taking this out. But I think this is going to yield some more
    immediate results, if you will, from that standpoint.
        Senator Shelby. Mr. Shane, the Aerospace Commission
    recommended making the transformation of the U.S. Air Traffic
    Management System a national priority. What confidence do you
    have that the FAA and the OST are making the necessary changes
    to the OEP, as warranted by the call to action by the Aerospace
    Commission?
        Mr. Shane. Thank you, Mr. Chairman.
        I have great confidence in that. The reason I have such
    confidence is that Administrator Blakey and I have talked about
    that issue dating back to before the Aerospace Commission
    actually issued that report. The Administrator is absolutely
    committed to giving life to some of the vision in the report.
    We have spoken to Secretary Mineta about it and the Deputy
    Secretary, Michael Jackson, as well.
        I think in the not-too-distant future we will probably have
    a more concrete announcement for you. But at this point, there
    is not any question that we are on a path to realizing that.

                             RISING OPERATING COSTS

        Senator Shelby. A major cost driver of FAA's rising
    operating costs has been salary increases from collective
    bargaining agreements negotiated under FAA's personnel reform
    authority. Mr. Mead's prepared statement indicates that
    controller salaries have increased by 47 percent--47 percent
    since 1998.
        Can you compare the increase in salary for air traffic
    controllers from 1998 through 2003 to other work forces inside
    FAA, as well as other Federal Agencies?
        Also, what can you tell us about overtime costs and other
    cost drivers that are due to memorandums and MOUs related to
    controller contracts?
        Ms. Blakey. The Inspector General has focused on this
    issue. And in fact, is undertaking an audit on just that issue
    right now. This goes to the issue of a contract that was
    negotiated in 1998 which did substantially increase the
    compensation for controllers.
        As time has gone on there have also been a number of
    additional, if you will, side agreements, these memoranda of
    understanding which, in some cases, do add on costs in terms of
    the way the system is running. There are about 1,500 of these,
    many of which are perfectly fine and address operational work
    rules et cetera.
        But there are some that without doubt add to the cost of
    this contract substantially, as well as ones that really do
    infringe on the rights of management to deal flexibly with the
    demands in traffic and in the kind of management that the
    system needs from an efficiency standpoint.
        We are very committed to working with NATCA to address
    those issues. This is something that we have already notified
    the union that we do have a number of those that have been
    pointed out by the Inspector General that fall under the
    category I just discussed, that we need to sit down at the
    table and review and come to a more efficient way of operating
    from the standpoint of the taxpayer's money.
        Senator Shelby. Mr. Mead, do you want to comment on that?
        Mr. Mead. I appreciate Administrator Blakey's movement to
    get their hands around this.
        One thing that was pretty alarming to us was that nobody
    knew how many of these deals or memoranda understanding
    existed. There was no inventory. In fact, as part of our audit
    effort we probably started developing the inventory. And they
    have very large financial impacts.
        As Administrator Blakey says, a lot of them are legitimate
    and are needed, but we really ought to know what the cost
    impact of them is.

                      RELIEF PACKAGE FOR AVIATION INDUSTRY

        Senator Shelby. Senator Murray.
        Senator Murray. Thank you, very much, Mr. Chairman. Mr.
    Shane, thank you for your testimony.
        I just want to go back to this again because we are trying
    to work through this. The Senate had a $3.5 billion aviation
    package. The House has $3.2 billion. And again, as we noted,
    Secretary Mineta said there is a huge gulf here.
        I just wanted to see if you would help us pin this down a
    little better and tell us precisely what the structure of a
    relief package the Administration will support and what amount?
    If you could tell us, we would really appreciate it.
        Mr. Shane. I really have not been involved personally in
    the negotiations that have been taking place. I am aware of
    them. And I would simply ask that I be excused from trying to
    give you an amount, because I really did not come authorized to
    talk amount, and it would be interfering with, I think, a
    conversation that is going on that I am not privy to.
        The structural issue is, as I said in response to the
    Chairman's questions, that we would emphasize the importance of
    ease of administration. Let us find a set of security fees that
    we can quantify easily and that we can either forgive or
    reimburse on day one, simply because those numbers are readily
    available. If we go beyond that and get into a variety of
    imponderables and airlines then begin putting claim documents
    together--first we have to figure out a form. They will have to
    fill out the form, and then we have to evaluate the form. Weeks
    and months can go by before they will see any money from a
    process like that. And that is inconsistent with what they need
    right now in our judgment.
        So we would urge whatever the amount, which is going to be
    the product of a negotiation, I expect, whatever the amount, it
    should be an amount that is delivered in a very transparent and
    easily administered form.
        Senator Murray. So you have not heard any specific number
    mentioned by the Administration whatsoever?
        Mr. Shane. I am not--well, I have heard a lot of numbers
    but I really do not know precisely, because honestly it is
    taking place way above my pay grade, where the Administration
    is at the moment.
        Senator Murray. Specifically let me ask you, as part of the
    amendment we passed yesterday, we put in funding for expanding
    unemployment insurance for laid-off workers. Do you find that
    to be a reasonable part of the package?
        Mr. Shane. Well, I am an undersecretary of transportation,
    not an undersecretary of labor and Department of Labor really
    would be the proper agency to comment on that.
        I would just say generally that typically we extend
    unemployment insurance benefits in times when unemployment
    across the country is 10 percent or more. There have been two
    extensions, as I understand it, of unemployment benefits thus
    far in an environment in which the unemployment rate was in the
    neighborhood of 5 to 6 percent.
        So my guess is the Administration will say it is
    inappropriate to extend those unemployment benefits yet again.
    It would be an extraordinary thing to do.
        Senator Murray. This is for aviation workers and I
    understand they have had the triple whammy. They had September
    11th, they have had the downturn in the economy. And now, with
    the Iraq war, we have had 10,000 lay-offs from aviation and
    related industries just since the war started. This is not
    something somebody did to make this happen. These are country-
    wide, nationwide, worldwide issues that have impacted these
    employees. Certainly the Administration would have sympathy for
    that.
        Mr. Shane. I think the Administration has enormous sympathy
    and there is no question that the workers have taken it on the
    chin in a way that we have not seen before. There are a whole
    variety of programs that are available to the workers including
    national emergency grants and training programs and
    reemployment programs.
        Again, I am way out of my depth in talking about the Labor
    Department's programs and I really do not want to get much
    further into it. But I have no reason to think that the
    Administration is going to be supportive of yet another
    extension, even for a particular sector.
        There is a fairness element. Industries across the board
    are suffering as a result of the environment that we are living
    in today. A lot of it can be attributed to the same causes that
    the airline industry's problems are attributable to. It is just
    difficult to explain to people in another sector why it is that
    you have chosen this sector to provide special benefits to.

                     POST-9/11 IMPACT ON AVIATION INDUSTRY

        Senator Murray. They have had a huge impact over the past
    2\1/2\ years, or 1\1/2\ since September 11th.
        What about the airlines? We put incredible pressure on them
    in terms of safety and security since September 11th, and
    certainly our airports as well. Massive requirements that we
    have put on top of them. Do you not think that has some kind of
    impact on their ability to avoid bankruptcy?
        Mr. Shane. There is no question that the Government has
    picked up a tremendous amount of the cost of the security that
    we have laid on. We have taken over all of the airport
    security. Those are all Federal workers now. They used to be
    airline employees.
        There is a tremendous amount that has been done. There has
    been the $15 billion from 9/11. The question now is whether or
    not we are going to start finding ways of gifting the industry
    with so much more assistance that we take them off the track
    that they are on, leading to a perpetuation rather than a
    solution of the problem. And that is a genuine concern.
        Senator Murray. But would you not agree that we have
    required a lot of our airports and our airlines in terms of
    security that has added a burden at a time when they are still
    struggling because of the economy?
        Mr. Shane. Yes, and we are also requiring a lot of every
    other sector of the transportation industry and I am not aware
    that we have picked up any portion of the costs that other
    transportation sectors are being required to bear or will be
    required to bear.
        Senator Murray. I would just argue that the aviation
    industry has, in fact, really been hit because obviously
    September 11th had an impact on people's willingness to travel
    by air. And certainly that has not eased in the last months and
    certainly not since the war in Iraq started, would you not
    agree?
        Mr. Shane. It eased and then it went down again. Yes, the
    war in Iraq has been obviously a repeat in terms of the actual
    adverse impact on demand.
        But again, without trying to suggest that we are out of the
    woods in any way, or to suggest that it is inappropriate to
    think about some additional assistance. That is not the
    position of the Administration. What we are saying is that it
    is important that we calibrate that additional assistance in a
    way that does not compromise what the industry must do now if
    we are to have a viable air transportation system going
    forward.

                        SUPPLEMENTAL APPROPRIATIONS ACT

        Senator Murray. Let me just ask you, do you foresee a
    scenario where the President would veto the supplemental if we
    do add $3 plus billion for aviation?
        Mr. Shane. I have not had that conversation with anybody in
    the White House. I have no answer for that.
        Senator Murray. I know you are not going to let me pin you
    down, but there is a rumor swirling that the Administration has
    drawn a line in the sand at $900 million. That is about a
    quarter of the size that the House and Senate versions both
    have in them. Have you heard that figure and do you think that
    figure includes any help for workers?
        Mr. Shane. Somebody reported to me that that figure was in
    the press, but I had not heard it anywhere else. So I have no
    way of knowing whether that has any validity whatsoever as a
    negotiation position or an Administration position.
        Senator Murray. So you have heard nothing about what is in
    any kind of formal talks from the Administration, whether it
    includes work for employees, whether it includes airports, what
    kind of structure for the airlines? You have heard nothing?
        Mr. Shane. I have heard that we have circled around the
    idea of a very limited, targeted form of assistance, along the
    lines that I was suggesting which is related specifically to
    the security fees that are paid by passengers now and paid by
    the industry.
        That is as much as I have heard. I do not know more than
    that. I do not know what would be acceptable at the end of the
    day to the Administration. I do know that it would be
    substantially less than the amount voted in either house of
    Congress yesterday.
        Senator Murray. I am sorry, it will be substantially less
    than?
        Mr. Shane. An amount acceptable to the Administration would
    have to be substantially less than was voted in either house of
    Congress yesterday. That was what Secretary Mineta was saying
    last night.
        Senator Murray. Would it include anything for airports?
        Mr. Shane. No, I do not believe that we had anything in
    mind for airports. Again, I do not mean to be cute here. I am
    just getting a little bit beyond my depth because this
    negotiation has been taking place, I believe, between White
    House staff members and members of Congress. And I have not
    been privy to those personally. In recent days I am not even
    sure any of us at the Department have been privy to them.
        Senator Murray. I will hold on my other questions and let
    other members of the committee respond and then come back to
    Ms. Blakey. Senator Bennett?

                     STATEMENT OF SENATOR ROBERT F. BENNETT

        Senator Bennett. Thank you. This is an interesting picture
    that you have painted for us here this morning. And as I go
    through it, I ask myself how much can the Government do about
    it. Because many of the things that I see that ought to be done
    are things that probably ought to be done by the airlines
    themselves.
        First, let me just make a few comments and then I will
    engage in a dialogue here. You referred to Southwest and Jet
    Blue as the low-cost carriers. You are aware that Jet Blue's
    fares are higher than their competitions? Were you aware of
    that?
        To fly from New York City to Fort Lauderdale on Jet Blue is
    $36 more than to fly on their competitor. And the reason is
    that experience on Jet Blue is $36 better than the experience
    on their competitors. People who fly Jet Blue become
    tremendously loyal, almost fierce defenders of the Jet Blue
    experience and say we want to fly Jet Blue wherever you go.
        I think there is a lesson there that I do not know what
    Government can do about. But when I was in business I focused
    tremendously on consumer satisfaction.
        We now have a circumstance where consumers are almost
    driven away from air travel by the experience. Jet Blue goes
    out of their way to do everything they can to create a
    worthwhile experience and they can charge higher fares, thus
    saying to us that air travel is not a commodity. There are
    alternatives. We think of commodities, we think of competition
    and commodity, it is solely on the basis of price. There is
    competition on the basis of consumer satisfaction.
        Again, if you could think of something the Government could
    do to get airlines to try to make the experience more
    satisfactory, and thereby people would be willing to pay a
    little more to have the experience, instead of going there only
    when they have no other alternative.
        One thing we could do which probably does not fall in your
    department is to reduce the hassle factor around security. I am
    as concerned as anybody about security but if I were running
    the airline industry as a whole as a business, I would
    certainly do something about the experience you get with TSA.
        Now TSA, to its credit, is a better experience than it used
    to be following September 11th in that period when it was still
    contracted out to others. The TSA people are substantially more
    professional and handle that experience with a better sense of
    consumer satisfaction than you used to get.
        I remember when I was in the Department of Transportation
    when hijackings began, we talked about--forbidden word--
    profiling as a way to deal with hijacking. Now it is not
    politically correct to even use the word unless you are using
    it in speech to denounce it.
        But airlines know their customers. Do a background check on
    a frequent-flier and discover that that frequent-flier is not,
    nor has ever been, nor ever will be connected with a terrorist
    organization. Cannot that frequent-flier, thus checked out, and
    not picked on the basis of so many miles, but checked out with
    an actual profile, be given a pass?
        We senators come into the Capitol without having to go
    through a security check because the Capitol Police knows who
    we are. I am not suggesting that we get to the point where
    everybody has to be carefully identified, but would it not help
    the business flier to want to get back on the airplane if he or
    she knew, properly profiled and in an identity bank and even
    with biometrics--you put your hand on a screen, so as you go
    through they know that is who you are you get to go by without
    having to strip all the way down to taking off all your shoes
    and the kinds of things we go through now?

                               BUSINESS TRAVELERS

        We have got to get the business traveler back on the
    airplane. If you are making a business decision and you are
    going to go downtown from Washington to New York City, you say
    well I have got to be at Reagan at least 1 hour before they
    takeoff. And it is going to take me 20 minutes to get from my
    office to Reagan. So this is 1 hour, then a little extra, 1\1/
    2\ hours before I get on the airplane. And then it takes me 1
    hour to fly to LaGuardia, so that is 2\1/2\ hours. And then,
    depending on the time of day, it is going to take me a half
    hour in good times and 1 hour in bad times to get from
    LaGuardia to downtown New York. Very, very strong incentive to
    be on the Metroliner.
        I happen to think that is a good idea. I would like to see
    more people on the Metroliner. But that same phenomenon is what
    is driving people in other markets to the highways. That is the
    competition for the airline, not the train. It is the highway.
    Testimony shows the highway is less safe, more congested. We
    have to appropriate money for highways to deal with the
    increased traffic there.
        How do we get people back on the airplane? We make it a
    better experience and, aside from dealing with that TSA thing,
    I do not know quite what Government can do in this area.
        I just want you to think about that and see if you can come
    up with any.
        Now, moving quickly, and I apologize to my colleagues for
    taking so much time. But in this morning's Wall Street Journal,
    a new airline policy, kill United. Did any of you read that? If
    not, read it and I would be interested in your response.
        Again, when I was at the Department of Transportation, we
    had to deal with serious problems in the railroad industry, and
    that is referred to in this piece, where we dealt with the Penn
    Central bankruptcy. I remember all of the ins and outs about
    the Penn Central bankruptcy. It was an important part of my
    tenure there.
        Now we are going through bankruptcy in the airline industry
    and this is a suggestion based on a railroad experience. When
    Conrail was broken up and Conrail's routes were given to the
    two competitors, and they are saying United should be broken up
    and their facilities given to competitors to reduce capacity in
    a way that is rational.
        With that rant on those two areas, do you have any comments
    or suggestion as to what we can do, looking at it not from the
    standpoint of legislation or budget, but from the standpoint of
    overall approach to this tremendous problem that you have
    presented to us here this morning?
        Mr. Shane. First, Senator, let me just say I remember
    fondly your days as an Assistant Secretary of Transportation.
    You probably do not remember, but we were colleagues back then.
        Senator Bennett. You stayed in the industry.
        Mr. Shane. I have been in and out more times than I care to
    remind myself of but I am in at the moment.

                                      TSA

        Let me just say, in response to the hassle factor, the most
    important thing you said is that it is much reduced. That TSA,
    which is as you noted no longer part of the Department of
    Transportation but now part of the Department of Homeland
    Security, has performed heroically in the course of the last
    year.
        There is no question that there were enormous growing pains
    and that the hassle factor became a buzz in the business
    community. Nobody would fly because of all the reasons that you
    cited.
        I do not see that today. I am speaking anecdotally, I know,
    but the fact is that my impression is average waits are about
    what they were prior to 9/11. TSA and its very professional
    cadre of screeners have done an enormous job of bringing that
    wait time down, so that you really do not have to plan very
    differently now for an airplane ride than you did prior to 9/
    11. And enormous credit goes to the folks at TSA who have made
    that happen.
        There is a profiling system that TSA is working on. It is
    called CAPPS-2. You have undoubtedly read about it and it does
    embrace much of the vision that you have for making the process
    easier to create greater confidence in our knowledge of who, in
    fact, is boarding an airplane. I have no doubt that, as time
    passes, we will have a much improved system for looking at
    passengers and not having to put everybody through the wringer
    on a random basis.

                                AIRLINE INDUSTRY

        As to how you get people back on the airplane, I think the
    Congress should be very proud of what it did in 1978 when it
    deregulated the industry. We have been to hell and back in this
    industry any number of times since that time but Congress has
    always stayed the course.
        I am old enough to remember in the early 1980s when the
    industry was here, in Congress, talking about worst ever losses
    in the industry since the beginning of time. The same claims
    were made in the beginning of the 1990s. And we had meetings
    with the industry about what form of assistance might be
    appropriate. Serious consideration was given to that. There
    never was any assistance back then.
        I do not pretend that any of that was anything like what we
    have going on today. This is a world apart from even those long
    dark nights of the soul that the industry went through.
        But we have never veered from the conviction that we have
    as a country that the best solution for this industry is to
    allow the market to work. When we are prepared to go forward
    and provide some assistance in the current environment--and I
    am repeating myself here, I realize--we have to be mindful of
    the importance of letting the industry make the changes it has
    to make if, in fact, it is going to be viable in the long-term.
        When you referred to an article in the Wall Street Journal
    about a putative policy of killing United and breaking it up,
    that to me is mindless. The first thing that would happen if
    you actually tried to kill United is that you would vitiate all
    the good work that is happening now. By taking that additional
    capacity out, you take the pressure off everybody else to
    continue to reduce costs the way they are doing right now.
        That is not a good position. United going away is not a
    good solution for this industry. And it would be a horrible
    solution, of course, for the thousands and thousands of people
    who work for United and who are served by United. So that has
    no place. I know you did not suggest that it would have any
    place, but it has no place in Government policy, as we sit here
    today.
        Senator Bennett. It gave you the opportunity to give you
    the speech you have just given.
        Mr. Shane. Those are some random comments that I would have
    on your remarks.
        Mr. Mead. I have two quick comments.
        On what you were referring to about doing a background
    check on people like the U.S. Senators, you can come in here
    and you do not have to go through a big hassle. And you said
    that was because they know who you are and know about you.
        TSA, which is now at Department of Homeland Security, is
    working on what they call a smart card that, I think, is
    probably about a year away. And one of the key questions is
    going to be how much information do we want to know about you
    before you get a smart card? Do we want to know about your
    income taxes? Do we want to know about your travel? Do we want
    to know who your friends are? And that is very controversial.
        As Jeff said, also, the profiling, I forget what they call
    it, but Lockheed Martin has a contract right now. It was issued
    just before TSA went over to DHS. So I expect there will be
    movement on that front.
        On the price issue. I would like to come back to that.
    Probably in late 2000, early 2001, the bottom was falling out
    of the business market on the airlines. And that was because
    the airlines had taken things too far in what they were
    charging the business traveler. And one of the reasons they had
    taken things too far was because people could afford it.
    Dotcoms out on the West Coast, I think if you spoke to UAL,
    they would tell you that dotcom travelers provided a lot of
    their business travel. But dotcoms, the bottom fell out of that
    market.
        So I think what is happening now in the industry is they
    are trying to reattract business travelers, but they are also
    trying to do so at a substantially lower fare. And I suspect,
    sir, in time that is going to work.

                               CAPACITY BUILDING

        Ms. Blakey. I would like to add one other point, too,
    because as Ken is referring to 2000 and what happened there.
    You asked what the Government can do. And I think very
    importantly we have to remember that part of the phenomena of
    2000 were incredible delays. The summer of 2000 was a horrific
    time as a business traveler or as a traveler period. And I
    think it did put a damper on things.
        What we can do is increase the capacity in the system. And
    as I say, staying the course on that right now, in terms of our
    investment in this, I think is critically important because it
    really is an appropriate role for Government.
        Senator Bennett. Thank you very much. Senator Dorgan?
        Senator Dorgan. Thank you very much.
        Let me make a couple of observations and then ask a couple
    of questions. First of all, Mr. Shane, you indicated that we
    should let the market work. Let me say I am not someone who
    looks at the airlines and thinks they have done nothing wrong.
    I am not a big fan of the pricing schemes. You can pay twice as
    much to go half as far if you want to go to North Dakota versus
    Los Angeles from D.C. So I have plenty of irritation about a
    number of things.
        But I must say that it is not a market system that works
    when an entire industry is shut down from a terrorist attack.
    Shut down, every asset ordered to be grounded immediately. And
    the airplanes themselves were used as the missiles, loaded with
    fuel, for the attack itself. And the picture is shown on
    television and all of those potential fliers are watching these
    hijacked airplanes being used to destroy the passengers, and
    being used to topple the skyscrapers.
        There is no market system with respect to how people and
    potential passengers react to that.
        In addition, as we went into that September 11th terrorist
    attack, we had a recession prior to it and a sputtering economy
    and the economy still sputters. There is really nothing market
    oriented about fuel prices and the airline industry has a heavy
    burden with fuel prices and fuel prices have spiked up because
    of the uncertainty of war over months and months and months and
    months. There is certainly nothing market oriented about war
    and what it does to people's interest in flying and concern
    about flying.
        There is a whole series of things that have converged at
    the same intersection at the same time. And we can simply say
    let us ignore this and let the market system work and behave in
    that manner. But the fact is our economy will pay a heavy,
    heavy price if those who counsel that while the tent collapses
    we should just be interested in watching and observe how
    interesting it is prevail. If they win, if that is the mindset,
    in my judgment this economy will pay a heavy price.
        Mr. Mead, you mentioned rural areas. We are pretty familiar
    with the price that is paid for dislocation and for
    discontinuance of service. We are pretty familiar with people
    that talk about the market system from their enclaves in big
    cities. But I must say, this is an industry that is essential
    to this country's economy. It is in bigger trouble than most
    anybody knows. We may see all of the major players being in
    bankruptcy, some of them never coming out. The question is do
    we do something or do we do nothing but observe and talk about
    how interesting it is?

                        ADMINISTRATION'S REPRESENTATIVE

        Mr. Shane, I voted for you and I said in the Commerce
    Committee when you appeared before us, I think you have great
    credentials. I am impressed with your background and was
    pleased to vote for your nomination.
        But frankly, I do not know why they sent you to this
    particular hearing which, I was told, was a hearing to talk
    about the financial challenges facing the aviation industry. My
    colleague, Senator Murray and certainly I, having been in the
    discussion yesterday in the Appropriations Committee about the
    issue of what we should do, what kind of financial package we
    might want to construct.
        And you say well, I am not involved in all of that. And I
    really cannot respond to it. I do not understand, maybe you
    were not the one to come to testify on behalf of the
    Administration, but somebody should be here to tell us what the
    Administration thinks. What are they prepared to accept? What
    are they prepared to reject? What do they think we ought to do?
        So with that as a prelude, let me just ask the question,
    Mr. Shane. And I do not mean this in a personal way to you. But
    you were responding repeatedly to Senator Murray, ``Look, I am
    not involved. I do not know.''
        Frankly, this hearing, it seems to me, needs to be
    represented by someone in the Administration that says here is
    what we think we ought to do at this point. And we might
    disagree with that and we can have a discussion about it, but
    we need somebody to say what the Administration's plan is and
    what they will accept? Can you respond to that?
        Mr. Shane. I think you do need somebody who can respond to
    those questions. Whether a hearing of this sort is the
    appropriate forum for having that discussion, or whether there
    is some more effective forum where you can have that discussion
    is an open question in my mind.
        I was invited to come here and testify and I showed up and
    the original billing was that we were going to be talking about
    the FAA budget.
        Senator Dorgan. Then we have a different understanding
    because my heading on this says it was to be a hearing on
    aviation safety and security and financial challenges facing
    the industry.
        Mr. Shane. That is correct, and we did learn that well in
    advance of the hearing. I am not faulting the committee for not
    telling us what the hearing was going to be about, far be it
    from me. But we did not know, when we began planning for the
    hearing, that there would be votes in both houses yesterday. We
    could not respond that quickly for purposes of this hearing
    with that sort of information.

                            GOVERNMENT INTERVENTION

        If I could only add one more point, Senator, what you said
    about the market not working when there was a terrorist attack
    on the United States, I do not disagree with anything you said.
    Of course, the market was not working then and we had a
    compensation program put in place and we created an Air
    Transportation Stabilization Board because of that. And we had
    a whole program of assistance to the airline industry at that
    time. And I agree with you that a war obviously compromises the
    effectiveness of market forces.
        No question about that. We are not arguing about whether
    there should or should not be assistance. We are just arguing
    about how much is consistent with the ideal of a restructuring
    of this industry for the future. That is the only issue.
        Senator Dorgan. But you know, what I observe is folks in
    the Administration just watching all of this. I do not see that
    the Administration has developed an aggressive, robust plan.
        And frankly, while Senator Murray is trying to apply a
    patch to this--and I support that, and I think she did a
    remarkable job yesterday in the Appropriations Committee--I
    frankly think it is not enough. I know what she is doing. She
    is trying to do the best she can to get something put in this
    supplemental bill, and she did that yesterday to add to what
    was in the bill.
        But frankly, I think if we do not think in a bit longer
    term here with respect to this industry about the consequences
    of having a substantial portion of it just completely collapse,
    I think we do this country a great disservice.
        And the question is, is that sort of thing going on in the
    Administration? If so, where? Who is involved? And who can we
    call up here to talk to about it?
        Mr. Shane. Yes, it is going on in the Administration. If
    you are talking about the in extremis situation where we are
    looking at what you might even consider to be a disorderly
    liquidation of a number of airlines, yes, we are considering
    the ramifications of that and attempting to plan for it.
        Senator Dorgan. What is the worst case that you see? You
    talk about the disorderly dissolution.
        Mr. Shane. Well, a worst case scenario is probably
    something we should not discuss in an open hearing, to be quite
    honest with you. We are talking about a variety of scenarios
    that I think none of us wants to think about out loud. And I
    would be happy to come and visit you in your office and talk
    about that at greater length.
        But to suggest that the Administration is not focused on
    those issues as a major priority would be a complete injustice.
    We do not go into all of that in great detail in public fora
    like this, but plenty is going on.
        The main point, however, is that there is a process
    happening within the industry that does appear to be producing
    some success. And the USAirways success story is a prime
    example. And the Congress can take credit for that. You set up
    the Air Transportation Stabilization Board (ATSB). They
    qualified for a $900 million loan guarantee but only if they
    made certain cost savings in the structure of their company,
    which they then did.
        So the ATSB created the incentive, and the Congress also
    created the incentive for USAirways to do what it did. And
    USAirways now has probably a very long lease on life. We can
    all be proud of that.
        Those are the kinds of things that we support. There was
    never any argument about whether we should do the ATSB program.
        Senator Dorgan. Let me just say, in response to my
    colleague Senator Bennett, who I have great regard for, I think
    there are some examples of successes. In fact, there are a
    couple of carriers that are, at the moment, profitable. But in
    most cases, those successes are point-to-point carriers that
    have picked certain explicit markets and said those are the
    markets that we are going to serve, and only those markets
    because those are the markets in which we think we can make
    some profit.
        Carriers that have a broader reach and serve some smaller
    areas react kind of viscerally to this question of the market
    system. I think the market system is really, really wonderful,
    I mean really terrific. The market system, however, needs a
    referee from time to time.
        And so, with respect to aviation and commercial airline
    service specifically, I am very concerned that we maintain a
    network of providers and that we not sit back and say let us
    allow dissolution to occur, despite the fact that we have had
    an intersection of the most unusual events perhaps in a
    century, the convergence of severe economic stress, a war, fuel
    prices ratcheting way up, and a terrorist attack using
    airplanes. We have not seen that since we began flying with a
    network of air carriers.
        That is what I think Senator Murray was talking about
    yesterday and it is my great concern. I do not think this
    industry is going to come out of this whole or in any way in a
    manner that serves all of our country, unless we develop a
    strategy. Some call it industrial policy. Well, maybe it is.
    But nonetheless, a strategy of some sort that says this is a
    very serious, unique problem and we need to address it.
        That is why I believe Senator Murray's amendment, and
    Senator Stevens' as well, is a start. But I think it is short
    of perhaps what we are going to need to do in a very aggressive
    way in the future.
        Let me just conclude by saying I had intended to ask
    questions of Administrator Blakey, and thanks for your service
    down there, and I will send some questions in writing, if you
    do not mind.
        Ms. Blakey. I would be delighted.
        Senator Dorgan. Mr. Mead, thanks for your continued work.
    You have appeared before not only this committee, but the
    Commerce Committee, and I think your work has been
    extraordinarily helpful to us.
        Mr. Shane, again, I did not mean it in a pejorative way.
    Thanks for coming down. But I really think we need to know a
    lot about what is being done and what is being considered in
    the Administration because there has to be a partnership in
    terms of how we address these issues.
        Mr. Shane. Senator, thank you for your vote.
        Senator Dorgan. For confirmation?
        Mr. Shane. Yes.
        Senator Dorgan. I would still vote that way.

                    ADMINISTRATION'S POSITION ON AIRLINE AID

        Senator Murray. Mr. Chairman, can I just follow up on
    Senator Dorgan, just to ask Mr. Shane, and it is frustrating
    because we hear Secretary Mineta in the papers say that we are
    far apart. But unless you talk to us and tell us what your plan
    is and what you think is reasonable, it is hard for us to know
    where to go.
        My question, just following up on Senator Dorgan, is you
    had talked about the Administration negotiating. I just want to
    know who they are negotiating with. The Senate Democrats added
    $700 million yesterday. No one is talking to us. Are they
    talking to someone representing the unemployed workers? Are
    they talking to the airports? Are they just talking to the
    airlines? Or are they just talking to themselves?
        Mr. Shane. I thought they were talking to congressional
    leadership and I cannot be more specific than that. I thought
    it was being done in White House Legislative Affairs and in the
    normal way in which----
        Senator Murray. So you know, if you could pass it back to
    them, we are not hearing from anybody. And I do think they need
    to talk to the airports and to the unemployed workers, as well.
        Mr. Shane. Thank you.
        Senator Shelby. Some of these questions I am getting to may
    have been asked. I had to go to a press conference, and I
    apologize.
        I hope we will never pursue ``an industrial policy'' but I
    understand how important the airlines are to our travel, to our
    way of life, and to our commerce. We all do. It is a question
    of how we make it work for all of us.
        Industrial policy troubles a lot of people, including this
    senator.
        Madame Administrator, if you could focus----
        Senator Dorgan. Mr. Chairman, let me amend that. I did say
    industrial policy. Let me just say cogent policy.
        Senator Shelby. A well thought out policy.
        Senator Dorgan. Yes, well thought out policy.
        Senator Shelby. I am sure we will work on that.

                  MOST IMPORTANT AIR TRAFFIC CONTROL PROJECTS

        Madame Administrator, if you could focus on only three air
    traffic control modernization projects, which three projects in
    your judgment are the most important to the future of the
    aviation system and why?
        Ms. Blakey. That is a good question. I think the first
    thing I would call your attention to, in terms--and we are
    talking technology here, rather than procedures; is that
    correct?
        In terms of technology, I would have to tell you that the
    most urgent thing is modernizing the Host computer system, if
    we will, that really is the heart and brains of the air traffic
    control system. This is the En Route System and there is a new
    procurement, a research and acquisition program on, called En
    Route Automation Modernization (ERAM), which we are at the
    beginning of. It is a very expensive one. I certainly would let
    the committee know that we understand that we are talking about
    something that is a major taxpayer's investment.
        Senator Shelby. Huge.
        Ms. Blakey. Yes, huge. The word huge is quite right.
        But what we have to realize is we have a 30-year-old system
    now--30 years. The language that that system is written in, the
    software for it, is called Jovial. Now how many among us know
    anyone who even knows what Jovial is, much less can write it? I
    am told there are six people in the country at the moment.
        So it is not hackable. That is the good news. But it is on
    life support. It is still safe, but we are at the very end of
    the life of this system. And we can, if we stay on track with
    this new research and procurement program. That is number one.
        The STARS program. I know again, this committee and others
    have had to sweat bullets over STARS because again it is a very
    expensive program. It had a lot of inflation in its cost, and
    was rebaselined.
        I had the best meeting I have had since I got to the FAA
    just the other day on STARS, because I will tell you what we
    are finding out. We have deployed the system in Philadelphia
    and not only is it working, it is working very well for air
    traffic controllers, the airlines, and our maintenance
    workforce. It is going beautifully.
        And we believe that what we are seeing is that rather than
    the heavy costs that we had expected, in terms of deploying
    system after system, a lot of those costs, I think, were
    absorbed in the early stages of development. As we roll it out
    it will not require as much customization. It will not require
    as many development dollars, if you will.
        Senator Shelby. Are you telling us it is going to be under
    budget?
        Ms. Blakey. No, I am not.
        Senator Shelby. As appropriators, we have been waiting to
    hear some very good news.
        Ms. Blakey. Well, listen, I will tell you, I am looking for
    some really good news in the area you are focusing on. Needless
    to say, it is one of the areas that keeps me awake at night.
    But the fact of the matter is, I think we are going to have,
    and I would be delighted to get together with the committee on
    this, some good news on that ongoing rollout on STARS as we go
    forward. So those two I would call your attention to.
        I would also call your attention to the fixed-price
    contract that we have for the Oceanic Aerospace. Again, that
    contract is going forward and it is staying within the fixed
    cost that we have anticipated. And that is something that is
    supported.
        And may I finally give you one other piece, because we all
    like good news. Our WAAS, this is the Wide Area Augmentation
    System, is providing a lot of support in terms of guidance for
    smaller airports in particular. It is important to our general
    aviation community for vertical guidance.
        That is going to come in early. We are going to turn it on
    this summer. And we are discovering again, we got some
    efficiencies through computer modeling. Rather than having to
    fly every approach for 530-some-odd airports we are going to
    roll it out for, we are able to do that on a sampling basis and
    model the rest of them and save some real money and get it
    online quicker. So that is going well. It costs a lot
    initially, but I think you are going to see that it is going to
    be a great asset in the system.

                        AIP AND SECURITY RELATED FUNDING

        Senator Shelby. Thank you. More than $560 million in AIP
    funding was used for security related expenses in 2002, which
    was up from only $57 million the previous year. Recently TSA
    Undersecretary James Loy testified that TSA would like to have
    ``one more bite at the apple'' this year to use AIP for high
    priority security purposes.
        Is the FAA contemplating spending fiscal year 2003 AIP
    funds for installation of explosive detection equipment at
    airports? And if so, how much does the Administration propose
    using?
        Ms. Blakey. There are massive costs for a lot of our
    airports involved with installing these van-sized pieces of
    equipment.
        Senator Shelby. They are not cheap, are they?
        Ms. Blakey. They are not cheap at all, I will tell you. In
    fact, for some of our airports it is over $200 million. So the
    short answer is yes, because I think we have to. What I would
    caution the committee about is this, we have said that
    certainly we can sustain another bite at the apple of about the
    same size bite as last year.
        Senator Shelby. Not the whole apple, though.
        Ms. Blakey. Not the whole apple, and over the long run we
    will eat it to the core in terms of maintenance, safety,
    enhancing capacity. So for out years, I think you have to pay
    attention to that.
        Senator Shelby. What effect would the use of AIP at 2002
    levels, or even higher levels, have on other important safety,
    service improvement, or noise related projects in 2003?
        Ms. Blakey. AIP is a critical program in terms of both the
    kinds of issues you just highlighted and certainly in terms of
    noise. I am happy to say that the way the AIP funds work right
    now, we are able to substantially mitigate the effect on our
    citizens, 14,000 of them every year through AIP on the noise
    front.
        We are also going to use some of those funds for emissions,
    issues of air quality. I have to tell you, I am very pleased
    that the reauthorization that we are putting before you all is
    very aggressive on the environmental front, both in terms of
    using those funds well and wisely for that, and also in terms
    of streamlining so we do not drag these projects out the way we
    have.
        In terms of capacity, I mentioned earlier some of the
    airports we are bringing online. One thing I would tell you is
    this, while these great big runway projects, Chicago, Denver,
    pick one of them, but we are talking, in some cases, over a
    billion dollars for these runways, are supported significantly
    through passenger facility charges.
        For the smaller airports AIP money makes all the
    difference. And so we would like to see a greater percentage of
    AIP money going to smaller airports because they really cannot
    raise the money in other ways the way the big airports can.
        So I would say on the capacity and safety front, that is
    important and I would urge your attention on that.
        Senator Shelby. Mr. Shane, what would be the long-term
    impact on using AIP funding at these levels for security
    purposes.
        Mr. Shane. As the Administrator hinted, I think we really
    begin to take a great big bite out of our ability to grow
    capacity. And we have to grow capacity, even in this
    environment. If we stop growing capacity, as the Administrator
    said in her earlier remarks, we will be losing an enormous
    opportunity. We will have the summer of 2000 again. We will
    have it in the summer of 2004 or 2005. And we will not have a
    very good excuse for it. It is just terribly important to
    maintain AIP for capacity growth purposes.

              CONTROLLER-IN-CHARGE PROGRAM AND OPERATIONAL ERRORS

        Senator Shelby. Mr. Mead, has expanded controller-in-charge
    programs had any impact on operational errors?
        Mr. Mead. We cannot say for sure that it has. We can say
    that there is a statistical correlation. What you need to watch
    in this controller-in-charge program is in order to move out
    some supervisors, FAA would designate the elite controllers,
    the best performing ones as in charge.
        What has evolved at some facilities, in some large
    facilities, is the FAA has designated about 100 percent of the
    controllers as in charge, controllers-in-charge. I do not think
    they need that many supervisors.
        In some of these facilities we have seen a statistical
    correlation between the program and operational errors but I
    would stop short of saying it was cause and effect
    relationship.

                                  AIP SPENDING

        May I respond to your question on the AIP? I would put the
    brakes on spending AIP money until you had a firm idea of how
    much the Administration thought it needed to overhaul, to
    install these SUV-sized machines and where. And that you get
    from FAA a list with some granularity of what your near-term,
    big safety capacity projects are.
        Senator Shelby. Senator Murray.
        Senator Murray. Thank you, Mr. Chairman.

                     STARS AND OTHER PROGRAMS' COST GROWTH

        Mr. Mead, you heard Ms. Blakey a few minutes ago talk about
    the STARS program, a fairly rosy scenario, which was
    interesting. I have heard you be very critical in the past. And
    I wondered if you could let us know are you feeling better
    about where it is moving, or do you still have concerns?
        Mr. Mead. I am certainly feeling better about Philadelphia.
    Actually before Administrator Blakey and I have talked at
    length about STARS. I think every one of our concerns, about
    how it was going to work, the technical problems and so forth,
    Administrator Blakey set forth to address them. And they were
    addressed in Philadelphia. And Philadelphia went online.
        That being said, I am very concerned about the cost of this
    program. It has gone from $800 million to $900 million. Now we
    are telling people it is about $1.6 billion. I would be
    surprised if you can deliver the bacon on that.
        I am concerned about when you take the four or five big
    acquisitions at FAA, which include the WAAS and STARS, when you
    add up all that cost growth, I can hand you the equivalent of
    one full year's appropriation. That has a cascading effect on
    other meritorious projects that you cannot undertake. It is
    going to affect our ability to achieve the vision that both
    Administrator Blakey and Jeff Shane were speaking about.
        Ms. Blakey. Let me also just mention one thing, if I might,
    on the cost growth issue. I think one of the things we have to
    do, and I am addressing this at the FAA largely, but I think
    the industry and everyone has to accept this approach. And that
    is that we cannot keep adding to the requirements. We cannot
    keep shifting what these systems are intended to do without
    accepting the fact that it then costs a lot more money.
        One of the things we are trying to do is develop real
    discipline, as well as bring them to the forefront more
    quickly, so that this issue of accretion of new and different
    changing requirements does not just completely knock a hole in
    the budget.

                                REPAIR STATIONS

        Senator Murray. Thank you. I know the chairman wants to
    conclude here and I have a question I wanted to come back to
    because I heard Mr. Mead talking about repair stations and
    oversight of repair stations and that air carriers are
    outsourcing as much as, I think it is 47 percent of their total
    maintenance costs.
        Ms. Blakey, if you could just tell us whether you think
    your safety personnel are providing the same level of scrutiny
    to contract repair stations as they are providing to air
    carrier's in-house maintenance facilities?
        Ms. Blakey. We are very aware of this phenomena of the
    increase in contractor repair stations both here and abroad. It
    is certainly a subject for our focus. We have a very rigorous
    regime of inspections, as well as requirements for the air
    carriers themselves to maintain a very diligent oversight. And
    when it is abroad, for our corresponding civil aviation
    authorities to do the same thing.
        Senator Murray. I think I heard Mr. Mead say that the
    foreign repair stations, some of them are not inspected at all;
    is that correct?
        Mr. Mead. Yes, that is correct. It is delegated to the
    foreign equivalent of the FAA, in some cases.
        Senator Murray. Especially when we are in an era of
    worrying about terrorist attacks and those kinds of things, are
    you going to be increasing the number of inspections for our
    foreign repair stations? Or how are you going to deal with
    that?
        Ms. Blakey. We have a strong regime right now of
    inspections on foreign, and they are required also to have a
    renewal of their certificate every 12 months to 24 months.
        Senator Murray. Does that require an on-site inspection for
    foreign stations?
        Ms. Blakey. Yes, from the FAA standpoint, we do require
    that.
        Senator Murray. So every 12 months, you are inspecting
    foreign stations?
        Ms. Blakey. Every 12 to 24 months. It is in that range. It
    depends on the level of service and what the specifics are with
    that repair station.
        Let me assure you of this, though. I realize this is an
    area of great concern. This is something again, there is a
    phenomena of increasing usage of this. And this is certainly
    something that at the FAA we are going to pay increased
    attention to in a number of ways. So I would be very pleased
    also to get back with you on some specifics.
        Senator Murray. I would really like you to do this,
    especially in this era. I think we really need to pay attention
    to that. And if we are contracting more out, I think we need to
    really be watching. I would like to hear more from you.
        [The information follows:]

                   FAA's Oversight of Foreign Repair Stations

        FAA assigns a principal maintenance inspector and, depending on the
    size of the facility, additional staff to provide regular oversight and
    inspection of repair stations located in the United States or abroad.
    The standards that repair stations have to meet remain the same
    regardless of whether the repair station is a domestic facility located
    within the United States or a foreign repair station located outside
    the United States.
        The National Flight Standards Work Program requires a facility
    inspection at least once a year on all repair stations. Additional
    inspections may be required for various reasons, including changes in
    the internal workforce composition, NTSB recommendations, or aircraft
    accidents.
        In addition, if a repair station performs maintenance for an
    airline it must follow the airline's approved maintenance program. An
    FAA principal maintenance inspector assigned to the airline inspects
    the repair station to determine that the proper maintenance procedures
    are followed.
        When an applicant applies for FAA certification as a foreign repair
    station, the FAA must first determine if a U.S. repair station
    certificate is necessary to maintain or alter U.S.-registered/operated
    aircraft and/or aeronautical products at the applicant's proposed
    location. If the certificate is found to be necessary, and is granted,
    the foreign repair station is required to apply for certificate renewal
    every 12-24 months, as appropriate. If a foreign repair station no
    longer maintains U.S. aircraft or components, the certificate may not
    be renewed or the FAA limits the repair station's capabilities to only
    those articles used on U.S. aircraft. FAA is not obligated to renew a
    foreign repair station certificate.
        The regulations do not require FAA to justify or provide cause for
    not renewing foreign certificates. Foreign repair stations are well
    aware of this, which is reflected in their certificate revocation
    rates. There were 11 violations filed against foreign repair stations
    in 2002 and no violations so far this year. For the last 8 years, the
    average number of violations for foreign repair stations (out of the
    total of enforcement filed for all repair stations) came out to be just
    4.7 percent.
        Finally, the airline is responsible to conduct audits of any repair
    stations it uses. FAA inspectors review the results of the airline's
    audits to evaluate the performance of the repair station.
        For repair stations located in France, Germany and Ireland, the FAA
    has negotiated bilateral agreements that allow the civil aviation
    authorities in those countries to provide oversight of 173 foreign
    repair stations on our behalf. FAA provides similar oversight to 1,159
    of the 4,571 domestic repair stations located in the United States that
    have been approved by the Joint Airworthiness Authorities of Europe.

        Mr. Mead. One of the interesting dimensions of this is that
    when an air carrier does most of its maintenance in-house, FAA
    has a team that is essentially dedicated to that airline. They
    know that airline's maintenance system and so forth. Once the
    maintenance is done out-house, though, the jurisdiction, the
    responsibility for the oversight is of a different unit.
        In other words, the people that are dedicated to United
    Airlines inspections by FAA, would not necessarily be the
    people that check on how good the maintenance is at the repair
    station where UAL planes are being maintained.
        So I think FAA needs to develop a greater connectivity
    between the two.

                       ADDITIONAL SUBCOMMITTEE QUESTIONS

        Senator Murray. I appreciate that.
        Mr. Chairman, I do have some other questions I will submit
    for the record, since we are out of time.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                    Questions Submitted to Marion C. Blakey
                Questions Submitted by Senator Richard C. Shelby

               ENVIRONMENTAL REVIEW PROCESS FOR CAPACITY PROJECTS

        Question. The FAA has made a concerted effort in recent years to
    streamline the review and approval process for key capacity-related
    projects. What is the status of those efforts? How have they affected
    the time it takes to review key projects? Do you anticipate further
    administrative improvements in this area? Do you support efforts in
    Congress to make further improvements to the process?
        Answer. FAA issued a Report to Congress in May 2001 reporting on
    Federal environmental requirements related to the planning and approval
    of airport improvement projects together with recommendations for
    streamlining the environmental review process associated with those
    types of projects. Six initiatives for streamlining were identified and
    implemented, as outlined below.
      --FAA established Environmental Impact Statement (EIS) Teams for
            preparing EISs for major runway projects at large hub primary
            airports. Since the Report to Congress in 2001, FAA Teams have
            been working on the EISs for nine major runway projects
            (Atlanta, Boston, Chicago-O'Hare, Chicago South Suburban
            Airport (SSA), Cincinnati, Greensboro, Los Angeles,
            Philadelphia, and San Francisco). EISs have been completed for
            five of the projects (Atlanta, Boston, Greensboro, SSA-Tier I,
            and Cincinnati) with the other four in various stages of EIS
            preparation.
      --FAA has reallocated staff to provide for five more environmental
            specialist positions in the Office of Airports. With the
            passage of the fiscal year 2003 Department of Transportation
            and Related Agencies Appropriations Act, funding has been
            provided for hiring 18 more airports environmental specialists
            and 13 environmental attorneys. These additional personnel will
            specifically conduct and expedite the environmental analysis
            and review of airport and aviation development, so as to
            maximize the capacity benefits to the National Aviation System.
            FAA is implementing plans to hire qualified personnel to fill
            these positions at various locations around the country.
      --FAA continues to maximize the use of consultant resources to
            perform more EIS tasks that can be outsourced by the FAA.
      --FAA is working with the Council on Environmental Quality (CEQ) to
            expand the FAA list of categorical exclusions that will be
            published in revisions to FAA environmental orders. Initiatives
            are being explored to provide for shortened and streamlined
            EISs, as well as environmental assessments, that will also
            involve CEQ and the Environmental Protection Agency (EPA).
      --FAA continues to engage other Federal agencies at the beginning and
            during preparation of EISs, about their environmental reviews
            and permit requirements in order to avoid unnecessary delays.
            Also, the FAA, and the National Association of State Aviation
            Officials, has undertaken a joint review of Federal and State
            environmental processes and coordination. As a result of this
            partnership, opportunities have been identified for improving
            ways in which Federal and individual State requirements can be
            more effectively and efficiently combined and coordinated.
      --FAA has developed, published (on FAA's web site) and updates (at
            least twice a year) a compendium of best practices for EIS
            preparation and management. The compendium of best practices
            addresses practices that are the responsibility of the airport
            proprietor, the EIS consultant, as well as those of the FAA.
        The 2001 Report to Congress noted that the average time for
    completion of an EIS (from start of the EIS until EIS approval) was 3
    years. The average time to issue an agency Record of Decision (ROD) was
    3 months. Looking at data available for four of the five runway EISs
    completed since issuance of the 2001 Report to Congress, and
    implementation of FAA streamlining initiatives, the Atlanta EIS took 7
    months less than the 3-year average; the SSA EIS, 12 months less than
    the average; and the Cincinnati EIS, just 2 months more than the
    average. RODs for Atlanta, SSA, and Cincinnati were prepared and issued
    in 1\1/2\, 2, and 3 months respectively. The Boston project was unique
    and controversial and, therefore, the EIS process was lengthy (almost 7
    years). Adding to the process was an 18-month delay between 1996 and
    1998 because of a change in Massport leadership and priorities, and
    extraordinary steps taken to engage community groups and the public in
    the process. The Boston EIS was not a typical new runway EIS project.
    In the ongoing EIS projects, FAA streamlining initiatives are being
    utilized to ensure that environmental process times are minimized to
    the maximum extent possible, and hiring more environmental staff will
    greatly aid the effort.
        FAA hopes that further agency, as well as congressional actions,
    will lead to administrative improvements in streamlining the
    environmental process for major runway projects around the country.
        Further action taken by the FAA includes our implementation of the
    environmental streamlining provisions of Presidential Executive Order
    (E.O.) 13274, Environmental Stewardship and Transportation
    Infrastructure Project Review. Two airport EIS projects (Philadelphia
    and Los Angeles) have recently been designated as priority projects for
    oversight under the E.O.
        The Administration's Flight-100 bill proposes a number of
    streamlining provisions including:
      --Designating aviation congestion projects and aviation safety
            projects for high priority coordinated, concurrent reviews;
      --Concurrent reviews will be through newly-established Interagency
            Environmental Impact Statement (EIS) teams;
      --Interagency EIS teams are directed to establish milestones, and
            responsible Federal agencies are directed to give these
            projects the highest priority within their own agencies;
      --Interagency EIS teams will defer to the Secretary on project
            purpose and need, and on determining reasonable alternatives,
            aviation factors, and aviation noise and emission analyses;
      --Noise mitigation for capacity enhancement airport expansion may be
            funded from the noise set-aside without an additional Part 150
            process requirement, and FAA may commit in the EIS Record of
            Decision to changes in flight procedures to minimize noise
            impacts due to the capacity enhancement project;
      --Airport sponsors are permitted to fund additional FAA staff to
            facilitate timely processing of the environmental actions for
            the airport's capacity enhancement project.

                              OCEANIC AIR TRAFFIC

        Question. The FAA has a long history of problems in attempting to
    provide new air traffic control equipment to manage oceanic air
    traffic. Since 1995, FAA has spent more than $290 million but has yet
    to deliver a new oceanic system.
        Answer. Since 1995, the FAA has delivered incremental oceanic air
    traffic improvements and capabilities, required to keep pace with
    international standards:
      --Two way controller/high frequency radio operator ``email''
            automatically updating the controllers' flight data processor,
            followed by high frequency radio operator voice relay to pilot
            via conventional radio transmission, 1995.
      --Two way controller/pilot direct ``email'' via satellite data link
            operational prototype, 1995.
      --Interim Situation Display which automatically updates and displays
            tracking aircraft positions, 1997.
      --Reduced Vertical Separation Minima allowing more planes to fly
            preferred routes with increased numbers of flights, 1997.
      --Conflict probe which provides an automatic or controller initiated
            conflict prediction tool, 1997.
      --Automated ``email'' transfer of flight data between international
            flight information regions, 1997.
      --Two way controller/pilot direct ``email'' via satellite data link
            in all Oceanic sectors, 1999.
      --Host & Oceanic Computer System Replacement, replaced aging hardware
            with Year 2000 compliant computers supporting Oceanic air
            traffic control communications, 1999.
      --MicroEARTS, as the platform for the Capstone program, provides
            surveillance data directly to airlines, allowing them to track
            aircraft in flight, 2002.
        FAA led the way in implementing reduced vertical separation
    standards in the Pacific and followed suit with our partners in the
    Atlantic. Further separation reductions require a fully integrated,
    modernized system and its accompanying procedures.
        In March 2000 the FAA initiated the Advanced Technologies and
    Oceanic Procedures (ATOP) program to take advantage of technology
    developed for the international marketplace. After conducting a robust,
    global competition, the FAA awarded the ATOP contract to Lockheed
    Martin in June 2001. Program costs are within the Acquisition Program
    Baseline budget, approved in May 2001 by FAA's Joint Resources Council.
        Question. The schedule of the current effort, the Advanced
    Technologies and Oceanic Procedures (ATOP) is significantly behind
    schedule.
        Answer. The FAA's Acquisition Program Baseline schedule for the
    ATOP program calls for initial operational capability at Oakland in
    June 2004. The program is operating within its baseline schedule.
        Question. What problems are the FAA experiencing with this
    acquisition program and what corrective measures are you taking?
        Answer. Lockheed Martin Air Traffic Management (ATM) underestimated
    the amount of source lines of code and the amount of modification
    needed to its existing commercial system. In March 2003, an independent
    assessment team concluded that the job is larger than expected, and
    will take longer to complete. The fixed price contract ensures that the
    cost of developmental delay is borne by the vendor.
        Installation of ATOP hardware is on schedule at the New York,
    Oakland and Anchorage centers. The FAA continues to prepare for system
    test, operational training, and site acceptance test activities.
        Question. When can we expect a new system for oceanic air traffic?
        Answer. Initial operational capability at Oakland Air Route Traffic
    Control Center (ARTCC) is expected by June 2004.

                    OPERATIONAL ERRORS AND RUNWAY INCURSIONS

        Question. What progress has FAA made in reducing the number of
    operational errors and runway incursions?
        Answer. FAA has achieved an 11 percent reduction in operational
    errors, following 4 years of steady increases. Operational errors
    declined from 1,194 in fiscal year 2001 to 1,061 in fiscal year 2002.
        FAA continues to address operational errors within the National
    Airspace System. Several initiatives have been developed and
    implemented in an effort to increase management focus on operational
    errors in areas such as communications, position relief briefings and
    operational focus. The FAA deployed an enhanced terminal radar replay
    tool, updated quality assurance training provided by the FAA Academy,
    produced and distributed a training video on communication errors, and
    conducted more than 30 special evaluations focusing on operational
    errors. A 3-year operational error reduction plan has been implemented
    and represents a collaborative approach to the reduction of operational
    errors.
        Runway incursions have declined from 407 in fiscal year 2001 to 338
    in fiscal year 2002, due in part to FAA's aggressive actions to reduce
    these incidents. FAA established a system to categorize runway
    incursions by severity risk and has reduced the number of close calls
    (those runway incursions in the two highest categories) from 53 in
    fiscal year 2001 to 37 in fiscal year 2002 and 18 to date in fiscal
    year 2003 (through April).
        FAA plans to continue its aggressive actions in reducing runway
    incursions by continued training of pilots in situational awareness
    while on the airport surface, and the use of existing and new
    technologies to warn pilots and controllers of potential incidents.

                            WAKE TURBULENCE RESEARCH

        Question. In the last 2 fiscal years, FAA has requested $1 million
    for the wake turbulence research program. Congress recognized that the
    wake turbulence standards must be reassessed in a data-driven research
    program to address important capacity and safety issues, and enacted $4
    million in fiscal year 2002 and $8 million in fiscal year 2003, to
    accelerate this important research. By proposing to zero-fund this
    program in fiscal year 2004, FAA has ignored the need for this research
    and has disregarded Congress' obvious intent to have an adequately
    funded wake research program. Why has FAA failed to provide funding for
    this important research program? What are the specific plans for the
    FAA to rectify this problem and accordingly revise its fiscal year 2004
    request?
        Answer. The FAA will complete the Joint FAA/NASA Wake Turbulence
    Research Management Plan and the Investment Package for the near and
    mid-term wake research activities within the next few months. FAA has
    no plans to revise its fiscal year 2004 request, but will reexamine the
    program in future years.

                             COST ACCOUNTING SYSTEM

        Question. What is the current status of the cost accounting and
    labor distribution systems and when can we expect the full
    implementation of these systems?
        Answer. Cost accounting has been implemented in 80 percent of the
    agency to date. Managers are beginning to use the Cost Accounting
    System (CAS) data. For example, the Air Traffic Services organization
    has used CAS data to target and track initiatives to reduce field
    maintenance by 3.5 percent, reduce overhead costs by 4 percent, and
    hold costs in Oceanic and Flight Services constant.
        Implementation of the cost accounting/labor distribution reporting
    system will be completed in fiscal year 2004. CAS is now in place in
    Air Traffic Services, Commercial Space Transportation, Financial
    Services/CFO, Human Resource Management, Free Flight, and the Academy
    and Logistics Center at the Mike Monroney Aeronautical Center. In
    fiscal year 2004, CAS will be implemented in Research and Acquisitions,
    Airports, and Regulation and Certification.

                              AEROSPACE COMMISSION

        Question. The Commission on the Future of the United States
    Aerospace Industry issued a report making a number of recommendations
    to ensure the competitiveness of the American industry. One of the
    Commission's recommendations called for the Federal Government to
    establish a national aerospace policy and promote aerospace by creating
    a government-wide management structure. How is the FAA responding?
        Answer. FAA formed a Joint Planning Office (JPO) comprised of
    Federal Aviation Administration (FAA), Department of Defense,
    Transportation Security Administration, Department of Commerce and
    National Aeronautics and Space Administration, to focus on development
    of the next generation air traffic management system. FAA leads the
    team. The Agency is also establishing a high-level policy committee to
    guide this effort. It will be chaired by the Secretary of
    Transportation, and will be established this summer. The next steps are
    to establish advisory committees for this activity, to coordinate a
    framework for the initiative through the five participating agencies
    and departments, and begin drafting the national plan.
                                     ______

                  Questions Submitted by Senator Patty Murray

                            CHIEF OPERATING OFFICER

        Question. Will the FAA ever have a Chief Operating Officer?
        Administrator Blakey, at previous FAA hearings in this
    subcommittee, it has been noted that the FAA has yet to appoint a Chief
    Operating Officer for the agency. This position, as you well know, was
    created in AIR-21 and is considered critical to moving air traffic
    control into a more performance-based operation. The COO position has
    never been filled. Your reauthorization proposal modifies the
    responsibilities of the Chief Operating Officer to clarify that the
    position will focus on the day-to-day operational functions of the air
    traffic control organization.
        Why do you think these changes will improve your chances of
    recruiting a Chief Operating Officer?
        Answer. While the changes proposed are modest, the FAA and the
    executive search firm believe that clarifying the role of Chief
    Operating Officer (COO) is key to the successful recruitment for the
    position.
        Question. What can you tell us about your efforts to recruit a COO
    so far, specifically how many serious candidates have you considered?
        Answer. With the help of Korn-Ferry International, there was a
    search conducted earlier this year. The Administrator and Deputy
    Administrator have interviewed several of the top candidates.
    Discussions are ongoing.

                             CONTROLLER RETIREMENTS

        Question. Ms. Blakey, over 50 percent of the controller workforce
    will be eligible to retire by the year 2010 and the General Accounting
    Office has estimated that roughly 5,000 controllers plan to leave the
    FAA by the end of fiscal year 2006. Your budget requests funding for
    only 302 additional air traffic controllers. Based on this request, I'm
    concerned that the agency isn't adequately preparing for the surge in
    controller retirements.
        Given that it takes as much as 5 years to train a new employee to
    become a fully certified controller and assuming that the GAO's
    estimates are correct, shouldn't we be concerned that safety or the air
    traffic control system's operational capabilities might be compromised?
        Answer. Staffing standards have been revised based on recent
    traffic forecasts. These standards are an important element, along with
    projected retirement losses, to predicting future controller
    requirements and hiring needs.
        With the drop in staffing requirements due to reductions in air
    traffic, the 302 additional positions in the fiscal year 2004 budget,
    and the FAA's hiring plans for future years, the agency is positioned
    to meet all of its staffing needs.
        The agency is sensitive to the additional hiring needs that are
    needed to address the surge in retirements. The FAA's annual retirement
    projections have been very accurate, and the FAA has been meeting its
    annual hiring goals. Over the last 6 years, the agency has hired more
    than 3,000 new controllers.

                         AVIATION TRUST FUND REDUCTIONS

        Question. Ms. Blakey, the Inspector General's testimony states that
    over the next 4 years, Aviation Trust Fund tax revenues are expected to
    be about $10 billion less than projections made in April, 2001. He also
    stated that the options for compensating for these declines--whether it
    is increasing excise taxes, limiting investment in the aviation system,
    or relying more heavily on General Funds--are not attractive.
        Ms. Blakey, in order of preference, how do you think we should
    bridge the gap between declining trust fund revenues and the FAA's
    budgetary needs? Should we raise excise taxes, defer investments in air
    traffic control modernization or contribute more General Funds?
        Answer. Just as a healthy industry is important to FAA's mission,
    FAA is important to a healthy industry. By virtue of its mission to
    regulate and promote the U.S. aviation industry, the FAA plays a vital
    role in sustaining the health of this critical section of the U.S.
    economy. The recent economic hardships experienced by the industry have
    caused the FAA to refocus on how its programs affect the industry, and
    particular, on what actions it might take to help improve the serious
    conditions facing the industry.
        The FAA must continually endeavor to make its own operations more
    efficient and responsive to the needs of industry and the public,
    particularly in a time of tighter Federal budgets. Areas where the FAA
    is investigating possible improvements are procurement activities,
    staffing requirements, organizational structure, and enhancements to
    our financial systems--DELPHI, Cost Accounting (CAS), and Labor
    Distribution Reporting (LDR). Potential benefits include the ability to
    respond more efficiently, quickly, and cost effectively to the needs of
    industry and the public.
        The Airport and Airway Trust Fund is the principal source of
    funding for FAA programs, accounting for all capital program funding.
    In fiscal year 2004 approximately 79 percent of operations funding will
    be derived from the Trust Fund. FAA remains committed to using the
    Aviation Trust Fund only to fund the Department's aviation programs,
    but in a change from AIR-21, the Agency is proposing to increase the
    use of balances that have built up in the Trust Fund. In fiscal year
    2004, FAA would use $12.4 billion of trust fund dollars and $1.6
    billion from the General Fund.

                            CARRIER SAFETY OVERSIGHT

        Question. What specific measures has your safety inspection
    workforce taken to ensure that the air carriers aren't shortchanging
    critical maintenance needs? For example, how does the frequency and
    intensity of your on-site inspections of financially-distressed
    carriers differ from those conducted on financially stable carriers?
        Answer. In addition to monitoring an air carrier's regulatory
    compliance, FAA inspectors are constantly monitoring their carriers'
    financial and labor relations circumstances so they have a complete
    picture of the airline's status. When inspectors see indicators of
    financial trouble, the inspectors increase their interaction with the
    airline's management and adjust their surveillance plan to increase
    their focus on areas that might be at risk due to financial cutbacks.
        Each carrier's experience is different and requires that the
    surveillance plan be tailored to the circumstances. As a carrier
    reduces its schedule, its fleet, and its employee ranks, the impacts of
    these reductions must be constantly evaluated and surveillance plans
    amended. Areas of adjusted surveillance would include: training to
    ensure employees who are reassigned are properly prepared for their
    assignments; maintenance to ensure that discrepancies reported by
    pilots are properly addressed; and other areas affected by the
    carrier's plans.
        The carrier's quality assurance and quality control process are
    monitored to ensure they are being followed and that findings are being
    addressed. Data and trends--such as dispatch reliability, on time
    performance, and minimum equipment list deferrals--are monitored and
    surveillance is retargeted if the data indicates a negative trend.

               OVERSIGHT OF FOREIGN AND DOMESTIC REPAIR STATIONS

        Question. Please provide us specific detail as to how the FAA
    intends to increase its oversight of foreign and domestic repair
    stations in terms of frequency of inspections and safety audit
    requirements?
        Answer. Currently, the FAA is looking at a new model for
    Certificate Management Oversight of Part 145 repair stations. The model
    is designed to mirror that of a major air carrier Certificate
    Management Unit, and has already been put in place to provide oversight
    for a major repair station in the Seattle area. The FAA has increased
    the inspectors assigned to oversee this station from 1 to 5.
        Under this model, the Certificate Management Unit is able to
    identify possible deficiencies in the repair station's organizational
    structure, quality control procedures and repair stations' manual. This
    enables the repair station to make needed changes to the organization
    and procedures to mitigate and/or eliminate known risks.

                      STATUS OF THE ASR-11 RADAR AND STARS

        Question. Have all the software problems now been resolved with
    this radar and has your testing of the radar uncovered any additional
    performance concerns that would delay its implementation or increase
    its costs further?
        Answer. Yes, all software problems associated with the ASR-11 radar
    have been resolved. Results of testing have proven the system suitable
    for operational use, as is the case for the Willow Grove ASR-11, which
    currently feeds the Philadelphia STARS.
        FAA does not foresee any performance issues that would delay
    implementation of ASR-11, although some sites may present a challenge
    to obtain optimum performance. In these unique situations, as with any
    radar, additional measures (e.g. extra adjustments/enhancements) may
    need to be considered.
        ASR-11 is a joint FAA and Department of Defense (DOD) procurement
    program intended to replace aging Airport Surveillance Radar Models 7
    and 8, which are nearing the end of their service life and becoming
    more difficult to maintain. The ASR-11 system is an integrated system
    that includes a primary radar system and associated beacon system. The
    ASR-11 will provide digital radar input to new automation systems such
    as Standard Terminal Automation Replacement System (STARS).
        Question. Since the full deployment of STARS is dependent upon the
    ASR-11 to provide the digital radar feed, how confident are you that
    STARS will stay on schedule?
        Answer. FAA has developed a deployment plan and budget for STARS
    which is currently being validated by an independent third party. The
    waterfall schedule has been coordinated with the ASR-11 team to ensure
    synchronization as much as possible. FAA will continue to coordinate
    both program schedules throughout the deployment of both STARS and ASR-
    11. In the event of a delay to the ASR-11 schedule, several radar
    digitizers have been purchased which can be used in place of the ASR-11
    until the two programs line up.
        STARS is a joint FAA and Department of Defense (DOD) procurement
    program intended to replace the aging Automated Radar Terminal System
    (ARTS) at FAA TRACONs and DOD terminal facilities. STARS will work in
    conjunction with digital radar systems to allow air traffic controllers
    to track aircraft within the terminal area. The new equipment and
    software will be based on a digital platform and provide higher-
    resolution screens with color capabilities and higher system
    reliability. STARS can also be expanded to meet increased traffic
    demands and accommodate new automation functions.

                   REVISION OF THE OPERATIONAL EVOLUTION PLAN

        Question. Ms. Blakey, the Operational Evolution Plan (OEP) was
    unveiled just 3 months prior to the tragic events of September 11. The
    OEP was expected to be the FAA's blueprint for how to increase the
    capacity and safety of our Nation's air traffic control system by 2010.
    Your recently released Aviation Forecast predicts an even slower
    recovery than what was estimated last year. Given the anticipated
    slower recovery, how has the OEP changed--what specific programs have
    been modified, deferred or expedited?
        Answer. There is no doubt that the timelines for the Operational
    Evolution Plan have been impacted by the events of September 11 and by
    the subsequent downturn in the airline industry. Airlines have had to
    deal with their own financial issues as well as additional costs for
    security. As a result, they have not been able to maintain the level of
    investment they had hoped for in OEP improvements.
        The most recent update to the OEP (Version 5, published in December
    2002), reflected adjustments made over the past 18 months in response
    to these forces. Runways at Atlanta and Seattle were delayed and
    Charlotte's runway has been deferred as a result of decisions reached
    by the local community. We also scaled back activities in Miami with
    the Controller Pilot Data Link because of the airlines' limitations to
    voluntarily equip as originally planned. With Version 5, the OEP added
    a new runway at Cleveland and Boston, four Traffic Management Advisor
    (TMA) sites were added, along with several other capacity enhancing
    technologies, to include required navigation performance, collaborative
    decision-making, and more efficient approaches to airspace management.
    Further discussions with industry will occur this summer, leading to
    the next update of the OEP.

                  AIR TRAFFIC CONTROL AS A COMMERCIAL ACTIVITY

        Question. Ms. Blakey, in February, the Department of Transportation
    published their Federal Activities Inventory Reform or FAIR Act list
    which changed the status of air traffic control from a governmental
    activity to a commercial activity. As you well know, the National Air
    Traffic Controllers Association has expressed concern that this takes
    air traffic control one step closer to privatization.
        Why was the classification of air traffic control changed?
        Answer. On December 18, 2002, the Secretary of Transportation
    determined that air traffic control is commercial and not inherently
    governmental. There are two reasons: (1) Functions that are inherently
    governmental involve a sovereign act on behalf of the Government or
    bind the Government to a particular course of action. The separation
    and control of air traffic does not meet this rigorous definition and
    takes into account the FAA's existing contract tower program. (2) There
    are 219 contract towers that are safely and efficiently providing air
    traffic control services by private contractors. However, this was not
    a step toward privatizing the air traffic control system. This is not
    under consideration.
        Question. Ms. Blakey, in February, the Department of Transportation
    published their Federal Activities Inventory Reform or FAIR Act list
    which changed the status of air traffic control from a governmental
    activity to a commercial activity. As you well know, the National Air
    Traffic Controllers Association has expressed concern that this takes
    air traffic control one step closer to privatization.
        How can you assure the committee that air traffic control will
    continue to be a core mission of the FAA and that it will not be
    subject to privatization?
        Answer. On December 18, 2002, the Secretary of Transportation
    signed a formal determination that functions involved in the separation
    and control of air traffic are a core capability required for the
    successful accomplishment of the FAA mission to ensure the safety and
    security of the National Airspace System. Based on the Secretary's
    determination, these functions are not subject to competition and will
    not be contracted out. I fully support the Secretary's position.

               ENVIRONMENTAL REVIEW PROCESS FOR AIRPORT PROJECTS

        Question. Ms. Blakey, last October, Secretary Mineta announced a
    list of seven transportation construction projects that were selected
    to receive accelerated environmental reviews. The Philadelphia
    International Airport runway construction project was the only airport
    project that was included on that list. Why was only one airport
    included in this initial list of projects selected for accelerated
    environmental review?
        Answer. Secretary Mineta chose the initial selection of priority
    transportation projects in order to get the accelerated environmental
    review process underway before completion of project nominations in
    December. The Secretary, therefore, asked for project nominations by
    the Modal Administrators. He considered several airport projects before
    making his selection. Because the initial list of selected projects was
    to be small in number, the competition was keen. As a result only one
    airport project was selected.
        Question. Ms. Blakey, last October, Secretary Mineta announced a
    list of seven transportation construction projects that were selected
    to receive accelerated environmental reviews. The Philadelphia
    International Airport runway construction project was the only airport
    project that was included on that list. Since that announcement, how
    many other airport projects have been selected for accelerated
    environmental review? Which specific airports?
        Answer. Since announcing the Philadelphia Airport project, one
    other airport project was selected for accelerated environmental review
    under Executive Order 13274. Secretary Mineta announced the selection
    of the Los Angeles World Airport project on February 27, 2003 with five
    other transportation construction projects. Five other nominated
    airport projects remain on the Department's project review register for
    future consideration.
        FAA highest priority projects for expediting or streamlining the
    environmental review process continue to be those major runway projects
    at large primary airports. These projects are the types that reduce
    national congestion the most. FAA will continue to apply and carry out
    streamlining initiatives for these projects regardless of whether such
    projects are nominated or selected for review under Executive Order
    13274.

                          AIRPORT IMPROVEMENT PROGRAM

        Question. At a time when airports are struggling to pay for the
    installation of explosive detection systems, what is your rationale for
    keeping the Airport Improvement Program (AIP) flat while requesting
    increases for FAA's other major programs?
        Answer. AIP was funded at levels up to $1.95 billion prior to the
    enactment of AIR-21. Post AIR-21, AIP funding increased in fiscal year
    2000 to $3.2 billion, a 65 percent increase. In fiscal year 2003, AIP
    funding rose to $3.4 billion. This represents a dramatic increase in
    funding that the President's Budget would retain in fiscal year 2004.
    Although airports face high costs associated with the deployment of
    explosive detection systems, there is other Federal money available to
    assist airports, specifically from the Department of Homeland Security
    (DHS).

                 GRAPHIC ADVISORIES FOR GENERAL AVIATION PILOTS

        Question. Ms. Blakey, the recently-passed 2003 Omnibus
    Appropriations Bill directed the FAA to publish graphic advisories in
    addition to the notice-to-airmen advisories and to make these available
    to flight service stations and the aviation community via the Internet.
    The increased number of special use airspace and temporary flight
    restrictions subsequent to September 11, 2001, and the recent elevation
    of the threat to Code Orange make it even more critical to share this
    information with pilots. As yet, the FAA has not done as Congress has
    directed. Why not?
        Answer. The FAA web page contains a link to graphic depictions of
    Temporary Flight Restrictions (TFRs). The site was activated shortly
    after September 11, 2001. Except for general notices, each TFR contains
    corresponding graphics.
        The flight service stations (FSS) were heavily impacted by the
    above event, which led to the activation of the Flight Service
    Operation Support Center (FSOSC) team. The FSOSC creates graphical
    depictions of TFRs, as well as plain text versions of the TFR Notice to
    Airmen (NOTAM) using the TFR Operational Display System (TODS) special
    version software developed by Jeppesen for FSS use. This information is
    stored on the Jeppesen server and can be accessed via the Internet. At
    that time, most FSSs did not have the connectivity to access this data.
    The FAA has since purchased and deployed the hardware and software to
    support this capability. This information will be available to the FSS,
    pilots, and others on June 15, 2003.
        Question. When precisely can we expect these graphics to be
    available to general aviation pilots via the Internet?
        Answer. Graphical Temporary Flight Restrictions (TFR) information
    is currently available to pilots through one of the FAA's direct user
    access terminal system (DUATS) vendors, CSC (formerly Dyncorp, Inc.).
    The TFR Operational Display System (TODS) products will be made
    available to the general aviation public on June 15, 2003.

                      SAN JUAN COUNTY'S AIRSPACE FREQUENCY

        Question. What specific steps are you taking to ensure pilots
    flying in San Juan County, without the assistance of any air traffic
    control, will be aware of and adhere to the new frequency?
        Answer. The FAA process to inform all pilots of new frequency
    changes is to submit the change to the National Flight Data Center
    (NFDC) in the FAA Headquarters, Washington, DC. The information is then
    published in the National Flight Data Digest (NFDD), which comes out
    daily. This publication is sent to subscribers of NFDD, which includes
    air traffic facilities, chart producers, airlines, computer database
    providers, military, etc. General aviation pilots do not normally
    subscribe to the NFDD. The NFDD is used as the official authority to
    incorporate the change into airmen's charts and the Airport/Facility
    Directory (AFD). New charts and the AFD are published every 56 days.
    Since pilots are required, under 14 Code of Federal Regulations, Part
    91.103, Preflight Action, to ``become familiar with all available
    information concerning (their) flight,'' they are aware of any changes
    in the National Airspace System, including frequencies, as of the
    effective date of these publications. Therefore, frequency changes
    should coincide with charting cycles so pilots are aware of these
    changes when they discard outdated charts and AFDs, and begin to use
    new or updated charts and AFDs.
        Additionally, many fixed-based operators will post proposed changes
    to the airport and the surrounding airspace, including Common Traffic
    Advisory Frequency and Unicom frequency as soon as they become aware a
    change is planned.
        Question. Should we hold off relinquishing the CTAF until we are
    sure that pilots are educated enough to not create a safety problem?
        Answer. In this case, education and notification are
    interchangeable terms. The FAA recommends that notification occur via
    the publication of the Airport/Facility Directory (AFD), and that the
    change to the new frequency coincides with the date the new frequency
    will be charted. The FAA will provide timely notification to the pilots
    by ensuring that CTAF changes do not occur until the AFD and new charts
    are published. Pilots are required to be aware of the AFD chart changes
    and to use current publications. If the frequency change does not
    coincide with the charting cycle, the FAA would then be obligated to
    notify pilots through other means, such as Letter to Airmen or Notice
    to Airmen. A common practice is to provide pilot notification of
    changes through the AFD and charts.

                           AIR TRAFFIC MODERNIZATION

        Question. Administrator Blakey, the Aerospace Commission
    recommended making the transformation of the U.S. air transportation
    system a national priority. The Commission's report specifically called
    for the ``rapid deployment of a new, highly automated Air Traffic
    Management system, beyond the Federal Aviation Administration's
    Operational Evolution Plan, so robust that it will efficiently, safely,
    and securely accommodate an evolving variety and growing number of
    aerospace vehicles and civil and military operations.'' I am very
    interested in seeing this recommendation implemented to ensure the
    economic security of our country.
        Can you tell me what your agency is doing to respond to this
    recommendation?
        Answer. Working with other government agencies, the FAA has
    initiated an informal working group to develop a unified national air
    transportation plan for 2020 and beyond. The key objectives of the plan
    are to develop a series of unified strategic goals and actions that
    will move the industry forward. Critical to this is an emphasis on
    aligning the activities and resources of the various government
    departments to support the plan.
        FAA will continue to follow the blueprint laid out in the
    Operational Evolution Plan (OEP) for the capacity goal. To help the
    Agency in assessing the aviation system of the future, FAA had
    discussions with industry representatives to explore what they believed
    will be the changes and challenges to the system. FAA is considering
    broadening this goal to better reflect the mobility goal of the
    Department by focusing more directly on the passenger experience. In
    that way, the OEP will become the jumping off point for the longer-term
    national plan. The scope of the team's work will include issues related
    to air traffic management, aviation safety, capacity enhancement,
    airport improvement, security, and homeland security.
        Question. When do you expect to have a design and development plan
    for a next generation Air Traffic Management (ATM) system in place and
    when do you envision starting the implementation of such a plan?
        Answer. A draft plan is scheduled to be completed by December 2003.
    The plan, which FAA is developing jointly with DOD, NASA, DHS and DOC,
    will establish a more formal coordination process for research and
    implementation activities.
        Question. Since this recommendation will require a great deal of
    interdepartmental coordination to meet both our civil, defense and
    homeland security needs, what are you doing to ensure the appropriate
    level of participation from DOD, NASA, and DHS?
        Answer. The FAA has a long and successful working relationship with
    NASA on research and development, an excellent relationship with DOD in
    coordinating airspace requirements, and a new partnership with DHS/TSA.
    By continuing to strengthen the relationships the Agency has with these
    partners we can develop a joint approach--and most importantly a
    greater alignment of resources--that will enable regular monitoring of
    the unification of our plans, goals, and objectives.
        Question. Administrator Blakey, what is your agency doing to take
    advantage of the current slow down in the air travel demand to move
    forward on Air Traffic Management (ATM) system modernization to ensure
    we don't end up with horrendous delays like we had during the summers
    of 1999 and 2000 when traffic returns?
        Answer. The goal of the Operational Evolution Plan (OEP) is to
    increase capacity and by doing so, improve the efficiency of the
    National Airspace System and reduce delays.
        It is the FAA's objective, through the initiatives of the OEP and
    related Air Traffic Modernization projects, to increase the capacity of
    the National Airspace System by 31 percent during the next 10 years.
    While the events of September 11, and the subsequent downturn in the
    industry have impacted various elements of the plan--particularly those
    requiring collaborative work with the industry--the FAA is continuing
    to put considerable energy into this initiative.
        During the past 2 years the FAA has aggressively pursued its OEP
    related initiatives. This includes airspace redesigns throughout the
    National Airspace System, the implementation of Required Navigation
    Performance (RNP), various capacity enhancing technologies,
    collaborative decision making, and new runway construction.
        The industry has experienced a reduction in the number of flights
    and passenger loads. The market is not expected to reach pre-September
    11 levels until 2005. However, overall capacity of the system, because
    of the OEP, is continuing to grow by 3 to 5 percent each year. This
    means, that when the system does recover we will be far less likely to
    experience the delays we faced in 1999 and 2000.
                                     ______

               Questions Submitted by Senator Barbara A. Mikulski

                                    ACE-IDS

        Question. It is my understanding that air traffic controllers are
    very pleased with the performance of the new ASOS Controller Equipment-
    Information Display System (ACE-IDS) systems that is currently provided
    by a small business. I also understand that the older SAIDS4 systems in
    the field use hard to maintain obsolete software and use computers that
    have limited extensibility. What is your agency's position on the
    desirability of the acquisition of ACE-IDS for additional towers and
    TRACONS to replace the out of date systems?
        Answer. Air traffic controllers are pleased with the ASOS
    Controller Equipment-Information Display System (ACE-IDS). The
    Information Display System 4 (IDS4) does include aging hardware and
    software that will eventually need to be replaced. The FAA is
    developing an acquisition strategy for the next-generation display
    system. However, the agency will consider ACE-IDS as a potential
    solution for satisfying requirements that exist prior to the next-
    generation display system award.
        Question. There are many capable small businesses that provide
    products, services and systems to the FAA, including the current
    provider of ACE-IDS. To what extent would the ACE-IDS or FAA Data
    Display System (FAADDS) program lend itself to being set aside for
    small business? Has the FAA examined that possibility?
        Answer. The FAA is currently developing the acquisition strategy
    for the next generation display system. All available options, to
    include small business set asides, will be considered in the course of
    the acquisition.
                                     ______

                Questions Submitted by Senator Richard J. Durbin

            WORKING GROUP ON THE AIRLINE INDUSTRY'S FINANCIAL CRISIS

        Question. Does the FAA have a working group to address the
    financial crisis in the airline industry?
        Answer. The Office of the Secretary (OST), not the FAA, is
    responsible for oversight of the financial condition of the airline
    industry. OST does not have a formal working group on this issue, but
    has undertaken extensive efforts both to monitor the financial
    condition of the industry and to evaluate longer-term effects of the
    industry's ongoing financial plight.
        The airline industry is in the midst of the most difficult period
    of financial distress since it was deregulated almost 25 years ago.
    This began well before the terrorist attacks of September 11 and
    reflected a combination of rapidly escalating costs--a trend that
    started in 1999--and severely decreased demand beginning in early 2001.
    With these changes, several years of record profits quickly turned to
    losses.
        The terrorist attacks greatly exacerbated losses for the passenger
    carriers and led to record losses. The industry has suffered operating
    losses of about $10 billion during each of the past 2 years, and is now
    expected to lose another $7 to $8 billion this year. A number of
    smaller carriers have failed, and two major carriers, United and US
    Airways, filed for bankruptcy, although the latter carrier has now
    successfully emerged from that process. To compensate for the ongoing
    losses, airlines have undertaken large-scale capacity cuts, laid off
    more than 100,000 employees, made operational changes designed to
    enhance efficiency, and engaged in a wide variety of other efforts to
    reduce operating costs. These efforts have not yet stopped continuing
    losses as the industry has been confronted by a continuing series of
    events that have affected demand, such as the Iraq war and SARS.
        It is also important to note that not all news is bad. While the
    large network airlines in particular have suffered massive losses
    throughout this period even while significantly reducing capacity, in
    marked contrast several low-fare airlines have profitably expanded
    throughout this same period. Now that several low-fare airlines have
    gained a critical mass and are expanding, cost control by the large
    network carriers is paramount. The structure of the industry that will
    evolve from this financial turmoil will depend in large part on how the
    less stable carriers respond to their cost cutting and restructuring
    efforts, but also on how soon and to what extent the economic recovery
    brings relief.

                       OPERATIONAL EFFICIENCY IN THE NAS

        Question. What steps are being taken to improve operational
    efficiency in the national aviation system? Will they help the airlines
    operate more efficiently and save money?
        Answer. The FAA's work in improving the operational efficiency of
    the National Airspace System can be considered both on a short-term and
    long-term basis. Near-term operational improvements include such
    initiatives as continued deployment of Traffic Management Advisor,
    enhanced use of collaborative decision making tools to mitigate the
    impacts of weather on efficiency, and Reduced Vertical Separation
    Minima. Longer-term initiatives include additional runways as well as
    the modernization of the en route automation system.
        These efforts and systems will provide the airlines and flying
    public with fuel-efficient routes, predictable schedules, and minimize
    the disruptions caused by weather.

                  AIRPORTS WHICH WILL BENEFIT FROM NEW RUNWAYS

        Question. Is Chicago O'Hare one of those airports which will
    benefit from new runways?
        In your testimony, you state ``We believe that new runways added at
    the right airports are the single most effective way to increased
    capacity.'' Is Chicago O'Hare one of those airports?
        Answer. Chicago is one of the 35 airports in the agency's Capacity
    Benchmark Study/Operational Evolution Plan. Since over 70 percent of
    all scheduled traffic moves through these 35 airports and 15 of these
    airports account for 80 percent of the total delays in the entire
    National Airspace System (NAS), any project which increases capacity or
    reduces delays at these airports has benefits that ripple through to
    the entire NAS. O'Hare ranks third in the number of delays over the
    past 5 years and had the highest ratio of delays to operations of any
    of the Operational Evolution Plan (OEP) airports in 2002 (57.60 per
    1,000). Given that O'Hare also handled more operations than any other
    airport last year, these delay ratios are indicative of a delay problem
    at O'Hare.
        Delays at O'Hare International Airport will continue to grow as
    demand increases. Delays at O'Hare are having a ripple effect
    throughout the country and additional capacity is needed. The FAA is
    currently evaluating a draft plan proposed by the City of Chicago for
    the modernization of O'Hare Airport that is expected to significantly
    increase its capacity. The modernization plan includes the realignment
    of existing runways as well as the addition of a new runway.
                                     ______

                    Questions Submitted to Jeffrey N. Shane
                Questions Submitted by Senator Richard C. Shelby

               ROLE OF THE OFFICE OF THE SECRETARY IN FAA MATTERS

        Question. Secretary Shane, now that the Coast Guard and TSA have
    moved to the Department of Homeland Security, do you see an increased
    role for the Office of the Secretary in matters relating to the FAA?
    Can you give us a few examples?
        Answer. There has been no change in the role of the Office of the
    Secretary (OST) with relation to the Federal Aviation Administration
    (FAA) since the transfer of the Coast Guard and Transportation Security
    Administration (TSA) to the Department of Homeland Security. OST
    coordinates the broad policy goals of the Department and the
    administration among all the operating administrations. Its role with
    regard to the FAA is no different than its role with any other modal
    administration. For example, the aviation reauthorization legislation
    (Flight-100) that was proposed by the administration was a
    collaborative effort between the FAA and OST. The same collaborative
    process was followed with the various operating administrations
    included in the administration's surface transportation reauthorization
    proposal (SAFETEA). We expect this coordination role to continue with
    regard to all operating administrations within the Department.

                         FAA MANAGEMENT OF PROCUREMENT

        Question. When you were at the Department in the early 1990's as
    the Assistant Secretary for Policy, the FAA and the Department were
    struggling with the Advanced Automation System procurement (AAS) and
    now, to read the IG's testimony, we still seem to be struggling with
    procurement at the FAA: WAAS, STARS, and Oceanic to be specific. And,
    in fact, I believe that STARS and Oceanic are, in part, follow-on
    procurements to the AAS procurement that was such a disaster for the
    FAA.
        Do you think that the FAA does a good job in managing procurements?
        What should OST do or Congress do to help the FAA improve its
    ability to deliver desired capability, reduce schedule slippages, and
    reduce cost overruns?
        Answer. The FAA remains committed to delivering National Airspace
    System (NAS) systems within cost and schedule baselines. FAA has made a
    number of management changes that strengthen its ability to develop
    leading-edge technologies. For example, about 2 years ago, the agency
    instituted a more disciplined process to establish cost, schedule, and
    performance baselines. This new process acknowledges that a great deal
    of planning and analysis must be invested in a program before clear
    cost and schedule parameters can be established in an official
    acquisition program baseline. The FAA's investment review board also
    reviews major programs on a regular basis to identify and remove
    barriers to successful completion. These processes are producing more
    accurate cost estimates and better performance vis-a-vis program
    baselines. In fact, over the past 2 years, the FAA has stayed within
    cost estimates for the vast majority of modernization programs. With
    respect to the specific programs mentioned:
        The Wide Area Augmentation System (WAAS) program has overcome its
    technical challenges and was commissioned on July 10, 2003. The Oceanic
    program has been delivering significant, incremental improvements to
    oceanic controllers since 1995. The Advanced Technologies and Oceanic
    Procedures program combines those earlier oceanic improvements, adds
    others, and integrates everything into a single controller workstation.
    The program is on track to meet the deployment milestones in its
    official acquisition program baseline.
        The Standard Terminal Automation Replacement System (STARS) program
    is also on track. Except for a 3-day delay in achieving an early
    display capability in Syracuse in June, 2002, STARS has met every
    single milestone on or ahead of schedule for the past 3 years. The
    first full version of the STARS system began operations at an FAA
    facility on April 30, 2002, in El Paso. It is currently operational at
    El Paso; Syracuse; Philadelphia; Portland, Oregon; and Miami.
        The FAA has also shown that it is willing to make hard decisions
    when faced with significant cost variances. The agency cancelled the
    Gulf of Mexico buoy program last year and just recently decided to
    defer further expansion of the controller-pilot data link
    communications program.
        The Office of the Secretary of Transportation will continue to work
    closely with the FAA--to establish realistic and accurate cost/schedule
    baselines, improve program management, execute according to plan, and
    cancel or defer programs when their costs exceed benefit profiles.

                   THE FUTURE OF THE U.S. AEROSPACE INDUSTRY

        Question. The Commission on the Future of the United States
    Aerospace Industry issued a report making a number of recommendations
    to ensure the competitiveness of the American industry. One of the
    Commission's recommendations called for the Federal Government to
    establish a national aerospace policy and promote aerospace by creating
    a government-wide management structure. How is the Department
    responding?
        Answer. The Secretary is establishing a joint planning office (JPO)
    to address the air transportation portion of the recommendations. The
    objective of the JPO is to coordinate with the National Aeronautics and
    Space Administration, the Departments of Commerce, Homeland Security
    and Defense, and outside stakeholders on a national plan for the
    transformation of the air transportation system. These joint activities
    will unify interagency research and development by aligning our vision,
    goals, policies, and resources out to 2025. A second piece of the
    management structure will be a policy committee, chaired by the
    Secretary of Transportation, which will advise and guide these planning
    efforts with inputs on the overall national policies that will promote
    economic growth through the transformation of air transportation.

                              SUBCOMMITTEE RECESS

        Senator Shelby. Thank you.
        This concludes today's hearing. The subcommittee is in
    recess subject to the call of the Chair.
        We thank all of you for appearing.
        [Whereupon, at 12:18 p.m., Wednesday, April 2, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

      DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
              RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                            WEDNESDAY, APRIL 9, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:02 p.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Richard C. Shelby (chairman)
    presiding.
        Present: Senators Shelby and Murray.

                           DEPARTMENT OF THE TREASURY

                            Internal Revenue Service

    STATEMENT OF ROBERT E. WENZEL, ACTING COMMISSIONER
    ACCOMPANIED BY TODD GRAMS, CHIEF FINANCIAL OFFICER

                 OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

        Senator Shelby. The Committee will come to order. With the
    April 15th tax filing deadline less than a week away I believe
    it is appropriate that we review the Internal Revenue Service's
    (IRS) fiscal year 2004 budget request. Since the newly
    nominated Commissioner of the Internal Revenue Service has not
    been confirmed we will hear from Bob Wenzel, the Acting
    Commissioner of the IRS today. I would also like to thank you
    for appearing before the committee this morning.
        Although I am the Chairman of the newly created
    Transportation, Treasury and General Government Subcommittee,
    these are not necessarily new issues for me. Many of you may
    recall that I was the Chairman of the Treasury and General
    Government Subcommittee several years ago when the
    reorganization and modernization of the IRS was in its infant
    stage. Since those days, the IRS has improved its service to
    the taxpayers, but there's still a great deal more to be
    achieved.
        I am relieved to know that today, unlike the last time I
    chaired a hearing on these issues, taxpayers are receiving
    courteous service, refunds are being processed in a timely
    manner, and more individuals are filing their taxes
    electronically. The Offer in Compromise program is working
    efficiently to help the taxpayers eliminate tax debts, and the
    Innocent Spouse program, I am told, is also making progress
    because only the guilty party is now being assessed the tax
    liability.
        Even with the success of all these programs, the IRS still
    has a long way to go to provide the service that taxpayers
    deserve and expect. I believe that the IRS should provide top
    quality service to America's taxpayers by helping them to
    understand and to meet their tax obligations, and by applying
    the tax laws with integrity and fairness. Americans deserve and
    expect no less from the Service.
        Turning now to the IRS budget request, I would like to
    point out that your fiscal year 2004 request is $10.4 billion,
    an amount that comprises over 90 percent of the overall budget
    for the Department of the Treasury. The IRS' ongoing business
    systems modernization efforts will require $429 million in the
    year 2004. The Subcommittee appreciates the efforts that
    continue to go into this massive upgrade that we hope will
    improve the speed, timeliness, and accuracy of IRS'
    administration of the tax system.
        I am aware that last year's efforts encountered some
    setbacks and I am interested to learn how the Service has
    gotten back on track and will ensure that such issues will not
    occur again because I expect positive results from such an
    investment.
        While the IRS' traditional role is to implement and enforce
    our tax laws, it has also been charged with administering the
    earned income tax credit. The earned income tax credit has
    expanded since its enactment in 1975 and at the same time has
    become politically controversial. This budget proposes a number
    of changes to that program because of the high level of fraud
    associated with the program's administration. Each year the IRS
    makes approximately $9 billion in erroneous earned income tax
    credit payments. This is a direct and permanent cost to the
    American taxpayer because it is virtually impossible to
    recapture these payments once they have been made.
        You are requesting $251.2 million in 2004 for the EITC
    program, and of that amount, $100 million is requested to
    implement the earned income tax credit task force
    recommendations to address the problems associated with current
    program administration that results in these overpayments.
    Eliminating erroneous payments and ensuring the proper
    administration of this program are certainly goals with which I
    completely agree.
        Compliance is a problem and you are requesting an
    additional $133 million for staff to strengthen compliance. I
    am interested in hearing of the abusive tax schemes you will be
    targeting and how you will deal with them.
        With the IRS' progression into the information age, I am
    keenly interested in how the electronic filing system is
    working, who is using the system, under what conditions, and
    finally, what kinds of systemic cost savings are being
    realized.
        The IRS promotes electronic filing as ``free'' but I have
    been made aware that most, if not all, of the programs or
    services that are requested do charge a fee. I do not know
    anyone that would agree that is free. I am interested in
    exploring this more.
        Along those lines, the IRS has initiated a new program
    called Free File, which is a public-private partnership between
    the IRS and a consortium of tax software companies that offer
    free filing services to qualifying taxpayers. I applaud this
    effort and the assistance that it provides low income
    taxpayers. It is my understanding that savings identified
    because of electronic filing and increases in productivity will
    enable the IRS to close one of its processing sites. I would
    think that the closure of this processing site will realize
    some savings. Additionally, I am interested in how you think
    continued increases in electronic filing will change the nature
    of the IRS and its workforce.
        Another significant change is this budget proposes to
    employ private collection agencies to track down taxpayers that
    owe billions of dollars in delinquent taxes. I do support the
    effort of collecting delinquent debt, but this is of serious
    concern because in addition to having a responsibility to
    protect taxpayers' privacy, I cannot imagine IRS as having the
    resources to administer and oversee such an undertaking.
        While this is a fairly straightforward budget, the IRS
    proposes a significant number of changes in the way that it
    does business. As I mentioned, I am very interested in these
    changes and look forward to your explanation of the proposal
    that is included in the budget.
        Senator Murray.

                       STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Thank you, Mr. Chairman. We are now less
    than a week away from tax day, and 2002 was a very rough year
    for America's working families. The economy has continued to
    decline, hundreds of thousands of Americans were put out of
    work, and many of them still have not found jobs. Even those
    who have found jobs have had to take big pay cuts. Six days
    from now many of those families will be hard-pressed to cover
    their check to the IRS. At a time when our national economy is
    struggling and when individual families are hurting, the
    President is pushing for tax cuts that overwhelmingly favor our
    wealthiest citizens. That has got to be pretty disheartening to
    the many families who are struggling through no fault of their
    own.
        Today I want to shine a light on a similarly, I believe,
    unfair proposal in the President's budget that could mean less
    help for low income families. An initiative in the President's
    2004 IRS Budget seems to be targeted at throwing working
    families off of the rolls for receiving the earned income tax
    credit or EITC. This is a tax credit that is targeted at the
    working poor. The EITC is probably the most targeted means-
    tested tax benefit in the entire Federal Code. It was started
    by President Gerald Ford and it was greatly expanded under
    President Reagan.
        While many working families are eligible to receive it, as
    many as 25 percent or more of those families do not even apply
    for it. We should be taking steps to allow more eligible
    families to get the help they need, but I believe the
    President's proposal goes the other away. It would require many
    of these working poor families to basically pre-certify that
    they are eligible to receive the EITC. This proposal is
    designed, we are told, to minimize fraud in the earned income
    tax credit program.
        Mr. Chairman, you will not find one Senator on this
    committee or anywhere in the U.S. Senate that supports citizens
    perpetuating fraud on the IRS. Tax fraud by any taxpayer should
    never be tolerated. It is a disservice to every other family
    that works hard and pays its share.
        As we work to eliminate fraud we need to be careful that we
    do not penalize the families who rely on this credit. As I
    understand it, under the Administration's proposal, within a
    couple of months, tens of thousands of families will receive
    Federal forms requiring a great deal of documentation in order
    to qualify them to take the Earned Income Tax Credit later in
    the year. Much of this required documentation will be hard to
    get, and the Federal tax assistance centers for the poor will
    not be up and running during the summer months. By this time
    next year more than 2 million families are expected to be
    subject to this procedure. The average earned income tax is
    roughly $1,660. That makes a pretty big difference for families
    that are struggling.
        I will repeat, I believe each and every case of tax fraud
    should be prosecuted. Given the fact that the IRS never has and
    never will have enough resources to audit every return, I am
    mystified by its decision that $100 million in scarce funds
    should be committed to going after the working poor. No amount
    of fraud should be allowed for any taxpayer at any income level
    and I think we need to be very cautious of proposals that could
    have an adverse effect on families getting the benefits that
    they deserve.
        The IRS should go after people that are cheating the system
    to receive the EITC when they are not eligible. But I believe
    the IRS also carries the responsibility to make sure that these
    enforcement efforts do not undermine the whole purpose of that
    the EITC program and the families that rely on it.
        I hope that we will pursue this critical issue of fairness
    in our tax collection system today, Mr. Chairman. Thank you.
        Senator Shelby. Mr. Wenzel, your written statement will be
    made part of the record in its entirety. Proceed and sum it up,
    if you would.

                         STATEMENT OF ROBERT E. WENZEL

        Mr. Wenzel. Mr. Chairman and distinguished members of the
    Subcommittee, thank you for this opportunity to discuss the
    President's fiscal year 2004 budget for the IRS. Accompanying
    me today is Mr. Todd Grams, the IRS' chief financial officer.
        The President's overall fiscal year 2004 budget request
    increases discretionary spending by 4 percent. Seen in this
    context, the proposed 5 percent funding increase over the
    fiscal year 2003 request for the IRS is greatly appreciated. We
    will work hard to justify this confidence and investment.
        Mr. Chairman, we also share your commitment to make the
    most efficient and productive use of the taxpayers' dollars.
    Indeed, beginning with the fiscal year 2004 budget, strategic
    planning, budgeting, resource allocation and performance goals,
    are much better aligned at the IRS.
        Moreover, we are now integrating the development of our
    budget with the establishment of performance measures, a key
    part of the President's management agenda, and we believe we
    are on the right track.
        Mr. Chairman, let me briefly discuss the President's fiscal
    year 2004 budget request. Simply put, it keeps us on track. The
    funding provided will help us to build on the improvements we
    have made in enforcement, service, and productivity, while
    continuing to make longer term investments in our business
    systems modernization program.
        The principal strategic focus of the budget is
    strengthening enforcement activities. Last October we realigned
    our audit resources to focus on key areas of noncompliance,
    such as offshore credit card users and promoters of abusive
    schemes and scams.
        To strengthen enforcement programs across the board, the
    IRS budget request includes $133 million to fund numerous
    initiatives. For example, new revenue agents and revenue
    officers will be added to address offshore credit cards,
    abusive trusts and shelters, high risk high income taxpayers,
    and other priority work. We also will increase staff devoted to
    frivolous returns and refund claims to counteract recent growth
    and aggressiveness by promoters in this area.
        A legislative proposal is also in the budget that would
    authorize us to contract with private sector collection
    agencies to supplement current IRS tax collection efforts. By
    using these private collection agencies we expect to be able to
    handle more collection cases at an earlier stage, before the
    accounts become stale and uncollectible. Moreover, we can then
    concentrate our resources on more complex cases and issues.
        The second focus of the proposed budget is reinvestments.
    Through the IRS' strategic planning and budgeting process, the
    agency's senior managers identified a significant potential for
    more effective and efficient use of current resources. A total
    of $166 million and 2,145 FTEs were identified for reallocation
    within the base budget for fiscal year 2004. By reinvesting
    $166 million, primarily from increased productivity, we will be
    able to increase performance in key tax administration areas.
        For example, electronic filing success provides a great
    opportunity to reduce and reallocate resources from submission
    processing. The fiscal year 2004 budget reflects the first-ever
    closing of a submissions processing pipeline as paper filings
    decrease. We can use these reinvestments to strengthen
    enforcement and improve customer service.
        The third and final focus is business systems
    modernization. The BSM program requests a total of $429
    million, an increase of $65 million over the current fiscal
    year 2003 budget level. Over the course of the BSM program,
    these investments will benefit the IRS and taxpayers by
    reducing operating costs, increasing cost avoidance, reducing
    taxpayer burden, and boosting tax receipts.

                               PREPARED STATEMENT

        Mr. Chairman, in conclusion, current trends in customer
    service and enforcement are pointing in the right direction.
    The President's budget will help us to maintain this upward
    course and to succeed in achieving our mission.
        Thank you.
        [The statement follows:]

                     Prepared Statement of Robert E. Wenzel

                                  INTRODUCTION

        Mr. Chairman, and distinguished Members of the Subcommittee, thank
    you for this opportunity to discuss the President's proposed fiscal
    year 2004 budget for the Internal Revenue Service. Accompanying me
    today is Mr. Todd Grams, IRS Chief Financial Officer.
        I also want to thank the President and Treasury Secretary Snow for
    their strong and visible support of the IRS and our critical mission
    during these challenging times. The President's overall fiscal year
    2004 budget request increases discretionary spending by 4 percent. Seen
    in this context, the proposed 5 percent funding increase over the
    fiscal year 2003 request for the IRS is greatly appreciated and we will
    work hard to justify their confidence and this investment.
        The funding provided in the President's budget will help us to
    build on the improvements we have made in compliance, service and
    productivity while continuing to make longer-term investments in our
    Business Systems Modernization (BSM) program.
        Mr. Chairman, I also welcome the opportunity to work closely with
    you and we share your commitment to make the most efficient and
    productive use of the taxpayers' dollars. Indeed, beginning with the
    fiscal year 2004 budget, strategic planning, budgeting, resource
    allocation and performance goals are better aligned. Moreover, we are
    now integrating development of our budget with the establishment of
    performance measures--a key part of the President's Management Agenda.
    We believe we are on the right track.

                         BUILDING ON A GOOD FOUNDATION

        Mr. Chairman, the IRS continues to make steady progress on the
    mandates and new direction set forth by the IRS Restructuring and
    Reform Act of 1998 (RRA 98). We continue to make gains on our three
    strategic goals: top quality service to each taxpayer in every
    interaction; top quality service to all taxpayers through fair and
    uniform application of the law; and productivity through a quality work
    environment.
        Although still unacceptable in some areas, service to taxpayers has
    improved. Returns, payments and refunds are better processed. Taxpayers
    are getting better service over the telephone, in person and over the
    Internet. Most are getting the right answers to their tax law and
    account questions. New incentives, such as the innovative Free File
    program, are breaking down the last barriers to e-file.
        After careful study, we are redirecting our resources to the key
    areas of noncompliance, such as offshore tax avoidance schemes. New
    programs such as the Offshore Voluntary Compliance Initiative are
    producing promising results.
        The four customer-focused operating divisions are also meeting the
    varying needs of their taxpayer segments. After years of planning, the
    BSM program is entering a new, challenging but risky phase: producing
    the flexible systems, technology and tools needed to provide service to
    taxpayers on a par with the best private sector financial services
    companies and to administer an increasingly complex tax system.
        Clearly, we are doing a better job than when RRA 98 was enacted
    into law although we are far short of providing the level of service
    envisaged in the legislation. We still have a long way to go, but if we
    stay the course we began almost five years ago, we can still succeed.

    Customer Service
        The IRS has made steady gains in better serving America's
    taxpayers. Each filing season and year is appreciably better than the
    previous one and we are building on those successes. With only one week
    left in the filing season, we can detect some very positive trends.
        For the 2002 filing season, the agency processed over 128.7 million
    individual returns, and issued over 99.5 million refunds totaling
    $191.2 billion. We believe we will exceed these numbers by the end of
    this filing season.
        In 2002, web site usage smashed all records with 2.7 billion hits
    and 336 million files downloaded. For the 2003 filing season, usage on
    our newly designed web site is already running almost 25 percent ahead
    of last year's torrid pace.
        IRS representatives also answered 25.9 million telephone calls
    during fiscal year 2002; the automated telephone system handled about
    62.4 million calls. For the 2003 filing season, total assistor calls
    answered are running about level with last year, with automated calls
    down dramatically. This drop can be most likely traced to the high
    volume of calls we received last year related to the advance refund
    checks.
        The big news is assistor level of service. It is up 20 percent over
    last year. This can be attributed to the implementation of new
    telephone lines, less complicated scripts and lower demand. Time spent
    waiting, while still below private sector standards, improved
    substantially. Average wait time is down 26 percent from the previous
    year.
        Quality of service is as important as access to service. Taxpayers
    expect not only to get through on our toll-free telephone lines but to
    get the correct answer to their tax law or account question. For the
    2002 filing season, taxpayers were receiving correct responses to 82.76
    percent of tax law questions and 88.89 percent of account questions. So
    far this filing season, the numbers stand at 82.02 percent and 86.42
    percent respectively.
        In 2002, more than 46.7 million taxpayers (36 percent) filed
    electronically--a 16.4 percent rise from last year. This filing season,
    all e-file is up by almost 9.23 percent and e-filing on line has grown
    by 29.28 percent. Much of this surge can be attributed to the Free File
    program that will help us reach the RRA 98 mandated goal of 80 percent
    of individual returns filed electronically by 2007.
        On January 16, 2003, the Treasury Department, the Office of
    Management and Budget (OMB) and the IRS launched the free online tax
    preparation and filing service called Free File. It was made possible
    through a partnership agreement between the IRS and the Free File
    Alliance, LLC--a private sector consortium of tax software companies.
        The partnership agreement requires that the Alliance as a whole
    provide free tax preparation and filing to at least 60 percent, or
    approximately 78 million American taxpayers. The primary candidates for
    Free File are those taxpayers who prepare their own taxes and still
    file paper returns.
        Initial Free File reports are most encouraging. As of March 19,
    Alliance members have processed and transmitted more than 2.0 million
    tax returns. This represents approximately 25 percent of the total 8
    million online e-filed returns.
        Improved service to taxpayers has not gone unnoticed. On the 2001
    American Customer Satisfaction Index Survey (ACSI), taxpayers gave the
    IRS an overall score of 62, an 11 percent increase among individual tax
    filers over 2000, and a 22 percent increase over 1999. This was the
    largest favorable gain of the 30 federal agencies surveyed by the ACSI.
    The 2002 annual rating for IRS in the Roper Starch customer
    satisfaction survey was 44 percent--a 38 percent increase over its 32
    percent nadir in 1998. However, it reflects a small decrease from 2001.

    Compliance
        The IRS does not have the resources to attack every case of
    noncompliance. Therefore, it must apply its resources to areas where
    noncompliance is greatest while still maintaining adequate coverage in
    other areas. After careful study, the IRS identified some of the most
    serious compliance problem areas. These include: (1) promoters of tax
    schemes of all varieties; (2) the misuse of devices such as trusts and
    offshore accounts to hide or improperly reduce income; (3) abusive
    corporate tax shelters; (4) underreporting of tax by higher-income
    individuals; (5) accumulation and failure to file and pay large amounts
    of employment taxes by some employers; and (6) the high rate of
    erroneous earned income tax credit (EITC) payments.
        Our goal was to stop the long-term decline in compliance while
    beginning to focus effectively and efficiently on the key areas of
    noncompliance. In most areas, the IRS achieved this goal. For example,
    in fiscal year 2002, the IRS closed 140,737 Tax Delinquent
    Investigation cases. It also examined 60,894 individual returns for
    taxpayers with incomes exceeding $100,000 and 528 Large Cases
    (corporate). All of these show gains over the previous fiscal year and
    the audits of individuals with incomes over $100,000 represented a 22
    percent increase. However, the 724,430 Tax Delinquent Account closures
    represent a small drop over the same period last year.
        Our new emphasis against promoters of abusive tax devices has also
    shown results. As of March 19, 2003, the IRS had 25 promoter
    injunctions granted, 17 promoter injunctions pending in District Court
    and 17 pending at the Department of Justice, 216 promoter exams and
    information requests underway, and 464 ongoing criminal investigations
    of promoters of various tax schemes. The Offshore Voluntary Compliance
    Initiative, which ends April 15, is also producing promising leads on
    promoters and is bringing back taxpayers into compliance.
        In addition, an abusive tax shelter disclosure initiative was
    launched in 2002. The IRS processed 1,664 disclosures from 1,206
    taxpayers who came forward. The disclosures cover 2,264 tax returns and
    involved more than $30 billion in claimed losses or deductions.
        Also, key to successfully executing a compliance program is better
    data. The IRS failed to detect new areas of noncompliance in part
    because of a reliance on increasingly obsolete data from the old
    Taxpayer Compliance Measurement Program. (TCMP was last conducted in
    1988.) The agency designed and is implementing a National Research
    Program that will obtain the essential information with far less burden
    on the taxpayer. New scoring models are being developed using 21st
    century techniques, with interim models already deployed.

    Technology and Modernization
        Critical to our success is better managing our massive technology
    and Business Systems Modernization program. From 15 separate
    information systems operations, we created one MITS (Modernization and
    Information Technology Services) organization that has the job of
    serving all of our operating units and managing our modernization
    program.
        As part of this major transition, standards were established and
    largely implemented for hardware and software. We consolidated
    mainframes from 12 centers to three and established one standard for
    desktop and laptop hardware and software. We implemented nationwide e-
    mail and voice messaging systems, standard office automation software,
    and security certifications and standards. We deployed important
    interim applications systems, including Intelligent Call Routing,
    Integrated Case Processing and the Integrated Collection System.
        Business Systems Modernization laid the foundation for success of
    this massive program. Both the long-term vision and enterprise
    architecture were established and embedded as a living blueprint for
    all business and technology improvement programs.
        BSM has finally begun delivering the first projects with tangible
    benefits to taxpayers, such as moving the first set of taxpayers to a
    modern, reliable database in 2003. This year, taxpayers also began
    using the new Internet Refund/Fact of Filing (IR/FoF) application that
    allows them to check on the status of their return and refund 24 hours
    a day, 7 days a week. Of paramount importance, we implemented the first
    project on our new security system, which provides one standard for
    ensuring the security of all IRS data and systems. IR/FoF usage has
    already exceeded our expectations. So far this filing season, there
    have been more than 8.7 million uses of ``Where's My Refund?''; we
    project that number will rise to 15 million by the end of the year.
        Over the next five years, all individual taxpayers will be moved to
    the new database, cutting times for refunds on e-filed returns to less
    than a week and allowing us to provide taxpayer and employees with up-
    to-the-minute accuracy on their accounts.
        All major management processes, which are needed to manage this
    program on a continuing basis, were improved. Indeed, we are only the
    second agency in the federal government to obtain Level Two
    certification in the Software Engineering Institutions Capability
    Maturity Model.

                       FISCAL YEAR 2004 RESOURCE REQUEST

        For fiscal year 2004, the IRS is requesting resources totaling
    $10.437 billion and 100,043 FTE (full time equivalent). This represents
    an increase of $521 million (5 percent) over the President's fiscal
    year 2003 request.
        Mr. Chairman, the fiscal year 2004 budget request can be best
    viewed through its three strategic drivers that are derived them from
    the IRS performance-based budgeting process.
        First is Compliance.--The principal strategic focus of the
    President's fiscal year 2004 IRS budget is strengthening compliance
    activities, especially in the area of high-income, high-risk taxpayers
    and businesses, and abusive tax avoidance schemes and offshore trusts.
    A legislative proposal would also authorize the IRS to contract with
    private-sector collection agencies to supplement current IRS tax
    collection efforts. The budget further includes a major initiative to
    reduce erroneous payments in the Earned Income Tax Credit (EITC)
    Program.
        Second is Reinvestments.--We are committed to better utilizing the
    resources the IRS already has by ``reinvesting'' base resources. By
    reinvesting $166 million, primarily from increased productivity within
    the base budget, the IRS will be able to deliver increases in the
    performance of key tax administration programs that are significantly
    higher than the additional dollar and FTE increases requested in the
    budget.
        Third is Business Systems Modernization.--Investments in
    modernization through the BSM program would continue with a total
    request of $429 million, an increase of $65 million above the fiscal
    year 2003 appropriation. Over the course of the BSM program, these
    investments will benefit the IRS and taxpayers by reducing operating
    costs, increasing cost avoidance, reducing taxpayer burden and
    increasing tax receipts.
        Mr. Chairman, I also want to draw the subcommittee's attention to a
    new task that was added to the IRS' traditional tax administration
    duties and operations. In August 2002, the President signed Public Law
    107-210, the Trade Adjustment Assistance Act of 2002. Title II of this
    statute provides a refundable tax credit for the cost of health
    insurance for certain individuals who receive a trade readjustment
    allowance or a benefit from the Pension Benefit Guaranty Corporation
    (PBGC). The tax credit is equal to 65 percent of the health insurance
    premium paid by eligible persons to cover them and qualifying family
    members. The IRS must implement the Health Coverage Tax Credit
    provisions.
        We are requesting $35 million for Health Insurance Tax Credit
    Administration. The amount provided in the Consolidated Appropriations
    Resolution, 2003 ($70 million) will be used to provide software,
    hardware, and contract services to develop the system mandated by
    Public Law. The IRS will oversee the contractor's work.
        Let me now provide the highlights of our proposed fiscal year 2004
    budget.

                                   COMPLIANCE

    Additional Funds Requested to Strengthen Tax Administration Compliance
            (+$133M and +1,700 FTE)
        The Internal Revenue Service is realigning its audit resources to
    focus on key areas of noncompliance with the tax laws. The strategy
    represents a new direction for the agency's compliance effort.
        Following months of research and planning, the new approach is
    focusing on high-risk areas of noncompliance. Our effort will generally
    focus first on promoters and then on participants in these various
    schemes. The initiative will feature new and enhanced efforts on the
    most serious compliance problem areas described earlier in my
    testimony.
        Our Small Business/Self-Employed (SB/SE) Operating Division will
    handle the new effort in these key areas affecting individuals and
    businesses. Compliance efforts will continue in other parts of the
    agency, such as the tax shelter initiative in the Large and Mid-Sized
    Business (LMSB) Division.
        To strengthen compliance programs across the board, the IRS budget
    request includes $133 million to fund numerous compliance initiatives.
    Key examples of these initiatives are:
        Address Complex Enforcement Issues of Small Business/Self Employed
    Taxpayers (+$56M and 887 FTE).--Additional staff will be provided to
    all major compliance programs in SB/SE and new workload selection
    systems and case building techniques will be employed. New revenue
    agents (exam work) and revenue officers (collections work) will be
    applied in the field to address offshore credit cards, abusive trusts
    and shelters, high-risk/high-income taxpayers, and other priority work.
    Additional staff at call sites will be employed to specialize in out-
    going calls and offset levies. Greater resources in the Automated
    Substitute for Return (ASFR) program will allow us to focus on high-
    income taxpayers who do not file returns. Also, staff devoted to
    frivolous returns and frivolous refund claims will be increased to
    counteract recent growth and aggressiveness by promoters in this area.
        Address Passthrough Entities and Abusive Trusts of Large Business
    Taxpayers (+$22M and 258 FTE).--This increase will allow the IRS to
    apply the most experienced revenue agents to the highly complex and
    technical issues of passthrough entities--such as partnerships, trusts
    and S-corporations--and abusive corporate tax shelters while
    maintaining minimum coverage of other priority exam work.
        Counterterrorism (+$6M and 24 FTE).--The IRS is heavily involved in
    the fight against both global and domestic terrorism. Demand for the
    financial investigative skills of Criminal Investigation (CI) special
    agents remains high. After September 11, 2001, over 273 FTE in fiscal
    year 2002 and 206 FTE projected in fiscal year 2003 were redirected
    from CI tax enforcement activities to counterterrorism related
    activities. CI is working on counterterrorism with the Treasury
    Executive Office of Terrorism Financing and Financial Crimes and is an
    integral part of the nation's war on terrorism.

    Use of Private Sector Contractors for Collection of Taxes Due
        There is a significant and growing backlog of cases involving
    individual taxpayers who are aware of their tax liabilities but are not
    paying them. We believe that many of these individuals are capable of
    paying their outstanding tax liabilities. This is unfair to every hard-
    working American who pays his or her fair share of taxes. To address
    this problem, the President's budget proposes to support the IRS'
    collection efforts with private collection agencies (PCAs) that will
    engage in specific, limited activities, allowing the IRS to concentrate
    its resources on more complex cases and issues.
        By eliciting the assistance of PCAs, the IRS expects to be able to
    address this important part of the existing backlog of collection
    cases. Over time, the IRS expects that PCAs would assist the IRS in
    handling more collection cases at an earlier stage in the process--
    before the accounts become stale and uncollectible. PCAs have proven
    successful with over 40 states and have been used for many years with
    other federal programs. PCAs would hold no enforcement power and their
    employees would be subject to the same rules that apply to the IRS
    governing taxpayer rights and confidentiality. Consequently, taxpayer
    protections would be unaffected. The IRS would be required to closely
    monitor the activities and performance of the PCAs to ensure these
    rules are followed.

    Reduce Inappropriate Payments in EITC Program (+$100M and +650 FTE)
        The EITC program benefits millions of low-income workers. The EITC
    lifts nearly 4 million people, especially single mothers, out of
    poverty each year. However, the current error rate for the EITC program
    is too high. In 1999, between 27 and 32 percent of EITC claims--or
    between $8.5 billion and $9.9 billion--were paid in error. EITC has
    been consistently listed among high-risk federal programs. Congress has
    recognized this by providing a separate appropriation that has been
    used for EITC compliance enforcement.
        The Fiscal Year 2004 Budget requests an additional $100 million to
    begin a new strategy for improving the EITC program. This approach,
    suggested by the Department of Treasury EITC Task Force, concludes that
    the IRS must obtain additional information on certain EITC eligibility
    criteria before payment of the EITC-portion of refunds. A major portion
    of the request will be used to invest in suitable information
    technology and develop business processes.
        The IRS will begin to use an integrated approach to address
    potential erroneous claims by identifying cases that have the highest
    likelihood of error before they are accepted for processing and before
    any EITC benefits are paid.
        A key part of this strategy is to begin certifying taxpayers who
    claim qualifying children on the relationship and residency
    requirements. In addition, the IRS will use limited additional taxpayer
    information, in combination with taxpayer-specific IRS historical data,
    third party data and error detection systems to detect and freeze the
    EITC-portion of refunds that pose a high risk or filing status errors
    or income misreporting. The IRS will seek to minimize the burdens on
    taxpayers by using existing databases and other sources of information
    to verify eligibility in advance. This integrated approach is designed
    to provide far greater assurance that EITC payments go to the
    individuals who qualify for the credit, without sacrificing the goals
    of the EITC program.

                                 REINVESTMENTS

    Resources Freed-Up Within the Base Budget for Reinvestment (-$166
            million and -2,145 FTE)
        The President's budget submission states, ``In fiscal year 2004,
    the IRS will improve performance primarily through better management
    and fundamental reengineering of business processes, and secondarily by
    increases in resources.''
        Through the IRS' Strategic Planning and Budget process, the
    agency's senior managers identified significant potential for the more
    effective and efficient use of current resources. A total of $166
    million and 2,145 FTE were identified for reallocation within the base
    budget in fiscal year 2004. Examples of sources for reallocations
    include:
        Submissions Processing/Electronic Filing (-$13.5M and -366 FTE).--
    IRS' continued success with electronic filing provides a great
    opportunity to reduce and reallocate resources from submission
    processing to strengthen compliance and improve customer service. The
    fiscal year 2004 budget reflects the first-ever closing of a
    submissions processing pipeline (Brookhaven, NY) as the labor-intensive
    processing of paper filings decreases across the system.
        Compliance Support Reengineering (-$26M and -394 FTE).--
    Reengineering of the compliance program in SB/SE will improve
    operational efficiency and workload selection, and reduce taxpayer
    burden. Business process improvements and centralization of the
    Compliance Support Organization will generate FTE that can be reapplied
    in front-line activities.
        Remittance Transaction Research (-$9M and -199 FTE).--Creating a
    central data repository (taxpayer payment data and related images) for
    all individual taxpayer payment documents will increase efficiency,
    improve accuracy of posting payments, and reduce the time it takes to
    resolve payment issues.
        Information Technology (-$46M and -39 FTE).--Efficiencies through
    reengineering and other efforts will reduce expenditures in end-user
    support, computing center support, and network operations and
    maintenance.

    Reinvestment of Reallocated Funds within the Base Budget (+$166 million
            and +649 FTE)
        Resources reallocated within the base budget would be used to
    improve Customer Service and strengthen Compliance programs. The
    specific initiatives include:
        Reduce Compliance Staff Support of Filing Season (+$13M and +154
    FTE).--Due to lower-than-needed staff levels in Field Assistance
    Programs for individual taxpayers, the IRS must detail compliance staff
    from SB/SE to field assistance during the filing season to meet
    taxpayer demand. Under this initiative, we would hire additional staff
    in field assistance so that the level of service in assistance is
    maintained while the number of compliance details can be reduced, and
    compliance staff can devote more time to compliance activities.
        Improve Telephone Service to Small Business/Self Employed Taxpayers
    (+$11M and +184 FTE).-- Additional resources are needed to assist SB/SE
    taxpayers in Accounts Management phone services. These staff members
    assist taxpayers with a broad range of issues concerning taxpayers'
    accounts.
        Information Technology (+$33M and 0 FTE).--IT investments will
    expand web services to taxpayers, replace aging servers, purchase
    needed software, and expand high speed and secure access for revenue
    agents at remote sites.

    CONTINUED INVESTMENT IN BUSINESS SYSTEMS MODERNIZATION (+65 MILLION AND
                                     0 FTE)

        The BSM program request totals $429 million, an increase of $65
    million over the current fiscal year 2003 level. The BSM account
    provides for modernizing IRS-wide business practices and acquiring new
    technology.
        We use a formal methodology to prioritize, approve, fund and
    evaluate our portfolio of BSM investments. This methodology enforces a
    documented, repeatable and measurable process for managing investments
    throughout their life cycle. The IRS Core Business System Executive
    Steering Committee, chaired by the Commissioner, approves investment
    decisions. This executive-level oversight ensures that products and
    projects delivered under the BSM program are fully integrated into IRS
    Business Units.
        Highlights in BSM for fiscal year 2004 include: (1) modernized e-
    File will provide electronic filing for large and small businesses; (2)
    implementation of the Integrated Financial System will replace the
    current antiquated administrative core accounting system; (3) the first
    release of the Custodial Accounting Project will put individual
    taxpayer data in a data warehouse for easier access and analysis; and
    (4) the Customer Account Data Engine and Internet Refund Fact of Filing
    will be revised for tax law changes to support the 2004 filing season.
    Given the changes in the fiscal year 2003 and fiscal year 2004 BSM
    funding totals, we are currently reviewing the fiscal year 2004
    allocation project-by-project to determine the optimum plan. They are
    discussed in greater detail below.

    Achievements and Benefits
        In fiscal year 2002, the BSM Program provided real benefits,
    including a secure online system and system management capability and
    the aforementioned Internet Refund/Fact of Filing pilot program. In
    fiscal year 2003 and fiscal year 2004, additional supporting
    infrastructure services will be added, and an increasing number of
    business and internal applications will be delivered, creating benefits
    for taxpayers and practitioners and enabling internal efficiencies.
        The fiscal year 2003 delivery plan will move the BSM Program into a
    wide spectrum of critical new areas:
      --Customer Account Data Engine (CADE) R1.--In July 2003, CADE will
            begin processing single 1040EZ filers (both electronic and
            paper). Taxpayers covered under CADE will receive their refunds
            about 40 percent faster than under Master File processing, if
            they use direct deposit. More importantly, we will have taken
            the first of many steps to replace the 40-year old Master
            Files.
      --Custodial Accounting Project (CAP).--We will continue development
            and testing of CAP Release 1 scheduled for deployment in the
            first quarter of fiscal year 2004. CAP will create a repository
            for modernized Individual Master File data and will address
            documented financial material weaknesses.
      --Enterprise Architecture (EA) and Tax Administration Vision and
            Strategy (TAVS).--TAVS focuses on creating a long-term vision
            of how the agency should work in the future. Delivery and
            acceptance of EA Release 2.0 was a significant achievement. We
            also conducted a planning effort called ``TAVS Refresh'' to
            identify gaps and outdated information in TAVS which we plan to
            address in fiscal year 2003.
      --e-Services.--e-Services sub-releases will provide: registration of
            electronic return originators, Taxpayer Identification Number
            (TIN) matching, initial partner relationship management
            capabilities, electronic account resolution, transcript
            delivery, secure e-mail, and bulk TIN matching.
      --Infrastructure (STIR and Infrastructure Shared Services [ISS]).--
            This project provides the basic secure infrastructure necessary
            to support the modernization effort including e-Services R1,
            IR/FoF, Internet Employer Identification Number (EIN), and
            subsequent fiscal year 2003 releases.
      --Integrated Tax Administration Business Solutions (ITABS).--Projects
            to ensure we understand requirements and select COTS
            (commercial off-the-shelf) solutions that can effectively
            integrate business processes in IRS functions.
      --Internet EIN.--This application will automate Employer
            Identification Number (EIN) requests over the Internet.
            Currently, the EIN request process is cumbersome and people-
            intensive, often resulting in unacceptable delays for those
            starting new businesses.
      --Integrated Financial System (IFS).--Although the first release of
            the new financial system will not go live until October 1, 2003
            (therefore, an fiscal year 2004 delivery project), it is likely
            to be our most work-intensive project during fiscal year 2003.
      --Modernized e-file.--The Modernized e-file project will be in pre-
            deployment testing for all of fiscal year 2003, with initial
            deployment in early calendar year 2004, with Forms 1120 and 990
            e-file capabilities.
        BSM benefits delivered in fiscal year 2004 will include:
      --Modernized e-file will provide electronic filing for large and
            medium-sized businesses (Forms 1120 and 990), as well as a new
            Tax Return Data Base, which will greatly improve customer
            service and issue resolution.
      --e-Services will provide support for the 2004 Filing Season as well
            as implement support structures for modernized e-file planned
            for implementation later in the fiscal year.
      --IFS will develop the detailed functional requirements to support
            internal management requirements for financial and management
            planning, execution and reporting.
      --CAP will provide an integrated enterprise data warehouse to support
            organizational data needs, performance measurement, and tax
            operations process improvements.
      --CADE will allow for electronic processing of selected Form 1040
            Wage & Investment returns with additional taxpayer segments
            that have increasingly more complex tax returns and/or balance
            due returns.
      --ISS will establish a program whose goal is to deliver a fully
            integrated shared information technology infrastructure to
            include hardware, software, shared applications and data,
            telecommunications, security and an enterprise approach to
            systems and operations management. This approach results in
            overall reductions in time and dollars to develop, deploy, and
            maintain the infrastructure and the business applications that
            use the infrastructure.

                 IMPACT OF UNFORESEEN COSTS ON STAFFING LEVELS

        Although staffing increases were supported in recent budgets, they
    could not be realized because of unexpected cost increases. The IRS is
    labor intensive; salaries and benefits make up 71 percent of our
    Operations Budget. Therefore, any unexpected major cost that the agency
    must absorb will have a negative effect on staffing levels, despite
    efforts to reduce non-labor costs.
        For fiscal year 2003, the President proposed a budget for the IRS
    that included 98,727 FTE (less EITC). However, the total FTE for fiscal
    year 2003 (less EITC) is currently expected to be 96,802, which is
    1,925 FTE less than the President's request. The following are examples
    of what drove projected fiscal year 2003 FTE down below the President's
    request by 1,925.
      --The unfunded increase in the fiscal year 2002 annual pay raise from
            the President's 3.6 percent request to the 4.6 percent enacted
            level (Cost: $43 million).
      --Postage increases above initial budget projections (Cost: $22
            million).
      --Unfunded increase in security costs after 9/11 (Cost: $20 million).
        Let me put the staffing problem in even greater perspective. Over
    time, the current fiscal year 2003 FTE projection is 1,249 FTE less
    than what was requested in the President's fiscal year 2001 Budget. It
    is also important to note that the fiscal year 2003 appropriation bill
    created a $68 million unfunded pay increase and an across-the-board cut
    of $64 million. These actions will further reduce our staffing levels
    and directly affect our ability to deliver on performance projections
    included in the fiscal year 2003 budget request.
     modifications to the irs restructuring and reform act of 1998 (rra 98)
        Mr. Chairman, in the fiscal year 2004 budget submission, the
    Administration proposed modifications to RRA 98. Last year, the House
    passed legislation that contained five of these proposals; the Senate
    did not act before adjourning. We commend the House for its actions and
    believe that these modifications preserve the intent of the Act while
    allowing us to administer it more efficiently and effectively. We urge
    the Congress to take similar action this year.
        There are six parts to the Administration's proposed modifications.
    The first modifies infractions subject to Section 1203 of RRA 98 and
    permits a broader range of available penalties. Our ability to
    efficiently administer the tax code is currently hampered by a strong
    fear among our employees that they will be subject to unfounded 1203
    allegations, and perhaps lose their jobs as a result. This proposal
    will reduce employee anxiety resulting from unduly harsh discipline or
    unfounded allegations.
        The second part adopts measures to curb the large number of
    frivolous submissions and filings that are made to impede or delay tax
    administration.
        The third permits the IRS to enter into installment agreements with
    taxpayers that do not guarantee full payment of liability over the life
    of the agreement. It allows the IRS to enter agreements with taxpayers
    who desire to resolve their tax obligations but cannot make payments
    large enough to satisfy their entire liability and for whom an offer in
    compromise is not a viable alternative.
        The fourth allows the IRS to terminate installment agreements when
    taxpayers fail to make timely tax deposits and file tax returns on
    current liabilities.
        The fifth streamlines jurisdiction over collection due process
    cases in the Tax Court, thereby reducing the cycle time for certain
    collection due process cases.
        The sixth and last provision would eliminate the monetary threshold
    for IRS Chief Counsel reviews of offers in compromise.
        The Administration also has two proposals to improve IRS efficiency
    and performance from current resources. The first would modify the way
    that Financial Management Services (FMS) recovers its transaction fees
    for processing IRS levies by permitting FMS to retain a portion of the
    amount collected before transmitting the balance to the IRS, thereby
    reducing government transaction costs. The offset amount would be
    included as part of the 15-percent limit on levies against income and
    would also be credited against the taxpayer's liability.
        The second proposal would encourage growth in electronic filing by
    extending from April 15 to April 30 the return filing and payment date
    for the filing of individual income tax returns, if the return is filed
    electronically and any balance due is paid electronically.

                                   CONCLUSION

        Mr. Chairman, in conclusion, the President's proposed fiscal year
    2004 budget for the IRS keeps us on track and will allow us to provide
    both the short-term and longer-term benefits to taxpayers, which has
    been the hallmark of our modernization program from its inception. Once
    again, I thank the President and his Administration for their continued
    support of our program and their confidence that we can get the job
    done, and at the least cost to America's taxpayers.

                               ELECTRONIC FILING

        Senator Shelby. I want to talk to you a little about
    electronic filing. This process clearly makes your job easier
    and maximizes efficiency within the Service, but there are
    serious concerns about the inability of the average American to
    fill out his or her own tax return and press a button on the
    IRS's web site and file their return electronically. I
    understand that there are a number of reasons floating out
    there but I would like to hear from you, why can't I or
    somebody else go to the IRS' web site, fill out my tax return
    and file it unless, of course, I print it out and put it in the
    mail?
        Mr. Wenzel. This year, for the first time, we do offer the
    opportunity to have individuals come into the IRS.gov site and
    avail themselves of a program we refer to as Free File. There
    are 17 commercial software firms that make up the consortium. I
    need to back up and explain that a little bit.
        The electronic filing program started from very humble
    beginnings in 1996 at the IRS. The first year we had 26,000
    returns filed. This year we expect about 53 million returns
    filed electronically of the 132 million individual income tax
    returns that will be filed this calendar year. So there is a
    significant increase.
        As you are aware, the Congress in 1998, as a result of the
    Restructuring and Reform Act of the Internal Revenue Service
    set a goal for the IRS that by the year 2007, 80 percent of
    individual and business tax returns will be filed
    electronically. While we have had, as I mentioned, some
    significant success, attracting 53 million electronically filed
    individual returns this year, we still have quite a ways to go
    for not only individual returns, but also business returns, to
    reach that goal in 2007.

                              FREE FILE INITIATIVE

        Senator Shelby. Can you file an electronic return from your
    home if you had the software?
        Mr. Wenzel. You can file, beginning this year, with the
    consortium that we entered into, this agreement with the
    private sector. One of the efforts that we are--as I mentioned,
    it is the first year--trying to increase the number of returns
    filed electronically. We have a long-standing position at the
    IRS, that we were not going to compete with the private sector
    software vendors, to offer free software. That was a position
    that the IRS took, Treasury took.
        As a result of that position we contacted the private
    sector to form this consortium. As a result of it, this Free
    File initiative has come up on the IRS.gov web site. Over 68
    percent of individuals required to file a return are able to
    use that right now, at no cost to them. Because all they have
    to do is pick one of the 17 sites, go into it and have the
    opportunity to file a return at no cost.
        Senator Shelby. They would have to have the proper software
    to do this, would they not?
        Mr. Wenzel. No, it is there. It is on our system. So far
    this year over 2.1 million individuals have opted to use one of
    those 17 software products. Since it is still a week to go----
        Senator Shelby. How much does that cost?
        Mr. Wenzel. There is no cost.
        Senator Shelby. No cost to it?
        Mr. Wenzel. No cost.
        Senator Shelby. Free?
        Mr. Wenzel. Maybe the confusion here----
        Senator Shelby. There is some confusion.
        Mr. Wenzel [continuing]. Because you can go in and use the
    programs at no cost, but what we agreed to with these 17
    vendors is they would have the opportunity to use what is
    called pop-up screens. So if an individual went in, there is a
    screen that pops up and says, ``Would you be interested in
    getting some additional information, some products and services
    that we offer?'' If you said no, the pop-up screen would go
    away and you can continue to file your return. But if you said
    yes, that screen will open up and there are other products and
    services there.
        That is where the confusion may be, Mr. Chairman, because
    some individuals have availed themselves to take advantage of
    the additional services offered where there is a cost. But to
    file a return, there is no charge for that.
        Senator Shelby. The system that I understand is currently
    in place requires, for example, me to seek an IRS-approved e-
    file partner to file my return electronically; is that right?
    Do you want me to repeat that?
        In other words, the system I understand that is currently
    in place would require me to seek an IRS-approved e-file
    partner to file my tax return electronically. Is that what you
    were talking about?
        Mr. Wenzel. Yes, the partner----
        Senator Shelby. That is what I thought.
        Mr. Wenzel [continuing]. Would be one of these 17----
        Senator Shelby. Seventeen of them?
        Mr. Wenzel. Yes, for this first-year effort.
        Senator Shelby. Now that costs some money, does it not? It
    cost something. I do not know how much.
        Mr. Wenzel. Not for the taxpayer to go in and file their
    return.
        Senator Shelby. But as I understand, my staff did a quick
    search on your web site and found a few examples I want to
    share with you. There is a $6.95 senior special, the number one
    tax forms for beginners is $9.95, and finally, there is the
    complete tax package for $24.95 and when you are finished you
    can e-file them for free. In other words, you have got to do
    that first, is my understanding. Am I wrong?
        Mr. Wenzel. Mr. Chairman, I have received e-mail, I have
    received correspondence----
        Senator Shelby. I do not know if I am wrong or not. I am
    just asking the question.
        Mr. Wenzel [continuing]. From individuals of the 2-million-
    plus that have used this that have said, this is great because
    it has been free. It was no cost to me in terms of filing.
        Senator Shelby. In other words, they did not have to pay
    that other money?
        Mr. Wenzel. No. I need to check on the examples given here
    because----
        Senator Shelby. We will furnish those for you, because we
    would be interested----
        Mr. Wenzel [continuing]. I would really need to look into
    that immediately.

                         BUSINESS SYSTEMS MODERNIZATION

        Senator Shelby. Business systems modernization, something
    we have been working with a long time. The Service has informed
    the staff that the IRS' current IT infrastructure is not
    equipped to receive and process electronic transactions
    directly from individual taxpayers. Given our discussion here,
    I am interested to know if, in fact, the Service's massive
    business systems modernization project includes an upgraded
    capability to receive and process electronic transactions
    directly from individual taxpayers. And if not, why not.
        Mr. Wenzel. One of our initiatives and programs in the
    future, as it relates to the business systems modernization, is
    to make that a reality in terms of account information.
        Senator Shelby. Would that not help a lot and move a lot of
    people into electronic filing?
        Mr. Wenzel. Absolutely.
        Senator Shelby. And that is what you really want.
        Mr. Wenzel. That is one of our e-services that we have been
    trying to make a reality because it is done so much already in
    the private sector. The timeliness improves significantly, less
    cost.

                          PRIVATE COLLECTION AGENCIES

        Senator Shelby. I want to move into debt collection. It is
    my understanding you are planning to use private collection
    agencies to collect some of the $280 billion owed in taxes. I
    remember Senator Kerry and I were involved in this committee at
    one time and we tried that. But actually it did not work very
    well at that time. Maybe it will work now.
        But what will IRS do to ensure that this will be a
    worthwhile project and cost effective this time?
        Mr. Wenzel. As you mentioned, there was a pilot in 1996-
    1997. We learned from that experience, in terms of benefiting
    from that limited pilot. We also, in getting ready for this
    proposal, in terms of the budget request, included three
    private sector companies; a large organization, medium-size,
    and a small business organization to get their input.
        You are right in the sense that the total number of
    accounts receivable, what we call now potentially collectible
    inventory, is well over $200 billion. A lot of that, as you
    know, is corporations out of business or deceased taxpayers.
    The reality is that we know for a fact there are at least $13
    billion right now just waiting for a contact to be made that
    has an opportunity to potentially be collectible. The reality
    is that the best we can do at the present time is, once a year,
    send out a notice to remind that taxpayer they still owe that
    money.
        There is a 10-year statute period which we have to collect
    the potentially collectible inventory. Every year there is a
    significant amount of money dropping off because we have not
    attempted a telephone call, for example.
        Senator Shelby. How do you plan to ensure the protection of
    taxpayers' rights and the confidentiality of taxpayers to
    taxpayer information when you contract this out to private
    contractors?
        Mr. Wenzel. This is a very important area for us, Mr.
    Chairman, in terms of----
        Senator Shelby. Very sensitive too.
        Mr. Wenzel. Absolutely. We expect the private sector
    collection agencies, when they go out and hire people, the
    people they are hiring will have to meet the same kind of
    requirements that we expect of IRS employees in terms of
    background checks and so forth.
        We have included our National Taxpayer Advocate in the
    development of this whole proposal for this very--for obvious
    reasons, but particularly for this reason, to ensure that
    taxpayer rights are not violated.
        Senator Shelby. It is very important.
        What will be the cost of these contracts compared to the
    cost of collecting the same debts using IRS employees? Have you
    done any comparisons there?
        Mr. Wenzel. Mr. Chairman, we are finalizing what the
    projected cost would be. This is not the first time this kind
    of effort has been done. Forty-two States currently use
    collection agencies as do the Department of Education and also
    Financial Management Services, which is part of the Treasury
    Department. We are having discussions with them about the cost
    for this, but our proposal is basically that the costs would be
    recaptured in the proceeds that are collected by these agencies
    or companies.
        Senator Shelby. So that leads me to the compensation of the
    contractors, the people you contract out with. Is their
    compensation a percentage of what they collect?
        Mr. Wenzel. Yes, that is generally what the States and the
    two Federal agencies that I mentioned that have entered into
    these kinds of agreements do, and there is a certain percentage
    of the receipts that are collected.
        Senator Shelby. Okay.
        Senator Murray?

                            EARNED INCOME TAX CREDIT

        Senator Murray. Thank you, Mr. Chairman. In the fiscal year
    2004 President's budget, the IRS is proposing a so-called pre-
    certification initiative for the EITC program, and while you
    are asking for the money for this in the next fiscal year, you
    are planning to send verification documents as soon as this
    July, I understand, to about 45,000 individuals requiring them
    to provide additional documents to ensure their EITC
    eligibility. These taxpayers, I understand, will have until
    this December to submit verification documents and your agency
    intends to delay the EITC portion of their refund until IRS can
    review that documentation.
        Can you tell me how quickly IRS expects to review that
    documentation?
        Mr. Wenzel. The proposal, in terms of the $100 million, is
    that we would send out letters to 45,000 taxpayers to ask them
    to pre-certify things like what we call a ``qualifying child.''
    The intent is not to put more burden on the taxpayers as it
    relates to how we are doing business today. As you are aware,
    the EITC program for some time has been determined to be a high
    risk program because it is a tax credit. For a number of years
    now we have been funded additional monies, not only to do the
    outreach, the informing and educating to make sure that
    individuals who are eligible for EITC are in the program, but
    also there was certain direction given to us to make sure we
    minimized the amount of fraud that goes into the program.
        Senator Murray. I was not actually asking about your
    rationale. I was asking, because you are sending 45,000
    questionnaires out and you are telling taxpayers that it may
    delay their refund, how long can we tell these people that it
    is going be, that it will take you to review this
    documentation?
        Mr. Wenzel. We would try to make sure that we keep that
    time span to the absolute minimum. Right now, Senator, we are
    still talking with some interest groups on the outside. We have
    not even finalized the form that would be used. We have had two
    meetings that have been coordinated by our National Taxpayer
    Advocate to make sure that the form and what we are requiring
    for the documentation is kept to the absolute minimum, so that
    once the information comes in to us, we can immediately review
    it, turn it around and issue the refund.
        Senator Murray. Do you expect a lot of EITC payments to be
    delayed this year?
        Mr. Wenzel. Delayed in the sense of, in the past that--yes,
    that would be a correct statement. There would be a delay and
    we hope to keep it to an absolute minimum.
        Senator Murray. Can you give us any kind of time line on
    that?
        Mr. Wenzel. I think what is key here, Senator, is to really
    finalize--as I mentioned, we are still finalizing some of those
    decisions, working with considered outside stakeholders. That
    would be key. I would be happy, once we get that--it should be
    done----
        Senator Murray. If you could let us know. We will be
    hearing from our constituents and we need to give them a
    response on that.
        Then I understand that you expect to expand this project
    next year and require pre-certification by two million EITC
    recipients. I am curious if before you expand it from the
    45,000 to the two million, are you going to do any kind of
    evaluation?
        Mr. Wenzel. Absolutely. That is why we are starting out
    with a much smaller number; that is correct.
        Senator Murray. And you will have the results of that
    evaluation before you send out pre-certification documents to
    two million people?
        Mr. Wenzel. We will carefully track that and make sure that
    we completely analyze what has occurred here, and then make a
    decision in terms of what is the correct number. We think the
    two million is a fair estimate, but that does not mean that
    that would not be modified based on what we see.
        Senator Murray. But you are going to take a look at what
    happens with the 45,000, and if we are seeing tons of delay and
    a lot of problems then you will relook at that?
        Mr. Wenzel. We will try to make sure that we do this right
    the first time, and not incur any delay, even with the 45,000.
    But if that is the case, we will make sure we modify our
    process and carry that into the next year and the year after
    that.
        Senator Murray. GAO estimates that in 1999 25 percent of
    eligible households, or about 4.3 million households, did not
    know even how to claim this credit. The Government Performance
    and Results Act requires you to set quantifiable goals for your
    agency's objective. Does your fiscal year 2004 performance plan
    set a numerical goal to increase the participation rate for
    EITC?
        Mr. Wenzel. We have not quite finalized that goal yet, but
    it is important, based on the feedback we received from GAO, to
    make sure that we have an appropriate performance measurement
    in that area.
        Senator Murray. Why has it not been done yet?
        Mr. Wenzel. We are still working through what the right
    percentage should be in terms of first time effort and setting
    the right goal.
        Senator Murray. So you have not set a numerical goal. When
    do you expect to do that?
        Mr. Wenzel. We should be able to do that within, probably
    within the next 45 days.
        Senator Murray. The IRS has identified other high risk
    compliance areas such as promoters of tax schemes, misusers of
    trusts and offshore accounts, and under-reporting of tax by
    higher income individuals. The average EITC credit is estimated
    to be only $1,660 while the average dollar-level fraud by those
    upper income individual is obviously much higher. Do you really
    believe that focusing $100 million on EITC is how the taxpayer
    gets the biggest bang for their buck?
        Mr. Wenzel. Our intent is to make sure that we continue to
    devote a significant amount of our resources, as I mentioned in
    our budget proposal for 2004, to address the other areas that
    you just mentioned. But I also would say that we feel that the
    $100 million is appropriate because almost one-third of the
    program right now, $9 billion, is going out to individuals that
    are not entitled to the EITC. Based on trending, that percent
    may continue to increase unless we try to do something like the
    pre-certification. That is a real concern on our part as far as
    how a significant tax credit program like the EITC where
    already a large proportion, the money is going to the wrong
    individuals.
        Senator Murray. You have estimated that almost one-third of
    the EITC claims in tax year 1999 should not have been paid due
    to taxpayer errors. But that percentage does not take into
    account the changes that were made in the 2001 tax act.
    Shouldn't that figure be lower now?
        Mr. Wenzel. We have not been able to validate that. We
    should, based on this national research program that we just
    recently have gone out and done, a random audit, receive
    information to verify what you just mentioned; however, the
    information will not be available until next year, about this
    time, to see what the results were.
        Senator Murray. So we will not know whether it is still
    that high until a year from now?
        Mr. Wenzel. It is true, we are----
        Senator Murray. We made changes in the 2001 tax act that
    should have reduced that. But you are basing what you want to
    do now back on what happened before we did that act.
        Mr. Wenzel. That is correct. That is the latest information
    that we have that we cited. And despite our efforts in terms of
    how we approached this in the past, we have not been successful
    to reverse this trend.
        Senator Murray. But shouldn't we wait until we get a more
    accurate estimate of what occurred with the 2001 tax act before
    implementing this kind of regime that could cause a lot of
    disruption among many taxpayers?
        Mr. Wenzel. Senator, our assessment of this is that we
    really need it--we could not wait any longer. We needed to go
    ahead and try this pre-certification as a better way to
    identify and stop the 30 percent and reduce it significantly.
        Senator Murray. Your documentation actually indicates that
    one reason that we have a high error rate is because taxpayers
    are confused about many of the complex EITC rules. What steps
    have you taken to simplify these rules so that we can avoid
    taxpayer confusion?
        Mr. Wenzel. We continue to get the input from our National
    Taxpayer Advocate and her advocates around the country. We
    ourselves at the IRS are always trying to learn from interested
    outside groups that give us input, to try to make sure that--
    the example I gave, in terms of this current effort, is to come
    up with a form that is easily understood, simplified, as much
    as possible, including the instructions, so people are not
    confused.
        Senator Murray. Mr. Chairman, I would just say that if we
    do pre-certification and confuse people even more, then we are
    doing a real disservice to people who actually should be
    getting the EITC for very good reasons that we have set out
    before. So I think we have to be very careful. If we have
    confusing rules now and we add more confusing rules, I do not
    think it is very fair to low income taxpayers.
        Mr. Wenzel. Senator, just in terms of the $100 million I
    just--and I am sure you are aware of this, but I just wanted to
    point out that of the $100 million, we asked for about 650
    FTEs. About 20 percent of the 650 FTEs will be spent on
    educating and informing again, trying to reach out and make
    sure that people know they are entitled to the EITC and trying
    to clarify for them any misunderstanding. So it is not all
    totally devoted towards the enforcement side.
        Senator Murray. Thank you, Mr. Chairman.

                            IRS FREE FILE INITIATIVE

        Senator Shelby. I want to go back to the free filing and so
    forth. Are there two separate systems here? One, the free file
    alliance is free for qualifying taxpayers.
        Mr. Wenzel. Yes.
        Senator Shelby. And by that, do you have to have a certain
    income to qualify?
        Mr. Wenzel. Yes, what is referred to as the adjusted gross
    income, Mr. Chairman. But what these different sites offer in
    the way of----
        Senator Shelby. What would that be before they could----
        Mr. Wenzel. It varies by site. But when you add them all
    up, at least 68 percent of all taxpayers that would want to
    avail themselves of one of the 17 sites will have the
    opportunity to free file. It is not 100 percent.
        Senator Shelby. In other words, you have to have a certain
    income before you can go to these sites. So it is not for all
    taxpayers.
        Mr. Wenzel. Not right now.
        Senator Shelby. Do you expect it to be for all taxpayers?
        Mr. Wenzel. This is a first-year effort.
        Senator Shelby. So you are trying.
        Mr. Wenzel. We are trying. It is truly a pilot. The
    response has been tremendous; 2.1 million people to date have
    used this option that would not have otherwise. They have had
    the opportunity to come in and file a return at no cost.
        Senator Shelby. Now the e-file partners are the only
    entities that the IRS allows to file tax returns; is that
    correct?
        Mr. Wenzel. Through that site, yes. Through IRS.gov, yes.
        Senator Shelby. I wanted to clear that up.

                                CUSTOMER SERVICE

        The IRS' budget request proposes to reduce the individual
    call service workforce. Some of us are concerned about the
    implications of the workforce reduction in the individual call
    service area. The IRS has come a long way in terms of customer
    service in the years since I chaired this committee last, and
    we are concerned that a reduction of this size will have a
    negative impact on the provision of customer service to
    individual taxpayers.
        Mr. Wenzel. We fully agree with you in that regard, Mr.
    Chairman. We do not want to step back and reduce the service,
    what we have been able to achieve. Just to give you one
    measurement----
        Senator Shelby. Because, in a sense, if you reduce the
    service it will reduce your efficiency, will it not?
        Mr. Wenzel. We have a responsibility to provide the best
    products and services to citizens of the United States, and one
    of the ways we do that is through our telephone call centers.
    We want to make sure we maintain and continue to improve the
    way we do business. We have been successful in improving the
    efficiency of the telephone operations, particularly in the
    last 12 months, but our performance goals, as you would review
    them, would continue to show that we want to improve in all
    areas, including the quality of the responses we give and also
    the level of service that we offer on our telephones. We do not
    intend to step back.

                              CAMPUS CONSOLIDATION

        Senator Shelby. Electronic filing again. We do not want to
    get away from that, I think. As more returns are filed
    electronically, what is the impact on IRS staffing in
    facilities? It has to go down.
        Mr. Wenzel. Absolutely. Because of the 53 million that I
    mentioned earlier, as a result of that, we are closing one of
    what we call our submission processing centers.
        Senator Shelby. Brookhaven service center?
        Mr. Wenzel. That is the Brookhaven service center, yes. We
    have eight, what we call individual tax return submission
    processing centers, and two for just business returns. As of
    September 30th of this year, not too many months from now, the
    submission processing operation in Brookhaven will shut down
    completely and we will go to seven, with plans as electronic
    filing continue----
        Senator Shelby. What savings will you realize by closing
    this facility?
        Mr. Wenzel. Significant savings.
        Senator Shelby. How will the savings be used?
        Mr. Wenzel. We hope in terms of reinvesting back into the
    IRS to put the savings into our customer service, into
    enforcement.
        Senator Shelby. What formula or criteria did you use to
    determine which centers to close and the order in which to
    close the centers?
        Mr. Wenzel. I would be happy to share that with you and
    your staff, Mr. Chairman, but things like labor and rent
    savings, the impact on----
        Senator Shelby. Just management positions basically?
        Mr. Wenzel. Yes. A whole list of criteria that we came up
    with.
        Senator Shelby. Okay, we would be interested in seeing it.
        Since all taxpayers are still not filing their taxes
    electronically, are there plans to upgrade the paper returns
    processing system?
        Mr. Wenzel. We are always looking for ways to continue to
    improve every part of the IRS' operation. The submission
    processing paper side has been in business for a long time, and
    even though it has been around for a long time, we have made
    substantial improvements, and we continue to realize efficiency
    savings. We will continue to look for additional efficiency
    savings.

                         BUSINESS SYSTEMS MODERNIZATION

        Senator Shelby. The IRS has developed an expenditure plan
    for Congressional approval detailing how funds are to be spent
    before the funds can be released. The key component of systems
    modernization is the customer account data engine (CADE), and
    it is scheduled to be released in June or July of this year. It
    has experienced numerous delays. Will CADE be rolled out as
    scheduled, and will it offer improved service to taxpayers?
        Mr. Wenzel. This is, of any major business systems
    modernization project that we have, the most significant
    project because what it does is completely overhaul our master
    file. Right now we expect that the first iteration of CADE will
    be available to us later this year, around July and August.
    What that is, basically as I mentioned, is the first phase of--
    --
        Senator Shelby. Master file, tell me what you mean.
        Mr. Wenzel. Master file is every individual, business,
    exempt organization, employee plans----
        Senator Shelby. The whole matrix?
        Mr. Wenzel. Everything, in terms of individuals and
    businesses that are housed, currently, on a very outdated
    system. So it is very sophisticated, very difficult. The PRIME
    contractors that we have, some of the best companies in the
    world, realize the challenges here. They are the ones that are
    doing this work for us, as you know. Right now we have regular
    meetings and the goal is to stay with the schedule of July or
    August to have the first version of CADE delivered.
        Senator Shelby. What steps are you taking at IRS to ensure
    that the business operating divisions are adequately prepared
    to accept and operate and support these modernize systems?
        Mr. Wenzel. That is a very essential part because all of
    this modernization, when you talk about modernization----
        Senator Shelby. It means nothing without that, doesn't it?
        Mr. Wenzel. It means nothing without having your people
    come along and understand what the new systems offer. So there
    is a training part, awareness part, all of that is so
    important, and it is integral to this whole effort.
        Senator Shelby. You do not want to purchase software and no
    one knows how to operate it.
        Mr. Wenzel. That is exactly right. We have seen that happen
    in some other agencies, and we are not going to let that happen
    here at the IRS.
        Senator Shelby. GAO has reported that IRS has made progress
    in implementing modernization management controls and
    capabilities, certain BSM management capabilities have not been
    fully implemented they say. GAO reiterated prior
    recommendations that the IRS correct modernization management
    weaknesses. We know you have made progress from when I used to
    benchmark it.
        What is IRS's plan and schedule for addressing the GAO's
    recommendations, including implementing effective procedures
    for validating contractor development, cost and schedule
    estimates?
        Mr. Wenzel. We have done a number of things based on the
    input from the GAO's oversight of the IRS, and also our
    inspector general's oversight of the BSM program. One of the
    things that we have done is this year, fiscal year 2003, we
    have slowed down or eliminated some of the projects that we
    thought we were going to undertake, and really focused on CADE
    and some of the other critical programs, which has helped us
    immeasurably.
        We have also met with the PRIME contractor and entered into
    an understanding that a lot of the programs in the future will
    be cost performance-based type of compensation, rather than
    just continuing to write a check. That's the expectation; the
    work will be based on a set cost price or possibly a
    performance-based price, so there is accountability going back
    to the PRIME contractor.
        The third thing that the PRIME contractor has done, based
    on their further awareness of the challenges that these efforts
    offer, is beefed up their experts, their expertise,
    particularly their senior leadership of the contract, and have
    brought in some individuals that really understand this better
    and know how to manage it better, and to work with the IRS
    leadership in terms of making sure we deliver on BSM this time.

                              OFFERS IN COMPROMISE

        Senator Shelby. The Offer in Compromise, this initiative
    has allowed the IRS to reduce the backlog of cases and all new
    cases are to be processed at one of two centralized sites, and
    only those offers that cannot be completed there are sent to
    field offices for resolution. Concerns exist because the
    program has been costly to operate in comparison to the return
    on the investment. Have the new initiatives enabled IRS to make
    the program more cost efficient? What measures are used to make
    your assessment?
        Mr. Wenzel. What we have done is, in two sites, as you
    mention, one in Brookhaven and one in Memphis, added a total of
    600 employees, roughly 300 in each of the locations. They are
    lower-graded employees. Obviously, to start this up we had to
    go through an extensive training program for the 600 employees.
    Now their skill level has really reached the point where they
    have become quite productive, and we are able to screen out and
    work in those sites some of the real easy offer in compromises
    where we do not have to make a one-on-one contact with a
    revenue officer who is much higher-graded, where there is
    travel time involved and so forth.
        So our key measurement is what you might expect in terms of
    the quality of the work performed, the efficiency of the work
    performed. We feel, at this point in time, that now that we
    have gone through this learning curve, that our decision to go
    to that kind of an operation is going to really pay the overall
    benefits that we initially expected.

                                    SECURITY

        Senator Shelby. Information security. News reports that the
    IRS has not done a good job in making sure that contractors
    receive appropriate background checks. There have been problems
    with lock box employee guards and even bomb-sniffing dogs that
    really could not detect explosives. What is the IRS doing to
    address these problems? Can these problems have an impact on
    the safety of IRS employees as well as on the security of the
    taxpayer data? It is important to have a safe place to work.
        Mr. Wenzel. Mr. Chairman, if there is a number one priority
    at the Internal Revenue Service, it is to ensure the safety of
    our 100,000 employees around the country. We take seriously and
    welcome the reviews that have been conducted by the GAO and the
    inspector general for the IRS, who has also provided us ongoing
    feedback on things like you just mentioned, in terms of the
    contract employees. We have responded to those and taken the
    necessary actions to correct that problem, so that the
    background checks are done of contract employees, and do the
    follow-up reviews and make sure it does not recur again.
        Ever since September 11th of 2001, we have an ongoing site
    here in Washington, D.C. with the Inspector General, where
    cooperatively we are looking at every aspect of physical
    security in every one of our 795 offices around the country to
    try to ensure the safety of our employees.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Shelby. That is good to hear.
        We appreciate your appearance here today. We will continue
    to work with you and we believe that we have to measure the
    expenditures of the taxpayer and you are in a position to set
    the ground rules.
        Mr. Wenzel. Mr. Chairman, thank you for your oversight and
    support that you provide to the Internal Revenue Service.
        [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 Richard C. Shelby

                                    GENERAL

        Question. Why is IRS requesting additional staffing in fiscal year
    2004, when the positions granted in fiscal year 2003 have not been
    filled?
        Answer. The IRS requested additional funding in fiscal year 2003
    for 1,179 FTE to improve customer service and compliance and meet
    workload increases. However, before we published the fiscal year 2004
    budget, a number of unfunded and unanticipated costs arose that reduced
    the funding available for hiring these additional staff. Since over 70
    percent of the IRS Operating budget consists of salaries and benefits,
    any unanticipated costs we must pay requires the reduction of labor
    costs (i.e., FTE).
        For example, the fiscal year 2002 annual pay raise of 4.6 percent
    cost an additional $43 million above the 3.6 percent budgeted amount.
    The IRS had also expected savings resulting from legislative proposals
    for postage and the Financial Management Service (FMS) levy that
    Congress did not pass that required us to fund an additional $23
    million. The unfunded postage increase raised our postage costs by $22
    million. Moreover, an unfunded increase in security costs resulting
    from the 9/11 tragedy cost the agency an additional $20 million. These
    changes and others amounted to $170 million in unexpected, unfunded
    costs mandatory to meet our mission.
        In addition, the extended Continuing Resolution for fiscal year
    2003 limited our funding to the fiscal year 2002 level until the
    appropriation was passed in early 2003. That restriction forced the IRS
    to concentrate available funds on ensuring a good filing season and
    prevented the execution of hiring plans. Despite these setbacks, the
    IRS needs the additional funding in fiscal year 2004 to continue to
    build the staff necessary to address the enforcement problems that
    ensure that all taxpayers pay their fair share of taxes.
        Question. What formula did IRS use to determine which Service
    Center to close and what cost savings if any, are derived from this
    action?
        Answer. In the past, all ten IRS submissions processing centers
    processed returns from both the Individual Taxpayers (IMF) and Business
    Taxpayers (BMF). Prior to our reorganization the ten centers were
    identical to each other. Each center processed IMF and BMF returns.
    Each center also handled Taxpayer Accounts (correspondence/telephones)
    and Compliance programs for both IMF and BMF. While this was
    successful, we felt we could improve our Business results, and be more
    responsive to the Customer/Taxpayers by specializing our organization
    structure based on our customers. We based the initial IMF
    Consolidation Strategy of these centers around Wage and Investment
    (W&I), Small Business/Self Employed (SB/SE), Large and Mid-Size
    Business (LMSB) and Tax Exempt and Government Entities (TE/GE) customer
    segments. As a result of this reorganization, we reorganized the ten
    Processing Campuses into eight W&I and two SB/SE Submission (Return)
    Processing Centers.
        With the increased emphasis on Electronic Filing we have designed a
    detailed business plan to reduce the number of Processing Centers from
    eight W&I sites to, eventually, two. This is several years in the
    future, but this plan will reduce the number of centers every couple of
    years, providing the public continues to switch from filing paper to
    electronic returns.
        We used economies of scale, labor market factors and real estate
    costs, as well as the criteria listed below, to determine the order of
    consolidation of the sites:
      --A Program Optimization Model using site specific volumetric and
            production rates,
      --Campus specific Return on Investment for real estate expenditures
            associated with Submission Processing,
      --Detailed potential severance costs associated with a Submission
            Processing consolidation,
      --Qualitative factors such as, operational feasibility,
            infrastructure and work force impacts.
        As Electronic Filing increases and paper returns decrease,
    consolidation of Submission Processing campuses will result in savings.
    The IRS' intent is to reinvest these savings to maximize program
    opportunities in other areas. While there is not a final figure for the
    Brookhaven Submission Processing consolidation, the initial cost
    savings projection was approximately $50 million. The projected savings
    at the Memphis Service Center consist of both Real Estate and Salary
    costs and are currently projected to be $12.5 million dollars for the
    period 2004 through 2006. We project an annual cost avoidance of $9.5
    million dollars a year starting in 2007. It is too soon to project the
    cost savings for each center beyond Memphis at this time.

                               ELECTRONIC FILING

        Question. Reports state that the 2002 filing season has been
    successful with the implementation of e-filing. There should be some
    cost savings from this program; can you identify savings generated
    because of this initiative?
        Answer. During fiscal year 2002, IRS estimates that the savings
    generated from e-file were $9.995 million. Savings for fiscal year 2003
    are estimated to be $10.369 million. Savings are computed as the costs
    that would have been incurred for processing the decreased number of
    paper returns, reduced by the costs of processing them as e-file
    returns.
        Question. The IRS contracted with the Free File Alliance, to
    provide free online tax preparation and filing services for at least 60
    percent of all taxpayers through the IRS Website. Since the 2002 filing
    date has passed, do you think the Free File Alliance was a success?
    What changes if any, would you make to this process for the next filing
    season?
        Answer. We did not contract, but rather established and are
    executing a public-private partnership agreement with the Free File
    Alliance, LLC.
        As of May 31, 2003, the IRS has received over 2.77 million returns
    through the 17 companies participating with the Free File Alliance.
    This figure represents over 23 percent of all returns filed online with
    the IRS (11.7 million). These free tax preparation and e-filing
    services will continue to be available to taxpayers through October 15,
    2003 on the irs.gov web site. Deemed a tremendous success by Treasury,
    OMB and IRS, the Free File initiative exceeded expectations for the
    program. Based on the volume of returns received through Alliance
    members and the relatively small number of comments/concerns sent to
    the IRS, the Free File initiative was very well received by taxpayers.
        The IRS and the Free File Alliance are assessing all feedback and
    impact of the program on both industry and the IRS. Completion of this
    process will determine appropriate refinements for the 2004 filing
    season.
        Question. Electronic filing has a number of discrepancies
    pertaining to e-filing. Explain how free e-filing works? How can an
    individual qualify for free e-filing?
        Answer. In November of 2001, the Office of Management Budget's
    (OMB) Quicksilver Task Force established 24 e-government initiatives as
    part of the President's Management Agenda. The task force designed
    these initiatives to improve government to government, government to
    business, and government to citizen electronic capabilities. One
    initiative, EZ Tax Filing (now known as Free File) instructed the IRS
    to provide free online tax return preparation and electronic filing
    services to taxpayers. To accomplish this objective, the IRS began
    working in partnership with the tax software industry to develop a
    solution. The result was a precedent-setting agreement between the
    government (IRS) and private sector (Free File Alliance, LLC, a group
    of tax software companies, managed by the Council for the Electronic
    Revenue Communication Advancement (CERCA)), that requires tax software
    companies to provide free online tax preparation and electronic filing
    services to eligible taxpayers. This agreement requires Alliance
    members to provide free tax return preparation and electronic filing
    services to a significant portion of the taxpaying population (at least
    60 percent or 78 million taxpayers) through April 15, 2003. Many of
    these free services will be available for taxpayers with extensions
    through October 15, 2003. These free services were launched to the
    public on January 16, 2003 and are being promoted by the IRS and are
    accessible at www.irs.gov.
        The following describes how a taxpayer can participate with Free
    File:
        Determine eligibility.--Upon arrival to the Free File page within
    irs.gov, the taxpayer must determine his or her eligibility for using a
    particular company's free service. This eligibility can be determined
    by two methods: the taxpayer may browse the complete listing of
    Alliance members and their free services; or the taxpayer can use a
    ``questionnaire'' application (i.e., Free File Wizard) designed to help
    identify those free services for which they may qualify. Each Alliance
    member's company name is identified and a simple description of the
    criteria for using their free service is provided. For interested
    taxpayers, each Alliance member's company or product name is linked to
    additional information about the company and/or services.
        Link to free services.--Upon determining eligibility, the taxpayer
    can link directly to that Alliance member's free service by clicking on
    the Alliance member's ``Start Now'' link. Upon doing so, taxpayers are
    notified they are leaving the irs.gov web site and are entering the
    Alliance member's web site.
        Prepare and File Income Tax Return.--At the Alliance member's web
    site, the taxpayer can use the member's online software to prepare and
    e-file his or her income tax return using proprietary processes and
    systems. Once complete, the member transmits the taxpayer's return
    information to the IRS through the established e-file system. Upon
    receipt, IRS computers check the return information for errors or
    missing information and send the taxpayer notification of return
    acceptance or rejection through the Alliance member. Taxpayers will
    receive notification from the Alliance member.
        [Note.--Each Alliance member has specific qualifying criteria for
    its free service. For the 2003 filing season, the members based these
    requirements on factors such as age, adjusted gross income, State
    residency, military status, or eligibility to file a Form 1040EZ or
    claim the Earned Income Tax Credit. Taxpayers who met these
    requirements can use that member's online software to prepare and e-
    file their Federal tax return for free. An Alliance member's qualifying
    criteria may change for the 2004 filing season.]
        Question. When the business system modernization of IRS is
    complete, will all taxpayers be able to file their taxes by e-filing or
    file on-line from the privacy of one's own home? If not, why not?
        Answer. Currently, over 99 percent of all tax returns can be e-
    filed from home computers or by using an authorized provider. The IRS
    is systematically removing the last few barriers to e-file to open
    eligibility to the remaining taxpaying population. However, IRS'
    Business Systems Modernization program does not have plans to offer
    direct on-line filing. RRA 98 directed the IRS to work cooperatively
    with the industry to promote electronic filing. Additionally, the IRS
    believes that private industry, given its established expertise and
    experience in electronic tax preparation, has a proven track record in
    providing the best technology and services available. As such, the IRS
    entered into an agreement with the private industry (Free File
    Alliance), to provide free online tax filing and preparation services
    to at least 60 percent of the taxpaying population. These free services
    were offered, during the 2003 filing season, by 17 different companies
    and were accessible through IRS' web site (irs.gov). The IRS is
    continuing to work with industry partners to provide opportunities and
    solutions that will encourage taxpayers to file their tax returns
    electronically.

                                 MODERNIZATION

        Question. What contributed to the delays in the projects in the
    Business Systems Modernization spending plan submitted to Congress?
        Answer. The IRS is modernizing one of the largest and most complex
    information systems in the world. Since the creation of the IRS in its
    current form in the 1950s, our mission has evolved, and the volume and
    complexity of our operations have mushroomed. Our tax system
    modernization initiative faces several challenges:
      --Complex, ever-changing tax laws,
      --Extremely high volumes,
        --Over 130 million individual taxpayers,
        --Over 6 million business taxpayers,
        --200 million returns,
        --$2.1 trillion in receipts, $1.5 trillion in electronic payments,
        --Tax refunds totaling over $190 billion,
        --1.5 billion information documents,
        --52 million electronically filed returns,
        --19.2 million combined Federal/State returns,
      --Inputs with wide-variation in content ranging from few to many
            fields of various lengths,
      --Seasonal processing with extreme variations in processing loads,
      --Hundreds of legacy applications,
      --Transaction rates on the order of billions per year and storage
            measured in the tens of terabytes (trillions of bytes).
        Since the Business System Modernization (BSM) effort began, the BSM
    program office and PRIME contractor have struggled to implement defined
    and repeatable processes that are necessary for effective and efficient
    systems development. Due to the complexity of the BSM projects, these
    management processes have required time to become established. Once all
    management processes are in place, and as they mature, the program will
    run closer to cost and schedule estimates and our capacity to initiate
    additional deliverables will also increase. Also, we have addressed
    many of the recommendations made by GAO, such as prudently slowing some
    projects and deferring new ones when management capacity is inadequate,
    to proceed with an acceptable risk level.
        The IRS' systems are woefully obsolete and inefficient for an
    organization so critically dependent on technology. We are saddled with
    a collection of computer systems developed over a 35-year period. The
    most important systems that maintain all taxpayer records were
    developed in the 1960s. Additional cost and schedule delays arise from
    the challenge of programming interfaces with these historical systems,
    which cannot easily share information with the modernized systems.
        Initial project budgets and delivery timelines are based on long
    term plans and strategy and may be developed years before the project
    start date. As the projects move through the lifecycle and as
    requirements become fully understood, we have adjusted most project
    estimates and schedules to reflect the enormous complexity of the
    systems. Legislative changes in the tax code also impact costs and
    schedules.
        Both the IRS and the PRIME contractor have underestimated the
    enormous size and complexity of the BSM effort. We are engaged in a
    comprehensive process improvement initiative to enhance our
    effectiveness in validating cost and schedule estimates. This includes
    working with the PRIME contractor to develop and deploy best practice
    estimating capabilities consistent with Carnegie Mellon University's
    Software Engineering Institute (SEI), as recommended by GAO. Once all
    management processes are in place and as they mature, the program will
    run closer to cost and schedule estimates and our capacity to initiate
    additional deliverables will also increase.
        In addition, given the important juncture we've reached with the
    first important deliverable for CADE, we have decided to have an
    outside group of experts take an independent look at the program and
    report back to us by the end of this summer. We have not yet identified
    who will conduct this study but expect to do so in the next few weeks.
    No work will stop while the review is underway, but this is a good time
    to assess progress, project risk and whether any midcourse corrections
    are needed.
        Question. Customer Account Data Engine (CADE) is the most critical
    of the components in the modernization process. When CADE goes live
    this year will it be able to process all individual and business
    accounts?
        Answer. The first release of CADE will go live later this summer.
    CADE will begin to process individual returns this year. The system
    will not, however, process business returns this year. The individual
    tax returns that CADE will begin to process will only be 1040EZ
    returns, paper and electronic, for single filers who either fully paid
    or have a refund due. CADE's first release will not include EITC filers
    and filers with prior issues. The number of returns included in this
    first release will be approximately 6 million. Although this is a
    relatively modest beginning, this first release of CADE contains much
    of the highly complex infrastructure to support later releases.
        CADE will be deployed over 6 years in five releases, each related
    to a specific taxpayer segment. Each release will deliver functionality
    to support increasingly complex filing scenarios. At the conclusion of
    Release 5, CADE will have replaced the Individual Master Files.
    Subsequent releases of CADE will eventually replace the Business Master
    Files and Non-Master Files.
        Because CADE is one of the most complex projects in the world, we
    are moving forward carefully based upon positive results from the
    rigorous testing process, as well as cost and capacity considerations.

                          PRIVATE COLLECTION AGENCIES

        Question. What guidelines does the IRS have in place to protect
    taxpayer's privacy, when and if the tax collection process is
    contracted to private collection agencies?
        Answer. Under the Administration's proposal, taxpayer protections
    provided by the Internal Revenue Code (Code), IRS procedures, and other
    applicable laws, including those relating to taxpayer privacy, would be
    fully applicable to private collection agencies (PCAs). The taxpayer
    protections incorporated in the Administration's proposal have been
    reviewed thoroughly, including consultations with the National Taxpayer
    Advocate. The National Taxpayer Advocate would have a continuing role
    in ensuring that taxpayer protections are maintained under this
    program.
        Sections 6103(n) and 7431(a)(2) of the Internal Revenue Code
    currently permit a taxpayer to pursue legal action against any person
    who is permitted to receive tax returns and return information for
    purposes of assisting in tax administration, but who unlawfully
    inspects or discloses that information. Criminal penalties also may be
    imposed under I.R.C. Sec. Sec. 7213, 7213A. These provisions would
    apply to PCAs. The Administration's proposal would require annual
    reports outlining the safeguards in place at the PCAs to protect
    taxpayer confidentiality and PCA compliance with the taxpayer
    confidentiality provisions.
        PCA employees would receive extensive training on taxpayer rights
    and privacy protections. The IRS' oversight processes, which would
    include an on-site presence, live and tape monitoring of communications
    with taxpayers, periodic audits, and performance evaluations, would
    ensure that taxpayer rights and privacy are fully protected.
        PCAs would be required to maintain a dedicated secure physical
    space with approved access controls to ensure protection of taxpayer
    data. The IRS would evaluate the integrity of a PCA's computer system
    to ensure that appropriate access controls are in place to protect
    taxpayer data. To protect against browsing of taxpayer information,
    PCAs' systems would be required to maintain a log of accesses to
    taxpayer information, which would be audited periodically by the IRS.
    On-site security reviews would be performed to ensure that PCAs
    implement appropriate access controls to segregated areas where IRS
    work would be performed. Periodic security audits would be performed to
    ensure the PCAs maintain ongoing data and physical security.
        Question. A pilot project was tried previously, using private
    collection agencies and it was not a success; what new information do
    you have that would indicate that this process will work now?
        Answer. The Administration's proposal reflects the lessons learned
    from the pilot program. The primary issues affecting the success of the
    pilot program, and the manner in which those issues are addressed by
    this proposal, are set out below.
      --Implementation Period.--The IRS was required to implement, almost
            from scratch, the pilot program within the year of the
            appropriation legislation--i.e., within 10 months of enactment.
            In contrast, planning for this proposal was begun well over a
            year ago and has involved discussions between the IRS, the
            Treasury Department, the Office of the National Taxpayer
            Advocate, the Department of Justice, and prospective
            contractors. Moreover, even once authorizing legislation is
            enacted, this proposal contemplates that additional time would
            be required before the PCA program could begin. This additional
            time allows the IRS to ensure that the business processes,
            security and oversight measures, and taxpayer protections are
            brought on-line and fully tested before the program begins.
      --Funding.--The pilot program effectively was funded out of IRS
            appropriations and involved the assignment to PCAs of a range
            of cases. IRS employees can exercise discretion and enforcement
            authority which cannot be delegated to a PCA. IRS employees,
            therefore, should be more effective, compared to a PCA
            employee, at collecting a range of outstanding tax obligations.
            Thus, PCAs in the pilot program were destined to be judged as
            inferior to IRS employees over such a range of cases. In
            contrast, however, this proposal would involve the careful
            screening of cases to ensure that only the most appropriate
            ones are assigned to PCAs so that PCAs can act effectively and
            efficiently with respect to these liabilities. The
            Administration's proposal also involves PCAs supplementing, and
            not displacing, existing IRS resources. Accordingly, the
            program would add to the net revenue collected.
      --Processing and Communications.--At the time of the pilot program,
            IRS computer and communication systems were not adequate for
            the processing, delivery, and updating of liabilities being
            handled by the PCAs. These processing and communications issues
            already are being addressed to ensure that all functions are
            performed timely in support of the program.
      --Selection of Accounts.--The pilot program required the IRS to place
            accounts where the IRS had previously made attempts to collect
            the monies owed. Consequently, the pilot program involved the
            referral of many outstanding liabilities to PCAs that did not
            have realistic collection potential. This resulted in wasted
            effort by both the PCA and the IRS. Under the Administration's
            proposal, the IRS would focus on ensuring that the outstanding
            liabilities that are referred to PCAs are those that not only
            are within the authority of the PCA to resolve but also
            represent cases with a sufficient likelihood of payment if a
            PCA, in fact, were to handle the liability.
      --Taxpayer Information.--The pilot program overly restricted the
            amount of information that could be provided to PCAs for
            purposes of collecting outstanding liabilities. As a result,
            many cases had to be returned by the PCAs to the IRS due to the
            PCAs' inability to respond to often straightforward questions
            about a taxpayer's liability. Under the Administration's
            proposal, PCAs would have access to specific information
            regarding an outstanding tax liability (e.g., type of tax, tax
            years affected, dates of assessment, whether the assessment is
            based on a taxpayer's own balance due return or an IRS notice,
            prior payments, and application of prior payments) in order to
            answer basic, but important, questions that a taxpayer may have
            regarding the liability. The taxpayer information that would be
            provided to PCAs would be strictly limited to the information
            required for the collection of the specific tax liability at
            issue. PCAs would not receive, for instance, information
            regarding a taxpayer's total or adjusted income, sources of
            income, results of IRS examinations, delinquency history for
            liabilities not being handled by the PCA, or employer
            information. All existing restrictions imposed by section 6103
            of the Code would apply to the PCAs, and taxpayers would have
            the right to assert a claim against PCA employees who violate
            those protections.
      --Contract Structure.--The pilot program involved a fixed-price
            contract with incentive payments. The Administration's proposal
            would involve a competitive, fee-for-service, performance-
            based, incentive contract structure. The performance evaluation
            would be based on a balanced scorecard that would look to
            quality of service, taxpayer satisfaction, and case resolution,
            in addition to collection results. The allocation of accounts
            among the PCAs participating in the program would be based on
            this performance evaluation, thereby providing a further
            incentive for PCAs to respect all taxpayer rights and
            protections. This compensation structure is modeled on the
            successful FMS and Department of Education contracts.
      --Oversight.--The Administration's proposal would involve extensive
            oversight of the PCAs participating in the program, including
            direct, on-site monitoring. This oversight would ensure that
            procedures are followed, and that any issues are identified and
            resolved early.
                                     ______

                   Questions Submitted by Senator Ted Stevens

                   PUBLIC EMPLOYEES RETIREMENT SYSTEMS RULING

        Question. In 2001, the Alaska State legislature passed a bill
    sponsored by Senator Rick Halsford (S.B. 145) which created the Village
    Public Safety Officer Program. The bill mandates Village Public Safety
    Officers are eligible to become a member of the Public Employees'
    Retirement Systems (PERS) under as 39.35. The IRS is considering the
    inclusion of Village Public Safety Officers in PERS, however they have
    not yet rendered a decision. Until the IRS makes a decision, S.B. 145
    can't be implemented. In March, I wrote a letter to the IRS requesting
    a response regarding the status of the IRS' ruling on the inclusion of
    Village Public Safety Officers in PERS. No response has been received
    to this date. When can I expect to receive a written response regarding
    the inclusion of Village Public Safety Officers in PERS, or can you
    address this question right now?
        Answer. The ruling request is under active consideration. Because
    positions taken by the Pension Benefit Guaranty Corporation and the
    Department of Labor can be affected by IRS rulings concerning the
    status of a plan as a governmental plan, we informally coordinate these
    rulings with those agencies on a taxpayer anonymous basis. We cannot
    disclose or otherwise make a draft taxpayer ruling available while we
    are deliberating on a ruling, whether redacted or not. Once the ruling
    is issued, with the taxpayer's permission we can make a redacted copy
    available to you.
        We plan to forward a redacted copy of our ruling to the
    aforementioned agencies for their comments in mid-June. We expect their
    response within 30 days, and, assuming they concur with our proposed
    ruling or have no concerns or comments that require follow-up, we will
    issue our decision within a week of receipt.

                             EXCISE TAX CALCULATION

        Question. You have stated one of the goals of the IRS is to ensure
    that top quality service is provided to each taxpayer through fair and
    uniform application of the law. It has come to my attention that an
    Alaskan company called Hawaiian Vacation has been using a handbook
    published by the Airlines Reporting Corporation to calculate its excise
    tax for flights from Alaska to Hawaii. According to the handbook, the
    route from Anchorage to Honolulu is subject to a 4.9 percent tax. The
    tax table has been used in the airline industry for over 30 years, and
    during this time, the IRS has not taken issue with the ARC handbook
    tables.
        Recently, the IRS has disputes the use of the ARC handbook and has
    proposed the tax calculation for the flight between Anchorage and
    Honolulu is 10.45 percent. Obviously, the IRS' calculation affects
    Alaskans because this is a tax paid by passengers. In the past, has the
    IRS rejected the use of the ARC handbook to determine tax rates? If so,
    name the circumstances in which the use of the ARC handbook was
    rejected. Will you provide the code section that prohibits the use of
    the ARC handbook when computing excise taxes?
        Answer. Industry tables are useful tools in the calculation of the
    taxable and excludable mileage for air transportation and are normally
    published by an entity having no Form 720 filing requirement. Neither
    the Internal Revenue Code nor Treasury Regulations prohibit or
    authorize the specific use of industry tables when calculating the
    excise tax due on taxable air transportation to or from Alaska or
    Hawaii. However, the underlying formulas and calculations to generate
    these industry tables must be in compliance with IRC section 4262(b)
    and applicable regulations.
        The Airline Reporting Corporation (ARC) has published tables used
    in the airline reservation industry for over 30 years. Based on
    historical files, it appears that the IRS had reviewed tables revised
    by the Air Transport Association of America (ATA) in 1969. The tables
    concerned tax rate ratios for 29 TRANSPAC gateway cities. Although the
    specific mileages were not authenticated, the IRS stated the formula
    appeared reasonable, with an understanding that the computations were
    made using the method set forth in Reg, Sec. 49.4262(b)-1(c).
        Recently, we determined that the airline reservation industry
    tables currently include tax rate ratios for over 700 cities to Alaska
    and Hawaii. It appears they may not conform to the method set forth in
    the regulations and revenue rulings. For example, all cities in Alaska
    have the same rate to Hawaii, as well as all cities in an area east
    from Vermont to Nova Scotia, regardless of the miles involved. In
    addition, established flight patterns over Kodiak Island in Alaska and
    Catalina Island in southern California, which are within the United
    States and taxable, are possibly not considered in the rate tables.
        Although IRC Sec. 6103 prevents the discussion of specific
    taxpayers and their returns, we are able to provide general tax
    information in response to these questions. The industry table
    calculates the taxable mileage portion of a trip from Anchorage to
    Hawaii to be 4.9 percent of the total miles. The 7.5 percent Federal
    Excise Tax rate would then be applicable to 4.9 percent of the amount
    paid for the ticket. Computing the specific mileage when normal flight
    patterns to Hawaii are over Kodiak Island, the taxable portion of the
    mileage is more closely reflected at 10.45 percent of the total
    mileage, because the flight passes over a point that is U.S. territory.
        This is a broad-based issue that impacts airlines, charter
    companies, and travel agencies who have a Form 720 filing requirement,
    as well as all taxpayers who travel to and from Alaska and Hawaii. In
    an effort to treat all taxpayers fairly and equally, we hope to resolve
    the issue with a uniform application of the law. We have agreed to meet
    with the industry and determine whether this issue can be addressed on
    a broad scale. We will be including excise, industry and Counsel
    specialists in this matter to come to a final determination as to the
    Service's position. There are several options open to pursue this,
    including Industry Issue Resolution, Tax Advisory Memorandum, or Field
    Technical Guidance. We will determine the appropriate format and a path
    of resolution after a review of the underlying information and a
    discussion with industry.

                                     ______

                  Questions Submitted by Senator Patty Murray

         WILL THE IRS TRY TO INCREASE EARNED INCOME TAX CREDIT (EITC)
                                 PARTICIPATION?

        Question. Mr. Wenzel, you stated that you intend to develop your
    numerical performance goal in no more than 45 days.
        Please forward to me your goal and an accompanying detailed
    description of how you intend to achieve this goal no later than May
    26th.
        Answer. We are currently developing a methodology to identify the
    EITC participation rate to allow us to establish a targeted goal. We
    will provide this goal and accompanying detail by the end of June, as
    we discussed with your staff.
        Question. Some Federal agencies have used paid television
    advertising in English and Spanish as a method of publicizing their
    message. For example, the National Highway Traffic Safety
    Administration spent $10 million to buy primetime advertising utilizing
    volunteer celebrities to get out its enforcement message on seat belts
    with great success.
        How much does the IRS plan to spend on paid advertising on radio
    and television in order to boost participation in the EITC program?
        Answer. The IRS does not normally use paid advertising for EITC.
    EITC is promoted primarily through free Public Service Announcements
    (PSA). In 2003, IRS spent approximately $1.5 million for development
    and distribution of PSAs (TV, radio, and print media) in both Spanish
    and English and other related outreach materials. For 2004, we are
    beginning to plan an EITC awareness and understanding promotion
    strategy that will focus on encouraging workers eligible for EITC to
    claim it, while reducing erroneous payments. We have budgeted
    approximately $1.5 million for this effort.
        Question. Will you be using volunteer celebrities to get people's
    attention?
        Answer. In years past, celebrities have appeared in IRS PSAs from
    time to time. However, we do not actively seek celebrity participation.
    Celebrities can pose a public relations risk if the celebrity's
    positive image changes in the future.
        Question. You are asking for an additional $100 million for the
    EITC program. We are told that this funding will go both for your pre-
    certification effort and to enhance participation.
        Precisely what percentage of the $100 million will go toward pre-
    certification versus outreach efforts?
        Answer. Of the $100.2 million:
      --$16.2 million is allocated to the Qualifying Child Verification
            initiative,
      --$13.0 million is allocated for Communications and Outreach,
      --$11.1 million is allocated to the Filing Status and Income
            Misreporting initiatives,
      --$7.1 million is for operations management,
      --$9.9 million is allocated to phone support, and
      --$4.5 million is allocated for support from a variety of areas,
            including Field Assistance, Taxpayer Advocate Service and
            Appeals.
        The vast majority of the remainder ($38.4 million) is allocated to
    developing business and technological infrastructure. A description of
    the technology infrastructure that we are developing or acquiring is
    provided in Appendix I.
    should the irs be allowed to use private collection agencies (pcas) to

                       HELP COLLECT DELINQUENT TAX DEBTS?

        Question. Mr. Wenzel, your agency is seeking legislative authority
    to use private collection agencies to help collect delinquent tax
    debts. IRS documentation states that the IRS would be required to
    closely monitor private collection agencies' activities and
    performance, including the protection of taxpayer rights. This is
    particularly important because PCAs would be compensated out of the
    revenue collected through their activities.
        Please explain in detail the precise steps that would be in place
    to ensure that vigilant oversight would be conducted on PCA activities?
        Answer. The IRS would establish an oversight group with
    responsibility for managing case referrals, monitoring and evaluating
    PCA performance, monitoring interactions with taxpayers, and reviewing
    and approving PCA invoices. The oversight group would be required to
    monitor a statistically valid number of taxpayer contacts by each PCA
    to evaluate taxpayer treatment and adherence to IRS approved
    procedures. A manual review of PCA activity on taxpayer accounts would
    be performed to ensure compliance with approved IRS procedures and
    overall quality of case handling. A full on-site audit of each PCA by
    the IRS oversight group would be performed on a regular basis and would
    be in addition to ongoing quality-control and taxpayer protection
    monitoring.
        The PCA would be responsible for ensuring that each employee who
    has access to taxpayer account information has completed the
    appropriate background investigation and non-disclosure forms. The PCA
    would be required to submit verification of the required background
    investigation and copies of the non-disclosure forms to the IRS at
    least 20 days before the employee is permitted to access taxpayer
    information. In addition, the IRS would adopt tracking procedures
    developed during the 1996-97 pilot program to ensure that no PCA
    employee would be granted access to the IRS work site or taxpayer data
    until he/she successfully completed a satisfactory background
    determination. These procedures were very successful during the pilot.
        The IRS' oversight of PCAs would be similar in many respects to the
    IRS' oversight of its own employees. For example, the IRS audit system
    logs for indications of improper accesses to taxpayer information. The
    IRS also performs oversight of employee work for quality and
    appropriateness of taxpayer interactions.
        PCAs would be required to provide a large amount of information to
    the IRS, as well as access to various systems, to facilitate IRS
    oversight. This would include:
      --detailed Operational Management Information Systems (MIS) reports,
      --telephone Service Level reports,
      --audits of employee access to IRS taxpayer data,
      --access to PCA collection system for auditing purposes,
      --remote telephone monitoring access to authorized IRS personnel,
      --PCA employee tracking information,
      --PCA employee quality review monitoring evaluations,
      --PCA Operational Plans, and
      --PCA Business Continuation Plans.
        To make certain the IRS promptly hears, evaluates and addresses
    taxpayer complaints, a PCA would be required to provide to taxpayers,
    orally and in writing, information on how to report a complaint with
    the IRS. Any complaint received by the IRS from a taxpayer would
    immediately be provided to the PCA. If a PCA were to receive a
    complaint directly from the taxpayer, the PCA would be required to
    immediately forward the complaint to the IRS.
        Upon receipt of a complaint from the IRS or directly from a
    taxpayer, a PCA would be required to immediately cease collection
    activity on the account in question and provide to the IRS, by the
    close of business on the following business day, a copy of its records
    on the account and any other information relevant to the complaint. The
    PCA would not be permitted to resume collection activity on the account
    until IRS resolved the problem and provided the PCA written
    authorization to resume work. Failure by the PCA to cease collection
    activity on the account would result in IRS recalling the account from
    the PCA and, if appropriate, the termination of the PCA's contract.
        A PCA also would be required to investigate the complaint and
    provide a complete report to the IRS within 10 business days of
    receiving the complaint. The report would include a description of all
    actions taken to resolve the situation and steps put in place to ensure
    there are no future occurrences of similar situations.
        If a complaint is validated, the PCA would be required to remove
    the offending employee from the IRS account and take all necessary
    steps to ensure the employee no longer has any access to taxpayer
    information. In addition, the PCA's bonus and inventory would be
    reduced, and the PCA would be subject to a penalty. The IRS could
    choose to suspend all contract activity for the PCA either permanently
    or until the IRS has determined, at its discretion, that the PCA had
    taken appropriate corrective actions to prevent further complaints.\1\
    The IRS' determination that a complaint was valid would not be subject
    to review.
    ---------------------------------------------------------------------------
        \1\ In determining whether to suspend a contract, the IRS would
    consider the severity and frequency of valid complaints for a PCA
    (whether related to one or more employees).
    ---------------------------------------------------------------------------
        If a potential statutory violation is identified, the IRS also
    would notify the Treasury Inspector General for Tax Administration
    (TIGTA). TIGTA may investigate the complaint, depending on the
    circumstances and seriousness of the complaint. If TIGTA initiates a
    formal investigation of the complaint, the PCA would be required to
    cooperate fully with the investigation and coordinate its own
    management efforts with the IRS and TIGTA. TIGTA would provide a report
    of its investigation to the IRS Contracting Officer after concluding
    the investigation.
        Question. What mechanisms would be in place to ensure that taxpayer
    rights are protected and private data is accurately secured in the use
    of private collection agencies?
        Answer. Under the Administration's proposal, taxpayer protections
    provided by the Internal Revenue Code (Code), IRS procedures, and other
    applicable laws, including those relating to taxpayer privacy, would be
    fully applicable to private collection agencies (PCAs). The taxpayer
    protections incorporated in the Administration's proposal have been
    reviewed thoroughly, including consultations with the National Taxpayer
    Advocate. The National Taxpayer Advocate would have a continuing role
    in ensuring that taxpayer protections are maintained under this
    program.
        Sections 6103(n) and 7431(a)(2) of the Internal Revenue Code
    currently permit a taxpayer to pursue legal action against any person
    who is permitted to receive tax returns and return information for
    purposes of assisting in tax administration, but who unlawfully
    inspects or discloses that information. Criminal penalties also may be
    imposed under I.R.C. Sec. Sec. 7213, 7213A. These provisions would
    apply to PCAs. The Administration's proposal would require annual
    reports outlining the safeguards in place at the PCAs to protect
    taxpayer confidentiality and PCA compliance with the taxpayer
    confidentiality provisions.
        PCA employees would receive extensive training on taxpayer rights
    and privacy protections. The IRS' oversight processes, which would
    include an on-site presence, live and tape monitoring of communications
    with taxpayers, periodic audits, and performance evaluations, would
    ensure that taxpayer rights and privacy are fully protected.
        PCAs would be required to maintain a dedicated secure physical
    space with approved access controls to ensure protection of taxpayer
    data. The IRS would evaluate the integrity of a PCA's computer system
    to ensure that appropriate access controls are in place to protect
    taxpayer data. To protect against browsing of taxpayer information,
    PCAs' systems would be required to maintain a log of accesses to
    taxpayer information, which would be audited periodically by the IRS.
    On-site security reviews would be performed to ensure that PCAs
    implement appropriate access controls to segregated areas where IRS
    work would be performed. Periodic security audits would be performed to
    ensure the PCAs maintain ongoing data and physical security.
        Question. To what degree will the backgrounds of contractor
    employees be investigated?
        Answer. The IRS, following Internal Revenue Manual (IRM) procedures
    and using input from the National Background Investigations Center
    (NBIC) would determine the degree of background investigation required
    in accordance with the risk associated with the job function performed
    and the taxpayer information being provided to the PCAs. We anticipate
    PCA employees would undergo a moderate level of background
    investigation, which includes a criminal activity check, a tax
    compliance check and verification of personal references.
        Question. The Administration is supporting legislation to allow
    private collection agencies to collect tax debt and be paid out of the
    proceeds of their collection efforts.
        Isn't this in conflict with the 1998 IRS reform legislation that
    specifically prohibits IRS employees or managers from being evaluated
    on the amount of taxes they collect?
        Answer. Fully consistent with Section 1204 of the IRS Reform and
    Restructuring Act, the IRS' contracts with PCAs would prohibit a PCA
    from evaluating a PCA employee based on quotas or collection results
    with respect to Federal tax debts serviced for the IRS. Moreover, these
    contracts would require that PCA employee evaluations include taxpayer
    service as a factor.
        The PCAs themselves would be evaluated based on a balanced measure
    scorecard that would reflect quality of service, taxpayer satisfaction,
    employee satisfaction and case resolution, in addition to collection
    results. A PCA therefore will be judged at its, and its employees'
    effectiveness, at resolving outstanding accounts and, where
    appropriate, effecting payment of outstanding tax liabilities.
        PCAs would have a very strong incentive to fully respect taxpayer
    rights and protections, including privacy rights. Validated taxpayer
    complaints and deficiencies identified during the IRS' monitoring and
    audit of a PCAs would result in significant monetary penalties for the
    PCA. In addition, the PCA's future allocation of cases would be
    significantly impacted. Simply put, a PCA that does not fully respect
    taxpayer rights and protections would soon find itself with a small to
    nonexistent role in the program.
        Question. Congress was concerned that evaluating employees on tax
    collection success could promote overly aggressive collection
    techniques. Even if the individual contract employees are not evaluated
    on how much they bring in, they may be concerned that they won't have a
    job unless they are bringing in money.
        Doesn't this conflict with the provisions of the 1998 IRS reform
    legislation?
        Answer. The Administration's proposal combines carefully restricted
    PCA activities, careful and continuous oversight, and significant short
    and long-term penalties and incentives to ensure PCAs and their
    employees will fully respect taxpayer rights and protections.
        PCAs would focus on taxpayers who are likely to pay their
    outstanding tax liabilities, either in full or in installments, if they
    were located and contacted. These are functions that do not require the
    exercise of discretion and which would not involve enforcement actions.
    PCAs may be provided by the IRS with a specific statement that can
    either be sent or delivered verbally to taxpayers regarding the
    benefits of paying an outstanding tax liability, and the potential
    consequences of failing to do so. PCAs would be prohibited from
    threatening or intimidating taxpayers, or otherwise suggesting that
    enforcement action will or may be taken if a taxpayer does not pay the
    liability. In no case would a PCA be permitted to take enforcement
    action against a taxpayer.
        As described in previous responses, PCAs and their employees would
    be subject to extensive oversight and audit. A violation by a PCA of a
    taxpayer protection provided by the Internal Revenue Code (Code), IRS
    procedures, or other applicable laws, including those relating to
    taxpayer privacy, would have real short-term and long-term consequences
    to the PCA and its employee, including, where appropriate, contract
    termination.
        Question. I understand that under current law, if an IRS employee
    misuses taxpayer information, the injured taxpayer can recover damages
    from the U.S. government.
        Would that be the case with private contractors?
        Answer. The existing protections against unauthorized disclosure of
    returns or return information would apply to PCAs and their employees.
    Sections 6103(n) and 7431(a)(2) of the Internal Revenue Code permit a
    taxpayer to pursue legal action against any person who is permitted to
    receive tax returns and return information for purposes of assisting
    with tax administration, but who unlawfully inspects or discloses that
    information. Criminal penalties also may be imposed under I.R.C. 7213
    and 7231A.
        Question. IRS employees are routinely charged with frivolous claims
    of misconduct by noncompliant taxpayers. These charges are investigated
    by IRS or the Treasury Inspector General for Tax Administration.
        Who would do the investigating and who would pay the cost of
    investigations of charges against contract employees?
        Answer. The process generally would be similar. The IRS would
    establish an oversight group with responsibility for managing case
    referrals, monitoring and evaluating PCA performance, monitoring
    interactions with taxpayers, and reviewing and approving PCA invoices.
    The oversight group would be required to monitor a statistically valid
    number of taxpayer contacts by each PCA to evaluate taxpayer treatment
    and adherence to IRS approved procedures. A manual review of PCA
    activity on taxpayer accounts would be performed to ensure compliance
    with approved IRS procedures and overall quality of case handling. A
    full on-site audit of each PCA by the IRS oversight group would be
    performed on a regular basis and would be in addition to ongoing
    quality-control and taxpayer protection monitoring.
        The PCA would be responsible for ensuring that each employee who
    has access to taxpayer account information has completed the
    appropriate background investigation and non-disclosure forms. The PCA
    would be required to submit verification of the required background
    investigation and copies of the non-disclosure forms to the IRS at
    least 20 days before the employee is permitted to access taxpayer
    information. In addition, the IRS would adopt tracking procedures
    developed during the 1996-97 pilot program to ensure that no PCA
    employee would be granted access to the IRS work site or taxpayer data
    until he/she successfully completed a satisfactory background
    determination. These procedures were very successful during the pilot.
        The IRS' oversight of PCAs would be similar in many respects to the
    IRS' oversight of its own employees. For example, the IRS audit system
    logs for indications of improper accesses to taxpayer information. The
    IRS also performs oversight of employee work for quality and
    appropriateness of taxpayer interactions.
        PCAs would be required to provide a large amount of information to
    the IRS, as well as access to various systems, to facilitate IRS
    oversight. This would include:
      --detailed Operational Management Information Systems (MIS) reports,
      --telephone Service Level reports,
      --audits of employee access to IRS taxpayer data,
      --access to PCA collection system for auditing purposes,
      --remote telephone monitoring access to authorized IRS personnel,
      --PCA employee tracking information,
      --PCA employee quality review monitoring evaluations,
      --PCA Operational Plans, and
      --PCA Business Continuation Plans.
        To make certain the IRS promptly hears, evaluates and addresses
    taxpayer complaints, a PCA would be required to provide to taxpayers,
    orally and in writing, information on how to report a complaint with
    the IRS. Any complaint received by the IRS from a taxpayer would
    immediately be provided to the PCA. If a PCA were to receive a
    complaint directly from the taxpayer, the PCA would be required to
    immediately forward the complaint to the IRS.
        Upon receipt of a complaint from the IRS or directly from a
    taxpayer, a PCA would be required to immediately cease collection
    activity on the account in question and provide to the IRS, by the
    close of business on the following business day, a copy of its records
    on the account and any other information relevant to the complaint. The
    PCA would not be permitted to resume collection activity on the account
    until IRS resolved the problem and provided the PCA written
    authorization to resume work. Failure by the PCA to cease collection
    activity on the account would result in IRS recalling the account from
    the PCA and, if appropriate, the termination of the PCA's contract.
        A PCA also would be required to investigate the complaint and
    provide a complete report to the IRS within 10 business days of
    receiving the complaint. The report would include a description of all
    actions taken to resolve the situation and steps put in place to ensure
    there are no future occurrences of similar situations.
        If a complaint is validated, the PCA would be required to remove
    the offending employee from the IRS account and take all necessary
    steps to ensure the employee no longer has any access to taxpayer
    information. In addition, the PCA's bonus and inventory would be
    reduced, and the PCA would be subject to a penalty. The IRS could
    choose to suspend all contract activity for the PCA either permanently
    or until the IRS has determined, at its discretion, that the PCA had
    taken appropriate corrective actions to prevent further complaints.\2\
    The IRS' determination that a complaint was valid would not be subject
    to review.
    ---------------------------------------------------------------------------
        \2\ In determining whether to suspend a contract, the IRS would
    consider the severity and frequency of valid complaints for a PCA
    (whether related to one or more employees).
    ---------------------------------------------------------------------------
        If a potential statutory violation is identified, the IRS also
    would notify the Treasury Inspector General for Tax Administration
    (TIGTA). TIGTA may investigate the complaint, depending on the
    circumstances and seriousness of the complaint. If TIGTA initiates a
    formal investigation of the complaint, the PCA would be required to
    cooperate fully with the investigation and coordinate its own
    management efforts with the IRS and TIGTA. TIGTA would provide a report
    of its investigation to the IRS Contracting Officer after concluding
    the investigation.
        The IRS would pay for an initial number of the background
    investigations (75), and the PCA would bear the cost for any additional
    background investigations after the first 75.
        Question. How would IRS decide which cases to give to contractors?
        Answer. The IRS is currently evaluating the cases that would be
    referred to PCAs. In general, the cases the IRS would refer to PCAs are
    cases where the taxpayer has a reasonable likelihood of paying the
    outstanding tax liability if contacted by telephone. These cases would
    include situations where a taxpayer has filed a return indicating an
    amount of tax due but has not sent in full payment of that amount (so-
    called ``balance-due'' taxpayers). These cases also would include
    situations where the taxpayer has made three or more voluntary payments
    of tax that the IRS has assessed (e.g., after having failed to file a
    return or report all income received). The IRS would not refer cases
    for which there is any indication that enforcement action would be
    required to collect the tax liabilities or cases in which the taxpayer
    disputes the amount of the liability or the existence of the liability.
        The IRS anticipates that it initially would refer only cases
    relating to the Form 1040 series of returns, i.e., individual
    taxpayers. These cases also would include tax liabilities of Small
    Business/Self-Employed (SB/SE) taxpayers and sole proprietors who file
    a Form 1040 with a Schedule C, E, or F. Although the IRS would use PCAs
    to help address both new cases as well as those cases that currently
    are not to be addressed due to resource and collection priorities, the
    IRS does not intend to refer cases that are over 6 years old.
        The IRS is currently evaluating the potential inventory of cases
    that may be appropriate for referral. The IRS is developing more
    detailed screening criteria to eliminate cases likely to result in a
    referral back to the IRS or that otherwise would have a low probability
    of collection by the PCA. In addition, the IRS is examining whether
    commercially available credit data could assist in identifying and
    prioritizing the potential inventory for PCA placement.
        Question. Wasn't funding to analyze which cases could be given to
    contractors cut in this year's budget?
        Answer. Collection Contract Support (CCS) was initially part of the
    Filing & Payment Compliance (F&PC) Modernization project. Although this
    project is now on hold, the IRS has identified fiscal year 2003 funding
    for critical needs, including analysis and development of predictive
    models that will place the appropriate accounts with PCAs should
    legislation be enacted. We have engaged an industry leader in the
    credit and risk management scoring process to develop these models for
    use with CCS.
        While the empirical models that are envisioned for F&PC are
    ultimately desirable for the modernized IRS, the commercially available
    models presently planned for use in CCS will provide valuable insight
    to the IRS on which accounts can be best resolved in the PCA
    environment.

                   HAS THE IRS IMPROVED ITS CUSTOMER SERVICE?

        Question. For the 2002 filing season and so far in this year's
    filing season, taxpayers have received correct responses to questions
    approximately 85 percent of the time.
        What is the IRS doing to improve this rate?
        Answer. The IRS utilizes several methods to continually address
    quality issues.
      --The IRS monitors error data from the Centralized Quality Review
            System on a daily basis and provides ongoing feedback about top
            errors to frontline employees. The Centralized Quality Review
            system is conducting in-depth analysis of fiscal year 2003
            Filing Season data to make recommendations on correcting
            problem areas.
      --Frontline managers and local review staffs continually listen to
            the responses given to customers on the toll free telephone
            lines to ensure responses are correct and complete and to
            provide performance feedback to frontline employees.
      --The IRS is working continually to improve tools used by frontline
            employees to respond to customer inquiries. These tools include
            the Service Wide Electronic Research Program, the Electronic
            Accounts Resolution Guide, and the Tax Law Probe and Response
            Guide.
      --Employees responding to tax law inquiries are specialized in their
            respective topics and tested before being permitted to take
            live calls.
        The IRS has accumulated data from each toll-free site on challenges
    faced during the fiscal year 2003 filing season and actions taken to
    overcome these challenges. This information is being used to plan for
    fiscal year 2004 and beyond to eliminate barriers to providing world-
    class customer service.
        Field Assistance initiated several actions to improve the accuracy
    of responses given to taxpayers who visit Taxpayer Assistance Centers
    (TAC). Some of the actions are:
      --Monitor Employee Performance.--TAC managers are monitoring 12 tax
            law counter contacts for each technical employee during the
            year. At least six of the contacts will be monitored during the
            filing season. To place the monitoring commitment into the
            proper context, Field Assistance had 1521 permanent and 335
            seasonal and permanent part time employees as of March 2003.
            Considering that tax law represents only 10 percent of the
            total workload and the geographic dispersion of our TACs this
            is a significant number of reviews.
      --Employee Counseling.--Counseling is provided when we identify an
            improper referral to a publication. We follow up with education
            and role playing to demonstrate proper use of the Publication
            Method. The Publication Method is a technique to ``walk'' a
            taxpayer through a publication to cover all appropriate probing
            questions and illustrates the correct answer to his/her
            question.
      --Training Assessment Battery (TAB).--TAB will be administered to all
            employees and managers to identify skill levels and training
            needs. The TAB includes four modules that align directly with
            the four-stage training curriculum for Tax Resolution
            Representatives (TRRs).
      --Employee Certification Process.--We have completed the first round
            of employee certifications. The certification process requires
            employees to correctly answer three out of three questions on
            four tax law topics (social security benefits, education
            credit, earned income tax credit and dependents). Employees
            will only be allowed to answer taxpayers' questions on topics
            for which they have been certified.
      --Anonymous Managerial Visits.--The sample plan requires 30 anonymous
            visits monthly per Area. Results of the visits are provided to
            the employee's manager within one business day for follow-up
            for potential quality improvement.
      --Anonymous Headquarters Quality Assurance Visits.--Our Headquarters
            Quality Assurance staff is required to make monthly anonymous
            visits to the TACs. Results of the visits are also provided to
            the employees' managers.
      --Error Trend Reports.--Issued by Headquarters Quality Assurance
            staff when we identify errors. Areas are required to follow up
            on the errors identified and take appropriate actions to
            improve the accuracy of responses given to taxpayers who visit
            the TACs.
        Question. How accurate are the answers supplied by employees using
    the IRS toll-free help phone lines?
        Answer. Using fiscal year 2003 cumulative as of May 23rd, for the
    2003 filing season the accuracy rate for tax law is 82.25 percent and
    accuracy rate for accounts is 88.11 percent.
        Question. What is the result of reviews of the quality of walk-in
    service to taxpayers at IRS Taxpayer Assistance Centers?
        Answer. The results of Field Assistance quality reviews and
    Treasury Inspector General for Tax Administration (TIGTA) reviews of
    the quality of walk-in service at TAC's during fiscal year 2003 are:
        Field Assistance Quality Review Results.--The cumulative accuracy
    rate through April 2003 is 87 percent based on 840 questions asked
    nationwide.
        TIGTA Results.--The cumulative accuracy rate through April 2003 is
    68 percent based on 445 questions asked. We disagree with including
    referrals to publications and service denied responses in computing the
    accuracy rate. When recomputed to reflect only answers that are
    technically correct or incorrect, the cumulative accuracy rate is 73
    percent. [Note.--The term ``service denied'' includes situations where
    the IRS employee did not answer the taxpayer's question, did not refer
    the taxpayer to a publication, another employee, the toll-free
    telephone number or offer to prepare a written referral for the
    question. The IRS employee may have told the taxpayer that no one was
    available to answer their question and that they should come back the
    next day.]
        Question. Is there separate data available regarding the accuracy
    of information given in response to inquiries pertaining to EITC?
        Answer. Yes. Cumulative through April 2003, IRS has achieved an
    81.4 percent accuracy on Earned Income Tax Credit (Tax Law) for
    inquiries to our telephone assistors.
        The accuracy results for EITC questions for our walk-in offices are
    as follows:
        Field Assistance Quality Review Results.--The cumulative accuracy
    rate through April 2003 for EITC questions is 96 percent based on 69
    questions asked nationwide.
        TIGTA Results.--The cumulative accuracy rate through April 2003 for
    EITC questions is 70 percent based on 96 EITC questions asked. As
    stated above, we disagree with including referrals to publications and
    service denied in computing the accuracy rate. When recomputed to
    reflect only answers to EITC questions that are technically correct or
    incorrect, the cumulative accuracy rate for EITC questions is 79
    percent.

                               IRS MODERNIZATION

        Question. It seems that for more than a decade, IRS has been
    modernizing its computer systems. Obviously, this has been a challenge.
        Why has it taken so long and why is it not completed? Despite
    improvements, the major modernization projects continue to experience
    significant delays, cost increases, management difficulties, and
    reductions in deliverables.
        Answer. The IRS is modernizing one of the largest and most complex
    information systems in the world. Since the creation of Internal
    Revenue Service (IRS) in its current form in the 1950s, our mission has
    evolved, and the volume and complexity of our operations have
    mushroomed. Comparable to no other in the world today, our tax system
    modernization initiative faces several challenges:
      --Complex, ever-changing tax codes,
      --Extremely high volumes,
        --Over 130 million individual taxpayers,
        --Over 6 million business taxpayers,
        --200 million returns,
        --$2.1 trillion receipts, $1.5 trillion in electronic payments,
        --Tax refunds totaling over $190 billion,
        --1.5 billion information documents,
        --52 million electronically filed returns,
        --19.2 million combined Federal/State returns,
      --Input with wide-variation in content ranging from few to many
            fields of various lengths,
      --Seasonal processing with extreme variations in processing loads,
      --Hundreds of legacy applications, and
      --Transaction rates on the order of billions per year and storage
            measured in the tens of terabytes (trillions of bytes).
        As you know, past modernization attempts have yielded small
    improvements, but have been largely unsuccessful. A critical question
    moving forward was whether or not the IRS could learn from these
    failures to become more successful at managing modernization. At the
    direction of Congress and to maximize the likelihood of success, the
    IRS awarded the PRIME contract to provide leadership in the development
    of the IRS long-term vision of tax administration including; systems
    integration and engineering, best practices in business process
    reengineering and business solution, software acquisition/development
    and program/project management capability.
        Notwithstanding the complexity of our modernization effort, we are
    experiencing the same challenges faced by private industry in
    developing and deploying technology projects. The CHAOS report,
    published by the Standish Group, evaluated the causes for success and
    failure of technology projects. The Standish Group research shows a
    staggering 31.1 percent of projects will be canceled before they ever
    get completed. Further results indicate 52.7 percent of projects will
    cost 189 percent of their original estimates. The Modernization
    projects are realizing a success rate equal to or greater than the
    success rate experienced by private industry.
        The Modernization program is delivering real benefits for
    taxpayers, tax practitioners and the IRS, and we are supporting an
    aggressive deliverable schedule. In addition to the accomplishments
    realized by project releases in fiscal year 2001 and 2002 discussed in
    the response to question 39d, planned deliverables for fiscal year 2003
    include functionality for Internet Employer Identification Number
    (EIN), Customer Account Data Engine (CADE), Human Resources (HR)
    Connect and e-Services.
        Initial project budgets and delivery timelines are based upon the
    long term visioning and strategy and sometimes developed several years
    before the project start date. As the projects move through the
    lifecycle and requirements become fully understood, most project
    estimates and schedules have been adjusted to reflect the enormous
    complexity of the systems. Additional costs and schedule delays also
    arise from legislative changes and the need for the modernized systems
    to interface with the existing legacy systems.
        We are engaged in a comprehensive process improvement initiative to
    enhance our effectiveness in validating cost and schedule estimates.
    This includes working with the PRIME contractor to develop and deploy
    best practice estimating capabilities consistent with Carnegie Mellon
    University's Software Engineering Institute (SEI), as recommended by
    GAO. Following the present rollout of cost and schedule estimating
    enhancements our focus will transition to ensuring increased accuracy
    and reliability of estimates. Once all management processes are in
    place, and as these mature, the program will run closer to cost and
    schedule estimates and our capacity to initiate additional deliverables
    will also increase.
        The modernization effort is a major challenge. As the GAO noted in
    its January assessment, modernization remains a high risk area. It
    stated, ``The scope and complexity of the program are growing--the
    challenge for the IRS is to make sure the pace of systems acquisition
    projects does not exceed the agency's ability to manage them
    effectively.'' Given the important juncture we have reached with the
    first important deliverable for CADE, and the need to ensure future
    success of the program, we have decided to have an outside group of
    experts take an independent look at the program and report back to us
    by the end of this summer. We have not yet identified who will conduct
    this study but expect to do so in the next few weeks. No work will stop
    while the review is underway, but this is a good time to assess
    progress, project risk and whether any midcourse corrections are
    needed.
        Finally, because of the importance of successfully achieving
    modernization, the new Commissioner recently appointed a new position,
    the Deputy Commissioner for Operations Support, who will supervise the
    Chief Financial Officer, Chief Information Officer, the Chief Human
    Capital Officer, Agency Wide Shared Services and the Service's IT and
    physical security operations. The Deputy Commissioner for Operations
    Support will own the modernization program and drive productivity
    across the organization in order to improve service to taxpayers.

                            IRS FINANCIAL MANAGEMENT

        Question. The Acting Inspector General has found that IRS lacks, on
    an ongoing basis, the timely, accurate, and useful information needed
    to make informed management decisions.
        How do you respond to this charge?
        Answer. The IRS is in the process of implementing the Integrated
    Financial System, a Joint Financial Management Improvement Program
    (JFMIP)-certified, commercial off-the-shelf software application that
    addresses the legislative requirements for the IRS in support of the
    financial and revenue accounting, property and procurement processes.
    Release 1 is scheduled for agency-wide deployment in October 1, 2003.
        This release will:
      --Improve the capability to meet internal/external requirements
            related to management controls and financial reporting,
            including cost accounting;
      --Improve the timeliness, quality, and utility of administrative
            activity data provided to IRS managers, as well as to central
            agencies, so they can make effective business decisions; and
      --Address several Remediation Plan action items, and address GAO
            concerns regarding lack of integrated financial management
            systems at IRS.
        With the implementation of IFS Release 1, the IRS expects to
    dramatically improve the timeliness, accuracy, and usability of the
    information required to make informed management decisions.

                                     ______

               Questions Submitted by Senator Barbara A. Mikulski

                       IRS ON PRIVATIZING TAX COLLECTION

        Question. The Administration is supporting legislation to allow
    private collection agencies to collect tax debt and be paid out of the
    proceeds of their collection efforts. This seems to me to be in
    conflict with the 1998 IRS reform legislation that specifically
    prohibits IRS employees or managers from being evaluated on the amount
    of taxes they collect. Congress felt that evaluating employees on tax
    collection success promoted overly aggressive collection techniques.
    Even if the individual contract employees are not evaluated on how much
    they bring in, they will know that they won't have a job unless they
    are bringing in money. Isn't that in conflict with the provisions of
    the 1998 IRS reform legislation?
        Answer. The Administration's proposal combines carefully restricted
    PCA activities, careful and continuous oversight, and significant short
    and long-term penalties to ensure PCAs and their employees will fully
    respect taxpayer rights and protections. Fully consistent with Section
    1204 of the IRS Reform and Restructuring Act, the IRS' contracts with
    PCAs would prohibit a PCA from evaluating a PCA employee based on
    quotas or collection results with respect to Federal tax debts serviced
    for the IRS. Moreover, these contracts would require that PCA employee
    evaluations include taxpayer service as a factor.
        PCAs would focus on taxpayers who are likely to pay their
    outstanding tax liabilities, either in full or in installments, if they
    were located and contacted. These are functions that do not require the
    exercise of discretion and which would not involve enforcement actions.
    PCAs may be provided by the IRS with a specific statement that can
    either be sent or delivered verbally to taxpayers regarding the
    benefits of paying an outstanding tax liability, and the potential
    consequences of failing to do so. PCAs would be prohibited from
    threatening or intimidating taxpayers, or otherwise suggesting that
    enforcement action will or may be taken if a taxpayer does not pay the
    liability. In no case would a PCA be permitted to take enforcement
    action against a taxpayer.
        A violation by a PCA of a taxpayer protection provided by the
    Internal Revenue Code (Code), IRS procedures, or other applicable laws,
    including those relating to taxpayer privacy, would have real short-
    term and long-term consequences to the PCA and its employee, including,
    where appropriate, contract termination.
        Question. It's my understanding that under current law if an IRS
    employee misuses taxpayer information the injured taxpayer can recover
    damages from the U.S. government? Would that be the case with private
    contractors?
        Answer. The existing protections against unauthorized disclosure of
    returns or return information in would apply to PCAs and their
    employees. Sections 6103(n) and 7431(a)(2) of the Internal Revenue Code
    permit a taxpayer to pursue legal action against any person who is
    permitted to receive tax returns and return information for purposes of
    assisting with tax administration, but who unlawfully inspects or
    discloses that information. Criminal penalties also may be imposed
    under I.R.C. 7213 and 7231A.
        Question. IRS employees are routinely charged with frivolous claims
    of misconduct by noncompliant taxpayers. These charges are investigated
    by IRS or the Treasury Inspector General for Tax Administration. Who
    would do the investigating and who would pay the cost of investigations
    of charges against contract employees?
        Answer. The process generally would be similar. The IRS would
    establish an oversight group with responsibility for managing case
    referrals, monitoring and evaluating PCA performance, monitoring
    interactions with taxpayers, and reviewing and approving PCA invoices.
    The oversight group would be required to monitor a statistically valid
    number of taxpayer contacts by each PCA to evaluate taxpayer treatment
    and adherence to IRS approved procedures. A manual review of PCA
    activity on taxpayer accounts would be performed to ensure compliance
    with approved IRS procedures and overall quality of case handling. A
    full on-site audit of each PCA by the IRS oversight group would be
    performed on a regular basis and would be in addition to ongoing
    quality-control and taxpayer protection monitoring.
        The PCA would be responsible for ensuring that each employee who
    has access to taxpayer account information has completed the
    appropriate background investigation and non-disclosure forms. The PCA
    would be required to submit verification of the required background
    investigation and copies of the non-disclosure forms to the IRS at
    least 20 days before the employee is permitted to access taxpayer
    information. In addition, the IRS would adopt tracking procedures
    developed during the 1996-97 pilot program to ensure that no PCA
    employee would be granted access to the IRS work site or taxpayer data,
    and even then only limited access, until he/she successfully completed
    a satisfactory background determination. These procedures were very
    successful during the pilot.
        The IRS' oversight of PCAs would be similar in many respects to the
    IRS' oversight of its own employees. For example, the IRS audit system
    logs for indications of improper accesses to taxpayer information. The
    IRS also performs oversight of employee work for quality and
    appropriateness of taxpayer interactions.
        PCAs would be required to provide a large amount of information to
    the IRS, as well as access to various systems, to facilitate IRS
    oversight. This would include:
      --detailed Operational Management Information Systems (MIS) reports,
      --telephone Service Level reports,
      --audits of employee access to IRS taxpayer data,
      --access to PCA collection system for auditing purposes,
      --remote telephone monitoring access to authorized IRS personnel,
      --PCA employee tracking information,
      --PCA employee quality review monitoring evaluations,
      --PCA Operational Plans, and
      --PCA Business Continuation Plans.
        To make certain the IRS promptly hears, evaluates and addresses
    taxpayer complaints, a PCA would be required to provide to taxpayers,
    orally and in writing, information on how to report a complaint with
    the IRS. Any complaint received by the IRS from a taxpayer would
    immediately be provided to the PCA. If a PCA were to receive a
    complaint directly from the taxpayer, the PCA would be required to
    immediately forward the complaint to the IRS.
        Upon receipt of a complaint from the IRS or directly from a
    taxpayer, a PCA would be required to immediately cease collection
    activity on the account in question and provide to the IRS, by the
    close of business on the following business day, a copy of its records
    on the account and any other information relevant to the complaint. The
    PCA would not be permitted to resume collection activity on the account
    until IRS resolved the problem and provided the PCA written
    authorization to resume work. Failure by the PCA to cease collection
    activity on the account would result in IRS recalling the account from
    the PCA and, if appropriate, the termination of the PCAs contract.
        A PCA also would be required to investigate the complaint and
    provide a complete report to the IRS within 10 business days of
    receiving the complaint. The report would include a description of all
    actions taken to resolve the situation and steps put in place to ensure
    there are no future occurrences of similar situations.
        If a complaint is validated, the PCA would be required to remove
    the offending employee from the IRS account and take all necessary
    steps to ensure the employee no longer has any access to taxpayer
    information. In addition, the PCA's bonus and inventory would be
    reduced, and the PCA would be subject to a penalty. The IRS could
    choose to suspend all contract activity for the PCA either permanently
    or until the IRS has determined, at its discretion, that the PCA had
    taken appropriate corrective actions to prevent further complaints.\3\
    The IRS' determination that a complaint was valid would not be subject
    to review.
    ---------------------------------------------------------------------------
        \3\ In determining whether to suspend a contract, the IRS would
    consider the severity and frequency of valid complaints for a PCA
    (whether related to one or more employees).
    ---------------------------------------------------------------------------
        If a potential statutory violation is identified, the IRS also
    would notify the Treasury Inspector General for Tax Administration
    (TIGTA). TIGTA may investigate the complaint, depending on the
    circumstances and seriousness of the complaint. If TIGTA initiates a
    formal investigation of the complaint, the PCA would be required to
    cooperate fully with the investigation and coordinate its own
    management efforts with the IRS and TIGTA. TIGTA would provide a report
    of its investigation to the IRS Contracting Officer after concluding
    the investigation.
        The IRS would pay for an initial number of the background
    investigations (75), and the PCA would bear the cost for any additional
    background investigations after the first 75.
        Question. How would the IRS decide which cases to give to
    contractors? Wasn't funding to analyze which cases could be given to
    contractors cut in this year's budget?
        Answer. The IRS is currently evaluating the cases that would be
    referred to PCAs. In general, the cases the IRS would refer to PCAs are
    cases where the taxpayer has a reasonable likelihood of paying the
    outstanding tax liability if contacted by telephone. These cases would
    include situations where a taxpayer has filed a return indicating an
    amount of tax due but has not sent in full payment of that amount (so-
    called ``balance-due'' taxpayers). These cases also would include
    situations where the taxpayer has made three or more voluntary payments
    of tax that the IRS has assessed (e.g., after having failed to file a
    return or report all income received). The IRS would not refer cases
    for which there is any indication that enforcement action would be
    required to collect the tax liabilities or cases in which the taxpayer
    disputes the amount of the liability or the existence of the liability.
        The IRS anticipates that it initially would refer only cases
    relating to the Form 1040 series of returns, i.e., individual
    taxpayers. These cases also would include tax liabilities of Small
    Business/Self-Employed (SB/SE) taxpayers and sole proprietors who file
    a Form 1040 with a Schedule C, E, or F. Although the IRS would use PCAs
    to help address both new cases as well as those cases that currently
    are not to be addressed due to resource and collection priorities, the
    IRS does not intend to refer cases that are over 6 years old.
        Collection Contract Support (CCS) was initially part of the Filing
    & Payment Compliance (F&PC) Modernization project. Although this
    project is now on hold, the IRS has identified fiscal year 2003 funding
    for critical needs, including analysis and development of predictive
    models that will place the appropriate accounts with PCAs should
    legislation be enacted. We have engaged an industry leader in the
    credit and risk management scoring process to develop these models for
    use with CCS.
        While the empirical models that are envisioned for F&PC are
    ultimately desirable for the modernized IRS, the commercially available
    models presently planned for use in CCS will provide valuable insight
    to the IRS on which accounts can be best resolved in the PCA
    environment.

                         BUSINESS SYSTEMS MODERNIZATION

        Question. I am concerned about the requested funding levels for the
    IRS business systems modernization program. The budget request for this
    year is just $429 million, about $21 million or 5 percent below the
    initial fiscal year 2003 request and $79 million or 14 percent below
    the level recommended by the IRS Oversight Board.
        a. Are you committed to a robust Federal investment to continue the
    business systems modernization program at IRS?
        Answer. Yes. We firmly believe we are making progress on our
    commitments, are leveraging our precious resources, and are managing
    the considerable risk inherent in a program of the enormous size,
    complexity, and sensitivity. The current BSM program funding level for
    fiscal year 2003 is $407 million (including available appropriations
    from previous years). The President's Budget proposes an increase to
    $429 million in fiscal year 2004.
        The $429 million enables us to provide a balanced program that
    builds out essential infrastructure, delivers taxpayer value, improves
    internal operations and is within our ability to manage and implement.
        The BSM program has been steadily implementing management processes
    based on best practices in cost and scheduling planning, configuration
    management, risk management, management progress reporting, acquisition
    management and others. We feel the management processes coupled with
    our governance process will strike the proper balance between
    delivering business value, building critical infrastructure, and
    ensuring control and effectiveness. As the management processes mature,
    the program will run closer to cost and schedule estimates.
        In addition, the modernization effort is a major challenge. As the
    GAO noted in its January assessment, modernization remains a high risk
    area. It stated, ``The scope and complexity of the program are
    growing--the challenge for the IRS is to make sure the pace of systems
    acquisition projects does not exceed the agency's ability to manage
    them effectively.''
        Given this assessment and the important juncture we have reached
    with the first important deliverable for CADE, we have decided to have
    an outside group of experts take an independent look at the program and
    report back to us by the end of this summer. We have not yet identified
    who will conduct this study but expect to do so in the next few weeks.
    No work will stop while the review is underway. But this is a good time
    to assess progress, project risk and whether any midcourse corrections
    are needed.
        Question. b. What is the Administration's five-year run out for the
    business systems modernization--both in the annual appropriations
    request and the annual BSM program (expenditure plan) level?
        Answer. In fiscal year 2001 we developed a Tax Administration
    Vision and Strategy (TAVS) and an Internal Management Vision and
    Strategy (IMVS) to guide the BSM program. TAVS and IMVS reflected our
    priorities (the sequencing plan). Some critical projects like CADE were
    already started, but future projects are generally chartered from the
    sequencing plan that we developed as part of TAVS and IMVS. We also
    developed an Enterprise Architecture (EA) that added significant
    functional and technical detail to TAVS and IMVS. The EA includes an
    Enterprise Transition Plan that further details the TAVS and IMVS
    sequencing plan.
        The request for $429 million was determined after extensive
    analysis of: (1) the requirements for in-progress projects begun prior
    to fiscal year 2004; (2) the TAVS and IMVS sequencing plan; (3) funding
    the Custodial Accounting Project and Integrated Financial System to
    correct material weaknesses in financial management; (4) improving IRS
    e-gov functionality with e-Services and Modernized e-file; (5)
    maintaining adequate management reserve; (6) the Business Systems
    Management Office (BSMO) capacity to manage the program and projects;
    and finally, (7) the ability of the business units to absorb new
    software vis-a-vis training and implementation impacts. In requesting
    the $429 million, we believe we have set a realistic funding level that
    will allow us to continue the investments begun prior to fiscal year
    2004 and initiate critically needed systems software and hardware for
    business operations.
        As the IRS moves forward in its modernization efforts, funding
    requests will be developed after careful consideration of our long-term
    strategy, the sequencing plan and the priorities in the President's
    Management Agenda, as well as our ability to manage and absorb new
    functionality and business processes.
        Question. c. The program's development growth has generally been
    sustained through a combination of annual appropriations and carryover
    from prior year appropriations so that this year's (2003) program level
    is $450 million (the $370 million appropriation + carryover from prior
    years). I am concerned that prior year carryover funding will pretty
    much be exhausted after 2003. So how can the BSM program--as it enters
    into a critical period next year for a series of major projects--
    maintain its momentum if the program level in 2004 actually drops below
    the anticipated level for 2003?
        Answer. The current BSM program funding level for fiscal year 2003
    is $407 million, including carryover from prior years. The President's
    Budget proposes an increase to $429 million in fiscal year 2004. The
    requested funding level of $429 million will allow us to continue the
    investments begun prior to fiscal year 2004 and initiate critically
    needed systems software and hardware for business operations.
        Question. d. OMB seems to be pushing expenditure of funds for this
    program into more internal IRS information technology applications
    rather than robustly funding the development of major activities that
    benefit the four major IRS business units. Can you explain what you are
    doing to guarantee that the products developed by the BSM are going to
    be used by the IRS' business units?
        Answer. Guiding the BSM Program is our Tax Administration Vision
    and Strategy and Internal Management Vision and Strategy, both of which
    are reflected in the BSM Enterprise Architecture. The business units
    developed these during late 2002 and early 2001 and keep them current.
        As we develop products based on the business priorities reflected
    in our sequencing plan, we have management processes that deeply invest
    the business units in leadership and ownership positions across the
    life cycle. One example is our Executive Steering Committees (ESC),
    which are chaired by the business unit. The Deputy Commissioner for
    Large and Mid-Size Business LMSB heads the Filing and Processing
    Management Sub-ESC and the Deputy CFO heads the Internal Management
    Sub-ESC, for example.
        Our integrated project teams have representation from all the
    relevant affected business areas, including information technology, and
    all key designated roles, such as the Requirements Director, are always
    from the business units. There are many other examples of how bonded
    the systems people and the business people are in this process, but
    hopefully the examples above convey the flavor of what we are doing to
    ensure deep business engagement and ownership from the outset.
        Our programs to date have addressed improved tax administration,
    internal management, and building technical infrastructure.
    Establishing a new secure online infrastructure to support tax
    administration applications like the very popular ``Where's My
    Refund?'' is one achievement we cite with pride. We have delivered
    several other tax administration applications (a new customer
    communications system, a new system for tax computations for use by
    LMSB revenue agents, and a new Internet Employer Identification Number
    system) and one major internal management system (human resources).
        This summer we will implement a new Internet-based system to enable
    streamlined communications with tax practitioners, and the first
    release of CADE, which will be the first step in replacing the old
    master files with a modernized taxpayer account data system. This fall
    we will implement two new internal management applications, a new core
    financial system, replacing our current financial system, and a new
    custodial accounting system. Next January, we will launch electronic
    filing for large businesses and tax-exempt organizations.
        As you can see, this represents an ambitious, but balanced (across
    tax administration and internal management) portfolio.
        Question. I am very supportive--as have the House and Senate
    Appropriations Committees--of the efforts made to advance Business
    Systems Modernization (BSM) by its systems integrator--the PRIME
    Alliance. In fact, it was this Subcommittee in the fiscal year 1997
    Treasury Appropriations bill that set the whole BSM/PRIME concept in
    motion. I am concerned, however, about a couple of items and would like
    your review of several matters.
        a. Currently, about $50 million are spent each year on Tier B
    projects that are designed to be the next generation of applications
    for certain IRS business units, yet these funds are not controlled by
    either BSM or the PRIME. I am concerned about the failure to make sure
    that the right hand and the left hand are not only coordinated, but
    marching in lock step with each other--something only settled by
    putting these funds under the control of BSM and the PRIME. Can you
    apprise the Subcommittee of your position on this concept and provide
    for us a detailed idea of how we guarantee the kind of program
    integration on IRS IT activities that are necessary for BSM to succeed?
        Answer. The BSM Business Integration Office is responsible for
    ensuring that strategically linked Tier B projects are under the BSM
    governance structure. In this case the Sub-Executive Steering
    Committees have oversight responsibility for Strategic Tier B projects
    along with Tier A projects, thus insuring project integration. In
    addition each modernization project contains a Transition to Support
    Plan, which details Operations & Maintenance activities after the
    modernized system is deployed.
        These investments are not as large, dramatic or far reaching as the
    BSM program. They are small-scale investments that provide bridge
    systems until modernization arrives or, in some cases, are the
    modernized end-state solutions. All investments or projects within this
    portfolio are selected through the IRS' integrated prioritization
    process. A major component of this prioritization and selection process
    is a thorough engineering analysis to ensure that the proposed systems
    are compliant with the modernized enterprise architecture and do not
    duplicate what is being developed by the BSM program. This engineering
    analysis also ensures that these projects will run on the modernized or
    BSM infrastructure. And, finally, the engineering analysis checks for
    duplication with legacy system enhancements.
        In order to support continuation of modernization efforts the newly
    appointed Deputy Commissioner for Operations Support will supervise the
    CFO, CIO, the Chief Human Capital Officer, Agency Wide Shared Services
    and the Service's IT and physical security operations. The Deputy
    Commissioner for Operations Support will own the modernization program
    and drive productivity across the organization in order to improve
    service to taxpayers.
        Question. b. I am also concerned that an increasing amount of the
    funds appropriated for BSM are not flowing through the PRIME Alliance.
    When Congress directed the IRS to initiate BSM in fiscal year 1997, we
    were emphatic that a private sector integrator needed to be brought in
    to do the job. Yet by bypassing the PRIME, and splintering BSM funds in
    multiple directions, it appears the IRS--in the wake of Commissioner
    Rossotti's departure--is trying to return to a position of itself being
    the systems integrator. That is at odds with the original Congressional
    intent for the program and President Bush's Management Agenda. What can
    you do to make sure that we let the private sector serve as the systems
    integrator for this program as was intended?
        Answer. The table below was recently prepared for House
    Congressional testimony. It shows the total amount of obligated funds
    since we awarded the PRIME contract. Over the life of the contract the
    PRIME has received approximately 75 percent of all obligated BSM funds.
    During the last two full fiscal years, 2001 and 2002, the PRIME has
    received approximately 76 percent of the obligations each year. Because
    of the long Continuing Resolution and the recent approval of the
    revised fiscal year 2003 Business Systems Modernization Expenditure
    Plan, we do not yet have comparable fiscal year 2003 numbers available.
        We do not believe that the numbers indicate that the share of funds
    going to PRIME has decreased significantly. It is not the intention of
    the IRS to move away from the Congressional intent of having the
    private sector serve as systems integrator for the BSM program.

               PRIME CONTRACTOR AND OTHER IRS SUPPORT CONTRACTORS
    ------------------------------------------------------------------------
                                                          BSM
                                         -----------------------------------
                                              Obligated         Expended
    ------------------------------------------------------------------------
    PRIME...............................      $771,031,696      $634,725,415
    MITRE...............................        52,801,406        49,440,693
    Other...............................       202,236,866       171,071,729
                                         -----------------------------------
          Total.........................     1,026,069,968       855,237,837
    ------------------------------------------------------------------------

    APPENDIX I.--TECHNOLOGY REQUIREMENTS FOR EITC CAN BE CATEGORIZED BY PRE-
                 FILING, FILING, AND POST-FILING ACTIVITIES \1\
    ------------------------------------------------------------------------
           System Component                       Description
    ------------------------------------------------------------------------
        PRE-FILING TECHNOLOGY
              COMPONENTS

    CERTIFICATION DATABASE.......  Database containing certification status
                                    (entered during Filing); Database may
                                    contained imaged documents.
    AUTOMATED INFORMATION SYSTEM.  System for taxpayers to check
                                    certification status through multiple
                                    channels, including Internet, Phone (ACD/
                                    IVR), E-File terminal, etc.
    FILING STATUS SYSTEM.........  System to build taxpayer profiles from
                                    historical data to identify Filing
                                    Status errors in post-filing in batch.
    CHOICEPOINT SYSTEM...........  System to import and store third-party
                                    data (Choicepoint).
    EITC UNDER REPORTER SYSTEM...  System to analyze and access historical
                                    AUR information and identify taxpayer
                                    fitting certain criteria (i.e. repeater
                                    offenders).
    EITC CONTACT CENTER/ACCTS      Complete call center solution that allows
     MANAGEMENT.                    CSRs to access all EITC information;
                                    DSTs; Ability to transfer calls to
                                    external contractor; Includes
                                    application to access imaged documents.
     FILING TECHNOLOGY COMPONENTS

    EITC E-FILING SYSTEM.........  System that enables taxpayers to
                                    electronically submit certification
                                    documentation.
    CERTIFICATION SYSTEM.........  System to capture certification
                                    information during processing; Includes
                                    OTA-like Decision Support Tools to aid
                                    in decisions; Provides certification
                                    status to end-users; allows for
                                    scanning, sending, and viewing of
                                    documents (16 M) to central location.
    FILING STATUS SYSTEM.........  System to capture new Filing Status
                                    information at time of processing.
    MATCHING SYSTEM..............  System to match taxpayer reported
                                    information against information stored
                                    in databases to determine if filing
                                    requirements have been met.
    TECHNOLOGY MODIFICATIONS.....  Master File and other systems
                                    modifications to separate and freeze
                                    only EITC portion of return (instead of
                                    freezing the entire return).
        POST-FILING TECHNOLOGY
              COMPONENTS

    RISK-BASED COMPLIANCE SYSTEM.  System to analyze and identify trends in
                                    non-compliance; This system will aid in
                                    compliance strategies and case selection
                                    (can leverage F&PC RBSS).
    COMPLIANCE DATA SYSTEM.......  System that allows Tax Examiners to
                                    access multiple databases containing
                                    EITC information.
    FILING STATUS COMPLIANCE       System to access and analyze filing
     SYSTEM.                        status information (internal and third-
                                    party) and identify errors in batch at
                                    the time of filing; Includes automated
                                    case building and issue-based notice
                                    generation; Provides all relevant Filing
                                    Status information to Tax Examiner;
                                    Includes OTA-like Decision Support
                                    Tools.
    AUR MODIFICATIONS............  Systems changes to AUR that would allow
                                    EITC cases to be identified, analyzed,
                                    and worked separately from other AUR
                                    cases; Includes changes to AUR to
                                    include the expected change in EITC in
                                    the AUR dollar discrepancy.
           SUPPORT SYSTEMS

    MIS..........................  System that provides all management
                                    information requirements, including pre-
                                    filing, filing, and post-filing
                                    activities; Includes OTA-like Decision
                                    Support Tools.
    WORKFORCE/INVENTORY            System to predict and manage workload and
     MANAGEMENT SYSTEM.             inventory in pre-filing, filing, and
                                    post-filing activities; Includes OTA-
                                    like Decision Support Tools.
    ------------------------------------------------------------------------
    \1\ System includes applications, database, infrastructure, maintenance,
      etc.; DST--Decision Support Tools.

                              SUBCOMMITTEE RECESS

        Senator Shelby. Thank you. Thanks for your appearance.
        The subcommittee is in recess.
        [Whereupon, at 2:50 p.m., Wednesday, April 9, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

      DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
              RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                             THURSDAY, MAY 8, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:14 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Richard C. Shelby (chairman)
    presiding.
        Present: Senators Shelby, Campbell, Brownback, Stevens, and
    Murray.

                          DEPARTMENT OF TRANSPORTATION

    STATEMENT OF NORMAN Y. MINETA, SECRETARY
    ACCOMPANIED BY DONNA McLEAN, ASSISTANT SECRETARY OF TRANSPORTATION FOR
                BUDGET

                 OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

        Senator Shelby. The committee will come to order. Welcome,
    Mr. Secretary. We are pleased that you are doing better, and as
    I told you, we will be walking briskly down the hall together.
    We are pleased to see you here today. I know it has been a
    difficult year for you and I hope that the remainder of 2003 is
    better.
        I look forward to our discussion this morning on the
    Department of Transportation's 2004 budget request. I hope we
    will also have an opportunity to uncover how the budget request
    relates to your authorization proposals and your other goals
    for the Department.
        I first want to commend you, Mr. Secretary, for proposing a
    budget that does not impose any new user fees. With our economy
    struggling to recover, I believe that now would be the worst
    time to increase the burden on transportation users. Our goal
    should be to do more with less and to relieve unnecessary
    impediments to efficiency in the transportation system.
        In addition, I look forward to obtaining greater detail
    about the proposal to establish a new $1 billion infrastructure
    performance and maintenance program for highway projects that
    can be constructed quickly, and how those funds would be
    allocated to enhance transportation systems and relieve
    congestion.
        The budget request for the Federal Transit Administration
    proposes the most significant changes from previous fiscal
    years. I am skeptical that consolidation of programs and
    distribution by formula of transit dollars will improve the
    delivery of transit services or capital improvements. Formula
    fights can be distracting and the Federal role in transit
    should be more than simply revenue sharing.
        Instead, I believe that we should structure transit funding
    to improve rural connectivity, eliminate the bias toward rail
    capital projects, focus Federal investment on key projects that
    might not otherwise get built but have a significant impact,
    and put in place oversight procedures for early identification
    of the risk associated with project execution.
        While funding for the highway program is not what I had
    hoped for, and is less than what we provided in the omnibus, it
    is better than what the RABA-like mechanism would have
    provided, and considerably better than some of the rumors that
    were circulating last December. Nevertheless, I believe that
    the highway obligation limitation needs to be increased and I
    look forward to working with you to further that goal.
        Other than that, I view this budget basically as a status
    quo budget. I know that the Department has focused almost
    exclusively on TSA last year and on transitioning Coast Guard
    and the TSA to the Department of Homeland Security. But I did
    expect a bit more in this budget proposal on where you wanted
    to take the remainder of the Department.
        I am as concerned about what is missing from the budget
    request as I am with what it includes. Highway fatalities are
    headed in the wrong direction, increasing for the fourth
    consecutive year. And just as troubling, alcohol-related
    accidents and fatalities increased again for a third time in as
    many years.
        Yet, there is no new initiative to increase seatbelt use,
    reduce drunken driving, or to do anything differently at NHTSA
    other than consolidating several existing State grant programs
    or shifting funds for grant programs from FHWA to NHTSA.
        I think that we can do better. Two years ago, Senator
    Murray and I provided funding for Click It or Ticket campaigns.
    After struggling with NHTSA to get them to use the money, the
    program had a positive impact on the national seatbelt usage
    rate. This shows why we need to make greater use of targeted,
    data-driven programs.
        If they work, you will have my support to grow the
    initiative. If they do not, we will try something else, even if
    that means upsetting some of NHTSA's partners. The only thing
    that is not acceptable I believe is not trying new things to
    reduce the carnage on our highways.
        With regard to passenger rail, I must say that I am
    disappointed there once again. The Department has failed to
    provide the leadership, I believe, that is necessary to
    transform Amtrak. While the Congress waits for a legislative
    proposal that embodies the principles of reform that you
    articulated last June, your representative on the Amtrak board
    of directors has supported a budget that is an all-out effort
    to preserve the current failed system.
        Amtrak's budget assumes a Federal subsidy that is twice as
    much as what was included in the President's budget, but does
    not contemplate even minor changes to the current structure.
    Amtrak's hostility to reform was further demonstrated when
    Amtrak's CEO abandoned his commitment to fully recover the cost
    of State-supported lines as soon as private rail companies
    offered to provide the service for the States at a much lower
    cost.
        In a similar vein, I have impressed upon both your
    predecessors and the FAA administrator that something needs to
    be done to contain the cost growth of the FAA. Over the past 9
    years, the FAA operations budget has grown 65 percent,
    including a proposed 8.1 percent growth in the budget request
    for 2004. By comparison, aircraft operations, the primary
    driver for FAA operations activities, have declined 10 percent
    since 2000. In a budget constrained environment it is
    unsustainable to have unchecked costs at the FAA.
        This is a perennial item on the Inspector General's top ten
    management challenge list, yet nothing ever seems to get done.
    Like Amtrak, ignoring the issue of cost growth of the FAA's
    operation budget will not make it go away and is a disservice,
    I believe, to the American taxpayer.
        Finally, Mr. Secretary, I want to raise what I believe is
    an emerging challenge for the Department and the FAA: the
    economic trade and regulatory implications of a consolidated
    European Union Member States open skies or open aviation area
    concept.
        Whether an open aviation area multilateral agreement is a
    good idea or not, I believe that the die is cast and that the
    European Union will be working in a much more coordinated
    manner with regard to International Civil Aviation Organization
    regulatory and safety issues. That presents enormous challenges
    and potential risks for the United States given the opportunity
    for mischief that can intentionally or unintentionally creep
    into standards consideration and creation.
        This is an important and a very complicated area and I
    encourage you to put some of your best people on it and to
    provide a clear and comprehensive statement of where you
    believe the United States should head in this regard in order
    to maintain our preeminence in aviation.
        Mr. Secretary, we have an obligation to do better than just
    delivering the status quo and I look forward to working with
    you toward that end. It is good to see you again.
        Senator Murray.

                       STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Thank you, Mr. Chairman. First let me join
    with you in saying how pleased I am to see Secretary Mineta
    back before this subcommittee. We all know that Secretary
    Mineta has worked far harder than he should have during his
    recuperation from surgery. I suspect that his leadership of the
    Department during this period was far more involved than his
    doctors would have liked. I want to publicly thank you for all
    the extra effort during these last few months.
        I know they have been difficult ones but our Nation and our
    entire transportation enterprise is better off because of your
    selfless commitment, Mr. Secretary, and we thank you.
        Just a few minutes ago, I had the opportunity to introduce
    Ms. Annette Sandberg to the Senate Commerce, Science, and
    Transportation Committee. She is Secretary Mineta's Acting
    Administrator at the Federal Motor Carrier Safety
    Administration. I think the President made an excellent choice
    in asking that she be appointed as the permanent Administrator
    of that agency. Ms. Sandberg was the first woman to serve as
    the head of a State police force, having served as chief of the
    Washington State force for 6 years. I was really honored to
    introduce her to the Commerce Committee today and I have great
    faith in her ability to advance the cause of truck safety at
    that agency.
        With the passage of the Homeland Security Act, the
    reorganization of the Department, and the reorganization this
    committee, both Secretary Mineta and this subcommittee have an
    opportunity to refocus and redouble our efforts on the core
    missions of the Department of Transportation. For the last 2
    years we have been focused on the urgent security needs in all
    of the transportation modes. With that responsibility now
    vested in another department and another Appropriations
    Subcommittee, we can focus on alleviating congestion on our
    runways and our highways, and minimizing the number of
    transportation-related fatalities.
        This morning I would like to focus on four areas of the
    President's budget proposal: highway safety, aviation, highway
    construction, and Amtrak. Mr. Chairman, as you mentioned in
    your statement, we have experienced the fourth consecutive year
    of increased fatalities on our highways and that unacceptable
    record must be reversed. As I look at the President's budget
    request for 2004 for the Department of Transportation, I see a
    mixed bag. There are increased resources to address highway
    safety, and this subcommittee will need to pursue whether the
    requested levels are sufficient to really change behavior,
    especially involving drinking and driving.
        In the area of aviation, increased resources are requested
    for the FAA's operations budget. However, given the financial
    problems facing our airlines, the FAA has some major new
    challenges. The FAA is charged with inspecting and certifying
    the safety procedures for all of our airlines. At the same
    time, the airlines are increasingly contracting out maintenance
    to entities that have minimum Federal oversight. Indeed, the
    FAA has its own standard requiring increased scrutiny of the
    safety practices of airlines that are operating in bankruptcy?
    It is not yet clear that the FAA even has enough inspectors on
    its payroll to fulfill its own standard. It is also not clear
    that the President's 2004 budget provides the kind of resources
    that will enable the FAA to meet its standard if airlines are
    still operating in bankruptcy in 2004.
        In the area of highways, the President is calling for a cut
    of $2.3 billion or 7.3 percent. This request is far preferable
    to the $8.6 billion cut that the Administration requested last
    year, but it is still moving, I believe, very much in the wrong
    direction. As a Senator whose home State includes Seattle, a
    city with the third worst traffic congestion in the Nation, I
    can tell you that a further retreat in the Federal investment
    in our Nation's highway infrastructure is not the right way to
    go.
        Finally, let me turn to Amtrak. The Administration has
    requested $900 million. That is a reduction of 22 percent below
    the de facto 2003 appropriations. Last year, the President
    requested only $521 million. Further, this Administration never
    articulated precisely how the railroad could avoid bankruptcy
    at that level of funding. So this year's request, at least in
    dollar terms, is an improvement.
        With the $900 million request, the Administration may be on
    its way to earning a seat at the table when it comes to a
    meaningful discussion with Congress as to Amtrak's future. But
    for the Administration to be a meaningful partner with us in
    that discussion, the Administration needs to submit a
    comprehensive reauthorization proposal for Amtrak. That
    proposal was due to Congress over a year ago. We still have not
    seen it yet, though the Deputy Secretary recently testified to
    the authorizing committees about some of the concepts that we
    can expect to see in the document. But we will not be able to
    decide if $900 million is enough until we have seen the
    Administration's actual proposal.
        One thing I do know about this legislation is it is not
    Secretary Mineta's fault we have not seen it yet. I can only
    hope that in his last 30 days on the job that OMB Director
    Daniels will take it upon himself to see to it that this piece
    of business is taken care of before he leaves the Government.
        So in conclusion, I want to thank Secretary Mineta for
    being with us here this morning. I want to thank him as well
    for the invitation to introduce his soon-to-be-confirmed
    Federal Motor Carrier Safety Administrator. I look forward to
    having a dialogue with him this morning about our shared goals
    of alleviating congestion and saving lives.
        Thank you, Mr. Chairman.
        Senator Shelby. Senator Campbell.

                  STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

        Senator Campbell. Thank you, Mr. Chairman. Welcome to my
    friend and former colleague from the House side days, Secretary
    Mineta. Our State of Colorado is the third fastest growing
    State, Mr. Chairman, behind Nevada and Arizona. Certainly we
    face the same problems all fast-growing States do. We have
    transportation problems that are huge. We have one great big
    construction job on I-25 between Denver and Colorado Springs
    that we call T-Rex for an appropriate reason; because the thing
    is a monster if you try to drive through there with the ground
    tore up and the old bridges coming down, new ones going up, and
    so on.
        I have to associate myself with the comments of Senator
    Murray and say that the President's budget I think is
    inadequate. I worry that a lot of these contracts that have
    been let are going to just leave the States hanging with their
    projects half done and without enough money to finish them.
        But I do want to thank you for your past support, Mr.
    Secretary, for that particular project in Colorado because it
    is a very unique project. It uses what is called a design-built
    process which combines light rail, highway, bike, pedestrian,
    and other transit options all into one. I think that when it is
    finally done it is going to really become a model for the
    country. So I want to thank you for that, and also for the help
    you have given us with the sixth runway at DIA that is under
    construction, as you know, and will be done shortly.
        One concern I do have that really carries over from last
    year, Mr. Chairman, is the hours of service that the Federal
    Motor Carriers Safety Administration has implemented. I went to
    the hearings before we delayed that for a year last year. I had
    my staff go to two of them; I just went to one. I was convinced
    then that the Administration had already made a decision and
    they were just doing perfunctory things of listening to people
    complain. But they are implementing that, and requiring the
    truckers to stay off the road two more hours, which sounds good
    on the surface.
        But I have a CDL, as you probably know, Mr. Chairman. Still
    have a couple of Class A trucks and go to those a lot, and I
    think that there are some real downsides to it. The truckers
    themselves, as you know in any kind of cold climate, they do
    not shut those things off. That means they sit in truck stops
    or on off-ramps and on-ramps, which are becoming more crowded
    all the time, or in rest stops, highway rest stops that are run
    by the States usually. They have to keep them on to stay warm.
    I do not know how we say that we are going to save fuel by not
    putting it to productive use and just keeping them running
    while they are sitting there.
        Secondly to that, most of the truckers that I know, they
    get bored silly, so they just spend most of their time and most
    of their money running the video games and doing the things
    that now you can do at these big RV truck stop combinations.
        We talk about safety. It is my understanding that if you do
    implement these hours and you have the same amount of shipping
    of merchandise, that means you are going to have more trucks on
    the road to offset the ones that are just sitting idle for
    those extra hours. For the life of me, I cannot understand how
    that is an increased safety feature when you say there are
    going to be more 18-wheelers on the roads instead of less.
        I am going to ask the Secretary, if I can stay long enough,
    to give me his opinion about the present state of that when we
    get into questions and answers. But it is certainly one of my
    big concerns.
        Thank you, Mr. Chairman.

                  PREPARED STATEMENT OF SENATOR SAM BROWNBACK

        Senator Shelby. Senator Brownback has submitted a written
    statement he would like to have included for the record.
        [The statement follows:]

                  Prepared Statement of Senator Sam Brownback

        Mr. Chairman, I would like to thank you for holding this hearing
    today and inviting The Honorable Secretary Mineta to testify before us.
    There are two issues of particular importance to the State of Kansas
    that I hope the Secretary will address today. First, is that of the
    aviation industry and the need to bolster aviation and aeronautics
    research and development. In particular, I would like to highlight a
    bill I recently introduced with Senator Hollings, S.788, the Second
    Century of Flight Act. Second, I would like to address the issues of
    short line railroads and the needs there for track rehabilitation and
    preservation.
        Just last week in the Committee on Commerce, Science, and
    Transportation we marked-up the Federal Aviation Administration (FAA)
    Reauthorization bill. S.788, The Second Century of Flight Act addresses
    many of the concerns currently facing the aviation sector. And I was
    extremely pleased that my Colleagues on the Commerce Committee agreed
    to include three out of the four titles of that bill in the FAA
    Reauthorization.
        This bill would create a national office to coordinate aviation and
    aerospace research activities within the U.S. Government and
    encouraging public-private cooperation. Additionally, this bill creates
    a national office to focus on a next generation air traffic management
    system and establishes a new educational program to train the next
    generation of aeronautics engineers and mechanics.
        I am sure it is a goal of all of ours to ensure that the United
    States continues to lead the world in aeronautics and aviation safety,
    technology, and efficiency.
        Additionally, an issue that should be of importance to all of us in
    the room is the future of ``short line'' local freight railroads. These
    short lines account for roughly half the rail miles in Kansas. These
    lines gather tens of thousands of carloads of grain and start them on
    their way across the country and for export abroad. However, government
    disincentives forced the prior owners of these light density lines to
    neglect investment in the infrastructure, and now the weight of loaded
    railroad cars are growing ever heavier. This has forced many of these
    light density lines to abandon operations.
        Last year, the Senate addressed these issues through Senate Bill
    1220. That bill would have established a capital grant program for
    rehabilitation and improvement of tracks and related structures on
    small railroads to being the infrastructure up to a level permitting
    safe and efficient operation. Unfortunately, that bill never saw action
    on the Senate floor during the 107th Session of Congress. The Members
    in this room should make a commitment to this issue, realizing the
    important and impact short line operations have on highway miles.
        Again, Secretary Mineta, thank you for being here today. I look
    forward to hearing your responses to some of the questions I have for
    you.

        Senator Shelby. Mr. Secretary, your written statement will
    be made part of the record in its entirety. You may proceed as
    you wish.

                         STATEMENT OF NORMAN Y. MINETA

        Secretary Mineta. Mr. Chairman, thank you very much, to the
    members of the subcommittee as well, for this opportunity to
    appear before you today. Before I begin, let me offer my
    congratulations to you, Mr. Chairman, for taking the helm of
    this very important subcommittee.
        Senator Shelby. We swap it back and forth. But let's do not
    do it soon.
        Secretary Mineta. Again, I appreciate this opportunity to
    be before you, and all the members of the subcommittee, who
    have extended to me a very warm welcome. I have enjoyed the
    opportunity to work with all of you in terms of advancing the
    cause of transportation in our great country. I want to thank
    you, Senator Murray, for taking the time to introduce Annette
    Sandberg at the Commerce hearing on her nomination. As the
    acting administrator of the Federal Motor Carrier Safety
    Administration she has already been subjected to a great deal
    of work in the short time she has been there.
        Mr. Chairman, I would also like to introduce our Assistant
    Secretary of Transportation for Budget, Donna McLean, who, with
    your permission will be sitting at my side to assist me with
    any details on questions that come up.
        I am pleased to share with you the Department of
    Transportation's 2004 budget. President Bush is requesting
    $54.3 billion for the Department, including more than $14
    billion, or 27 percent, that is being targeted to support my
    number one priority, safety. As you have indicated, highway
    traffic deaths are starting to go up. For the last 15 months,
    my senior management team has spent a great deal of time
    focused on the security threats that face transportation. But
    this year I have challenged my team to bring that same passion,
    that same innovation and what I hope will be the same
    outstanding success on a simple but important goal: improving
    safety and saving lives while continuing to improve America's
    transportation system.

                REAUTHORIZATION OF SURFACE AND AVIATION PROGRAMS

        As you all are very well aware, the current laws
    authorizing vital surface and air transportation programs
    expire in the next few months. Accordingly, our 2004 budget
    includes the foundation for proposed legislation addressing our
    Nation's future transportation needs. President Bush recently
    presented to the Congress his aviation reauthorization
    legislation, the Centennial of Flight Aviation Authorization
    Act, or Flight-100. Consistent with this proposal, the
    President's 2004 budget requests $14 billion for the FAA. We
    are currently finalizing our proposed surface transportation
    reauthorization legislation and anticipate its delivery to you
    shortly.
        Although a few details are still under discussion within
    the Administration let me simply say this, the Administration's
    forthcoming reauthorization proposal will serve as the largest
    surface transportation investment in our Nation's history. I
    firmly believe that the Administration's proposal, when enacted
    by the Congress, will dramatically further our efforts to grow
    the Nation's economy without imposing any new gasoline taxes.
        Now as a former member of Congress who spent considerable
    time on the other side of this microphone, I know it is
    important to determine what the total amount of funding will
    be. But as all of you know, what we spend is only part of the
    challenge in legislation we will work together on. How we spend
    it is just as critical. That is why our proposal will be more
    than simply a spending plan. It is a true blueprint for
    investment.
        Our proposal will include a dedicated commitment to saving
    lives by consolidating and expanding Federal safety programs,
    increasing funding flexibility for State and local authorities,
    encouraging innovative financing tools, accelerating
    environmental reviews by building on President Bush's executive
    order on environmental stewardship, and finally, simplifying
    transit programs to foster a seamless transportation network.
        Now the President's 2004 budget supports these principles
    by requesting $30.2 billion for highway programs, $1.2 billion
    for motor carrier and highway safety, and $7.2 billion for
    transit.

                                     AMTRAK

        In addition to our proposals to support our highways and
    airways, President Bush is requesting $900 million for Amtrak.
    But this funding comes with a very strong message. Amtrak must
    undergo significant reform. Last week our Deputy Secretary of
    Transportation, Michael Jackson, and our Federal Railroad
    Administrator, Alan Rutter, testified before your colleagues in
    the Senate and in the House on the Administration's vision for
    a strong national intercity passenger rail system. I believe
    that America deserves a national rail system that is driven by
    sound economics, fosters competition, and establishes a long-
    term partnership between States and the Federal Government.
        Mr. Chairman, this vision cannot be achieved without a
    fundamental reform of Amtrak. Simply put, America can no longer
    afford the status quo. I am personally committed to working
    closely with all of you, the Congress, the States, industry,
    and labor leaders to develop a financially healthy system that
    provides a viable national passenger rail service to America.

                               PREPARED STATEMENT

        Let me close by again thanking you for the opportunity to
    testify today. I have worked with all of you over the years on
    these issues and I look forward to tackling them again with
    you. I pledge that we will work closely with this subcommittee,
    Mr. Chairman, and with the entire Congress as we consider the
    2004 budget. Now I look forward to responding to any questions
    that you might have.
        [The statement follows:]

                     Prepared Statement of Norman Y. Mineta

        Mr. Chairman, Members of the Subcommittee, thank you for the
    opportunity to appear before you today to discuss the Administration's
    fiscal year 2004 budget request for the Department of Transportation.
    President Bush is requesting $54.3 billion for the Department including
    over $14 billion, or 27 percent, targeted to support our number one
    priority--safety. But before I outline the specifics of our 2004
    budget, let me briefly speak to our making safety a priority while we
    improve our Nation's transportation system.
        For the Department of Transportation, 2003 will be a year of
    special focus on highway and aviation safety. For the last 15 months,
    we at the Department of Transportation have spent a great deal of our
    time making transportation secure and responding to the threats of
    terrorism. This was absolutely necessary. We've made great progress.
        In the aftermath of September 11th, the Department of
    Transportation had a laser-like focus on security. Two months ago, we
    successfully handed off to the new Department of Homeland Security the
    United States Coast Guard and the Transportation Security
    Administration--two of their largest and high profile agencies.
        The Department of Transportation is proud to have provided strong
    leadership and steady support to the United States Coast Guard for more
    than 35 years. I am particularly proud of our work standing up the
    Transportation Security Administration from its creation through its
    first full year of operation. Indeed, this was a monumental task--one
    in which we performed under the intense glare of the public spotlight.
    It was a task that many of the so-called ``experts'' said was
    undeliverable.
        On November 19, 2001, the day that the TSA was created, there were
    only 33 Federal Air Marshals nationwide. At that time, there was a
    poorly qualified, poorly equipped screener service at the airports,
    with substandard supervision. In less than one year and under wartime
    conditions, we recruited, trained, and deployed thousands of Air
    Marshals. We recruited over 300 highly qualified Federal Security
    Directors to oversee more than 429 airports in the country.
        Through an unprecedented partnership with the private sector, we
    processed over a million applications, and hired, trained, and deployed
    more than 50,000 passenger and baggage screeners who provide world-
    class security and world-class customer service.
        All of this was done while meeting 37 mandates--36 of which were
    set by you the Congress in the Aviation and Transportation Security
    Act. The 37th was my own. I told my colleagues to be sure and meet the
    other 36. I am proud to say that the stellar employees of the
    Department of Transportation performed spectacularly--designing and
    delivering, on time and in working order, the Transportation Security
    Administration. When you look at the airline security system on
    September 12, 2001 and our system today, I am tremendously proud of the
    Department of Transportation and I am grateful to the Congress and this
    Committee for the cooperation we received.
        We at the Department of Transportation look forward to continuing
    to work closely with our colleagues in the U.S. Coast Guard, the TSA,
    and throughout the Department of Homeland Security to ensure that
    America's transportation system remains safe, secure and efficient.
        Now for this year, and going forward, I have challenged my senior
    management team to focus the same passion and the same innovation spent
    on security over the last year on a simple but profoundly important
    goal: improving safety and saving lives. Once again, I would like you
    in Congress to be our partners and achieve the same historic record of
    performance.
        As I stated at the outset, more than one quarter of President
    Bush's 2004 budget is dedicated to ensuring the highest levels of
    safety across America's transportation infrastructure. The
    Administration's reauthorization proposals for both surface and air
    transportation programs will provide evidence of our continued
    commitment to safety. As you all know, those vital programs will expire
    in September. In anticipation of this, our 2004 budget request includes
    the foundation for proposed new legislation to address our Nation's
    transportation needs over the next four to six years.
        We recently presented to the Congress President Bush's aviation
    reauthorization legislation--The Centennial of Flight Aviation
    Authorization Act, or Flight-100. We look forward to working with the
    members of this Subcommittee and with the entire Congress on swift
    passage of both this key aviation legislation, and the upcoming surface
    transportation legislation.
        Let me share with you several principles of our aviation and
    surface transportation reauthorization proposals.
      --Our proposals will include an emphasis on consolidating and
            expanding Federal safety programs.
      --For the surface transportation programs, we will include increased
            funding flexibility for State and local authorities.
      --We will continue to encourage innovative financing tools.
      --We will propose efficient environmental stewardship processes that
            facilitate transportation infrastructure projects without
            compromising the environment.
      --Finally, we will continue a strong emphasis on public
            transportation by simplifying transit programs and fostering a
            seamless transportation network.
        The $14 billion requested by President Bush for the Federal
    Aviation Administration in 2004 will further ensure the highest
    possible levels of safety throughout the aviation system.
        Flight-100 improves safety oversight of operators, repair stations
    and others, while tightening enforcement of the FAA's stringent safety
    and maintenance regulations. Because at the same time travel demand for
    air service will inevitably return to, and exceed, pre-September 11th
    levels in the future, we cannot afford to reduce our commitment to
    investing in the Nation's air traffic control system and our airports.
    Equally important, we cannot take our eye off the safety goal: to
    reduce aviation fatality rates by 80 percent over the period 1996 to
    2007.
        To meet both safety and mobility needs, the budget proposes to
    spend a greater portion of the accumulated cash balances from the
    Airport and Airway Trust Fund. The President's budget request and our
    reauthorization proposal provide $2.9 billion in fiscal year 2004 for
    facilities and equipment. In 2007, that figure rises to $3.1 billion.
        Our proposal also provides $7.5 billion for FAA operations and
    maintenance in 2004 to improve efficiency--an 8 percent increase over
    the 2003 enacted level--and supports implementation of the Operational
    Evolution Plan, the acceleration of airspace redesign, and future air
    traffic controller staffing needs.
        Turning to our soon-to-be presented surface transportation
    proposal, let me begin with a fundamental principle: the President and
    his Administration are committed to maintaining guaranteed funding
    levels that link highway spending to Highway Trust Fund receipts.
        Our proposed program spends at a level that keeps the Highway Trust
    Fund balance relatively constant. The proposed obligation limitation
    for 2004 is $29.3 billion. When comparing the Administration's 6-year
    surface transportation reauthorization proposal in total to the six
    years of TEA-21, the President proposes an overall increase of 19
    percent. The fiscal year 2004 budget accomplishes this increase without
    proposing new user fees.
        For the Federal Highway Administration, the fiscal year 2004 budget
    request proposes that all revenue from gasohol taxes be deposited
    directly in the Highway Trust Fund rather than the current approach
    that deposits gasohol taxes into the General Fund. If enacted, this one
    change will add more than $600 million of available funding to the
    Highway Trust Fund for each year of the authorization cycle.
        In addition to spending estimated Highway Trust Fund receipts, our
    proposal also unveils a new $1 billion Infrastructure Performance and
    Maintenance initiative to fund preservation and congestion alleviation
    projects that can be implemented quickly. Totaling $6 billion over the
    authorization period, this funding will target projects that address
    traffic congestion and bottlenecks, and improve pavement conditions.
        Every year, more than 42,000 people die on our Nation's roads and
    highways. This is unacceptable--we can and must do a better job to save
    lives.
        Reducing highway fatalities is ``priority one.'' That is why the
    President's budget request includes $665 million for the National
    Highway Traffic Safety Administration to reduce fatalities, prevent
    injuries, and encourage safe driving practices. Of NHTSA's 2004 funding
    request, $447 million will support grants to States to enforce safety
    belt and child safety seat use and reduce impaired driving.
        The Federal Motor Carrier Safety Administration, too, is focusing
    on ways to prevent fatalities and injuries resulting from accidents
    involving commercial motor vehicles. The 2004 budget request includes
    $447 million to address these critical safety issues. We will also
    continue to emphasize a comprehensive safety inspection program at the
    southern border so Americans can be assured that trucks entering the
    United States from Mexico meet our Federal safety regulations.
        The Administration's 2004 budget request includes $7.2 billion to
    strengthen and maintain our public transportation systems and includes
    $1.5 billion to fund 26 ``new starts'' projects that will carry over
    190 million riders annually when completed.
        In addition to our proposals to support our highways and airways,
    President Bush is requesting $900 million for Amtrak. But this funding
    comes with a strong message: Amtrak must undergo significant reform.
        Last week, my Deputy Secretary Michael Jackson and my Federal
    Railroad Administrator Allan Rutter testified before your colleagues in
    the Senate and the House on the Bush Administration's vision for a
    strong national intercity passenger rail system. I believe that America
    deserves a national rail system that is driven by sound economics,
    fosters competition, and establishes a long-term partnership between
    states and the Federal Government.
        Mr. Chairman, this vision cannot be achieved without the
    fundamental reform of Amtrak. Simply put, America can no longer afford
    the status quo, and I am personally committed to working closely with
    the Congress, the states, and industry and labor leaders to develop a
    truly healthy and viable national passenger rail system.
        Finally, I want to share with you President Bush's request for our
    maritime programs. I am pleased that this Committee has recently
    received the jurisdiction of all transportation modes including
    maritime. I believe maritime transportation issues, particularly our
    ports, are critical to the success of a truly intermodal transportation
    system. Waterways, canals and rivers were one of our Nation's first
    transportation systems. From the great explorers Lewis and Clark, to
    today's Ready Reserve Force supporting our troops in the Middle East,
    maritime shipping has moved generations of people and vital supplies.
        The recent strike at our West Coast ports clearly indicated the
    importance of our ports to the national economy. This Congress can
    recognize that one of the true definitions of intermodalism and one of
    the great economic challenges of the next two decades will be our
    ability to move freight quickly and efficiently. To do so means
    recognizing that America is a maritime nation and that moving freight
    intermodally starts at the water's edge with our ports.
        The Maritime Administration (MARAD) continues to support essential
    transportation and intermodal connections for domestic and
    international trade. President Bush requests $219 million to continue
    MARAD's efforts to expand and enhance capacity of our Nation's maritime
    infrastructure. One of MARAD's continuing challenges is the disposal of
    obsolete ships that potentially pose an environmental risk to our
    nation's waterways. The 2004 budget request includes $11.4 million for
    removal of the highest risk ships.
        My prepared remarks focus on only a part of the whole picture. Yet
    each organization within the Department of Transportation contributes
    indispensably to accomplishing the goals I have outlined.
        Let me finish my testimony by returning to the issue of safety. On
    9/11 this Nation was stunned by the degree of destruction and loss we
    felt as a Nation by those horrific events. Each of us look back on that
    day and know exactly where we were when we heard the news. Yet each day
    thousands--thousands--of individuals experience their own moment of
    destruction and loss when the daily toll of death and injury occur on
    our Nation's roads and highways.
        Frankly, we have been too complacent about finding new and
    innovative ways to collaborate and end this plague on America. I invite
    this Committee to join in finding new ways and new energy for better
    solutions. Last year we created a legacy of achievement. We can do it
    again.
        Thank you again for the opportunity to testify today. My management
    team and I will work closely with you, and with the entire Congress, as
    you consider the 2004 budget and I look forward to responding to any
    questions you may have.

                            HIGHWAY REAUTHORIZATION

        Senator Shelby. Mr. Secretary, I have a number of questions
    and I think the other participants here do too.
        We have heard for months that the Department's TEA-21
    reauthorization proposal will be ready for release in 10 more
    days. Mr. Secretary, is the proposal ready to be transmitted to
    the Hill or will it be ready in 10 more days? I am interested,
    Mr. Secretary, not only because of its relevance to this year's
    budget request, but also the Banking Committee, which we have
    authorizing jurisdiction of transit and I as chair, am anxious
    to begin work on the reauthorization, to work with you on that.
        Secretary Mineta. Mr. Chairman, the budget is at the
    printers and we anticipated that well within the 10 days we
    will have all of that material to you.
        Senator Shelby. Thank you. Mr. Secretary, virtually every
    highway safety expert that we have consulted has stated that
    increasing seatbelt usage is the most important way to reduce
    highway fatalities. That is why 2 years ago Senator Murray, who
    chaired the committee then, and I worked together to dedicate
    funds for a national seatbelt paid media mobilization and
    enforcement campaigns, what are commonly referred to as click-
    it-or-ticket campaigns. The positive effects of these
    mobilizations to increase seatbelt usage rates are undeniable.
    According to NHTSA's evaluation, seatbelt usage increased by
    8.6 percent.
        In the omnibus we again set aside funds and directed NHTSA
    to continue to fund click-it-or-ticket, and also expand this
    approach to target alcohol-related driving, which we are all
    concerned about. Mr. Secretary, with the demonstrated success
    of the program, why isn't funding specifically identified in
    your budget proposal to continue these campaigns in the year
    2004? In other words, this is a program that Senator Murray and
    I and others have seen the benefit of.
        Secretary Mineta. Mr. Chairman, you are absolutely correct.
    In fact on Monday I am going to be participating in a click-it-
    or-ticket kickoff campaign. In our budget, I believe we have
    something like $204 million for occupant safety programs. What
    we want to do is to be able to increase seatbelt use. We have
    18 States that have primary laws on seatbelt use, so one of our
    efforts is to try to get more States to go from secondary to
    primary laws relating to seatbelt use. Florida last week was
    considering it, but unfortunately at the last minute they did
    not take the bill to the floor. Massachusetts, I believe did
    complete their passage of primary seatbelt law usage this last
    week. We have many of the State legislatures that are in
    session where we are working actively with them in order to get
    primary seatbelt use laws on the book.
        Senator Shelby. I know you have a long-term interest, you
    did in your legislative career in safety. You put seatbelt laws
    in use, bringing it up, pushed alcohol driving down. We are
    making progress, are we not, those two together?
        Secretary Mineta. Also on DUI (driving under the
    influence), we are bringing an increased amount in the 2004
    request where we will have $148 million to address impaired
    driving fatalities. This is to increase the number of highly
    visible sobriety checkpoints and other programs where we are
    working with the State highway patrols. In fact when Annette
    Sandberg was at the National Highway Traffic Safety
    Administration (NHTSA) she undertook a very active program
    because of her relationship with the International Association
    of Chiefs of Police and her working knowledge of being able to
    work with State agencies. So we are continuing that program
    under the 2004 budget request that Annette started at NHTSA. We
    are actively pursuing both programs as they relate to seatbelt
    usage and the whole issue of occupant protection, including a
    heavy emphasis on impaired driving.

                                    AVIATION

        Senator Shelby. A recent commission on the future of U.S.
    aerospace industry has raised serious questions about the
    competitiveness of U.S. firms in the global marketplace. It
    blamed this situation on, among other things, restrictive
    Government regulations, protectionist policies, and a failure
    to invest in technology innovation. I guess the question comes
    about, is America, Mr. Secretary, at risk of losing its
    position of preeminence in aviation?
        Secretary Mineta. This is a subject that I know that we are
    pursuing within the Department of Transportation and within the
    Administration. That is, to what extent should the Government
    be working with industry in order to promote their specific
    goals in terms of trade practices? Just yesterday there was an
    article in the Wall Street Journal about Airbus moving away
    from Pratt & Whitney and looking at just European engines. That
    is the kind of thing that I think we ought to be looking at in
    terms of our own department.
        Senator Shelby. How can the Transportation Department
    headed by you, how can you help?
        Secretary Mineta. I think we can help in terms of making
    sure that there are not any competitive impairments to our
    industries to be able to work closely with other manufacturers.
    In this instance, if there is a policy on the part of Airbus
    just to deal with, let us say Rolls Royce, or with their own
    other engine manufacturers in Europe, then I believe that kind
    of trade practice is something we ought to be earmarking as a
    subject of our interest.

             INFRASTRUCTURE PERFORMANCE AND MAINTENANCE INITIATIVE

        Senator Shelby. Mr. Secretary, infrastructure performance
    and maintenance initiative. Do you envision this program as a
    new apportionment program for the States or as a new
    discretionary program administered by FHWA?
        Secretary Mineta. The monies will go into the formula
    program. Since the $1 billion is to be used for projects that
    can be started very quickly, and if States do not use their
    apportioned amounts, then we will draw that back and then
    reshuffle that money back out to other States that are using
    the money very quickly. But it will be distributed under the
    formula that goes out to the States. To the extent that the
    States do not use the money, then we will pull it back and, as
    I say, redistribute that money back out to other States that
    are utilizing IPAM for quick projects.
        Senator Shelby. If this is a discretionary program, what
    criteria would you propose to evaluate project eligibility?
    Give us some examples.
        Secretary Mineta. Those projects will be judged very
    similar to how we judge programs under the Surface
    Transportation Program.

                FEDERAL AVIATION ADMINISTRATION REAUTHORIZATION

        Senator Shelby. The FAA reauthorization. What actions will
    FAA and the Department take to ensure the agency operates
    within the amount that you are suggesting in the next 4 years?
        Secretary Mineta. As you know, the operations account is
    something that is a very tight budget issue and Administrator
    Blakey is working on that matter as we speak. We are trying to
    make sure that we can do this without any staff layoffs, and to
    make sure that the safety of the flying public remains
    paramount. The operations budget is very key to that. Because
    of the pressures on the operations budget we are looking at all
    alternatives to make sure that we can deliver safety to the
    American flying public.

                                     AMTRAK

        Senator Shelby. Briefly, Amtrak appropriation. The 2003
    appropriations bill placed a number of new requirements on
    Amtrak's ability to obtain their Federal subsidy. I am
    interested in your thoughts on how those requirements are
    working, the interplay between FRA and Amtrak, and what, if
    any, changes that you would propose to improve your oversight
    of the railroad for the 2004 bill.
        Secretary Mineta. Mr. Chairman, the requirements that were
    placed in the omnibus bill in terms of requiring us to get a
    business plan from Amtrak, and to get definitive cost
    implementation schedules, all of that has now come to the
    Department of Transportation from Amtrak. We have found that
    this has been very helpful in terms of our formulating our 2004
    budget as well as imposing on Amtrak these kinds of
    requirements so that we will have the detailed information we
    need in order to make decisions and choices to fulfill Amtrak's
    needs. The requirements that were laid out were adhered to by
    both Amtrak and DOT, and we have found those to be very, very
    helpful.
        Senator Shelby. Thank you. I will pick it up in another
    round.
        Senator Murray.
        Senator Murray. Thank you, Mr. Chairman.
        Mr. Secretary, your FAA administrator is about to enter
    into new labor negotiations with most of her unions, and one
    thing that could certainly sour those negotiations is the
    current talk we have heard about the potential for furloughs of
    FAA employees in the current fiscal year. Those rumors of
    furloughs persist even if you were given more than 99 percent
    of what you requested for FAA Operations this year. Although
    you just said that you did not want to go that way, if you do
    not, what other belt-tightening measures are you going to
    implement in order to keep everyone on board?
        Secretary Mineta. Because of their needs, the FAA
    Administrator is trying to make sure that she takes a look at
    all of the costs that are under operations. I believe that the
    whole issue of trying to avoid furloughs is paramount as she
    does her work on operations.
        Senator Murray. Can you be more specific about what other
    things you are going to do in order to comply with the amount
    of money that you have if you do not do furloughs?
        Secretary Mineta. For instance, the whole issue of what to
    do on her telecommunications budget within the operations part
    of FAA, is being looked at along with hiring freezes.
        Senator Murray. Is there going to be a reduction in the
    available overtime for air traffic controllers this summer?
        Secretary Mineta. With a sufficient number of air traffic
    controllers, we are hoping to reduce the number of overtime
    hours. We are making sure that we have the right number of air
    traffic controllers so that we can do it without the use of
    overtime hours.
        Senator Murray. There is also another issue of retiring air
    traffic controllers and lack of backfilling for those
    vacancies. In fact we have already had controllers at one of
    our major air traffic control facilities complaining quite
    publicly actually about vacant positions that are not being
    filled and about the skies over Chicago not being safe to fly.
    Are you confident we are going to have the necessary funds to
    fill vacancies at that facility as well as sustain staffing at
    your other air traffic control facilities throughout this year?
        Secretary Mineta. On Chicago specifically, I think there is
    a problem there, but it is an issue of the management there
    utilizing the air traffic controllers in the most efficient way
    possible. I believe, that with the reports that I saw earlier,
    that there are many of the air traffic controllers who just are
    not being utilized properly because of the management team
    there. But nevertheless, I think Chicago is adequately staffed.
    The overall picture is that in order to deal with this
    retirement bubble that is coming up, we are also going to have
    302 air traffic controllers that are included in this budget.
    It takes us about 3 years to have a hired air traffic
    controller to be at a full performance level.
        Senator Murray. I would just say that I think there is a
    real concern that we are not hiring those fast enough to meet
    that 3-year requirement. So we will be watching that carefully.
        Secretary Mineta. We believe that the whole level of
    operations will not be coming back until about the year 2006,
    and because of the reduced number of operations right now, we
    feel what we are doing on hiring air traffic controllers
    anticipates that operations increase when it occurs in 2006.

                                     AMTRAK

        Senator Murray. Let me turn to Amtrak. I earlier pointed
    out that you are seeking a 22 percent cut in the total level of
    funding for Amtrak. Testimony by your Deputy Secretary
    indicates that the Administration views any amount over $900
    million as excessive and unaffordable. You still have not
    submitted the Amtrak reauthorization bill that was due last
    year, but your Deputy Secretary has testified regarding, as I
    said, some of the concepts that are going to be in your
    legislation; concepts including dramatically increased cost-
    sharing by the States for receiving Amtrak service, and a
    requirement that Amtrak compete against other potential bidders
    to operate your intercity passenger trains.
        A great deal of Deputy Secretary Jackson's testimony
    focused on the 17 so-called long distance trains that serve the
    vast majority of our country. Amtrak's annual Federal subsidy
    is over $1 billion a year and the company has almost $5 billion
    in total debt. If we eliminated those 17 long distance trains
    tomorrow, it would save the company absolutely nothing this
    year. It would take 5 years before the elimination of those
    trains even saved $200 million. The annual subsidy for these
    trains, while high on a per-passenger basis is a pittance
    compared to the Federal subsidy that is granted to the trains
    operating the Northeast corridor.
        Mr. Secretary, when you finally submit your reauthorization
    proposal for Amtrak, will we find that the Northeast corridor
    trains and the non-Northeast corridor trains will be subject to
    equal treatment?
        Secretary Mineta. Absolutely. The reason that the Northeast
    corridor gets treated differently in certain respects is
    because the underlying tracks do belong to Amtrak there. Our
    intent is to eventually have two entities; one an operating
    entity, namely Amtrak, and the other dealing with the
    infrastructure of rail.
        Senator Murray. Will there be identical cost-sharing
    requirements by the States?
        Secretary Mineta. The State would be required to agree to a
    50/50 match.
        Senator Murray. The Northeast corridor and the non-
    Northeast corridor, will their cost-sharing requirements be
    identical?
        Secretary Mineta. Let me ask. In the long-term it would be
    a 50/50 match. It would be the same cost-sharing.
        [The information follows:]

        Recently, the Department of Transportation completed its
    legislative drafting of a bill entitled the ``Amtrak System
    Stabilization, Improvement, and Streamlining through Transition Act.''
    The purpose of the bill is to undertake a restructuring of intercity
    passenger rail transportation in the United States that will allow it
    to compete successfully with other modes of transportation. We are now
    seeking final administration approval through OMB's legislative
    clearance process. The administration will work to expedite clearance
    as quickly as possible and hopes to transmit the text of the
    legislation to Congress shortly. Following the transmittal of the bill
    to Congress, we can address the question of implementation of the cost-
    sharing requirements of the Northeast corridor and the non-Northeast
    corridor.

        Senator Murray. In the long run. Will they be implemented
    on the same schedule?
        Secretary Mineta. I think what we would have to do on the
    Northeast corridor is to bring the tracks up to a level that
    would be satisfactory. Because of the lack of investment in
    infrastructure, the roadbed for the Northeast corridor needs a
    great deal of work. We feel that before we turn it over to the
    Northeast corridor companies, or the States, that we would have
    to bring those railbeds up to a certain standard.
        Senator Murray. Mr. Secretary, Amtrak is currently carrying
    $3.8 billion in long-term debt and another $1 billion in short-
    term debt. It is estimated that roughly 65 percent of that debt
    is attributable to improvements that have been made to that
    Northeast corridor. Your Amtrak reauthorization proposal is
    going to propose the development of a Federal-State compact to
    operate that Northeast corridor with the States taking on
    considerable additional requirements to operate and maintain
    that corridor. Will you be expecting this new compact between
    the Federal Government and the States in the Northeast corridor
    to take over the 65 percent of Amtrak's outstanding debt which
    is attributable to the improvements that have been made in the
    Northeast corridor?
        Secretary Mineta. Frankly, we have not determined that
    issue yet on the assumption or transfer.
        Senator Murray. I think it is a very important question,
    Mr. Secretary, and we would like to hear from you as soon as
    possible. If they are not going to take the debt, who is going
    to pay Amtrak's debts when you go into that compact? So I hope
    to hear from you.
        [The information follows:]

        Recently, the Department of Transportation has completed its
    legislative drafting of a bill entitled the ``Amtrak System
    Stabilization, Improvement, and Streamlining through Transition Act.''
    The purpose of the bill is to undertake a restructuring of intercity
    passenger rail transportation in the United States that will allow it
    to compete successfully with other modes of transportation. We are now
    seeking final administration approval through OMB's legislative
    clearance process. The administration will work to expedite clearance
    as quickly as possible and hopes to transmit the text of the
    legislation to Congress shortly. Following the transmittal of the bill
    to Congress, we can address the question of who is going to pay
    Amtrak's debts on the Northeast corridor.

                                 SOUND TRANSIT

        Senator Murray. I just have a few seconds left. I do have
    one other question I want to ask you about, Mr. Secretary,
    because Seattle is now the third most congested city in the
    Nation. Two years ago, you recommended that the proposed
    Seattle light rail project take a timeout for the purpose of
    getting its house in order, and getting the cost and scope of
    the project under control. I joined with you in that decision
    and with the help of your FTA Administrator and Inspector
    General, a lot of progress has been made. I have worked very
    carefully with Sound Transit in Seattle to ensure that they
    have reformulated their light rail project so that you and your
    staff are fully satisfied that their cost estimates and their
    construction plan are achievable. This project certainly
    reached a major milestone when your administration included $75
    million in your budget for 2004 and announced your plan to
    revise the existing Full Funding Grant Agreement.
        Can you tell me this morning, based on what you know about
    the improvements that have been made in the planning and
    financing of this project, do you currently have any
    reservations surrounding your request for $75 million in 2004?
        Secretary Mineta. Not at all. We are very confident about
    the revised plan and we appreciate your work in working with
    the Sound Transit System. I personally have a great deal of
    confidence in the Executive Director of the system there. I
    think she has gone a long way in helping both the system as
    well as the working relationships between FTA, your office, and
    the Sound Transit System, and has been able to come up with a
    great plan.
        Senator Murray. I agree. Can you tell me when you expect a
    revised Full Funding Grant Agreement to come to Capitol Hill on
    that project?
        Secretary Mineta. That is something I will have to submit
    to you. I am not sure that we have a set schedule yet.
        [The information follows:]

        On January 19, 2001, the Department of Transportation approved the
    Full Funding Grant Agreement (FFGA) for the Central Puget Sound
    Regional Transit Authority. At the time the project was approved, major
    changes in the project's tunnel alignment were being discussed. The
    Department has withheld funding for the project until a number of
    financial and timing issues are resolved and Congress had time to
    adequately review the grant agreement. On July 7, 2003, the
    Department's Office of Inspector General (IG) issued a report on its
    audit of the project. The Federal Transit Administration (FTA) has
    concurred with the IG's recommendation, stating that it will request
    that the Sound Transit Board of Directors formally agree to actions
    specified in the IG's recommendations. FTA will closely monitor Sound
    Transit's continuing financial responsibility to operate, maintain and
    reinvest in its existing transit system as well as the Initial Segment,
    as is the practice under all FFGAs. Further, FTA will not execute the
    FFGA prior to written notification from the Sound Transit Board of
    Directors of their agreement to take the actions specified by the IG.

        Senator Murray. All right. Thank you very much, Mr.
    Secretary, and thank you, Mr. Chairman.
        Senator Shelby. Senator Campbell.

                                HOURS OF SERVICE

        Senator Campbell. Thank you, Mr. Chairman. I would like to
    ask the Secretary one general question about hours of service
    and something specific to Colorado before my time is up.
        Mr. Secretary, very frankly, I have to tell you, I think
    the people that wrote the revision of hours of service neither
    know the significance of the trucking industry in America or
    the precarious position they are in; either one. I understand
    that over 1,000 companies, trucking companies went out of
    business last year, went into bankruptcy. I know that
    repossession of trucks are at an all-time high. Even with that,
    there are a shortage of drivers even for the remaining trucks.
    It is something like 95 percent of everything that moves in
    America, every portable thing that you can think of travels on
    a truck. So I think it is a very significant industry and I am
    really concerned about this change of hours of service.
        I would like you to, if you could, tell me, tell the
    committee where the rulemaking has changed and where we are on
    it.
        Secretary Mineta. Senator Campbell, as you know, this rule
    was released about 3 weeks ago, I believe. The effective date
    of the Hours of Service rule will be January 4, 2004. I think,
    from what I can gather, since we had issued the original notice
    of proposed rulemaking we got something like 53,000 comments
    during the comment period. The Federal Motor Carrier Safety
    Administration went through all of those comments.
        Senator Campbell. How many of the 53,000 would you say were
    supportive or opposed to changing?
        Secretary Mineta. As I recall, we had a substantial
    percentage of the 53,000 that were supportive of the rule. This
    is the first time since I believe 1939, that we have revised
    the hours of service rules in a significant way. This rule is
    supported by the American Trucking Association. I think the
    major opposition comes from the independent drivers.
        Senator Campbell. The ATA represents the large fleets. I
    think it is called OOIDA or something, represents the little
    guys, the ones I am really concerned about losing their homes.
        It is also my understanding though that these hours of
    service are almost impossible to monitor with the Mexican
    trucks that will be coming north now under the NAFTA agreement.
    They have a log book, but they do not have to keep up with them
    in Mexico.
        Secretary Mineta. They will be subjected to the same
    requirements once they are able to come in to the United
    States. We intend to enforce the law on hours of service
    against the Mexican drivers as we would U.S. drivers, or
    Canadian drivers.
        Senator Campbell. Thank you. I guess the proof will be in
    the pudding to see if it works or not. I am absolutely
    convinced though it is not going to work to the benefit of
    either drivers or small truck owners, or to the country at
    large that has to do a lot of shipping.

                        COLORADO BLOOD-ALCOHOL STANDARDS

        Let me ask just a couple related to Colorado. Colorado is
    one of the few States that has a two-tier system relating to
    blood-alcohol content. We have a driving while ability impaired
    is a lesser charge where the blood alcohol content is less than
    .05 percent and .09 percent. During the authorization of TEA-21
    Federal funds were tied to each State requiring them to lower
    the blood alcohol content to .1 percent if the States did not
    change their laws. If they did not then the States were going
    to be penalized and funds withheld. That is going to cost
    Colorado about $50 million a year.
        If the Colorado law already requires a stricter requirement
    under blood alcohol content, why should the State be penalized,
    if it is more strict than the Federal requirement now?
        Secretary Mineta. Senator, I will have to get together with
    you on that because I am not familiar with the requirement.
        [The information follows:]

        To qualify for an incentive grant under Section 163, and to avoid a
    sanction under Public Law 106-346-Appendix, sec. 351, 114 Stat. 1356A-
    34, 35 (Section 351), a State must enact and enforce a law that
    provides that any person with a blood alcohol concentration of 0.08
    percent or greater while operating a motor vehicle in the State shall
    be deemed to have committed the per se offense of driving while
    intoxicated or an equivalent per se offense.
        The State of Colorado does not currently have a driving while under
    the influence (DUI) per se law that is stricter than the requirements
    of 23 U.S.C. Section 163 or that meets the requirements of Section 163.
    The State's standard DUI per se offense applies at .10 BAC (Colo. Rev.
    Stat. Sec. 42-4-1301(6)(a)). The .05 to .09 provisions relate to
    permissible inferences that are not a part of Colorado's DUI per se
    law. Rather, the inferences allow the evidence of a person's blood
    alcohol concentration to be deemed relevant and possibly admitted in a
    prosecution for DUI or driving while ability impaired (DWAI). These
    inferences are merely permissible, not mandatory. Accordingly, these
    provisions cannot be utilized by the State of Colorado to demonstrate
    compliance with the requirements of Section 163.

                                     ASR-11

        Senator Campbell. All right, I appreciate that. One other
    one you may have to look up. We have an airport that has been
    waiting for years and years to get a radar system called an
    ASR-11. I know Senator Murray also has been waiting, and
    Senator Stevens too. I understand that that radar system, there
    are some concerns about its viability and that has really
    halted the installation. Could you give me a status report on
    the certification of that ASR-11? You probably do not have that
    right there in your notes either, but if you could get back to
    me. The county that I have been working on for years trying to
    get one is called Eagle County, right in the middle of those
    mountains. Very predictably dangerous place to land when we
    have high peaks all around and bad snowstorms and so on. So I
    would appreciate it if you could----
        Secretary Mineta. I will get back to you on that, sir.
        [The information follows:]

        ASR-11 is a joint FAA and Department of Defense procurement program
    intended to replace aging Airport Surveillance Radar Models 7 and 8,
    which are nearing the end of their service life and becoming more
    difficult to maintain. The ASR-11 system is an integrated system that
    includes a primary radar system and associated beacon system. The ASR-
    11 will provide digital radar input to new automation systems such as
    Standard Terminal Automation Replacement System (STARS).
        Results of operational tests have proven the system suitable for
    operational use. The FAA proposes to formally certify the ASR-11 system
    for national use by August 2003.
        The FAA has met with Eagle County Airport and Eagle County
    Commissioner representatives to discuss possible surveillance solutions
    to address Eagle County's air traffic surveillance needs. Work is
    continuing with local and regional personnel to define and evaluate
    potential improvements. A recommendation and business case is expected
    by November 2003.

        Senator Campbell. All right, thank you. I have no further
    questions, Mr. Chairman.
        Senator Shelby. Senator Brownback.

                       STATEMENT OF SENATOR SAM BROWNBACK

        Senator Brownback. Thank you, Mr. Chairman. I appreciate
    being able to join your subcommittee for the first time. It is
    a pleasure to be here. Mr. Secretary, glad to have you here as
    well.
        Secretary Mineta. Thank you, sir.

                               AVIATION INDUSTRY

        Senator Brownback. I want to focus my comments on two
    areas. One is on the aviation industry itself. I understand the
    chairman made some comments about this as well. Wichita, in my
    State, the general aviation manufacturers in that State are
    headquartered in Kansas. Boeing has a huge plant in the State.
    This has been an industry that has been decimated in recent
    times. We had 30 percent layoffs, employment layoffs. That is
    bad enough. But it is an industry that is somewhat use to the
    cyclical nature. At least the general aviation manufacturers,
    not so much Boeing.
        But when I met with the industry leaders in December
    something really troubling came up. I had all the leaders of
    the industry in a meeting and they were saying--they are used
    to in general aviation, the gamma groups are is the used to
    kind of an up and down nature of the industry.
        But what they are seeing take place is that as they are
    strapped for cash, they are needing research money to develop
    the next wave of products, the next wings, the next engines,
    the next fuselage of the products. They are having countries
    come to them and saying, we will pay for the research and the
    development of the wing, a Japanese company but it is backed by
    the government. Saying, we will pay for the development of the
    wing of this new product, but you have to manufacture the wing
    then in Japan.
        Or China is doing a similar sort of push where the
    government is paying for the research and then using that as a
    hook to leverage the jobs coming to that country, to where the
    industry may be fundamentally restructuring now, as we speak,
    because the companies are strapped for cash. They are strapped
    to make the next wave of products. They need the research money
    to get the next wave of products, and they are getting it from
    foreign governments that are being backed by companies there
    that are then saying, we have to manufacture the wing or the
    engine or whatever the piece may be.
        So we may end up being just an assembler of aviation
    products rather than the developer and lose all the jobs
    underneath the system. So at the end of the day, the product
    still comes out of Wichita, but it did not really come out of
    Wichita. It came out of China or Japan or India or Europe.
        To me this is a very troubling trend. We have been a
    leading aviation researcher, manufacturer since flight began,
    since the Wright brothers. It seems to me that we are on the
    edge of losing that. Five years ago, if the numbers I have are
    correct, we put about $1 billion a year into aviation research
    as a government. This is a combined set of sources. NASA had a
    major piece of that. Now we are about $500 million a year, so
    we have cut that in half at the same time the rest of the world
    is investing.
        Now you can say, okay, it is another manufacturing set of
    jobs; maybe we are going to end up losing those too. But these
    are the highest wage, highest skilled manufacturing jobs in the
    world. People bid heavily for them. What I think we are doing
    is we are in the process of losing them by virtue of not paying
    attention.
        If we were losing them just as direct company on company
    competition, I can handle that. But not if it is a government-
    subsidized research basis on it, and then the company coming in
    privately. If that is the case, we either should back them down
    in trade negotiations or we should subsidize.
        So I am coming to you with this issue. I put forward a bill
    with Senator Hollings and the Commerce Committee, Second
    Century of Flight. Calls for a coordinator on the overall
    aviation research. It calls for more investment in aviation
    research. It calls for incentives to draw the next wave of
    engineers into aviation research. It is Senate bill 788. It has
    cleared through Commerce Committee as the authorizing. All but
    one title of it has cleared through the Commerce Committee. I
    would ask that you would look at that and I would hope would
    aggressively get behind it or something like it, because we are
    really losing this business.
        And I would appreciate it if you would be willing to
    consider bringing in these aviation business leaders in a
    roundtable. I think they would be more than willing to come, or
    gather at the conference, a conference call, and ask them the
    same questions about the restructuring of the industry, because
    this is happening right below the surface. The company stays in
    Wichita but the product and the jobs are actually coming in
    from other places. It should not be happening that way. I would
    hope you could back more in the way of aviation research or
    specifically this bill.
        If you would care to comment, I would appreciate it.

                           AVIATION RELATED RESEARCH

        Secretary Mineta. As I understand it, Titles I, II, and III
    of your bill were incorporated into the aviation
    reauthorization legislation that the Commerce Committee took up
    last week.
        Senator Brownback. That is right.
        Secretary Mineta. We look forward to working with the
    committee on the structure as you have outlined it in S. 788.
        This issue goes back to something earlier that the Chairman
    mentioned and Senator Murray has an interest in as well. That
    is, to what extent can we do Federal research, without being
    accused of subsidizing the aviation industry? This is something
    that we deal with the European Union on all the time. When we
    went through the Aviation Stabilization Act and we reimbursed
    airlines for losses in that period subsequent to September
    11th, the Europeans were complaining that we were subsidizing
    our airlines in terms of their operations. All we were saying
    was, we were reimbursing them for their operational losses as a
    result of my grounding all the planes on the 11th of September,
    and for that subsequent period before the airlines got back
    into operation.
        Whenever we get into research, we do research on wings and
    to the extent that Boeing uses that research to build a plane,
    or Gulfstream, or Beech, or anyone else, then we get accused of
    subsidizing the firms. The earlier question that the Chairman
    was asking is something that I want to get into because I think
    that, as you have indicated, we have somewhat lost our
    technology edge in terms of aviation.
        I remember being on the Science Committee in the House and
    I remember saying to Dan Goldin, what happened to the ``A'' in
    NASA? It was National Aeronautic and Space Administration
    (NASA), but the aviation budget was going down, down, and down.
    I was fearful that it was going down so much that Langley,
    Wright-Patterson, and Ames Research Center at Moffett Field
    would also be cut back. I believe that the problem with NASA,
    is that their research budget still goes down because all of it
    is being sucked up by the space station. The FAA's research
    program is done mostly by NASA.
        Senator Brownback. If I could ask you, because the time is
    so short, if your agency could really start a study of what is
    taking place, because if other countries are doing this, then
    we should start a trade action against them. Particularly
    Boeing, we are down to now 50 percent or below of market share,
    and that is all by a subsidized Airbus that has come in and
    taken that market share. We should be taking trade actions
    against Airbus. I would hope your agency would push on that. Or
    if we are not going to do that, that we would equal the
    European subsidy and then make them sue us in the trade courts.
        Secretary Mineta. You are absolutely correct, Senator
    Brownback. About 4 months ago, I had asked our Under Secretary
    for Policy to start taking a look at this whole issue. Then
    yesterday, there was a article in the Wall Street Journal about
    Airbus pulling back from Pratt & Whitney so they could look
    exclusively at European engines. That prompted me to tear that
    article out and send it to Jeff Shane to, again, make sure that
    we are pursuing this issue.
        [The information follows:]

        The Department of Transportation continues to closely monitor
    issues concerning possible subsidies and potential unfair trade
    actions. In all cases of possible unfair trade practices, the
    administration seeks compliance with international trade obligations
    and is prepared to employ appropriate bilateral and World Trade
    Organization mechanisms to achieve that outcome.

        Senator Brownback. I would urge it. I have got an issue I
    will submit to you for the record of short line railroads and
    the need for help on short lines, because on moving freight
    that are key for a State like mine. But I will submit that.
        Mr. Chairman, thank you.
        Senator Shelby. Thank you, Senator.

                              NEW ENTRANT PROGRAM

        Mr. Secretary, I have a few more questions. You have been
    very patient. The FMCSA budget proposes a total of $33 million
    for implementation of the new entrant program. Given that there
    are approximately 50,000 new entrants every year now, how many
    audits does the Department actually expect to conduct if this
    program is fully funded?
        Secretary Mineta. Mr. Chairman, I am not sure.
        Senator Shelby. Do you want to get back with me on that?
        Secretary Mineta. I will get back to you on that, sir.
        [The information follows:]

        FMCSA will conduct safety audits on all new entrants within the
    first 18 months of carrier operations consistent with current law and
    regulation. The agency anticipates that 31,800 audits will be conducted
    in fiscal year 2004. This will be accomplished using both Federal and
    State safety inspectors: State inspectors will conduct an estimated
    19,800 audits and Federal personnel an estimated 12,000 audits. The
    balance of audits will be completed within the first 6 months of the
    following fiscal year, consequently meeting the 18-month legislative
    requirement to conduct audits on the full estimated annual population
    of 50,000 carriers. This program will continue on a cyclical basis as
    approximately 40,000-50,000 new entrants are expected to apply for
    interstate operating authority annually.

        Senator Shelby. I just want to add this to it. If we cannot
    expect to conduct an audit of every new entrant, what
    consideration has been given to phasing in the program or
    setting up some sort of criteria for prioritizing these new
    entrants that will be audited? You can do that for the record.
        Secretary Mineta. We will include that as well.
        [The information follows:]

        FMCSA will conduct safety audits on all new entrants. With the
    funds requested in fiscal year 2004, FMCSA will ramp-up the New Entrant
    program by hiring 67 contracted auditors and 32 oversight personnel;
    make facilities improvements; and train Federal, contract, and State
    staff.
        Audits will be conducted on a first in/first out rolling basis. New
    entrants will be audited no sooner than 90 days after they start
    operating. This will provide FMCSA with a 90-day window to obtain
    roadside inspection data from the new entrants, as well as allow
    carriers time to stabilize their safety processes after starting their
    new businesses. FMCSA will contact these carriers at the 90-day point
    with the intent of completing the audit as close to that point as
    possible.
        By the end of the third quarter of fiscal year 2004, the program
    should be operating at full capacity and FMCSA plans to cover any
    backlog of audits not completed in fiscal year 2004 during the first 6
    months of fiscal year 2005 in order to meet the 18-month legislative
    requirement to conduct audits on the full population of carriers
    subject to an audit.

                    MARITIME ADMINISTRATION TITLE XI PROGRAM

        Senator Shelby. Title XI, guaranteed loan program; get into
    that. What plans, if any, do you have to help assist the
    shipping industry in securing financing? You are familiar with
    the program, the MARAD program?
        Secretary Mineta. Yes, sir. The only one we have right now
    is the Title XI program.
        Senator Shelby. It has taken a downturn. Since 2000, the
    program has paid out almost $500 million in defaulted loans.
    What steps are you taking to help get this program back on
    track?
        Secretary Mineta. This has been a real issue because I
    think we have had defaults amounting to something like $489
    million.
        Senator Shelby. It is a lot of money, $500 million.
        Secretary Mineta. Yes, sir. I believe we are requesting
    $4.5 million in the 2004 budget in this program. We are looking
    at the recommendations that will be forthcoming from an
    Inspector General report on this whole issue of the Title XI
    program.

                             FAA OPERATIONAL ERRORS

        Senator Shelby. In 2001, FAA began replacing air traffic
    control supervisors with controllers who assume supervisory
    duties and were designated as controllers in charge (CIC).
    According to an Inspector General's April 2003 report, the
    number of operational errors that occurred while a CIC was
    supervising an area in calendar year 2001 increased 46 percent
    compared to calendar year 2000. Has FAA determined the reason
    for the increase? If so, do you know what corrective actions
    the FAA leadership have taken or has planned? If you do not
    know offhand, you can get back to me.
        Secretary Mineta. Let me get that for the record.
        [The information follows:]

        The Federal Aviation Administration investigates all incidents
    involving operational errors. In the course of these investigations,
    the agency looks for causal factors and makes appropriate adjustments
    to correct identified problems, which may affect safety. Since the CIC
    expansion in January 2001, FAA has not seen the program impact safety
    and has not seen an increase in operational errors. In fact, the
    records show an overall decrease in operational errors of 11 percent
    from fiscal year 2001 to 2002. Below is a table that reflects the data
    for fiscal year 2001-May, 2003.

    ------------------------------------------------------------------------
                                                        Operational Errors
    ------------------------------------------------------------------------
    Fiscal year 2001...............................                    1,193
    Fiscal year 2002...............................                    1,061
    Fiscal year 2003 (through May).................                      714
    ------------------------------------------------------------------------

        Senator Shelby. Absolutely. Forty-six percent is a big
    number.

                              AIRPORT COMPETITION

        Airport competition. Secretary Mineta, AIR-21 included a
    provision that prevents certain large and medium hub airports
    from receiving AIP funds or collecting new PFCs unless they
    submit competition plans to the Department of Transportation.
    It is my understanding that each year these airports must
    submit competition plans on an annual basis and are required to
    provide detailed information on an extensive list of items.
        I will support any proposal that will increase competition
    in the commercial airline industry. Are you aware if air
    carriers have received access to gates and other facilities as
    a result of the competition plan requirements?
        Secretary Mineta. I know the competition plans are being
    submitted, that those plans have opened up opportunities for
    new entrant carriers----
        Senator Shelby. It is so important; competition.
        Secretary Mineta. Where you have a dominant carrier, they
    will probably be at gates 1 through 43, and the new entrant
    carrier will be at gate number 89. That is part of the whole
    issue that we are trying to deal with in having the airports
    submit these competition plans, so that we can make sure that
    the playing field is level.
        Senator Shelby. Absolutely.
        Secretary Mineta. Especially today with traffic being down.
        Senator Shelby. Is it having an effect yet? Because that is
    the bottom line.
        Secretary Mineta. I do not think so yet, because a number
    of the gates are still retained by carriers and they will not
    release them.
        Senator Shelby. They will not release them although they do
    not need them?
        Secretary Mineta. Right. But, I suppose where the airlines
    have what they call a majority in interest clause, the dominant
    carrier can be pretty aggressive in determining when they
    release those gates.
        Senator Shelby. Absolutely. We found that out here from
    oversight. But at the same time, it stifles competition.
        Secretary Mineta. That is right. You are absolutely
    correct.
        Senator Shelby. What we are interested in, and you are too,
    is competition in the marketplace.
        Secretary Mineta. Right.
        Senator Shelby. We all benefit, do we not? All the airlines
    will ultimately benefit because they will have to change their
    business model to compete, or disappear. That is the nature of
    the business. It is tough.
        I saw that the Department included a placeholder for
    competition plans in its FAA reauthorization proposal. Are you
    proposing to expand, Mr. Secretary, the current requirements?
    If so, is it necessary?
        Secretary Mineta. I am not sure what you are referring to
    under placeholder.
        Senator Shelby. Competition plans, we saw that the
    Department included a placeholder for competition plans in its
    FAA reauthorization proposal. The question is, are you planning
    to, or proposing to expand the current requirements? The
    placeholder, we wonder what is going to happen there?
        Secretary Mineta. Let me find out. Mr. Chairman, it is my
    understanding that the Administration, I assume through the
    Domestic Policy Council, is looking at the whole issue of the
    airline industry as it is today. So part of this whole effort
    is to deal with the competition that exists. It is my
    understanding that this was just a placeholder put in place for
    the Administration to eventually come up with a program
    relating to competition in the airline industry.
        [The information follows:]

                     U.S. Department of Transportation,
                     Office of the Secretary of Transportation,
                                          Washington, DC, May 20, 2003.
    The Honorable John McCain,
    Chairman, Committee on Commerce, Science, and Transportation, United
            States Senate, Washington, DC, 20510.
        Dear Mr. Chairman: The Department of Transportation requests your
    Committee's consideration of the enclosed two legislative proposals for
    inclusion in pending bills to reauthorize activities of the Federal
    Aviation Administration (H.R. 2115 and S. 824).
        The two proposals are intended to strengthen the ability of United
    States air carriers to compete domestically and internationally. The
    effects of September 11 on airline traffic and, consequently, on the
    financial health of U.S. air carriers have been exacerbated by the war
    in Iraq and by SARS. Given the growing external pressures to which
    aviation is being subjected, the Department has continued to identify
    ways to give U.S. airlines the tools necessary to respond to market
    forces since Secretary Mineta transmitted our FLIGHT-100 Act proposal
    to Congress in March.
        The proposal to allow greater access to foreign capital markets
    would expand the resources potentially available to U.S. carriers as
    they restructure their operations in response to the challenges of
    today's domestic and international aviation realities. Raising the
    ceiling on the percentage of voting shares that can be owned by foreign
    citizens (without changing the requirement that U.S. carriers be
    controlled by U.S. citizens) would be consistent with foreign
    investment restrictions that apply to airlines in European Union
    countries and those of other U.S. bilateral partners. Achieving a
    consistent approach in the investment area could facilitate the United
    States' reaching new aviation agreements, thus expanding opportunities
    for U.S. carriers.
        The second proposal would expand the number of airports covered by
    the requirement (added by AIR-21 in 2001 to title 49) requiring certain
    large and medium hub airports to submit a plan for increasing
    competition along with any PFC request or AIP grant application. The
    expansion would be from approximately 38 to 50 airports, including
    large gateway airports that are not now covered.
        The Department has devoted a considerable amount of time to
    reviewing competition plans and offering suggestions as to what actions
    airport officials could take to enhance competitive airport access. As
    a result of the plan filings and suggestions by the Department, some
    positive pro-competitive steps have been taken at the 38 airports
    required to file a plan. Such steps include making gates and related
    facilities more available and access requirements more transparent,
    pre-approving leasing and subleasing arrangements, monitoring gate use,
    converting exclusive-use gates to common-use and recapturing unutilized
    gates. Low-fare air carriers benefited from the competitive actions by
    airport officials. In this regard, at 29 of the 38 airports, new or
    expanded entry/service has occurred. Large air carriers have also
    benefited through new lease arrangements and gate-change
    accommodations.
        To build on the success of the AIR-21 competition plan requirement,
    we are proposing to expand the number of airports required to file a
    plan to include all large hub airports. This expansion will capture
    several facility-constrained airports. We are also proposing that
    airports (1) actively monitor how frequently their gates are used, (2)
    develop uniform gate-assignment protocols and notify all carriers when
    gates become available, (3) adopt fair sublease arrangements, (4)
    develop procedures to disapprove proposed subleases that would restrain
    competition, (5) prevent the use of majority-in-interest clauses that
    limit the airport's ability to develop projects necessary to enhance
    carrier access, and (6) implement dispute resolution procedures. These
    additional requirements will provide a framework by which all air
    carriers are given full, fair and transparent competitive airport
    access.
        We appreciate the Committee's support to date for the Department's
    proposal transmitted on March 25 and would ask for favorable
    consideration of the enclosed proposals. The Office of Management and
    Budget advises that it has no objection, from the standpoint of the
    Administration's program, to the submission of these proposals to the
    Committee for its consideration.
                Sincerely yours,
                                                      Kirk K. Van Tine.

    SEC. __. AIR CARRIER CITIZENSHIP.

        Section 40102(a)(15)(C) of title 49, United States Code, is amended
    by striking ``75'' and inserting ``51''.

    SEC. __. COMPETITION PLANS.

        (a) Section 47106(f) of title 49, United States Code, is amended--
                (1) in paragraph (2) by--
                        (A) adding the following after ``gate-assignment
                    policy,'': ``requests for access or accommodation by
                    new entrant and incumbent carriers, responses thereto,
                    and reasons for any denials of such requests,''; and
                        (B) adding a new sentence at the end of the
                    paragraph as follows: ``A competition plan under this
                    subsection shall also include a justification as
                    reasonable and not unjustly discriminatory (i) for any
                    differential or variance in fees and/or terms of use
                    for gates and associated facilities (including
                    overnight parking) charged to existing and prospective
                    carriers, respectively; and (ii) for any failure to
                    provide access, such as by undertaking the activities
                    listed in subparagraph (4) below within 90 days of a
                    carrier's request.'';
                (2) in paragraph (3), by striking subparagraphs (A) and (B)
            and inserting the following:
                        ``(A) that has more than .25 percent of the total
                    number of passenger boardings each year at all such
                    airports and at which 1 or 2 air carriers control more
                    than 50 percent of the passenger boardings; or
                        ``(B) that has more than 1 percent of the total
                    number of passenger boardings each year.''; and
                (3) by inserting at the end new paragraphs (4), (5) and (6)
            as follows:
                ``(4) Gate availability.--In the case of a covered airport,
            as defined in paragraph (3) of this section, the airport owner
            or operator shall demonstrate that it will make gates and
            related facilities (including overnight parking) available, and
            otherwise provide access to new entrant and other requesting
            carriers by, e.g., undertaking the following activities:
                        ``(A) developing dispute or complaint resolution
                    procedures including timelines, to resolve complaints
                    by new entrants or other requesting carriers about
                    access;
                        ``(B) specifying and publishing requirements for a
                    new entrant to acquire a gate and for an incumbent
                    carrier to expand;
                        ``(C) providing an airport competitive access
                    liaison;
                        ``(D) developing procedures to monitor actual
                    utilization of all gates and overnight parking
                    positions and to make this data available to the
                    Secretary and to the public;
                        ``(E) maintaining a uniform policy of notifying all
                    carriers (both incumbents and potential new entrants),
                    of gate availability and having fair and transparent
                    gate assignment protocols, including timelines for
                    access;
                        ``(F) adopting comparable policies and procedures
                    for subleasing of gates by tenant carriers;
                        ``(G) adopting dispute resolution procedures,
                    including timelines, for disputes about sublease fees,
                    terms, and conditions, including ground handling;
                        ``(H) adopting caps on sublease fees and ensuring
                    that non-tenant fees do not include charges for
                    unneeded services;
                        ``(I) adopting policies to review and approve or
                    disapprove proposed subleases with explicit authority,
                    in current and future lease agreements, to disapprove
                    proposed subleases that would restrain competition by a
                    new entrant air carrier, a carrier offering competitive
                    service, or a carrier that is not dominant at the
                    airport;
                        ``(J) making majority-in-interest clauses in air
                    carrier lease and use agreements inapplicable to an
                    airport development project necessary to enhance access
                    by an air carrier; and
                        ``(K) posting the submitted competition plans
                    required under this subsection and the comments of the
                    Secretary in a publicly available location, including a
                    website if such internet website exists.
                ``(5) Plan approval.--The Secretary may disapprove a
            competition plan that is not in accordance with this subsection
            and guidance established by the Secretary. The Secretary shall
            provide written notification of the disapproval to the sponsor,
            which shall include specific findings regarding the basis for
            the disapproval.
                ``(6) Witholding approval.--(A) The Secretary may withhold
            approval of an application under this subchapter for amounts
            apportioned under section 47114(c) and (e) of this subtitle
            following disapproval of a plan under subparagraph (4) only
            if--
                        ``(i) the Secretary provides the sponsor or a
                    covered airport 30 days to address specific findings in
                    the notice of disapproval;
                        ``(ii) the Secretary provides the sponsor of a
                    covered airport an opportunity for a hearing; and
                        ``(iii) not later than 180 days after the later of
                    the date of the application or the date the Secretary
                    notifies the sponsor of the disapproval of the plan,
                ``(B) The 180-day period may be extended by--
                        ``(i) agreement between the Secretary and the
                    sponsor; or
                        ``(ii) the hearing officer if the officer decides
                    an extension is necessary because the sponsor did not
                    follow the schedule the officer established.
                ``(C) A person adversely affected by an order of the
            Secretary withholding approval may obtain review of the order
            by filing a petition in the United States Court of Appeals for
            the District of Columbia Circuit or in the circuit in which the
            project is located. The action must be brought not later than
            60 days after the order is served on the petitioner.''
        (b) Section 47107(a) is amended--
                (1) in paragraph (1) at the end of the sentence, by adding
            ``, which includes providing competitive access.'';
                (2) by adding at the end the following new paragraph:
                ``(21) in the case of a covered airport, as defined in
            section 47106(f)(3), the airport owner or operator will
            demonstrate that it will make gates and related facilities
            (including overnight parking) available and otherwise provide
            access to new entrants and other requesting carriers by
            undertaking the following activities:
                        ``(A) developing dispute or complaint resolution
                    procedures, including timelines, to resolve complaints
                    by new entrants or other requesting carriers about
                    access;
                        ``(B) specifying and publishing requirements for a
                    new entrant to acquire a gate and for an incumbent
                    carrier to expand;
                        ``(C) appointing an airport competitive access
                    liaison;
                        ``(D) developing procedures to monitor actual
                    utilization of all gates and related overnight parking
                    positions and to make this data available to the
                    Secretary and to the public;
                        ``(E) maintaining a uniform policy of notifying all
                    carriers (both incumbents and potential new entrants),
                    of gate availability, and having fair and transparent
                    gate assignment protocols, including timelines for
                    access;
                        ``(F) adopting comparable policies and procedures
                    for subleasing of gates by tenant carriers;
                        ``(G) adopting dispute resolution procedures,
                    including timelines, for disputes about sublease fees,
                    terms, and conditions, including ground handling;
                        ``(H) adopting caps on sublease fees and ensuring
                    that non-tenant fees do not include charges for
                    unneeded services;
                        ``(I) adopting policies to review and approve or
                    disapprove proposed subleases with explicit authority,
                    in current and future lease agreements, to disapprove
                    proposed subleases that would restrain competition by a
                    new entrant air carrier, a carrier offering competitive
                    service, or a carrier that is not dominant at the
                    airport;
                        ``(J) making majority-in-interest clauses in air
                    carrier lease and use agreements inapplicable to an
                    airport development project necessary to enhance access
                    by an air carrier; and
                        ``(K) posting the submitted competition plans
                    required under section 47106(f) and any comments of the
                    Secretary on the plan in a publicly available location,
                    including a website if such internet website exists.''.
        Sec.__. Air Carrier Citizenship. This provision raises the maximum
    percentage of an air carrier's voting stock that can be held by foreign
    citizens (in the aggregate) from 25 percent to 49 percent. The change
    is intended to create greater access for U.S. airline companies to the
    global capital marketplace without affecting any requirements in
    current law or Department of Transportation precedent that are intended
    to ensure that U.S. airlines are controlled by U.S. citizens. The
    amendment would bring U.S. foreign investment restrictions into line
    with those of the European Union and other countries.
        Sec. __. Competition Plans. This section would expand covered
    airports to all large hub airports in addition to those medium hubs
    that have two or less carriers with 50 percent or more of boardings. It
    would clarify that compliance with the existing AIP grant assurance on
    reasonable access includes providing competitive access. It also would
    require a new AIP grant assurance to increase opportunities for
    competition at covered airports and the use of gates and related
    facilities at these airports by requiring covered airports to develop
    dispute resolution procedures, publish requirements for gate access,
    appoint a competitive access liaison, monitor usage of gates and
    aircraft parking positions, notify carriers of the availability of
    gates and of sublease opportunities on a uniform basis, adopt fair
    protocols for gate assignment and for processing of subleases, adopt
    caps on sublease fees, develop procedures to disapprove proposed
    subleases that would restrain competition, prevent the use of majority-
    in-interest clauses to airport development projects necessary to
    enhance air carrier access, and to post the competition plan on the
    airport's web site. Covered airports would be required to provide
    information on these initiatives in their competition plans and to
    justify any differences in the fees and/or terms of use imposed on
    existing and prospective carriers, respectively, and on any failure to
    provide access within 90 days of a carrier's request. Non-covered
    airports would be encouraged to adopt these initiatives and procedures
    and would be expected to rectify any practice that is found to hinder
    access. This section would also provide explicit authority to the
    Secretary for disapproval of a competition plan and would establish
    hearing procedures for covered airports whose AIP entitlement funds are
    withheld based on a competition plan disapproval.

        Senator Shelby. Mr. Secretary, this will be my last
    question hopefully. This is in the transit area.

                            TRANSIT REAUTHORIZATION

        I must tell you that I am disappointed in what I am hearing
    about the transit reauthorization. I am especially interested
    in transit this year because, as you know, I chair the Banking
    Committee and I am involved with Senator Murray very much in
    transit on this committee. I would hope that you would take a
    fresh look, Mr. Secretary, at the transit program and propose
    modifications that would improve rural connectivity, improve
    project oversight, provide more tools and options for States,
    urban centers, and localities in dealing with their transit
    challenges, and to nudge the program toward providing
    comprehensive transportation solutions as opposed to transit
    band-aids.
        I would have thought that the budget constraints you faced
    in formulating your proposals would have pushed you at least in
    some of these directions. I am hearing that the only thing the
    Administration's proposal is likely to do is call for greater
    reliance on formula programs, and for program growth to come
    from innovative financing. That concerns me. What is innovative
    financing? Can you tell us what considerations you think are
    most important in improving the transit program?
        Secretary Mineta. First of all, this has been an interest
    of mine for quite awhile. As you will recall, when we had ISTEA
    we changed the name of UMTA, the Urban Mass Transit
    Administration to FTA, the Federal Transit Administration, in
    order to point out that transit is not only an urban matter but
    it is a rural issue as well. This has been an interest of mine,
    and this year in our 2004 submission we increase. For transit
    we increase that by 20 percent as it relates to rural areas.
    That includes the rural representation on MPOs as well in terms
    of how rural representation gets treated in the MPOs.
        So I think that what we are trying to do is to make sure
    that there is what you refer to as rural connectivity. This is
    something that the Administration is interested as well.
        Senator Shelby. Thank you. Senator Murray.

                           AIRLINE INDUSTRY SUBSIDIES

        Senator Murray. Thank you, Mr. Chairman. I just have one
    comment and one question. My comment is that I second what
    Senator Brownback was discussing with you in terms of the
    airline industry. We are deeply concerned about the impact of
    subsidies, and I hope that you pursue this with the Trade
    Secretary Representative, Ambassador Zoellick, and have a
    conversation with him about this because I think we are setting
    ourselves up for a very bad place if we do not seriously take a
    look at this. I look forward to working with you on that.

                                SOUTHERN BORDER

        Let me just ask you, because 2 years ago this subcommittee
    imposed a number of strict new safety requirements that had to
    be met before you could allow Mexican trucks into the United
    States. According to the IG, you have fulfilled every one of
    those safety requirements. But as soon as that took place, the
    Ninth Circuit Court of Appeals ruled that you could not open
    the border because the Administration never prepared the
    required environmental impact statement. Just a few weeks ago,
    you asked the Ninth Circuit to rehear that case. Your request
    was denied and you now appear to have a choice between
    appealing to the Supreme Court on this or going forward and
    preparing the environmental impact statement. I wondered which
    course you were going to take?
        Secretary Mineta. We have not decided that yet. We have
    until the 9th of July, I believe, in order to make a decision.
        Senator Murray. If the Supreme Court hears an appeal, it is
    likely that you will not get a decision well into 2004. Have
    you looked at the fact that it might be much more timely to go
    ahead and do the environmental impact statement?
        Secretary Mineta. I think we are looking right now at the
    time that it would take to complete the environmental impact
    statement (EIS) as compared to appealing. We have not come to a
    decision yet on which approach to take.
        Senator Murray. Thank you, Mr. Chairman.
        Senator Shelby. We are joined by Senator Stevens, the
    chairman of the full committee. Senator Stevens.

                        STATEMENT OF SENATOR TED STEVENS

        Senator Stevens. Thank you very much. It is nice to see
    you, Mr. Secretary.
        Secretary Mineta. Good to see you, sir.

                                TRUCK MONITORING

        Senator Stevens. I am searching right now for the name of
    the program that was described to me yesterday that Alaska is
    not included in. It is a program whereby trucks are monitored
    throughout the southern 48 States that contain hazardous
    substances. I was just notified yesterday that the trucks that
    come up to Alaska through Canada and up the Alaska Highway into
    Alaska do not have that program. I am sorry, I just do not
    remember the name of it.
        I did not know that, and one of the reasons is, of course,
    our trucks pass through Canada and it is a satellite tracking
    program to make sure that we have absolute control over those
    trucks that contain hazardous materials. There are only a few
    of those trucks that come up to Alaska that are Department of
    Defense. Most of the Defense-oriented transportation comes by
    barge and goes up the Alaska railroad. But there are a
    considerable number of private concerns that do use that
    tracking system to bring these trucks into Alaska. I wanted to
    call it to your attention and urge your review of it because it
    is my understanding that the Defense Department is unwilling to
    spend money for this system to go to Alaska since they have
    such a small portion of coverage as far as hazardous materials
    coming to Alaska by truck; virtually none, as a matter of fact.
        Secretary Mineta. Senator, I will have to look into that
    matter and get back to you.

                         TRACKING OF HAZARDOUS MATERIAL

        Senator Stevens. I apologize. A senior moment here. I
    cannot remember the name of the program. But I do hope, Norm,
    you will look at it because we did not know--we have a
    considerable amount of hazardous material that comes into
    Alaska. It is a very tough thing to get it through Canada as a
    matter of fact. But I think if we provided this tracking system
    it might improve our relationship with our neighbor, but
    certainly it has something to do with rates for the people who
    have those trucks. If they do not have this coverage, the rates
    for insurance are much higher.
        So I am speaking really for the trucking industry from the
    State of Washington that primarily brings hazardous materials
    into our State. It is something that was just never called to
    our attention and I would like to find some way to cure it.
    They have asked us to add $4 million to your budget. That is
    what I am here for, to cover the cost of adding that satellite
    coverage for hazardous material tracking as it comes through
    Canada and through Alaska. I would appreciate it if you get the
    time----
        Secretary Mineta. I will look at it and get back to you,
    Mr. Chairman.
        [The information follows:]

        FMCSA has a $2.5 million on-going operational field test of
    vehicles with security technologies, including satellite tracking that
    involves 100 trucks from 8 trucking companies, 4 shippers, and 4
    consignees of hazardous materials in various segments of the hazardous
    materials industry. The goal of the project is to demonstrate the
    effectiveness of technologies in improving both safety and security,
    and to quantify the costs and benefits of implementing these
    technologies in the HAZMAT industry. In addition, FMCSA is about to
    commence a $2 million project to demonstrate satellite tracking of
    untethered trailers.
        Another related initiative is FMCSA's Supplemental Notice of
    Proposed Rulemaking to establish a Federal HM permit program for
    carriers of the most dangerous hazardous materials. As part of this
    proposed rulemaking, currently in Departmental review, FMCSA is
    considering a requirement for carriers of these materials have a system
    to communicate with the driver. We expect that satellite tracking and
    communications systems will be widely used to satisfy this requirement.
    In addition, the Research and Special Programs Administration (RSPA) is
    working on a Notice of Proposed Rulemaking that may require
    communication systems for larger numbers of hazardous materials
    shipments.
        DOT is undertaking demonstration projects to promote the safety,
    security, and efficiency benefits of satellite tracking systems for the
    trucking industry. We believe that through projects such as our two
    demonstration projects the industry will, on its own accord, begin to
    incorporate these technologies. The implementation of these systems
    will likely be further promoted as the Department finalizes security
    regulations for hazardous materials. As the untethered trailer tracking
    demonstration project is still in the planning phase, we will examine
    whether Alaska is an appropriate venue for this effort.

        Senator Stevens. I will find that name, Norm, and send it
    to you today. Thanks.
        Senator Shelby. Thank you, Senator Stevens.

                         ADDITIONAL COMMITTEE QUESTIONS

        Mr. Secretary, we appreciate your appearance today. We know
    we have asked some questions that you will answer for the
    record.
        Secretary Mineta. Yes, sir.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                Questions Submitted by Senator Richard C. Shelby

             INFRASTRUCTURE AND PERFORMANCE MAINTENANCE INITIATIVE

        Question. Has the Department identified any specific examples of
    the types of facilities that would be funded if the new
    ``infrastructure performance and maintenance initiative'' were
    authorized? If so, could you provide those examples to the Committee?
        Answer. The intent of the Infrastructure Performance and
    Maintenance (IPAM) initiative is to focus the use of Federal funds on
    two types of Federal-aid highways projects: system preservation and the
    elimination of chokepoints. System preservation projects include a
    range of activities from preventative maintenance (e.g., cleaning and
    resealing of pavement joints or the restoration of rust resistant
    bridge paint) to minor reconstruction. During TEA-21, the States made
    good investments in system preservation, and the physical condition of
    highways and bridges has improved. The system preservation component of
    IPAM should help maintain this positive trend.
        The second category of eligibility under IPAM would be the
    elimination of traffic chokepoints. IPAM spending for congestion
    reduction would be targeted to traffic bottlenecks, not the widening of
    long stretches of highway. Likely projects would include intelligent
    transportation initiatives and the limited alteration of existing
    facilities. This would include improvements to interchange ramp, added
    auxiliary lanes, short sections of added through lanes and intersection
    modernization.
        In either case--system preservation or chokepoint elimination--the
    goal is to fund projects that are ready to go and that can be completed
    in a relatively short timeframe, providing timely improvements for the
    Nation's road users.

                           HIGHWAY SAFETY INITIATIVES

        Question. The Department's budget appears to propose a safety
    program that is very different from the programs of the past. Knowing
    that both Click-It-or-Ticket mobilizations and impaired driving
    mobilizations have proven to be extremely successful the Department
    still chose to specifically exclude them from the budget request. What
    then is being proposed that will yield even better results?
        Answer. The National Highway Traffic Safety Administration (NHTSA)
    intends to continue the ``Click It or Ticket'' and ``You Drink & Drive.
    You Lose.'' mobilizations in 2004, and beyond. Early in calendar year
    2003, NHTSA solicited input from the Governors Highway Safety
    Association and the highway safety offices of the fifty States, the
    District of Columbia and Puerto Rico. Given the solid commitment to
    continuing the mobilizations that was expressed, NHTSA does not believe
    that it is necessary to earmark grant funds to the States for this
    purpose. States can use their Section 402 grants funds to support these
    efforts.

                             AMTRAK REFORM PROPOSAL

        Question. Mr. Secretary, as I mentioned in my opening statement, we
    are all eagerly awaiting an Amtrak Reform proposal. You talked about it
    last year, Michael Jackson has talked about it this year and we have
    yet to see a concrete proposal. When may we expect some type of formal
    legislative proposal for Amtrak reform?
        Answer. The Secretary of Transportation transmitted the
    Administration's intercity passenger rail legislative proposal--The
    Passenger Rail Investment Reform Act of 2003--to Congress on July 28,
    2003.

                                 SHIP DISPOSAL

        Question. The Maritime Administration is tasked with the disposal
    of all obsolete vessels from the National Defense Reserve Fleet by
    September 30, 2006. There are more than 130 vessels presently in the
    fleet awaiting disposal, and MARAD has only disposed of 14 vessels over
    the past 3 years.
        I would like for you to keep me updated on how you plan to
    accomplish this task. This is a serious and expensive endeavor that
    really needs to be resolved.
        How does MARAD plan to dispose of these vessels by the statutory
    deadline? If additional vessels are accepted from the Navy and other
    sources, what strategies does MARAD have in place for the fleet to keep
    the program on schedule?
        Answer. As the Federal Government's ship disposal agent, MARAD
    acquires obsolete ships into its fleets on a continuous basis.
    Additional vessels to the 130 already in custody will significantly
    increase the disposal challenge faced by MARAD. MARAD's only disposal
    options from 1994-2000 were domestic ship sales and occasional ship
    donations, which resulted in 12 vessel sales for recycling and 5 vessel
    donations. Prior to 2001, MARAD did not have the authority to pay for
    dismantling services; thus, there was no ship disposal budget. The
    vessels that accumulated in the 1990's (the backlog) are now in poor
    condition, and account for approximately 75 of the 130 ships on hand.
    Disposal of the vessel backlog, while acquiring even more obsolete
    vessels, is a significant challenge.
        The deadline of September 30, 2006, established in the National
    Defense Authorization Act of 2001, will be difficult to reach because
    the Fleet is projected to receive 15 additional ships in each of the
    next 3 years. When this goal was established 2 years ago, there were
    115 vessels in the Fleet. Since then, 16 vessels have been removed;
    however, MARAD received an additional 31 obsolete ships during that
    period.
        The program priority remains focused on disposal of MARAD's 27
    high-risk, non-retention vessels (20 in the James River Reserve Fleet
    (JRRF), Virginia; 5 in the Suisun Bay Reserve Fleet, California; and 2
    in other locations--Mobile, Alabama, and Portsmouth, Virginia).
        MARAD anticipates removing a minimum of 25 vessels from the Fleet
    through domestic and export disposal recycling using the fiscal year
    2003 appropriation of $11.1 million, coupled with $20 million in
    funding from the Department of Defense. Proposals received thus far for
    the export of ships for recycling clearly indicate that export is the
    most cost-effective method because of higher demand for recyclable
    materials, lower labor costs, greater industrial capacity and greater
    competition. The ability to export ships for recycling will expedite
    the elimination of high-risk ships, significantly mitigate the
    environmental threat of oil discharge at the Fleet sites, and reduce
    the total number of obsolete vessels significantly.
        Ship disposal methods currently available, and the industry's
    response to MARAD's announcements, indicate that the cost-effectiveness
    of ship dismantling is based on economies of scale. The current
    contract with the United Kingdom involving the removal of 15 ships for
    $14 million is one example--the higher the number of ships, the greater
    the yield of steel and other recyclable materials. Many of the Program
    Research & Development Announcement (PRDA) proposals involving export
    contain costs to the Government that are significantly lower than
    current and anticipated costs for domestic dismantling. While the
    domestic dismantling industry has limited capacity, higher costs and
    limited competition, MARAD is currently in the process of awarding
    contracts to four domestic companies to recycle 10 ships. Ship
    dismantling/recycling is heavy industrial work--low tech and labor
    intensive. It involves the handling and disposition of hazardous
    materials, and thus has some inherent risks regardless of where the
    work is done. Although foreign facilities are not subject to worker and
    environmental laws as domestic facilities are, the foreign industry
    must demonstrate to MARAD and the EPA that they can accomplish
    responsible vessel recycling that protects worker safety and health.
        Other initiatives include:
        (a) National environmental best management practices (BMP) for
    preparing vessels for use as artificial reefs.--This is an interagency
    effort involving MARAD, the Environmental Protection Agency (EPA),
    Navy, United States Coast Guard, National Oceanic and Atmospheric
    Administration, Army Corps of Engineers, National Marine Fisheries, and
    other agencies, that MARAD initiated in 2002 with a projected
    completion in the spring of 2004. Establishing best practices will
    standardize the ship preparation guidelines on a nationwide basis, thus
    facilitating the application and vessel preparation processes, and
    aiding the States and MARAD in estimating the costs associated with
    ship preparation for artificial reefing.
        (b) Fuel removal for JRRF vessels.--MARAD continues to assess the
    risks associated with the removal of oil from obsolete ships prior to
    disposal. A PRDA was posted in fiscal year 2003; however, the proposals
    received did not offer any technologies, methodologies or innovations
    to make oil removal a cost-effective option. MARAD's policy has been
    that the safest and most cost-effective method of removing oil, and
    thus mitigating the risk of oil discharges from our obsolete ships, is
    to remove the oil during the ship dismantling process and not
    beforehand. MARAD continues to pursue opportunities to assess the
    feasibility and cost-effectiveness of oil removal technologies beyond
    traditional pumping methods. The goal is to identify cost-effective
    methods for the safe removal of some fuels, while the vessels are
    awaiting disposal. Heretofore, traditional oil pumping methods have not
    been cost-effective in removing significant quantities of oil to
    mitigate the threat of oil discharges into the environment.
        (c) Streamlining the artificial reefing application review and
    approval process.--The current application process required of coastal
    States to acquire vessels to be used as reefs, and the subsequent
    Federal agency review and approval process, is cumbersome and time
    consuming. MARAD, jointly with all the Federal agencies involved in the
    artificial reefing process, is working to streamline the process.
        (d) Discussions with the Mexican Government.--MARAD and EPA are
    exploring opportunities that mutually benefit Mexican vessel recycling
    facilities and MARAD, by providing a possible source of cost-effective
    and environmentally responsible vessel recycling.
        (e) Global Action Program (GAP).--MARAD has begun preliminary
    discussions related to partnering with interested Basel Convention
    countries, the International Maritime Organization, and the
    International Labor Organization in an international program to promote
    environmentally responsible and sustainable ship disposal.
        (f) Army Corp of Engineers (ACOE) and Louisiana barrier island
    stabilization using obsolete vessels.--MARAD has held preliminary
    discussions with the ACOE related to a potential pilot project and
    feasibility study to test the effectiveness of using obsolete vessels
    to stabilize the shorelines of barrier islands.

                           HIGHWAY-RELATED FATALITIES

        Question. The Department's goal for highway-related fatalities in
    2004 is 1.38 per 100 vehicle miles traveled. The budget seems to
    indicate that the two major reasons for the lack of significant
    progress in reducing overall highway-related fatalities can be directly
    attributed to motorcycles and pedestrians. What then is the Department
    doing to address and reduce the number of fatalities between these two
    groups? I ask because the budget appears to assume a steady rate among
    these groups and a necessity to focus on passenger cars and light
    trucks.
        Answer. NHTSA's fiscal year 2004 budget request addresses the
    action items in the NHTSA Motorcycle Safety Program document released
    in January 2003 and the National Agenda for Motorcycle Safety developed
    in collaboration with motorcycle safety partners.
        A new fiscal year 2004 initiative will address a concern that
    motorcycle training programs accommodate all those who seek training.
    NHTSA plans to work with identified State rider education and training
    programs to develop and implement long-range strategic plans to make
    training available for all those who need it and in a timely fashion.
    NHTSA will continue research on motorcycle lighting as a means to
    improve motorcyclist conspicuity and will continue research on
    motorcycle braking systems.
        Additionally, NHTSA will: conduct research on crash avoidance
    skills; conduct research on motorcyclists conspicuity; support projects
    to reduce impaired riding by developing and testing activities that may
    include peer-to-peer efforts, social norm models, enforcement efforts,
    and motorcycle impoundment; and collect and analyze motorcycle crash,
    injury, and fatality data and compare motorcyclists who successfully
    completed formal rider training to those who have not.
        Pedestrian crashes are addressed through a combination of public
    information, legislation, enforcement, engineering, and outreach
    strategies. NHTSA will: fund competitive demonstration projects
    designed to involve the law enforcement community to improve pedestrian
    safety; develop a community guide to tackle the challenges of
    implementing comprehensive pedestrian safety programs; explore the
    feasibility of developing and disseminating a school crossing guard
    curriculum; and develop community-level Safe Routes to School workshops
    to increase pedestrian safety around schools.
        NHTSA will also disseminate tools to encourage communities to
    promote safe walking. Non-traditional partners, such as smart growth
    coalitions or local government commissions, will be identified and
    encouraged to incorporate pedestrian safety into their organizations'
    missions. NHTSA will continue its partnership with the Federal Highway
    Administration to incorporate infrastructure improvements with
    behavioral safety principles.

               REQUIREMENTS FOR AMTRAK TO RECEIVE FEDERAL SUBSIDY

        Question. The Fiscal Year 2003 Appropriations Act placed a number
    of new requirements on Amtrak's ability to obtain their Federal
    subsidy. What, if any changes to those requirements would you propose
    to improve the Department's oversight of the railroad for the 2004
    bill?
        Answer. The Fiscal Year 2003 Appropriations Act's new requirements
    on grants to Amtrak are built upon reforms required by the Department
    as conditions to the fiscal year 2002 loan under the Railroad
    Rehabilitation and Improvement Financing (RRIF) program. These
    requirements have resulted in a significant improvement in the way
    Amtrak does business and should be continued. While additional reform
    is needed in the way intercity passenger rail service is provided in
    this country, such reforms should be part of comprehensive
    authorization legislation and are included in the legislation that the
    Secretary of Transportation transmitted to Congress.

                                  PATRIOT ACT

        Question. The Patriot Act requires a background check on all
    drivers transporting Hazardous Materials. When TSA was transferred to
    the Department of Homeland Security, the background investigative
    authority for the HAZMAT endorsement was also transferred as was the
    ability to grant that endorsement to CDL holders. However, the
    Department has requested money in the 2004 budget to continue to pay
    for these background checks. While I recognize that there is an
    outstanding contract between Motor Carriers and Lexis-Nexis to provide
    these services, I am concerned that this will be an ongoing request in
    future budgets. What is the Department doing to work with TSA to
    transfer this financial responsibility as well?
        Answer. The Fiscal Year 2004 President's Budget includes $3 million
    for FMCSA to implement Section 1012 of the Patriot Act. These funds
    would be obligated for the existing Lexis-Nexis contract. The
    Department has developed a memorandum of understanding between TSA and
    FMCSA, with FMCSA delegating day-to-day contractual administrative
    management responsibilities to TSA for the Lexis-Nexis contract. There
    will be no further financial responsibility for the Department beyond
    fiscal year 2004.

                        IMPROVING PAVEMENT RIDE QUALITY

        Question. One of the Department's Strategic and Performance Goals
    is to increase the percent of pavement on the National Highway System
    with acceptable ride quality to 93.1 percent. Can you tell me how, with
    less highway funding, this budget proposes to reach this goal?
        Answer. The Department's performance goal for 2004 is to increase
    the percent of travel with acceptable ride quality on the National
    Highway System to 93.0. In addition to normal Federal-aid construction
    funds, the Department proposes to utilize research and technology funds
    to develop products and deliver technology that will improve pavement
    smoothness during initial construction and pavement ride quality over
    the life cycle of highways. Specific examples include improved pavement
    smoothness specifications, best practice guides for construction,
    improved pavement profile measurement equipment and profile analysis
    software.
        Additionally, specific initiatives will be focused on the 10 States
    where 76 percent of the travel on highways with unacceptable ride
    quality exists. The Department will initiate development and delivery
    of customized workshops focused on addressing specific needs in these
    States.

             HIGHWAY PERFORMANCE AND MAINTENANCE INITIATIVE (IPAM)

        Question. The budget purposes a new, $1 billion highway performance
    and maintenance initiative which targets ``ready-to-go'' highway
    projects that address traffic bottlenecks and improve infrastructure
    conditions. How will the funds be distributed to the States? What
    specific guidance will be given for expenditures of the funds? Will
    States be allowed to reimburse themselves for already completed
    projects meeting the required criteria? In developing this new
    initiative were any specific projects identified that would meet the
    criteria? If so, could you provide a list of those projects and the
    characteristics that qualify them for the new initiative?
        Answer. The funds would be distributed by formula with 25 percent
    of the funds distributed based on each State's relative share of
    Federal-aid lane-miles, 40 percent based on each State's relative share
    of vehicle-miles of travel on Federal-aid highways and 35 percent based
    on each State's relative share of contributions to the Highway Account
    of the Highway Trust Fund. There would be a one-half percent minimum
    for each State. This formula is the same as is being used for the
    Surface Transportation Program.
        States would have 6 months to obligate their IPAM funds. This is
    consistent with the requirement that the funds be used for ready-to-go
    projects. After the 6-month deadline, un-obligated funds would be
    withdrawn from States and distributed to other States that could
    obligate the funds by the end of the fiscal year. We do not anticipate
    that States will find it difficult to comply with the 6-month
    timeframe.
        States would not be allowed to reimburse themselves for projects
    meeting the required criteria that are already completed or are already
    underway using the advance construction provisions of title 23. The
    intent of the IPAM program is to quickly initiate and deliver projects
    and their benefits to the public. Allowing the use of IPAM funds to
    reimburse already completed projects or projects that are already being
    advanced using other approaches would defeat this intent.
        Program guidance would also clarify eligible projects for IPAM
    funds by further defining the types of projects that would be eligible.
    The selection of projects to be carried under the IPAM program would be
    a State prerogative.
        The IPAM does not create new eligibilities for Federal-aid highway
    funds. The intent is to focus the use of Federal funds on two types of
    projects on Federal-aid highways, system preservation and the
    elimination of chokepoints. System preservation projects include a
    range of activities from preventative maintenance to minor
    reconstruction. During TEA-21, States made good investments in system
    preservation and the physical condition of highways and bridges has
    improved. The system preservation component of IPAM should help
    maintain this positive trend.
        The second category of eligibility under IPAM would be the
    elimination of traffic chokepoints. Reducing congestion is a great and
    costly challenge. IPAM spending for congestion reduction would be
    targeted to traffic bottlenecks, not the widening of long stretches of
    highway. Likely projects would include intelligent transportation
    initiatives and the limited alteration of existing facilities. This
    would include interchange ramp improvements, added auxiliary lanes,
    short sections of added through lanes and intersection modernization.

                                ADDITIONAL FTE'S

        Question. The budget requests 12 new FTE for the purposes of
    ``enhancing the oversight of major projects; improvements to the
    security of our critical information systems; upgrades to our
    information technology infrastructure; and FHWA's share of the costs to
    consolidate all DOT modes located in Lakewood, Colorado, into one
    facility.'' Could you provide a breakdown of exactly how these new FTE
    will be utilized in each of the areas specified in the description?
    Provide a prioritization for each of these 12 FTE based upon need.
        Answer. The 12 FTE that are requested in fiscal year 2004 will be
    used specifically to enhance major projects oversight and fulfill
    FHWA's commitment of having a dedicated oversight project manager on
    each mega-project. All 12 FTE are considered equal and will be used as
    environmental commitments of the projects are entered into.
        FHWA will designate Mega-Project Oversight Managers who are
    personally accountable for proper Federal oversight and establish
    Integrated Product Teams to assist the oversight manager. The addition
    of the 12 FTE is essential for FHWA to perform its stewardship and
    oversight role. The responsibilities of each mega-project oversight
    manager include:
      --Representing FHWA before other Federal agencies, State
            Transportation Agencies (STA), local agencies, consultants, and
            contractors on all project delivery and oversight issues.
      --Briefing FHWA upper management, the Office of the Secretary of
            Transportation, and the media on project status, and
            significant project activities and issues.
      --Monitoring environmental commitments and ensuring that they are
            incorporated into the plans and specifications.
      --Overseeing the review and approval of plans, specifications, and
            estimates for appropriate application of design standards and
            criteria, conformance with policies and regulations, traffic-
            safety features, reasonableness of estimated costs, and proper
            specifications and other contract provisions.
      --Monitoring and reporting cost and schedule changes and updates,
            analyzing project status for reasonableness and accuracy, and
            managing changes to minimize impacts to costs and schedules.
      --Ensuring cost containment strategies such as value engineering,
            constructability reviews, design-to-cost strategies, and up-
            front planning to minimize contractor risks are incorporated.
            Coordinating with FHWA bridge engineers for design reviews of
            major structures.
      --Ensuring FHWA laws and requirements for Federal-aid construction
            contracts are incorporated, such as Buy America, Davis-Bacon
            minimum wage rates, Disadvantaged Business Enterprise and
            affirmative action requirements, records of materials and
            supplies, etc.
      --Conducting project inspections to verify compliance with standard
            engineering practice, and providing technical assistance.
      --Providing assistance and direction to the STA on the proper
            application of Federal funds, designated funding, and
            innovative financing programs.
      --Reviewing the Initial Finance Plan and Annual Updates, coordinating
            with the STA and Headquarters Office, and ultimately accepting
            the initial plan and updates.
      --Promoting technology transfer to and from the project.

                         FISCAL YEAR 2004 FTE REQUIREMENT FOR ACTIVE (AND FUTURE) MAJOR PROJECTS
    ----------------------------------------------------------------------------------------------------------------
                                                                                          Current       Fiscal Year
                        Projects                                  Status              Staffing Level       2004
    ----------------------------------------------------------------------------------------------------------------
    I-80/San Francisco-Oakland Bay Bridge (East      Active.........................               1               1
     Span), CA.
    SR 210/Foothill Freeway........................  Active.........................  ..............  ..............
    I-25/I-225 Southeast Corridor, CO..............  Active.........................               1               1
    New Haven Harbor Crossing, CT..................  Active.........................  ..............               1
    Miami Intermodal Center, FL....................  Active.........................  ..............               1
    I-4/I-275 Tampa Interstate, FL.................  Active.........................  ..............               1
    New Mississippi River Bridge, IL-MO............  Active.........................  ..............               1
    Central Artery/Ted Williams Tunnel, MA.........  Active.........................               5               3
    Central Texas Turnpike, TX.....................  Active.........................               1               1
    I-10/Katy Freeway, TX..........................  Active.........................  ..............               1
    I-95/Woodrow Wilson Bridge, MD.................  Active.........................               2               2
    I-95/I-495 Springfield Interchange, VA.........  Active.........................               1               1
    I-64/Hampton Roads Third Crossing, VA..........  Active.........................  ..............               2
    I-94/East-West Corridor, WI....................  Active.........................  ..............               1
    New Ohio River Bridges, KY-IN..................  Future.........................  ..............               1
    I-94/Edsel Ford Freeway, MI....................  Future.........................  ..............               1
    Mon/Fayette Expressway, PA.....................  Future.........................  ..............               1
    I-635/LBJ Freeway (West Section), TX...........  Future.........................  ..............               1
    I-405 Corridor/SR 509 and I-5/SR520/Alaskan Way  Future.........................  ..............               2
     Viaduct, WA.
                                                    ----------------------------------------------------------------
          Totals...................................  ...............................              11              23
    ----------------------------------------------------------------------------------------------------------------

                         INTELLIGENT VEHICLE INITIATIVE

        Question. The budget request discusses an example of an Intelligent
    Vehicle Initiative (IVI) to develop driver assistance systems that will
    reduce the number and severity of crashes and goes further to discuss
    systems currently under development to ``warn drivers of dangerous
    situations and recommend corrective actions, or in some cases, even
    assume partial control of vehicles to avoid collisions.'' Where is this
    research being conducted, who is participating and when do you
    anticipate the research will be completed? Additionally, is there a
    coordinated effort with the automobile manufacturers to develop and
    test these systems?
        Answer. The work under the IVI program is being conducted in a
    series of coordinated contracts and cooperative agreements with the
    Department of Transportation's (DOT) partners in the public and private
    sectors, as well as universities and other research institutions. DOT's
    partners were chosen because they are the critical organizations needed
    to develop and deploy effective systems. They include seven of the
    largest automobile manufactures (General Motors, Ford, Daimler-
    Chrysler, Toyota, Nissan, BMW and Volkswagen), the largest technology
    suppliers to the U.S. automotive industry (Delphi Delco, Visteon, TRW
    and DENSO), heavy truck manufacturers (Freightliner, Mack, Volvo
    Trucks, and Navistar International), the State Departments of
    Transportation for California, Minnesota and Virginia, and finally
    several commercial and transit fleet operators.
        Under the IVI program, DOT is working on crash countermeasures that
    address the largest types of crashes (rear-end, road departure,
    intersection and lane change) and the factors that cause the crashes.
    The understanding of the crash problem and development of effective
    solutions varies in levels of maturity. Consequently, the IVI program
    is a long-term effort that is designed to produce incremental results.
    DOT's previous efforts already have led to the deployment of vision
    enhancement, adaptive cruise control and lane tracking systems. DOT's
    current activities are expected to support deployment of rear-end and
    road-departure collision-avoidance systems for passenger cars in the
    next 2 to 5 years. Intersection collisions are a more complicated
    problem that will require vehicle and infrastructure cooperative
    systems. Therefore, DOT does not expect these systems to be available
    for 8 to 10 years.
        The IVI program coordinates with automobile manufacturers at
    several levels. Overall strategic planning is coordinated through a
    Light Vehicle Industry Federal Advisory Committee Panel. DOT is working
    with a partnership of General Motors, Ford, Daimler-Chrysler, Toyota,
    Nissan, BMW and Volkswagen to study various enabling research issues.
    We are currently conducting studies with this partnership on driver
    workload, forward collision warning, enhanced digital maps and
    dedicated short-range communications (DSRC). DOT is also working
    directly with General Motors and Delphi-Delco on a Field Operational
    Test of Rear-end Collision Avoidance Systems for passenger cars. We
    also have a Field Operational Test for Road Departure Collision
    Avoidance Systems for Passenger cars with Visteon.

                       ADOPTION OF SAFETY COUNTERMEASURES

        Question. One of FHWA's anticipated accomplishments is a ``greater
    adoption and understanding by States of the safety benefits of
    countermeasures, including rumble strips and related roadside hardware,
    particularly on rural roads.'' What percentage of highway fatalities
    does FHWA attribute to hazardous roadway conditions? What specific
    programs will FHWA pursue with the States to promote these particular
    countermeasures? Will FHWA encourage States to utilize a majority of
    their safety funding for this purpose? If not, how will FHWA ensure
    greater adoption of countermeasures by the States?
        Answer. J.R. Treat's ``Indiana Tri-Level Study--A Study of Pre-
    Crash Factors Involved in Traffic Accidents'' attributes 34 percent of
    highway crashes to the roadway as a cause or contributing factor.
    Treat's study is based on on-site reviews of actual highway crashes.
    The study recognizes that many crashes involve multiple factors related
    to the roadway, the driver and the vehicle. The percentages include
    crashes where there is more than one causal factor.
        FHWA pursues a number of programs to address infrastructure-related
    safety opportunities. One key area of focus is working with the
    American Association of State Highway and Transportation Officials
    (AASHTO) on the development and implementation of guidebooks which
    address areas of emphasis within the AASHTO Strategic Highway Safety
    Plan. Several of these areas of emphasis address roadway and roadside
    features, including newly-released guidebooks on run-off-road
    collisions, collisions in intersections without signals, head-on
    collisions, and collisions involving trees in hazardous locations.
        In addition to these partnering efforts with the AASHTO, FHWA
    issued a Technical Advisory on shoulder rumble strips last year to help
    States design and install them on rural National Highway System
    segments. The Mississippi Department of Transportation installed and
    tested different rumble strip designs combined with pavement marking
    overlays on rural roads. Initial evaluations indicate improved safety
    on rainy nights due to more visible pavement markings and audible
    rumble strip warnings. Also, FHWA reviews crash test data on new
    roadside hardware to verify its effectiveness and compliance with
    current crash test evaluation criteria. To provide States, local
    agencies and other interested parties information on which roadside
    hardware can be used safely, FHWA posts letters of acceptance for new
    hardware on its roadside safety website, http://safety.fhwa.dot.gov/
    report350hardware. Since 1998, over 240 letters have been posted on
    guardrails, bridge rails, crash cushions, sign and light poles and work
    zone traffic devices.
        FHWA encourages States to use their safety funding for a variety of
    safety countermeasures based on a strategic approach to highway safety
    that identifies key problems and the most effective countermeasures.
    For example, studies on two-lane rural highways show that crash rates
    decline as shoulders are added or widened. Rumble strips may not be the
    most effective countermeasure on these narrow roads. Each State must
    identify and evaluate its particular safety needs to make the best use
    of its safety funding. FHWA is working with States to develop goals and
    performance measures to improve their safety performance. Accurate data
    on crash causation forms the basis of a strategic approach to highway
    safety that also encourages State adoption of effective
    countermeasures.

                 STATE SPENDING ON HAZARD ELIMINATION PROJECTS

        Question. How much of current highway safety funding is utilized by
    States for hazard mitigation projects? Please provide a breakdown for
    each State for 2000, 2001 and 2002?
        Answer. The chart that follows shows the funds obligated by the
    States for hazard elimination projects during fiscal years 2000-2002.

    ----------------------------------------------------------------------------------------------------------------
                               State                            Fiscal Year 2000  Fiscal Year 2001  Fiscal Year 2002
    ----------------------------------------------------------------------------------------------------------------
    Alabama...................................................       $597,579.25    $10,461,385.53     $1,385,519.46
    Alaska....................................................        834,666.00        861,301.22        804,812.00
    Arizona...................................................                 0      1,124,342.00      3,890,823.00
    Arkansas..................................................      2,056,734.00        436,375.00         28,142.00
    California................................................     11,250,001.87     17,940,935.96     16,401,450.91
    Colorado..................................................      2,273,901.00      2,279,921.00      2,389,313.00
    Connecticut...............................................      1,705,329.88      1,858,893.25      2,084,266.35
    Delaware..................................................        828,325.00        414,768.35                 0
    District of Columbia......................................                 0                 0                 0
    Florida...................................................      3,349,934.00      3,516,589.00      5,050,791.00
    Georgia...................................................      2,336,036.69      1,902,328.28        542,338.25
    Hawaii....................................................        790,219.00        635,143.00                 0
    Idaho.....................................................        140,692.00      1,145,248.00        451,065.25
    Illinois..................................................      8,913,513.02     10,305,632.69      8,976,229.72
    Indiana...................................................      3,518,335.67      2,229,913.41      1,127,612.56
    Iowa......................................................        450,000.00      2,266,100.00      1,079,943.13
    Kansas....................................................      1,808,724.51      5,146,482.47      3,187,743.50
    Kentucky..................................................      1,936,379.04      1,845,245.72        719,869.66
    Louisiana.................................................      1,239,652.00      1,187,013.71      3,901,352.15
    Maine.....................................................      1,094,811.91        267,029.07        521,805.41
    Maryland..................................................                 0      3,264,098.00      2,619,436.00
    Massachusetts.............................................                 0                 0                 0
    Michigan..................................................      8,279,378.92     10,087,363.35      8,781,312.87
    Minnesota.................................................      3,282,132.09      1,962,307.15      5,321,754.92
    Mississippi...............................................      4,018,145.00      2,072,571.00      1,981,001.00
    Missouri..................................................      6,067,894.55      7,803,017.92      4,541,348.70
    Montana...................................................      1,538,908.82      1,281,269.85      1,294,459.86
    Nebraska..................................................        502,392.48      1,474,977.84      1,009,775.23
    Nevada....................................................         65,112.40        276,392.79      2,175,028.65
    New Hampshire.............................................        775,905.97        899,448.32        812,840.72
    New Jersey................................................      5,030,912.00        143,842.00          4,117.00
    New Mexico................................................                 0                 0                 0
    New York..................................................     12,842,632.00      9,916,012.00      9,339,778.00
    North Carolina............................................      4,530,423.00      4,714,589.00      7,392,083.00
    North Dakota..............................................        896,162.06        620,700.44        476,702.67
    Ohio......................................................      6,858,605.00      6,858,605.00      6,773,562.00
    Oklahoma..................................................      2,540,771.10      2,320,514.07      1,193,435.63
    Oregon....................................................      1,109,536.00      1,642,846.33      1,020,490.96
    Pennsylvania..............................................      2,138,876.83      1,733,185.18      1,781,980.73
    Rhode Island..............................................        859,495.64        196,365.90      1,339,574.70
    South Carolina............................................      2,392,535.29      2,315,590.40      2,279,377.00
    South Dakota..............................................      1,996,928.47        573,514.78      1,765,831.43
    Tennessee.................................................      3,211,638.35      2,161,580.31      1,519,477.87
    Texas.....................................................     17,222,270.82     13,680,765.93      9,754,310.11
    Utah......................................................        -30,240.62         83,489.08        116,520.09
    Vermont...................................................                 0                 0                 0
    Virginia..................................................      1,561,569.00      1,804,992.00      3,412,329.92
    Washington................................................      1,556,759.93        649,197.25      2,280,643.14
    West Virginia.............................................                 0        713,917.00         41,097.00
    Wisconsin.................................................      3,872,858.70        899,648.48      4,427,545.59
    Wyoming...................................................        487,993.00      1,477,222.00      1,104,907.00
                                                               -----------------------------------------------------
          Total...............................................    138,734,431.64    147,452,671.03    137,103,799.14
    ----------------------------------------------------------------------------------------------------------------

                              INTERSECTION SAFETY

        Question. Intersection safety due to cooperative efforts of FHWA,
    AASHTO, and ITE has been identified as another anticipated
    accomplishment. Will State and local governments also be involved in
    this cooperative effort? Could you provide specific examples as to how
    intersection safety will actually be accomplished in order to make
    intersections safer for pedestrians and bicyclists?
        Answer. State and local governments have been involved in the
    intersection safety effort from the beginning. State and local
    transportation and safety professionals played a major role in
    developing the National Intersection Safety Agenda that guides Federal,
    State and local efforts to improve intersection safety. Now they are
    actively involved in implementing the Agenda. For example, an
    intersection safety workshop for State and local professionals was
    developed with the active participation of State, local and private
    sector transportation and safety professionals.
        Another example of State participation in the intersection safety
    effort is the research study on the ``Safety Effectiveness of
    Intersection Left- and Right-Turn Lanes.'' Ten States--Iowa, Illinois,
    Louisiana, Minnesota, Montana, Nebraska, New Jersey, North Carolina,
    Oregon, and Virginia--and the District of Columbia provided research
    funds and participated in the study. Accurate estimates of the safety
    impacts of dedicated intersection turning lanes were developed over 6
    years. Rural left-turn lanes reduced crashes by 15 percent to 50
    percent. Urban left-turn lanes reduced crashes by 10 percent to 50
    percent. Crashes related to left turns are one of the common safety
    problems at intersections.
        FHWA is pursuing several strategies to make intersections safer for
    pedestrians and bicyclists. Local governments and Metropolitan Planning
    Organizations are participating in three FHWA demonstration projects to
    test and evaluate innovative countermeasures at intersections and to
    market the results to other State and local governments. Training for
    State and local engineers and planners in how to safely accommodate
    pedestrians and bicyclists at intersections is needed. FHWA will work
    with its safety partners to develop and promote workshops, conferences
    and meetings as well as training materials. To educate young engineers,
    teaching materials will be developed for university professors so they
    can incorporate pedestrian and bicycle safety into their intersection
    design and planning curriculum for undergraduate and graduate students.
    FHWA is developing more partnerships with State and local governments,
    academia, and private sector organizations to accelerate the
    development of expert tools to identify pedestrian and bicyclist safety
    problems and potential solutions.

                PEDESTRIAN AND BICYCLIST SAFETY AT INTERSECTIONS

        Question. The budget states that ``more consideration will be given
    to the safety of motorists, pedestrians, bicyclists, workers and those
    persons with disabilities in the planning, design and use of
    transportation facilities; and roadway users will have a better
    awareness of pedestrians and bicyclists.'' Does ``consideration'' also
    mean that proactive steps will be taken to actually improve the safety
    conditions? If so, what steps will be taken and/or what steps are
    planned? How will roadway users gain a greater awareness of pedestrians
    and bicyclists?
        Answer. FHWA has taken specific steps to improve the safety of all
    roadway users including vulnerable populations such as older drivers
    and pedestrians. FHWA has been proactive in researching older road
    users' needs and capabilities and identifying highway changes that can
    improve their safety in using the transportation system. FHWA developed
    the ``Highway Design Handbook for Older Drivers and Pedestrians'' with
    guidelines that identify design, operational and traffic engineering
    enhancements to roadway features that pose safety risks for older road
    users, such as intersections. These recommendations make our roads
    safer and easier to use for older drivers and pedestrians and all
    roadway users. To accelerate implementation of the guidelines, FHWA
    developed a workshop for Federal, State and local practitioners to
    communicate the results of its research on older road users and the
    safety benefits of the older driver and pedestrian guidelines. Four
    hundred and forty-seven practitioners have attended workshops in 39
    States. A survey of the participants indicates that 54 percent of the
    respondents have designed or changed their facilities to accommodate
    older road users.
        To increase road user awareness of pedestrian and bicyclist safety
    needs, FHWA is marketing pedestrian and bicyclist safety awareness
    products to State and local governments and private sector safety
    organizations. Interactive tools such as ``Safer Journey'' increase
    road user knowledge of pedestrian and bicyclist safety problems and
    solutions. Seven States have decided to provide copies of the ``Safer
    Journey'' CD to all of their elementary schools to increase awareness
    of pedestrian and bicyclist safety. English and Spanish pedestrian
    safety materials for television, radio, and print media are being
    developed as part of a national campaign to raise awareness. FHWA is
    developing pedestrian safety materials targeted to specific populations
    including Hispanics and Native Americans. FHWA is also expanding its
    partnerships with State and local agencies and private sector safety
    organizations to accelerate the marketing and distribution of these
    pedestrian and safety materials.

                      STATE STRATEGIC HIGHWAY SAFETY PLANS

        Question. FHWA plans to encourage State departments of
    transportation to adopt a strategic highway safety plan and a
    comprehensive safety planning process. As part of this process, will
    FHWA also encourage States to allow Metropolitan Planning Organizations
    to participate and integrate them as part of their overall budget? Are
    there any States that currently have either a highway safety plan or a
    comprehensive safety planning process? If so, could you please provide
    a list of those?
        Answer. The collaborative process for developing a strategic
    highway safety plan requires States to include major State and local
    stakeholders. As major stakeholders at the local level, Metropolitan
    Planning Organizations would be expected to participate in the process.
    State and local agencies and organizations participating the process
    are required to share information and assist in the analysis of safety
    data to produce a strategic highway safety plan. The development of the
    plan would not require changes in the planning processes, plans or
    programs of other State or local agencies. An informal survey indicates
    that at least 20 States and the District of Columbia have some sort of
    a comprehensive safety plan. The 20 States are California, Colorado,
    Florida, Illinois, Kentucky, Louisiana, Maryland, Michigan, Maine,
    Mississippi, North Carolina, Nebraska, New Jersey, New York, Oregon,
    Pennsylvania, Texas, Utah, Washington, and Wyoming.

                             CONGESTION MITIGATION

        Question. FHWA has stated its capability to identify and mitigate
    causes of highway congestion. However, the portion of travel that
    occurred under congested conditions has increased each year. The short-
    term goal appears to be slowing the annual rate of increase to 32.3
    percent in fiscal year 2004. What specific actions will FHWA take in
    2003 to achieve this goal?
        Answer. FHWA knows from surveys that traffic congestion,
    particularly that associated with unexpected and non-recurring events
    such as work zones and incidents, is aggravating Americans. And the
    agency knows from these surveys what matters most to highway users is
    the reliability of the system. FHWA has designated congestion
    mitigation as one of its ``vital few'' goal areas. Traffic congestion
    is influenced by a number of factors outside the influence of the
    transportation sector, such as population increases and land use
    decisions, but there are a number of areas where FHWA can make a
    significant difference in terms of mitigating traffic congestion
    levels. Solutions to traffic congestion include building additional
    highway capacity (new facilities, added lanes, removing bottlenecks,
    etc.), better managing peak demands, and squeezing the highest level of
    performance out of existing capacity by effectively managing the
    highway system in a customer-focused, performance-based, proactive,
    real-time manner. While FHWA has a number of initiatives underway that
    focus on this last concept, the following five likely will have the
    greatest long-term impact:
        1. To date FHWA has not had a means of measuring how well the
    operation of the highway system is being managed. In the last 2 years,
    FHWA has developed and tested a system reliability index in 21 cities
    that it calls the ``buffer index'' (the amount of time added to your
    trip because of system unreliability). FHWA hopes that this measure
    eventually becomes as well known as (say) the temperature humidity
    index and helps cities gauge how well they are doing in responding to
    incidents, managing their work zones, and responding to the negative
    effects of adverse weather. FHWA will repeat the measurement in up to
    10 additional cities both this year and in fiscal year 2004, while it
    continues to build support for use of reliability and other appropriate
    performance measures in system monitoring and decision-making.
        2. FHWA will continue a major program focus on reducing delays
    caused by work zones by emphasizing the concept of ``getting in,
    getting out and staying out.'' Current and fiscal year 2004 program
    activities will be focused on consideration of work zone impacts in the
    planning process, innovative design and construction techniques,
    traffic control planning, and use of performance measures.
        3. FHWA will continue to build the foundation of a national traffic
    incident management organization, and develop and share detailed
    information, technical guidance and training on procedures to develop
    effective incident management programs and effectively respond to
    traffic incidents. The overall focus of these efforts is to reduce the
    time required to detect, respond to, and clear traffic incidents, which
    should result in a significant improvement in the congestion that they
    cause.
        4. Half the battle of mitigating the real and perceived impacts of
    traffic congestion on system users is giving people accurate and
    complete information. FHWA is in the process of helping to facilitate
    deployment of the 511 national travel information telephone numbers in
    cities and States across the United States. Currently about 14 percent
    of the U.S. population has access to high quality 511 services, with
    access expected to increase to about 25 percent by the end of 2003.
    FHWA's fiscal year 2004 goal is to reach 35 percent of the U.S.
    population.
        5. Finally, it is difficult to effectively manage the
    transportation system to mitigate traffic congestion in a culture that
    is still very much focused on developing and delivering construction
    projects. FHWA is continuing a significant program focus begun in
    fiscal year 2002 that seeks to encourage and incentivize regional
    collaboration and coordination among transportation system operators
    and public safety agencies at all levels of government. Use of the
    techniques developed in this program area will result in more extensive
    and more effective implementation of regional operations strategies
    such as regional traffic incident management programs, regional
    traveler information services, inter-jurisdictional coordination of
    traffic signals and regional emergency planning and response.

               BORDER PLANNING, OPERATION AND TECHNOLOGY PROGRAM

        Question. The Border Planning, Operations and Technology (BPOT)
    program funds can be used for multimodal planning that results in
    improvements in freight movement and highway access to rail, marine and
    air services. Can this money be used for actual multimodal improvements
    or simply multimodal planning?
        Answer. The BPOT funds can be used for an improvement at or near a
    land border with Canada or Mexico if the improvement is needed for
    operational enhancements or technology applications.

                   AREAS CURRENTLY ELIGIBLE FOR CMAQ FUNDING

        Question. Please identify the areas currently eligible for CMAQ
    funding.
        Answer. CMAQ funding must be used within non-attainment and
    maintenance areas if any exist within the State. If a State has no non-
    attainment or maintenance areas, it may use its CMAQ apportionment
    anywhere in the State on projects eligible under either the CMAQ or the
    Surface Transportation Programs.

     FISCAL YEAR 2003 CMAQ-ELIGIBLE NON-ATTAINMENT MAINTENANCE AREAS--STATE
                                   AND COUNTY
    ------------------------------------------------------------------------
     STATE--Nonattainment/Maintenance Area       COUNTY--Nonattainment/
                     Name                         Maintenance Area Name
    ------------------------------------------------------------------------
    ALABAMA: Birmingham...................  Jefferson, Shelby
    ALASKA:
        Anchorage.........................  Anchorage
        Fairbanks.........................  Fairbanks
    ARIZONA: Phoenix......................  Maricopa
    ARKANSAS..............................  Anywhere
    CALIFORNIA:
        Chico-Paradise....................  Butte
        Los Angeles.......................  South Coast Air Basin, Los
                                             Angeles, Orange, Riverside, San
                                             Bernadino
        Sacramento Metro..................  El Dorado, Placer, Solano,
                                             Sutter, Sacramento, Yolo
        San Diego.........................  San Diego
        San Joaquin Valley................  Fresno, Kern, Kings, Madera,
                                             Merced, San Joaquin Valley,
                                             Stanislaus, Tulare
        Santa Barbara-Santa Maria-Lompoc..  Santa Barbara
        Ventura Co........................  Ventura
        Monterey Bay......................  Monterey, San Benito, Santa Cruz
        San Francisco Bay Area............  Alameda, Contra Costa, Marin,
                                             Napa, San Francisco, San Mateo,
                                             Santa Clara, Sonoma
    COLORADO:
        Colorado Springs..................  El Paso, Teller
        Denver-Boulder-Greeley............  Adams, Arapahoe, Boulder,
                                             Denver, Douglas, Jefferson
        Fort Collins......................  Larimer
        Longmont..........................  Weld
    CONNECTICUT:
        Greater Connecticut...............  Hartford, Middlesex, New Haven,
                                             New London, Tolland, Windham
        New York-New Jersey-Long Island...  Fairfield, Litchfield
    DELAWARE:
        Philadelphia-Wilmington-Atlantic    Kent, New Castle
         City.
        Sussex............................  Sussex
    DISTRICT OF COLUMBIA: Washington, DC-   DC
     MD-VA.
    FLORIDA:
        Miami-Ft Lauderdale-W. Palm Beach.  Broward, Miami Dade, Palm Beach
        Tampa-St. Petersburg-Clearwater...  Hillsborough, Pinellas
    GEORGIA: Atlanta......................  Cherokee, Clayton, Cobb, Coweta,
                                             DeKalb, Douglas, Fayette,
                                             Forsyth, Fulton, Gwinnett,
                                             Henry, Paulding, Rockdale
    HAWAII................................  Anywhere
    IDAHO.................................  Anywhere
    ILLINOIS:
        Chicago-Gary-Lake County..........  Cook, DuPage, Grundy, Kane,
                                             Kendall, Lake, McHenry, Will
        St. Louis, MO.....................  Madison, Monroe, St. Clair
        Jersey Co.........................  Jersey Co
    INDIANA:
        Chicago-Gary-Lake County..........  Lake, Porter
        Evansville........................  Vanderburgh
        Louisville, KY-IN.................  Clark, Floyd
        Indianapolis......................  Marion
        South Bend-Elkhart................  Elkhart, St. Joseph
    IOWA..................................  Anywhere
    KANSAS: Kansas City KS-MO.............  Johnson, Wyandotte
    KENTUCKY:
        Cincinnati-Hamilton...............  Boone, Campbell, Kenton
        Edmonson..........................  Edmonson
        Louisville, KY-IN.................  Bullitt, Jefferson, Oldham
        Huntington-Ashland................  Boyd, Greenup
        Lexington-Fayette.................  Fayette, Scott
        Owensboro.........................  Daviess, Hancock
        Paducah...........................  Livingston, Marshall
    LOUISANA:
        Baton Rouge.......................  Ascension, E. Baton Rouge,
                                             Iberville, Livingston, W. Baton
                                             Rouge
        Lake Charles......................  Calcasieu
        Point Coupee......................  Point Coupee
    MAINE:
        Hancock & Waldo...................  Hancock, Waldo
        Knox & Lincoln....................  Knox, Lincoln
        Lewiston & Auburn.................  Androscoggin, Kennebec
        Portland..........................  Cumberland, Sagadahoc, York
    MARYLAND:
        Baltimore.........................  Anne Arundel, Baltimore County,
                                             Baltimore City, Carroll,
                                             Harford, Howard
        Kent-Queen Anne's.................  Kent, Queen Anne's
        Philadelphia-Washington-Trenton,    Cecil
         PA-NJ-DE-MD.
        Washington, DC-MD-VA..............  Calvert, Charles, Frederick,
                                             Montgomery, Prince George's
    MASSACHUSETTS:
        Boston-Lawrence-Worcester.........  Barnstable, Bristol, Dukes,
                                             Essex, Middlesex, Nantucket,
                                             Norfolk, Plymouth, Suffolk,
                                             Worcester
        Springfield (Western MA)..........  Berkshire, Franklin, Hampden,
                                             Hampshire
    MICHIGAN:
        Detroit-Ann Arbor.................  Livingston, Macomb, Monroe,
                                             Oakland, St. Clair, Washtenaw,
                                             Wayne
        Grand Rapids......................  Kent, Ottawa
        Muskegon..........................  Muskegon
    MINNESOTA:
        Minneapolis-St. Paul..............  Anoka, Carver
        Dakota............................  Hennepin, Ramsey, Scott,
                                             Washington, Wright
        Duluth............................  St. Louis
    MISSISSIPPI...........................  Anywhere
    MISSOURI:
        St Louis..........................  Franklin, Jefferson, St.
                                             Charles, St. Louis City, St.
                                             Louis County
        Kansas City.......................  Clay, Jackson, Platte
    MONTANA: Missoula.....................  Missoula
    NEBRASKA..............................  Anywhere
    NEVADA:
        Reno..............................  Washoe
        Las Vegas.........................  Clark
    NEW HAMPSHIRE:
        Boston-Lawrence-Worcester, NH-MA..  Hillsborough, Rockingham
        Manchester........................  Merrimack
        Portsmouth-Dover-Rochester........  Strafford
    NEW JERSEY:
        Allentown-Bethlehem-Easton........  Warren
        Atlantic City.....................  Atlantic
        New York-New Jersey-Long Island...  Bergen, Essex, Hudson,
                                             Hunterdon, Middlesex, Monmouth,
                                             Morris, Ocean, Passaic,
                                             Somerset, Sussex, Union
        Philadelphia-Wilmington-Trenton...  Burlington, Camden, Cumberland,
                                             Gloucester, Mercer, Salem
    NEW MEXICO:
        Sunland Park......................  Dona Ana
        Albuquerque.......................  Bernalillo
    NEW YORK:
        Albany-Schenectady-Troy...........  Albany, Greene, Montgomery,
                                             Rensselaer, Saratoga,
                                             Schenectady
        Buffalo-Niagara Falls.............  Erie, Niagara
        Essex.............................  Essex
        Jefferson.........................  Jefferson
        New York-New Jersey-Long Island...  Bronx, Kings, Nassau, New York,
                                             Orange, Queens, Richmond,
                                             Rockland, Suffolk, Westchester
        Poughkeepsie......................  Dutchess, Putnam
        Syracuse..........................  Onondaga
    NORTH CAROLINA:
        Charlotte-Gastonia................  Gaston, Mecklenburg
        Greensboro-Winston-Salem-High       Davidson, Davie, Forsyth,
         Point.                              Guilford
        Raleigh-Durham....................  Durham, Granville, Wake
    NORTH DAKOTA..........................  Anywhere
    OHIO:
        Cincinnati-Hamilton...............  Butler, Clermont, Hamilton,
                                             Warren
        Canton-Masillon...................  Stark
        Cleveland-Akron-Lorain............  Ashtabula, Cuyahoga, Geauga,
                                             Lake, Lorain, Medina, Portage,
                                             Summit, Columbus, Delaware,
                                             Franklin, Licking
        Dayton-Springfield................  Clark, Greene, Miami, Montgomery
        Toledo............................  Lucas, Wood
        Youngstown-Warren-Sharon..........  Mahoning, Trumbull
    OKLAHOMA..............................  Anywhere
    OREGON:
        Portland-Vancouver-Salem..........  Clackamas, Multnomah, Washington
        Grants Pass.......................  Josephine
        Kalmath Falls.....................  Kalmath
        Medford...........................  Jackson
    PENNSYLVANIA:
        Allentown-Bethlehem-Easton........  Carbon, Lehigh, Northampton
        Altoona...........................  Blair
        Erie..............................  Erie
        Johnstown.........................  Cambria, Somerset
        Harrisburg-Lebanon-Carlisle.......  Cumberland, Dauphin, Lebanon,
                                             Perry
        Lancaster.........................  Lancaster
        Philadelphia-Wilmington-Atlantic    Bucks, Chester, Delaware,
         City PA-DE-NJ-MD.                   Montgomery, Philadelphia
        Pittsburgh-Beaver Valley..........  Allegheny, Armstrong, Beaver,
                                             Fayette, Washington,
                                             Westmoreland
        Reading...........................  Berks
        Scranton-Wilkes-Barre.............  Columbia, Lackawanna, Luzerne,
                                             Monroe, Wyoming
        York..............................  Adams, York
        Youngstown-Warren-Sharon..........  Mercer
    RHODE ISLAND: Providence (All RI).....  Bristol, Kent, Newport,
                                             Providence, Washington
    SOUTH CAROLINA........................  Cherokee
    SOUTH DAKOTA..........................  Anywhere
    TENNESSEE:
        Knoxville.........................  Knox
        Memphis...........................  Shelby
        Nashville.........................  Davidson, Rutherford, Sumner,
                                             Williamson, Wilson
    TEXAS:
        Beaumont-Port Arthur..............  Hardin, Jefferson, Orange
        Dallas-Fort Worth.................  Collin, Dallas, Denton, Tarrant
        El Paso, TX.......................  El Paso
        Houston-Galveston-Brazoria........  Brazoria, Chambers, Fort Bend,
                                             Galveston, Harris, Liberty,
                                             Montgomery, Waller
    UTAH:
        Salt Lake City-Ogden..............  Davis, Salt Lake
        Ogden.............................  Weber
        Provo-Orem........................  Utah
    VERMONT...............................  Anywhere
    VIRGINIA:
        Norfolk-Virginia Beach-Newport      Chesapeake City, Hampton City,
         News.                               James City County, New Port
                                             News City, Poquoson, Suffolk
                                             City, Williamsburg City, York
        Richmond..........................  Charles City Co., Chesterfield,
                                             Colonial Heights City, Hanover,
                                             Henrico, Hopewell City,
                                             Richmond City
        Baltimore-Washington, DC-MD-VA-WV.  Alexandra City, Arlington,
                                             Fairfax, Fairfax City, Falls
                                             Church City, Loudoun, Manassas
                                             City, Manassas Park City,
                                             Prince William, Stafford
        Smyth.............................  Smyth
    WASHINGTON:
        Portland-Salem....................  Clark
        Seattle-Tacoma....................  King, Pierce, Snohomish
        Spokane...........................  Spokane
    WEST VIRGINIA:
        Charleston........................  Kanawha, Putnam
        Greenbrier........................  Greenbrier
        Huntington-Ashland................  Cabell, Wayne
        Parkersburg-Marietta, WV-OH.......  Wood
    WISCONSIN:
        Green Bay-Appleton................  Door
        Manitowoc.........................  Manitowoc
        Milwaukee-Racine..................  Kenosha, Milwaukee, Ozaukee,
                                             Racine, Washington, Waukesha
        Kewaunee..........................  Kewaunee
        Sheboygan.........................  Sheboygan
        Walworth..........................  Walworth
    WYOMING...............................  Anywhere
    ------------------------------------------------------------------------

                 ECOSYSTEM AND HABITAT CONSERVATION INITIATIVES

        Question. The budget states an intention to increase the number of
    exemplary ecosystem and habitat conservation initiatives from 8 to 10
    in fiscal year 2004 with the long-term goal of 30 initiatives in at
    least 20 States or Federal Lands divisions by fiscal year 2007. Could
    you identify the 8 existing initiatives where FHWA plans to implement
    the additional two in fiscal year 2004 and what, if any, new
    initiatives will be attempted?
        Answer. There are currently five initiatives that have been
    designated to-date. These five initiatives are:

    Colorado Department of Transportation's Shortgrass Prairie Initiative
        The Colorado Department of Transportation's (CDOT) Shortgrass
    Prairie Initiative is a programmatic consultation and proactive
    avoidance, minimization, and mitigation effort covering 36 listed and
    non-listed species and associated habitats that could be impacted by
    CDOT's maintenance and construction activities on Colorado's prairie
    over the next 20 years.

    Montana Department of Transportation's US 93 Agreement
        The new highway was designed with the idea that the road is a
    visitor and should respond to and be respectful of the land and Spirit
    of Place. Montana DOT, FHWA, and the Confederated Salish-Kootenai
    Tribes reached a shared vision of the road's interaction with the
    environment and Tribal culture.

    North Carolina's Ecosystem Enhancement Program
        In order to deal with a rapidly expanding transportation program
    that will impact an estimated 6,000 acres of wetlands and a million
    feet of streams over the next 7 years, the North Carolina Department of
    Transportation, the United States Army Corps of Engineers, and the
    North Carolina Department of Environment and Natural Resources are
    designing an Ecosystem Enhancement Program to protect the State's
    natural resources.

    Oregon DOT's Fish Friendly Maintenance Practices
        The Oregon DOT has developed a Geographic Information System-based
    sensitive resource inventory along nearly 6,000 miles of State highway
    as part of its Salmon Resources and Sensitive Area Mapping Project. The
    primary purpose of the project is to provide accurate resource
    protection maps to roadway maintenance crews so that mowing, pesticide
    application, and other activities do not harm listed salmon species and
    other sensitive resources.

    Washington DOT's Watershed Approach to Mitigation Setting
        This watershed approach is a community based environmental decision
    making process that uses watersheds as functional systems, coordinating
    and integrating human activities to implement watershed recovery
    efforts and to prevent further degradation of natural resources within
    the watershed basin. A key component of the Washington DOT's watershed
    approach is the targeting of mitigation funds to sites offering
    greatest ecological benefits.
        Detailed information on these five initial initiatives (established
    in fiscal year 2002) is available on the FHWA website at: http://
    www.fhwa.dot.gov/environment/strmlng/bestprac.htm.
        Three additional initiatives are being examined and will be
    implemented by the close of fiscal year 2003. These initiatives
    include:

    Nevada--Regional Wetland Bank
        Constructed by the Nevada DOT, this project is on public land,
    within sight of a major highway, has public hunting, wildlife viewing
    platforms, long-term monitoring, extensive irrigation rights and
    control structures and support from agencies. It has been very
    successful over a 6-10 year period. It was built as a regional bank for
    projects between Reno and Gardnerville.

    Arizona--State Route 260 Wildlife Measures
        This project in Arizona involves area-wide habitat connectivity
    monitoring and measures for wildlife passage. The project is just below
    the Mogollon Rim. This area has one of the highest wildlife-vehicle
    (primarily elk) collision rates in the State. The Arizona DOT is in the
    process of building 17 sets of bridges along 17 miles of highway to
    allow wildlife permeability underneath the highway based on extensive
    habitat studies interagency coordination. The Arizona Game and Fish
    Department has been given the task of monitoring the effectiveness of
    these structures. Monitoring will compare the differences in bridge
    design based on the number of animals and how readily they use them.

    New Hampshire--Route 101 Mitigation Program
        The mitigation plan was developed for the New Hampshire DOT project
    to improve 17.6 miles of NH Route 101 from Epping to Hampton. This is a
    multi-faceted program with measures to minimize impacts to existing
    wetland resources, restore estuarine marsh, protect upland habitat,
    maintain water quality, preserve and study historic and archeological
    sites, minimize highway noise and create replacement wetlands.
        FHWA has identified several additional initiatives as possibilities
    for 2004 and beyond:
      --Iowa--the State DOT's living roadside and prairie restoration
            program;
      --California--several land-use/transportation/conservation planning
            initiatives;
      --Alaska--highway culvert replacement program to improve fish
            passage;
      --Arizona--Desert bighorn habitat study and conservation plan
            relative to the US 93 upgrade.

                          CONTEXT SENSITIVE SOLUTIONS

        Question. In 2004, the budget proposes to establish a baseline of
    best practices for integrated planning and encourage 11 States to adopt
    context sensitive solutions (CSS). Have those 11 States been identified
    and what will their participation require?
        Answer. FHWA is advocating the advancement of context sensitive
    solutions (CSS) and integrated approaches to the planning and
    environmental process as part of its Environmental Vital Few Goal. As a
    baseline for CSS, FHWA selected the five States (Connecticut, Kentucky,
    Maryland, Minnesota, and Utah) that were selected in 1998 as Context
    Sensitive Design (CSD)/CSS pilot States.
        FHWA is currently finalizing the criteria that will be used to
    identify additional States that have adopted CSS. The criteria under
    consideration include the following:
      --Some projects are being implemented using a CSS approach, tools,
            and methodologies.
      --Technical staff is trained in a CSS approach, both in field and
            central offices, and across disciplines (planning, environment,
            design, right-of-way, operations, and maintenance).
      --Interdisciplinary teams are involved in the process from the
            beginning to the end.
      --There is early, continuing, and interactive public involvement
            throughout the project development process.
      --There is a written commitment or policy.
        Following finalization of the criteria, FHWA anticipates
    identifying a minimum of three additional CSS States by the close of
    fiscal year 2003. The fiscal year 2004 target for CSS is to increase
    the total number of CSS States to 11, although FHWA has not yet
    identified the additional States that will allow the agency to reach
    its fiscal year 2004 target.

                           STRATEGIC HIGHWAY NETWORK

        Question. The budget requests $4.6 million to coordinate military
    and civilian traffic needs in emergencies focusing on the Strategic
    Highway Network. Please provide an accounting of exactly how FHWA plans
    to spend this $4.6 million.
        Answer. The $4.6 million requested is to support security
    activities that are much broader than just the Strategic Highway
    Network (STRAHNET). The STRAHNET system (a portion of the National
    Highway System) supports military deployment and is in good structural
    and operational condition.
        DOT works with the Department of Defense (DOD) to improve
    mobilization effectiveness, and to help State and local transportation
    agencies safely and securely sustain vital traffic flows. Approximately
    $2.3 million of the funds will be used to support and improve military
    deployment including: (1) workshops with civilian and military
    authorities at the major deployment ``forts''; (2) development and
    distribution of a best practices guide for support of military
    deployment; (3) specific reviews of one or more of the ``fort-to-port''
    routes at the major military platforms; and (4) coordination with DOD
    to facilitate rapid mobilization over the highway network and to
    minimize disruption to traffic during the mobilization.
        The remaining $2.3 million will be used for a broad array of
    security initiatives, the more significant of which include: (1)
    coordination with highway industry partners to implement the
    Transportation Security Administration's (TSA) proposed security
    standards regarding protection of critical infrastructure; (2)
    transportation-focused emergency response preparedness activities for
    natural disasters, accidental incidents involving hazardous materials,
    and intentional acts in metropolitan areas designated by the Department
    of Homeland Security (DHS) as being at greatest risk; and (3) internal
    agency initiatives to ensure continuity of operations preparedness for
    emergencies. The emergency response activities are fully coordinated
    with DHS units including FEMA, TSA, etc., the National Academy of
    Sciences, and the American Association of State Highway and
    Transportation Officials (AASHTO).

                            MEGA PROJECTS OVERSIGHT

        Question. The Department has identified and initiated steps to
    improve oversight of mega projects by developing a comprehensive,
    standard approach. What is the new comprehensive, standard approach
    that will be applied to all mega projects? How is it different than
    previous oversight requirements, and how does the Department envision
    that this new approach will improve mega project planning and
    construction?
        Answer. Beginning in May 2000, FHWA issued its Financial Plan
    Guidance defining the content and format of the Financial Plans as
    required by Section 1305 of TEA-21, for all highway projects with an
    estimated total cost of $1.0 billion or more. The Financial Plan
    provides a comprehensive document reflecting the total cost of the
    project, and provides reasonable assurances that there will be
    sufficient financial resources to complete the project as planned. Cost
    containment strategies are also identified in the Financial Plans, as
    well as an implementation schedule for completing the project. Annual
    updates are required to track significant cost and schedule deviations
    from the initial Financial Plan, and mitigative actions taken to adjust
    for those deviations. A provision in the SAFETEA reauthorization
    proposal would make Financial Plans a requirement for all highway
    projects receiving $100 million or more in Federal-aid funds.
        As a standard operating procedure, major (mega) projects produce
    periodic (usually monthly) cost, schedule, and status reports; and
    periodic status meetings are held with the State Transportation
    Agency's project management team, FHWA, and other involved agencies in
    attendance. The periodic status meetings discuss project costs,
    schedules, quality issues, and other status items in sufficient enough
    detail to allow involved parties to be aware of significant issues and
    actions planned to mitigate any adverse impacts.
        FHWA is committed to assigning a designated Oversight Manager to
    each active major project, dedicated full-time to that specific major
    project. The Oversight Manager may draw upon resources from within his/
    her Division Office, in order to form an integrated project team that
    is responsible for providing proper Federal stewardship and oversight
    of the major project. Core competencies and training resources have
    been established for the major project Oversight Managers. A web-based
    resource manual has also been completed in order to provide guidance,
    tools, and best practices to assist the Oversight Managers in
    effectively carrying out their duties.
        An active major projects monthly status reporting system has been
    implemented in conjunction with the Department's Office of Inspector
    General (OIG). The assigned Oversight Managers are responsible for
    updating the critical issues and risks (schedule, cost, funding, legal,
    contractual, and technical) on a monthly basis, with the consolidated
    report forwarded to FHWA upper management and the OIG.
        The sharing of best practices and lessons learned among the major
    projects are accomplished via annual Oversight Managers meetings, semi-
    annual newsletters, and the Central Artery/Tunnel Project's Innovations
    and Advancements workshop.
        Project Management Plans are strongly encouraged from a best
    practices point of view, in order to clearly define the roles,
    responsibilities, processes, and activities that will result in the
    major project being completed on-time, within budget, with the highest
    degree of quality, in a safe manner, and in a manner in which the
    public trust, support, and confidence is maintained. A provision in the
    SAFETEA reauthorization proposal would make Project Management Plans a
    requirement for all highway projects with an estimated total cost of
    $1.0 billion or more.
        All of these initiatives have been implemented within the last 3
    years and have expanded the Federal stewardship and oversight of major
    project planning and construction.

                           ``AT-RISK'' MEGA PROJECTS

        Question. The budget discusses plans to designate mega projects
    with significant deviations from cost and schedule baselines as ``at-
    risk.'' Does this designation carry with it any additional requirements
    or Federal oversight? Please identify mega projects currently underway
    that, under this new plan, would receive an ``at-risk'' designation?
        Answer. Major (mega) projects designated ``at-risk'' would trigger
    certain special conditions or restrictions, until the recipient of
    Federal funds addresses identified issues in an approved recovery plan.
    These special conditions may include withholding of authority to
    proceed to the next phase of the project; requiring additional, more-
    detailed cost, schedule, or financial reports; requiring the recipient
    to obtain technical or management assistance; establishing additional
    prior approvals; requiring more direct on-site inspection of the
    project by Department personnel; and/or follow-up reporting on a
    periodic basis until the Department removes the designation.
        The Boston Central Artery/Tunnel project was designated ``at-risk''
    in 2000 after several investigations and project reviews indicated
    significant rising costs. The I-95/I-495 Springfield Interchange
    project, though not officially designated ``at-risk,'' was required to
    begin submitting Financial Plans due to rising costs, even though the
    total cost of the project is still well under $1.0 billion. None of the
    other 12 identified active major projects have thus far experienced
    significant cost or schedule deviations.

                     SR 210/FOOTHILL FREEWAY ADDITIONAL FTE

        Question. The FHWA budget lists the FTE requirements for mega
    project oversight; however, the SR 210/Foothill Freeway, CA project has
    no staff listed for fiscal year 2004. Given that all mega projects will
    receive improved oversight, why then are no FTE requested for this
    particular project?
        Answer. The SR 210/Foothill Freeway project is on schedule and
    within budget; therefore, no Financial Plans and annual updates, and
    hence additional FTEs to provide project oversight, are required for
    this project. With a substantial portion of the project already
    completed, the California Division office is able to conduct adequate
    oversight of this major project with existing staff.

                           ENVIROMENTAL STREAMLINING

        Question. The budget requests $20.8 million to support
    transportation research dealing with environmental streamlining which
    focuses on long-term and preemptive measures designed to streamline the
    environmental impact review process and procedures. What environmental
    streamlining measures have been implemented thus far and what measures
    are being researched that would lead to greater environmental
    streamlining efforts in the future? Please provide a detailed breakdown
    of how the requested $20.8 million will be spent.
        Answer. FHWA has been pursuing environmental streamlining measures
    on multiple fronts, some national in scope, some regional or State-
    specific in scope. These measures implement Congressional direction
    from Section 1309 of TEA-21, and have been implemented in the context
    of Executive Order 13274 and FHWA's Vital Few performance planning
    effort. The following describes some of FHWA's accomplishments to-date.
    Solidifying Interagency Partnerships
        Field level environmental summits.--The FHWA Eastern, Southern, and
    Western Resource Centers held regional conferences, bringing together
    representatives from Federal, State, and local transportation,
    planning, and resource agencies, local governments, Metropolitan
    Planning Organizations (MPOs), transportation and environmental
    organizations, tribes, and consultants to discuss relevant issues and
    identify opportunities for improvement. Results of the summits were
    distributed via the Successes in Streamlining Monthly Newsletter
    (September 2002). The sharing of solutions and integration of efforts
    found within each regional conference advances streamlining through an
    emphasis on process improvements.
        Interagency training on environmental streamlining.--The Federal
    interagency workgroup has collaborated in organizing a series of
    environmental streamlining workshops aimed at getting field staff of
    each Federal agency aligned with the national agenda. FHWA sponsored a
    multi-agency workshop in 1999 and agency-specific workshops with the
    U.S. Army Corps of Engineers (2001), Environmental Protection Agency
    (2002) and Fish and Wildlife Services/National Oceanic and Atmospheric
    Administration (2003). These workshops have been a good forum for
    sharing the national vision, identifying issues that cause interagency
    conflict, and sharing innovative practices from around the country.
    Furthermore, they have promoted the concepts of coordination and
    process efficiencies in the environmental review of transportation
    projects.

    Institutionalizing Dispute Resolution
        Partnership with Institute for Environmental Conflict Resolution
    (IECR).--The 1998 Environmental Policy and Conflict Resolution Act
    created IECR, which is part of the Morris K. Udall Foundation. IECR
    helps Federal agencies and other involved parties manage and resolve
    Federal environmental, natural resource, and public lands disputes by
    providing services such as case consultation, conflict assessment,
    process design, facilitation, and mediation. FHWA partnered with IECR
    to meet the mandate set forth in Section 1309(c) of TEA-21 to create
    dispute resolution procedures as part of a national environmental
    streamlining initiative. FHWA and IECR have been working effectively
    together since 1999 to develop and implement the four components of the
    dispute resolution system, described below. The dispute resolution
    system is intended to assist the agencies to quickly and effectively
    focus on the pertinent project issues, save time, and avoid the costs
    of potential litigation.
        Roster of qualified neutral facilitators.--As part of the FHWA/IECR
    collaborative partnership, a transportation roster was created that is
    comprised of dispute resolution professionals with experience in NEPA
    and transportation projects. The roster is managed by the U.S.
    Institute for Environmental Conflict Resolution, with financial support
    by FHWA to help cover administrative costs. These professionals can
    provide services such as conflict assessment, facilitation of
    interagency partnering agreements, design of conflict management
    processes, and mediation of disputes. Project sponsors contact IECR to
    access the transportation roster, and then negotiate contracts and pay
    for the costs of the transportation roster members' services directly.
    Recently, FHWA and transportation sponsors have used the transportation
    roster to provide facilitators for three of the priority projects
    designated under Executive Order 13274.
        Guidance on interagency conflict management.--This FHWA guidance
    offers a range of optional tools agencies can use to manage conflicts
    and resolve disputes during the transportation project development and
    environmental review processes. It also constitutes the key reference
    document used in the interagency workshops described below.
        Interagency conflict management workshops.--The FHWA dispute
    resolution system includes a series of customized facilitated
    interagency workshops in each of the 10 standard Federal regions. The
    workshops were developed during 2002 and will be held from May to
    December 2003. Skills gained at the workshops will help practitioners
    from the various agencies to better identify environmental review
    issues, negotiate time frames and work through disagreements using
    interest based negotiating.

    Supporting State Environmental Streamlining Efforts
        American Association of State Highway and Transportation Officials
    (AASHTO) ``Center for Environmental Excellence.''--AASHTO launched the
    Center in 2002 with technical and financial assistance provided by
    FHWA. The Center's mission is to assist AASHTO's member organizations
    with implementing environmental stewardship into their various
    practices and procedures, and promoting innovative streamlining of the
    project delivery process. AASHTO expects that the results of this
    assistance will be beneficial to State transportation agencies and also
    supportive of FHWA's work in protecting and enhancing the environment.
        Individual State environmental streamlining initiatives.--FHWA has
    partnered with well over half of the State departments of
    transportation in advancing their own environmental streamlining
    efforts. Notable examples include Florida's Efficient Transportation
    Decisionmaking effort, and Texas' I-69 interagency partnering effort.
        Environmental Streamlining Research.--The funds requested in fiscal
    year 2004 to support transportation research dealing with environmental
    streamlining (ES) will be used for the following activities:
                Assistance to State and Field Office Initiatives
      --Support for State DOT ES efforts
      --AASHTO Center for Environmental Excellence
      --FHWA field office initiatives to enhance interagency coordination
                National ES Initiatives
      --Dispute resolution facilitation and training
      --Performance evaluation systems and studies
      --Integrated approaches promotion & training
      --Information sharing on ES
      --Policy Research.

                                FTE DISTRIBUTION

        Question. The FHWA budget requests 12 new FTE. Specifically where
    will these new FTE be utilized?
        Answer. The 12 new FTE that are requested in fiscal year 2004 will
    be utilized as Mega-Project Oversight Managers to enhance major
    projects oversight and fulfill FHWA's commitment of having a dedicated
    oversight project manager on each mega-project. They will: represent
    FHWA before other Federal agencies, State Transportation Agencies
    (STA), local agencies, consultants, and contractors on all project
    delivery and oversight issues; be responsible for overseeing the review
    and approval of plans, specifications and cost estimates; and ensure
    that FHWA laws and requirements, such as Buy America, Davis-Bacon
    minimum wage rates, Disadvantaged Business Enterprise and affirmative
    action requirements, records of materials and supplies, etc., are
    incorporated in Federal-aid construction contracts. The table below
    provides a breakdown of the FTE Requirement for Active (and Future)
    Major Projects.

                         FISCAL YEAR 2004 FTE REQUIREMENT FOR ACTIVE (AND FUTURE) MAJOR PROJECTS
    ----------------------------------------------------------------------------------------------------------------
                                                                                          Current       Fiscal Year
                        Projects                                  Status              Staffing Level       2004
    ----------------------------------------------------------------------------------------------------------------
    I-80/San Francisco-Oakland Bay Bridge (East      Active.........................               1               1
     Span), CA.
    SR 210/Foothill Freeway........................  Active.........................  ..............  ..............
    I-25/I-225 Southeast Corridor, CO..............  Active.........................               1               1
    New Haven Harbor Crossing, CT..................  Active.........................  ..............               1
    Miami Intermodal Center, FL....................  Active.........................  ..............               1
    I-4/I-275 Tampa Interstate, FL.................  Active.........................  ..............               1
    New Mississippi River Bridge, IL-MO............  Active.........................  ..............               1
    Central Artery/Ted Williams Tunnel, MA.........  Active.........................               5               3
    Central Texas Turnpike, TX.....................  Active.........................               1               1
    I-10/Katy Freeway, TX..........................  Active.........................  ..............               1
    I-95/Woodrow Wilson Bridge, MD.................  Active.........................               2               2
    I-95/I-495 Springfield Interchange, VA.........  Active.........................               1               1
    I-64/Hampton Roads Third Crossing, VA..........  Active.........................  ..............               2
    I-94/East-West Corridor, WI....................  Active.........................  ..............               1
    New Ohio River Bridges, KY-IN..................  Future.........................  ..............               1
    I-94/Edsel Ford Freeway, MI....................  Future.........................  ..............               1
    Mon/Fayette Expressway, PA.....................  Future.........................  ..............               1
    I-635/LBJ Freeway (West Section), TX...........  Future.........................  ..............               1
    I-405 Corridor/SR 509 and I-5/SR520/Alaskan Way  Future.........................  ..............               2
     Viaduct, WA.
                                                    ----------------------------------------------------------------
          Totals...................................  ...............................              11              23
    ----------------------------------------------------------------------------------------------------------------

     UPGRADING AND PROTECTING THE EXISTING INFORMATION RESOURCE MANAGEMENT
                                 INFRASTRUCTURE

        Question. As part of the LAE, Federal Highways anticipated
    upgrading and protecting the existing Information Resource Management
    infrastructure. What does this anticipated upgrade involve and how much
    money will be required to specifically carry out this effort?
        Answer. The anticipated upgrade includes: (1) establishment of a
    systematic replacement/refresh cycle for basic Information Resource
    Management (IRM) hardware; (2) additional contract services for IRM
    Security; and (3) upgrades and maintenance of IRM Security equipment.
    The total amount of money required to carry out this consolidated
    effort is $2.9 million.
        The first effort is establishment of a systematic replacement/
    refresh cycle for basic IRM equipment, in particular, desktop
    computers, laptop computers, printers and networks. The Federal Highway
    Administration (FHWA) is not seeking to upgrade these categories of IRM
    hardware across the board. Rather, FHWA seeks to establish a standard
    replacement interval for each category of IRM hardware and then to
    replace hardware items only when their interval has elapsed. FHWA
    requests $1.2 million to carry out this effort.
        The second effort is an increase in contract services for IRM
    Security. The additional contract services would be used to enable FHWA
    to complete certification and accreditation activities by the
    Department of Transportation's established deadline of December 2005 as
    well as to develop and implement the initial components of a continuous
    risk management process. FHWA requests $1.2 million to carry out this
    effort.
        The third effort is to upgrade and maintain IRM Security equipment.
    In particular, the effort would involve purchasing the automated tools,
    software upgrades and associated maintenance necessary to actively look
    for, anticipate, and counteract threats and vulnerabilities before they
    are employed or exploited. These tools include, without limitation,
    intrusion detection systems, vulnerability scanners, incident response
    tools, incident tracking systems, anti-virus, file encryption, and
    secure remote access. FHWA requests $500,000 to carry out this effort.

                                     ______

                  Question Submitted by Senator Arlen Specter

                 COMMERCIAL PASSENGER AIRCRAFT FUEL TANK SAFETY

        Question. Mr. Secretary, I am advised that the Federal Aviation
    Administration has worked recently with Foamex International, Inc. of
    Linwood, Pennsylvania on identifying current fiscal year funding
    opportunities for important research concerning the safety of
    commercial passenger aircraft fuel tanks.
        I was pleased to learn that Associate Administrator Charles Keegan
    and his staff are drafting a Cooperative Research Development Agreement
    to conduct tests that will help determine the effectiveness of using
    the company's Safety Foam for safety and security applications. Safety
    Foam is an advanced reticulated polyurethane foam material, which can
    be installed inside aircraft fuel tanks and can act as a 3-dimensional
    fire screen that prevents fire propagation due to internal ignition of
    fuel vapors.
        Given the importance of maximizing the safety of such fuel tanks, I
    would appreciate your providing the Subcommittee with an update as to
    the timetable for entering into the Cooperative Agreement with Foamex
    International, the amount of fiscal year 2003 funds the agency is
    prepared to devote to this critical research, and any other relevant
    information on this specific subject you would like to share with us.
        Answer. Working with Foamex International, the FAA has developed a
    Cooperative Research Development Agreement. The agreement was sent to
    Foamex for their signature on June 13, 2003.
        The FAA has set aside $100,000 in fiscal year 2003 aircraft safety
    funds to support tests and evaluations to determine the potential
    effectiveness of the foam for commercial aviation applications.
        At a June 10, 2003, meeting of fuel system and foam experts,
    including representatives from Foamex and others in the private sector,
    the FAA developed the preliminary proposal for a series of tests to
    explore the foam's feasibility in mitigating the effects of a simulated
    crash of an airplane and the spillage of a large amount of fuel. Foamex
    and FAA technical personnel have met to discuss and design a test
    plant. The parts necessary for the test have been ordered. Since they
    are rather unique and need to be specially fitted, the first ``water
    only'' test won't take place until mid-October.
                                     ______

                  Questions Submitted by Senator Sam Brownback

                              SHORT LINE RAILROADS

        Question. As I mentioned in my opening remarks, a particular
    concern that should be near the heart of many of us in this room is the
    fate of short line local freight railroads. These short lines account
    for roughly half the rail miles in Kansas. These lines gather tens of
    thousands of carloads of grain and start them on their way across the
    country and for export abroad.
        However, government disincentives forced the prior owners of these
    light density lines to neglect investment in the infrastructure, and
    now the weight of loaded railroad cars are growing ever heavier. This
    has forced many of these light density lines to abandon operations.
    From 1980 to 1990 Kansas lost 862 miles of railroad to abandonment.
    From 1990 to 2000, Kansas lost 1,157 miles. In the last 2 years we have
    lost 357 miles.
        In Kansas, when railroads go out of business it is very bad for
    highways. For example, Harper County, Kansas recently lost rail service
    and the increase in heavy trucks as a result does so much damage to the
    roads that the government can no longer afford to pave them--instead
    the once paved roads are being turned into unpaved gravel roads.
        The Kansas DOT estimates that short line railroads, by removing
    heavy trucks from the highway, save roughly 17 cents in highway damage
    for every mile that a truck would otherwise travel. Seventeen cents a
    mile in Kansas amounts to $50,000,000 per year that K-DOT estimates are
    saved by the continued existence of these lines.
        It seems to me Mr. Secretary that these numbers in terms of cost
    savings for our highway system are compelling. The more traffic we can
    get onto local railroads the less it costs to maintain our highways,
    not to mention the immeasurable cost in jobs and opportunities to
    communities that lose rail service.
        Last Congress I supported legislation S. 1220 along with my
    colleagues Sen. Specter and Sen. Hollings that would have made $350
    million per year available to help preserve freight service on these
    lines. What similar plans, if any, does the administration have to
    address the desperate need in every rail served State to preserve short
    line railroads?
        Answer. The Administration has not proposed a new grant program as
    contained in S. 1220. There exists now a loan and loan guarantee
    program, the Railroad Rehabilitation and Improvement Financing (RRIF)
    Program, that offers financial assistance to meet these needs.

                          S. 788 CENTURY OF FLIGHT ACT

        Question. While the aviation industry is currently suffering and
    revenue for the Airport and Airway Trust Fund has decreased recently,
    the FAA forecasts that growth in the airline industry is expected to
    return to near normal levels. If these forecasts are true, demand for
    air travel will require expansion of air traffic services. In an
    industry that is currently suffering, we must act now to provide the
    needed assistance and vision where we are currently lacking.
        This is precisely why I introduced along with Senator Hollings, S.
    788, the Second Century of Flight Act. The purpose of this bill is to
    ensure that the United States continues to lead the world in
    aeronautics and aviation safety, technology, and efficiency.
    Additionally, this bill aims to create a better trained U.S. aerospace
    workforce, through support for technical colleges and other educational
    institutions. And of particular importance, this bill would facilitate
    the coordination of U.S. research efforts, and increase focus on
    directing government research towards usable products that enhance
    safety, are environmentally sound, and increase efficiency.
        I am pleased that my Colleagues on the Commerce Committee agreed to
    three of the four titles of S. 788, in the FAA Reauthorization bill we
    passed out of the Committee. These titles include provisions that
    create a national office to coordinate aviation and aerospace research
    activities with the U.S. Government and encourages public-private
    cooperation; create a national office to focus on a next generation air
    traffic management system; and establishes educational incentives to
    train the next generation of aeronautics engineers and mechanics.
        Mr. Secretary, I am sure you are aware of the importance of these
    issues, not only in Kansas, but across the United States. I would like
    you to comment on your commitment to these issues and specifically,
    your support of the initiatives in S. 788.
        Answer. The Department of Transportation (DOT) is very aware of the
    importance of the issues you raise and have actively initiated efforts
    to better support the U.S. position in aerospace research and
    development. DOT has formed a Joint Planning Office (JPO) comprised of
    the Federal Aviation Administration (FAA), Department of Defense,
    Transportation Security Administration, Department of Commerce, and
    National Aeronautics and Space Administration to focus on development
    of our next generation air traffic management system. The FAA leads the
    team. We are also establishing a high-level policy committee to guide
    this effort that will be chaired by the Secretary of Transportation.
    The Secretary will establish the Policy Committee in the summer of
    2003. The next steps are to establish advisory committees for this
    activity, to coordinate a framework for the initiative through the five
    participating agencies and departments, and begin drafting the national
    plan.
                                     ______

                 Questions Submitted by Senator Robert C. Byrd

                              COMPETITIVE SOURCING

        Question. Last year, the Federal Aviation Administration announced
    that it is considering plans to privatize up to 2,700 air traffic
    control jobs at 58 of FAA's 61 Automated Flight Service Stations (AFSS)
    around the country. These jobs are critical to the safety of the
    traveling public, and I believe that the Department of Transportation
    should be more careful about handing these important functions over to
    the private sector. This country learned a valuable lesson about
    entrusting public safety responsibilities to private companies when we
    discovered security failures at our airports, which required Congress
    to place those responsibilities in the hands of the Transportation
    Security Administration. Apparently, the Department has not learned
    anything from this experience.
        I am concerned that the FAA is acting under pressure from the White
    House to implement the President's competitive sourcing initiative. OMB
    scores agencies on how well they comply with the President's Management
    Agenda. Agencies are encouraged to submit management plans to the OMB,
    which incorporate the competitive sourcing quotas outlined in the
    President's budget.
        It is my understanding that these competitive sourcing plans, once
    they are submitted to the OMB for approval, can be released to the
    public at the discretion of the agency heads. If the Congress is to
    appropriate substantial funding for private sector employment
    opportunities, I expect that you will first provide Congress, and in
    particular this Committee, with a copy of any management plans or
    competitive sourcing proposal that the Department of Transportation
    submits to the OMB. When do you expect to submit a competitive sourcing
    plan to OMB, and how soon can you make that plan available to this
    Committee?
        Answer. FAA prepared a competitive sourcing plan for Automated
    Flight Service Stations that was submitted to the Department of
    Transportation on June 19, 2002. As a result of recent changes to OMB
    Circular A-76 and the President's Management Agenda, FAA is in the
    process of updating the plan again. The agency will provide the
    Committee a copy of the revised FAA competitive sourcing plan when it
    is complete.
        Question. How can you explain to the American people the
    willingness of the FAA to take flight safety out of the hands of
    dedicated public servants and put hand it over to private companies
    that are only dedicated to maximizing profits?
        Answer. Automated Flight Service Stations (AFSS) do not engage in
    the separation of aircraft. Their duties primarily support the general
    aviation community by providing weather briefings, processing flight
    plans, assisting lost pilots, and initiating search and rescue
    operations. These functions are performed at separate facilities
    throughout the United States and Puerto Rico. (The three AFSS in Alaska
    have been excluded from the study.) Each year the FAA spends over $500
    million to support this function. Since the competitive sourcing study
    of the AFSS is a public/private competition, not a privatization, the
    existing government employees will have a chance to compete for and win
    their work. So it will not automatically go to the private sector.
    Whoever wins the competition, public or private, will be accountable
    for their performance through performance metrics and incentives. FAA
    believes that it is possible to pursue ways of decreasing costs while
    improving service through the use of OMB Circular A-76.
                                     ______

                Questions Submitted by Senator Richard J. Durbin

                  FISCAL YEAR 2004 FUNDING REQUEST FOR AMTRAK

        Question. Why did the Administration only include $900 million for
    Amtrak in the fiscal year 2004 budget when this level of funding will
    send the company into insolvency?
        Answer. The fiscal year 2004 request was a request with a message.
    That message is that the Administration is unwilling to support ever-
    increasing levels of appropriations for the current, broken business
    model of providing intercity passenger rail service in this country.
    Until the changes to intercity passenger rail service are developed and
    agreed upon as part of the authorization process, the Administration is
    not willing to discuss funding intercity passenger rail service at a
    level above $900 million.

            THE ADMINISTRATION'S VISION FOR INTERCITY PASSENGER RAIL

        Question. The Bush Administration's vision for our Nation's
    intercity passenger rail system would separate the train operations
    from the infrastructure management on the northeast corridor. The
    United Kingdom failed when it tried this model. Can you give me
    specifics as to how your model for the northeast corridor differs from
    the failed British model?
        Answer. The Administration has carefully observed the rail
    privatization initiative in the United Kingdom and believes that the
    strategy for intercity passenger rail reform in this country will
    reflect the lessons that can be learned from the United Kingdom's
    experience. The primary lesson is that the Administration's plan will
    avoid the conflict between infrastructure owner and train operator
    inherent in the U.K. model. The public will continue to own the
    infrastructure with a strong say in how it is maintained and operated.
    The same public entity, a compact of the Northeast Corridor States,
    will also determine who operates over this infrastructure.
        Question. In your vision for Amtrak's reauthorization, you call for
    private operators to run Amtrak's long distance routes. Can you name
    for me a company that is willing to operate one of these routes without
    subsidy? Do you think the freights will agree to allow multiple private
    operators to run passenger trains on their tracks?
        Answer. The Department's proposal does not envision private sector
    companies volunteering to operate intercity trains at a loss. The
    States would put together the financial package for each train they
    believe is important enough to warrant the State's support. To the
    extent such a train would not cover its operating expenses from the
    fare box, then it would be up to the States to identify the source or
    sources of operating assistance. With further regard to private
    operators, the Department does not envision multiple operators on the
    same rail route except in very close proximity to stations and
    terminals where routes come together.
        Question. Do you think the States have the money to pay for the
    operating costs to run the long distance trains as the Administration
    is suggesting in its plan? Considering that the Federal Government
    created the long distance routes and that these routes run through
    multiple States, why should these costs be shifted to the States? The
    Federal Government created the Federal highway system which runs
    through multiple States, yet you are not asking for the States to cover
    the operating costs for those highways.
        Answer. The Administration is well aware of the financial
    challenges facing the States. For that reason, the Administration's
    proposal envisions a reasonable transition time to permit the States to
    identify which services are important to them and sources of funds to
    provide needed financial assistance. The expectation that the Federal
    Government does not provide operating assistance is consistent with the
    Federal role in highways and transit; States and localities assume
    responsibility for operating costs for these forms of transportation.

                          SMALL COMMUNITY AIR SERVICE

        Question. Is the Department working with small communities to help
    attract and retain passenger air service? In what ways? This becomes
    more urgent as carriers terminate service to smaller communities due to
    the financial crisis in the airline/aviation industry.
        Answer. The Department recognizes that small communities have been
    affected by the financial crisis in the airline industry. The
    Department has two programs specifically designed to help small
    communities with their air services. First, under the Essential Air
    Service (EAS) program, over 700 communities are guaranteed to receive
    at least a minimum level of air service. Of those, the Department
    currently subsidizes carriers to serve 135 communities nationwide, 33
    of which are in Alaska. Since September 11, 2001, the Department has
    received over 50 notices from carriers to terminate the last service at
    the community, most of them triggering a first-time EAS subsidy. The
    Department has ensured that these communities continue to receive air
    service as we seek replacement carriers.
        Second, the Department administers the Small Community Air Service
    Development Pilot Program. This program was established under the AIR-
    21 legislation and is a new program designed to help small communities
    address problems related to inadequate air service and high airfares.
    Under the legislation, the Department may make grant awards to a
    maximum of 40 communities each year, although no more than 4 may be
    from any one State. This program is unique in that it provides
    communities the flexibility to design their own solutions to their air
    service problems and to seek Federal financial support to help them
    implement their plans.
        For fiscal year 2002, the first year that funds were available,
    Congress appropriated $20 million for this program. The program was
    very popular in fiscal year 2002 with the Department receiving 180
    applications. Grant awards were made to 40 communities using all of the
    funds available. Many of these grants have already led to new or
    improved services at the selected communities, including Fort Smith,
    Arkansas; Daytona Beach, Florida; Augusta, Georgia; Hailey, Idaho; Lake
    Charles, Louisiana; Meridian, Mississippi; Taos, New Mexico; Akron/
    Canton, Ohio; Rapid City, South Dakota; Charleston, West Virginia; and
    Rhinelander, Wisconsin. In February 2003, Congress appropriated $20
    million for this program for fiscal year 2003. The Department solicited
    proposals from interested communities on April 29. Proposals were due
    June 30 and are being reviewed.

                           OVERSEAS REPAIR FACILITIES

        Question. The Administrator has been petitioned by the
    Transportation Trades Department of the AFL-CIO and its member unions
    for an immediate suspension of repairs performed on U.S. aircraft at
    overseas maintenance facilities. The petition cites potential threats
    to safety and security as well as lax government oversight. Do you have
    plans to either suspend these repairs or more fully study this issue in
    the near future? Would you support Federal legislation?
        Answer. The Federal Aviation Administration (FAA) agrees that our
    national security posture was dramatically altered from the tragic
    events of September 11, 2001. All transportation agencies collectively
    identified ways to improve their security plans and immediately set
    about incorporating changes necessary to strengthen those deficient
    areas. The Transportation Security Administration (TSA) is beginning to
    study security requirements for both foreign and domestic repair
    stations. The FAA will support and work with the Homeland Security
    Department's TSA in this area.
        There are no plans to revoke any foreign repair station
    certificates. The AFL-CIO requested that FAA revoke foreign repair
    station certificates. This would greatly reduce the availability of
    certified repair stations and severely affect the aviation industry.
    Under the proposed AFL-CIO scenario the only option for air carriers,
    both foreign and domestic, operating U.S. registered aircraft would be
    to have maintenance performed in the United States by domestic repair
    stations. This would set up a chain of events that would create
    scheduling difficulties and reduce the number of revenue-producing
    flights.
        The FAA would not support additional Federal legislation in these
    areas. The FAA currently has the authority to perform surveillance,
    oversight, and enforcements as appropriate on foreign repair stations.

                              SUBCOMMITTEE RECESS

        Senator Shelby. We wish you the best of health and we will
    recess the subcommittee to the call of the Chair.
        Secretary Mineta. Thank you very much, Mr. Chairman.
        Senator Shelby. Thank you.
        [Whereupon, at 11:37 a.m., Thursday, May 8, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

      DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
              RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                             TUESDAY, MAY 20, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:11 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Richard C. Shelby (chairman)
    presiding.
        Present: Senators Shelby, Specter, Murray, and Byrd.

                           DEPARTMENT OF THE TREASURY

                            Office of the Secretary

    STATEMENT OF HON. JOHN SNOW, SECRETARY
    ACCOMPANIED BY TERESA MULLET RESSEL, ACTING ASSISTANT SECRETARY,
                MANAGEMENT AND BUDGET

                 OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

        Senator Shelby. Good morning. The committee will come to
    order.
        I would like to welcome John Snow, Secretary of the
    Department of the Treasury. Thank you, Mr. Secretary, for
    appearing before the subcommittee today to discuss the fiscal
    year 2004 budget request for the Department of the Treasury. I
    look forward to learning about the new leadership you bring to
    the Department as well as the resources necessary to carry out
    the responsibilities at the Department.
        The Department of the Treasury has undergone significant
    changes since the transfer of the majority of its law
    enforcement bureaus and related functions to the newly created
    Department of Homeland Security and the Department of Justice.
    In the midst of those changes, the Department still maintains
    the key role in Government as economic policymaker, financial
    manager, and revenue collector. That is no small task,
    especially now as the country seeks economic recovery, job
    creation, and comprehensive tax reform and relief.
        The Department has also created a new Bureau, the Alcohol
    and Tobacco Tax and Trade Bureau, and also anticipates
    consolidating the Office of Inspector General and the Inspector
    General for Tax Administration. I am interested in learning,
    Mr. Secretary, more about those plans.
        As the threat of terrorism continues, finding ways to
    combat money laundering and other terrorist financing tools is
    an important role for the Department. It is vital to our
    ongoing counterterrorism efforts that we know what resources
    the Department will need to combat such nefarious activities.
        Treasury's budget request for fiscal year 2004 is $11.408
    billion, which includes $21.9 million for the activities of the
    Office of Foreign Asset Control, $57.5 million for the
    Financial Crimes Enforcement Network, and $5.3 million to
    increase the counterterrorism activities of the Internal
    Revenue Service's (IRS) Criminal Investigations Unit.
        These three bureaus within Treasury form part of the
    backbone of our ongoing fight against terrorist financing.
    Recent attacks in Saudi Arabia, Morocco, and Israel have shown
    it is important that we maintain a coordinated focus and
    provide the necessary resources to ensure that our combined
    efforts to disrupt terrorism financing are persistent and
    effective.
        Turning an eye toward the more traditional functions of
    Government, I want to briefly touch on the $10.4 billion
    request for the IRS that was discussed at length at a prior
    subcommittee hearing. The IRS' ongoing business system
    modernization efforts will require $429 million in the year
    2004. The subcommittee appreciates the efforts that continue to
    go into this massive upgrade that we hope will improve the
    speed, timeliness, and accuracy of IRS administration of the
    tax system.
        I am aware, Mr. Secretary, that last year's efforts
    encountered a hiccup of sorts. However, I am interested in
    hearing how the Department is working with the IRS to get back
    on track and ensure that schedule and cost setbacks do not
    become common occurrences.
        While the IRS' traditional role is to implement and enforce
    our tax laws, it has also been charged with administering the
    Earned Income Tax Credit. The budget proposes a number of
    changes to that program because of the high level of fraud
    associated with the program's administration. Each year, the
    IRS makes approximately--Mr. Secretary, listen to this number.
    Each year, the IRS makes approximately $9 billion in erroneous
    Earned Income Tax Credit payments--$9 billion. This is a direct
    and permanent loss to American taxpayers because it is
    virtually impossible to recapture these payments once they have
    been made.
        To implement the EITC Task Force recommendations, the
    Department is requesting $100 million to address the problems
    associated with the current program administration that results
    in overpayments. Eliminating erroneous payments and ensuring
    the proper administration of this program are certainly goals
    with which I completely agree.
        In conclusion, Mr. Secretary, I believe this is a
    straightforward budget that includes a number of important
    reforms and efforts at modernization. I appreciate that it will
    take time for the Department to adjust to the realignment of
    offices to the Department of Homeland Security and the
    Department of Justice. Mr. Secretary, I am confident that you
    have the opportunity to emerge stronger and more focused than
    ever.
        I want to thank you for being here today, and I look
    forward to your testimony and the question period.
        Senator Murray.

                       STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Thank you, Mr. Chairman.
        I want to welcome Secretary Snow back to the subcommittee.
    Over the years, he has testified both in public and private
    capacities on a variety of transportation issues, and I have to
    say I am tempted to ask him about how we can enhance Amtrak's
    profitability or how we can improve management of our air
    traffic control but, rather, I will focus on Treasury issues
    this morning: the Earned Income Tax Credit, foreign sales
    corporations, and the Administration's plans in Iraq.
        Let me start with EITC because I am concerned about the
    President's plan to spend $100 million to target low-income
    families and possibly deny them this critical tax credit.
        The EITC is designed to help the working poor. It is
    probably the most targeted means-tested tax benefit in the
    entire Federal code. It was started by President Ford, and it
    was greatly expanded under President Reagan. While many working
    families are eligible to receive it, as many as 25 percent or
    more of those eligible families do not even apply for it. We
    should be taking steps to allow more eligible families to get
    the help they need, but I think the President's proposal goes
    the other way. It has the potential to throw many honest
    eligible families off the rolls by putting a complex paperwork
    burden on families who are already struggling. It could also
    have a chilling effect on many families who may be intimidated
    upon receiving an official notice from the IRS questioning
    their eligibility.
        We are told the goal is to minimize fraud, and I think we
    all agree that is an important and appropriate goal. Tax fraud
    by any taxpayer should never be tolerated. It is a disservice
    to every other family that works hard and plays by the rules.
    But I think there are many unanswered questions about whether
    the President's plan would meet that goal or whether it will
    end up purging many families who need it from the program.
        I have asked questions about this on a number of occasions,
    and I haven't gotten clear answers, and so I hope Secretary
    Snow is prepared to answer questions in detail today.
        On the most basic level, I would like to know if targeting
    the working poor is the most effective use of $100 million or
    if there are other places where we can get more bang for the
    buck in reducing tax fraud. It is estimated that hundreds of
    billions of dollars in tax revenue never come in every year
    because of tax cheats and people who underreport their true
    income. Will the Treasury reap the greatest benefits by
    clamping down on the working poor or on multimillionaires and
    their tax attorneys who use questionable means to dodge taxes?
        This subcommittee and our companion subcommittee in the
    House have not gotten straight answers. The IRS claims this is
    a balanced effort, balanced between fighting fraud and boosting
    participation for eligible families. That sounds good. However,
    the vast majority of the $100 million goes to increased
    enforcement, while only $13 million goes to increased outreach.
    That doesn't sound very balanced to me.
        I would also like to know if the Treasury Department
    through the IRS will have a formal public comment period before
    it publishes the pre-certification rules. Will the
    Administration evaluate the impact of its pilot project on
    working poor families before it expands this initiative to 2
    million families nationwide? We have been told that the
    Administration plans to require the study, but we don't know if
    the Administration and the subcommittee will have the results
    in hand before the initiative is launched. I hope Secretary
    Snow will be able to answer those questions this morning.
        Another issue that concerns me is the Administration's
    support for repealing the Extraterritorial Income (ETI)
    Exclusion Act of 2000 in response to a World Trade Organization
    dispute with the European Union. ETI, previously known as
    Foreign Sales Corporation, provides a tax break to U.S.
    exporters who employ American workers. ETI creates and sustains
    jobs for American workers. According to a recent study,
    exporters that benefit from the ETI may employ as many as 3.5
    million American workers, including more than 100,000 in
    Washington State.
        I am very concerned that the Administration has thrown up a
    white flag on this issue. The Administration's actions could
    give the Europeans a green light to threaten $4 billion in
    retaliatory tariffs against American agricultural and
    manufacturing exports. If we proceed with the Administration's
    white-flag approach, we will give Europe a tremendous
    competitive advantage and will hurt American workers.
        I have written to the U.S. Trade Representative about this,
    but I still have not received a response, and I hope the
    Secretary will have more to say about this important economic
    policy and tax issue.
        Finally, I will ask several questions about U.S. efforts in
    Iraq. I am anxious to hear from the Secretary regarding
    international participation in the effort to rebuild Iraq. We
    have all seen the news reports that the effort to rebuild Iraq
    could cost up to $600 billion over the next decade. The
    Administration's budget request is silent on these costs, and
    we have been told there will not be another supplemental
    funding request this year. I hope the Secretary can give the
    subcommittee and the full Appropriations Committee greater
    information about this issue.
        I am curious about the Administration's latest thinking on
    international participation in the effort to rebuild Iraq. In
    particular, what role does the Administration see for the
    United Nations and countries that did not join the coalition
    forces in Iraq? Several Administration officials have given the
    Appropriations Committee very general responses to that
    question. I hope the Secretary will be more forthcoming with
    this subcommittee on the Administration's current position.
        Finally, I will have questions for the Secretary regarding
    the Administration's views on contracts negotiated by Saddam
    Hussein's regime. I understand there are numerous high-profile
    examples of Saddam's business dealings, some of which were
    agreed to with the specific objective of undermining
    international economic sanctions placed on the regime. I
    believe these contracts should be set aside. The new Iraqi
    Government should not be burdened with Saddam's business
    dealings. I hope the Administration agrees with me on this
    issue, and I hope we can work together to ensure that no U.S.
    taxpayer assistance is ever used to reward Saddam's business
    partners, those who actively worked to undermine economic
    sanctions on Saddam Hussein.
        So, Mr. Secretary, again, I welcome you here today and I
    look forward to your testimony and a good dialogue this morning
    as we move forward to craft our bill for the coming fiscal
    year.
        Thank you, Mr. Chairman.
        Senator Shelby. Senator Byrd.
        Senator Byrd. Mr. Chairman, I thank you and I thank the
    ranking member for your comments. I will save my time for
    questions.
        Thank you.
        Senator Shelby. Mr. Secretary, we welcome you to the
    committee. Your written statement will be made part of the
    record in its entirety. You may proceed as you wish.

                        STATEMENT OF SECRETARY JOHN SNOW

        Secretary Snow. Thank you very much, Mr. Chairman, Senator
    Murray, Senator Byrd. It is a great pleasure to be here today
    and to have this opportunity, with Acting Assistant Secretary
    Teresa Ressel, to be with you to discuss the Treasury
    Department's fiscal year 2004 budget request. I will make a
    brief oral statement and ask, Mr. Chairman, that my full formal
    statement be included in the record.
        You hit on the fundamental issue we face in a management
    sense in your good opening comments, because it is clear that
    with the creation of the Department of Homeland Security, the
    Treasury Department has undergone the most significant
    transformation in its long history. And the recent divestiture
    of most of the Treasury's law enforcement bureaus has created
    an opportunity--I think a very important opportunity and one we
    want to make the most of--to refocus on our core mission. This
    core mission would in my view encompass the following things:
        First, creating jobs for economic growth, security,
    promoting economic security, jobs, and growth. That broad
    category of things is something that the Treasury Department I
    think has to be terribly focused on.
        Another broad category of things that the Department needs
    to be focused on is ensuring that the tax system is effectively
    administered and is fair for all taxpayers.
        And, finally, the Treasury Department has a critically
    important mission in focusing on fighting the financial war
    against terrorism.
        The budget proposal which we have submitted for fiscal year
    2004 totals $11.408 billion. We have provided the committee
    with a detailed breakdown and justification for this request. I
    would like to take the opportunity here this morning to
    highlight three areas of particular importance.
        First, going to the primary mission, developing and
    implementing policies to provide economic security, jobs, and
    growth for the American people. Of course, this mission is
    embodied in, among other things, the President's plan for Jobs
    and Growth, which is pending before both bodies of the
    Congress. The goals of the Jobs and Growth plan are to
    stimulate consumer spending, promote investment by individuals
    and businesses that will lead to economic growth and job
    creation, and deliver critical assistance to unemployed
    citizens. The fact is we are in a recovery, but it is too slow.
    As a result, too many Americans don't have work.
        Second, Treasury is working to ensure that the U.S. tax
    system is fair for all Americans. That is a critically
    important part of what Treasury is all about. A cornerstone of
    Treasury's mission is helping citizens meet their tax
    responsibilities while maintaining the fairness of the system
    and respecting individual taxpayer rights, a matter that was
    touched on in the opening statements as well.
        Of course, this mission is mainly the responsibility of the
    Internal Revenue Service (IRS), the biggest single part of the
    Treasury Department. IRS is responsible for collecting most of
    the revenues of the United States Government.
        Thirdly, as is increasingly becoming apparent, I think, and
    as you mentioned, Mr. Chairman, in your opening comments,
    Treasury serves a critical role in fighting the financial war
    on terrorism. This work touches on several of Treasury's core
    functions and involves many of our jurisdictions, our offices,
    and our departments.
        Treasury implements the financial war on terrorism through
    a number of mechanisms, including a new Executive Office of
    Terrorist Financing and Financial Crime, which will work with
    the International Affairs Terrorist Financing Task Force and
    with the office devoted to critical infrastructure protection
    in the Office of Domestic Finance. So this war on terrorist
    finance cuts through a number of different divisions of
    Treasury.
        Finally, I would like to add that the Treasury Department
    continues to use the five elements of the President's
    Management Agenda as a guide to achieving our key priorities in
    accomplishing the Department's overall mission.

                               PREPARED STATEMENT

        Let me say in closing here that I look forward to working
    with you, Mr. Chairman, with members of the committee, and your
    staff as we move in fiscal year 2004 to maximize Treasury's
    resources to see that we are doing the best job we can in the
    interests of the American people. I am hopeful that together we
    can work to make the Department a model of good management and
    good service to the American people.
        And, with that, I thank you again for the opportunity to be
    here and look forward to trying to respond to your questions.
        [The statement follows:]

                        Prepared Statement of John Snow

        Chairman Shelby, Ranking Member Murray, and members of the
    Committee, I appreciate the opportunity to discuss Treasury's fiscal
    year 2004 budget request.
        With the creation of the Department of Homeland Security, Treasury
    has undergone the most significant transformation in its 214-year
    history. The recent divestiture of a majority of Treasury's law
    enforcement bureaus and related functions \1\ has provided an
    opportunity for Treasury to refocus its core missions. Treasury
    continues to fill a crucial role in economic policy making,
    international economic development, the financial war on terrorism, tax
    administration, banking and financial markets, and the government's
    financial management.
    ---------------------------------------------------------------------------
        \1\ The United States Customs Service, the United States Secret
    Service, the Federal Law Enforcement Training Center, a portion of the
    Bureau of Alcohol, Tobacco and Firearms, and the Office of Enforcement.
    ---------------------------------------------------------------------------
        The budget proposal for fiscal year 2004 totals $11.408 billion. I
    am committed to rooting out ineffective programs and will continue the
    challenge begun in the fiscal year 2003 budget process for each
    Treasury bureau to carefully examine their operations to improve
    efficiency and effectiveness.
        We have provided the Committee with a detailed breakdown and
    justification for Treasury's fiscal year 2004 budget request. I would
    like to take the opportunity today to just highlight four areas of
    focus for fiscal year 2004:
      --Providing economic security, jobs, and growth,
      --Ensuring the tax system is fair for all through a comprehensive
            compliance effort,
      --Serving a critical role in the financial war against terrorism, and
      --Maintaining the integrity of our Nation's financial systems and
            safeguarding our Nation's currency.

                 PROVIDING ECONOMIC SECURITY, JOBS, AND GROWTH

        Treasury's primary focus is on developing and implementing policies
    to provide economic security, jobs, and growth for the American people.
    This mission is embodied in the President's Plan for Jobs and Growth.
    Its goals are to encourage consumer spending that will continue to
    boost the economic recovery; promote investment by individuals and
    businesses that will lead to economic growth and job creation; and
    deliver critical help to unemployed citizens. The President's proposal
    would: speed up the 2001 tax reductions to increase the pace of the
    recovery and job creation; encourage job-creating investment in
    America's businesses by ending the double taxation of dividends and
    giving small businesses incentives to grow; and provide help for
    unemployed Americans, creating new re-employment accounts to help
    displaced workers get back on the job.

        ENSURING THE TAX SYSTEM IS FAIR FOR ALL THROUGH A COMPREHENSIVE
                               COMPLIANCE EFFORT

        A cornerstone of Treasury's mission is helping our citizens meet
    their tax responsibilities, while maintaining the fairness of the tax
    system for all and respecting taxpayer rights. This is mainly the
    responsibility of the Internal Revenue Service, which collects most of
    the revenue needed to operate government. This responsibility entails:
      --Meeting the annual demands related to processing over 2.6 billion
            tax-related documents,
      --Sending out over 95 million tax refunds,
      --Providing quality service on taxpayer phone calls, email and walk-
            in assistance concerning tax law and account-specific
            questions, and
      --Maintaining a balanced and comprehensive enforcement presence.
        The fiscal year 2004 budget provides $133 million of new funding to
    focus resources and staffing toward the most significant areas of non-
    compliance, resulting in more examinations of high-income taxpayers and
    businesses.
        Another proposal for fiscal year 2004 permits private collection
    agencies (PCAs) to support the IRS' collection efforts while affording
    full protection of taxpayer rights, allowing the IRS to devote
    resources to more complex enforcement and collection issues. PCAs are
    currently used by 42 state tax authorities and by other large federal
    programs. By eliciting the assistance of PCAs, the IRS should
    eventually be able to handle more collection cases at an earlier stage
    in the process--before the accounts become stale and non-collectible.
        The fiscal year 2004 budget strives to improve the effectiveness of
    the Earned Income Tax Credit (EITC) program by ensuring that benefits
    go to those who qualify for them. The EITC program is aimed at
    rewarding those who work and helping families out of poverty. However,
    in 1999, between 27 and 32 percent of EITC claims--or between $8.5
    billion and $9.9 billion--were paid in error. Congress has recognized
    this by providing a separate appropriation that has been used for EITC
    enforcement.
        As a result, the fiscal year 2004 budget requests an additional
    $100 million to begin a new strategy for improving the EITC program.
    The IRS will begin to use an integrated approach to address potential
    erroneous claims by identifying cases that have the highest likelihood
    of error before they are accepted for processing and before any EITC
    benefits are paid. A key part of this strategy is to begin certifying
    taxpayers for the EITC. The IRS will seek to minimize the burdens on
    taxpayers by using existing databases and other sources of information
    to verify eligibility in advance. This integrated approach is designed
    to provide far greater assurance that EITC payments go to the
    individuals who qualify for the credit, without sacrificing the goals
    of the EITC program.
        Fiscal year 2003 and fiscal year 2004 are key transition years for
    IRS core systems modernization efforts, as the foundation of our
    Nation's tax system is beginning to be replaced, building a bridge to
    provide interactive and improved customer service. The fiscal year 2004
    budget provides $429 million for the continuation of the Service's
    modernization effort in re-engineering business processes and
    developing new business systems to replace the antiquated and obsolete
    system.
        In fiscal year 2003 and fiscal year 2004, IRS will roll out the
    first two phases of a multi-year effort to replace the main taxpayer
    database. This new database will provide accurate tax account answers
    on a real-time basis, enabling IRS to develop new approaches to
    simultaneously improve tax collection and taxpayer assistance.
        As a partial result of the transfer of nearly 70 percent of the
    Office of Inspector General account to the Department of Homeland
    Security and the Department of Justice, the fiscal year 2004 budget
    proposes a consolidation of the Inspector General services at Treasury,
    the Office of Inspector General and the Inspector General for Tax
    Administration. While retaining those specific functions outlined in
    the Restructuring and Reform Act of 1998 (RRA98), the combined
    Inspector General for Treasury will be responsible for providing
    oversight to the remaining Treasury bureaus.

         SERVING A CRITICAL ROLE IN THE FINANCIAL WAR AGAINST TERRORISM

        The campaign to stop the financing of terrorism is a top priority
    for this Administration and this Department. Treasury continues to play
    a critical role in this vital effort. This work touches on several of
    Treasury's core functions, and involves many of our jurisdictions,
    offices and departments.
        Treasury implements these functions through a number of mechanisms.
    Treasury serves as Chair of the interagency Policy Coordinating
    Committee, which is responsible for coordinating the day-to-day
    development and implementation of policies to combat terrorist finance.
    We have also just created an Executive Office of Terrorist Financing/
    Financial Crime under the Treasury Deputy Secretary, which will work
    with the International Affairs Terrorist Financing Task Force and with
    the deputation devoted to critical infrastructure protection and
    strengthening U.S. legal and regulatory protections against terrorist
    finance in the Office of Domestic Finance.
        Treasury continues to play a critical role in the law enforcement
    and regulatory communities' fight against terrorist finance through the
    Financial Crimes Enforcement Network (FinCEN), the Office of Foreign
    Assets Control (OFAC) and the Internal Revenue Service Criminal
    Investigation Division (IRS-CI). These entities will report to, and in
    the case of IRS-CI work collaboratively with, the newly created
    Executive Office of Terrorist Financing/Financial Crime.
        The Financial Crimes Enforcement Network (FinCEN) fosters
    interagency and global cooperation and serves as a link between the law
    enforcement/intelligence communities and financial institutions and
    regulators in fighting domestic and international financial crime.
    Their strategic analyses of domestic and worldwide money laundering
    developments, trends, and patterns provide U.S. policymakers a platform
    on which important decisions concerning terrorist threats can be made.
    The fiscal year 2004 budget provides FinCEN an additional $6.8 million
    for administering additional requirements mandated by the USA PATRIOT
    Act of 2001 and subsequent regulatory requirements, including expanding
    the Bank Secrecy Act (BSA) to new industries, and accelerates efforts
    to enable electronic filing of BSA data more efficiently through the
    Patriot Act Communications system.
        Through the FinCEN, Treasury continues to support the FBI's
    Terrorism Financing Operations Section, the Policy Coordinating
    Committee Action Group on Terrorist Financing, and the National Money
    Laundering and Terrorist Financing Strategy of 2002 (formerly the
    National Money Laundering Strategy).
        The Office of Foreign Assets Control administers and enforces the
    U.S. government's economic sanctions and embargo programs against
    targeted foreign governments and groups that pose threats to the
    national security, foreign policy, or economy of the United States.
    Since September 2001, Treasury's Office of Foreign Assets Control has
    frozen over $36 million in terrorist assets in U.S. financial
    institutions. OFAC's designation and asset blocking process has served
    as the spearhead of the President's financial war on terrorism.
        The Internal Revenue Service Criminal Investigation (IRS-CI)
    Division specializes in analyzing complex financial information and
    determining whether that information is in violation of tax laws, money
    laundering laws, and the Bank Secrecy Act. In addition, IRS-CI is
    heavily involved with the Joint Terrorism Task Forces (JTTFs),
    Operation Green Quest and similar partnerships focused on disrupting
    and dismantling terrorist financing. In particular, IRS-CI is focused
    on preventing the abuse of charities by those who support terrorism.
        The coordination of Treasury's multi-faceted efforts to combat
    terrorist financing and other financial crimes, both within the United
    States and abroad, will be led by the newly created Executive Office of
    Terrorist Financing/Financial Crimes. This Office, in coordination with
    offices within the Treasury and other government agencies, will work to
    reduce the risk that the domestic and international financial systems
    are being misused by criminals and terrorists, and using these same
    systems to identify, block and dismantle sources of financial support
    for terror, money laundering, and other criminal activities.
        This new office works side by side with the International Affairs
    Task Force on Terrorist Financing (TFTF), which was established shortly
    after September 11th to track and monitor countries' efforts to combat
    the financing of terrorism and to devise strategies to build an
    international coalition. The TFTF helps coordinate international
    designation of terrorists, which has resulted in a global total of
    $124.9 million in terrorist assets being blocked. The TFTF coordinates
    Treasury's anti-terrorist financing efforts in the international
    financial institutions, multilateral forums such as the G-7 and G-20,
    and bilaterally with other finance ministries.

        MAINTAINING THE INTEGRITY OF OUR NATION'S FINANCIAL SYSTEMS AND
                       SAFEGUARDING OUR NATION'S CURRENCY

        In fiscal year 2004, Treasury continues its responsibility to
    maintain the integrity of our Nation's financial systems and safeguard
    our Nation's currency.
        The Financial Management Service will continue to improve the
    quality of Federal financial management, fully implement debt
    management services operations, modernize Government-wide accounting
    and reporting infrastructure, and progress toward an all-electronic
    Treasury financial system.
        The Bureau of the Public Debt will continue its management and
    support of the applications and systems used to conduct Federal
    borrowing and debt accounting operations, re-enforcing its mission of
    providing high quality customer service to investors in Treasury
    securities. Public Debt's customers range from individuals with small
    amounts to invest, to the largest financial institutions, as well as
    the more than 200 Government trust funds.
        The Office of the Comptroller of the Currency serves as the
    Administrator of National Banks, chartering new banking institutions
    only after investigation and due consideration of charter applications
    and supervising existing national banks through the promulgation of
    rules and regulations for the guidance of national banks and bank
    directors.
        The Office of Thrift Supervision charters, regulates and examines
    Federal thrifts, cooperates in the examination and supervision of
    State-chartered thrifts and reviews applications of State-chartered
    thrifts for conversion to Federal thrifts. They also review
    applications for the establishment of branch offices.
        The activities of the United States Mint and the Bureau of
    Engraving and Printing are vital to the health of our Nation's economy.
    These agencies share the responsibility for ensuring that sufficient
    volumes of coin and currency are consistently available to carry out
    financial transactions in our economy. They are also responsible for
    manufacturing cash products that not only foster domestic pride, but
    also promote respect and confidence in the world's most accepted
    currency.
        The United States Mint receives no appropriation and, under its
    Public Enterprise Fund, operates in a business-like fashion that
    enables it to respond to the needs of retail commerce. In addition to
    producing a reliable supply of circulating coinage--including the newly
    designed coins of the 50 State Quarters Program--the United States
    Mint will continue to fulfill its mission to produce the Nation's
    commemorative coins, medals, bullion coins, and other numismatic items,
    as well as its mission to protect the Nation's precious metals and
    other assets at Fort Knox and at other United States Mint facilities.
        The Bureau of Engraving and Printing is in the process of
    redesigning our Nation's paper currency to counter the trend of
    computer generated counterfeiting. Building on past security features,
    the new design, known as NexGen, may begin circulation in the $20 note
    as early as fall 2003, with the $50 and $100 notes to follow 12 to 18
    months later.

           FOUNDATION FOR SUCCESS--THE PRESIDENT'S MANAGEMENT AGENDA

        We continue to use the five elements of the President's Management
    Agenda as a guide to achieving Treasury's key priorities, and
    accomplishing the overall mission and goals of the Department.
        For fiscal year 2002 and 2003, many of Treasury's accomplishments
    in implementing the President's Management Agenda were in the area of
    expanded electronic government. Specific efforts included:
      --The Internal Revenue Service has made significant progress towards
            achieving the Congressional goal of having 80 percent of all
            tax and information returns filed electronically by 2007. In
            fact, as of May 9, nearly 43 percent of all returns were filed
            electronically. During 2002, IRS partnered with the Free File
            Alliance, a consortium of private sector companies, to provide
            free Internet filing of 2002 Federal tax forms for most
            taxpayers. IRS has also provided functionality to allow
            taxpayers to check the status of their refund on the web.
      --In fiscal year 2002, the Financial Management Service issued 73
            percent of all payments (666 million of 919 million) by
            electronic funds transfer. FMS also collected 79 percent ($1.8
            trillion of $2.27 trillion) of all federal receipts
            electronically.
      --In 2002, the Bureau of Public Debt introduced the Treasury Direct
            system, by which retail investors can purchase electronic
            Series I inflation-indexed savings bonds. This is the first
            step toward the Bureau's goal to convert all savings bond
            holdings to paperless form.
        Treasury has also set the standard as the best in the government
    for improved financial performance, with all of its bureaus now closing
    their financial statements within 3 days after the close of each month
    and issuing audited fiscal year 2002 consolidated financial statements
    within 45 days after the end of each year.

                                   CONCLUSION

        Mr. Chairman, while I have served as Treasury Secretary for only a
    short time, I have already been deeply impressed by the intelligence,
    professionalism and dedication of the people with whom I have worked.
    This is especially true during these challenging times.
        I look forward to working with you, Mr. Chairman, as well as
    members of the Committee and your staff, as we move into fiscal year
    2004 to maximize Treasury's resources in the best interest of our
    country. I am hopeful that together we can work to make this Department
    a model for management and service to the American people.
        Thank you again for the opportunity to present the Department's
    budget today. I would be pleased to answer your questions.

        Senator Shelby. Thank you, Mr. Secretary.

                             RESTRUCTURING TREASURY

        Mr. Secretary, you are a new Secretary, relatively new--not
    new to Washington, though--at a Department that has undergone
    substantial institutional change since passage of the Homeland
    Security Department. With the transfer of the majority of
    Treasury's law enforcement missions, how has the Department
    reprioritized its other functions to better focus on its core
    missions? And how is that focus translating into the budget
    request and the DO modernization study?
        Secretary Snow. The restructuring of the Treasury
    Department as a result of the creation of the Department of
    Homeland Security and the transfer of so many of our
    enforcement functions has changed the Department in some
    fundamental ways, and those changes are reflected in our
    budget, Mr. Chairman. We have lost over 30,000 people, so we
    are a smaller Department. We have reduced the budget by over
    $3.5 billion. And while the Department is smaller as a result
    of the Homeland Security transfers and the transfer to Justice
    of a part of our functions, I think we are more focused. I
    think we have the ability because of this restructuring to put
    more concentrated effort on economic policy, which I think is a
    core part of what the Department does. That is really the
    central mission, as I see it.
        Secondarily, of course, the direct responsibilities of the
    IRS bulk are much greater now. This will give me much more
    opportunity to focus on the effectiveness and fairness of IRS
    implementation.
        Finally, terrorist finance, I see that as the third major
    area. I think our budget this year, Mr. Chairman, reflects
    those priorities very much.
        Senator Shelby. Mr. Secretary, I know you have lost a
    number of employees to Homeland Security, but you still have
    thousands of employees. Roughly, how many do you have?
        Secretary Snow. Well, we have a little over 100,000
    employees, most of whom are in the IRS. The IRS is about 90
    percent, I would say, of the people in the Department today.

                            PRESIDENT'S TAX PACKAGE

        Senator Shelby. I want to ask you a number of questions.
    The President's tax package included a proposal to eliminate
    the dividend tax, and the Senate followed suit by including a
    short-term elimination. What we have done, I think, overall has
    made investment a better choice for all Americans.
        Mr. Secretary, if investment is critical to our economy,
    which I think we both believe it is, does it make any sense to
    penalize investment with an unnecessary tax like the dividend
    tax?
        Secretary Snow. Well, not in my view.
        Senator Shelby. Not in mine either.
        Secretary Snow. I am a strong advocate of lowering the
    taxes on dividends.
        Senator Shelby. How does repealing the dividend tax help to
    restore investor confidence in our securities markets, which we
    desperately need to do? And what effect does it have on the
    ability of individuals to rationalize risk in the markets? And,
    lastly, what effect will that have on corporate governance?
    Because on the Banking Committee we have had testimony that
    that could change the way a lot of companies operate.
        Secretary Snow. I think the dividend proposal is one of the
    most far-reaching and significant in recent tax policy because
    it will lower the cost of using equity capital. Today, the Tax
    Code is tilted because of the lower cost of debt capital
    towards greater reliance on debt capital. As a result, the
    debt-to-equity ratios in American companies are higher than
    they otherwise would be. So a first effect of the proposal
    would be to lower the cost of equity capital, encourage greater
    use of equity capital, and, thus, change the debt-to-equity
    ratios to be more conservative.
        One major benefit of that is more conservative debt-to-
    equity ratios makes our firms less vulnerable, less stretched,
    during periods of economic downturn.
        Senator Shelby. It makes them stronger in a way, doesn't
    it?
        Secretary Snow. It does, Mr. Chairman.

                            EARNED INCOME TAX CREDIT

        Senator Shelby. I just want to get into the Earned Income
    Tax Credit for just a minute. The earned income tax credit
    compliance effort has experienced problems since its inception.
    We know that. I am interested in making sure that the
    initiative works properly. We want to make sure that it works
    for the people that it was intended to help, but I see no
    rationale for not pushing reform to eliminate the errors in
    payments to people who don't qualify or if there is an
    overlapping qualification, you know, a double hit, because if
    we are going to have a program such as the Earned Income Tax
    Credit, it ought to be run right. And $9 billion, perhaps more,
    erroneous payments, there is no excuse for that in any
    situation, and I want to make sure that you have the money to
    put the software together or whatever you have to have to run
    this program right for the people who are receiving it but
    right for the taxpayers who are paying for it.
        Secretary Snow. Well, I appreciate that very much, and the
    numbers you cited in your opening statement are the very
    numbers that look to us to be about right; misapplication of
    funds are roughly one-third of the whole program.
        But this is not an effort to do anything other than make
    sure that the benefits are made available to the right people
    and made available in a way that doesn't have us coming back
    with post-audit assessments and after-the-fact reviews and
    withholdings.
        Senator Shelby. If there are people out there, as Senator
    Murray mentioned in her opening statement, that aren't getting
    it but would qualify for it, reaching out to them and letting
    them know about it would make sense. You could pay for that
    additional 25 percent of people who are not getting it, as I
    heard in her testimony, by eliminating the mistakes and the
    fraud in the program.
        Secretary Snow. Mr. Chairman, that is our approach: to
    avoid what must appear to many people to be after-the-fact
    harassment, because we got it wrong in the first place.
        I look at this in a very straightforward way: Get it right
    the first time, reduce the errors, and the system will function
    much better. People will have much more confidence in it if we
    get the criteria set right.
        Senator Shelby. I think this should be one of your top
    priorities. I hope it will be. That kind of money, it makes no
    sense to waste.
        Secretary Snow. Right.

         EXECUTIVE OFFICE FOR TERRORIST FINANCING AND FINANCIAL CRIMES

        Senator Shelby. Mr. Secretary, what is the mission of the
    newly created Executive Office of Terrorist Financing and
    Financial Crimes?
        Secretary Snow. This is to give us, Mr. Chairman, a more
    coherent and stronger point of attack on financial crimes,
    money laundering, and those sorts of things. We think that this
    new office will be organized to carry on these activities with
    more focus and be more effective.
        Senator Shelby. How does this interface with the other
    bureaus within Treasury that are tasked with similar missions?
        Secretary Snow. There is a close coordination between the
    Office of Foreign Asset Control (OFAC), which deals with the
    foreign assets and the designation of banks and financial
    institutions that are engaged in illicit activities, and the
    Financial Crimes Enforcement Network (FinCEN). They are
    coordinated.
        Senator Shelby. OFAC.
        Secretary Snow. OFAC and FinCEN and the IRS Criminal
    Investigations. It is sort of a matrix, but there is a
    coordination among them. And our General Counsel, David
    Aufhauser, serves as the sort of quarterback for these
    functions to make sure they are all well coordinated.
        Senator Shelby. Mr. Secretary, do you believe that the
    Department of Homeland Security has taken too much of what you
    have to fight financial crimes, investigating other crime? Or
    do you think you will have the resources?
        Secretary Snow. Mr. Chairman, I think we have all the tools
    that we had before in terms of the enforcement powers--the
    PATRIOT Act, other legislative tools, and OFAC--that we need. I
    think we will need to rely from time to time on other agencies,
    though, to do the actual on-the-ground enforcement and maybe
    some of the investigative work.
        Senator Shelby. Thank you, Mr. Secretary.
        Senator Murray.

                        EARNED INCOME TAX CREDIT (EITC)

        Senator Murray. Thank you, Mr. Chairman.
        Mr. Secretary, let me go back to the EITC because I have
    some questions on that. I understand that you are requesting
    $100 million and 650 FTEs in 2004 to launch this initiative. It
    is estimated that 25 percent of eligible families do not
    participate in this program, and only $13 million of the amount
    you are requesting is targeted on bringing those eligible
    families into the program.
        Your agency has claimed as much as $9 billion in the EITC
    overpayments annually, but there is likely to be between $10
    and $12 billion in payments that would be made if all working
    poor families were eligible.
        I am curious why your agency is requesting so much
    additional funding to eliminate the overpayments and such a
    paltry additional amount to address the underpayments.
        Secretary Snow. Senator, we are requesting the funds that
    we think are appropriate to put in place the sort of processes
    that will address all the problems and address them
    effectively. The biggest problem is this criteria problem.
        Senator Murray. It seems to me there are two problems.
    There is the problem in payments that are made that shouldn't
    have been, but there is also the problem in reaching out to the
    working families, 25 percent of the eligibles, who are not.
    Correct?
        Secretary Snow. Right. Let me ask Ms. Ressel, who has been
    working this issue very closely, to respond on that.
        Ms. Ressel. I think you are correct that there are two
    issues, and it is important to not overlook the first one. If
    you think about it in two parts, the first important part is to
    find eligible recipients. We have tried to work analytically
    with the people who are responsible for putting together this
    package; it is my understanding that this is the first year of
    a 2- or 3-year plan on what we need to do with EITC.
        Analytically, when you look at the investments of the $100
    million, the designers of the program tried to invest a certain
    amount of money into the infrastructure for the technology to
    make sure that the people who were eligible and didn't have an
    income problem could be matched through the technology and
    never have to audit them again.
        Then in parallel, it is my understanding that IRS was
    trying to work with the United Way and do an outreach program
    for military families.
        Senator Murray. Okay. Let me go into that, because there is
    only $13 million for the outreach part, and I want to try and
    understand, Mr. Secretary, what your strategy is in reaching
    out to these working poor families to advertise, in media
    outlets, I assume it is, that working poor families are likely
    to see.
        I have a copy with me this morning of CQ Today, which was
    from Friday, May 16th. It is Congressional Quarterly's online
    daily newsletter, and it has a nice picture of Senator Nickles
    on the front here talking about the dividend tax surviving the
    Senate. And in it is an ad on the earned income tax credit.
        Now, the CQ, to get it you pay a subscription of $2,430 a
    year. I think it is made free to some Capitol Hill offices, but
    it is mostly a newsletter that is targeted to lobbying firms
    and Government relations offices. And I don't understand how
    the use of money to advertise in this is going to help outreach
    to poor families who are devoting 20 percent of their annual
    income to subscribe to this.
        Ms. Ressel. We do not know when that happened, but we will
    ask the IRS to respond to you. We do know from our briefing in
    preparation for today that a number of the agencies included
    welfare-to-work, Health and Human Services, Annie E. Casey
    Foundation funds, that we have worked----
        Senator Murray. Well, is this part of the funds that you
    are using for outreach?
        Ms. Ressel. I don't know. We will find out and get back to
    you.
        Senator Murray. Well, if you could tell me precisely how
    much taxpayer money has gone into lobbying Congress----
        Ms. Ressel. For that one.
        Senator Murray [continuing]. As this appears to be, rather
    than to outreach of that outreach money, I would like to know
    the answer to that.
        Ms. Ressel. We will find out.
        Senator Murray. Okay. Let me also ask about the comment
    period, because 2 weeks ago IRS testified to our companion
    subcommittee in the House of Representatives that there would
    be a formal public comment period on this new process and draft
    forms would be required to be filled out by working poor
    families. And that makes sense since the IRS customarily has a
    public comment period for any major changes in procedures and
    forms.
        However, we are now told that you may be planning to send
    out these forms within a few months and that no formal public
    comment period has been announced in the Federal Register. So I
    need to know, Mr. Secretary, whether the agency is changing
    their mind, if there is going to be a public comment period,
    and how that will be done.
        Secretary Snow. Senator, that is really a matter for Mark
    Everson, the new Commissioner, to----
        Senator Murray. Doesn't your agency determine whether there
    is a formal comment period?
        Secretary Snow. Yes, but as I was saying, he will have the
    lead on this. At this point, to my knowledge, no decision has
    been made about the notice or its publication. The new
    Commissioner wants to have a little time on the ground to
    review the initiative before he moves forward or we move
    forward with the notice.
        I would say we would expect to have something fairly soon,
    but we have not set a date yet.
        Senator Murray. Will there be a formal comment period? That
    is a pretty important issue when we are dealing with thousands
    of forms that are going to families that have never been vetted
    before.
        Secretary Snow. I don't know that we have reached a
    conclusion on that yet. I would want to hear the IRS
    Commissioner's recommendation.
        Senator Murray. Could we get an answer back to the
    committee on that, please?
        Ms. Ressel. Sure. We will give you an answer. But I would
    like to talk to the IRS Commissioner first.
        Senator Murray. Okay. I understand.
        Well, I will tell you that last month the Acting IRS
    Commissioner assured me that your agency would be getting a
    thorough evaluation of the impact of this new process on EITC
    participation before you expand your effort to 2 million
    working poor households, and I want to ask again: Will your
    agency be getting a thorough evaluation on the impact of this
    process before we expand it to 2 million households?
        Secretary Snow. I think there is a major effort underway,
    an outreach program, to hear from taxpayers and taxpayer
    groups. Certainly we will want to draw broadly on taxpayer
    responses on this.
        Senator Murray. Mr. Secretary, what we want to know is
    whether there will be information on the impact to the working
    families before we broaden this out to 2 million families and
    have a complete disaster--or maybe a complete success. Are you
    going to look at it first, as we were told originally, or not?
        Secretary Snow. Senator, yes, this matter is being studied
    pretty carefully, and I understand there is a pilot program
    underway right now.
        Senator Murray. That was our understanding. There was a
    pilot program; we would look at the results of that before we
    expanded it to 2 million people. I am concerned now that before
    we ever look at the results, determine whether or not there was
    complete confusion on a sentence or a pause or a question or
    anything, that we then send it out to 2 million people and
    exacerbate a problem that we could solve by doing a pilot
    project.
        Secretary Snow. Senator, let me say, we are not going to
    put this out until we have great confidence that it will work.

                         EXTRATERRITORIAL INCOME (ETI)

        Senator Murray. Okay. Well, we will be following this very
    closely. I agree with you we need to find tax fraud, but I also
    think we need to do it correctly; otherwise, we are going to
    create problems for a subset of people in this country that I
    don't think is very fair.
        Let me move to another question. On April 1st, I sent a
    letter to the United States Trade Representative Bob Zoellick
    expressing my serious concerns regarding the Administration's
    support for simply repealing the Extraterritorial Income
    Exclusion Act of 2000 in response to a dispute with the
    European Union. I could have sent this letter just as easily to
    you. I know that international tax policy is part of your
    Department's responsibility. And I am very concerned that the
    Administration is proposing to leave U.S. exporters and U.S.
    workers at a severe disadvantage to our foreign competitors.
        The Administration's position on the FSC/ETI issue is a job
    killer for my home State of Washington and the Nation, in my
    estimation. Given your background and your short tenure in the
    Administration, I would just like to hear your views on the
    issues and find out if the Administration is going to continue
    to support a full repeal of the ETI. Or do you have any
    comments on the various legislative proposals that are before
    us on this?
        Secretary Snow. Well, Senator, that is a matter we are
    beginning to get into with real earnestness. The President has
    made it clear that he would like to see legislation this year
    to deal with the World Trade Organization (WTO) issue. We are
    facing sanctions from WTO, sizable sanctions, unless we show
    progress on the issue. We are intent on trying to be helpful in
    moving a legislative vehicle. The cornerstone of it, though,
    must be something that is WTO-compliant, and from our point of
    view, doesn't prejudice American businesses. So we----
        Senator Murray. In your opinion, should we just back off? I
    am hearing some of the Administration just say we should just
    back off and surrender our export incentives. Is that your
    opinion?
        Secretary Snow. Senator, I don't want to offer a premature
    view on our position. What I want to do is see legislation that
    will protect the interests of American businesses and avoid
    anything that is prejudicial to American businesses, while
    getting legislation through so we are WTO-compliant.
        We have tried various things, two or three series of
    adaptations to try and get compliance; and they have all been
    found to be non-compliant. I think this time it is very
    important that we get compliance. But through our Office of Tax
    Policy, we are engaged in a serious and far-reaching set of
    discussions with American business to make sure we can come up
    with the very best set of proposals, and until we are a little
    further down the road with those discussions and those
    analyses, I think it would be inappropriate for me to say what
    precise form the legislation should take. But we are getting
    closer to the point where we are going to have to do that.
        Senator Murray. I thank you, Mr. Secretary. I know my time
    is up. I just think it is really important that we do not back
    off and surrender. I hear people saying they don't want a trade
    war. Well, I think it is the Europeans who have declared a
    trade war on this country, and I think we need to push back and
    find a solution because it is so important to so many people
    who have jobs in this country and depend on this.
        Thank you, Mr. Chairman.
        Senator Shelby. Senator Byrd.

                      STATEMENT OF SENATOR ROBERT C. BYRD

        Senator Byrd. Thank you, Mr. Chairman.
        Mr. Snow, we have had very good relations in the past.
        Secretary Snow. Thank you.
        Senator Byrd. And I look forward to working with you. I
    compliment you on being the new Secretary. You follow a line
    that goes back to the very beginning of the Republic, and, of
    course, the first Secretary was Alexander Hamilton, probably
    the greatest of all. And you will recall that he died on July
    11, 1904--he died on July 12, 1904--1804, as a result of a duel
    with Aaron Burr, which took place the day before, on July 11,
    at Weehawken, New Jersey. And he lived through the night with
    excruciating pain, with his dear wife and seven little children
    around him, crying. He died on the 12th. A great Secretary. A
    great Secretary of the Treasury.
        I just recall those things about Hamilton because I once
    wrote a paper on the great enigma, Aaron Burr. I won't go into
    that at this point except there was a good side of Aaron Burr.
    Of course, we know about the dark side. But there was a good
    side. He had a daughter named Theodosia, whom he revered, and,
    of course, she idolized her father, Aaron Burr.

                          PRIVATE COLLECTION AGENCIES

        But so much for that. The IRS seemed determine to hire
    private debt collection agencies to pursue delinquent
    taxpayers. Did you know that the Romans did that also? Yes, the
    Romans tried that. And you may recall the latafundia. The
    latafundia gathered up farms, and the little farmers in
    Appenines migrated into the cities and joined the mob seeking
    free bread and theaters. Anyhow, it didn't work so well with
    the Romans, nor did the letting out of the taxes, the tax
    collectors. You might do well to go back and review the
    experiences of the Romans, out of the Roman Republic.
        Two pilot projects--now we will get back to our own
    Republic, and this is a Republic. Two pilot projects in 1996
    and 1997 were authorized by Congress to test the private
    collection of tax debt. The 1996 pilot flopped so badly that
    the 1997 project was canceled. Contractors used aggressive
    collection techniques and failed to protect the security of
    sensitive taxpayer information.
        Even if privacy guarantees are built into the law, the IRS
    does not have enough personnel to monitor the work of
    contractors and to enforce privacy protections for taxpayers.
    In an age when private protections are under assault and
    identity theft is rising at a head-spinning rate, turning the
    duties of taxpayer collections over to private firms with
    limited accountability to the American people is just plain
    nuts.
        If the President's budget does not request adequate funds,
    Mr. Secretary, for the IRS to do what is inherently a
    governmental job, why is the Department not asking this
    subcommittee for more money? Why are you risking the privacy
    rights of the American taxpayers on a scheme that had already
    failed when the Department could simply request more money to
    hire additional IRS personnel to track delinquent taxpayers? So
    why is the subcommittee not being asked for more money for that
    purpose?
        Secretary Snow. Senator, I think the answer is that the
    Department felt that the resources of these very talented IRS
    agents could better be used on the more complex cases than the
    simpler cases that involve acknowledged obligations. That is
    what the private collection people will focus on. The so-called
    low-hanging fruit of the system will lead to a better use of
    the scarce resources of the Internal Revenue Service.
        Senator Byrd. So, in essence, you are suggesting, I
    suppose, that it is cheaper to contract out those services.
        Secretary Snow. More effective, I think is the way I would
    put it, Senator. We have a new Commissioner at the IRS.
    Actually, he has come from OMB. Prior to that, he had been in
    the private sector. Mark Everson----
        Senator Byrd. You won't hold that against him, will you?
        Secretary Snow. No, I won't. I have talked with Mark about
    this. He in a sense is being held by his own petard here
    because as an OMB person he helped to structure the budget of
    the Department of the Treasury. Now he is going to be forced to
    live with his own policies.
        But he is convinced, Senator, that the budget that has been
    requested will allow for more effective enforcement of the Code
    and more effective collection of the revenues and be fairer to
    the taxpayers.
        Now, Mark and I have scheduled a weekly meeting. We are
    going to continue to review this matter. We are going to
    continue to be open-minded and review this private collection
    activity. Ms. Ressel has told me about the mistakes that were
    made in the past that you have talked about here. If this isn't
    going to work, we will be the first to tell you that it doesn't
    work. The experience last time around was one that we need to
    benefit from, use to our advantage, and not make the mistakes
    of the past.
        But, Senator, if we need more resources, I will be the
    first to tell you. If this project doesn't produce results, we
    will be the first to tell you as well.
        Senator Byrd. The National Treasury Employees Union cites a
    cost analysis put together last September by former IRS
    Commissioner Charles Rossotti, and that analysis said that if
    the Congress would appropriate an additional $296 million to
    hire additional IRS compliance staff, the agency could collect
    $9.5 billion in tax debts annually. That is $32 for every
    taxpayer dollar spent compared to $3 for every $1 paid to a
    debt collection agency.
        This is a study performed by the Bush Administration, and
    if we are looking for the best value for the American taxpayer,
    why should the Administration be advocating a proposal that
    costs more and does less to protect the privacy rights of
    taxpayers?
        Secretary Snow. Senator, Ms. Ressel is much closer to this
    because she wrestled with these issues in coming up with this
    budget. She is the principal, the CFO of the Department. So,
    Teresa, I am going to ask you to give the Senator the response.
        Ms. Ressel. Senator Byrd, your comment about the ratio is
    correct: Mr. Rossotti had asserted that it was about 30:1 if
    the revenue collection is done inside the agency----
        Senator Byrd. Yes.
        Ms. Ressel [continuing]. And that if you use the collection
    agencies, that it would be a much different ratio.
        My understanding of this proposal is that it will be for
    the simpler cases. From listening to Commissioner Everson's
    testimony before you the week before last was that his big
    theme was that if you were to add additional resources to the
    IRS--and that might be something that Mark thinks he needs and
    he will work out with Secretary Snow for 2005--that they would
    not be used for this particular issue.
        And so it is my understanding that that is the rationale
    that they used. It may not make sense at all when you look at
    the ratios, but no matter how many resources you may add to the
    IRS incrementally, there will always be something that they
    can't cover. If you used that logic, then perhaps that is where
    the Commissioner and the IRS team basically look at this. They
    look at this as a very low-end issue relative to covering an
    item that, even if you added an additional $1 billion, that
    they wouldn't dedicate the money to this. That is my
    understanding of the situation and the way they looked at the
    resources, sir.
        Senator Byrd. Mr. Secretary, my time is up, but I have to
    say that I am very, very suspicious of the privatization
    scheme. It seems to be stretching pretty much across the board
    with the Administration. Congress needs to oversee it very,
    very carefully, and we will be watching and listening for the
    record that you intend to make here and for the information
    that you will follow up with to this subcommittee on this
    subject.
        Secretary Snow. Mr. Chairman, those are fair comments; we
    will keep you well advised on this. If it doesn't pan out the
    way we hope it will, we will be the first to acknowledge that.
    We have to acknowledge that in the past this didn't work out
    very well, and there are some reservations this time. We are
    hopefully going to make a success of it, and learn the lessons
    of the past. But if we don't, I commit to you we will
    acknowledge that.
        Senator Byrd. Very well. Thank you, Mr. Secretary.
        Senator Shelby. Senator Specter.

                       STATEMENT OF SENATOR ARLEN SPECTER

        Senator Specter. Thank you very much, Mr. Chairman.
        Mr. Secretary, welcome to this subcommittee on your first
    appearance since being sworn in.
        Secretary Snow. Thank you.

                                    ECONOMY

        Senator Specter. Unanimously approved, that is a pretty
    good start with the United States Senate.
        Mr. Secretary, we are on the verge, as you know, of passing
    a tax cut, and one of the questions which is asked of me
    continuously as I travel through my State is the impact on the
    economy. What is the likelihood that there will be a
    significant benefit? And we know that we have a $10 trillion
    economy. Over a 10-year period with inflation, it comes to
    about $140 trillion. The President advocated a $726 billion tax
    cut. I supported that. The House came in at $550 billion, the
    Senate at $350 billion. And I supported the President because I
    think it is worth a try. And he has formulated the plan, and I
    think we ought to give his leadership a try at what he has.
        There have been a lot of contentions that there is a lot of
    posturing on all sides, one group playing to its base on one
    line, et cetera, and it has been one of the most contentious
    issues that I have seen in my tenure in the United States
    Senate.
        Vice President Cheney was on hand to break a 50/50 tie on
    one of the amendments, and then he had to sit around for 2
    hours while the managers' report was structured. This was the
    first time I saw a Vice President sit in a Senator's chair.
        Senator Byrd, I have to question--I should have come to
    you--whether that was appropriate. Anybody who sits in a
    Senator's chair besides the Senator would get a fast escort by
    the Sergeant-at-Arms out of the chair. A Member of the House
    was in last week, sat down, and it was almost as if he was in
    the electric chair, he got up so fast when he was prompted.
        But I mention the Vice President to demonstrate how close
    it is. You are a Ph.D. in economics as well as an L.L.B. and a
    corporate executive of great standing, and now Secretary of the
    Treasury. What is the best articulation that this tax cut at
    any figure--at the $350 billion figure, which it appears to
    be--will have a significant impact on lifting up the economy?

                                    TAX CUT

        Secretary Snow. Senator, the economy is in a recovery, but
    it is a weak recovery. The tax plan that I hope comes out of a
    conference soon will, in my view, give the economy a lift for a
    couple of reasons:
        One, it will put more disposable income in consumers'
    pockets. As people have more money in their pockets, they tend
    to spend more.
        This has a particularly important effect on small business
    because so many small businesses pay their taxes through the
    individual tax return--23 million of them--and those 23 million
    businesses will become more profitable because of the tax plan.
    As businesses become more profitable, they become more inclined
    to make capital expenditures. Our economy is weak is on the
    capital expenditure side, yet we have consumers staying pretty
    strong. We have a strong housing market. It is the business
    expenditures for capital and expansion that have been weak.
    Small business is the principal engine. So I would say that
    more money in people's pockets and making small business more
    profitable will lead to more spending and expansion.
        There is also that provision immediately giving small
    businesses another $75,000 a year of free cash flow. That will
    be helpful.
        Then I would go to the dividend side and say that is
    important as well. To lower the costs on paying out equity
    capital makes equity capital more attractive, which should help
    the stock market. We are now an investor society with half of
    the American households owning equities. A rising stock market
    will buoy the spirits of the American consumers and businesses.
        I think this plan is well calculated to lift the growth
    rates of the economy by as much as one percentage point this
    year and another close to one next year, taking us from the
    sort of anemic 1.6 growth rates that we have today to growth
    rates that are up in the mid 3's. Once we get to the mid 3's,
    then we begin to move back up towards a full employment
    economy.
        Senator Specter. If the cut had been or were to be $726
    billion instead of $350 billion, what greater percentage
    increase would that project?
        Secretary Snow. The way the Congress has structured the
    provisions in the package, it seems to be moving through both
    the House and the Senate. It is front-loaded in the sense that
    it has a lot of the impact that the bigger package would but it
    has a shorter period of time, and there are sunsets, which will
    have early-year impacts. In fact, in some ways it has been
    front-loaded to have more impacts in the early years. So for
    2003 and 2004, the way it is structured, I think in both the
    House and the Senate, could have more impact in the early years
    than the initial package.
        Senator Specter. So you are saying the $726 billion would
    not necessarily have given a greater boost?
        Secretary Snow. I don't think it would have had a
    discernibly greater boost in the early years. I think it would
    have a greater boost for economic growth over the full period.
    Sure, the bigger, the better, as far as I am concerned,
    Senator. The way it has been structured, I think you will get
    most of the benefits, even though the numbers have come down.
    But I think to get the full benefits, it will be incumbent to
    come back in a couple of years and move those dates out. The
    tax provisions that sunset in 2005, and so on, I think should
    be made permanent, or at least added years to them.

                        PRIVATIZATION OF TAX COLLECTIONS

        Senator Specter. Mr. Secretary, I would pick up just for a
    moment on what Senator Byrd said about privatization of
    collection. I opposed an amendment which would have prohibited
    the Treasury Department from going to private collection
    agencies because I think it is a matter that you ought to
    decide. We ought not to micromanage your Department on that
    particular matter. But I have a concern that a private
    collection agency may engage in tactics which a governmental
    agency would not. It is analogous to a quasi-judicial function.
    Some private collection agencies do things which really ought
    not to be done. They may be within the letter of the law and
    sometimes they are not even there; whereas, a governmental
    agency is going to have a little different perspective, try to
    collect debts but do so in a fair way. So I urge you to keep a
    close watch on that particular aspect.
        I do share a concern with the power of the Federal
    Government and the Department of Justice and their Civil
    Division, and you have got a lot of lawyers in the Treasury
    Department, and you are a lawyer yourself, as some of us are on
    this panel. There would be good reason to think you would have
    enough muscle, skill, and expertise to do the collections. But
    if you are determined not to, take a close look at the
    practices the collection agencies use.
        Let me ask as my final question--I am under a minute now--
    as to the $133 million to expand efforts to enforce fair
    compliance among high-income taxpayers and businesses. What do
    you expect there?
        Secretary Snow. Senator, this is a matter that I intend to
    spend a lot of time on with Mark Everson, the new IRS
    Commissioner. What we expect is that high-income people and
    businesses will be held to the same tough-minded enforcement
    standards that the populace at large is. Over time, the clever
    tax avoidance schemes have become more and more complicated,
    more and more involved, and require more skilled and dedicated
    efforts to penetrate them. This is an effort to make sure we
    penetrate those clever tax avoidance schemes that are used by
    corporations and high-income people in a purposeful way and
    make sure that they are paying their fair share of the tax
    burden as well.
        And on your prior point, I am in total agreement with what
    you and Senator Byrd said. We are going into the private
    collection activity wary of the risks, concerned about the
    potential problems that you and Senator Byrd alluded to, and
    committed to doing our very best to avoiding them. But if they
    are unavoidable, if they materialize, then we are going to be
    the first to say this doesn't work and this is the wrong way to
    go.

                                    FLAT TAX

        Senator Specter. Mr. Secretary, let me ask you a question
    for the record, which is an involved question, which I would
    appreciate your study and response to, and that is on a flat
    tax proposal. The Senate passed a resolution to push ahead with
    our Finance Committee and our Joint Economics Committee with
    analysis of a flat tax. And the model most frequently cited is
    the Hall-Rabushka model, two professors at Stanford.
        Secretary Snow. Right.
        Senator Specter. And I believe the flat tax has never
    really been considered. I put a bill in back in the spring of
    1995, and others have proposed it, and I would be interested to
    see a study--I was about to say ``a serious study,'' but I know
    any study you do will be serious. And let us respond to this
    subcommittee with what you think, because there is an occasion,
    after all the problems we are having with the tax cut, and we
    are nibbling at the edges and barely doing that, it is time we
    really gave a serious line of analysis. And I would appreciate
    it if you would undertake that, Mr. Secretary, for your
    Department.
        Secretary Snow. We will do that, Senator, and get back to
    you on that.
        Senator Specter. Thank you, Mr. Secretary.
        Thank you, Mr. Chairman.

                                    ECONOMY

        Senator Shelby. Mr. Secretary, I want to talk to you a
    little bit about the economy. We have the largest economy in
    the world. I believe the Japanese is second and the German
    economy is number three. Is that correct, sir?
        Secretary Snow. That is right, yes, sir.
        Senator Shelby. The Japanese economy is sputtering along.
    They have deep problems, as we both know, in the banking sector
    that they have not really addressed.
        The German economy is the locomotive of Europe, has been
    and probably will be. I saw the other day where it had gone
    into a recession, the numbers. Is that correct, sir?
        Secretary Snow. Yes, Senator, it is. They reported negative
    growth rates for two quarters in a row.
        Senator Shelby. What is the status of the Japanese economy?
    Is it growing or is it sputtering, but is it growing?
        Secretary Snow. It is growing, but modestly. I have just
    returned from meetings with the G-7 and had a bilateral
    discussion with Minister Shiokawa, the Finance Minister of
    Japan. He indicated that they would have positive growth for
    their fiscal year, which begins April 1, but that it would be
    in all likelihood less than 1 percent.
        Senator Shelby. Our economy seems to be uneven all across
    the country. It depends, in my State of Alabama, we have got
    counties with 3 percent unemployment, 3.5, 4, and then we have
    some much higher.
        Secretary Snow. Right.
        Senator Shelby. But I see that around America.
        Secretary Snow. Yes, I agree. It is uneven.
        Senator Shelby. How do you see our economy growing? We are
    in the second quarter of the calendar year now. Will it pick up
    in your estimation, in your judgment, remarkably so? And I am
    not talking about a hot economy. I am talking about a movement
    toward an economy where people are hiring again, where managers
    have confidence that they are going to sell their products and
    so forth. Do you think that we will pick up by the fourth
    quarter of this year?
        Secretary Snow. Senator, I think we are in a recovery with
    many elements of a stronger recovery in place: low interest
    rates and high productivity, evidence in the first quarter that
    corporate profitability is returning, and of a very good
    housing market, which has helped offset some of the adverse
    effects of the stock market.
        Senator Shelby. Without the housing market, without low
    inflation and low interest rates, the economy wouldn't be where
    it is today, would it?
        Secretary Snow. Absolutely. Those have been keys to our
    success, and the consumer who has stayed in the game continues
    to be quite engaged in spending money.
        I think, Senator, that the elements are there for a good
    recovery in the second half. I think the tax plan, if it gets
    adopted here soon, will be a real plus and will add to the
    growth rates. I would look to growth rates in the fourth
    quarter getting back up towards where they should be.
        Senator Shelby. Two and a half percent?
        Secretary Snow. Two and a half to 3 percent could well be
    the number.
        Senator Shelby. A 2.5 percent growth rate, although we
    would like it higher, would be an improvement.
        Secretary Snow. A very marked improvement--that is that 1
    percent pick up that I said I think is in the cards for us.
        Senator Shelby. I saw where the 10-year bond, I believe,
    closed yesterday at 3.50?
        Secretary Snow. Lowest in 40 or 45 years.
        Senator Shelby. Now, that bodes well for people who are
    refinancing their home, their businesses, and so forth, does it
    not?
        Secretary Snow. It absolutely does. Therefore, if we can
    get these low interest rates and some pickup in aggregate
    demand, I think the economy could begin to make a nice, strong
    recovery. I would also mention, Mr. Chairman, the fact that
    corporate America, which in the late 1990s was expanding a lot,
    growing, merging, and so on----
        Senator Shelby. Created a lot of capacity.
        Secretary Snow. Created a lot of excess capacity, and we
    have excess capacity hanging over a number of industries today.
    We have corporate America leaning out its costs and becoming
    much more productive, learning to do more with less. That is
    hurting us on the employment numbers. But when the aggregate
    demand picks up, I think our corporate sector is poised to have
    much higher profitability, and as they get higher
    profitability, then I think we are going to see the expansions
    begin.
        Senator Shelby. Mr. Secretary, we have talked about this
    before, with another hat on, as Chair of the Banking Committee.
    We are very concerned about investor confidence, the erosion of
    investor confidence in our capital markets.
        Secretary Snow. Right.
        Senator Shelby. We have a new SEC Chairman, Bill Donaldson,
    that I have great confidence in at this point in time. But I
    don't see the investor confidence returning to the marketplace
    yet, yet we know that approximately 100 million Americans, more
    or less, are investing, directly and indirectly, in our capital
    markets--bonds, stocks, and so forth, through pension funds,
    through 401(k)'s and everything else.
        If people don't have confidence in the corporate sector, in
    our accounting profession and so forth, how do you turn that
    around?
        Secretary Snow. Senator, I think that corporate behaviors
    are changing in a very positive way. With your work on the
    Banking Committee, and the new legislation that came through
    there in the wake of the corporate scandals--the changes in the
    New York Stock Exchange and in Nasdaq rules--the fact is that
    virtually every corporation in America has gone through a self-
    analysis to determine whether it is living to the highest
    standards of corporate governance.
        I think the corporate sector is getting its own house in
    order. That needs to continue with the corporate sector taking
    the responsibility for making sure its conduct is of the
    highest order.
        Senator Shelby. That honesty and ethics matter, right?
        Secretary Snow. That honesty and ethics are at the core of
    things. I would add a thought on the dividend proposal. If
    something like the President's dividend proposal is adopted and
    we go to zero tax on dividends, I think it would have far-
    reaching effects on corporate behavior.
        Senator Shelby. I asked you that question earlier.
        Secretary Snow. You did, and I am going to get back to it
    now. Companies that pay dividends have to earn cash, they can't
    pay dividends through financial manipulation. They have got to
    do it the old-fashioned way. We still have laws against
    counterfeiting. What will happen in a world in which dividends
    aren't taxed the way they are today is that companies will pay
    more dividends. As the investors see companies pay more
    dividends, they are going to reward dividend-paying companies.
    That will encourage companies to do the right things: to focus
    on free cash flow, to manage their businesses for the investors
    so they can pay dividends, and then dividends will become a
    much bigger part of the story of corporate America.
        As that happens, I think it will go a long way to restoring
    confidence in corporate behaviors. I think it could lead, Mr.
    Chairman, to a dramatic change in corporate behavior.
        Senator Shelby. And the way people look at stocks, right?
        Secretary Snow. And then the way people look at stocks,
    exactly.

                      ACCOUNTING PROFESSION AND CAPITALISM

        Senator Shelby. How important, Mr. Secretary, is the
    accounting profession to all of us, the capital markets, the
    publicly traded stocks? How important?
        Secretary Snow. They are the bedrock foundation of our
    confidence and trust, and capitalism really rests on trust.
    Investors can't dig into the numbers. They have got to trust
    the people who do the numbers. Trust is absolutely at the
    center of a well-functioning market economy. There is a huge
    responsibility that the accounting profession has as the
    guardian of the numbers, the custodians of that fundamental
    trust.
        Senator Shelby. And once it is lost, it is hard to get
    back.
        Secretary Snow. Senator, that is what we are experiencing
    today. One reason I think our markets are suffering today, and
    are so much less buoyant, is that trust has been eroded. It
    takes time to build back trust. What you have done in the
    Congress I think is very helpful. What the Securities and
    Exchange Commission (SEC) is doing under Chairman Donaldson is
    very helpful. I think now what the corporate sector is doing
    and what the oversight board will do will help restore trust.
        But I think we need to be clear that trust has really been
    put in peril, been jeopardized. I am convinced one of the
    reasons this economy isn't performing better is just that. In
    fact, in Europe, the G-7 Ministers have some of these same
    problems in their corporate sector. Now they are beginning to
    look at what you did in the Banking Committee and say we need
    rules on corporate governance like those rules to restore
    trust, to create a foundation of trust.

                                GLOBAL ECONOMIES

        Senator Shelby. Secretary, lastly, for this round, if the
    Japanese economy is sputtering along, the German economy is in
    recession, and we are so interdependent on trade both ways, if
    they continue to sputter, that has an effect on us. How do you
    view their economies--I know you look at it; you have to--to be
    picking up? Or would you rather save that?
        Secretary Snow. No, I would like to answer that. One of the
    themes that I have been taking to the G-7 countries is the need
    for our interdependence. Our prosperity depends on yours, and
    yours depends on ours. We are working hard to get the American
    economy to grow faster, and you need to grow faster, too. Your
    growth rates are even lower than ours. Your growth rates are
    about half of ours and your productivity rates are much lower.
    Can't we come together in a consensus that promoting economic
    growth is in all of our interests?
        I am pleased to say, that in Germany, the Schroeder
    administration is now pushing some major tax reforms. In France
    they are pushing some significant pension reforms. In Japan, of
    course, banking reforms are a major theme and deregulation of
    some of their retail and other things. It is more than monetary
    and fiscal policy, as important as they are. Well-functioning
    economies also look at the microeconomic characteristics and
    create open and free flow of resources and make sure that
    things like their pension plans don't exact too large a burden
    on the total fiscal situation of the country.
        I am encouraged that Germany, Japan, and France are taking
    seriously this need for growth and are addressing these
    fundamental problems. But they are looking to us, too, Mr.
    Chairman.
        Senator Shelby. But isn't the U.K. economy one of the best
    in Europe?
        Secretary Snow. The U.K. economy is probably the best major
    economy. Canada continues to perform pretty well. But as you
    said, Japan is viewed as the engine of Asia and Germany as the
    engine of Europe, and they are both sputtering.
        Senator Shelby. Thank you.
        Senator Murray.

                        ECONOMIC SANCTIONS AGAINST IRAQ

        Senator Murray. Mr. Secretary, Iraq has been under
    international economic sanctions now for more than a decade.
    The sanctions have stopped numerous business deals from going
    forward. These business deals were negotiated by Saddam
    Hussein's government, and some of these deals were blatantly
    negotiated to undermine the sanctions regime.
        Can you tell us what the Administration's position is on
    these business deals that were negotiated by Saddam Hussein's
    regime? And does the Administration believe the new Iraqi
    Government should be bound by Saddam Hussein's commitments?
        Secretary Snow. Well, the Administration is very much of
    the view that the sanctions should be lifted, the oil sanctions
    should be lifted, and the general sanctions should be lifted to
    allow the Iraqi economy to get back on its feet. It is very
    important, I think, to recognize just how much damage the
    Saddam regime did to the people of Iraq. The economic
    institutions of that country were hollowed out and
    significantly undermined during that regime. The standard of
    living of the country fell. They had negative growth rates for
    nearly two decades. What we are dealing with in Iraq today, in
    terms of the rebuilding and reconstruction, are not the results
    of a 3-week conflict, but really nearly three decades of
    mismanagement and misrule.
        We are hopeful that our--and Treasury is very much,
    Senator, involved in this effort with a number of advisers over
    there right now looking at the question of setting up a central
    bank. Iraq has not had a central bank. Their central bank was
    really an apparatus of the dictator's regime. They haven't had
    a private banking system--they had a command-and-control
    banking system.
        They don't have a budget. They haven't had a budget in any
    number of years. They don't have a set of national account
    statements, and they have a fairly chaotic currency.
        There is an enormous amount of this foundational work to be
    done.
        Senator Murray. But what I specifically wanted to find out
    from you was whether the new Iraqi Government should be bound
    by Saddam Hussein's commitments, and let me give you an
    example. Saddam Hussein's government negotiated a deal with
    Airbus to purchase five aircraft, and they paid a $10 million
    deposit to Airbus for that aircraft. And I want to know whether
    the Administration believes that Iraq's new government should
    honor Saddam's Airbus purchase. And if not, will the
    Administration call upon Airbus to return the $10 million to
    Iraqi people?
        Secretary Snow. Senator, I think that is really a question
    that ought to go to the State Department. I am not really
    knowledgeable enough on the treatment of those issues.
        Senator Murray. Well, but I understand you were just at the
    G-8 conference in Europe, and I am certain you discussed some
    of these issues over there. Was there any talk about these
    commitments that had been made and how to--whether or not we
    should be demanding that that money be returned?
        Secretary Snow. There was discussion of the issue of the
    debt. There was a discussion of how to deal with the debt going
    forward. Iraq has very heavy debt obligations, estimated at
    $80, $90, to well over $120 billion in an economy that is, of
    course, very small relative to that. So those debt levels
    aren't sustainable.
        The G-7 Ministers decided that we needed to look at that
    situation. We recognized that debt repayments cannot be
    expected for some considerable period of time, and we agreed to
    take measures to quantify that debt. There is a group called
    the Paris Club, which is the significant creditor nations of
    the world, that meets in Paris and has a process for working
    through sovereign debt that is large relative to its
    sustainability. And the Paris Club has been asked to assess the
    situation and come up with suggestions on what should be done
    with regard to that debt.
        The Ministers asked the International Monetary Fund (IMF)
    to do an assessment of the non-Paris Club debt--debt that comes
    from parts of the world that are not members of the Paris
    Club--Central Europe, for instance. The IMF has begun that.
        The debt issue was clearly on the table. I think there is a
    recognition that a lot of that debt is going to have to be
    reworked one way or another.
        Senator Murray. Well, can you answer the question
    specifically about contracts that had been made? Airbus is just
    one example of a number of business deals that were negotiated
    by the regime, and I just think Congress would be very troubled
    to see U.S. funds to reward those who supported Saddam Hussein
    and worked to undermine economic sanctions.
        Secretary Snow. Senator, yes, I see where you are coming
    from. That issue did not come up at the G-7 Ministers
    conference.
        Senator Murray. Let me just ask you, can you assure this
    subcommittee that U.S. funds will not be used to honor business
    deals negotiated by Saddam Hussein's regime?
        Secretary Snow. Senator, I think that really is a question
    for Colin Powell, the Secretary of State. I am not in a
    position to respond. I am sorry.

                                REBUILDING IRAQ

        Senator Murray. All right. Well, again, let me go back to
    some of the other issues that you must have discussed at the
    Ministers meeting. One of the issues of concern to the
    Appropriations Committee is the anticipated long-term costs of
    rebuilding Iraq. We have been told that there will not be
    another supplemental request for Iraq this year. And if you
    could, share with us what the Administration's latest thinking
    is on the participation of the United Nations and other
    countries that did not join the coalition in the Iraqi
    rebuilding efforts. And did you discuss this issue with your G-
    8 colleagues over the weekend?
        Secretary Snow. Well, as I mentioned, we discussed the debt
    issue, which is an important issue for the rebuilding of Iraq.
    We did discuss a donor conference and set in motion some steps
    to set up a donor conference later this year, which I think can
    be important.
        We also talked about the vesting of the assets of the
    Saddam regime so that they could be made available for the
    benefit of the Iraqi people. Assets of Saddam and the regime
    are found in the banking system and financial system of a
    number of countries around the world. The United States has
    taken a lead in getting countries to go after those assets, and
    in effect, seize those assets, and then make those assets
    available to the Iraqi people for the rebuilding process.
        The United States vested, pursuant to a Presidential
    Executive order, about $1.7 billion of Iraqi assets that had
    been held in our banking system. By vesting, I mean we seized
    them in the name of the Iraqi people for the rebuilding of
    Iraq, and for the benefit of the Iraqi people.
        There are maybe another couple of billion dollars around,
    maybe more, and we would like to make sure that money is seized
    and made available for the benefit of the Iraqi people as well.
    So that subject was discussed, and there was broad agreement on
    the part of the Ministers that they would pursue that same
    strategy that we have pursued.
        Senator Murray. Can you give this committee any estimate of
    what the Administration hopes the international community will
    contribute to Iraq?
        Secretary Snow. I don't think we have an estimate of that.
    I think that, just as in Afghanistan, there will be a good
    response. I think the response there was close to a billion
    dollars, $900 million. Iraq is bigger and has bigger problems,
    so I would hope the donor fund would be even larger.
        But I think we have to recognize that the principal source
    of funding for Iraq for the future will be the Iraqi oil
    monies. The sooner that the oil flows can resume, the better.
    Iraq, unlike Afghanistan, is an inherently very wealthy country
    if those oil resources are put to good uses.
        So I am hopeful that the oil will flow soon and that the
    volumes will come up back to the old levels.
        Senator Murray. The estimates on the oil flow are that it
    is going to take a while.
        Secretary Snow. I think it will take some time. I am not an
    expert on that, but I see no reason from what I know about it
    that it can't get back up to 2.5 million barrels a day.
        Senator Murray. So in your discussions over the weekend,
    did you sense that the donor conference was something that
    would be accepted and we would see contributions from----
        Secretary Snow. Yes, I did, very much so.

                                    TAX BILL

        Senator Murray. Let me ask just one final question, Mr.
    Chairman, on the Republican tax bill in the Senate that just
    passed last week. There is a provision that taxes Americans who
    are working overseas by $35 billion, and I supported the Breaux
    amendment that tried to strike that provision from the bill
    because I think that when American workers go abroad, they are
    ultimately followed by exports from the United States to the
    benefit of our workers who are here at home. And I wanted to
    find out from you whether you supported that $35 billion tax
    increase on Americans working abroad. And do you believe this
    provision will reduce U.S. exports?
        Secretary Snow. Well, that was not in the original proposal
    that we sent to the Congress. It found its way into the Senate
    Finance bill, I am told, to create an offset. The offset
    allowed the legislation to move forward within the $350 billion
    budget constraint that was established through negotiations
    among the various Senators.
        Senator Murray. I know how it got there. I was just
    wondering whether you supported it.
        Secretary Snow. I don't think we have taken a position on
    it. We saw it as an accommodation to make possible the passage
    of the legislation. I am told that there is very little
    prospect of it surviving a conference.
        Senator Murray. Thank you very much, Mr. Secretary, Mr.
    Chairman.
        Senator Shelby. Senator Byrd.

                                    DEFICITS

        Senator Byrd. Thank you, Mr. Chairman.
        Secretary Snow, during your recent appearance on May 11 on
    ``Meet the Press,'' you differentiated between deficits during
    times of full employment and deficits during times of under-
    employment. You suggested that, depending on the state of the
    economy, deficits are sometimes good, sometimes bad.
        On the other hand, the Administration has advocated a
    belief that tax cuts are good no matter what the state of the
    economy or the Federal budget may be.
        In 2001, the Administration said that we need tax cuts
    during times of full employment. In 2003, the Administration
    said we need tax cuts during times of under-employment. In
    2001, it said we need tax cuts because of budget surpluses. In
    2003, it said we need tax cuts because of budget deficits.
        How do you sleep at night?
        Under what economic and budget conditions would this
    Administration not advocate tax cuts?
        Secretary Snow. Well, Senator----
        Senator Byrd. I understand we are going to have them every
    year now. It is going to be a perennial thing.
        Secretary Snow. I think, Senator, that given the level of
    the tax bite in the United States, that a good case can be made
    for tax rates that are lower than the tax rates that will
    result from this round of tax relief.
        Senator Byrd. You are not answering my question.
        Secretary Snow. Well, I am getting to it, though, Senator.
        Senator Byrd. It takes a long time.
        Secretary Snow. I don't mean to do that. The tax rates, as
    I recall, back in 1992 were about, on the high end, 31 percent;
    in 1986, they were 28 percent. I don't see anything wrong with
    trying to get tax rates somewhat lower and somewhat flatter.
    Obviously, there is a point at which further lowering of taxes
    will not serve the long-term interests of the economy, but we
    are a long way from that, I think.
        Senator Byrd. But in the context of news reports that this
    Administration will seek new tax cuts every year, are there any
    circumstances, as far as you can envision, in which the
    Administration would view tax cuts to be risky or unwise?
        Secretary Snow. Well, Senator, what I think the news talked
    about was the fact that some of the tax relief that has been
    provided will be expiring. Therefore, there will be a need to
    go back and address that in the out-years. I think even under
    the Senate proposal that is being talked about now, some of
    those tax reductions will expire in 2005 and 2006. If they are
    good tax policy--and I think they are--then it is important to
    come back and make sure they are a permanent part of the Tax
    Code.
        So I think clearly there is going to be need for further
    tax legislation in the years ahead.
        Senator Byrd. But not necessarily tax cuts?
        Secretary Snow. Well, the legislation that would deal with
    those problems would be legislation to avoid tax increases,
    because there would be a series of tax increases going into
    effect. I am not aware of any proposals that are currently
    being contemplated by the Administration for tax cuts. I think
    we are focusing all our attention now on getting this package
    through the Congress.
        Senator Byrd. Temporary tax cuts are being advocated by the
    President. It results from using reconciliation. But is there
    any level of deficit that this Administration would view as
    excessive? The Administration has said there is no particular
    line in the sand with regard to how high the Nation's budget
    deficits can grow before they would begin to worry the
    Administration. The OMB Director reiterated this belief last
    January when he said that budget deficits at 3 percent of GDP
    were nothing to hyperventilate about. Yet the European Union
    not only requires its member states to keep their budget
    deficits below 3 percent of GDP, but the European Union
    Ministers can punish member states for breaking those deficit
    limits. Either the European Union places too much emphasis on
    budget deficits, or we place too little.
        To what level would the deficit have to grow before the
    Administration would begin to hyperventilate? His word. The
    person who used that word, he is not necessarily the author of
    it, but he is not going to be around very long.
        Secretary Snow. Well, Senator, obviously, our view is that
    deficits are unwelcome. We don't like deficits. We want to get
    back into balance, and the sooner the better.
        But these deficits are manageable in the sense that they
    are not large relative to our earning power. They are not large
    relative to our Gross Domestic Product (GDP). Importantly, they
    are coming down with time. They will be around 3 percent this
    year, 3.5, coming down over time to well under 1 percent. I
    think if the receipts that would come back into the Treasury
    were properly accounted for, you would be in balance within
    this budget cycle.
        Senator Byrd. So you don't see hyperventilation as
    something that is imminent?
        Secretary Snow. No, I don't, Senator.
        Senator Byrd. Too bad. I don't know what my little
    granddaughter and great-granddaughters will think about this.
    But you and I will probably not be around.
        Secretary Snow, in recent weeks, the President has
    reiterated his belief that the best way to address the deficit
    and move toward a balanced budget is to encourage economic
    growth. I believe you said on ``Meet the Press'' that ideal
    growth would be 3.5 to 4 percent. But even though the OMB is
    projecting economic growth for 2004 at a healthy 3.6 percent,
    budget deficits over $300 billion are still projected for that
    year.
        Assuming the President's policies are enacted into law, how
    fast does the economy have to grow, would you say, in order to
    finance the President's budget and tax cut proposals?
        Secretary Snow. Senator, if we can get the economy up to
    the 3.5, 4 percent level, we will put millions of people back
    to work. That is, I think, the first priority. We have a fiscal
    deficit, but we also have a jobs deficit today. I think the
    immediate priority is focusing on that jobs deficit--that
    growth deficit.
        I am confident as we get this economy rolling again that
    the fiscal deficit will come down. It will come down because
    there will be more government tax receipts as more workers pay
    income taxes, as small businesses expand and pay additional
    income taxes, and as corporate profits rise. But we also have
    to watch spending. It is a combination of good economic
    policies to keep the economy strong that brings in more
    government receipts and good, reasonable tight spending
    controls. If we do that, Senator, I am convinced that we will
    have deficits that are modest, which will recede with time, and
    will not cause any adverse effects on interest rates or private
    capital formation.
        We can never be indifferent to deficits. They really do
    count. But the real concern about deficits is that they will
    raise interest rates, crowd out private capital, and slow long-
    term growth rates. In all honesty, Senator, I don't think that
    is a current concern. Our interest rates are at their lowest
    level in 40 or 45 years. But I am with you 100 percent on the
    need to be extraordinarily watchful of long-term deficits that
    get built into the financial fabric of the country. That we
    have to avoid at all costs.

                                   DEBT LIMIT

        Senator Byrd. My time is past expiring. During your May 11
    appearance on ``Meet the Press,'' Tim Russert asked you if the
    Congress should vote to lift the debt ceiling before approving
    any new tax cuts. And you responded, ``No, no, the two are
    really different.'' And yet with a $340 billion to $400 billion
    deficit projected for the current fiscal year and an even
    higher deficit projected for the next fiscal year, the United
    States will have to borrow money to pay for any new tax cuts.
    That is a budgetary fact, a kind of very, very plain one.
        Unless we raise the debt limits, how can the Treasury
    Department borrow the money to pay for the President's proposed
    tax cuts?
        Secretary Snow. Well, Senator, lifting the debt ceiling is
    an immediate and important issue. It is something that I really
    urge the Senate to do, and do before the recess because we are
    running up against the limits that we have. But my point to Mr.
    Russert was that the debt of the United States is the product
    of a number of decisions that have been made in prior years
    having to do with our entitlement programs, spending programs,
    and so on. It is not directly connected with this year's tax
    proposal.
        Senator Byrd. Finally, if I may just end this line of
    questioning, and my time is running out. You said during your
    May 11th appearance on ``Meet the Press'' that the recession
    would have been a lot deeper, it would have been a lot harsher,
    it would have been a lot worse but for those 2001 tax
    reductions that the President was behind.
        Absent a Dickensian ``Ghost of Christmas Future'' that
    visits the Treasury Department in the dead of night and shows
    you the future of tax cuts past, how does the Administration
    know what would have happened had there been no 2001 tax cuts?
    With so many unknown variables to which you refer in an $11
    trillion economy, how do we know that those tax cuts had any
    real effect at all?
        Secretary Snow. Senator, the best answer I can give you is
    my own experience in business and seeing where the economy was
    heading in the last half of 2000 and in 2001. I will never
    forget sitting in my office in Richmond, Virginia, when the
    reports of the CSX transportation subsidiaries came in: the
    railroad car loadings way down, the barge loadings way down,
    the truck loadings way down, ocean container shipping way down,
    the logistic business way down. I called the heads of these
    businesses and I said, ``There must be something wrong, and we
    need to meet and talk about this.'' ``No,'' they said, ``these
    are the numbers.'' They were confirmed in August and they were
    confirmed in September.
        I remember going, Senator Byrd, to a business summit
    meeting that the President-elect called with business leaders
    and economists and academics in Austin, Texas, in January of
    2001. There was a roundtable discussion about the economy and
    the outlook, and when it was my turn, I was very
    straightforward. I said, ``Mr. President, you are inheriting a
    recession, and it is going to be a deep one unless action is
    taken soon to deal with it.''
        So, Senator, I really do feel that the action that the
    Congress took in 2001 headed off what could have been a very
    serious, very deep-seated recession.
        In fact, the industrial sector fell to 20- or 30-year lows
    in terms of output levels during that period. It was a deep,
    deep fall-off in economic activity, and the industrial sector
    is still working its way through those issues.
        I recognize what you are saying. Economics isn't an exact
    science, but my own personal experience complements what little
    I know about economics to suggest that those 2001 tax
    reductions were very important.
        Senator Byrd. And helped to lead to gargantuan deficits.
        Secretary Snow. Senator, if the economy hadn't begun to
    come back as it did, government receipts probably would have
    been even lower. Government receipts have really been down from
    where they were back at the end of the 1990s. There has been a
    dramatic fall-off in government receipts, tied to, I think,
    primarily the weakening of the economy.
        Senator Byrd. Thank you.

                              TERRORIST FINANCING

        Senator Shelby. Thank you, Senator Byrd.
        Mr. Secretary, the Office of Foreign Assets Control (OFAC)
    is the Department's lead agency for identifying terrorist
    financing and denying terrorist groups access to financial
    markets. What efforts have been made to garner the commitment
    of other nations to participate in this effort, in other words,
    to get a handle on the terrorist groups' access to financial
    markets?
        Secretary Snow. Senator, we are engaged in extensive
    efforts to do just that, led primarily under the broad
    direction of David Aufhauser who I mentioned earlier. But we
    have a major outreach program with dozens and dozens of
    countries with whom we share intelligence, coordinate
    information, and work in a coordinated way to try and interdict
    these flows. OFAC has done a number of designations of foreign
    banks. Once those designations are made, the bank can no longer
    have dealings with the United States banking system. We
    coordinate those activities with the foreign finance ministries
    and enforcement people. There have been a significant amount of
    assets seized from bank accounts of people who we suspect of
    terrorist activities or supporting terrorist activities.
        So it is a major and a full-time effort.
        Senator Shelby. The French, are they cooperating?
        Secretary Snow. Yes, Senator----
        Senator Shelby. And to what extent?
        Secretary Snow. We have had discussions with the French
    about the need to be part of this. They have committed to using
    their official banking system and enforcement authorities to
    trace and track the illicit funds that finance terrorism.
        Actually, Senator, we have good, broad-based support for
    these initiatives.
        Senator Shelby. Does that include Cyprus?
        Secretary Snow. I would have to check the list.
        Senator Shelby. And a lot of the Middle Eastern countries,
    including Jordan.
        Secretary Snow. Right.
        Senator Shelby. Mr. Secretary, a lot has been written about
    seized Iraqi funds. You recently called upon all nations, Mr.
    Secretary, to join the U.S., and your words were ``find,
    freeze, and return Iraqi money for the Iraqi people and their
    future.''
        Given that Saddam Hussein's wealth has been estimated to be
    anywhere between $2 billion and $40 billion, recovering this
    money will certainly help in the rebuilding of Iraq. However,
    given that a number of countries and private entities around
    the world have laid claim to a portion of those assets, if not
    all, how is your request to return this money to the Iraqi
    people being received overseas?
        Secretary Snow. I think it depends a lot on who we are
    talking to. But among the G-7, it has been very well received,
    and I will submit to you for the record an assessment----
        Senator Shelby. We would like that.
        Secretary Snow. Yes, I will submit to you our assessment of
    the levels of cooperation and the obstacles we are running
    into.
        Senator Shelby. Obviously, you are trying to marshal the
    assets, right?
        Secretary Snow. Exactly.
        Senator Shelby. So what role are you playing from Treasury
    in trying to stabilize the economy there and assist in the
    rebuilding of the country? And I will start with the monetary
    system.
        Secretary Snow. Right. Mr. Chairman, there is a far-
    reaching effort underway involving the Treasury Department. We
    have a team of people over there right now, headed up by Peter
    McPherson, a former Deputy Secretary of Treasury and a former
    head of USAID.
        Senator Shelby. A very able man.
        Secretary Snow. A very able fellow, took a leave of absence
    from Michigan State University where he is the president. He
    has assembled a good team of people from the Treasury
    Department. We have also asked the IMF for assistance on these
    monetary and financial issues, and the World Bank to do
    assessments of needs as well.
        I think the first task is to get a banking system up and
    going, a payment system. Mr. McPherson is in regular contact
    with us on those efforts: a payment system, a banking system,
    and a sound currency.
        Senator Shelby. How is your $20 bill program working?

                                  NEW $20 BILL

        Secretary Snow. That $20 bill program I think is going to
    be a great success. It is going to make counterfeiting a lot
    harder. I was pleased to be able to unveil that $20 bill here
    with Chairman Greenspan a week or so ago. It got a lot of
    attention. It is really going to be an advance in our currency.
        Senator Shelby. Are the merchants there accepting it with
    open arms in the souks and so forth? That is important.

                       U.S. CURRENCY CIRCULATION IN IRAQ

        Secretary Snow. It is. Mr. Chairman, the U.S. dollar is
    playing quite a role in the Iraqi world now. The Saddam dinar,
    which we hope can be eliminated soon----
        Senator Shelby. Why has it not been eliminated?
        Secretary Snow. Well, because there isn't an alternative
    currency yet, but I hope it can be eliminated soon. Mr.
    McPherson and his team, with local Iraqi finance advisers, are
    looking at that question. Ultimately the currency really ought
    to be determined by the Iraqi people. But it would be our view
    that the sooner they can end the Saddam dinar, the better.
        There are also so-called Swiss dinars in circulation that
    come from the north.
        Senator Shelby. How does that work? Are they denominated or
    tied to the Swiss franc or what?
        Secretary Snow. No. They took the name because apparently
    the person who got the contract was Swiss, although it was a
    British company.
        Senator Shelby. That prints the money?
        Secretary Snow. That prints the money. An English company
    got the contract to print the money, but the person who
    negotiated it was a Swiss, so they called it a Swiss dinar,
    apparently.
        We have the Swiss dinars in circulation, and we have the
    Saddam dinars, which have depreciated enormously. Their
    official exchange rate, if you are a member of the Saddam
    family, was something like 5 or 6 or 7 or 8 to the dollar.
    Their current market exchange rate is 3,000 to the dollar.
        Senator Shelby. But the fact that they are even still
    circulating or have some value is interesting, isn't it?
        Secretary Snow. Well, as I said, I am not happy about that.
    I think the sooner the new currency is put in place, the
    better. In the interim, the U.S. dollar is playing an important
    role. It is found in lots of shops and is being used quite
    readily.

                    ESTABLISHMENT OF A CENTRAL BANK IN IRAQ

        Senator Shelby. Are you going to be involved, directly or
    indirectly, as the Treasury Secretary in recommending the
    formation of a central bank, an independent central bank for
    Iraq?
        Secretary Snow. Yes, we will.
        Senator Shelby. That will be independent of the political
    arena?
        Secretary Snow. Yes, yes. In fact, Mr. McPherson and his
    team, working with John Taylor, the Under Secretary for
    International Affairs, and others in Washington, are giving
    close attention to the question of what the new central bank
    should look like, what a private set of banking institutions
    would look like, what the national accounts should look like,
    what the budget should look like, and what the currency should
    look like.
        But, ultimately, Mr. Chairman, I think those decisions need
    to be made by the Iraqi people. In the interim, we can get
    these institutions set up and going and, hopefully, create a
    good, strong financial foundation for the country going
    forward.
        Senator Shelby. Would the strong, financial foundation
    obviously be predicated on the underlying assets of the country
    such as the oil?
        Secretary Snow. Yes, it would. I think the management of
    the oil operations of Iraq is absolutely critical to their
    long-term economic well-being.
        Senator Shelby. Mr. Secretary, I know it will take
    investment and modernization of the oil fields, which are vast,
    huge there, but some people have been talking about how Iraq
    could pump 5 or 6 million barrels a day of oil--maybe not yet,
    but down the road, after a lot of investment, of course.
        Secretary Snow. Right. Exactly. Well, next to Saudi
    Arabia----
        Senator Shelby. Second largest oil reserves in the world.
        Secretary Snow. Second largest oil reserves in the world,
    with huge potential.
        Senator Shelby. And a relatively small population.
        Secretary Snow. Yes. It is a wealthy country if its
    resources are managed well.
        Senator Shelby. And allocated.
        Secretary Snow. And allocated properly.
        Senator Shelby. Senator Murray.

                                    ECONOMY

        Senator Murray. I don't have any other questions at this
    time. I just want to say I was--I don't know if I share your
    rosy scenario on the economy. My State is really reeling. We
    have lost 70,000 jobs in the last 2 years. Our unemployment is
    at over 7 percent. Our State legislature has a $2.7 billion
    deficit they don't know how they are going to deal with, and
    one out of nine Washingtonians don't have health care today.
    And I am not sure this tax cut is going to help too many of the
    people I represent. So I would love to say you are right on the
    rosy economy scenario that you presented to us, but I tell you,
    I hope this Administration is looking west because we are
    really struggling.
        Secretary Snow. Well, Senator, I don't want to sound too
    rosy. I recognize that with our unemployment rate rising, with
    so many fewer people working today, we have some serious
    economic problems to deal with. But I do think the foundations
    have been put in place, with low interest rates, no inflation,
    high productivity, and lower costs of production for a pretty
    good recovery once demand comes back. I would dearly love to
    see those growth numbers get up to those higher levels that I
    talked about so that your unemployment rate can come down and
    the unemployment rate nationally can come down. The clear fact
    is we are way underperforming the potential of this economy.
    The consequence of that is lots of people's lives are adversely
    affected; lots of people who would have work don't have work.
        Senator Murray. I just hope you pay attention to the West
    because we are hurting.
        Secretary Snow. Thank you. I will do that. Thank you.
        Senator Shelby. Senator Byrd.

                                 BYRD AMENDMENT

        Senator Byrd. Thank you, Mr. Chairman. And thank you for
    being so patient and fair. And thank you, Mr. Secretary and Ms.
    Ressel.
        Well, Mr. Secretary, you know my concerns about what is
    happening in the steel industry. American steel companies have
    been devastated by wave after wave of unfairly subsidized and
    below-cost foreign steel imports. Just yesterday, I believe it
    was, these waves claimed another victim as Weirton Steel filed
    Chapter 11 bankruptcy protection.
        I hope, as everyone does in the northern panhandle of West
    Virginia, that Weirton emerges from bankruptcy in a stronger,
    more competitive position. But two of the programs that the
    company may rely on to get back on its feet--namely, the
    emergency steel loan guarantee program and the Continued
    Dumping and Subsidy Offset Act--have been targeted for
    elimination by the Administration.
        The Administration has sought to eliminate the steel loan
    guarantee program, rescinding $97 million in available fund
    from fiscal year 2003 and requesting zero dollars for fiscal
    year 2004.
        Moreover, the Continued Dumping and Subsidy Offset Act,
    which I created in 2000, was found to be in non-compliance with
    World Trade Organization rules. That ruling by a WTO panel is
    shortsighted, wrongheaded, and dumb. When it ruled against the
    Byrd amendment, the WTO challenged the right of the United
    States Congress to distribute Government funds as the Congress
    sees fit.
        National unemployment figures for April showed
    manufacturing jobs continuing to decline. Factory payrolls have
    fallen for 33 consecutive months. Listen to that. Factory
    payrolls have fallen for 33 consecutive months. Over 3 years.
    Many of those industrial jobs have disappeared forever. We need
    to take steps now to protect those jobs that we have left and
    to encourage new growth in manufacturing, and steel jobs are at
    the core of this effort.
        Now, you know my concerns, as I said. When we met in
    January, we talked about the steel industry and how it was
    important to so many other sectors of this economy. This
    Administration continues to advocate policies that would pull
    the rug from underneath the steel industry as it works to
    restructure again and to regain its market share. It wants to
    eliminate the emergency steel loan guarantee program, which I
    created. Actually, it is giving me a bad cramp in my leg right
    now. It got me out of bed this morning, that cramp in my leg. I
    wouldn't be a very good swimmer.
        But it wants to eliminate the emergency steel loan
    guarantee program. It wants to repeal the Byrd amendment and
    exempt product after product from the Section 201 tariffs. It
    seems that the only thing that American industrial workers can
    count on receiving under this Administration is a pink slip.
        Now, here is my question. With regard to the Byrd
    amendment, last February the President recommended the repeal
    of the continued dumping and subsidy offset--that is the Byrd
    amendment--in his fiscal year 2004 budget request. This is the
    law with overwhelming bipartisan support--overwhelming
    bipartisan support that allows import duties to be distributed
    to U.S. producers who are injured by unfair trade to help them
    invest in their companies and workers.
        On May 6th, the U.S. Trade Representative said in its
    statement on the Byrd amendment before a WTO arbitrator,
    ``Unlike other elements of the budget, the repeal of the Byrd
    amendment is not tied to the end of the fiscal year and, in
    particular, it is not intended to be included in the
    appropriations act.'' This recent statement by the U.S. Trade
    Representative is flatly inconsistent with the President's
    budget request of February 3.
        Now, contrary to its earlier proposal, the Administration
    has made a 180-degree turn and declared that the repeal of the
    Byrd amendment was never intended to be included in an
    appropriations bill.
        If the Administration's position is that the Byrd amendment
    should not be repealed, why has the Administration not
    submitted a budget amendment to the Congress that reverses its
    earlier recommendation?
        Secretary Snow. Senator, I do not know.
        Senator Byrd. That is an honest answer.
        Secretary Snow. Yes. But I will seek to get an answer to
    that question for you, quickly.
        Senator Byrd. Well, it is my understanding that the
    Inspector General of the Department of Homeland Security is
    completing a report which will show that the U.S. Customs
    Service has failed to collect approximately $90 million under
    the Byrd amendment. U.S. law requires the Federal Government to
    collect those duties, and yet, reportedly, it has failed to
    collect $90 million.
        Up until a short time ago, that responsibility was part of
    your Department. Why has the Customs Service been unable to
    comply with these laws enacted to provide legitimate remedies
    against unfair trade? Why didn't the Treasury Department pursue
    those lost revenues?
        Secretary Snow. Senator, I am not really familiar with this
    whole issue. I understand that the study is being completed.
    Treasury has lost that enforcement responsibility under the
    transfers to the Department of Homeland Security. I am not on
    top of that issue in a way to be able to give you an informed
    answer.
        Senator Byrd. Well, the Treasury Department retains control
    of many of the key provisions of the Tariff Act of 1930, of
    which my amendment is a part. With all respect, you are the
    Administration's point man on economic and fiscal policy.
    Everyone else has been shown the door. The erosion of the
    Nation's manufacturing sector, including steel, is one of the
    key elements of our economic weakness. Playing a bureaucratic
    shell game is simply unacceptable.
        As the Administration's voice on economic policy, would you
    tell the committee whether the Administration believes that it
    is important to provide support to our manufacturing businesses
    through this key initiative?
        Secretary Snow. Senator, as you know, I have had a long
    involvement with steel and served on the board of one of these
    companies, who very much supported your efforts on behalf of
    steel, applauded you for doing so. Given that service, I am
    told that I need to recuse myself from direct answers to
    questions like that. But Ms. Ressel will respond for us.
    Teresa? She didn't know that was coming.
        Ms. Ressel. I need to apologize. I was working hard on
    making sure that we were correct on the last answer, so I need
    you to repeat the question. I apologize.
        Secretary Snow. Do we support manufacturing in steel?
        Ms. Ressel. We have to get back to you. I am sorry. I don't
    know.
        Senator Shelby. Mr. Secretary, could you do that for the
    record?
        Secretary Snow. Yes, we will.
        Ms. Ressel. We do have an answer to your previous question,
    sir, about the uncollected antidumping--the $90 million
    question. Basically, the original people who were supposed to
    do that audit were the Treasury IG, and now that responsibility
    has been transitioned to the Homeland Security IG.
        It is our understanding that, for example, in 2002, $48
    million of one particular case is under protest. Basically what
    we have got is a reconciliation system set up where Treasury's
    Inspector General will turn that information over to Clark Kent
    Ervin, who is the Acting IG for Homeland. He is doing a
    complete reconciliation. We can have those numbers ready for
    you within a very short period of time. They are closing that
    out.
        I don't know that you will ultimately get a complete
    reconciliation this year because Customs is saying that they
    are not going to continue to do collection until all of the
    open issues have been cleared relative to the protests that the
    actual importers are eligible to do. That is our understanding
    of that one. If you want a briefing or any additional
    information, we would be happy to provide that, sir.
        Senator Byrd. Very well. Mr. Secretary, the subcommittee
    will welcome further responses on this matter, and as you have
    indicated, you will have something further to report to the
    committee.
        Thank you.
        Secretary Snow. Yes, we will, Senator.
        Senator Byrd. Thank you, Mr. Chairman.
        Senator Shelby. Thank you, Senator Byrd.

                         ADDITIONAL COMMITTEE QUESTIONS

        Mr. Secretary, I have a number of questions that I would
    like to submit to you for the record dealing with your office,
    the Secretary of the Treasury, and we would appreciate that
    they be in promptly.
        Secretary Snow. We would be happy to respond, Mr. Chairman.
        Senator Shelby. Senator Murray, do you have any other
    questions?
        Senator Murray. No, Mr. Chairman. Thank you.
        [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 Richard C. Shelby

                              DEPARTMENTAL OFFICES

        Question. The Inspector General and Tax Administration has
    traditionally been a watchdog over the IRS--an agency in need of
    constant oversight. The budget proposes to consolidate this office with
    the Office of Inspector General (OIG) at the Department of Treasury.
    What benefits will be derived from the proposed consolidation and what
    will the impact be if the consolidation does not happen?
        Answer. The benefit derived by consolidating the Office of the
    Inspector General (OIG) and the Inspector General for Tax
    Administration (TIGTA) would be a reduction in overall cost of
    Inspector General operations. In the post Homeland Security divestiture
    environment, Treasury incurs duplicative overhead by maintaining both
    offices which are being paid by the taxpayers with little added
    benefit. Thus the impact of not consolidating the offices would be the
    inefficient use of taxpayer money.
        The OIG was established in 1988 and TIGTA was created 10 years
    later to provide dedicated independent oversight to the Internal
    Revenue Service and related entities. Both offices have the following
    responsibilities:
      --Conduct and supervise audits and investigations.
      --Provide leadership and coordination.
      --Promote economy, efficiency, and effectiveness in programs and
            operations.
      --Prevent and detect fraud and abuse in programs and operations.
      --Provide a means for keeping the Secretary and the Congress fully
            and currently informed about problems and operations.
        Last year, upon the creation of the Department of Homeland Security
    (DHS) a significant amount of the OIG's responsibilities and budget was
    transferred to DHS and the Department of Justice (DoJ). This coincided
    with the transfer of the U.S. Secret Service, the U.S. Customs Service,
    and the Federal Law Enforcement Training Center's move to DHS and most
    of the bureau of Alcohol, Tobacco and Firearms' move to DoJ.
        Since a substantial portion of OIG was transferred to DHS and DoJ
    respectively, it makes good business sense to consolidate the balance
    of the Office of the Inspector General with the Office of the Inspector
    General for Tax Administration, eliminating duplication by creating a
    more efficient and effective operation in accordance with the mission
    of both offices.
        Question. The fiscal year 2003 Treasury bill established a fund for
    a Treasury-wide Financial Statement Audits Program. Why are these funds
    requested in the Departmental Offices' budget rather than the Inspector
    General's budget?
        Answer. The funds are in the Departmental Offices budget because
    the Inspector General looks to the Department or its bureaus to pay for
    financial statement audits performed by contractors. That is, the audit
    costs should be by the entity being audited (i.e., the Department and
    its bureaus), not by the Inspector General. The Inspector General only
    funds the audit work it actually performs; much of the audit work is
    performed by contractors.
        Prior to fiscal year 2003, audit funding for the appropriated
    Treasury bureaus was decentralized and funding needs varied from year
    to year depending on who was conducting the audit (i.e., IG, GAO, or a
    private firm). This resulted in contracting delays and a fragmented
    approach to the overall financial statement audit. For fiscal year
    2003, Treasury obtained the centralized funding, which has greatly
    alleviated the funding and contracting problems experienced in previous
    years.
        Centralizing the funding and procurement responsibility for these
    audits has streamlined the process, consolidated the audit work with
    fewer contractors, enabled greater audit efficiencies, and enhanced the
    timeliness and consistency of awarding financial statement audit
    contracts throughout the Department. Further, it has eliminated audit
    funding uncertainties we previously experienced from year-to-year
    caused by the mid-year shifting of audit funding responsibilities from
    the General Accounting Office to the Department and from the Office of
    Inspector General to the Department's bureaus. These enhancements also
    help the Department to maintain its leadership role in accelerated
    financial and performance reporting.
        Question. The Office of Foreign Assets Control is the Department's
    lead agency for identifying terrorist financing and denying terrorist
    groups access to financial markets. What efforts have been made to
    garner the commitment of other nations to participate in this effort?
        Answer. Since September 11, 2001, the Office of Foreign Assets
    Control (OFAC) has worked with other nations and the United Nations to
    garner their commitment to participate in efforts to identify terrorist
    financing and deny terrorist groups and their support networks access
    to financial markets and from having dealings with persons in U.N.
    member states. Over the last 2 years, OFAC has led or participated in
    more than 20 trips, held bi-lateral meetings with delegations from a
    dozen countries and representatives from the United Nations and has
    responded to more than 100 requests for terrorist financing information
    from more than 50 countries.
        OFAC's effort to garner international support to combat terrorist
    financing has:
      --Encouraged several countries, particularly in the Middle East
            region, to adopt new measures and/or strengthen existing
            legislation to increase regulatory oversight over charities,
            other charitable fundraisers and domestic financial
            institutions in order to prevent their exploitation by
            terrorist fundraisers.
      --Laid the groundwork in several countries for the creation of an
            OFAC-like administrative sanctions implementing agency and the
            adoption of new legal authorities to implement administrative
            freeze and blocking orders pursuant to U.N. obligations.
      --Increased compliance efforts by international banking authorities
            and assisted more than 50 nations with implementing and
            maintaining asset freeze orders pursuant to U.N. obligations.
      --Negotiated international procedures and guidelines which have been
            adopted by the G-7 working group on terrorist financing and the
            U.N. 1267 Committee.
      --Provided investigative and analytic assistance to countries in
            Europe and the Middle East to pursue known supporters of
            terrorism and to exploit new leads to identify and isolate
            terrorist financiers and financial networks.
      --Worked with countries in Europe, Southeast Asia and the Middle
            East, including Saudi Arabia, to jointly designate terrorists
            and their support networks.

                                     FINCEN

        Question. The USA PATRIOT Act requires FinCEN to implement a number
    of regulatory requirements.
        What is the current status of the implementation of these various
    provisions?
        Answer. Because the Patriot Act not only requires the issuance of
    rules, but also provides new tools for combating new threats as they
    arise, and establishes ongoing processes for sharing information, there
    is no one terminal point for Patriot activities--rather, full
    utilization of the Patriot Act is an ongoing process (i.e., Sections
    311, 314, 361). In terms of reports, FinCEN has issued all the required
    reports to date; there are reports due in the future relating to
    whether there are gaps that need to be filled (i.e., Section 324). In
    terms of rules, FinCEN has to complete the issuance of anti-money
    laundering program rules, and the final correspondent banking rules.
        Question. One of the crucial concepts behind many of these
    requirements is that the right people see the right information at the
    right time to prevent terrorists from attacking us again. What steps
    are you taking to ensure that this is indeed happening and that this
    vigilance is sustained over the long haul?
        Answer. FinCEN is very actively following trends and patterns in
    the movement of illicit funds and publishes advisories and reports to
    alert law enforcement and the financial and regulatory communities. In
    addition to the requests FinCEN receives from law enforcement for
    assistance in researching and analyzing data to support investigations,
    it is providing law enforcement with proactive cases. FinCEN also
    established a new program under Section 314 of the USA PATRIOT Act that
    allows law enforcement to query financial institutions, through FinCEN,
    regarding subjects of money laundering or terrorist financing
    investigations. This program is providing law enforcement with timely
    and valuable information about investigative subjects, as well as
    providing opportunities for coordinating investigations. Lastly,
    FinCEN's Office of Intelligence Liaison (OIL) was established in late
    1999, with the goal to identify, through BSA data, clues or leads for
    law enforcement on possible terrorist-related finances and activities.
    The analytical products of this office, since its establishment, have
    contributed to numerous intelligence and law enforcement efforts both
    proactively and in support of investigations already in progress.

                            INTERNAL REVENUE SERVICE

        Question. The Earned Income Tax Compliance effort has experienced
    some problems since its inception. What is your suggestion on how to
    solve this perennial problem?
        Answer. Although the Earned Income Tax Credit (EITC) has been
    successful in lifting millions of low-income taxpayers and their
    children out of poverty, the EITC program has experienced persistent
    noncompliance. The IRS attempts to balance enforcement activities with
    education and outreach programs so that only those taxpayers entitled
    to the EITC receive it.
        The President's Fiscal Year 2004 Budget requested an additional
    $100 million to begin a new strategy for improving the EITC program.
    The IRS will address potential erroneous claims by identifying cases
    that have the highest likelihood of error before they are accepted for
    processing and before any EITC benefits are paid. A key part of this
    strategy is to begin certifying taxpayers in advance for the EITC.
        The IRS recently announced additional details and refinements of
    this initiative. The initiative will specifically:
      --reduce the backlog of pending EITC examinations to ensure that
            eligible taxpayers whose returns are being examined receive
            their refunds quickly,
      --minimize burden and enhance the quality of communications with
            taxpayers by improving the existing audit process,
      --encourage eligible taxpayers to claim the EITC by increasing
            outreach efforts and making the requirements for claiming the
            credit easier to understand,
      --ensure fairness by refocusing compliance efforts on taxpayers who
            claimed the credit but were ineligible because their income was
            too high, and
      --pilot a certification effort to substantiate qualifying child
            residency eligibility for claimants whose returns are
            associated with a high risk for error.
        Below is a press release from the Commissioner:
    Taxpayers to Receive Advance Child Tax Credit This Summer
    IR-2003-68, May 28, 2003
    (Revised June 30 to change mailing dates for notices to check
    recipients)

    Related Fact Sheet: FS-2003-13

        Washington.--Beginning the last week of July, eligible taxpayers
    who claimed the Child Tax Credit on their 2002 tax returns will
    automatically receive an advance payment of the 2003 increase in this
    credit, the Treasury Department and Internal Revenue Service announced
    today.
        Taxpayers will not have to take any action to get this advance
    payment of up to $400 per qualifying child. The Treasury Department and
    IRS will perform all the calculations and automatically mail a notice
    and a check to each eligible taxpayer.
        ``The only thing the taxpayer needs to do is cash the check,'' said
    Mark W. Everson, IRS Commissioner. ``If you qualify, we will send you a
    notice. There's no need to call, no need to apply, no need to fill out
    another form. The IRS will do all the work. A few days after the
    notice, you will get the check.''
        The checks--an advance payment of the 2003 increase in the Child
    Tax Credit--will be based on the child tax credit claimed on the
    taxpayer's 2002 tax return. The Jobs and Growth Tax Relief
    Reconciliation Act of 2003 increased the maximum child tax credit for
    2003 to $1,000 per child, up from $600 for tax year 2002. The law
    further instructed the Treasury Department to provide the difference--
    up to $400 per child--as an advance payment to each eligible taxpayer
    this summer.
        The Treasury Department will issue about 25 million of these checks
    this year, beginning with three principal mailings on July 25, Aug. 1
    and Aug. 8. Taxpayers who filed returns after April 15--for example,
    those with automatic extensions--will receive their advance payments
    after the IRS processes their returns. They should not make any change
    to their 2002 returns or remittances based on an expectation of an
    advance payment check.
        The IRS will send notices to taxpayers on July 22, July 29 and Aug.
    5, informing them of their advance payment amount. The IRS urges
    taxpayers to hold on to these notices for their 2003 tax returns. They
    will need to take the advance payment into account when determining the
    amount of their child tax credit on the 2003 tax return.
        Taxpayers who are not eligible for the advance payment may still
    qualify for the increased child tax credit of up to $1,000 when they
    file the 2003 tax return next year. For instance, a taxpayer who did
    not have a child in 2002, but had one in 2003, would not receive an
    advance payment but may qualify for the full $1,000 credit on the 2003
    tax return.
        More information is available in answers to frequently asked
    questions on the IRS website at www.irs.gov.

        Question. The IRS is planning to use private debt collectors to
    collect billions of dollars owed in taxes. What steps will the IRS take
    to oversee private collectors as well as safeguard taxpayers' privacy?
        Answer. The IRS would establish an oversight group with
    responsibility for managing case referrals, monitoring and evaluating
    PCA performance, monitoring interactions with taxpayers, and reviewing
    and approving PCA invoices. The oversight group would be required to
    monitor a statistically valid number of taxpayer contacts by each PCA
    to evaluate taxpayer treatment and adherence to IRS approved
    procedures. A manual review of PCA activity on taxpayer accounts would
    be performed to ensure compliance with approved IRS procedures and
    overall quality of case handling. A full on-site audit of each PCA by
    the IRS oversight group would be performed on a regular basis and would
    be in addition to ongoing quality-control and taxpayer protection
    monitoring.
        The PCA would be responsible for ensuring that each employee who
    has access to taxpayer account information has completed the
    appropriate background investigation and non-disclosure forms. The PCA
    would be required to submit verification of the required background
    investigation and copies of the non-disclosure forms to the IRS at
    least 20 days before the employee is permitted to access taxpayer
    information. In addition, the IRS would adopt tracking procedures
    developed during the 1996-1997 pilot program to ensure that no PCA
    employee would be granted access to the IRS work site or taxpayer data
    until he/she successfully completed a satisfactory background
    determination. These procedures were very successful during the pilot.
    The IRS' oversight of PCAs would be similar in many respects to the
    IRS' oversight of its own employees. For example, the IRS audit system
    logs for indications of improper accesses to taxpayer information. The
    IRS also performs oversight of employee work for quality and
    appropriateness of taxpayer interactions.
        PCAs would be required to provide a large amount of information to
    the IRS, as well as access to various systems, to facilitate IRS
    oversight. This would include:
      --detailed Operational Management Information Systems (MIS) reports,
      --telephone Service Level reports,
      --audits of employee access to IRS taxpayer data,
      --access to PCA collection system for auditing purposes,
      --remote telephone monitoring access to authorized IRS personnel,
      --PCA employee tracking information,
      --PCA employee quality review monitoring evaluations,
      --PCA Operational Plans, and
      --PCA Business Continuation Plans.
        To make certain the IRS promptly hears, evaluates and addresses
    taxpayer complaints, a PCA would be required to provide to taxpayers,
    orally and in writing, information on how to report a complaint with
    the IRS. Any complaint received by the IRS from a taxpayer would
    immediately be provided to the PCA. If a PCA were to receive a
    complaint directly from the taxpayer, the PCA would be required to
    immediately forward the complaint to the IRS.
        Upon receipt of a complaint from the IRS or directly from a
    taxpayer, a PCA would be required to immediately cease collection
    activity on the account in question and provide to the IRS, by the
    close of business on the following business day, a copy of its records
    on the account and any other information relevant to the complaint. The
    PCA would not be permitted to resume collection activity on the account
    until IRS resolved the problem and provided the PCA written
    authorization to resume work. Failure by the PCA to cease collection
    activity on the account would result in IRS recalling the account from
    the PCA and, if appropriate, the termination of the PCA's contract.
        A PCA also would be required to investigate the complaint and
    provide a complete report to the IRS within 10 business days of
    receiving the complaint. The report would include a description of all
    actions taken to resolve the situation and steps put in place to ensure
    there are no future occurrences of similar situations.
        If a complaint is validated, the PCA would be required to remove
    the offending employee from the IRS account and take all necessary
    steps to ensure the employee no longer has any access to taxpayer
    information. In addition, the PCA's bonus and inventory would be
    reduced, and the PCA would be subject to a penalty. The IRS could
    choose to suspend all contract activity for the PCA either permanently
    or until the IRS has determined, at its discretion, that the PCA had
    taken appropriate corrective actions to prevent further complaints.\1\
    The IRS' determination that a complaint was valid would not be subject
    to review.
    ---------------------------------------------------------------------------
        \1\ In determining whether to suspend a contract, the IRS would
    consider the severity and frequency of valid complaints for a PCA
    (whether related to one or more employees).
    ---------------------------------------------------------------------------
        If a potential statutory violation is identified, the IRS also
    would notify the Treasury Inspector General for Tax Administration
    (TIGTA). TIGTA may investigate the complaint, depending on the
    circumstances and seriousness of the complaint. If TIGTA initiates a
    formal investigation of the complaint, the PCA would be required to
    cooperate fully with the investigation and coordinate its own
    management efforts with the IRS and TIGTA. TIGTA would provide a report
    of its investigation to the IRS Contracting Officer after concluding
    the investigation.
        Question. A Treasury Inspector General for Tax Administration
    report states that IRS deposited some tax refunds into unauthorized
    bank accounts.
        Explain how this mistake could have happened.
        Answer. Several factors contributed to the control weaknesses we
    identified.
      --Instructions for completing the United States Individual Income Tax
            Return (Form 1040) do not require taxpayers to take any
            preventive steps.--Specifically, the instructions do not
            require taxpayers to void the direct deposit fields if they do
            not use the fields (e.g., lining through the direct deposit
            fields on the tax return rather than leaving them blank) to
            ensure the fields cannot be manipulated subsequent to the
            filing of the tax return. Furthermore, IRS reports indicate
            that approximately 48 percent of paper filed tax returns are
            prepared on a computer using tax preparation software packages.
            When these tax returns are printed, the direct deposit fields
            are left blank for those taxpayers who elect to receive a paper
            check tax refund. As with the hand-written paper Forms 1040,
            the direct deposit fields on these tax returns can be altered.
      --Tax return processing controls are inadequate.--There are no
            controls in place to minimize the risk of, or identify
            potential instances of, employee impropriety via direct deposit
            in the areas that receive and open tax returns, review the tax
            returns for completeness, and input the information from tax
            returns into IRS computers.
      --Procedures do not provide IRS employees with sufficient guidance.--
            Procedures were not developed and distributed to those
            employees who work in the areas that receive and open tax
            returns, review the tax returns for completeness, and input the
            information from tax returns into IRS computers informing them
            of the need to identify and refer cases with potentially
            unauthorized direct deposits to the TIGTA Office of
            Investigations.
      --When working refund inquiries, IRS employees did not consider the
            possibility of this type of employee impropriety.--Employees in
            those functions that assist taxpayers who do not receive their
            refunds were not required to consider the possibility of
            employee impropriety when evaluating tax refund inquiries that
            involve direct deposits.
        Question. How many checks were deposited into these unauthorized
    accounts?
        Answer. TIGTA has identified one case to date whereby an employee
    altered paper filed tax returns to divert, via direct deposit to
    personal bank accounts, approximately $32,600 in tax refunds from
    multiple taxpayers for 2 tax years. The tax refunds stolen ranged from
    $2,252 to $8,133.
        This employee worked at a Submission Processing Site. From on or
    about February 28, 2000, to and including April 28, 2000, and again
    from on or about February 20, 2001, to and including April 30, 2001,
    this employee altered tax returns to include direct deposit account
    information that was not requested or authorized by the taxpayers. The
    purpose of the alterations was to divert the taxpayers' refunds to bank
    accounts belonging to and controlled by the employee.
        The employee was successfully prosecuted.
        Question. What steps has the IRS taken to make sure this does not
    happen again?
        Answer. TIGTA alerted IRS executives on June 25, 2002, to the
    control weaknesses in the processing of paper filed tax returns that
    provide opportunities for tax refunds claimed on paper filed tax
    returns to be directly deposited to bank accounts that were not
    authorized by the taxpayers. As a result of this alert, IRS management
    added this risk as a reportable condition to the tax processing Annual
    Assurance Process memorandum. In addition, IRS management implemented a
    number of corrective actions including developing and issuing guidance
    in response to audit recommendations made during the course of our
    review.
        IRS management agreed with the recommendations presented in our
    report and is planning to take corrective action. Specifically, the
    2003 instructions for completing Form 1040 will be changed to tell
    taxpayers to line through the direct deposit fields on the tax return
    if they are not requesting a direct deposit of a refund check. In
    addition, Submission Processing procedures will be changed to instruct
    Code and Edit function employees to line through this section if a
    taxpayer fails to follow the instructions. Also, the IRS will contact
    the software developers and request that they modify their programs so
    that the fields do not appear or cannot be altered if a taxpayer wishes
    to receive a paper refund check. These changes will be effective for
    Tax Year 2003.
        Question. The IRS has an obligation under Title 31 (i.e.,
    compliance and enforcement of non-bank financial institutions). Is the
    IRS adequately funded for its Title 31 functions and operations and the
    critical support that the Detroit Computing Center provides to FinCEN?
        Answer. The Small Business/Self-Employed (SB/SE) operating division
    of IRS is responsible for the non-bank financial institution (NBFI)
    compliance examinations for Title 31. In fiscal year 2003, SB/SE
    expanded the Anti-Money Laundering (AML) program to include over 30 AML
    groups across the country. Significant training resources were expended
    to ensure that the newly reassigned Revenue Agents (RAs) were properly
    trained to conduct the Title 31 compliance examinations and to refer
    potential criminal cases to IRS-Criminal Investigation, if warranted.
    IRS efforts to incorporate increased compliance responsibility due to
    the numerous regulations prompted by the USA Patriot Act more than
    doubled the number of NBFI compliance examinations conducted during
    fiscal year 2003. However, the Achieving Balanced Levels of Enforcement
    (ABLE) initiative under the Fiscal Year 2004 Budget Submission, if
    funded, would allow IRS to increase Title 31 compliance examination
    coverage and enforcement responsibilities. This initiative would
    provide additional Revenue Agents to implement selected provisions,
    i.e., section 352, of the USA PATRIOT Act and to expand overall Title
    31 compliance examination coverage given the increasing focus on money
    laundering within the related non-bank financial institutions.
        The Business Systems Development (BSD) staff at the Detroit
    Computing Center (DCC) performs programming and maintenance for the
    Currency and Banking Retrieval System (CBRS). CBRS is a large database,
    encompassing all Bank Secrecy Act (BSA) forms, the CBRS query system,
    sub-systems, and various other entities. There is an overall need to
    retool the CBRS to provide flexibility to meet the increasing complex
    research and data analysis needs of law enforcement. Treasury, FinCEN,
    and IRS are in discussion on the best approaches to this modernization.
    Regardless of the future retooling, IRS must keep pace with the new
    regulations issued under the USA PATRIOT Act. Form revisions and new
    forms required by the USA PATRIOT Act must be added to the current
    database for immediate use. These changes may require changes to the
    magnetic or electronic systems or building new systems to handle the
    additional volume.

                               SUBCOMMITEE RECESS

        Senator Shelby. Mr. Secretary, we appreciate your
    appearance here today. We know you are busy, and we appreciate
    your candor with the committee and look forward to working with
    you in the future.
        Secretary Snow. Thank you very much.
        Senator Shelby. Our meeting is in recess.
        [Whereupon, at 12:23 p.m., Tuesday, May 20, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

      DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
              RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                             THURSDAY, MAY 22, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:46 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray presiding.
        Present: Senators Campbell, DeWine, and Murray.

                          DEPARTMENT OF TRANSPORTATION

                 National Highway Traffic Safety Administration

    STATEMENT OF JEFFREY W. RUNGE, M.D., ADMINISTRATOR

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Good morning. With the concurrence of the
    Chair, I am going to open up this committee hearing this
    morning.
        Welcome to all our guests, and I will do my opening
    statement.
        First of all, I want to commend our Chairman, who I
    understand will be here shortly, for once again holding a very
    special hearing to focus on our highway safety challenges. I
    hope we will call this hearing every year to continue to
    aggressively monitor the progress of the Department of
    Transportation in reducing the number of accidents and
    fatalities on our highways.
        Unfortunately, the news since our last hearing on this
    topic has not been good. The latest data shows that for
    calendar year 2002 at least 42,850 people died on our Nation's
    highways. That is the highest number since 1990 and it
    represents an increase in the number of fatalities for the
    fourth successive year.
        Almost 18,000 of these fatalities had their root cause in
    drunk driving. That is an increase of 3 percent from just last
    year and marks the third year in a row of increases in alcohol-
    related highway deaths. These statistics show that the
    Department of Transportation has missed its stated performance
    goal for highway safety, a goal that it testified to in last
    year's hearing.
        I think that all of us on this panel will agree that this
    record is unacceptable and must be reversed. We know what is
    required to reduce death on our highways. We know what law
    enforcement methods work and we know what works to change
    driver behavior. What we do not know is whether we, as a
    Nation, have the will to force citizens to stop driving
    aggressively and to stop driving drunk. And we do not know yet
    if the Federal Government has the will to commit the necessary
    resources to change that deadly behavior.
        When the lives of Americans are threatened by a danger we
    take action. We did it after September 11th by dramatically
    improving airport security. Drunk and aggressive driving poses
    another threat to all Americans and it is one where we can make
    a real difference if we are willing to make a commitment.
        Each month more than 3,000 people die on our highways. That
    is an astounding figure and we can reduce it if we make a
    commitment. I would like to see the same commitment to highway
    safety as we put on airport safety because we can make a
    difference and save lives.
        Earlier this week the Bush Administration unveiled its
    ``SAFETEA'' reauthorization proposal. The administration claims
    the bill will double the amount of money spent on safety in
    comparison to the 6-year period covered by the TEA-21 law.
        However, a review of the details of the administration's
    proposal reveals that roughly half of this funding is committed
    to efforts to construct safer highways. And while the
    construction of safer highways unquestionably saves lives,
    there does not appear to be anywhere near that level of growth
    committed towards programs designed to change driver behavior.
        Last week, I participated with Mothers Against Drunk
    Driving in the commemoration of the 15th anniversary of the
    worst drunk driving accident in our history. A drunk driver
    struck a school bus, killing 24 schoolchildren. I met with a
    few of the parents of those victims as well as a student who
    survived that crash. I am sorry the entire subcommittee could
    not participate in that event. I think it would have served as
    a stark reminder to all of us that each day roughly 49
    individuals die as a result of drunk driving in this country.
        Given these facts, I am concerned that the President's
    transportation budget does not adequately address the challenge
    that we face. For the second year in a row the budget proposes
    to cut funding for the impaired driving program in NHTSA's
    operations budget. Together, the Chairman and I served to
    increase rather than decrease funding for this program in last
    year's appropriations bill, and I hope that we will do the same
    again this year.
        Also, while the administration is proposing a new $50
    million initiative to reduce drunk driving in those States with
    the worst record, the legislation eliminates $150 million in
    existing programs that are targeted on drunk driving.
        Moreover, the administration's new drunk driving grant
    program gives little direction to the States on how
    specifically these funds ought to be spent. Recently, the GAO
    reported that NHTSA has not required much by way of
    accountability on the part of States in using Federal funds to
    actually advance highway safety. I think we need to be very
    suspicious of initiatives that seek to attack the drunk driving
    problem by sharing revenue with the States with no strings
    attached.
        I must also point out that the President's budget, for the
    second year in a row, eliminates the funding for the targeted
    paid advertising initiatives that this committee championed.
    One of those initiatives, the ``Click It or Ticket'' program,
    is targeted on improving seatbelt use. Last year, we started
    another paid media initiative entitled ``You Drink, You Drive,
    You Lose''. Both of these initiatives are eliminated in the
    President's budget.
        I hope here again that we can work together with the other
    members of the subcommittee to continue our leadership in this
    area whether the administration wants to join us or not.
        And finally, I have to say that I am very pleased that
    Annette Sandberg, our new Federal Motor Carrier Safety
    Administrator, is here with us today. She and I have worked
    well together in the past and I look forward to working with
    you again.
        The safety challenges in the motor carrier industry are no
    different than they are with the average driver. We need to
    make sure that truck drivers buckle up, drive safely, and drive
    responsibly. Ms. Sandberg's experience as the former chief of
    Washington State's Highway Patrol makes her uniquely qualified
    to lead the Federal Motor Carrier Safety Administration.
        At this time, I will turn it over to Senator Campbell for
    an opening statement. And I just would let you know that I have
    an amendment up on the floor that I am managing right now. I
    have to leave and hope to come back. I do have questions that I
    will submit for the record if I get caught and cannot return.

                               PREPARED STATEMENT

        But I do think this is a critical hearing. I think the
    topic of this discussion is absolutely important and I want to
    work with all of you to make sure that we address these
    important safety issues.
        [The statement follows:]
                   Prepared Statement of Senator Patty Murray
        I commend you, Mr. Chairman for once again holding a special
    hearing to focus on our highway safety challenges. I hope we will call
    this hearing every year to continue to aggressively monitor the
    progress of the Department of Transportation in reducing the number of
    accidents and fatalities on our highways.
        Unfortunately the news since our last hearing on this topic has not
    been good. The latest data indicate that for calendar year 2002, at
    least 42,850 people died on our Nation's highways. That is the highest
    number since 1990, and it represents an increase in the number of
    fatalities for the fourth successive year. Almost 18,000 of these
    fatalities had their root cause in drunk driving. That's an increase of
    3 percent from just last year and marks the third year in a row of
    increases in alcohol-related highway deaths. These statistics bear show
    that the Department of Transportation has missed its stated performance
    goal for highway safety, a goal that it testified to in last year's
    hearing. I think that all of us on this panel would all agree that this
    record is unacceptable, and must be reversed.
        We know what is required to reduce death on our highways. We know
    what law enforcement methods work, and what works to change driver
    behavior. What we don't know is whether we as a Nation have the will to
    force citizens to stop driving aggressively and to stop driving drunk.
    And we don't yet know if the Federal Government has the will to commit
    the necessary resources to change that deadly behavior.
        When the lives of Americans are threatened by a danger, we take
    action. We did it after the tragic events of September 11th by
    dramatically improving airport security. Drunk and aggressive driving
    poses another threat to all Americans, and it's one where we can make a
    real difference if we are willing to make a commitment. Each month,
    more than 3,000 people die on our highways. That's an astounding
    figure, and we can reduce it if we make a commitment. I'd like to see
    the same commitment on highway safety as we've put on airport safety,
    because we can make a difference and save lives.
        Earlier this week, the Bush Administration unveiled its so-called
    ``SAFETEA'' Reauthorization proposal. The Administration claims the
    bill will double the amount of money spent on safety in comparison to
    the 6-year period covered by the TEA-21 law. However, a review of the
    details of the Administration's proposal reveals that roughly half of
    this funding is committed to efforts to construct safer highways. While
    the construction of safer highways unquestionably saves lives, there
    doesn't appear to be anywhere near that level of growth committed
    toward programs designed to change driver behavior.
        Last week, I participated with Mothers Against Drunk Driving in the
    commemoration of the fifteenth anniversary of the worst drunk driving
    accident in our history. A drunk driver struck a school bus, killing 24
    schoolchildren. I met with the parents of the victims as well as a
    student that survived the crash. I am sorry the entire Subcommittee
    could not participate in that event. I think it would have served as a
    stark reminder to all of us that each day roughly 49 individuals will
    die as a result of drunk driving in this country.
        Given these facts, I'm concerned that President's transportation
    budget does not adequately address the challenge we face. For the
    second year in a row, the budget proposes to cut funding for the
    impaired driving program in NHTSA's operation's budget. Together Mr.
    Chairman, you and I served to increase rather than decrease funding for
    this program in last year's Appropriations Bill. I hope we will do the
    same again this year.
        Also, while the Administration is proposing a new $50 million
    initiative to reduce drunk driving in those States with the worst
    record, the legislation eliminates $150 million in existing programs
    that are targeted on drunk driving. Moreover, the Administration's new
    drunk driving grant program gives little direction to the States on how
    specifically these funds ought to be spent.
        Recently the GAO reported that NHTSA has not required much by way
    of accountability on the part of States in using Federal funds to
    actually advance highway safety. I think we need to be very suspicious
    of initiatives that seek to attack the drunk-driving problem by sharing
    revenue with the States with no strings attached.
        I must also point out that the President's budget, for the second
    year in a row, eliminates the funding for the targeted paid advertising
    initiatives that this Committee championed. One of those initiative--
    the ``Click It Or Ticket'' program--is targeted on improving seatbelt
    use. Last year, we started another paid media initiative entitled ``You
    Drink--You Drive--You Lose.'' Both of these initiatives are eliminated
    in the President's budget. I hope here again we can work together with
    the other members of the Subcommittee to continue our leadership in
    this area whether the Administration wants to join us or not.
        Finally, I am pleased that Annette Sandberg, our new Federal Motor
    Carrier Safety Administrator, is here with us today. The safety
    challenges in the motor carrier industry are no different than they are
    with the average driver. We need to make sure that truck drivers buckle
    up, drive safely and drive responsibly. Ms. Sandberg's experience as
    the former Chief of Washington State's Highway Patrol makes her
    uniquely qualified to lead the motor carrier safety agency.
        Thank you Mr. Chairman.

                PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY

        Senator Murray. Senator Shelby has submitted a statement
    which he would like included for the record.
        [The statement follows:]

                Prepared Statement of Senator Richard C. Shelby

        Good Morning. The Subcommittee will come to order. I want to thank
    each of the witnesses for being here today to discuss fiscal year 2004
    highway safety initiatives. As we approach Memorial Day, one of the
    most dangerous weekends for highway travel, I cannot think of a better
    time to discuss what I believe is a very important, yet all too often
    overlooked issue.
        Last year, 43,000 people died on our Nation's highways and roughly
    18,000 of the deaths were in alcohol-related crashes. Just as troubling
    is the fact that 4.5 million people visit the emergency room each year
    as a result of a motor vehicle accident. As the leading cause of death
    in the United States for Americans ages 1 to 35, I believe that this
    problem has reached epidemic proportions.
        Much like the medical community treats cancer or heart disease, we
    need to develop a plan to research and enact effective, data driven
    programs to reduce the number of highway fatalities.
        I am struck, however, by the lack of scientific method or
    comprehensive rational approach to combating drunk and drugged driving,
    to increasing seatbelt use in those demographics that under-perform the
    national average, or to changing dangerous behavior where we can
    identify it and isolate it.
        Dr. Runge, as a physician you can not possibly subscribe to doing
    the same thing for an extended period of time if the patient did not
    improve--you would discontinue treatments that didn't work, prescribe
    treatments that did work, and try new treatments for conditions that
    you could identify and diagnose. That is all I am asking you to do
    here--identify, diagnose, and treat. We must start saving lives.
        This year, the Department of Transportation has declared safety to
    be its No. 1 priority for its current budget request and for its
    reauthorization proposal, SAFETEA as well. Highway deaths have
    increased every year for the past 4 years and alcohol-related deaths
    increased for the third consecutive year, and I agree that there is no
    greater priority than reversing these alarming trends.
        When I look at this budget proposal, I see no new initiatives that
    help us improve our poor highway safety record. The data tells me that
    what we are doing is not working, and it is preposterous to believe
    that we can continue to do the same thing each year and expect a
    different result. Too many lives are lost while many States, with
    NHTSA's approval, use their safety grants to use bobble-head dolls, key
    chains and air fresheners to get the message out without any results.
    It is beyond me how these trinkets are increasing seat belt usage or
    deterring impaired driving. I support State flexibility, but trinkets
    don't save lives. We must change our course if we expect to reduce the
    carnage on our Nation's highways.
        The Administration's goal is to reach a 78 percent usage rate by
    the end of 2003. However, the budget proposes nothing specific to
    further increase usage rates and despite the remarkable success of the
    Click It or Ticket mobilizations, NHTSA has never requested specific
    funding for the program. It may not be a silver bullet, but I am not
    aware of another program that is as effective as these campaigns in
    increasing seat belt usage. To me, that goal rings hollow unless the
    budget justification outlines the steps we must take to achieve a 78
    percent usage rate. This budget does not meet that test.
        On the other hand, we are making modest improvement in large truck
    crashes which continued to decline this year, but much more needs to be
    done. I think that the data derived from the large truck crash
    causation study will provide an important blueprint to guide FMCSA in
    the future.
        The Federal Motor Carrier Safety Administration was granted
    additional authorities with the enactment of the Motor Carrier Safety
    Improvement Act. FMCSA has a major new management challenge at hand to
    fully implement the new entrant program, and the first year will be the
    most difficult in identifying the riskiest operators and monitoring
    their safety records. I urge FMCSA to work with stakeholders and State
    enforcement authorities to coordinate and implement the new entrant
    program. I also encourage you to look into the possibility of
    designating a Federal tiger team to augment the efforts of the States
    to investigate the carriers who pose the greatest risks.
        Again, I will say that I am disappointed by what I perceive to be a
    lack of innovative and creative thinking to allow our government to
    improve highway safety numbers. I appreciate that the responsibility to
    make our highways safer does not rest solely with your two agencies. In
    fact, everyone who gets behind the wheel shares some accountability.
        Nevertheless, it is important for all agencies within the
    Department to work together to identify strategies for improvement and
    implement programs that are effective. If programs have reached a
    plateau or outlived their usefulness, then we must create and implement
    new approaches. We cannot sit idly by and hope that highway safety will
    spontaneously improve.
        I look forward to hearing the testimony and am hopeful you will
    provide additional insight that will prove more promising than what I
    have seen so far.

        Senator Murray. Senator Campbell?

                  STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

        Senator Campbell [presiding.] Thank you, Madame Chairman.
        I will submit my opening statement for the record and just
    associate myself with your comments.
        It is rather ironic that--maybe ironic is not even the
    proper word--but we have killed more people on American
    highways than we did in Iraq during the same time frame we have
    been involved in that engagement, and people do not seem to get
    excited. When one serviceman tragically loses his life in Iraq,
    we see it on the headlines of every newspaper in America.
    During that same time frame, as I mentioned, in Iraq, we have
    lost so many Americans.
        I know that we are trying to focus at the State and Federal
    level on trying to improve devices in the car. We have done it
    with seatbelts. We have done it with airbags and a number of
    other things. We are certainly trying, by the highway bills we
    have passed and the appropriations, to improve the surfaces and
    the conditions on which people drive and that is great. But I
    think that we are really not doing as good a job as we could
    on, as Senator Murray said, on changing the behavior of
    drivers.
        I know some States are taking on, as an example, the use of
    cellphones and other distractions that have proven to be
    distracting to a point of increased accidents because of their
    use. And I know we have dealt with alcohol-related deaths a
    great deal. And we have done it, I think, an awful lot through
    the penalty side of the equation. To me we are not doing enough
    on the side of the equation that requires better training and
    better education to change that behavior.
        So I have about three or four other questions I would also
    like to ask, but will yield to Senator DeWine if he has an
    opening statement and then we will go ahead and take testimony.
        Senator DeWine. I have no opening statement. I will have
    questions.
        Senator Campbell. We welcome Dr. Jeffrey Runge, the
    Administrator of the National Highway Traffic Safety
    Administration, Ms. Annette Sandberg, who I understand used to
    be a State Patrolwoman and I was very delighted to hear that. I
    am sure she brings a great deal of on-the-ground experience to
    her job as the Acting Administrator of the Federal Motor
    Carriers Safety Administration. Ms. Wendy Hamilton, the
    President of Mothers Against Drunk Driving. And finally, to Mr.
    Chuck Hurley, the Vice President of the National Safety Council
    and Executive Director of the Airbag and Seatbelt Safety
    Campaign.
        Why don't we just start in that range. If Dr. Runge would
    like to start. We will take the comments from all of you before
    we ask some questions.

                      STATEMENT OF JEFFREY W. RUNGE, M.D.

        Dr. Runge. Senator Campbell, Senator DeWine, thank you very
    much for a chance to appear this morning, along with my
    colleagues from the FMCSA and MADD and the National Safety
    Council.
        This group has spent many hours collaborating on ways to
    improve highway safety over the years. The fiscal year 2004
    budget request is intended to build on successes we have had in
    the past, as well as address growing national safety
    priorities.
        Over the last 35 years, the fatality rate has been reduced
    on our Nation's highways from 5.5 fatalities per 100 million
    vehicle miles traveled (VMT) to its present rate of 1.5 per
    million VMT. This represents significant progress.
        Our programs support Secretary Mineta's departmental goal
    to reduce this number to 1.0 by 2008. We have an interim target
    for 2004 of 1.38 fatalities per 100 million VMT. This will be a
    very challenging target, based on the current trends.
        In order to reach these targets, we need the full
    cooperation of our sister agencies in the administration, of
    Congress, of State legislatures, and indeed, the will of the
    Nation.
        Under our reauthorization bill, we will use our
    appropriated grant funds to encourage States to use funds where
    they can be most effective, as States must share in the
    accountability with us.
        Our proposed fiscal year 2004 budget of $665 million is
    performance-based, with clear goals and effectiveness measures,
    and it emphasizes our five priorities: increasing safety belt
    use, decreasing impaired driving, vehicle rollover, vehicle
    compatibility, and traffic records and data improvement. I will
    talk briefly about each priority, but they are interrelated and
    their solutions, in many ways, are common.
        Safety belt use is our most effective tool in reducing
    death and injury on the highways. It cuts the risk of death in
    a crash in half. But you have to wear it. The good news is that
    belt use reached 75 percent last year, which is a record. But
    the bad news is that 25 percent of Americans involved in a
    motor vehicle crash who did not buckle their safety belts
    resulted in 6,800 preventable deaths and 170,000 hospitalizable
    injuries. This failure to wear seatbelts cost Americans $20
    billion, mostly in medical costs and lost productivity.
        Our national target for next year is 79 percent belt use.
    Reaching that would save 1,000 lives a year and prevent more
    than 28,000 injuries. If we reach a 90 percent usage, we will
    see 4,000 more lives saved every year. This is not a dream.
    More than 90 percent belt use has been achieved in California,
    Washington, Hawaii, and Puerto Rico. We know what is required
    for States to achieve these high levels--primary belt laws,
    strict enforcement, public education, using paid media and
    earned media, and our high-profile law-enforcement programs,
    such as ``Click It or Ticket''.
        We conducted a highly effective ``Click It or Ticket''
    program in eight southeastern States in 2001. In 2002, we
    conducted a similar campaign in 30 States, involving media
    saturation and highly visible enforcement. In the 10 States
    that completely adopted our model, belt use increased an
    average of 9 percentage points, with Vermont experiencing a 19
    percentage point increase and West Virginia a 15 percentage
    point increase.
        We are now in the middle of our 2003 ``Click It or Ticket''
    national campaign. With the help of this committee, we have
    national ``Click It or Ticket'' advertising going on as we
    speak. This year, 43 States, D.C., and Puerto Rico chose to
    join the campaign.
        But for high visibility enforcement campaigns to work
    fully, States must have standard safety belt laws. But only 18
    currently have them. In fiscal year 2004, NHTSA's budget
    proposes a new, primary safety belt incentive grant program
    that we expect to result in more States enacting primary belt
    laws.
        Regarding impaired driving, preliminary data for 2002 show
    an estimated 17,970 people dying in alcohol-related crashes,
    which is 42 percent of total traffic deaths. Alcohol traffic
    deaths are down 25 percent since 1988, but are 3 percent higher
    than in 2001. Our target for 2004 is to reduce the rate of
    alcohol traffic deaths to 0.53 per 100 million VMT from our
    0.64 that we experienced last year.
        This will not be done by doing business as usual. We need
    to focus resources on where they are most needed, encourage
    States that are doing a good job to keep it up, and to help
    those States that are not to begin to do a good job.
        So, in addition to focusing highly visible law enforcement
    campaigns in 2004, we are proposing a grant program that will
    provide additional resources to those States that have
    particularly severe impaired driving problems.
        Rollovers account for less than 5 percent of all vehicle
    crashes, but one-third of vehicle fatalities. In 2002, 10,000
    people died in the United States in rollover crashes, up nearly
    5 percent from the previous year. Light trucks, including SUVs
    and pickups, are most at risk. We began rating vehicles in 2001
    for their likelihood of rollover, which correlates closely with
    experience in real world crashes. The National Academy of
    Sciences recently evaluated our rollover ratings and found them
    valuable and accurate, but reported that ratings could be
    better if we evaluated vehicles in a dynamic rollover test that
    measures performance in emergency steering. NHTSA's fiscal year
    2004 budget proposes to implement that change.
        The U.S. fleet has changed dramatically in the last 20
    years, producing mismatches between trucks and cars, and while
    light trucks and vans account for 38 percent of all registered
    vehicles, they are involved in about half of all two-vehicle
    crashes involving passenger cars. About 80 percent of the
    deaths occur in passenger cars. Since light trucks are half of
    all new vehicle sales today, we cannot delay action to address
    this problem.
        Regarding traffic records, our budget request includes $10
    million to enable us to update NHTSA's crash causation data,
    last generated in the 1970's. A lot has changed since then--
    vehicles, traffic patterns, numbers and types of vehicles, on
    board technologies, and driver demographics. Therefore, we are
    requesting support for a new traffic records and data
    improvement program in the States that will provide money where
    it is needed to support State traffic records.
        My final point, we are proposing to restructure our highway
    safety grants to make the program simpler, smarter, and more
    effective. We are simplifying the grant delivery system by
    reducing the number of programs and increasing States'
    flexibility to use the grant funds.

                               PREPARED STATEMENT

        Mr. Chairman, this concludes my statement. In closing, I
    would like to thank the committee for its support of our
    programs in the past. I look forward to working with you in the
    future.
        Senator Campbell. Thank you.
        [The statement follows:]

                  Prepared Statement of Jeffrey W. Runge, M.D.

        Mr. Chairman and members of the Committee: I welcome the
    opportunity to appear before you to discuss our country's priority
    highway and motor vehicle safety issues that are administered by the
    National Highway Traffic Safety Administration (NHTSA). My staff and I
    look forward to working with this committee in addressing these issues
    of great national importance. Today I am pleased to appear with my
    fellow highway safety colleagues.
        In these uncertain times, the American public is looking to the
    highest levels of government for assurance of its safety. The President
    has pledged that the safety and security of our citizens is this
    Nation's highest priority. To that end, the Secretary of Transportation
    has established transportation safety as the Department's number one
    priority. NHTSA is pledged to solving the highway safety issues
    confronting this Nation.
        NHTSA's fiscal year 2004 budget request of $665 million will help
    us build on past successes to address highway safety. The paramount
    highway safety goal within the Department is to reduce the fatality
    rate on our Nation's roadways to no more than 1.0 fatality for every
    100 million vehicle miles traveled (VMT) by 2008. This is not just a
    NHTSA goal; it is a goal of the entire Department of Transportation.
    Our fiscal year 2004 budget request reflects the resources NHTSA needs
    if we are to attain this goal, along with the help of our DOT
    colleagues, the States, and the many non-Governmental organizations
    that are partners in this effort.
        Motor vehicle crashes are responsible for 95 percent of all
    transportation-related deaths and 99 percent of all transportation-
    related injuries. They are the leading cause of death for Americans
    ages 2-33. The total number of highway fatalities has been increasing
    slightly since 1998, while the rate per vehicle miles traveled has
    decreased. Preliminary estimates for 2002 indicate that an estimated
    42,850 people were killed on America's roads and highways, up 1.7
    percent from 2001. The fatality rate per 100 million vehicle miles
    traveled (VMT) remained unchanged at 1.51, according to these
    estimates. Collectively, we have much work to do since the Department
    has established a performance goal of no more than 1.38 fatalities per
    100 million VMT by the end of fiscal year 2004.
        Traffic injuries in police-reported crashes decreased by four
    percent in 2002. This is excellent news. But we still are faced with
    the overwhelming fact that, during that same year, nearly 3 million
    people were injured in these crashes. The average cost for a critically
    injured survivor is estimated at $1.1 million over a lifetime. This
    figure does not even begin to reflect the physical and psychological
    suffering of the victims and their families.
        Traffic crashes are not only a grave public health problem for our
    Nation, but also a significant economic problem. Traffic crashes cost
    our economy $230.6 billion in 2000, or 2.3 percent of the U.S. gross
    domestic product. This translates to an average of $820 for every
    person living in the United States. Included in this figure is $81
    billion in lost productivity, $32.6 billion in medical expenses, and
    $59 billion in property damage. If safety is our number one priority,
    our Nation must become more aware of the deaths of nearly 43,000
    Americans, the cost of these deaths, and the solutions. Given increased
    mobility estimates and the likely increase in miles traveled, a failure
    to improve the fatality rate will result in more than 50,000 Americans
    killed annually by 2008.
        Consequently, our fiscal year 2004 budget request of $665 million
    is a performance-based budget with clear goals and measures. In
    addition, the budget is established around two major performance-based
    programs: Vehicle Safety and Traffic Injury Control. Program budgets
    are grouped under their corresponding goals for more efficient use of
    resources and more accurate performance measurement in meeting each
    goal. The budget includes measurable performance targets and outputs
    that clearly demonstrate not only how, but also how well, the budgetary
    resources are expended.
        Before discussing the highlights of our program, I want to describe
    briefly the restructuring we are proposing for highway safety grants.
    The fiscal year 2004 budget consolidates all highway traffic safety
    grant resources provided by TEA-21 ($447 million) within NHTSA. This
    includes $222 million of resources for the Sections 157 and 163 grant
    programs formerly appropriated in the Federal Highway Administration's
    budget. NHTSA has administered these funds since their creation; the
    fiscal year 2004 budget merely proposes that those same funds be
    appropriated directly to NHTSA.
        The grant award process under TEA-21 was very complex and time
    consuming for the States, and resulted in increased administrative
    overhead that could otherwise be applied to safety programs. It
    contained eight programs with various qualification and administrative
    requirements. NHTSA wants to simplify the system by reducing the number
    of programs and streamlining the process to qualify for, and
    administer, grant funds. NHTSA is also tying additional Section 402
    funds to a State's highway safety performance, based on performance
    measures that are aligned with the national highway safety goals. Last
    week, the Administration released its proposal to reauthorize the
    surface transportation programs. These reforms are outlined in that
    proposal.

                               PROGRAM HIGHLIGHTS

        Deaths and injuries can be prevented by building on the proven
    success of existing programs and, when indicated, developing new
    programs and evaluating their effectiveness. Within the two broad
    program areas, our programmatic emphasis for fiscal year 2004 focuses
    on five priority areas: safety belt and child restraint use, impaired
    driving, vehicle rollover, vehicle compatibility and traffic records/
    data collection. We have set up internal Integrated Project Teams
    (IPTs) in four of these areas to examine the issues and recommend
    solutions. The teams have recently concluded their work and have
    developed recommendations for the agency to pursue. Recently, the
    Secretary reiterated his commitment to implementing a balanced program
    focused on the 3 Es of Injury Prevention--engineering, enforcement, and
    education. The IPTs' work reflects the program strategies and options
    needed to produce such a balanced effort. My statement will address
    each of these.

    Safety Belt and Child Restraint Use
        Safety belt use cuts the risk of death in a crash in half. The good
    news is that in 2002, safety belt use in the United States reached 75
    percent--an all-time high. All 50 States, the District of Columbia, and
    Puerto Rico had child passenger safety laws, and 49 States had adult
    safety belt laws in effect. As of October 2002, eighteen States, the
    District of Columbia, and Puerto Rico had primary safety belt laws in
    effect, meaning that drivers and passengers can be cited for failure to
    wear a safety belt. The remaining States, except New Hampshire, had
    laws preventing police from issuing a citation unless another traffic
    law was broken. These are referred to as secondary laws. New Hampshire
    continues to have no adult safety belt law. We are pleased to report
    that, due to immense effort and a successful partnership among
    government, safety groups, and African-American interest groups, safety
    belt use among African-Americans increased to 77 percent, a level above
    that of the general population, and an eight percentage-point increase
    since 2000. Belt use among those living in rural areas increased to 73
    percent in 2002, a five percentage-point gain. However, the bad news is
    that despite these success stories, we continue to have entrenched and
    intractable problems that continue to challenge us. Most notably,
    during 2002, the 25 percent of passenger vehicle occupants who failed
    to use safety belts cost themselves and America 6,800 preventable
    deaths and 170,000 preventable injuries, resulting in $18 billion in
    medical costs, lost productivity, and other injury-related expenses.
        Our safety belt use target for 2003 is 78 percent, and our 2004
    target is 79 percent nationwide. These targets are optimistic but
    achievable. Based on the National Occupant Protection Use Survey
    (NOPUS) data for 1994-2001, the agency estimates that each year
    approximately 8.5 percent of non-safety belt users have converted to
    being regular belt users. Continuing to convert this percentage each
    year becomes increasingly more difficult because, as the conversion
    occurs, the hard-core non-users become a higher proportion of the
    remaining non-users. If we are successful in meeting the 2004 target,
    an estimated 1,000 more lives would be saved and 28,000 more injuries
    prevented.
        Most passenger vehicle occupants killed in motor vehicle crashes
    continue to be totally unrestrained. If we were to achieve a national
    90 percent belt use, nearly 4,000 additional lives would be saved each
    year. This usage rate is not only possible, it can be exceeded. For
    example, in 2002, Hawaii achieved a 90.4 percent use rate, Puerto Rico
    a 90.5 percent use rate, California a 91.1 percent use rate, and
    Washington State a 92.6 percent use rate. To achieve these high use
    targets in the remaining States, NHTSA will need to continue to employ
    a combination of education, enforcement, and engineering strategies to
    raise belt use, particularly among the most at risk populations.
        States achieve high levels of belt use through enacting primary
    safety belt laws, strict enforcement of existing laws, public education
    using paid and earned media, and high profile law enforcement programs,
    such as the Click it or Ticket campaign. Highway safety research and
    our continuing evaluation of our programs have demonstrated that an
    intensive, high visibility traffic enforcement program significantly
    increases safety belt use.
        NHTSA has supported high visibility enforcement for the last
    decade, following a model that was developed in several States in the
    early 1990s. With funding authorized under TEA-21 and with support from
    this Committee, these campaigns have grown tremendously, saving
    thousands of lives. Following a highly effective Click It or Ticket
    program in eight southeastern States in 2001, the agency undertook a
    similar campaign involving media saturation and highly visible
    enforcement in 30 States in May 2002. In a study of ten States that
    completely adopted the model, safety belt use was shown to increase an
    average of nine percentage points, with one State--Vermont--
    experiencing a 19 percentage-point increase, followed by West Virginia
    with a 15 percentage-point increase.
        We are in the midst of carrying out the 2003 Click It or Ticket
    national campaign. This year, 43 States, the District of Columbia, and
    Puerto Rico qualified for grant funds to support Click It or Ticket
    campaigns. This year, Congress provided funding for NHTSA to purchase
    $10 million of national advertising that will further enhance the
    benefit of these State and local enforcement campaigns. These ads are
    currently playing. In addition, the occupant protection program
    includes demonstrations of new strategies for increasing belt use among
    high-risk, low-use groups, such as pick-up truck drivers, minorities,
    and teens. Support for the high visibility enforcement campaigns,
    together with resources to support paid and earned media and new
    strategies for reaching high-risk groups, will contribute to achieving
    our 2003 target and prepare for further gains in coming years.
        In fiscal year 2004, NHTSA plans to continue to encourage States to
    embrace the Click It or Ticket campaign and to begin investigating
    strategies to assist States with integrating high visibility
    enforcement into their ongoing routine enforcement. NHTSA has proposed
    a new primary safety belt law incentive grant program that is expected
    to result in additional States upgrading their laws, and a performance-
    based safety belt use rate grant program for States to encourage them
    to make progress on raising safety belt use. In 2002, States with
    primary safety belt laws averaged 80 percent use, 11 percentage points
    higher than those with secondary laws. We are hopeful that by rewarding
    States for enacting primary safety belt laws or achieving 90 percent
    use rates, fatalities and injuries in those States will decline. As an
    additional inducement, we are proposing that the States receiving such
    incentive awards be permitted to apply those funds to highway safety
    infrastructure projects contained in the State's Integrated Highway
    Safety Improvement Program. In addition, the agency will utilize the
    results of our high-risk group demonstration programs to develop
    educational programs and materials that are intended to increase use
    among these populations.
        We will continue these high profile programs in fiscal year 2004
    because they succeed in reminding the motoring public that using safety
    belts and child safety seats saves lives, and create an added incentive
    to wear belts for those who currently break the law. We are serious
    about reducing the yearly financial toll to America from the failure to
    wear safety belts.
        In addition to our success in raising safety belt use, we have made
    steady progress in getting more children restrained. Restraint use by
    young children rose to unprecedented levels in 2002. In 2002, NHTSA's
    NOPUS survey showed that the rate for child restraint use was 99
    percent for infants (under 12 months), 94 percent for toddlers (1-3
    years), and 83 percent for children ages 4-7. Our 2002 estimates
    indicate that fatalities among children ages 0-7 years continued to
    decline, reaching another historic low. Unfortunately, these data also
    show an increase in highway deaths for children 8-15 years. The number
    of occupant fatalities for children in this age range rose by nearly
    nine percent over 2001.
        To comply with the Transportation Recall Enhancement,
    Accountability, and Documentation (TREAD) Act's goal of reducing deaths
    and injuries by 25 percent among 4- to 8-year-olds by 2006, NHTSA
    published a five-year strategic plan in a report to Congress in June
    2002, focusing on improving consumer awareness, booster seat safety
    benefits, and the enforcement of booster seat laws, as well as a study
    on the overall effectiveness of booster seats. A November 5, 2002,
    final rule established a consumer information program to rate child
    restraints on ease-of-use. The fiscal year 2004 New Car Assessment
    Program (NCAP) budget request will support child safety seat Ease-of-
    Use ratings for over 90 percent of the child safety seats on the
    market. These ratings will be published annually in a brochure and on
    the Internet, starting this spring.

    Impaired Driving
        Impaired driving rates have decreased for drivers of all age groups
    involved in fatal crashes over the past decade, with drivers 25 to 34
    years old experiencing the greatest decrease, followed by drivers 16 to
    20 years old. However, our 2002 estimates indicate that alcohol-related
    fatalities rose for the third consecutive year. Preliminary 2002 data
    indicate that an estimated 17,970 people died in alcohol-related
    crashes (42 percent of the total fatalities for the year), and even
    though this is a 25 percent reduction from the 23,833 alcohol-related
    fatalities in 1988, it is an increase of 3 percent over 2001. We must
    reduce these statistics even further through more aggressive programs
    that deter impaired driving.
        NHTSA's target for 2004 is to reduce the rate of alcohol related
    fatalities to 0.53 per 100 million VMT from the current 2002 actual
    rate of 0.64.
        In 2003, the agency is encouraging States to adopt high-profile law
    enforcement programs, combined with paid and earned media saturation.
    These programs will combine a high level of sustained enforcement with
    intense enforcement mobilizations around the July 4 and December
    holiday periods. As with the Click It or Ticket campaign, these
    programs will use both paid and earned media to alert the public about
    the increased risk of arrest if they fail to observe highway safety
    laws. In fiscal year 2002, Congress provided $11 million for paid media
    and $1 million for evaluation in support of these programs. NHTSA is
    working intensely with 13 States on this type of high visibility,
    enforcement-focused campaign. The first of these campaigns was in
    December 2002 through early January 2003. We are currently collecting
    the data from these States to determine the overall success of this
    mobilization on the numbers of deaths and injuries. We appreciate the
    support of Congress in enhancing these law enforcement campaigns.
        In fiscal year 2003, we are also continuing to support State
    activities to upgrade impaired driving laws. Currently, 39 States, the
    District of Columbia, and Puerto Rico have enacted laws making it
    unlawful for a driver to operate a motor vehicle with a blood alcohol
    concentration (BAC) of .08 percent, up from 28 this time last year. In
    addition, all States and the District of Columbia now have zero
    tolerance laws setting the illegal BAC limit at no higher than .02 for
    drivers under age 21. We will continue to urge strong State legislation
    as a framework for an effective impaired driving program. In addition,
    NHTSA is conducting a range of demonstration programs to develop
    strategies for upgrading prosecution and adjudication processes, and
    improving impaired driver records systems to track repeat offenders.
        NHTSA's fiscal year 2004 impaired driving program will continue to
    focus on highly sustained and periodic law enforcement campaigns,
    together with implementing improvements to the prosecution,
    adjudication, and records systems. We will also be developing
    additional strategies based in part on what we learn from the You Drink
    & Drive. You Lose. campaign results. For fiscal year 2004, the agency
    has proposed a State grant program that will focus resources on a small
    number of States with high alcohol-related crashes. The grant program
    will include support for States to conduct detailed reviews of their
    impaired driving systems by a team of experts and assist them in
    developing a strategic plan for improving programs, processes, and
    reducing impaired driving-related fatalities and injuries. This year,
    we have begun implementing recommendations from the Criminal Justice
    Summit on Impaired Driving held in November 2002. These include
    training and legal advice in the prosecution and adjudication of DWI
    cases, and working with licensing and criminal justice authorities to
    close legal loopholes. NHTSA will also focus on the increasing rates of
    motorcycle fatalities, particularly since 37 percent of all motorcycle
    fatalities are alcohol-related. Finally, in addition to the enforcement
    campaign and grant program, in fiscal year 2004 we will continue to
    focus on the most at-risk populations such as youth, 21-34-year-olds,
    and repeat offenders, and conduct more studies on finding vehicle-based
    solutions for impaired driving behavior including using the National
    Advanced Driving Simulator. These studies will be used to refine agency
    countermeasures and regulatory initiatives.
        NHTSA believes that continued nationwide use of sustained high-
    visibility enforcement, encouraging States to adopt proven remedies and
    paid and earned media campaigns, together with the targeted State grant
    program and support activities, will lead to a resumption of the
    downward trend in alcohol-related fatalities that we experienced over
    the past decade.

    Vehicle Rollover
        Rollovers account for less than five percent of all passenger
    vehicle crashes, but one-third of passenger vehicle occupant deaths. In
    2002, an estimated 10,626 people died in the United States in rollover
    crashes, up 4.9 percent from 10,130 in 2001. This type of crash
    accounts for less than five percent of all passenger vehicle crashes,
    but one-third of passenger vehicle occupant deaths. Light trucks
    (particularly pickup trucks and sport utility vehicles) have a rollover
    rate significantly higher than passenger cars because light trucks have
    higher centers of gravity and are more prone to rollover during certain
    handling maneuvers. Fatalities in rollover crashes involving pickup
    trucks and sport utility vehicles accounted for 53 percent of the
    estimated increase in highway fatalities for 2002. Since light trucks
    account for an increasing portion of total light vehicle sales, deaths
    and injuries in rollover crashes will become a greater safety problem
    unless something changes.
        One step we have taken (beginning in 2001) is to rate vehicles in
    our New Car Assessment Program (NCAP) for their propensity to rollover.
    Our NCAP ratings are based on the vehicle's static stability factor,
    which is calculated based on the height of the vehicle's center of
    gravity and its track width. These rollover ratings correlate very
    closely with experience in real-world crashes. The lowest rated, one-
    star vehicles in our rollover NCAP have a 40 percent chance of rollover
    per single vehicle crash compared to a 10 percent chance for vehicles
    with the highest five-star rating. The National Academy of Sciences
    independently evaluated our rollover NCAP ratings and found that our
    current ratings are valuable and accurate, but suggested the ratings
    could be even better if we also evaluated vehicles in a dynamic
    rollover test that measures how vehicles perform in emergency steering
    conditions. We have proposed to adopt this change, consistent with
    Congress's direction in the TREAD Act, and our fiscal year 2004 budget
    includes $1.9 million to implement this change in the 2004 model year.
    We believe this combined rollover rating will help us understand the
    real-world rollover experience and thereby give the American public a
    more useful piece of information for choosing a new vehicle.
        Our experience in rating vehicles for rollover shows that vehicles
    differ significantly. For instance, sport utility vehicles receive from
    one star to four stars for rollover resistance. Pickup trucks range
    from one star to three stars. We want to make sure that people who are
    choosing to drive sport utility vehicles and pickup trucks have the
    information that will allow them to choose the ones less prone to roll
    over.
        While we would like to prevent rollovers from happening in the
    first place, we recognize that some rollover crashes will occur. Thus,
    we must also consider other actions that will help reduce deaths and
    injuries in rollover crashes. We expect to announce proposed upgrades
    of our door lock requirements and our roof crush standard in fiscal
    year 2004. Finally, we are considering a proposal to reduce ejections
    through windows.
        However, there is another step that we need to emphasize for
    improved safety in rollovers--one that can be taken today with no
    changes whatever to vehicles. We can significantly reduce deaths and
    injuries in rollover crashes if we can get more Americans to use the
    safety belts that are in their vehicles today. Most people killed in
    rollovers are ejected totally or partially from the vehicle. Safety
    belts can prevent nearly all of these ejections. Safety belts are 80
    percent effective in preventing deaths in rollovers involving light
    trucks and 74 percent effective in rollovers involving passenger cars.

    Vehicle Compatibility
        The vehicle fleet has changed dramatically in the last 20 years,
    and these changes have given rise to an unprecedented vehicle mismatch
    in vehicle-to-vehicle crashes. Of course, vehicle compatibility has
    been a concern for longer than the past 20 years, but the earlier
    concerns about compatibility among different vehicles on the road were
    primarily related to differences between large and small cars, and the
    primary difference was simply the mass of the vehicles. However, more
    recently, the rising popularity of light trucks, vans, and SUVs has
    made the problem substantially more complex. Now, in addition to
    differences in vehicle mass, we must address inherent design
    differences, including disparities in vehicle height, geometry, and
    vehicle stiffness. The fleet average weight of light passenger vehicles
    that was approximately 3,000 pounds in 1990 is almost 4,000 pounds
    today. Similar changes are occurring in front-end heights and
    stiffness. The average initial stiffness of light trucks is about twice
    that of passenger cars. This increases the risk of death and injury to
    occupants in certain passenger vehicles when they interact with the
    more aggressive ones.
        While light trucks and vans (LTVs) account for 38 percent of all
    registered vehicles, they are involved in approximately half of all
    fatal two-vehicle crashes involving passenger cars. In these
    collisions, about 80 percent of the fatalities are passenger car
    occupants. We need to address this problem now since LTVs constitute
    half of all new vehicle sales.
        An Integrated Project Team from offices within the agency has been
    addressing this issue. I expect to publish that team's recommendations
    for public comment in the very near future. This team has identified
    some ways in which the safety features of a struck vehicle may be
    improved to better protect the occupants in a crash with a more
    aggressive vehicle and measures to reduce the aggressiveness of
    striking vehicles. The safety problems associated with vehicle
    compatibility are complex and will need focused research and other
    efforts to solve them.
        The greatest problem in vehicle compatibility occurs when an LTV
    strikes a passenger car in the side. In the near term, we expect to
    propose a significant upgrade to our side impact protection standard.
    While improving upon the protection already provided to the chest and
    pelvis in our side impact standard, this upgrade will also add a
    measure of head protection to our side impact standard, because our
    data show that head injury is a serious risk in side crashes. We will
    also explore the idea of adding different sized dummies to our side
    impact standard.
        I am also happy to tell you that NHTSA is not the only party that
    is trying to address compatibility. Vehicle manufacturers have
    acknowledged that they also have a responsibility to address this
    issue. Manufacturers have formed their own working groups to develop
    recommendations for some voluntary actions that can be taken to improve
    vehicle compatibility. These manufacturers have committed to developing
    initial recommendations by late spring. In addition, the government of
    Japan has committed to share test data and other information with NHTSA
    on the issue of vehicle compatibility. With this international
    cooperation, the American people will get a much quicker response to
    the problem of vehicle compatibility than if NHTSA were to address this
    issue by itself.

    Traffic Records/Data Collection
                Crash Causation Data
        NHTSA's fiscal year 2004 budget request includes a proposal to
    enable us to update our crash causation data, last generated
    comprehensively in the 1970s. Vehicle design, traffic patterns, numbers
    and types of vehicles in use, on-board technologies, and lifestyles
    have changed dramatically in the last 30 years. Old assumptions about
    the causes of crashes may no longer be valid. Since the agency depends
    on causation data to form the basis for its priorities, we must ensure
    that this data is current and accurate. We have requested $10 million
    to perform a comprehensive update of our crash causation data that will
    allow us to target our efforts for the next decade on the factors that
    are the most frequent causes of crashes on American roads.
        NHTSA has in place an infrastructure of investigation teams that
    will enable us to perform the study efficiently and accurately. These
    teams are currently performing a similar study for large, commercial
    truck crashes and are adept at gathering evidence from the crash
    scenes, the hospital, and from victim and witness interviews. Their
    findings will guide the agency's programs in crash avoidance, including
    vehicle technologies, as well as human factors.

                State Traffic Records
        Reliable, valid, and comprehensive crash data are the backbone of
    all efforts to improve highway safety. Accurate problem identification
    is vital if the highway safety community is to understand the scope and
    extent of their crash issues. Problematic to this is the fact that
    States are under increasing budgetary constraints that severely impact
    their ability to maintain or improve their Traffic Records System (TRS)
    data. Due to personnel reductions, law enforcement agencies in many
    States now maintain data only on fatal and severe injury crashes as
    opposed to crashes of all severities. Deficiencies in States' TRS data
    negatively impact national databases including the Fatality Analysis
    Reporting System, General Estimates System, National Driver Register,
    Highway Safety Information System, and Commercial Driver License
    Information System, as well as State data used to identify local safety
    problems. In fiscal year 2004, NHTSA is requesting an additional $50
    million for a new Traffic Records/Data Improvement Program in the
    States. The new initiative will provide incentive grants to States to
    support improved TRS data. In addition to police reports, emergency
    medical services, driver licensing, vehicle registration, and citation/
    court data provide essential information not available elsewhere. All
    would be improved by this program. Accurate State TRS data are critical
    to identifying local safety issues, applying focused safety
    countermeasures, and evaluating the effectiveness of countermeasures.
        Mr. Chairman, this concludes my statement. I would like to thank
    the Committee for its continued steadfast support of our programs. I
    look forward to working with you, as well as my partners appearing
    today to testify, in developing a strong and productive performance-
    based, results-oriented, safety program that will provide national
    leadership through effective and efficient programs. I would be pleased
    to answer any questions.

                  Federal Motor Carrier Safety Administration

    STATEMENT OF ANNETTE SANDBERG, ACTING ADMINISTRATOR

        Senator Campbell. Ms. Sandberg.
        By the way, your complete written testimony will be
    included in the record. If anyone on the panel wants to
    abbreviate, feel free to do so.
        Ms. Sandberg. Thank you, sir.
        Good morning, Mr. Chairman and members of the committee.
        Thank you for the opportunity to appear before you today to
    discuss the Federal Motor Carrier Safety Administration's
    initiatives in fiscal year 2004. I want to thank you for your
    support and the resources you have provided to our agency since
    our creation in 1999.
        Fatalities and crashes involving large trucks have declined
    4 years in a row. This is significant progress. However, we
    know we can make our highways even safer.
        Accordingly, a goal of the Bush Administration is to
    improve safety and to reduce the number of accidents and deaths
    on our highways. Fulfilling this goal is Secretary Mineta's top
    priority. I, too, share this priority.
        DOT's current highway safety goal is to reduce the fatality
    rate by 41 percent by the year 2008. This equates to a rate of
    1 fatality per 100 million vehicle miles traveled.
        The Federal Motor Carrier Safety Administration has a goal
    that is part of the overall Department goal. The Federal Motor
    Carrier Safety Administration's goal is a rate of 1.65
    commercial vehicle crash fatalities per 100 million miles of
    truck travel. Achieving our goal will be challenging, as
    commercial vehicle miles of travel is increasing at a rate
    faster than passenger car miles of travel.
        The Motor Carrier's performance-based budget is consistent
    with the goals and programs established in SAFETEA, the
    administration's reauthorization proposal. Our fiscal year 2004
    request focuses resources in several critical areas.
        One of these areas is our New Entrant Program. As directed
    by Congress, the New Entrant Program will require that new car
    carriers undergo a safety audit within their first 18 months of
    operation. New entrants represent a significant commercial
    motor vehicle safety risk. Statistics show new carriers are
    less likely to know and to comply with Federal safety
    standards.
        Our fiscal year 2004 budget request includes resources for
    a Federal/State partnership to implement the New Entrant
    Program. Forty-six States are committed to working with us, in
    full or in part, to conduct new entrants safety audits. We
    believe that the Federal/State partnership will yield
    significant benefits.
        Another area for investment is hazardous materials
    transportation. Each day more than 800,000 hazardous material
    shipments cross the United States, 94 percent of which travel
    by highway. Our goal is to achieve a 20 percent reduction in
    truck-related HAZMAT incidents by the year 2010. We will
    accomplish this goal through targeted enforcement and
    compliance efforts, including the implementation of a
    permitting program for certain carriers of extremely hazardous
    materials.
        In partnership with the States, we propose to expand
    inspection efforts at the northern border with an emphasis on
    increased roadside inspections at remote border crossings.
    Inspecting commercial motor vehicles transporting hazardous
    materials will be a priority with emphasis on driver's license
    checks and vehicle screening for explosives. We anticipate that
    the program will yield more inspections of Canadian vehicles,
    more inspections of vehicles transporting HAZMAT, and an
    increased inspection presence at the U.S. and Canadian border
    crossings.
        Southern border safety also remains a priority for our
    agency. The fiscal year 2002 Appropriations Act required that
    the DOT Inspector General verify that a number of statutory
    conditions be met before the U.S./Mexican border could order to
    long haul commercial traffic. The Federal Motor Carrier Safety
    Administration has met these requirements.
        Currently, the border remains closed due to a ruling of the
    9th Circuit Court of Appeals. The administration is considering
    appropriate next steps. Meanwhile, our agency is ready now to
    ensure the safety of border operations and will be ready
    whenever the border opens.
        Another area of investment is the Commercial Drivers
    License Grant Program. We propose increasing the CDL grant
    funding in fiscal year 2004 to improve State control and
    oversight of licensing and third-party testing facilities to
    detect and prevent fraudulent testing and licensing activities,
    and to support the transfer of Mexican and Canadian driver
    conviction and disqualification data from the States to the
    Federal Motor Carrier Safety Administration's central
    depository.
        FMCSA is concerned about the increasing number of consumer
    household goods complaints. The FMCSA receives thousands of
    complaints annually about household goods carriers. In our
    fiscal year 2004 budget request, FMCSA requested additional
    staff to enhance our ability to pursue enforcement against
    these abusive carriers.
        Finally, it is crucial that the Federal Motor Carrier
    Safety Administration institute a number of medical
    certification programs in the fiscal year 2004, including an
    establishment of a medical review board, the certification of
    medical examiners, and the pilot programs on medical waivers
    and exemptions. Establishment of the registry would respond to
    the National Transportation Safety Board, which issued eight
    safety recommendations in September, 2001, recommending that
    FMCSA establish more comprehensive standards for qualifying
    medical providers and conducting medical qualification exams.

                               PREPARED STATEMENT

        I look forward to working with this subcommittee to advance
    our mutual goal of improving safety on our Nation's highways,
    and would be happy to answer any questions that you may have.
        Thank you very much.
        [The statement follows:]

                     Prepared Statement of Annette Sandberg

        Good morning, Chairman Shelby, Ranking Member Murray, and Senators.
    Thank you for this opportunity to discuss plans for the Federal Motor
    Carrier Safety Administration (FMCSA) in fiscal year 2004. The ongoing
    support provided by this Committee has enabled FMCSA to make
    significant progress on several safety fronts, including increased
    safety enforcement and compliance, as well as enhanced border safety
    operations. Though we have seen fatalities in crashes involving trucks
    reduced for four years in a row, clearly there is more that needs to be
    done. My commitment is to improve commercial motor vehicle safety by
    bringing greater efficiency and effectiveness to FMCSA's programs and
    activities as reflected in the Administration's fiscal year 2004 budget
    submission, and as envisioned by Congress when the agency was created.
    This budget is consistent with the goals and programs established in
    the Administration's reauthorization proposal, the Safe, Accountable,
    Flexible, and Efficient Transportation Equity Act of 2003 (SAFETEA),
    released on May 14.
        The Department recognizes that a collaborative effort among
    agencies is needed to significantly reduce the fatality rate on our
    Nation's highways. The DOT highway safety goal is to reduce the
    fatality rate by 41 percent by 2008. This equates to a rate of one
    fatality per 100 million vehicle-miles-traveled. To achieve the DOT
    goal, FMCSA, along with the National Highway Traffic Safety
    Administration and the Federal Highway Administration, set goals within
    their respective programs to contribute to meeting the Department-wide
    target. FMCSA's targeted contribution to the DOT goal is set at a rate
    of 1.65 commercial vehicle crash fatalities per 100 million miles of
    truck travel by 2008. Achieving our goal will be a particular
    challenge, as commercial vehicle miles of travel have been growing at a
    faster rate than passenger car miles of travel. On average, over the
    past 15 years, truck and bus travel has increased by 3.4 percent
    annually while passenger car travel increases have been running at 2.8
    percent. This trend is projected to continue.
        I believe that our success will be driven by how well we target our
    resources at safety problems. To do this effectively, we must use the
    multiple data sources available to us. FMCSA is a data-driven,
    performance-based organization. This makes the timely collection of
    complete data a critical goal for us. Our programs and activities will
    be focused on reliable and timely data upon which to base our policy
    and programmatic decision-making and allocation of our operational
    resources. Our performance-based approach will enable us to accomplish
    three critical objectives: 1) achieve dramatic improvements in
    commercial motor vehicle safety; 2) ensure that resources are directed
    toward activities with the potential for the greatest safety impact;
    and 3) develop information that demonstrates the value of the
    government's investment in safety.
        FMCSA's fiscal year 2004 budget request has been structured to
    strengthen the linkage between resources and accomplishment of these
    objectives. We have integrated our budget and performance information,
    framed around the achievement of objectives in several critical areas.

                              NEW ENTRANT PROGRAM

        Let me begin by outlining a critical area for investment, FMCSA's
    New Entrant Program. As Congress set out in the Motor Carrier Safety
    Improvement Act of 1999, a new entrant program to bring motor carriers
    into compliance with safety regulations at the onset of operations can
    improve safety. These new entrants, numbering 40,000-50,000 annually,
    represent a significant commercial motor vehicle safety risk. Our
    fiscal year 2004 budget request includes resources for a Federal-State
    partnership effort to implement the New Entrant Program.
        Overseeing and supporting the conduct of safety audits,
    establishing baseline data, and implementing a program of regular data
    collection to assess the progress of the New Entrant Program will
    enable FMCSA to fulfill the statutory mandate to improve new entrant
    safety performance. This program will also meet the requirements set
    out in Section 350 of the fiscal year 2002 DOT Appropriations Act as a
    precondition to opening the Southern border to Mexican commercial
    vehicles.
        We know already that 46 States will work with us, in full or in
    part, to conduct new entrant safety audits. These States have agreed to
    provide approximately 195 of the estimated 262 State and Federal
    personnel needed to audit the 40,000 to 50,000 new entrants per year.
    The State personnel will be either new hires or be reassigned from
    other law enforcement duties. In fiscal year 2003, these individuals
    are supported through Motor Carrier Safety Assistance Program grant
    funds. Contracted safety auditors will be used to make up the balance
    of staff needed. We also plan to hire 32 full-time Federal staff to
    cover program oversight, including management, review, and approval of
    the safety audits. We believe this Federal-State partnership will yield
    significant results by placing funds in the hands of those closest to
    the new entrant population, while maintaining appropriate Federal
    support and oversight.

                           HAZMAT SAFETY AND SECURITY

        Another area where resources are needed is in the transportation of
    hazardous materials. Each day, there are more than 800,000 shipments of
    HAZMAT in the United States, 94 percent of which move by highway. We
    have established a goal of a 20 percent reduction in truck-related
    hazardous materials incidents by 2010, as measured from the baseline of
    2000. We plan to accomplish this through targeted enforcement and
    compliance efforts.
        First, our request includes funds for a HAZMAT permitting program
    for certain carriers of extremely hazardous materials, as required by
    Congress. This program will ensure that carriers of these dangerous
    materials have implemented safety and security measures. FMCSA
    anticipates issuing 2,700 HAZMAT permits in fiscal year 2004.
        Second, a program to enhance commercial motor vehicle safety and
    security at the northern border is being proposed. In partnership with
    the States, we propose to expand current inspection efforts at the
    northern border with an emphasis on conducting additional roadside
    inspections at or near the more remote border crossings. The highest
    priority will be given to inspecting commercial motor vehicles
    transporting HAZMAT, with emphasis on driver license checks and vehicle
    screening for explosives. It is anticipated that 200,000 HAZMAT vehicle
    inspections will be performed at the northern border in 2004 by the
    State inspectors hired under this program.
        Third, FMCSA will continue its base program of hazardous materials
    regulatory compliance and outreach and education. For example,
    responding to the events of September 11, FMCSA contacted nearly 42,000
    hazardous materials carriers and conducted nearly 31,000 Security
    Sensitivity Visits. FMCSA has since launched a program of ``Security
    Contact Reviews'' to maintain a high level of vigilance within the
    industry. Funds requested will enable FMCSA to integrate Security
    Sensitivity Visits into compliance review activities conducted by our
    field offices.

                          SOUTHERN BORDER ENFORCEMENT

        Southern Border safety activities remain a high priority for FMCSA.
    In the fiscal year 2002 Appropriations Act, Congress established
    requirements for opening the U.S.-Mexico border to long-haul commercial
    traffic. One of these requirements was that the DOT Inspector General
    must verify that all statutory conditions have been satisfied. As DOT
    Inspector General Ken Mead reported in March, FMCSA has met these
    requirements, including the hiring and training of enforcement
    personnel and the establishment of inspection facilities and safety
    procedures at the southern border. Because of our actions, Secretary
    Mineta was able to certify that the Department had met the requirements
    of Section 350 providing a basis for the President to lift the
    moratorium on granting operating authority for Mexican carriers to
    operate within the interior of the United States.
        Currently, the border remains closed due to the 9th Circuit Court
    ruling that DOT had not conducted the appropriate, in-depth
    environmental analysis for certain rules designed to satisfy the
    Congressional requirements. The Court held that the environmental
    assessment that the agency prepared was inadequate, and that FMCSA
    should have prepared an Environmental Impact Assessment and Clean Air
    Act Conformity Analysis. The Administration filed an en banc appeal of
    the decision to the 9th Circuit on March 10, which was denied. The
    Administration is considering appropriate next steps in responding to
    the ruling. Meanwhile, FMCSA is ready now, and will be ready whenever
    the border is opened, to ensure the safety of border operations. At
    present, border inspectors and auditors are conducting inspections and
    safety audits on commercial zone carriers. Border safety investigators
    are assisting other FMCSA staff in conducting compliance reviews to
    maintain their skills, as well as conducting compliance reviews on
    commercial zone carriers. Additionally, border safety investigators
    have been deployed to do additional inspections at the border.

                    COMMERCIAL DRIVERS LICENSE (CDL) GRANTS

        Improving the accuracy and completeness of driver history records
    is key to enhanced safety. The driver's license is the main form of
    personal identification in the United States. Ensuring positive
    identification license holders is dependent upon a diverse set of
    security technologies. Particularly in the transport of hazardous
    materials, States need current driver licensing technology for security
    purposes. Grants under this program will allow States to enhance this
    technology.
        We are proposing increased CDL grant funding in fiscal year 2004 to
    accomplish: 1) improving State control and oversight of State licensing
    agency and third party testing facilities; 2) developing management
    control practices to detect and prevent fraudulent testing and
    licensing activities; 3) supporting State efforts to conduct Social
    Security Number and Immigration and Naturalization Service number
    verification for CDLs; and 4) maintaining the central depository of
    Mexican and Canadian driver convictions in the United States, the
    disqualification of unsafe Mexican and Canadian drivers, and the
    notification of Mexican and Canadian authorities of convictions and/or
    disqualifications.
        Together, these activities will add to the variety of driver's
    license technologies for safety and security, as well as enhancing our
    ability to identify problem drivers.

                          HOUSEHOLD GOODS ENFORCEMENT

        I am sure that the Chairman and Senators of this Subcommittee, as
    well as your Senate colleagues, have noticed an increase in the number
    of constituent complaints regarding unscrupulous household goods
    carriers. The letters we receive, as well as the calls coming into the
    FMCSA hotline, have been increasing. FMCSA receives thousands of
    consumer complaints annually. Currently, the Agency has three full-time
    commercial investigators devoted to the Household Goods Enforcement and
    Compliance program and has budgeted for more in fiscal year 2004 to
    expand enforcement of the Federal Motor Carrier Commercial Regulations.
        While the household moving industry as a whole performs over a
    million successful moves annually, a small group of unscrupulous people
    scattered over a handful of States has used this industry to defraud
    unsuspecting consumers of their hard-earned money. The complaints from
    the American moving public have reached significant proportions. FMCSA
    has gathered data to define how, when, and where to focus a limited
    number of requested resources to inoculate the public against these
    predators.
        These resources will establish a more visible enforcement program
    through increased investigations, and a more robust outreach effort to
    reduce the number of consumer complaints filed against household goods
    carriers and brokers. Our efforts will also be aimed at increasing
    consumer awareness to allow the public to make better-informed
    decisions before they move across State lines.
        FMCSA also proposes to conduct an extensive study of existing
    Household Goods Dispute Settlement Programs and alternative arbitration
    programs in the household goods moving industry. We need this critical
    information to determine the extent of the challenge, to determine
    effective strategies and countermeasures, and to evaluate the
    effectiveness of these programs in resolving loss and damage disputes
    and claims between shippers and carriers.
        Household goods carriers operating in interstate commerce are
    required to have or participate in an arbitration program as a
    condition of their registration with FMCSA. The arbitration programs
    must comply with the requirements of 49 U.S.C. 14708, and the carrier
    must submit to binding arbitration upon a shipper's request for cargo
    damage or loss claims of $5,000 or less. Seventy-five percent of the
    complaints we receive pertain to loss and damage claims. FMCSA believes
    this study is necessary to determine what changes are needed to assist
    the moving industry in establishing effective arbitration programs to
    resolve loss and damage disputes. Currently, FMCSA does not have
    adequate data or records to evaluate effectively the arbitration
    programs in the moving industry. We are hopeful that this study will
    provide a future roadmap to better address household goods complaints.

                             REGULATORY DEVELOPMENT

        Regulatory Development is the cornerstone of FMCSA's compliance and
    enforcement process. This is an area where greater attention and
    resources are needed to promulgate all mandated regulations to ensure
    program performance will not be compromised. For this reason, we are
    proposing to dedicate funds to our regulatory development program and
    have already implemented a defined operating procedure to further
    accelerate our efforts.
        I recently issued a directive to the agency establishing a revised
    process by which our agency will develop regulations. This directive is
    modeled on the procedures used in other Federal agencies. It promotes
    staff collaboration, establishes early regulatory evaluation and
    analysis, while setting out clear milestones. The new process is
    designed to improve both the quality and timeliness of our rulemakings.
    It is team-based and designed to build agency consensus through early
    involvement by senior managers. Staff has been instructed that all
    FMCSA rulemakings should immediately begin to follow the new procedures
    set forth in the order.
        The new process is already being put to use as FMCSA responds to a
    Writ of Mandamus. As you may know, on November 26, 2002, the DOT
    Secretary and FMCSA were served with a Petition for a Writ of Mandamus
    for Relief from Unlawfully Withheld Agency Action. Citizens for
    Reliable and Safe Highways (CRASH), Parents Against Tired Truckers
    (PATT), Teamsters for a Democratic Union (TDU), and Public Citizen
    filed the Petition. The Petition seeks a court order directing DOT to
    promulgate six regulations. In February 2003, the FMCSA, through a
    settlement agreement, committed to a timetable for completing these
    rules (referred to as the Mandamus rules). The Hours-of-Service rule
    was among them. FMCSA published the Final Rule on Hours-of-Service in
    the Federal Register on April 28, 2003. The effective date is June 27,
    2003, with a compliance date of January 4, 2004. This time period is
    needed to train 8,000 enforcement officers, update FMCSA computer
    systems and manuals, and to educate the industry.

                                MEDICAL PROGRAMS

        We will use our funds to examine alternative regulatory programs.
    Congress provided FMCSA with authority to establish exemption and pilot
    programs under strict safety controls. We now operate a vision
    exemption program where applications total more than 60 per month. We
    are approached routinely to consider other alternative programs to our
    safety regulations. These resource intensive programs require a
    consistent funding stream to operate successfully with ample oversight
    and over multiple years.
        Among the projected uses for regulatory development funding are the
    establishment of a medical review board and the creation of a national
    medical examiner registry. The medical review board will provide expert
    medical opinion and advice to the agency as we update our medical
    qualifications requirements. Expert medical advice will help us to
    supplement the experience of our staff and enhance our medical program.
        The medical examiner registry will permit FMCSA to provide more
    comprehensive information on medical practitioners to drivers and
    carriers. It will also help disseminate information to physicians
    regarding medical policies and requirements relevant to the physical
    qualifications of commercial drivers. This is an essential step to
    upgrade the quality of CDL driver medical qualification exams. With the
    registry, we will be able to better monitor the quality and practices
    of medical examiners. A certification process will ensure that medical
    examiners are qualified to perform driver physical exams. Establishment
    of a medical registry would respond to the National Transportation
    Safety Board, which issued eight safety recommendations in September
    2001 requesting that FMCSA establish more comprehensive standards for
    qualifying medical providers and conducting medical qualification
    exams.

                           ORGANIZATIONAL EXCELLENCE

        Finally, I would like to speak to FMCSA's organizational capacity.
    Many lessons have been learned during these first three formative
    years. The agency has experienced the traditional growing pains of a
    new organization, but has also had to grapple with some nontraditional
    ones as well. The rapid rate at which new programmatic and management
    responsibilities came to the agency could not have been predicted.
    These new activities, like the opening of the U.S.-Mexico border and
    Security Sensitivity Visits, exacted a toll on both FMCSA and FHWA's
    administrative capacities. Each agency was inundated with ever-
    increasing workloads and heightened performance expectations.
        The agency now finds itself at a critical juncture in its
    organizational development. It is poised to meet the challenges of the
    President's Management Agenda through human capital management,
    improved financial performance, competitive sourcing, performance based
    budgeting, and E-government. However, the agency's administrative and
    information technology infrastructures are in need of additional
    resources to support its workload and continue to focus on improved
    safety performance. Our request in fiscal year 2004 will enable FMCSA
    to procure the necessary administrative and information technology
    resources at competitive market rates.

                                   CONCLUSION

        Thank you Mr. Chairman, Ranking Member Murray, and Senators of the
    Subcommittee for this opportunity to present my plans for the Federal
    Motor Carrier Safety Administration. I believe that your continued
    investment in the agency will be rewarded by improved data collection,
    reporting, analysis, and most importantly, higher levels of safety on
    our Nation's highways. I look forward to working with you to achieve
    our mutual goals and would be happy to answer any questions you may
    have.

                           NONDEPARTMENTAL WITNESSES

    STATEMENT OF WENDY J. HAMILTON, NATIONAL PRESIDENT,
                MOTHERS AGAINST DRUNK DRIVING

        Senator Campbell. Ms. Hamilton?
        Ms. Hamilton. Good morning. I am Wendy Hamilton, the
    National President of Mothers Against Drunk Driving.
        It is an honor to be here today testifying on DOT's fiscal
    year 2004 request and MADD's priorities for the reauthorization
    of TEA-21. We look forward to working with this committee to
    develop transportation policies that save lives and prevent
    injuries on our Nation's highways.
        I would like to take a moment to thank Chairman Shelby and
    Ranking Member Murray for their commitment to reduce traffic
    crashes and injuries and fatalities.
        In DOT's fiscal year 2003 budget, this subcommittee
    dedicated increased funding to NHTSA's impaired driving program
    and began a historic effort by funding paid media to publicize
    law-enforcement mobilizations designed to increase seatbelt use
    and reduce alcohol impaired driving.
        Senator Shelby and Senator Murray, your efforts mark the
    beginning of what MADD hopes will be a renewed National, State
    and local effort to reverse the deadly trend on our Nation's
    highways.
        For the third consecutive year, alcohol-related traffic
    deaths have increased. Early statistics show that last year
    nearly 18,000 people were killed and hundreds of thousands more
    were injured in these crashes. Alcohol-involved crashes
    accounted for an overwhelming 46 percent of all fatal injury
    costs.
        Unfortunately, the data speaks for itself. The Nation,
    including its political leaders, has become complacent in this
    effort. Lack of funding for effective behavioral traffic safety
    programs and minimal resources for law-enforcement officers to
    enforce existing laws are a major part of the problem.
        Last week, MADD released its new Federal plan for the
    reauthorization of TEA-21. On that day, we heard from members
    of the Senate who expressed their firm commitment to move the
    Nation in the right direction. MADD sincerely thanks Senator
    Murray, Senator DeWine, Senator Lautenberg, and Senator Dorgan
    for their participation in this event and their leadership to
    reduce traffic death and injury.
        Today, MADD is asking Congress and the administration to
    adopt MADD's research-based plan. I would like to submit our
    plan for the record and I believe that you have all received
    copies of this.
        Senator Campbell. It will be included in the record.
        [The information follows:]

        Ms. Hamilton. MADD's plan establishes a national traffic
    safety fund of $1 billion annually. Under this fund, MADD
    recommends dedicating increased funding for highly visible law
    enforcement activities.
        The ``Click It or Ticket'' national law enforcement
    mobilization campaign has been very successful in increasing
    seatbelt usage. We know that sobriety checkpoints are one of
    the most effective tools this Nation has to stop impaired
    driving, and that they are especially effective when coupled
    with media campaigns that raise the visibility of these
    efforts.
        Thanks to this committee, funds were dedicated in fiscal
    year 2003 to conduct these mobilizations. Why then has NHTSA
    not requested any funding to continue this lifesaving effort?
        I would like to thank Senator DeWine and Senator Lautenberg
    for introducing legislation today that would provide
    substantial funding for enforcement efforts to stop drunk
    driving and increase seatbelt use. If enacted, this bill will
    save lives.
        MADD also recommends dedicating increased behavioral
    funding for State efforts to improve traffic safety. While
    NHTSA's funding appears to have increased dollars for
    behavioral funding, this is not the case. Only a percentage of
    this funding will be spent specifically on behavioral safety
    since States are able to use much of this funding for roadway
    construction and highway safety projects. Though NHTSA
    continuously states that reducing alcohol-related traffic
    fatalities is a top priority, the fiscal year 2004 budget
    request simply does not support these claims.
        MADD was shocked to learn that the impaired driving
    programs merit less than one page out of DOT's 378-page SAFETEA
    proposal. SAFETEA actually decreases funding for alcohol-
    impaired programs by 67 percent. The only funding specifically
    allocated for impaired driving is $50 million. The overwhelming
    majority of safety funding in the SAFETEA proposal is budgeted
    in the new Highway Safety Improvement Program which is really
    dedicated to roadway construction safety projects. This
    specific construction safety program receives an overwhelming
    117 percent increase.
        While construction safety is important, the DOT itself,
    along with the GAO, recognizes that human behavior not roadway
    environment is overwhelmingly seen as the most prevalent
    contributing factor to crashes. To compare DOT's recreational
    trails program, funded at $60 million in fiscal year 2004, it
    receives 20 percent more funding than the impaired driving
    grants program. It appears, from a budget standpoint, that
    keeping recreational trails safe for a small population of
    users is even more important to DOT than keeping all highway
    users safe from impaired drivers. Again why?
        MADD's plan calls for greater accountability controls to
    ensure that Federal funds are being used in a strategic and
    coordinated manner. Recently the GAO, at the request of Senator
    Dorgan, released a detailed report detailing the management and
    use of Federal highway safety funds. GAO concluded and
    ``NHTSA's oversight of highway safety programs is less
    effective than it could be, both in ensuring the efficient and
    proper use of Federal funds and in helping the States achieve
    their highway safety goals.''
        GAO's report shows that in the face of rising traffic
    deaths more Federal oversight and guidance is needed for the
    expenditure of Federal safety dollars to ensure that these
    funds are spent on effective behavioral programs. This is
    fiscal responsibility.
        MADD is urging Congress to strongly encourage States to
    enact proven traffic safety laws, such as a national primary
    safety belt standard and high risk driver standards. MADD knows
    that the best defense against a drunk driver is a seatbelt. As
    NHTSA proposes, States should be given financial incentives to
    enact primary belt laws.
        However, States that do not enact this lifesaving measure
    after 3 years should lose Federal highway construction funds.
        MADD also calls for the enactment of a national standard to
    combat higher risk drivers. While higher risk drivers are a
    small portion of the problem, they pose a significant threat to
    motorists.
        Again, we thank Senator Lautenberg and Senator DeWine for
    introducing legislation today that targets this dangerous
    population. If enacted, this bill would close loopholes to
    ensure that repeat and high blood alcohol concentration
    offenders do not continue to slip through the cracks.
        This priority is one that has personal meaning to me. On
    September 19th, 1984, a high BAC driver caused the head-on
    collision that killed my 32-year-old sister, Becky and my 22-
    month-old nephew, Timmy. The crash occurred at 1:50 p.m. on a
    beautiful Wednesday afternoon filled with sunshine. Three hours
    after that crash, the offender tested at a .16 blood alcohol
    concentration and police pulled four empty bottles of alcohol
    from his vehicle.
        This Nation lacks a clear coordinated solution to reduce
    impaired driving fatalities. Maintaining the status quo or,
    even worse, decreasing resources dedicated to fighting drunk
    driving will not reverse this deadly trend. The reauthorization
    provides the best chance, a historic opportunity to provide
    adequate behavioral safety funding to ensure that these funds
    are being used effectively and to enact laws that will save
    lives.

                               PREPARED STATEMENT

        I urge Congress to adopt MADD's proposal and create safer
    roads for all Americans. Thank you and I welcome the
    opportunity to answer questions.
        [The statement follows:]

                    Prepared Statement of Wendy J. Hamilton

        Good Morning. My name is Wendy Hamilton and I am the National
    President of Mothers Against Drunk Driving. I am honored to be here
    today to testify on the Department of Transportation's (DOT) fiscal
    year 2004 budget request and MADD's priorities for the reauthorization
    of the Transportation Equity Act for the 21st Century (TEA-21). We look
    forward to working with the Committee to develop transportation
    policies that provide appropriate funding and employ effective,
    aggressive countermeasures to prevent injuries and save lives on our
    Nation's roads.
        I would like to take this opportunity to thank Chairman Shelby and
    Ranking Member Murray for their commitment to reduce traffic crash
    fatalities and injuries. In DOT's fiscal year 2003 budget Senator
    Shelby and Senator Murray dedicated increased funding to the National
    Highway Traffic Safety Administration's (NHTSA) impaired driving
    program, and began a historic effort by funding paid media to publicize
    law enforcement mobilizations designed to increase seat belt use and
    reduce alcohol-impaired driving. Senator Shelby and Senator Murray--
    MADD's 2 million members and supporters thank you for your dedication
    and leadership to highway safety. Your efforts mark the beginning of
    what MADD hopes will be a renewed national, State and local effort to
    reverse the deadly trend on our Nation's highways.

       ADMINISTRATION OUTLINES HIGHWAY SAFETY AS A PUBLIC HEALTH CRISIS;
          HOWEVER, FUNDING REQUESTS DO NOT ADEQUATELY ADDRESS PROBLEM

        According to DOT, motor vehicle crashes are responsible for 95
    percent of transportation sector deaths and 99 percent of all
    transportation-related injuries within the United States as well as the
    leading cause of death for people ages 4 through 33. In 2002, an
    estimated 42,850 people died on the Nation's highways, up from 42,116
    in 2001.
        This alarming amount of injury and death on our Nation's roadways
    creates a tremendous drain on the Nation's economy. Economic losses due
    to motor vehicle crashes cost the Nation approximately $230.6 billion
    each year, an average of $820 for every person living in the United
    States.
        DOT's announcement of preliminary 2002 fatality estimates calls for
    ``better State laws that address the causes of the problem and stricter
    enforcement.'' But DOT's fiscal year 2004 request and its
    reauthorization proposal cut funding for behavioral safety initiatives,
    even while DOT's own research demonstrates that human behavior is
    overwhelmingly the leading factor in death and injury on our Nation's
    roads.

     ALCOHOL-RELATED TRAFFIC FATALITIES ON THE RISE FOR THIRD CONSECUTIVE
                                      YEAR

        For the third consecutive year, alcohol-related traffic deaths have
    increased. Preliminary statistics show that nearly 18,000 people were
    killed and hundreds of thousands more were injured in these crashes
    just last year. That's 49 deaths and hundreds of injuries day in and
    day out. Alcohol-involved crashes accounted for 21 percent of nonfatal
    injury crash costs, and an overwhelming 46 percent of all fatal injury
    crash costs. In order to reverse this trend, the Nation cannot maintain
    the status quo and expect a different result.
        Last week at a national news conference, MADD commemorated the 15-
    year anniversary of the worst drunk driving crash in U.S. history--the
    Kentucky Bus Crash. On May 14, 1988, 27 people--24 children and 3
    adults--were killed and 30 others were injured coming home from a
    church outing. They were victims of a repeat drunk driving offender,
    behind the wheel of his pickup driving on the wrong side of the road.
    He had a blood alcohol concentration of .24--three times the illegal
    limit today in Kentucky and the majority of all other States and DC.
        The Kentucky Bus Crash was heard around the world because 27
    perished and 30 others were injured in an instant. But tragically, one
    by one, over the past 15 years, the equivalent to 10,400 Kentucky Bus
    Crashes have occurred in our country as nearly 281,000 Americans have
    been killed and millions of others have been injured in alcohol-related
    traffic crashes since that tragic day.
        Unfortunately, the data speaks for itself: the Nation--including
    its political leaders--has become complacent in this effort. Drunk
    drivers continue to slip through cracks in the system. Weak laws, lack
    of funding for effective traffic safety programs and minimal resources
    for law enforcement officers to enforce existing laws are all part of
    the problem. There is no coordinated effort at the national, State and
    local level to combat this public health problem. Additionally, drunk
    driving is still often treated as a minor traffic offense rather than
    what it really is--the most frequently committed violent crime in our
    country.

               MADD'S SAFETY PLAN: PUTTING RESEARCH INTO PRACTICE

        Last week MADD released its new Federal plan for the
    reauthorization of Federal traffic safety programs. In conjunction with
    MADD's announcement, we heard from Members of the Senate who expressed
    firm commitment to move the Nation in the right direction. MADD
    sincerely thanks Senator Patty Murray, Senator Frank Lautenberg,
    Senator Mike DeWine and Senator Byron Dorgan for their participation in
    this event and for their leadership to reduce traffic death and injury.
        Today, MADD is asking Congress and the Administration to ensure
    that highway safety is a cornerstone of the reauthorized TEA-21. And
    they can do so by embracing MADD's research-based reauthorization plan.
    MADD's plan would:
      --Establish a National Traffic Safety Fund (NTSF)--$1 billion
            annually--to provide a major infusion of dedicated Federal
            funds to support State and national traffic safety programs,
            enforcement and data improvements;
      --Under the NTSF:
        --dedicate increased funding for States and local communities to
                expand highly visible law enforcement activities to reduce
                impaired driving and increase seat belt use, including
                national enforcement mobilizations supported by paid media;
        --dedicate significantly increased funding for State efforts to
                improve traffic safety by implementing data-driven
                programs;
      --Create stricter accountability controls to ensure that Federal
            funds are being used in a strategic and coordinated effort at
            both the State and Federal level;
      --Encourage States to enact priority traffic safety laws, such as
            primary seat belt enforcement, higher-risk driver and open
            container standards.
        I want to briefly talk in more detail about MADD's reauthorization
    priorities.
        Funding is key to the success of national, State and local traffic
    safety programs to reduce drunk driving. But in the year 2001, while
    traffic crashes cost taxpayers $230 billion, the Federal government
    spent only $522 million on highway safety and only one-quarter of that
    was used to fight impaired driving. Compared to the financial and human
    costs of drunk driving, our Nation's spending is woefully inadequate to
    address the magnitude of this problem.
        Establishing a National Traffic Safety Fund would give those on the
    front lines an increased, ongoing and reliable funding stream for
    national, State and local highway safety programs. MADD recommends an
    annual $1 billion dedicated fund for traffic safety programs. We know
    that for every dollar spent on effective highway safety programs about
    $30 is saved by society in the reduced costs of crashes. This would be
    a wise investment.
        States must have additional resources if they are expected to reach
    their highway safety goals. Section 402, State and Community Highway
    Safety grants, provides funding to States to support highway safety
    programs designed to reduce traffic crashes and resulting deaths,
    injuries, and property damage. TEA-21 authorized $163 million in fiscal
    year 2003 for Section 402 grants. MADD recommends a substantial
    increase in Section 402 funding to help States reach their highway
    safety goals. Of the $1 billion annually, MADD recommends $425 million
    for the reauthorized Section 402.
        Although alcohol is a factor in 42 percent of all traffic deaths,
    only 26 percent of all highway safety funding available to the States
    through TEA-21 is spent on alcohol-impaired driving countermeasures.
    Too often highway safety funding made available to the States is used
    for other programs that may not save as many lives or prevent as many
    injuries as priority traffic safety programs. It is critical that these
    funds are spent on data-driven programs that include comprehensive
    impaired driving and seat belt initiatives.
        The National Traffic Safety Fund would also be used to expand
    States' well-publicized law enforcement activities to curb drunk
    driving and increase seat belt use. These law enforcement resources
    would support training, over-time, technology and paid advertising
    throughout the year. Additionally, funds would be available for three
    highly visible national impaired driving and seat belt law enforcement
    mobilizations.
        These law enforcement activities should utilize, when possible,
    frequent and highly visible sobriety checkpoints. These are among the
    most effective tools used by law enforcement to deter impaired driving.
    We know through research and real world experience that sobriety
    checkpoints save lives. The CDC found that sobriety checkpoints can
    reduce impaired driving crashes by 18 to 24 percent. These checkpoints
    are especially effective when coupled with media campaigns that raise
    the visibility and awareness of drunk driving enforcement efforts in
    the community with the bottom line goal of deterring impaired driving
    before it happens.
        Without significant increases in the level of funding for these
    critical safety programs, the current deadly trend will continue to
    worsen.
        But it is just as important to know where the money is going and
    how it is being spent. That is why MADD is asking Congress to hold
    States and the National Highway Traffic Safety Administration
    accountable for the expenditure of Federal highway safety funds. Our
    goal is not to make their jobs more difficult. It is to recognize that
    political pressures and ``flavor of the month'' traffic safety issues
    can influence how dollars are spent. If DOT's primary goal is to
    reverse the current trend, it is time to create a more consistent
    process that ensures the efficient and proper use of Federal funds to
    help the Nation achieve its highway safety goals.
        MADD also urges Congress to strongly encourage States to enact
    proven traffic safety laws, such as a national primary seat belt
    enforcement standard. According to NHTSA, for every percentage point
    increase in seat belt usage, 280 lives can be saved. MADD knows that
    the best defense against a drunk driver is a seat belt. The fact is, of
    those killed in alcohol-related traffic crashes, 76 percent were not
    wearing their seat belt. Had they been, a significant portion of them
    would be alive today.
        Drunk drivers typically do not buckle up, nor do they make sure
    their passengers are properly restrained. The sad fact is that two-
    thirds of children killed in alcohol-related crashes are passengers
    driven by an impaired driver. We also know that seat belt use for
    children generally decreases the more impaired a driver becomes. MADD
    calls for the establishment of a national primary seat belt standard.
    States would be eligible for ``jumbo'' financial incentives for three
    years. States that have not enacted this lifesaving measure after three
    years would lose Federal highway construction funds.
        MADD also calls for the enactment of a national standard to combat
    ``higher-risk drivers.'' ``Higher-risk drivers'' are defined as repeat
    offenders, those with BACs of .15 or higher, or persons caught driving
    on a suspended license when the suspension is a result of a prior DUI
    offense.
        This priority is one that has personal meaning for me. On September
    19, 1984, a high BAC driver caused the head-on collision that killed my
    32-year-old sister Becky and my 22-month old nephew Timmy. Three hours
    after the crash, the offender tested at a .16 BAC. Police pulled four
    empty bottles of alcohol from his vehicle.
        While higher-risk drivers are a small portion of the population,
    they pose a significant threat to innocent motorists. On a typical
    weekend night, only one percent of drivers have a BAC of .15 or higher,
    but high BAC drivers were involved in over one-half of all alcohol-
    related traffic deaths in 2000. And, about one-third of all drivers
    arrested or convicted of DUI are repeat offenders. Clearly, we need
    leadership from Congress and the Administration to encourage States to
    act now to get this most dangerous segment of the driving public off of
    our roads.
        MADD is backing research-based solutions to address the higher-risk
    driver through what we call: Restrictions, Restitutions and Recovery.
    Restrictions include mandatory sentencing, strict licensing and vehicle
    sanctions such as immobilization and ignition interlock devices.
    Restitution includes payment to victims and to the community by
    offenders. Recovery focuses on efforts to address the offender's
    substance abuse and addiction. States that do not enact comprehensive
    higher-risk driver legislation would lose Federal highway construction
    funds.
        Lastly, MADD calls on Congress to enact a national ban on open
    containers in the passenger compartment of motor vehicles. Open
    container laws separate the consumption of alcohol from the operation
    of a vehicle. A common-sense measure, banning open containers in the
    passenger compartment of a vehicle will decrease the likelihood that
    drinking and driving will occur. One NHTSA study found that States with
    open container laws have lower rates of alcohol-related fatalities,
    while another study conducted by the Stanford University Institute for
    Economic Policy Research found that, controlling for other variables,
    open container laws had a significant effect on reducing fatal crash
    rates (by over 5 percent).
        The Kentucky Bus Crash reminds us that for every loss and for every
    tragic death and injury there is untold suffering and emotion. That
    said, MADD is committed to advocating research-based and proven-
    effective countermeasures to prevent others from having to experience
    what the families of these victims have suffered.
        It's not about feel good. It's about doing what is right, and doing
    what will most effectively save lives. That is what drives our agenda,
    and that is what is behind our proposals for the reauthorization of
    TEA-21.

       NHTSA'S FISCAL YEAR 2004 BUDGET PROVIDES INADEQUATE RESOURCES AND
                 LITTLE GUIDANCE TO REACH HIGHWAY SAFETY GOALS

        In the Fiscal Year 2004 Budget in Brief, NHTSA states that it is
    ``committed to pursuing an aggressive safety agenda'' and that
    ``[b]ehavioral safety initiatives will be directed to increasing safety
    belt use and deterring impaired driving, which are central to achieving
    the Department's traffic fatality goal.'' While NHTSA's funding request
    appears to have increased monies for behavioral funding, this is not
    the case. In fact, the fiscal year 2004 request is less than the fiscal
    year 2003 request. This is because the fiscal year 2004 request
    includes $222 million of TEA-21 resources for the Sections 157 and 163
    grant programs formerly appropriated in the Federal Highway
    Administration budget. NHTSA has always administered these funds and is
    now requesting receipt of this funding directly. This apparent increase
    is really no increase at all, just a shifting of grant funds.
        The current fiscal year 2004 request for behavioral funding is
    $516,309,000, but once Sections 157 and 163 monies are subtracted the
    amount is lowered to $294,309,000. The fiscal year 2004 request is
    actually $234,000 less than the fiscal year 2003 request.
        Additionally, only a percentage of this funding will be spent on
    behavioral safety since States are able to use this funding for roadway
    safety/highway construction projects.
        One of NHTSA's primary fiscal year 2004 goals is to reduce the rate
    of alcohol-related highway fatalities per 100 million vehicle miles
    traveled (VMT) to 0.53. In its Budget in Brief, NHTSA states the
    following:

        ``The 2003 target of .53 per 100 million VMT, if met, will result
    in a reduction of alcohol-related fatalities to 15,600 . . . It will be
    a challenge to meet this target by the end of 2003. The agency is
    implementing new programs in 2003 that should begin to see positive
    results by the end of the year. Even though NHTSA should begin to see
    results in 2003, the agency still may not be able to achieve the target
    without the States and communities enacting and, more importantly,
    enforcing strong alcohol laws and reforming their individual impaired
    driving control systems.''

        However, it is not clear from the fiscal year 2004 budget what
    these new programs are and where the money is coming from to continue
    them. NHTSA's fiscal year 2004 budget request clearly does not reflect
    the severity of the impaired driving problem. While NHTSA's fiscal year
    2004 budget states that ``Protecting vehicle occupants and deterring
    impaired drivers are among the major ways we are able to reduce death
    and injury,'' the level of funding for impaired driving countermeasures
    is utterly insufficient. For example, the Impaired Driving Division
    budget request is significantly lower than fiscal year 2002 enacted
    levels (10,926,000 fiscal year 2004 request compared with 13,497,000
    fiscal year 2002 enacted). NHTSA states that ``Aggressive actions are
    needed to expand focus on several key high-risk populations, including
    underage drinkers, 21-34 year olds, and repeat offenders,'' but seeks
    fewer resources to reach these goals.
        Under ``Anticipated Fiscal Year 2003 Accomplishments'' NHTSA
    recognizes that ``Two nationwide law enforcement mobilizations (July
    and December) will be conducted,'' bolstered by a national media public
    service advertising campaign. The ``Click It or Ticket'' national law
    enforcement mobilization campaign has been highly successful at
    increasing seat belt usage. Thanks to the Senate, funds were dedicated
    in the fiscal year 2003 budget to conduct similar national
    mobilizations to reduce alcohol-impaired driving deaths and injuries.
    However, NHTSA does not request any funding to continue this effort.
        Additionally, NHTSA's State & Community Highway Safety Program
    drastically reduces funds available to States for impaired driving
    initiatives. NHTSA's fiscal year 2004 request provides a $50 million
    impaired driving grant program to only a subset of States to
    demonstrate the effectiveness of a comprehensive approach to reducing
    impaired driving and for identifying causes of weakness in a State's
    impaired driving control system. This funding level is $100 million
    less than funds available to States in fiscal year 2003 for impaired
    driving improvements.
        While NHTSA continuously states that reducing alcohol-related
    traffic fatalities is a top priority, the fiscal year 2004 budget
    request does not support these assertions.

      ADMINISTRATION'S ``SAFETEA'' PROPOSAL CUTS ALCOHOL-IMPAIRED DRIVING
            FUNDING AND INCENTIVES, LACKS BEHAVIORAL SAFETY FUNDING

        MADD was dismayed to learn that impaired driving control programs
    merit less than one page out of the 378 page U.S. Department of
    Transportation (DOT) surface transportation proposal. DOT's proposal,
    ``SAFETEA,'' falls woefully short of real ``safety'' for America's
    roadways and includes an inadequate response to this urgent national
    problem.
        ``SAFETEA'' decreases funding for alcohol-impaired programs by 67
    percent. The proposal recommends an impaired driving program of only
    $50 million, far less than current funding levels and clearly not
    enough to reverse this deadly trend. In fiscal year 2003, TEA-21
    authorized $150 million for alcohol-impaired driving countermeasures
    and also contained requirements for States to enact repeat offender and
    open container laws. If States failed to pass these alcohol-impaired
    driving laws then a percentage of their Federal construction funds were
    transferred. Not only does ``SAFETEA'' cut impaired driving funding to
    $50 million, it also does not include any incentives to States to enact
    alcohol-impaired driving laws.
        In comparison, DOT's Recreational Trails Program (RTP)--$60 million
    in fiscal year 2004--receives 20 percent more funding than the Impaired
    Driving Grants Program. The RTP program provides funds to develop and
    maintain recreational trails for motorized and non-motorized
    recreational trail users. It appears, at least from a budget
    standpoint, that keeping recreational trails safe for a small
    population of users is even more important to DOT than keeping all
    highway users safe from impaired drivers.
        The overwhelming majority of ``safety'' funding in the ``SAFETEA''
    proposal is budgeted in the new ``Highway Safety Improvement Program''
    (HSIP), which is really a highway construction project program. In 2004
    alone, $1 billion is allocated to the HSIP program. These funds are to
    be used for ``safety improvement projects,'' defined below.

        ``A safety improvement project corrects or improves a hazardous
    roadway condition, or proactively addresses highway safety problems
    that may include: intersection improvements; installation of rumble
    strips and other warning devices; elimination of roadside obstacles;
    railway-highway grade crossing safety; pedestrian or bicycle safety;
    traffic calming; improving highway signage and pavement marking;
    installing traffic control devices at high crash locations or priority
    control systems for emergency vehicles at signalized intersections,
    safety conscious planning and improving crash data collection and
    analysis, etc.''

        While these are all important activities, DOT itself recognizes
    that human behavior, not roadway environment, is overwhelmingly seen as
    the most prevalent factor in contributing to crashes. The General
    Accounting Office (GAO) released a report in March 2003 that reconfirms
    this premise after surveying data, experts and studies focusing on
    factors that contribute to motor vehicle crashes. Given that behavioral
    factors account for the majority of traffic crashes, it is difficult to
    understand the vastly disproportionate funding levels for behavioral
    versus roadway construction safety programs and why DOT allows a
    significant portion of the behavioral funds to be used to augment even
    more roadway construction spending.
        While NHTSA continuously states that reducing alcohol-related
    traffic fatalities is a top priority, the Administration's ``SAFETEA''
    proposal does not support these claims.

    INCREASED RESOURCES ARE REQUIRED TO SIGNIFICANTLY REDUCE HIGHWAY DEATHS
                                  AND INJURIES

        Research demonstrates that certain programs and initiatives will
    significantly reduce traffic deaths and injuries. In order to implement
    these programs and initiatives, increased resources are needed. The
    reauthorization of Federal highway safety programs provides the vehicle
    to obtain more resources to combat this public health problem. MADD
    urges Congress to consider the merits of each traffic safety program
    based upon their ability to reduce or prevent alcohol-related traffic
    fatalities. MADD's goal is to ensure that Federal traffic safety
    dollars are spent on effective programs and that States pass basic laws
    to combat alcohol-impaired driving.
        NHTSA's traffic safety budget is wholly inadequate. Faced with the
    highest number of highway fatalities since 1990, and a cost to
    America's economy of over $230.6 billion annually, the agency's budget
    request should reflect the growing need for more resources rather than
    maintain the status quo. Currently, the Federal government's funding
    for traffic safety programs does not reflect the importance of this
    public health crisis. The reauthorization of TEA-21 offers Congress the
    opportunity to review and reallocate funds to traffic safety.

       GAO REPORT HIGHLIGHTS DEFICIENCIES IN OVERSIGHT OF HIGHWAY SAFETY
                                  INITIATIVES

        Recently the General Accounting Office (GAO) released a report
    detailing the management and use of Federal highway safety programs and
    funding. GAO concluded the following:

        `` . . . NHTSA's oversight of highway safety programs is less
    effective than it could be, both in ensuring the efficient and proper
    use of Federal funds and in helping the States achieve their highway
    safety goals.''

        GAO's report shows that Federal oversight of State spending on
    highway safety programs has been inadequate in the face of rising
    traffic deaths and that NHTSA has not been consistently monitoring how
    funds are being used. GAO also found that NHTSA has no consistent
    policy for conducting State reviews or improvement plans. As a result,
    some regional offices conduct reviews as infrequently as every two
    years, while others conduct them only when a State requests one. This
    clearly enables some States to slip through the cracks. For example,
    the report found that the rate of alcohol-related traffic deaths rose
    in 14 States between 1997 and 2001; in seven of those States, the rate
    was higher than the national average, but only one of the seven States
    had a NHTSA improvement plan. The GAO also found that seat belt use was
    declining in some States that didn't have NHTSA improvement plans.
        The GAO report also reveals how States use some of their highway
    ``safety'' funding. States that did not meet either the open container
    or the repeat offender requirements in TEA-21 has a percentage of funds
    transferred from their Federal highway construction program to their
    Section 402 highway safety grants program. However, States were also
    able to allocate transferred funds to highway construction projects
    under the Federal Highway Administration's (FHWA) Hazard Elimination
    Program (HEP). An overwhelming 69 percent of the transferred funds were
    used by States for construction anyway projects anyway, the GAO
    reported.
        The GAO report demonstrates that more Federal oversight and
    guidance is needed for the expenditure of Federal highway safety funds
    to ensure that these funds are spent on effective behavioral programs.
    Clearly there are legitimate areas of public health and safety in which
    the Federal government should be involved in setting standards. Similar
    to airline safety, highway safety warrants Federal government
    involvement. In this country we have a national highway system.
    Families should be protected from the consequences of impaired driving
    whether they are driving through Alabama, Washington or North Dakota.
    Impaired drivers do not recognize state boundaries. Drunk driving is a
    national problem and it demands a national solution.

            CALL TO ACTION: NATION'S LEADERS MUST PROVIDE A ROADMAP

        However, our Nation lacks a clear, coordinated national and state
    solution to reduce impaired-driving deaths and injuries. Congress now
    has the opportunity to dedicate proper funding to address this public
    health epidemic, and to ensure proper use of these funds. While
    continued research efforts are critical in order to identify new and
    improved methods to deter drunk driving, there are many proven,
    research-based strategies that are not being used to reverse the
    current deadly trend. These strategies can and must be employed to make
    progress in the effort.
        MADD urges Congress to provide adequate funding to NHTSA , and to
    require NHTSA to develop a roadmap for itself and the States to
    significantly reduce alcohol-related deaths and injuries. The Nation is
    waiting for short-term, immediate strategies such as high-visibility
    enforcement efforts and sobriety checkpoints to turn this trend around,
    as well as long-term strategies that will ensure our safety on
    America's roadways for years to come. Our Nation can no longer afford
    the current state of inaction on this issue.
        Today, we are at a historic crossroads as Congress takes up the
    multi-billion dollar reauthorization of TEA-21 that will shape
    transportation policy for the rest of this decade and beyond.
    Maintaining the status quo, or worse, decreasing resources dedicated to
    fighting drunk driving will not reverse this deadly trend. This is our
    best chance to ensure adequate highway safety funding, to ensure that
    these funds are being used effectively, and to enact laws that will
    keep drunk drivers from getting behind the wheel. I urge Congress to
    adopt MADD's proposal and create safer roads for all Americans. Thank
    you.

        Senator Campbell. Thank you. Mr. Hurley.

    STATEMENT OF CHARLES HURLEY, VICE PRESIDENT, NATIONAL
                SAFETY COUNCIL
        Mr. Hurley. Thank you, Senators. I am Chuck Hurley, Vice
    President of the National Safety Council's Transportation
    Safety Group and Executive Director of the Airbag and Seatbelt
    Safety Campaign.
        Much of the recent progress in highway safety is a direct
    result of the leadership of this committee. Chairman Shelby's
    support of ``Click It or Ticket'', Senator Murray's support of
    ``Click It or Ticket'', and the support that the committee has
    given to paid ads has been instrumental. In fact, people are
    alive across this country because of the work the committee has
    done in recent years. Other States certainly on the committee
    are also involved in this progress.
        Regarding the administration, we want to applaud the
    administration's focus on belt use, and specifically the $100
    million fund that Dr. Runge, we give him credit for getting
    that in the budget. We believe that that will entice a number
    of more States.
        I am proud to say, and Senator Durbin will probably say
    when he gets here, that Illinois this week became the 19th
    State plus the District of Columbia and Puerto Rico to get a
    primary belt law. That makes right at 59 percent of the
    population of the United States covered by belt law, which is a
    good start. We need to get that to 100 percent.
        Again, to emphasize how important belt use is, if we could
    get the country to where Washington State has proven we can
    go--and as Dr. Runge said, the other Western States and Puerto
    Rico as well--we could save upwards of 4,000 lives a year by
    getting belt use up to the level of most developed countries in
    the world.
        Belt use and drunk driving are not just two other highway
    safety priorities. They are fundamental to the progress we hope
    to achieve.
        I would also like to commend the performance of the Federal
    Motor Carrier Safety Administration for its 4-year record of
    reductions, the 3.5 percent reduction I think in fatalities
    since last year, and also the provisions for traffic records
    and data collection in the budget as well.
        Regarding MADD, the Nation owes MADD an extraordinary debt
    of gratitude. I have been with the National Safety Council a
    long time, have lobbied the U.S. Senate before MADD. Senator
    Pell introduced a bill in the late 1970's, a very modest bill,
    got no hearing whatsoever.
        With MADD's first national press conference in October,
    1980 things began to change. Without MADD, we would not have
    had President Reagan's Drunk Driving Commission. We would not
    have had a drinking age of 21. We would not have had most
    administrative license revocation laws. We would not have had
    the .08 law. And we probably would still be losing 27,000 lives
    a year. Equally importantly, the victims of this violent crime
    would have no place to turn. So, again MADD is owed an
    extraordinary debt of gratitude.
        Regarding law enforcement, it is hard to overstate the role
    that they play in highway safety. I know a number of us, Wendy
    and I, really consider law enforcement to be every day heroes.
    Out there all day long, late at night, stopping people not
    knowing what is in that car. A good example was this week at
    the checkpoint and the launch here in the District of ``Click
    It or Ticket'', where at 10:00 in the morning they stopped a
    suspected drunk driver on Nebraska Avenue that was so drunk at
    10:00 in the morning that he passed out and was taken away in
    an ambulance.
        The work law enforcement does every day is extraordinary.
    We ask them to do some of our toughest jobs, but none tougher
    than pulling kids out of cars and knocking on doors late at
    night. A number of them have said that they would rather give
    out 1,000 tickets than have to do that again.
        Regarding the budget, we at the National Safety Council
    have a sincere concern that the budget in key areas is simply
    not adequate. Wendy Hamilton of MADD raised the issue of the
    paid ads. That is critical, I think, to make further progress
    in this country on both belts and alcohol. The fact that it is
    not in the budget is very concerning to us.
        It has been said that people who admire law and sausage
    have watched neither being made. The same probably extends to
    budgets. I am not sure how it was not put in the budget but we
    hope that this committee will put it back.
        We also are concerned, again, that there is simply not
    enough funding for drunk driving efforts. As Wendy Hamilton
    indicated, for the proposed funding to be higher for
    recreational trails than for drunk driving programs in this
    country to us makes no sense whatsoever and we hope this
    committee will seek to address that.
        In the exhibits attached to my statement we have tried, at
    the Airbag and Seatbelt Safety Campaign to put what has proven
    to work into your hands in exhibits. We hope that that will be
    made a part of the record.
        The one exhibit I would like to draw your attention to is
    one of our favorite charts. This is exhibit D, I believe. It is
    on the left-hand side, the last attachment on the left-hand
    side. It shows how important paid advertising is and how
    important high visibility enforcement is.
        You can see with the green line of serious and fatal
    covered injuries and the red line of observed driver belt use
    in North Carolina, where Dr. Runge and I would like to be, you
    can see that real progress began really with the Operation
    Buckle Down Program. As you drive belt use over 80, the serious
    and fatal injuries drop very substantially.
        At 75 percent we have virtually every low risk driver in
    the Nation buckled up. But that is a daytime rate. That is when
    belt use is observed.
        In contrast to that, the high risk drivers, specifically
    teenagers, their belt use in fatal crashes is only 36 percent.
    The belt use their teen passengers is only 23 percent. And it
    is not really until you get to high visibility enforcement that
    you do pick up the high risk drivers.
        In addition, in North Carolina the Booze It and Lose It
    Program was able, through highly visible enforcement and paid
    ads, just as we are recommending to the committee, that took an
    already good program in North Carolina and cut the rate of
    intoxicated drivers at nighttime checkpoints in half.
        High visibility enforcement works. We strongly support its
    inclusion in the budget.
        If Senator Durbin were here I am sure he would want to also
    point out that with Illinois' enactment of the primary belt law
    this week that they are looking very much forward to the
    administration's proposal where they would qualify for a
    maximum grant of $31,280,000. I believe they would be the first
    success story of this proposal. We would strongly support any
    effort to get Illinois that money.
        They also passed probably the Nation's best racial
    profiling law, a booster seat bill, a passenger restriction on
    graduated licensing intermediate stage drivers as well, and
    have really become a model for the Nation.

                               PREPARED STATEMENT

        Finally, I would like to thank the funders of the campaign,
    without whom our work would not be possible, the automobile
    manufacturers, the airbag suppliers and one major insurer.
        We would, I think, all be delighted to respond to questions
    that the Senators might have. Thank you.
        [The statement follows:]

                      Prepared Statement of Charles Hurley

        Mr. Chairman and members of the Subcommittee, thank you for
    inviting us to testify before you about a very important issue, highway
    safety. I am Chuck Hurley, Vice President of the Transportation Safety
    Group at the National Safety Council and Executive Director of its Air
    Bag & Seat Belt Safety Campaign.
        Allow me to express our thanks for the leadership of the
    Subcommittee--Senators Shelby and Murray--for the support you have
    provided for the efforts of NHTSA and the Campaign to increase seat
    belt use. The resources you have made available have helped to save
    lives and prevent injuries.

                         HISTORY/CAMPAIGN'S PHILOSOPHY

        In July 1996, an alarming trend was emerging: people--most of them
    children--were being killed by air bags. Pressure to overturn the
    mandate for driver and passenger side air bags--proven life savers for
    properly restrained adults--was mounting. As one million new passenger
    air bag equipped vehicles entered the fleet every month, a coalition of
    interested parties, primarily funded by the auto manufacturers, formed
    what is now the Air Bag & Seat Belt Safety Campaign, which celebrated
    its seventh anniversary yesterday.
        Our goal was to save lives by informing the public of the steps
    they could take to maximize the benefits and minimize the risks of air
    bags, and to increase seat belt use. A close examination of the child
    air bag fatalities revealed a chilling trend--these children were
    almost all unbuckled or incorrectly restrained in the front seat.
        Seat belt use is the key to maximizing the lifesaving benefits of
    air bags and to reducing the staggering number of people killed and
    injured in crashes every year. The Campaign is focused on increasing
    seat belt and child safety seat use in addition to continuing to
    promote air bag safety. The Campaign's work is grounded on a
    fundamental principle--to employ only strategies tested and proven to
    work. As such, communications are used to support interventions proven
    effective in getting people to buckle up.
        At recent and current levels of belt use, the only interventions
    proven effective in significantly increasing seat belt and child
    restraint use are strong laws and highly visible enforcement. The three
    key elements of the Campaign's strategy are to enact strong safety belt
    laws, enforce those laws to the fullest extent of the law and to
    educate the public.

                               PRIMARY BELT LAWS

        Achieving the country's current 75 percent belt use rate has been
    remarkable considering that we are building on a foundation of weak
    State seat belt laws. Only 18 States and the District of Columbia have
    strong, primary enforcement laws which allow a vehicle to be stopped
    and the driver and/or passengers ticketed solely for not wearing a
    safety belt. Secondary laws, which require the vehicle to be stopped
    for another violation before issuing a seat belt ticket, are more
    suggestions than they are laws.
        The Campaign has been active in 25 States pursuing stronger seat
    belt laws with successes in seven States. We have been involved with
    every State that has passed a primary enforcement law since 1997. When
    we started, 37.5 percent of the U.S. population was covered by primary
    laws. Today, that figure stands at 54 percent. This increase represents
    an additional 51 million people now covered by these lifesaving
    measures.

                           ENFORCEMENT MOBILIZATIONS

        The centerpiece of the Campaign is the Click it or Ticket
    Mobilization--a twice yearly, 50-State seat belt and child passenger
    safety enforcement drive. The Mobilization is sponsored by the Campaign
    in partnership with the National Highway Traffic Safety Administration,
    the National Transportation Safety Board, the International Association
    of Chiefs of Police, Mothers Against Drunk Driving, the National
    Sheriffs Association, the National Organization of Black Law
    Enforcement Executives and with the support of more than 1,000
    businesses and community organizations.
        Just last week, we were delighted to be joined by so many members
    of the Administration, including Transportation Secretary Norman
    Mineta, NHTSA Administrator Jeff Runge, M.D., and Surgeon General
    Richard Carmona, M.D., as we kicked off the Click it or Ticket
    Mobilization. This is the first Mobilization to be supported by
    significant national and State advertising, with funding sponsored by
    the leadership of this Subcommittee.
        The Click it or Ticket enforcement push runs from May 19 to June 1.
    During the Mobilization, the message to teens and young adults--in the
    TV and radio ads, in schools, in internet chat rooms, and at
    enforcement zones near where young people congregate--is to use a seat
    belt or risk getting a ticket.
        The purpose is not to give out more tickets, it is to increase belt
    use, save lives, and prevent injuries.
        The Click it or Ticket Mobilization replicates a highly effective
    seat belt enforcement example that is based on a model developed in
    Canada where high visibility enforcement has resulted in belt use rates
    that exceed 90 percent.
        The first statewide implementation of the Click it or Ticket model,
    including paid advertisements that supported the enforcement, came in
    North Carolina in 1993. Belt use immediately jumped 15 percentage
    points in three weeks and remains above 80 percent in the State. This
    sTEP (selective Traffic Enforcement Program) model combines periodic
    waves of stepped up enforcement of seat belt and child passenger safety
    laws with aggressive publicity highlighting the enforcement. The
    program aims to deliver the message that law enforcement will be
    ticketing seat belt and child passenger safety law violators.
        The Air Bag & Seat Belt Safety Campaign created the first
    nationwide Mobilization in May 1997, with 1,000 law enforcement
    agencies from all 50 States participating. Now, after 12 Mobilizations,
    the number of participating agencies has climbed to more than 12,500,
    representing hundreds of thousands of law enforcement officers
    nationwide, and reaching 99 percent of the U.S. population.
        The fact that there continues to be such strong participation and
    leadership from our Nation's law enforcement in the Mobilizations is a
    clear demonstration of their commitment to saving lives. We ask our
    police to do the toughest jobs, but none tougher than pulling dead
    children out of vehicles, and knocking on doors late at night to inform
    family members they've lost a loved one to a traffic crash. We are
    honored to work with police throughout the year, but especially during
    these Mobilizations.
        In the 6 years since the Mobilizations began:
      --Child fatalities from traffic crashes have dropped by 20 percent.
      --Restraint use among toddlers has jumped dramatically from 60 to 94
            percent and among infants, ages 0-1 from 85 to 99 percent.
            Restraint use for children ages 4 to 7 is 83 percent.
      --Adult seat belt use has risen from 61 percent to 75 percent--the
            highest use rate ever--with 39 million more Americans buckling
            up.
      --The rate of child-related airbag fatalities has declined 94
            percent.

                          SUCCESS OF PAID ADVERTISING

        In the early days of the Mobilizations, there was a heavy emphasis
    on earned media. Working with others, we were able to generate
    extensive coverage about the job that our law enforcement was doing to
    ensure our safety. However, it became evident to us that to continue to
    achieve gains in national seat belt use rates, the element of paid
    advertising needed to be added to the equation.
        Young people in particular are least likely to buckle up and least
    likely to be impacted by earned media because they tend to not watch or
    read the news. To reach them with an enforcement message (research
    shows that those who refuse to buckle up are likely to change their
    behavior with the threat of a ticket and not from a public education
    message), we needed paid advertising to assure targeted messaging. By
    targeting paid advertisements to their demographic, we directly let
    them know that if they won't buckle up to save their lives, they should
    do so to avoid a ticket.
        In May 2001, high-visibility enforcement was coupled with paid
    advertising in eight southeastern States with remarkable success. The
    Campaign partnered with NHTSA's Region IV office in Atlanta to
    implement the first multi-state seat belt use enforcement program. The
    Campaign invested $500,000 in paid advertisements throughout the region
    as the individual States purchased an additional $3.25 million worth of
    paid media.
        As a result of this program, safety belt use increased in the
    region by nine percentage points. Sustaining belt use at that rate
    would have produced a savings of 650 lives and $950 million in economic
    costs. This increase represented an additional 4.5 million people
    buckling up!
        The success of Region IV was followed up with an additional 12-
    State pilot program in May 2002. With the assistance of this
    Subcommittee, $8 million was earmarked in NHTSA's budget to expand on
    previous successes and determine if the program would work in other
    parts of the country.
        Once again, the program worked and lives were saved. While there
    were 12 States that received specific funding through the earmark,
    additional States also participated in high-visibility enforcement
    activities with their own funds. In total, 23 States and the District
    of Columbia used the Click it or Ticket slogan with paid
    advertisements. Another 14 States used a non-Click it or Ticket slogan
    with paid advertisements.
        With so many States implementing varying programs, NHTSA was able
    to extensively evaluate the effectiveness of these projects. States
    that fully implemented the Click it or Ticket model with paid
    advertising saw an average increase of 8.6 percentage points in seat
    belt use. That was compared to States that diverged slightly from the
    model, with some paid advertising and States that diverged from full
    implementation with no paid advertising. The latter two categories of
    States saw an increase in belt use of 2.7 percentage points and 0.5
    percentage points, respectively.
        Congress followed up this past February with another earmark to
    support the Mobilization that is happening right now across the
    country. In the Omnibus fiscal year 2003 Appropriations bill, $10
    million was earmarked for a national paid advertising campaign to
    support the current seat belt Mobilization.
        Through the leadership of this Subcommittee, as well as other
    groups like MADD, this same strategy has been extended to include
    impaired driving mobilizations. We are pleased to be able to partner
    with MADD in our mutual goal of reducing fatalities through enforcement
    strategies that are proven to work.
        The Campaign continues to believe that paid advertising is an
    essential element in the national effort to increase existing belt use
    rates. Research has shown that further educational appeals to non-belt
    users will produce little or no change in behavior.
        The 2001 Report of a National Seat Belt Summit, a gathering of more
    than 45 national leaders in early 2001, concluded the following:
    ``Catchy slogans and public service campaigns alone are not the answer.
    Public policies must support strong State belt-use laws, encourage
    effective enforcement of those laws, and provide the resources
    necessary to carry out these activities.'' The Report called for
    expansion of ``highly visible and effective enforcement programs,
    supported by coordinated paid advertising . . .''

                                 MOVING FORWARD

        Given all of the data that is available, we request that the
    Subcommittee continue to earmark substantial funding to purchase
    national and State paid advertising to support three Mobilizations in
    fiscal year 2004. By providing funding to purchase national paid media
    the country can take the necessary steps to achieve the goals of higher
    seat belt use, and improved traffic safety.
        We are still studying the Administration's highway reauthorization
    and funding proposals. We applaud the Administration's emphasis on seat
    belt use and primary seat belt use laws. We specifically support the
    $100 million in incentive grants to States that have or will enact
    primary belt use laws.
        On behalf of the National Safety Council, let me state that we do
    not believe there is adequate funding in the Administration's
    reauthorization proposal for drunk driving or the other important state
    highway safety programs.
        Thank you, Mr. Chairman, and I would be pleased to respond to any
    questions the Subcommittee might have.

        [Clerk's note.--Attachments to Mr. Hurley's prepared
    statement will be retained in subcommittee files.]
        Senator Campbell. Thank you. I have a few and I am going to
    bounce around a little bit here. Maybe I will just go ahead,
    since you were the last one who spoke, Mr. Hurley.
        You mentioned some of the highway funding going to perhaps
    other things. What is your view on transportation money,
    highway money, going to bike trails and hiking trails and so
    on?
        Mr. Hurley. We support that obviously, and we also support
    the safety-related construction. It does save lives. But most
    of the SAFETEA road construction would see benefits over a 20-
    to 30-year period.
        As Wendy Hamilton of MADD has said, if we want to reduce
    the FARS right now, the best way to do it is the things that
    are recommended in high visibility enforcement. It is an
    unfortunate fact that priorities do have to compete in the
    highway bill. But for recreational trails to be funded at a
    higher level than drunk driving, we think, is a hugely
    misplaced set of priorities.
        Senator Campbell. Thank you.
        As you know, we went from a huge surplus in just about 20
    months now to who knows, maybe a $350 billion deficit in the
    next 10 years. I think a lot of things are going to be in
    competition for the existing dollars, as you probably know.
        Ms. Sandberg, did I hear you say there are 800,000
    shipments of HAZMAT a day in the United States?
        Ms. Sandberg. Yes, sir.
        Senator Campbell. Do you have a figure for the number that
    are involved in accidents?
        Ms. Sandberg. I do not have that, but I can get it for the
    record.
        [The information follows:]

        Only 15-20 trucks transporting hazardous materials are involved in
    an accident each day. In the majority of these crashes (84 percent),
    there is no leakage of hazardous materials.

        Senator Campbell. If you would supply that I would
    appreciate it. I was one person that was not thrilled at all
    about the movement of the hazardous material to Yucca, Nevada.
    One of the reasons was a lot of it was going to go through the
    city in my State which is Denver, or on rail down what is
    called Glenwood Canyon besides a river that supplies something
    like seven States. It is part of the Colorado system. We were
    really concerned about that. I would be interested in knowing
    that number.
        Let me skip to maybe something else now and I will probably
    get in trouble for bringing this up, but the Federal Motor
    Carrier Safety Administration is reviewing and about to change
    their hours of service proposal. I am not sure if we have got
    the availability of resources to carry at the rulemaking and to
    conduct what the Congress has mandated. Would either one of you
    like to, Dr. Runge or Ms. Sandberg, like to comment on that?
        Ms. Sandberg. The changes in the hours of service rule?
        Senator Campbell. Yes.
        Ms. Sandberg. Yes. Actually, we recently made those changes
    after a number of years of deliberation. Actually, we had over
    53,000 comments.
        The changes in the rules, in working with our partners at
    the States who do most of the enforcement, the main group is
    the Commercial Vehicle Safety Alliance, has indicated that they
    feel that the new rules are going to be easier to enforce
    because they move truck drivers more towards a 24-hour clock.
        What it requires is that driver have 10 hours off. They can
    work 14 consecutive hours. Once they go on the clock, those
    hours start consecutively so that they cannot take breaks and
    build their work day into 20 or 24 work days.
        Senator Campbell. They can work 14, but not drive 14.
        Ms. Sandberg. No, they are only allowed to drive 11 of that
    14. So that moves them more towards a 24-hour clock, which
    helps law enforcement look at their log books and determine
    exactly how much they have been working and able to enforcement
    that.
        We also have a follow-on rulemaking that will occur within
    the next year or so which is to shore up one of the areas that
    has been a concern of the enforcement community, and that is
    the documents that drivers are required to keep as part of
    their log book. So that it shows restaurant receipts and those
    kinds of things.
        So we are working on trying to shore up the areas where
    enforcement has told us that there are some concerns.
        Senator Campbell. I never was a supporter of that, either.
    You probably know that. I do not know if you have ever driven
    much in the 18-wheelers, but I have. And I can tell, knowing
    from some people who have done it, that faking log books is not
    all that difficult. It has been done for years. Even before
    there was log books there were things called clocks that they
    used to keep. Not difficult at all to fake those things.
        So I hope it works. I know the ATA is supporting these rule
    changes, the American Trucking Association. But all I hear from
    drivers themselves is that it is going to be bad. It is going
    to really cut into their ability to make a living. It is going
    to clog the highways with more trucks that have to make up the
    shipping for the ones that have to be parked.
        I have heard it from truck stop owners, literally all kinds
    of people thinking that the hours of service are going to be
    more detrimental than helpful. I hope they will be helpful.
        But there is something else that has been on my mind
    lately. And this is probably where I am going to get in trouble
    with AARP and a few other senior groups. That is the way the
    regs work now, if you have a truck that is over 26,000 pounds
    gross vehicle weight you have to have a license. You have to
    have a CDL, different levels.
        But there are vehicles out there, big RVs, 45 feet long.
    They can go legal limit now 45 feet. Some of them gross 40,000
    pounds. That is big vehicle. And they can tow a 20-foot
    trailer, too. And a lot of the people that are buying those
    great big beautiful motor homes, that are very expensive as you
    might guess, are people that summer where it is nice in the
    summer and they go where it is nice in the winter. That means
    they are going back and forth twice a year from Wisconsin to
    Florida or from maybe Oregon to Yuma, Arizona, where there are
    thousands upon thousands of RVs every winter.
        I guess the good news of that is that they are only driving
    it twice a year. But that is also the bad news, they are only
    driving it twice a year. Because these vehicles are much bigger
    than most of the lower levels of the guys who have to have CDLs
    that are professional drivers and have to go through training
    and do all this other stuff, I am wondering what your reaction
    is to the view, at least in some circles, the people that drive
    these great big RVs ought to also be required to have some kind
    of training or special licenses, because they have got air
    brakes, they have got diesel engines, they have everything that
    the tracks have on them. And yet they do not have to comply
    with anything.
        Ms. Sandberg. We have not, at the Motor Carrier
    Administration, specifically looked at requiring commercial
    drivers licenses for these types of vehicles. Right now our
    focus has been on commercial motor vehicles, which is trucks
    and buses.
        Senator Campbell. They are not going to be commercial
    drivers. They do not haul anything except their family and
    their toys. But I am thinking from a safety standpoint and a
    training standpoint because a lot of them--one thing about the
    truck drivers, they are out there 8 or 10 hours a day driving
    the things. But the people during the big RVs are not. They
    drive them from A to B and then they park them for months.
        Ms. Sandberg. Clearly from a training standpoint, and I
    will have to put on my NHTSA hat here from when I was over at
    NHTSA, one of the things that we always looked at is that any
    time somebody moves to a different type of vehicle, they should
    have some type of training. I think we were speaking before the
    hearing about people that buy a motorcycle and how helpful it
    is if they have some motorcycle training before they get on
    that motorcycle.
        The same with some of the training regimes that we have
    worked on in NHTSA with States to look at young drivers and
    making sure that they are appropriately trained before they get
    behind the wheel of that car, whether it be through graduated
    drivers license programs or other types of education.
        I am not aware of any studies looking specifically at RVs
    and drivers that have not driven that large of a vehicle
    before.

                             MOTORCYCLE FATALITIES

        Senator Campbell. From a legislative standpoint, there is
    the low of possibility and the law of probability. It is
    possible we could make some kind of a law or rule about
    training but the probability, knowing what kind of a buzz saw
    that would cause with the senior groups, it is probably not
    going to happen. But it is just something for thought.
        Since you brought up something that is of particular
    interest to me, as you know, and that is motorcycles and
    motorcycle safety, I read recently that the number of deaths on
    motorcycles has gone up quite a bit in this last year. Have you
    done, Dr. Runge, studies on who it is that is dying? Age group,
    training, something along that nature.
        Dr. Runge. Yes, Senator Campbell. As a matter of fact, when
    we look at the increase in deaths on the highways over the last
    year, a goodly proportion of that increase was due to an
    increase in motorcycle fatalities. Fortunately, this past year
    the increase has dampened a bit, but we still saw about a 3
    percent increase in motorcycle fatalities year to year. As you
    suggest, the largest number of those is in the 50- to 59-year-
    old age group.
        However, we still have a tremendous problem with impaired
    riding. Although just under 40 percent of motorcycle crashes
    are alcohol-related, it should be pointed out that even at
    lower levels of alcohol, riding a motorcycle becomes more
    difficult. I think there are right brain functions, activities
    that are second nature to a rider, such as handling a curve and
    looking peripherally, that do not do well.
        Senator Campbell. People who drive automobiles and drinking
    are impaired. People to drive motorcycles and drink are just
    plain crazy.
        Dr. Runge. Thank you for pointing that out.
        We are addressing this. We do have a $656,000 request in
    the fiscal year 2004 budget particularly related to programs
    for motorcycle riders. We are interested in training. We just
    developed a motorcycle safety plan, which I hope you have had a
    chance to take a look at, that we sent over in December. We
    would like to begin to implement the recommendations in that
    plan in the coming fiscal year.
        This is an area where our stakeholders and our customers
    have very strong feelings about what should be done. We
    developed our plan in concert with them. We hope that kind of
    collaboration can continue.

                HIGH VISIBILITY ENFORCEMENT FOR IMPAIRED DRIVING

        Senator Campbell. In my view, the education and training
    certainly is more acceptable than more and more penalties which
    sometimes work and sometimes do not. We talk about alcohol-
    related crashes. My dad was an alcoholic. And over the years, I
    came to believe that all that tragedy and stuff that alcoholism
    causes, it is a form of sickness. Sometimes more and more
    penalties do not stop a person that has a sickness. They do it
    anyway.
        I might also note with interest that the people who are
    dying, the highest percent that are dying on motorcycles now
    are the 50 to 60, you said. It would be my guess they were
    people who did not ride their whole life. Mom said they could
    not have one when they were young. Now mom is gone and they
    have got some money. And they saw that movie, Easy Rider, and
    they know they can do it. And they are too macho to take any
    dang training and so they have got to get on there and they buy
    some hundred thousand dollar killer and get out there and get
    hurt. But thank you for those numbers.
        I think I had one other question before I ask Senator
    DeWine for his input. This ``Click It or Ticket'' campaign that
    was talked about, considering that has been rather successful,
    is there anything in the wind or being suggested that we might
    use something along that line for impaired driving or alcohol-
    related accidents?
        Dr. Runge. Yes, sir, we currently do that. In fact, Mr.
    Hurley and Ms. Hamilton have gone on record as supporting high
    visibility enforcement with us. Mr. Hurley mentioned the
    ``Booze It & Lose It'' campaign that was successful in North
    Carolina.
        This committee, in fact, appropriated right around $10
    million for a high visibility national advertising campaign
    this year, which we will kick off in about 4 weeks. In the
    alcohol area, we want to replicate those successes that have
    been achieved with seatbelts.

                           EMERGENCY VEHICLE SENSORS

        Senator Campbell. Thank you. Maybe one last question, and
    you might not have an answer to this because it came to me kind
    of accidentally.
        There are so many noises out there driving now,
    distractions and noises. Radios, soundproof cars to drown out
    some of those noises, and older drivers that may have some
    hearing problems. I was recently told about a sensor that has
    been developed that can be put in commercial vehicles or
    personal vehicles that indicate when an emergency vehicle is
    near. I did not know how it senses it.
        I was thinking, you know, we have got those things that you
    put on your bumper where deer can sense that you are near
    through some kind of a sound they can hear. So maybe it is
    related to that.
        Are you aware of any kind of a pilot program that is being
    developed? I heard of one that is being developed in Colorado,
    by the way, in Summit County. A program is being developed that
    would tell you if police cars are coming? And I do not mean
    radar units. Something to keep you out of trouble.
        Dr. Runge. I am not aware of that, but we will be happy to
    check into it and get back to you.
        [The information follows:]

                 Emergency Vehicle Crash Avoidance Technologies

        According to NHTSA statistics, in 1997 approximately 15,000
    emergency vehicles were involved in traffic crashes, 75 percent of
    which are attributable to the other driver not yielding to the
    emergency vehicle. For emergency vehicles to safely respond to calls,
    they need systems that attract the attention of other drivers and
    elicit an appropriate response, specifically creating a clear path
    through which the emergency vehicle can travel. To accomplish this
    goal, many organizations operate sirens when responding to critical
    situations. However, with enhanced soundproofing in vehicles and
    increased capabilities of in-vehicle sound systems, there is newfound
    concern that sirens are not heard, thereby contributing to crashes with
    emergency vehicles.
        To remedy this issue, numerous inventors have developed
    technologies to provide enhanced information of emergency vehicle
    travel to other drivers. These devices are probably similar to the one
    being tested in Colorado. Some systems use wireless transmitters to
    send warning signals from the emergency vehicle to a transmitter in
    vehicles nearby. Other systems use acoustic sensors to pick up sirens
    and amplify them inside the vehicle. For example, Safety Cast, consists
    of a mobile transmitter designed to broadcast messages from emergency
    vehicles to other vehicles in the area. The Safety Cast consists of a
    two-mode alert: a tone followed by a message detailing the situation.
    Promoters of the product state that with this design drivers will be
    able, ``. . . to make a much more planned and safer decision on how to
    respond'' to emergency vehicles.\1\ Another recent design, the
    Emergency Vehicle Early Warning Safety Systems (E-Views),\2\ delivers
    directional information of emergency vehicle location with signs
    mounted on traffic signal mast arms. The Keio University in Japan has
    also designed a siren detection system that provides warning
    information to drivers when an external microphone detects sirens.
    (These systems operate on a different principle than air-fed deer
    whistles which were mentioned in the Congressional question. Contrary
    to popular beliefs, a recent study from the University of Connecticut
    found the whistles to be ``acoustically ineffective.'' \3\)
    ---------------------------------------------------------------------------
        \1\ More information is available at www.mysafetycase.com.
        \2\ More information is available at www.eviewsinc.com.
        \3\ Palmer, J. ``Air-fed Deer Whistles Scientifically Tested.''
    UConn News, University of Connecticut Office of University
    Communications, November 19, 2002.
    ---------------------------------------------------------------------------
        Previous NHTSA research found that the costs of achieving effective
    in-vehicle emergency vehicle warning systems far outweighed the
    benefits.\4\ The systems need to overcome significant technical hurdles
    to make the devices reliable under harsh driving environments and to
    minimize presenting drivers with distracting or annoying false alarms.
    However, advancing in-vehicle technology could prove to make such
    interventions cost-effective. In order to determine effectiveness,
    extensive research would need to address the following issues:
    ---------------------------------------------------------------------------
        \4\ Peterson, D.D. and Boyer, D.S. (1975). ``Feasibility Study of
    In-vehicle Warning Systems.'' DOT HS-801 569.
    ---------------------------------------------------------------------------
      --System compatibility with all sirens implemented in the United
            States;
      --Infrastructure requirements;
      --Interface design, intended to not only gains the attention of
            drivers but promotes the most appropriate response;
      --Maintenance requirements and system reliability;
      --System state requirements, e.g., does the driver need to have the
            radio on, etc.

        Senator Campbell. Thank you. I have no further questions.
    Senator DeWine, did you have some questions?
        Senator DeWine. Mr. Chairman, thank you very much. Let me
    first just say that I am sure that Chairman Campbell would not
    charge you anything for his great quote about those who drink
    and ride motorcycles, if you want to use that. You would not
    charge them anything would you, Senator, about your great quote
    about those who drink and drive motorcycles? They could
    probably use that.
        Senator Campbell. Yes, you can use it. They are either
    crazy or suicidal.

                 BUDGET REDUCTIONS IN IMPAIRED DRIVING PROGRAM

        Senator DeWine. I think that is a great quote.
        Doctor, let me ask you, we have talked about the cuts in
    the alcohol programs. They cut, I believe, $110 million in the
    safety incentives to prevent operation of motor vehicles by
    intoxicated persons, Section 163, $40 million cut in the
    alcohol impaired driving countermeasures incentive grants. We
    have talked a little bit about those.
        But you are not saying that those are not effective
    programs, are you?
        Dr. Runge. If I could just frame this issue, Senator
    DeWine, this is one of these unfortunate issues of timing where
    we have reauthorization, and the budget moving through
    simultaneously. But, it is worth reflecting on the philosophy
    behind this reauthorization. Those monies that you just spoke
    of were formerly in the Federal Highway Administration's
    budget, but were administered by NHTSA.
        What we are trying to do with reauthorization is to put the
    responsibility where it belongs, and the ability to deal with
    it where it belongs. And that is in the States.
        The State alcohol-related fatality rates go from a low of
    0.29 fatalities per 100 million vehicle miles traveled in Utah
    to 1.27, 3\1/2\ times that much, in South Carolina. We have, in
    the past, painted a very broad brush across this entire
    country. That has not been shown to be effective. There are
    pockets in this country where it is very dangerous to drive.
        The reauthorization proposal brings the funds that formerly
    were in the Federal Highway Administration budget over to NHTSA
    in a combined 402 program that gets the money into the States
    with performance incentives. That is, the State's goals will be
    aligned with the national goals. In order to qualify for
    incentive funds, States will need to implement programs with
    their money--and the same money is there, it is level funded--
    they will have to apply those funds, instead of buying key
    chains and bobble-headed dolls. They will have to spend money
    where it belongs, which is in high-visibility enforcement and
    in dealing with the repeat offender and the chronic alcohol-
    user who gets behind the wheel of a car.
        That is the philosophy behind this, and that is the basis
    of our fiscal year 2004 budget proposal.
        Over the course of 6 years, there is a decrease in the
    funding that is specifically for alcohol from about $14.7
    million to right around $11 million. However, that does not
    include the 402 funds that are still there, which we want to be
    applied to tackle the problem.
        We are setting up incentives that will require States to do
    that, and giving them best practices which you all have paid
    for. We know what works. We know what is there. Getting the
    States to do it is a real challenge.
        In Tennessee, they reduced alcohol fatalities with a
    double-digit effectiveness with ``Checkpoint Tennessee''. But,
    when the money went away, that money that you are speaking of,
    the program went away. That cannot happen anymore. We have got
    to hold States accountable for the money that they spend on
    these issues.

          REAUTHORIZATION PROPOSAL EFFECT ON IMPAIRED DRIVING PROGRAM

        Senator DeWine. I want to make sure I understand, and I am
    going to take some more time to study your proposal. I have
    looked at it already, but we are not going to resolve this
    obviously today. I will be in contact with you personally about
    this. But I want to make sure I initially understand what you
    are telling me.
        You are not telling me that you are transferring money away
    from this overall anti-drunk driving prevention or education
    program. Is that what you are telling me?
        Dr. Runge. That is correct. What we have done with
    reauthorization is to take seven or eight different grant
    programs and combine them into a single 402 program. Plus, we
    added a $50 million program that is specifically for alcohol
    programs in those States with the worst impaired driving
    problems. That $50 million is not meant to be spread all over
    the entire country.
        There are 12 States that, if they just got themselves to
    the national average, the result would be that we would be 80
    percent of the way to our goal. We have got to get into those
    States and, first of all, evaluate them, find out what is going
    on in there, and then give them some special resources to pull
    themselves up by their boot straps, because right now, what we
    are doing is not working.
        That is the $50 million program that is being talked about.
    The rest of the grant programs are in a combined 402 program,
    with a level-funded formula program, as well as a well-funded
    incentive piece on top of that, so that States who meet those
    goals can get additional resources.
        Senator DeWine. Would anybody on the panel like to comment
    on that? Mr. Hurley or Ms. Hamilton?
        Ms. Hamilton. We have information that we will be happy to
    submit to the panel. The highway safety performance grant--
    there are three pockets of money. The State and community
    grants, the 402, is $162 million. That is down $3 million from
    the year before. That is a loss in funding.
        There is performance grants of $175 million, which can be
    given to the States to be used on alcohol-impaired
    countermeasures, but it gives the States the option of using
    that money for highway safety improvement programs.
        As we saw from the GAO report, that is what happened in the
    majority of the times in the previous program where they were
    allowed to use that money for hazard elimination. It is just
    the same thing, a new game, and basically a shell game.
        Again, previously in TEA-21, there was $150 million that
    went to the States each year to deal with impaired driving
    programs. It is only $50 million now. That is $100 million
    loss. And it is only going to 12 States.
        There needs to be money. I agree with Dr. Runge, there are
    States out there that it is more deadly to drive in than
    others. They need to have funding to do it, using it on
    effective research based programs that have shown to work and
    save lives and prevent injuries. But they also need to provide
    money to States so that they can sustain the level of
    performance and perhaps benefit even more.

                        DIVERTING IMPAIRED DRIVING FUNDS

        Senator DeWine. Doctor, what about the argument? And you
    can argue whether or it is good policy or not. But is she
    correct? Is Ms. Hamilton correct when she is saying that States
    could actually, under your proposal, divert the money to
    highway construction? You can argue that is good or bad, but is
    that true?
        Dr. Runge. The programs that she is talking about were
    incentive grant programs for repeat offenders, and required
    States to meet four or five criteria to receive funding. Those
    funds can also be spent partly on road hazard elimination in
    the States that meet those eligibility criteria.
        Therefore, it should not change the ratio significantly.
        Senator DeWine. You are saying they could do it before and
    they can do it again?
        Dr. Runge. That is right. Let me back up for a second and
    talk about an underpinning of this program. Every State would
    be required to submit a comprehensive highway safety plan under
    the reauthorization proposal. The plan will have stakeholders
    that will be defined by regulation, but it will be people like
    MADD and law-enforcement, as well as the road builders and
    others in the State DOT, who will, based on each State's data,
    determine where their safety problems are.
        There is no need for Utah to have largess for alcohol
    programs. But there is a tremendous need for South Carolina,
    Louisiana, Montana, South Dakota, Arizona, Wyoming, and others
    with very high impaired driving-related fatality rates, to
    devote significant portions to reducing impaired driving.
        U.S. DOT will take it very seriously when a State submits a
    comprehensive highway safety plan, whether or not the data
    truly represent how they intend to spend their money. The
    flexibility that we give States also enables them to spend a
    good portion of their hazard elimination money on behavioral
    programs if their State data indicates that it is needed.
        We are putting a tremendous amount of eggs in the basket of
    each State's traffic records and data improvement, which is why
    we also have $50 million in our proposed fiscal year 2004
    budget to help States shore up their State traffic data, so
    that we can pinpoint where the problems are occurring.

                           STATE DATA ACCOUNTABILITY

        Senator DeWine. Let me play off that for a moment. My home
    State of Ohio has begun to do a pretty good job in listing the
    most hazardous intersections and stretches of highway. We do it
    statistically. We do it in ranking order. Some States are doing
    that. Few States, based on my experience at least, in what I
    have seen, are doing both a ranking and then putting their
    money where their ranking is.
        In past highway bills, we have paid lip service to that. We
    have said oh, that is a good thing. You should do that. We have
    not put much teeth behind that. And we have not insured, in the
    highway bills, that significant money would go to that.
        I would like your comments on that because I am very
    interested, frankly, as we write a new highway bill, that we do
    that. It seems to me that when we are talking about putting
    highway dollars--I am beyond frankly what we are talking about
    here today, but this is your area of highway safety--that what
    we should be doing is figuring out where we can save the most
    lives for the most dollars and at least taking part of the
    general highway construction dollars and saying okay, we are
    going to find the 50 or the 100 most dangerous places in
    Indiana or Ohio our Maine, and let us go deal with them every
    year. And let us figure out where we can get the most bang for
    the buck or save most lives for the buck. But we have not
    really been doing that consistently across the country.
        Now what you are talking about doing it frankly is on a
    fairly--with all due respect I think it is the right thing to
    do--but it is on a fairly small dollar amount when we are
    talking about the dollars we are dealing with here.
        I am talking about doing it on big highway bill and doing
    it with some serious dollars, I mean big dollars.
        Do you want to comment on that? It seems to me that the
    good news I am hearing from what you are saying is that the
    studies you are talking about doing, and the $50 million you
    are talking about doing, certainly is a start at least in
    trying to compile the data that the States will need to be able
    to come up with that information.
        Dr. Runge. Thank you. I think you are exactly right.
        In the past, there has been lip service played to
    accountability. The A in SAFETEA is accountability.
        A lot depends on a State's comprehensive highway safety
    plan, and a lot depends on their ability to gather traffic data
    and to acquire it in a way that is scientifically legitimate.
        With respect to where those problems are, it may not just
    be where, it is also the who, what, when, and where of the
    issue, the whole epidemiology of the problem. Some States do a
    great job of defining that. Low velocity highways with high
    crash fatalities may not need road design. They may need just
    higher seatbelt use and less impaired driving.
        We will strive to make sure that those data are acquired
    and that States are held accountable for that highway safety
    plan.
        Also, in the reauthorization bill there is a billion dollar
    highway safety core program in Federal highways. A State's
    share of that can be spent--100 percent of it can be spent on
    data improvements if the State needs it. It can be spent on
    hazard elimination. It can be spent on behavioral programs. It
    can be spent on alcohol programs and belt programs.
        We are trying to give States the flexibility to spend their
    money where it needs to go. You are exactly right. A lot
    depends on how we define that safety plan and how the U.S. DOT
    is able to insist that the money be spent in a way that, in
    fact, does address the highway safety problem.
        I hope we have the committee's support for that
    accountability.

                         FLEXIBILITY AND ACCOUNTABILITY

        Senator DeWine. The key, it seems to me, we are all for
    flexibility, but it is clear from your comments earlier you are
    for flexibility but you are also for accountability.
        Dr. Runge. Yes sir.
        Senator DeWine. You talked about key chains and other
    things that you do not seem to think amount to a whole lot, and
    I would happen to agree with you.
        I go back to my experience as Lieutenant Governor of Ohio,
    and one of the areas where I was in charge was highway safety.
    We looked at things that mattered and some things that frankly
    did not matter.
        So how we strike the right balance of allowing States to
    pick and choose what is appropriate for their State but also
    give them the guidance to move forward and to try to target
    things that do, in fact, matter is the key I think.
        Ms. Hamilton?
        Ms. Hamilton. Senator, flexibility is important to the
    States. We understand that they are struggling with this and
    they are very concerned about MADD's proposal. However, we saw
    in the past that that money is going for hazard elimination
    programs.
        What you talked about before, what is going to save the
    most lives most quickly is, quite frankly, the bill that you
    introduced today with Senator Lautenberg for enforcement on
    belt and alcohol prevention programs to give law enforcement
    the resources that they need for the next 6 years and the paid
    advertising to let people know that impaired driving and
    seatbelt usage is important.
        We can build better roads. We can design safer cars. But
    unless we develop safer drivers, we are not going to make any
    kind of a dent in this problem. And we have got to take the
    time right now to put the resources into behavioral safety
    programs that we know are effective. We have 30 years of
    research and data from NHTSA, from all over this country and
    the world, in fact, that tells us what works, enforcement.
        Senator DeWine. Mr. Chairman, if I could just make one
    additional comment. I know I have gone over my time. But just
    to make sure everyone understands at least this one Senator's
    position.
        I believe that the money we are talking about today,
    frankly, should primarily be going for education issues and
    behavioral modification issues and the things that Ms. Hamilton
    is talking about.
        The highway construction and the hazardous changes in
    construction that I was talking about, I think, should come out
    of the big bill that we are talking about, and the bill that
    frankly we will be, I hope, writing later this year. I think a
    bigger percentage of that bill should be absolutely dedicated
    to focusing on trying to eliminate the hazards on the highway.
        I think we do not put enough of that into targeting what
    matters on our highways. And I think what the doctor is talking
    about is it makes sense to spend some money to get the data and
    allow every State to have some assistance to get the data to
    make those intelligent decisions, but then take money out of
    our big bill and focus that money on the things that really do,
    in fact, matter.
        Let us go into every State. Every State has got them. Every
    State has got the dangerous intersections. Why in the world do
    we keep waiting until we get the fifth or sixth fatality when
    we know, and everyone in the community knows, this is a bad
    intersection. Everyone in the community knows this is a bad
    curve. Highway patrol can tell you. You go into the Xenia, Ohio
    highway patrol post, they can tell you the bad intersections.
    They can tell you where there is going to be a bad accident.
    They can tell you it is going to come. Now when it is going to
    come, but it is going to come.
        Why do we wait? It is just absolutely crazy.
        Mr. Hurley. Senator, first, I want to thank you for your
    leadership on highway safety, your support for MADD, and
    specifically your support for high visibility enforcement.
        On the accountability issues, which is critical, and it is
    a very complicated bill. We are still studying it. But it does
    appear to be an overall flat funding of highway safety with
    very serious concerns about reduced funding in key areas that
    we have talked about.
        We support the idea of performance partnerships with the
    States of accountability and the rest of that. However, NHTSA,
    without a change in the statute, gave up plan approval 4 or 5
    years ago. The General Accounting Office report that Senator
    Dorgan just asked for and received had some very serious
    comments about that. I would hope that this could be a part of
    the record, as well.
        The best States probably do not need plan approval. The
    worst States probably need more than plan approval. There has
    to be a whole consideration of performance partnerships with
    the States that really has not occurred yet. I am hopeful that
    we can get into that with the leadership at DOT because the
    current system does not seem to be working all that well. Thank
    you.
        Senator DeWine. Mr. Chairman, thank you very much.
        Senator Campbell. Thank you.

                         ADDITIONAL COMMITTEE QUESTIONS

        We have no further questions from the members that are
    here. However, Senator Shelby does have some. Rather than
    asking them for him and getting them all confused, I will
    submit those to you in writing. If you could answer them in
    writing.
        And I think Senator Murray may also have some questions.
        [The following questions were not asked at the hearing, but
    were submitted to the Department and witnesses for response
    subsequent to the hearing:]

          Questions Submitted to the National Highway Traffic Safety
                                 Administration

                Questions Submitted by Senator Richard C. Shelby

        Question. The positive effects of the ``Click It or Ticket''
    mobilizations to increase seatbelt usage rates are undeniable.
    According to NHTSA's evaluation, seatbelt usage increased by 8.6
    percent. In the Omnibus Appropriations Act this Committee again set
    aside funds for these mobilizations and directed NHTSA to expand this
    approach to target alcohol-related driving, which we are all concerned
    about. With the demonstrated success of the program, why isn't funding
    specifically identified in your budget proposal to continue these
    campaigns in 2004?
        Answer. NHTSA intends to continue the ``Click It or Ticket'' and
    ``You Drink & Drive. You Lose.'' mobilizations in 2004 and beyond. For
    the last 5 years, funding has been provided through the Sec. 157
    Incentive/Innovative Grant Program, authorized under TEA-21. NHTSA
    utilized most of the Innovative grant funds awarded to the States to
    support the semi-annual mobilizations.
        The momentum and commitment for the mobilizations reached an all
    time high this year with 43 States, DC, and Puerto Rico adopting the
    ``Click It or Ticket'' model in May 2003. Early in 2003, the Agency
    solicited input from the Governors Highway Safety Association and the
    highway safety offices of the 50 States, the District of Columbia, and
    Puerto Rico regarding their future plans to conduct the mobilizations.
    The responses indicated a solid commitment to continue the
    mobilizations through Section 402 apportionments or other funding
    mechanisms. Thus, NHTSA did not specifically earmark grant funds to the
    States for this purpose. The President's fiscal year 2004 budget
    request rolls $112 million of what was Section 157 funding in fiscal
    year 2004 into a consolidated Highway Safety Grant program. This
    proposal is also reflected in SAFETEA, the administration's
    reauthorization proposal. This proposal eases the grant administration
    burden of the States while providing the same level of resources as
    previously to fund these programs.
        The Department's SAFETEA reauthorization proposal also includes
    special performance-based incentive grant programs under Section 402 as
    incentive for State progress in both reducing impaired driving and
    increasing safety belt use.
        Question. The Department's goal for highway-related fatalities in
    2004 is 1.38 per 100 million vehicle miles traveled. The budget
    indicates that the two major reasons for the lack of significant
    progress in reducing overall highway-related fatalities can be directly
    attributed to motorcycles and pedestrians. The budget, however, appears
    to assume a steady rate among these groups and a necessity to focus on
    passenger cars and light trucks. What specific actions will the
    Department undertake to address and to reduce the number of fatalities
    among motorcycles and pedestrians in particular?
        Answer. NHTSA's fiscal year 2004 budget addresses the action items
    in the NHTSA ``Motorcycle Safety Program'' document released in January
    2003 and the ``National Agenda for Motorcycle Safety'' developed in
    collaboration with motorcycle safety partners.
        A new fiscal year 2004 initiative will address a concern that
    motorcycle-training programs accommodate all those who seek training.
    NHTSA plans to work with identified State rider education and training
    programs to develop and implement long-range strategic plans to make
    training available for all those who need it and in a timely fashion.
    NHTSA will continue research on motorcycle lighting as a means to
    improve motorcyclist conspicuity and will continue research on
    motorcycle braking systems.
        Additionally, NHTSA will: conduct research on crash avoidance
    skills; conduct research on motorcyclists conspicuity; support projects
    to reduce impaired riding by developing and testing activities that may
    include peer-to-peer efforts, social norm models, enforcement efforts,
    and motorcycle impoundment; and collect and analyze motorcycle crash,
    injury, and fatality data and compare motorcyclists who successfully
    completed formal rider training to those who have not to determine any
    difference in crash involvement.
        Pedestrian crashes are addressed through a combination of public
    information, legislation, enforcement, engineering, and outreach
    strategies. NHTSA will: fund competitive demonstration projects
    designed to involve the law enforcement community to improve pedestrian
    safety; develop a community guide to tackle the challenges of
    implementing comprehensive pedestrian safety programs; explore the
    feasibility of developing and disseminating a school crossing guard
    curriculum; and develop community-level Safe Routes to School workshops
    to increase pedestrian safety around schools.
        NHTSA will also disseminate tools to encourage communities to
    promote safe walking. Non-traditional partners, such as smart growth
    coalitions or local government commissions, will be identified and
    encouraged to incorporate pedestrian safety into their organizations'
    missions. NHTSA will continue its partnership with the Federal Highway
    Administration to incorporate infrastructure improvements with
    behavioral safety principles.
        Question. The NHTSA budget proposes a new initiative to award
    discretionary grants to States to demonstrate the effectiveness of a
    comprehensive approach to reducing impaired driving. Could you explain
    how this program is different from the old program in terms of scope,
    distribution of dollars and more importantly, how it is an improvement
    over the old program?
        Answer. The SAFETEA proposal would make $50 million available each
    year for discretionary grants to a certain number of States with high
    rates of alcohol-related fatalities and/or high total numbers of
    alcohol-related fatalities. These discretionary grants would fund
    programmatic activities specified by NHTSA and agreed to by the
    recipient States. These activities would be of proven effectiveness,
    e.g., well-publicized and high-intensity enforcement of impaired
    driving violations. Thus, under the proposal, NHTSA would annually
    direct $50 million to States with the greatest need for improvement in
    the impaired driving arena, and would see to it that those States spend
    the money in ways most likely to succeed in moving the impaired driving
    numbers down.
        Under TEA-21, the only State grant funds, which had to be spent on
    impaired driving programs, were the Section 410 alcohol incentive grant
    funds, which totaled $40 million in fiscal year 2003. The States that
    received these funds already had good legislative and programmatic
    infrastructure for combating impaired driving, because these laws and
    programs were needed to qualify for funding. Additional funds were
    awarded to States that enacted .08 BAC laws. However, these funds could
    be spent on any highway construction or highway safety program, not
    just impaired driving.
        Additionally, of the $337 million that SAFETEA would provide in
    Section 402 basic formula and performance grants in fiscal year 2004,
    all but $25 million resulting from safety belt use rate performance
    would be available for impaired driving programs if States choose to
    allocate for that purpose. SAFETEA thus gives States great latitude in
    directing resources to address priority problems, including impaired
    driving.

                           HIGHWAY SAFETY INITIATIVES

        Question. Dr. Runge, your opening statement says that NHTSA has
    ``pledged to solve the highway safety issues confronting this Nation.''
    However, other than consolidating some grant programs and a new
    accounting of other grant programs, I see no new, innovative programs
    included in this budget or in reauthorization proposal that would
    convince me that NHTSA is on the way to solving the highway safety
    issues confronting this Nation.
        What specifically in this budget is going to make significant
    strides in improving safety?
        Answer. The Department's reauthorization proposal offers more than
    consolidation of grants. The two performance based grant programs, the
    General Performance Grant Program and the Safety Belt Performance Grant
    Program would encourage States to take actions on strengthening their
    highway safety programs and implementing laws to increase safety belts
    and to deter impaired driving. The proposal will also help States with
    high alcohol-related fatalities receive much needed support to improve
    their alcohol programs. The proposal calls for NHTSA to develop and
    facilitate a coordinated and comprehensive EMS infrastructure by
    designating NHTSA as the lead agency for EMS.
        Another component of the reauthorization proposal is to conduct a
    national motor vehicle crash causation survey. The survey will collect
    much needed, real-world crash causation data to identify and understand
    motor vehicle crash factors that are integral to developing crash-
    preventing countermeasures. The proposal will also authorize NHTSA to
    institute an International Cooperative Safety Program to exchange
    research and educational programs that are beneficial to NHTSA in
    carrying out its mandate to reduce motor vehicle injuries and
    fatalities. Further, the proposal provides incentive grants to the
    States to improve their traffic record data, which will benefit the
    local, State, and Federal transportation-related agencies in
    identifying their transportation safety problems and evaluating their
    programs and countermeasures.

                      HIGHWAY SAFETY GRANT FUNDING LEVELS

        Question. I am concerned that much of this ``increase'' in funding
    for highway safety is merely the shifting of funds from Highways to
    NHTSA. I have expressed this to the Secretary and still believe that we
    need more information to conduct a proper analysis.
        Dr. Runge, how much of NHTSA's increase is actually new money?
        Answer. NHTSA's proposed total funding for grants to States in
    fiscal year 2004 is $447 million. That is identical to the amount of
    funds provided to the States under TEA-21 in fiscal year 2003.

                                  SAFETY BELTS

        Question. With respect to seat belt usage, Dr. Runge, you have
    said, ``we have a model that works. For every 1 percent increase in
    belt use, we get $800 million in economic costs saved, 2.8 million more
    people buckling up, 276 lives saved, and reduce the severity of 6,400
    moderate to critical injuries.''
        Dr. Runge, given the clear benefits of increasing seat belt usage
    rates, why does the fiscal year 2004 budget exclude specific funding
    for ``Click It or Ticket'' Campaigns in the States when I am not aware
    of any program that has been more effective at getting people to buckle
    up?
        Answer. ``Click It or Ticket'' has indeed proven effective in
    increasing safety belt use. NHTSA intends to continue the ``Click It or
    Ticket'' mobilizations in 2004, and beyond. Early in calendar year
    2003, the Agency solicited input from the Governors Highway Safety
    Association and the highway safety offices of the fifty States, the
    District of Columbia, and Puerto Rico. Given the commitment to
    continuing the mobilizations that was expressed, NHTSA does not believe
    that it is necessary to earmark grant funds to the States for this
    purpose. Also, the Agency's intent is to focus a significant portion of
    research and development (Section 403) funds to support the two
    mobilizations through program development, technical assistance, and
    evaluation initiatives.
        Question. Is there an initiative in the budget that will work as
    well or better than the mobilizations?
        Answer. Given the proven success of conducting high visibility
    enforcement campaigns and the expressed commitment from State Highway
    Safety Offices to continue the national mobilization strategy, NHTSA
    plans ongoing support for the ``Click It or Ticket'' mobilizations.
    However, the Agency also plans to work with States on the development
    of a variation on the model that involves continuous high-visibility
    enforcement operations (24 hours a day, 7 days per week).
        Through additional incentive funds proposed in the Department's
    SAFETEA reauthorization submission, NHTSA will continue support for
    ``Click It or Ticket'' mobilizations during fiscal year 2004. At the
    same time, States that have experienced the full benefit of the ``Click
    It or Ticket'' approach will be encouraged to move toward a continuous
    high-visibility enforcement model. Several States with the highest use
    rates, including California and Washington, have had success with this
    approach.
        In 2004, States will be conducting one safety belt mobilization in
    May, an impaired driving crackdown in December, and the States will
    conduct high visibility enforcement mobilizations throughout the summer
    months.

                                IMPAIRED DRIVING

        Question. The preliminary National Highway Traffic Safety
    Administration (NHTSA) data estimates 17,970 deaths last year due to
    crashes involving alcohol--that's about 500 more than in 2001 and
    represents 42 percent of all traffic fatalities. This number is too
    high and we must take action.
        Dr. Runge, can you tell me what NHTSA is doing this year to focus
    on the problem of impaired driving and further what specifically the
    budget propose to reduce the number of impaired drivers and related
    accidents in the future?
        Answer. NHTSA's 2004 goal is to reduce alcohol-related fatalities
    to no more than 0.53 alcohol-related fatalities per 100 million vehicle
    miles traveled (VMT). To achieve the goal, NHTSA will work with States
    to develop a plan for maximizing general deterrence through high
    visibility law enforcement, while also maintaining attention to
    effective specific deterrence programs for dealing with offenders.
        NHTSA demonstration programs in both the safety belt and impaired
    driving areas have proven that highly visible enforcement, coupled with
    paid and earned media, is an extremely effective general deterrent
    strategy. Nearly all States have agreed to pursue both sustained (year-
    long) high-visibility impaired driving enforcement, as well as periodic
    enforcement crackdowns during July and December 2003. Sustained
    enforcement will continue in 2004, with States conducting high
    visibility enforcement operations according to their own schedules
    throughout the summer months and a coordinated national crackdown in
    December.
        Media directed at high-risk groups is critical to the success of
    these enforcement efforts. States and the District of Columbia have
    agreed to utilize the national ``You Drink & Drive. You Lose.'' theme,
    which reminds motorists that if they drive while impaired, they will be
    arrested. In 2003, Congress provided the agency with $12 million to
    support paid advertising to supplement State efforts during these
    periods and to evaluate the efforts.
        The Agency believes that this unprecedented level of coordinated
    national law enforcement and associated media coverage will be
    effective in creating deterrence to drinking and driving and will
    change behavior. The Agency is currently conducting an evaluation of
    the effect of paid media and sustained enforcement on impaired driving.
        To ensure longer-term progress, the Agency will also encourage
    sustained, highly visible enforcement and continue to advance the areas
    of prevention, intervention, and treatment. Long-term success will be
    dependent on people making informed choices about drinking and driving
    and getting treatment to resolve substance abuse problems.
        Question. The NHTSA budget proposes a new initiative to award
    discretionary grants to States to demonstrate the effectiveness of a
    comprehensive approach to reducing impaired driving.
        Dr. Runge, could you explain how this program is different from the
    old program in terms of scope, distribution of dollars and more
    importantly, how it is an improvement over the old program?
        Answer. The SAFETEA proposal would make $50 million available each
    year for discretionary grants to certain States with high rates of
    alcohol-related fatalities and/or high total numbers of alcohol-related
    fatalities. These discretionary grants would fund programmatic
    activities specified by NHTSA and agreed to by the recipient States.
    These activities would be of proven effectiveness, e.g., well-
    publicized and high-intensity enforcement of impaired driving
    violations. Thus, under the proposal, NHTSA would annually direct $50
    million to States with the greatest need for improvement in the
    impaired driving arena, and would ensure that those States spend the
    money in ways most likely to succeed in moving the impaired driving
    numbers down.
        Under TEA-21, the only State grant funds, which had to be spent on
    impaired driving programs were the Section 410 alcohol incentive grant
    funds, which totaled $40 million in fiscal year 2003. The States that
    received these funds already had good legislative and programmatic
    infrastructure for combating impaired driving, because these laws and
    programs were needed to qualify for funding. Additional funds were
    awarded to States that enacted .08 BAC laws. However, these funds could
    be spent on any highway construction or highway safety program, not
    just impaired driving.
        Additionally, of the $337 million that SAFETEA would provide in
    Section 402 basic formula and performance grants in fiscal year 2004,
    all but $25 million resulting from safety belt use rate performance
    would be available for impaired driving programs if States choose to
    allocate for that purpose. SAFETEA thus gives States great latitude in
    directing resources to address priority problems, including impaired
    driving.

                               CHILD SAFETY SEATS

        Question. For the past several years, the Committee has provided
    funding for child safety seat campaigns. These campaigns have been very
    successful at increasing the proper use of child safety seats while we
    developed the second generation of child safety seats, which are now
    accompanied by LATCH systems in all new passenger vehicles to allow for
    easier installation and safer car seats.
        One of the reasons this campaign has been so successful is due to
    the broad base of support coming from State and local public safety
    community, community activists, and private industry. Without this
    coalition of support it is difficult to imagine that the campaign would
    have had the effect of continued decreases in child fatalities.
        Question. Dr. Runge, is this a model that can be used in other
    areas that need improvement?
        Answer. The success of the child passenger safety campaign has
    clear and compelling implications for its utility as a model in other
    program areas. NHTSA recognizes the transferable nature of this model
    to other highway safety programs and has already taken numerous steps
    to incorporate similar strategies in ongoing and future efforts.
        In the early years of the campaign, the model focused solely on
    child occupant restraints. NHTSA and partners, such as the Air Bag &
    Seat Belt Safety Campaign (ABSBSC), were able to build on the momentum
    created in child passenger safety in particular the hazard posed to
    front seated children by airbags and transfer the effort to occupant
    protection issues for all ages. Over the years, what began as
    ``Operation ABC (America Buckles Up Children)'' evolved into an
    endeavor that included teen and adult restraint use as well. This model
    was also used as the basis for what is known now as the ``Click It or
    Ticket/Operation ABC'' campaign, which is also demonstrating
    considerable gains in safety belt use.
        The model is being refined even further in the area of Impaired
    Driving. NHTSA and partners, such as Mothers Against Drunk Driving
    (MADD), embarked on the NHTSA-led ``You Drink, You Drive. You Lose.''
    campaign in fiscal year 2003. Here again, the State and local public
    safety community, community activists, law enforcement, key advocacy
    groups, and private industry are coming together to address a public
    health concern and implement strategies to overcome this problem.

                              OCCUPANT PROTECTION

        Question. The Committee has supported NHTSA's efforts to increase
    seat belt usage among target populations whose usage rates are well
    below the national average. We know that safety belt usage among teens
    and young adults is lower than the national average.
        Dr. Runge, what is NHTSA doing to identify and reach out to these
    and other target populations?
        Answer. NHTSA is conducting a variety of focused outreach and
    demonstration programs to increase safety belt use among high-risk
    groups. One important strategy for NHTSA is continuing the long-
    standing partnerships with minority organizations to increase safety
    belt use within these communities. Examples of these partnerships
    include: The National Council of Negro Women; The National Latino
    Children's Institute; The Hispanic American Police Command Officers
    Association; The Bureau of Indian Affairs; and The National Asian
    Pacific American Families Against Substance Abuse.
        Successful outreach to the African American community was
    exemplified in a recent meeting of African American leaders cosponsored
    by Secretary Mineta and Dr. Dorothy Height, Chair of the National
    Council of Negro Women, for the purpose of reviewing the success of the
    Blue Ribbon Panel to Increase Seat Belt Use Among African Americans and
    laying out plans for next steps. The 2002 National Occupant Protection
    Usage Survey (NOPUS) showed an 8 percentage point increase in African
    American safety belt use since the Panel's findings were released in
    2000.
        In the Hispanic community, families are being educated about the
    importance of safety belt use through child passenger safety venues.
    Culturally sensitive educational materials and curricula have been
    developed, and an infrastructure of certified child passenger safety
    technicians and fitting stations will soon be implemented in Hispanic
    neighborhoods.
        In 2001, NHTSA awarded teen safe driving demonstration grants in
    Pennsylvania, Maryland, Minnesota, and Washington. This program focuses
    on common high-risk behaviors for youth 15-20 years of age, including
    lack of safety belt use, impaired driving, and speed. NHTSA also
    tailored the May 2003 ``Click It or Ticket/Operation ABC'' mobilization
    to teens, reaching out to high schools around the Nation to encourage
    students to buckle up. NHTSA is also: conducting research into the
    effectiveness of Graduated Driver's Licensing in reducing teen injuries
    and fatalities in motor vehicle crashes; researching innovative and
    model programs to increase teen safety belt use; and conducting focus
    groups to develop effective messaging and strategies to reach teens.
        Question. How are the programs being received in these communities?
        Answer. Preliminary results from the four Teen Safe Driving
    Demonstration Programs administered by NHTSA suggest that the
    strategies implemented are well received and hold promise to increase
    the awareness of young people about high risk driving behaviors and
    increase safety belt use.
        For example, in the Spokane, Washington, Teen Safe Driving
    initiative, law enforcement officers visit high schools and conduct
    ``Room to Live'' presentations on risky driving behavior for teens--
    speeding, lack of safety belt use, and impaired driving. Results from
    the 500 students that evaluated this portion of the program include: 97
    percent of students thought the program was effective; 98 percent of
    the students thought other students would benefit from the program; 91
    percent of the students felt that safety belts were more important to
    them after the presentation; and there was a 29 percent increase in the
    number of students who said they would wear their safety belt all the
    time.
        Preparing communities for interventions to increase safety belt use
    through education and direct involvement in the planning and
    implementation of programs is key to building consensus and positive
    reception by the community. In the teen demonstration grants awarded by
    NHTSA in 2001, letters were sent to families, schools were notified,
    press events were held, and young people were (and are) directly
    involved in the development and implementation of the program. This has
    resulted in support for the program goals, strong partnerships, and
    successful collaboration. In fact, the cities involved in the Minnesota
    Teen Safe Driving Initiative jointly won the League of Minnesota Cities
    Achievement Award in Public Safety for their initiative.
        Successful strategies identified in these demonstration grants, as
    well as findings from current research by NHTSA to identify effective
    and promising strategies to reach teens, will be documented and
    promoted as effective strategies for use by other States.
        Question. If 75 percent of rollovers are unbelted, is it possible
    to focus on occupants who are at greater risk of being in a rollover
    accident as a target population?
        Answer. NHTSA believes that it is possible to focus safety belt
    program efforts on drivers of vehicles that are more likely than others
    to be involved in rollover crashes. In fiscal year 2001 and 2002, the
    Agency awarded two demonstration projects to test strategies for
    increasing belt use in sport utility vehicles (SUV) and pickup trucks.
    Early results from these demonstrations appear encouraging. Occupants
    of these vehicles are over-represented in rollover crashes. Preliminary
    results from the Virginia and Colorado demonstration sites highlight
    the benefit of these projects. Virginia's ``Buckle Up Now''
    demonstration project, which focused on the southern counties of the
    State, saw safety belt usage increase from 61 to 77 percent following
    introduction of the campaign.
        The pickup truck demonstration projects in Florida and South Dakota
    made significant strides in increasing safety belt usage among pickup
    truck occupants. Florida reported a 16-percentage point increase--from
    33 to 49 percent. Best practices guides based on findings from these
    projects will be published in fiscal year 2004.

                                 SHARE THE ROAD

        Question. How do NHTSA and FMCSA coordinate with regard to the
    ``Share the Road'' education program, and how do you believe that
    program can be made more effective?
        Answer. As directed by TEA-21, NHTSA provided FMCSA with funding to
    support the ``Share the Road'' program. This program is executed by
    FMCSA. With the transfer of funds, FMCSA provides NHTSA with an
    overview of program activities. FMCSA also coordinates program
    activities through the Share the Road Coalition and intermittent
    notification of issues as they arise during the fiscal year.
        Recently, GAO completed a report on the effectiveness of the
    ``Share the Road'' program and how to improve the program delivery. GAO
    provided recommendations on improving the effectiveness of the ``Share
    the Road'' program. The DOT agrees with the GAO's recommendations.
                                     ______

                  Questions Submitted by Senator Patty Murray

        Question. Dr. Runge, when the Federal Government has tried to get
    the States to enact meaningful safety laws, it has taken two
    approaches. In some instances, like the Minimum Drinking Age Act and
    the 0.08 law, we have withheld highway construction funds from States
    that don't pass the law. In other instances, we have provided incentive
    payments to get the States to make safety improvements. The record is
    clear, when we sanction highway construction funds, all the States
    eventually comply. When we provide incentive payments, the record is
    quite mixed. NHTSA's own data show that seat belt use increases as much
    as 15 percent in States that have primary seat belt laws on the books.
    Currently, 18 States and the District of Columbia have primary seat
    belt laws in effect, including my own State of Washington. Yet, your
    2004 budget request includes $100 million for a new primary belt
    incentive grant program. This program is designed to encourage the
    remaining 32 States to pass a primary seat belt law.
        Why did NHTSA choose to create an incentive grant program rather
    than a penalty program to get States to enact primary seat belt laws?
    Given the lives that can be saved as a result of these laws, doesn't
    this safety requirement call out for universal compliance?
        Answer. NHTSA believes incentives have a greater opportunity to be
    effective because the fiscal landscape has changed. Many States are
    facing huge fiscal challenges. NHTSA dialog with State legislative and
    executive offices during last year has indicated their desire to keep
    incentive programs in the reauthorization. The Agency believes that the
    proposed incentive for enacting a primary safety law--five times the
    State's fiscal year 2003 allocation for Section 402--is significant
    enough to create impetus for law changes in States that are searching
    for financial help in almost every program.
        Question. What specific examples can you provide us to demonstrate
    that States are more likely to pass safety legislation when the Federal
    Government provides incentive funding?
        Answer. The Section 410 Alcohol-Impaired Driving Countermeasures
    Grant program was amended by the Intermodal Surface Transportation
    Equity Act (ISTEA) to provide financial incentives to States for the
    development of improved laws and programs to deal with impaired
    driving. Many States actively pursued enacting new or improved laws to
    reduce drinking and driving, such as administrative license revocation
    (ALR), .02 BAC laws for under age 21 drivers, and .08 BAC laws. During
    the ISTEA authorization (1991-1997):
      --Eight States enacted .08 BAC laws.
      --Thirty-four States plus enacted .02 BAC laws for drivers under age
            21 (25 enacted before the passage of the NHS sanction provision
            in 11/95).
      --Ten States enacted ALR laws.
        ISTEA also established an innovative occupant protection law
    incentive grant phase of Section 153, which authorized 3 years of
    incentive grants, beginning fiscal year 1992, for States with both a
    safety belt and a motorcycle helmet use law.
      --Ten States took legislative action to enact a conforming safety
            belt or motorcycle helmet law during the incentive phase
            (fiscal year 1992-fiscal year 1994).
      --Seven States adopted new safety belt laws: Nebraska, North Dakota,
            West Virginia, Vermont, Massachusetts, South Dakota, and
            Kentucky.
      --Two States, Ohio and Connecticut, amended their existing safety
            belt use laws to remove unacceptable air bag exemptions.
      --For the seven States which enacted new safety belt laws and the one
            State which enacted a motorcycle helmet law during the Section
            153 incentive phase, increased belt and helmet use rates
            following the enactment of these laws resulted in a combined
            savings of about 140 lives, 2,400 moderate to serious injuries,
            and nearly $220 million.
      --Twenty-five of 27 eligible jurisdictions chose to participate in
            the grant program. Thirty-six million dollars in grants
            leveraged $52 million dollars in matching funds to increase
            safety programs and compliance with occupant protection and
            motorcycle helmet laws.
        NHTSA believes significant incentives will work again because the
    fiscal landscape has changed dramatically in the past 2 years. Many
    States are facing huge fiscal challenges. The dialog between NHTSA and
    State legislative and executive offices in the past year has been
    increasingly about incentives remaining in the current authorization. A
    fivefold Section 402 amount incentive for passing a primary safety law
    is significant enough, NHTSA believes, to create law changes in States
    that are searching for economies in every program.

                         MOTORCYCLE FATALITY INCREASES

        Question. Dr. Runge, motorcycle deaths have gone up every year
    since 1997 and the deaths of older cyclists have been rising for an
    even longer period of time. The early estimates for 2002 indicate that
    the overall number of motorcycle fatalities increased by 3 percent over
    2001. And while the number of fatalities for younger riders decreased,
    for riders over the age of 50, there was an astounding 24 percent jump
    in the number of motorcyclists killed.
        To what do you attribute the increase in the number of motorcycle
    fatalities and why has there been a spike in the number of older rider
    fatalities?
        Answer. Three major changes have occurred to impact the motorcycle
    crash problem: the number of registered motorcycles has increased, the
    average age of riders has increased, and motorcycle helmet usage has
    decreased.
        Motorcycle sales have increased for 10 consecutive years, resulting
    in more motorcycles on the highways, thereby increasing exposure. Many
    of these motorcycles have larger engine displacement.
        The average age of a motorcycle operator in 1998 was 38.1 years
    compared to 33.1 years in 1990, 28.5 years in 1985, and 26.9 years in
    1980. Motorcycle ownership by age illustrates that more individuals
    over the age of 50 are purchasing motorcycles. Ownership for those age
    50 years and over in 1998 was 19.1 percent compared to 10.1 percent in
    1990, 8.1 percent in 1985, and 5.7 percent in 1980 (Motorcycle Industry
    Council data).
        According to the National Occupant Protection Use Survey,
    motorcycle helmet use has decreased from 71 percent in 2000 to 58
    percent in 2002. Reduced helmet use, impaired riding, especially riders
    with high blood alcohol concentrations, and speeding are risk factors
    that have affected the number of motorcyclists killed in traffic
    crashes.
        Question. In last year's bill, we provided additional funding for
    training and crash avoidance skills. How have you put these funds to
    use?
        Answer. In fiscal year 2003, the Committee increased the motorcycle
    program budget by $300,000 with the instruction that these additional
    funds be used to improve crash avoidance skills and motorcyclist
    conspicuity.
        To improve crash avoidance skills, NHTSA is entering into a
    cooperative agreement with the Motorcycle Safety Foundation to ensure
    that the appropriate crash avoidance skills are incorporated into
    revised curricula and are updated as needed. Motorcyclist training will
    reflect these changes as appropriate.
        To improve motorcyclist conspicuity, NHTSA is planning research to
    determine if daytime running lamps on passenger cars affect the
    motorcycle visibility in the traffic mix. Additionally, NHTSA will
    conduct research to determine if modulating headlamps on motorcycles
    increases the visibility and recognition of a motorcycle in the traffic
    mix.

                        NHTSA'S PAID ADVERTISING PROGRAM

        Question. Dr. Runge, over the last few years, this subcommittee
    provided funding for paid media to support the highly successful
    ``Click It or Ticket'' program. In fact, the national ads for this
    program have been running this month during the seat belt mobilization
    campaign. This year, we expanded the program to include national media
    for the drunk driving mobilizations that will occur in July and
    December.
        Dr. Runge and Mr. Hurley, what kind of feedback have you been
    getting about the ``Click It or Ticket'' ads?
        Answer. It is clear the ad campaign was successful. Anecdotal
    feedback relating to the frequency of the ads and recall of the
    campaign message by the public was extremely positive. Further,
    preliminary research indicates that the campaign moved all key
    indicators among the core audience of adult drivers and, more
    importantly, those most at risk, males age 18-34.
        Among all drivers surveyed, recall of the special effort by police
    to ticket drivers for safety belt violations increased from 47 percent
    in the pre-media survey to 75 percent on May 29, when post-campaign
    surveys were conducted. Among males age 18-34, recall of the
    enforcement campaign increased from 49 percent prior to the campaign to
    78 percent after the campaign. This level of recall is significantly
    higher than after the 2002 campaign. A majority (50 percent) of drivers
    said police in their community were doing more to enforce their State's
    safety belt laws over the past 4 to 6 weeks. This is up from 32 percent
    prior to the campaign. Forty-six percent of men age 18-34 said police
    in their community were doing more to enforce their State's safety belt
    laws over the past 4 to 6 weeks. This is up from 33 percent among this
    audience prior to the enforcement effort.
        Among all drivers, the percentage of those saying they would be
    likely to receive a ticket if they did not wear their safety belt
    increased from 56 percent prior to the campaign to 62 percent after the
    campaign. This is the highest percentage of drivers who perceived
    themselves as likely to receive a ticket we have reached in the history
    of this campaign.
        Twenty-nine percent of drivers correctly identified, without being
    prompted, ``Click it or Ticket'' as the name of the special effort by
    police to ticket drivers for safety belt violations. Forty-two percent
    of men age 18-34 correctly identified, without being prompted, ``Click
    it or Ticket'' as the name of the special enforcement effort.
        Question. Dr. Runge, given the demonstrated effectiveness of this
    program, why didn't your 2004 budget proposal include funding for paid
    media to continue these campaigns?
        Answer. NHTSA intends to continue the ``Click It or Ticket'' and
    ``You Drink & Drive. You Lose.'' mobilizations in 2004, and beyond.
    Early in calendar year 2003, the Agency solicited input from the
    Governors Highway Safety Association and the highway safety offices of
    the 50 States, the District of Columbia and Puerto Rico to gauge their
    support continuing the paid media initiative. Given the solid
    commitment to continuing the mobilizations that was expressed, NHTSA
    does not believe that it is necessary to earmark grant funds to the
    States for this purpose. States can use their existing grant funds to
    support these efforts.
        Question. This will be the first year that national media will be
    used for the drunk driving mobilization efforts in July and December.
        Dr. Runge, can you assure us that NHTSA is putting the same level
    of effort into the media campaign for the drunk driving mobilizations
    as you did with the seat belt mobilizations? Can we expect the
    Department to have a national kick-off for the drunk driving media
    campaign similar to what was held at the National Press Club a few
    weeks ago for the seat belt mobilizations?
        Answer. In fiscal year 2003 Congress provided an additional $11
    million appropriation to NHTSA to support paid advertising for the
    ``You Drink & Drive. You Lose.'' crackdown. With this additional
    funding, the Agency produced an advertisement, focusing on high
    visibility enforcement, which will be aired nationally June 20 through
    July 13. In addition, the Agency has purchased advertising time in 13
    States that have either high alcohol-related fatality numbers or rates
    to saturate their media markets during the same time. The Department
    conducted a national press event on June 19 to raise awareness of the
    motoring public that the ``You Drink & Drive. You Lose.'' national
    crackdown will take place over three weekends surrounding the July 4th
    holiday. At that event, NHTSA unveiled the national advertisement
    reinforcing the message that law enforcement will be out in force
    looking for impaired drivers. In addition to Departmental
    representatives, potential speakers for the event include members of
    the law enforcement community, Mothers Against Drunk Driving, and an
    offender in the high-risk age group (e.g., ages 21-34) who has served
    jail time for impaired driving. To drive this message home, the
    location for the press event will likely be a booking facility at a
    local police department.

                     INCREASE OF ALCOHOL-RELATED FATALITIES

        Question. Alcohol-related fatalities increased for the third year
    in a row to nearly 18,000 deaths in 2002--and this is just the early
    estimate. Last year, Senator Shelby and I fought to increase the
    funding for the NHTSA's impaired driving program in NHTSA's Operations
    and Research account. We were successful in providing a 36 percent
    increase over the President's 2003 request. I was disappointed that
    your 2004 budget request cut the funding for NHTSA's impaired driving
    program by 25 percent.
        Dr. Runge, I'll ask the same question that I asked you last year,
    why did you decide to cut the funding for your impaired driving program
    at a time when alcohol-related fatalities are increasing?
        Answer. The funding request for fiscal year 2004 has not decreased
    and remains essentially level compared with the Agency's fiscal year
    2003 request. NHTSA's fiscal year 2004 impaired driving program will
    continue to focus on highly sustained and periodic law enforcement
    campaigns, together with implementing improvements to the prosecution,
    adjudication, and records systems. For fiscal year 2004, the Agency has
    proposed a State grant program that will focus resources on a number of
    high risk States with high alcohol-related crashes. Targeted use of
    resources to sustain high visibility enforcement and encouragement of
    States to adopt proven remedies should revive the downward trend in
    alcohol-related fatalities that the Nation experienced over the last
    decade.
        Question. NHTSA also administers grant programs to the States for
    various alcohol-impaired driving countermeasures through the Section
    402 State and Community Formula Grant program. A few weeks ago,
    Secretary Mineta testified before this subcommittee and stated that the
    2004 request includes $148 million for impaired driving programs and
    that the funds will be used to increase the number of highly visible
    sobriety checkpoints and other State highway patrol programs. In
    reviewing your 2004 budget, it appears that only $50 million is
    specifically targeted for State grants on impaired driving initiatives.
        Would you outline for us how much funding is specifically directed
    toward impaired driving programs? For example, how much money will be
    spent on high visibility enforcement efforts?
        Answer. The SAFETEA proposal would direct $50 million each year to
    initiatives to curb impaired driving through discretionary grants to a
    limited number of States with high rates of alcohol-related fatalities
    or high total numbers of alcohol-related fatalities. The discretionary
    grants would fund programmatic activities specified by NHTSA and agreed
    to by the recipient States. These activities would be of proven
    effectiveness, e.g., well-publicized and high-intensity enforcement of
    impaired driving violations. Additionally, of the $337 million that
    SAFETEA would provide in Section 402 basic formula and performance
    grants in fiscal year 2004, all but the $25 million resulting from
    safety belt use rate performance would be available for impaired
    driving. SAFETEA thus gives all States greater latitude in directing
    resources to address priority problems, including high visibility
    impaired driving enforcement efforts.

                   NHTSA'S OVERSIGHT OF STATE SAFETY PROGRAMS

        Question. Dr. Runge, the second word in the administration's
    SAFETEA proposal stands for ``accountable.'' Yet, the recent report
    released by the General Accounting Office draws the conclusion that
    NHTSA has been inconsistent in holding the States accountable for their
    highway safety programs. The GAO reported that NHTSA's use of
    management reviews varied from region to region and that the regional
    offices have made limited and inconsistent use of improvement plans.
    While some States may do a good job at meeting their safety objectives,
    it is clear that others may benefit from greater input and guidance
    from NHTSA.
        How specifically does your SAFETEA proposal improve the
    accountability of State highway safety programs? Does any part of your
    SAFETEA proposal withhold Federal funding from States that fail to meet
    stated safety goals?
        Answer. The SAFETEA proposal would improve the accountability of
    State highway safety programs because it would allocate the majority of
    funds to States based on specific measures of their performance in
    achieving safety improvements and improved outcomes. In fiscal year
    2004, $100 million would go to States that succeeded in enacting
    primary safety belt laws, or that achieved belt use rates of 90 percent
    or higher. Another $50 million would be distributed only to States that
    succeeded in achieving low or improved rates of total motor vehicle
    fatalities, alcohol-related fatalities, and/or motorcyclist,
    pedestrian, and bicyclist fatalities. Another $25 million would go only
    to States that achieved high or improved safety belt use rates. Fifty
    million dollars would be distributed to a limited number of States that
    agree to conduct assessments of their programs and carry out impaired
    driving programs that include specified performance elements. Beginning
    in fiscal year 2005, States that fail to enact primary safety belt laws
    or achieve 90 percent safety belt use without such a law would transfer
    10 percent of their highway safety improvement program funds to their
    Section 402 highway safety program.

                                CRASH CAUSATION

        Question. NHTSA's 2004 budget includes the first $10 million
    installment of your $60 million proposal to update the 30-year-old Tri-
    Level Study on motor vehicle crash causation. The motor vehicle crash
    causation study is expected to commence at the completion of the truck
    crash causation study that has been funded through the Federal Motor
    Carrier Safety Administration but conducted by NHTSA over the last 3
    years. The 2003 Conference Report directed NHTSA to have the CDC's
    National Center for Injury Prevention and Control evaluate the adequacy
    of the crash causation research design.
        Dr. Runge, given that the motor vehicle crash causation study is
    expected to use the same methodology as the truck crash causation
    study, would it make sense to see the results of the CDC evaluation
    before moving ahead with the motor vehicle crash causation study?
        Answer. The Large Truck Crash Causation Study (LTCCS) design and
    implementation was thoroughly reviewed by a knowledgeable
    Transportation Research Board (TRB) committee. Most of the TRB
    recommendations were incorporated into the LTCCS study. Those that are
    applicable to the upcoming National Motor Vehicle Crash Causation
    Survey (NMVCCS) will be included in its design. In response to the
    specific direction in the 2003 Conference Report, the National Highway
    Traffic Safety Administration (NHTSA) has prepared a written
    description of the Large Truck Crash Causation Study sample design. It
    details the sampling process, as well as providing a description of the
    practical application of this design into field operations. This report
    is being provided to CDC for review. The results of the CDC evaluation
    will be taken into consideration.

                  NHTSA'S ``CHECKPOINT STRIKEFORCE'' CAMPAIGN

        Question. Dr. Runge, last June, your agency launched a sobriety
    checkpoint blitz called ``Checkpoint Strikeforce'' which was the first
    border-through-border law enforcement effort to deter drunk driving in
    the mid-Atlantic region. The program, which utilized sobriety
    checkpoints, law enforcement saturation patrols and public awareness
    campaigns, began just before the Fourth of July and ended in January
    this year.
        What can you tell us about the results of ``Checkpoint
    Strikeforce'' to date?
        Answer. The first phase of NHTSA Region III's ``Checkpoint
    Strikeforce'' program ran from July 4, 2002, through January 4, 2003.
    The five States (Delaware, Maryland, Pennsylvania, Virginia, West
    Virginia) and the District of Columbia collectively conducted 720
    sobriety checkpoints at which they contacted over 406,000 motorists and
    made 1,775 arrests for driving while under the influence (DWI) of
    alcohol. Overall, more than 3,000 enforcement actions (e.g., citations,
    arrests) were taken, including 77 arrests for felony charges.
        Analysis of public attitude and awareness survey data is
    continuing. In Virginia, for example, it is estimated that the
    ``Checkpoint Strikeforce'' message reached more than 2 million viewers
    through television news stories, and 4 million print impressions were
    made through newspapers and other print media. Surveys showed that 71
    percent of Virginians ``strongly support'' checkpoints and 82 percent
    believe checkpoints are a ``useful tool in keeping drunk drivers off
    the road.''
        The ultimate objective of ``Checkpoint Strikeforce'' is to deter
    impaired driving and reduce crashes, injuries, and fatalities. Analysis
    of crash and fatality data is incomplete. However, preliminary results
    suggest that alcohol-related fatalities are down in four of the six
    States, compared to the comparable period the year before.
        Question. Are you planning a similar effort in any other region?
        Answer. A similar effort is underway across the Nation, with every
    State, the District of Columbia, and Puerto Rico participating to some
    degree. The Campaign is called ``You Drink & Drive. You Lose.''
    although some States use different terminology to describe the program
    of sustained impaired driving enforcement, punctuated by periodic high-
    intensity crackdowns with heavy publicity. For example, Illinois and
    Washington call their Campaigns ``Drive Hammered, Get Nailed.'' The
    sustained enforcement component of the Campaign is patterned on
    ``Checkpoint Strikeforce'', but with a higher degree of intensity. In
    addition, ``You Drink & Drive. You Lose.'' also relies on the State
    highway safety offices to coordinate the schedule of the agencies'
    special operations so that there is a public perception that the
    stepped up enforcement occurs continually. Although all States have
    numerous law enforcement agencies participating, NHTSA's attention in
    2003 is focused on 13 Strategic Evaluation States (Alaska, Arizona,
    California, Florida, Georgia, Louisiana, Mississippi, Montana, New
    Mexico, Ohio, Pennsylvania, Texas, and West Virginia) that have high
    rates and/or numbers of alcohol-related fatalities. A nationwide
    advertising campaign is being enhanced in those 13 States with
    statewide television and radio advertisements, and their enforcement,
    public awareness and crash data are being monitored to assess the
    program's effectiveness.

             COORDINATED GOVERNMENTAL EFFORT TO FIGHT DRUNK DRIVING

        Question. Dr. Runge, roughly one-third of all drivers arrested or
    convicted for DUIs or DWIs were repeat offenders. These individuals are
    over-represented in fatal crashes and less likely to be influenced by
    education or legal sanctions. Given that these hard-core drinkers are
    probably the toughest individuals to reach, it seems that there ought
    to be a coordinated governmental effort to reach them. Last year, we
    directed NHTSA to work with the Attorney General's office to identify
    the best strategies to reduce plea bargaining and to make sure that
    impaired driving convictions are applied in a consistent manner. Beyond
    that, I think it is important that we look at the public health aspects
    of this problem to make sure that people are getting the treatment that
    they need. I know that you spoke to the National Institute on Alcohol
    Abuse and Alcoholism in February about how your two agencies might work
    together on this very challenging problem.
        What can you tell us about NHTSA's collaboration with the
    Department of Justice and the Department of Health and Human Services
    on drunk driving initiatives?
        Answer. NHTSA collaborates regularly with both the Department of
    Justice and the Department of Health and Human Services on initiatives
    that can reduce impaired driving.
        At the Department of Justice, NHTSA works closely with the Office
    of Juvenile Justice and Delinquency Prevention (OJJDP) and the Bureau
    of Justice Assistance (BJA) to support and expand the use of youth
    courts and impaired driving courts throughout the country. In addition,
    representatives of the Department of Justice participated in NHTSA's
    2002 Criminal Justice Summit and agreed to support its recommendations.
        At the Department of Health and Human Services, NHTSA works closely
    with a number of agencies, including the Substance Abuse and Mental
    Health Services Administration (SAMHSA), National Institute on Alcohol
    Abuse and Alcoholism (NIAAA), the Centers for Disease Control and
    Prevention (CDC), and the Office of the Surgeon General, regarding a
    range of programs that focus primarily on prevention, intervention, and
    treatment. In addition, this spring, NHTSA, SAMHSA, and NIAAA co-
    sponsored a meeting of experts in alcohol research and the criminal
    justice system, to consider viable treatment options.
         top priorities for nhtsa and fmcsa's safety regulatory agenda
        Question. Ms. Sandberg and Dr. Runge, Americans all across the
    country rely on your two agencies to establish strong safety
    regulations to ensure that our trucks and cars are safe and that their
    drivers operate their vehicles in a safe and sober manner.
        What are your top three priorities for safety rules in the coming
    year that you think will achieve the most for highway safety?
        Answer. NHTSA's top three priorities for safety rules for fiscal
    year 2004 are:
        Upgrade Side Impact Requirements for Light Vehicles.--NHTSA is
    engaged in extensive research and rulemaking activities for an upgrade
    of FMVSS No. 214, Side Impact Protection. Side crashes killed 9,048
    light vehicle occupants and injured 773,000 in 2001. This upgrade will
    address new safety issues arising out of the significant changes in the
    U.S. side crash environment in recent years due to the increase in
    light trucks, vans, and multipurpose passenger vehicles and is a first
    step in addressing compatibility, one of the Administrator's
    priorities. Most importantly, the upgrade adds a vehicle-to-pole impact
    test simulating real world side crashes to rigid narrow objects.
        Improved Rear Impact Occupant Protection.--NHTSA estimates that
    each year 272,088 occupants of vehicles struck in the rear by another
    vehicle receive whiplash injuries. Although whiplash injuries may be of
    a relatively minor in severity, they entail large societal costs,
    estimated at $1.76 billion for rear impact whiplash. To reduce the
    frequency and severity of injuries in rear-end and other collisions,
    the Agency is developing rulemaking actions to upgrade its head
    restraint and seating system standards. It is important to protect
    occupants in the rear seats from those in the front seats without
    increasing the injury risk to those in the front. NHTSA believes that
    with adequate head restraints and energy management, both goals can be
    met. In the near term, a final rule on FMVSS No. 202, Head Restraints
    and Notice of Proposed Rulemaking on FMVSS No. 207, Seating Systems
    will be published.
        Rollover Protection.--Approximately 275,000 light vehicles are
    involved in rollover crashes each year. Rollover crashes are especially
    lethal; although they comprise only 4 percent of crashes, they account
    for almost one-third of light vehicle occupant fatalities and more than
    60 percent of SUV fatalities. Rollover crashes cause approximately
    10,000 fatalities and 27,000 serious injuries each year. Based on
    testing and analysis, NHTSA is preparing a final notice to announce
    dynamic rollover ratings to include in the NCAP rollover consumer
    information program. In addition, the Agency plans to publish a notice
    in fiscal year 2004 to upgrade FMVSS No. 216, Roof Crush Resistance.
    nhtsa efforts to improve suv safety/reducing rollovers and aggressivity
        Question. Dr. Runge, in February, you testified before the Commerce
    Committee on your agency's efforts to improve the safety of Sport
    Utility Vehicles. Your testimony pointed out that the rate of rollover
    fatalities for SUVs is almost three times the rate of passenger cars
    and rollover crashes represent 32 percent of passenger vehicle occupant
    fatalities.
        The TREAD Act required NHTSA to develop a dynamic rollover test by
    November, 2002 but this deadline has not been met. When precisely will
    this final rule be completed?
        Answer. The Notice of Proposed Rulemaking for NCAP Rollover
    Resistance Ratings using both Static Stability Factor and dynamic
    maneuver tests in accordance with the TREAD Act was published October
    7, 2002. We expect to publish this Final Rule in the late summer of
    2003.
        Question. There is also the issue of the aggressivity of SUVs--when
    an SUV crashes with a passenger car, there are 16 driver fatalities in
    a passenger car for every one driver fatality in the SUV. You assigned
    an Integrated Project Team to evaluate aggressivity and incompatibility
    in multi-vehicle crashes.
        What is your timetable for developing rules to improve the safety
    features of the passenger car and to reduce the aggressiveness of
    larger vehicles such as SUVs?
        Answer. NHTSA's plans to improve passenger car safety and reduce
    the aggressiveness of larger vehicles are described in the
    Compatibility Integrated Project Team report that has been placed in
    Docket NHTSA-2003-14623. The initiative to improve passenger car safety
    is focused on side impact protection. A proposal to upgrade Federal
    motor vehicle safety standard No. 214, ``Side impact protection,'' is
    now being developed, with an expected publication in late calendar year
    2003.
        Rulemaking to reduce the aggressiveness (i.e., improve vehicle
    compatibility) of larger vehicles will not be initiated until some
    near-term research is completed. Although analyses and studies
    conducted to date have retrospectively demonstrated several vehicle
    characteristics that appear to have considerable promise for
    establishing compatibility requirements, the Agency has yet to
    demonstrate that any of these characteristics can prospectively be
    measured in a vehicle crash test and the level of compatibility be
    quantified. A comprehensive crash test program is being pursued in an
    effort to determine whether vehicles of comparable mass, but with
    considerably differing aggressiveness characteristics, produce
    quantifiable differences for occupants of the struck vehicle. If
    differences can be quantified, NHTSA will seek to identify
    countermeasures for potential establishment of compatibility
    requirements. The Agency expects to complete this testing and analysis
    in about a year, and then make a determination on whether to initiate a
    rulemaking effort.
        Question. Have you considered using the New Car Assessment Program
    to determine how well passenger cars fare when struck by a larger
    vehicle?
        Answer. Yes. NHTSA is pursuing this as part of the vehicle
    compatibility effort, which includes assessment of a number of proposed
    crash test barriers. When NHTSA is able to develop metrics and
    requirements that reflect the compatibility of a particular vehicle,
    the Agency will then investigate whether or not testing with these
    alternative crash barriers would provide useful consumer information,
    and if so, how to best convey that information to the public so that
    they can utilize it in their purchasing decisions.

              STEPS NHTSA IS TAKING TO IMPROVE VEHICLE BLIND SPOTS

        Question. Dr. Runge, the April issue of Consumer Reports includes a
    dramatic chart showing the blind spots in four different vehicle
    categories, from passenger sedans to minivans, SUVs and pickup trucks.
    The blind spots are far larger than many motorists believe, putting
    especially smaller kids in the greatest danger. Indeed, a 51" woman
    driving a Chevrolet Avalanche has a 50 foot blind spot in back of her.
    Even a 59" man has a 30 foot blind spot in the Avalanche. It is
    estimated that as many as 58 children were killed last year because
    they were rolled over by a vehicle that was backing up and unaware that
    they were there.
        What kind of data does NHTSA have on these types of non-crash, non-
    traffic incidents that many times have grave safety implications? If
    your agency doesn't collect this data, why not?
        Answer. About 2 years ago, NHTSA began efforts to gather data
    relating to non-traffic, non-crash vehicle safety hazards--a process
    that, for a variety of reasons, can be difficult. Following the
    successful completion of a pilot study of 1997 death certificates, a
    more broad based program was instituted to review 1998 death
    certificates, as well as other data and information sources such as
    academic research, various health-related databases, and news sources.
    By the end of this summer, NHTSA expects to publish a comprehensive
    interim report on its non-traffic, non-crash research efforts,
    including those focusing on deaths and injuries resulting from vehicles
    backing up. NHTSA has reviewed about 60 percent of the 1998 death
    certificates it has received. The Agency has identified 49 vehicle-
    backing deaths in those death certificates. Of the 49 deaths
    identified, 23 of the victims were 4 years old or younger, and 22 were
    60 years old or older, with 19 of these older than 70. However, it
    should be noted that the death certificate data does not indicate
    whether there was a ``blind spot'' on the striking vehicle.
        Question. What, if any, kind of testing has NHTSA done on backup
    warning devices already on the market to determine which work best in
    detecting a small child, for example, in the vehicle's blind spot?
        Answer. In 1994, NHTSA published a report evaluating electronic
    rear object detection systems for large trucks. The results of the
    testing indicated that the devices have difficulty consistently
    detecting many critical objects. They had a limited area of coverage,
    which helps to reduce irrelevant warnings, but as a result, their
    ability to detect moving pedestrians may be limited. Although NHTSA has
    not performed any recent testing, the technologies currently in use for
    passenger vehicles would be expected to have some of the same
    limitations as those studied previously. Although NHTSA is aware that a
    number of manufacturers offer some type of electronic backing aid, they
    characterize these technologies as parking aids and not as collision
    warning or pedestrian warning devices, in part, due to the current
    limitations of the technology. Such limitations include the likelihood
    that these devices could produce many false alarms to non-threatening
    objects. False alarms are likely to reduce the effectiveness of the
    warning by making drivers less responsive when there is a real
    collision threat.

                    BLUE RIBBON COMMISSION ON HIGHWAY SAFETY

        Question. The administration's SAFETEA proposal includes a total of
    $7 million over 6 years for a National Blue Ribbon Commission on
    Highway Safety. The purpose of this safety commission is to study the
    Nation's highway safety needs and to make recommendations on how to
    reduce highway fatalities. The final report of the Commission would be
    delivered as late as February 1, 2009.
        I'd like the entire panel to answer this question. Given what we
    know about the benefits of seat belts, tough drunk driving laws, and
    strong vehicle safety standards, why do we need 6 years and $7 million
    to study a problem to which we already know the solutions?
        Answer. The focus of the Commission would be more than studying
    individual solutions to highway safety problems. The intent of this
    initiative is to have a shared effort by the administration, Congress,
    and the public to raise the level of concern regarding highway safety
    to the forefront of the public health issues. The level of discussion
    and awareness such as a Commission would engender, has yet to be
    generated, even in response to the fact that almost 43,000 Americans
    are killed each year on our highways. The Agency believes that it is
    appropriate that innovative policies and organizational perspectives be
    taken, resulting in a higher level of awareness and commitment to
    provide appropriate resources to implement the needed strategies.
        Question. Isn't this Commission just an excuse to put off
    meaningful action on the safety remedies that we already know work?
        Answer. Reducing the number of highway-related fatalities is a
    continuing challenge. The Agency does not intend to put off meaningful
    action on proven safety remedies. The proposed doubling of funds for
    highway safety in SAFETEA indicates a significant investment to
    implement the proven safety remedies. However, the Agency believes that
    it should move forward to develop new strategies to address issues of
    hardcore drunk-drivers and non-users of safety belts and motorcycle
    helmets. The Commission would provide a unique opportunity to involve
    all interested parties, including Federal, State, and local agencies,
    and other public and private sectors, to discuss the possible solutions
    and strategies to such issues.
                                     ______

     Questions Submitted to the Federal Motor Carrier Safety Administration
                Questions Submitted by Senator Richard C. Shelby

        Question. The Motor Carrier budget proposes $9 million to implement
    a Northern Border Truck Safety Grant program for HAZMAT inspections.
    However, the budget states that an emphasis will be placed on
    conducting additional roadside inspections at or near the more remote
    border crossing locations. Could you explain how exactly the Northern
    Border Truck Safety Grant program will be implemented and what kinds of
    inspections will be conducted? Additionally, what is the long-term goal
    of this new program?
        Answer. FMCSA intends to develop a formula-based allocation with a
    small discretionary set-aside modeled after the Motor Carrier Safety
    Assistance Program (MCSAP). FMCSA has many years of experience working
    with the southwest Border States in targeting the border enforcement
    funds to maximize effectiveness and efficiency in meeting the mandates
    of Congress and the administration. The variety of situations in the
    Border States, the unique issues with their cross-border partners, the
    characteristics of the ports of entry, types of cargo being transported
    and inspection regimes, have provided us with the knowledge and
    experience to effectively allocate the majority of the border
    enforcement funds on a formula basis. The formula will be developed
    through rulemaking.
        If authorized, we would continue to distribute the funds according
    to the priorities and criteria established and published in the Code of
    Federal Regulations. The amounts available would be based on documented
    needs, the unique circumstances, and information provided within the
    individual State's funding request. The FMCSA and States have worked
    cooperatively to meet Congressional mandates and optimize the level of
    enforcement and compliance activities conducted with the limited funds
    available for border enforcement programs. To date, all of the States
    that have applied for funding have been allocated part of the available
    funds.
        We anticipate the States will request funds for additional
    inspection activities, primarily on commercial motor vehicles
    transporting hazardous materials, and to develop communications with
    Federal inspections agencies in the Bureau of Customs and Border
    Protection and the Transportation Security Administration (TSA). The
    overall goal of this program is to ensure that State commercial motor
    vehicle inspection agencies along the Canadian border have sufficient
    resources to ensure that drivers and commercial motor vehicles,
    especially those transporting hazardous materials, are safe and secure
    from the threat of terrorist acts through increased inspections and
    enhanced communications with Federal security agencies.
        Question. The FMCSA budget proposes a total of $33 million for
    implementation of the new entrant program. Given that there are
    approximately 50,000 new entrants every year, how many audits does the
    Department actually expect to conduct if this program is fully funded?
        Answer. The FMCSA expects to conduct approximately 40,000 new
    entrant audits per year.
        Question. If we cannot expect to conduct an audit of every new
    entrant, what consideration has been given to phasing in the program or
    setting up some sort of criteria for prioritizing these new entrants
    that will be audited?
        Answer. The FMCSA has established a new entrant implementation plan
    that meets the statutory language and ensures that an audit be
    conducted on every new entrant within 18 months of beginning operation.
    New entrant audits are scheduled based on the date of the carrier's
    registration to ensure the 18-month deadline is met.
        The FMCSA took aggressive action prior to publication of the
    Interim Final Rule to ensure the program could begin full
    implementation in fiscal year 2003. Prior to the implementation of the
    rule, the agency issued a press release and established New Entrant
    Program information on its website. FMCSA's National Training Center
    established an aggressive training schedule to offer opportunities to
    Federal and State personnel who will conduct the safety audits under
    the program. In fiscal year 2003, our budget provided 100 percent High
    Priority MCSAP funds in the amount of $2 million to 34 States to begin
    implementing the program. The funds may be used to hire additional
    staff and to train the staff designated to conduct the audits. Forty-
    six States have signed onto the program. The agency also delivered the
    FMCSA Field Operations Training Manual to each FMCSA Division
    Administrator on April 10, 2003, with instructions to provide a copy to
    their MCSAP counterpart and to meet and discuss the program with them.
    FMCSA stands ready to conduct the audits now.
        FMCSA believes that it has taken all appropriate actions to fully
    implement the program. Our goal is to get the most exposure so that we
    can positively impact safety and make any adjustments prior to full
    funding in 2004. To phase in the program over time would serve only to
    delay conducting audits on carriers, thus posing an increased risk to
    the public. FMCSA believes that the safety benefits of the program are
    great and that the more carriers it visits, the greater the potential
    for the Agency to reduce the number of commercial motor vehicle
    crashes, injuries, and fatalities.
        Question. The FMCSA budget proposes $16.2 million for
    implementation of the New Entrant program and an additional $17 million
    in MCSAP funding for the same, for a total of $33 million. Since only
    46 States have agreed to participate, what is the proposed Federal-
    State funding split? Specifically, how will the additional MCSAP money
    be distributed and how will the Federal share be used?
        Answer. In January 2003, FMCSA anticipated that 30 percent of the
    States would participate in the New Entrant program. While 46 States
    indicate that they will participate, they are participating at
    differing levels. The $17 million will be distributed to the States
    based on their level of participation and financial need. Some States
    have indicated that they will handle all new entrant audits given the
    appropriate Federal funding, while some have indicated that they will
    strive to participate to the extent they are able. Legislative
    authority and personnel ceilings are two issues many States must
    address prior to full commitment. The current amounts contained in the
    President's budget reflect anticipated participation of State efforts
    to conduct new entrant safety audits.
        The Federal share will be used to hire 32 Federal positions for the
    management, oversight, and quality control of the New Entrant audit
    program, as well as to hire private contractors to conduct the new
    entrant audits.
        Question. FMCSA is responsible for implementation of HAZMAT rules
    and regulations following implementation of the Patriot Act. To date,
    what steps have been taken to comply with these requirements?
        Answer. On May 5, 2003, TSA published an Interim Final Rule in the
    Federal Register that implemented the background check provisions of
    the USA PATRIOT Act. TSA is developing the program to implement that
    regulation. Also on May 5, FMCSA issued a companion regulation
    prohibiting States from issuing, renewing, transferring, or upgrading a
    commercial driver's license (CDL) with a hazardous materials
    endorsement unless TSA has first conducted a background records check
    of the applicant and determined that the applicant does not pose a
    security risk warranting denial of the hazardous materials endorsement.
        Question. Are Household Goods operators required to submit to any
    specific certification process through FMCSA or other regulatory
    agency?
        Answer. All household goods applicants are required to certify that
    they are fit, willing and able to provide the specialized service
    necessary to transport household goods. This assessment of fitness
    includes the applicant's general familiarity with the Federal Motor
    Carrier Commercial Regulations for household goods transportation.
        In addition, all applicants must certify that they will offer a
    dispute settlement or arbitration program to resolve loss and damage
    disputes on collect-on-delivery shipments. Applicants must ensure
    willingness to acquire the protective equipment and trained operators
    necessary to perform household goods movement. In its decision letter
    granting the carrier authority to operate in interstate commerce, FMCSA
    advises applicants that an arbitration program is required.
        Question. How many Hazardous Materials incidents occur each year?
        Answer. DOT collects hazardous materials incident data in two
    different ways. FMCSA compiles data on trucks carrying hazardous
    materials involved in crashes in the Motor Carrier Management
    Information System (MCMIS) through reports of police officers
    responding to the crash. RSPA requires carriers to report unintentional
    releases of hazardous materials in transportation, which is defined as
    an ``incident.'' RSPA uses these data to extract ``serious'' incidents,
    which include releases resulting in the closure of a major
    transportation artery, a fatality or injury, the evacuation of 25 or
    more people, and other major impacts to the transportation system.

     HAZARDOUS MATERIAL TRUCK CRASHES AND RELEASES, PAST 5 YEARS REPORTED TO
                                      FMCSA
    ------------------------------------------------------------------------
                                                                 Crash w/
                      Year                        Crashes         Release
    ------------------------------------------------------------------------
    1998....................................           2,977             589
    1999....................................           3,527             500
    2000....................................           2,271             380
    2001....................................           1,891             297
    2002....................................           1,577             202
    ------------------------------------------------------------------------
    Source: MCMIS.

      HAZARDOUS MATERIALS HIGHWAY INCIDENTS, PAST 5 YEARS REPORTED TO RSPA
    ------------------------------------------------------------------------
                                                                  Serious
                      Year                       Incidents     Incidents \1\
    ------------------------------------------------------------------------
    1998....................................          13,110             356
    1999....................................          15,008             456
    2000....................................          15,129             463
    2001....................................          15,825             487
    2002....................................          13,514         \2\ 453
    ------------------------------------------------------------------------
    Source: Hazardous Materials Information System, RSPA.

    \1\ Serious Incident Defined by RSPA in 2002.
    \2\ Estimate--Data are incomplete.

        Question. How do NHTSA and FMCSA coordinate with regard to the
    ``Share the Road'' education program, and how do you believe that
    program can be made more effective?
        Answer. In fiscal year 2003, Congress earmarked $500,000 to be
    transferred from the National Highway Traffic Safety Administration
    (NHTSA) to the Federal Motor Carrier Safety Administration (FMCSA) for
    the Share the Road program. Once FMCSA provides NHTSA with a spending
    plan for the funds, the monies will be transferred. FMCSA partners with
    NHTSA on a steering team on the Share the Road Coalition, and
    communicates regularly to discuss issues as they arise throughout the
    year.
        To improve the effectiveness of Share the Road, the FMCSA has
    broadened the program's scope to include all highway users and has
    identified specific target audiences that offer the highest opportunity
    for safety improvement. Education and outreach materials are being
    developed and tested to evaluate effectiveness. Future plans to
    increase the effectiveness of the Share the Road program include
    distributing those projects considered most effective throughout the
    country via FMCSA field staff and State and industry partners, and by
    making them available to community safety advocates concerned with
    truck safety issues. In response to recent GAO recommendations, the
    Agency plans to develop a Share the Road program planning document and
    conduct comprehensive program reviews to identify opportunities for
    improvement.
        Question. The new entrant program appears to be the primary new
    initiative in the Motor Carrier budget. The budget proposes $33 million
    for implementation of this program.
        (a) Ms. Sandberg, it is my understanding that there are
    approximately 50,000 new entrants every year. How many audits does the
    Motor Carrier Administration expect to conduct at this level of
    funding?
        (b) If we cannot expect to conduct an audit of every new entrant,
    what consideration have you given to phasing-in the program or to
    establishing some sort of criteria for prioritizing those new entrants
    that will be audited?
        Answer. (a) The FMCSA expects to conduct approximately 40,000 new
    entrant audits per year.
        (b) The FMCSA has established a new entrant implementation plan
    that meets the intent of the statutory language and will ensure that an
    audit is conducted on every new entrant within 18 months of beginning
    operation. New entrant audits are scheduled based on the date of the
    carrier's registration to ensure the 18-month deadline is met.
        The FMCSA took aggressive action prior to publication of the
    Interim Final Rule to ensure the program could begin full
    implementation in fiscal year 2003. Prior to the implementation of the
    rule, the Agency issued a press release and established New Entrant
    Program information on its website. FMCSA's National Training Center
    established an aggressive training schedule to offer opportunities to
    Federal and State personnel who will conduct the safety audits under
    the program. In fiscal year 2003, FMCSA's budget provided 100 percent
    High Priority MCSAP funds in the amount of $2 million to 34 States to
    begin implementing the program. The funds may be used to hire
    additional staff and to train the staff designated to conduct the
    audits. Forty-six States have signed onto the program. The agency also
    delivered the FMCSA Field Operations Training Manual to each FMCSA
    Division Administrator on April 10, 2003, with instructions to provide
    a copy to their MCSAP counterpart and to meet and discuss the program
    with them. FMCSA stands ready to conduct the audits now.
        FMCSA believes that it has taken all appropriate actions to
    implement the program. Its goal is to get the most exposure for the
    program to impact positively on safety and make any adjustments prior
    to full funding in 2004. To phase the program in over time would only
    serve to delay conducting audits on carriers, thus posing an increased
    risk to the public. We believe that the safety benefits of the program
    are great and that the more carriers we visit, the greater the
    potential to reduce the number of commercial motor vehicle crashes,
    injuries, and fatalities.
        Question. Ms. Sandberg, what is the status of the Large Truck Crash
    Causation Study, and when will you be sending a progress report to
    Congress?
        Answer. Collection of field data on injury and fatal crashes
    involving large trucks for the Large Truck Crash Causation Study will
    continue until the end of 2003. As of May 2003, investigations had
    begun on 868 large truck crashes (with a goal of investigating 1000
    total crashes). Coding and quality control on all cases should be
    completed by the middle of 2004. The full study database should be
    released to the public by the end of 2004. Both FMCSA and NHTSA will be
    conducting multiple analyses.
        FMCSA will forward a letter report to Congress on the progress of
    the study and the adjustments made to the study as a result of
    recommendations from the Transportation Research Board later this
    summer. In addition, FMCSA plans to issue a report in the fall of this
    year with preliminary information on the data collected for the study.
        Question. An important part of the implementation of the New
    Entrant program relies on the cooperation of the States to conduct
    safety audits. However, at this time only 46 States have agreed to
    participate in the program.
        Ms. Sandberg, how will the program be implemented in the remaining
    4 States and how does FMCSA propose to fund it?
        Answer. FMCSA will be responsible for implementing the New Entrant
    program where States cannot fully participate or choose not to
    participate. Currently, FMCSA Safety Investigators are conducting
    safety audits in these four States and others where there is a need. In
    fiscal year 2004, FMCSA is requesting $16 million to support a Federal
    program to hire contractors to conduct new entrant audits. The FMCSA
    anticipates that private entities will be conducting the audits on the
    new entrant carriers in these four States and other States where 100
    percent State participation is not available. In addition to the
    Federal program, there is also $17 million requested for grants to
    States to conduct audits.
        Question. Ms. Sandberg, Motor Carriers recently issued a new Hours
    of Service rule. While this rule increases by 1 hour the number of
    hours a driver may be on the road, it also increases by 2 hours the
    number of required off-duty hours.
        Could you explain how you believe this new rule is going to make
    our highways safer?
        Answer. The new science-based rule makes significant strides in
    providing commercial drivers a 24-hour work/rest schedule in line with
    the body's circadian rhythm. The longer off-duty time allows drivers to
    have more regular schedules and increases the potential for quality
    sleep. This approach is consistent with fatigue and sleep-related
    studies considered in development of the rule that indicate the amount
    and quality of sleep a person receives has a strong influence on
    alertness. The final rule helps to eliminate some of the worst aspects
    of daily rotating schedules and the compression of weekly on-duty time
    into a short portion of the workweek. This reduces the workday from 15
    to 14 hours, replaces 8 off-duty hours with 10 off-duty hours, and, in
    particular, will not allow work breaks to extend the 14 hours on-duty
    time.
        Question. Ms. Sandberg, your statement mentions the HAZMAT
    permitting program as required by Congress. It is not clear how much of
    the HAZMAT permitting process has been turned over to the
    Transportation Security Administration at the Department of Homeland
    Security and how much authority remains with the Motor Carrier
    Administration.
        I have been told that virtually all of that process has been turned
    over to TSA while you are expected to support the contract to conduct
    the background investigations. Ms. Sandberg, can you clarify this for
    me?
        Answer. FMCSA has not turned over any aspect of the HAZMAT
    permitting process to TSA. This requirement comes out of the Hazardous
    Materials Transportation Uniform Safety Act of 1990 and is separate
    from the background check requirements of the USA PATRIOT Act.
        FMCSA has coordinated with TSA in developing the proposal for the
    permit program, however, FMCSA will oversee the permit application
    process and FMCSA field staff will conduct investigations of companies
    applying for permits to determine fitness. In fact, TSA is transferring
    funding for implementing a hazardous materials permit program to FMCSA.
    Currently, FMCSA has submitted a Supplemental Notice of Proposed
    Rulemaking (SNPRM) to establish a safety permit program and require
    motor carriers transporting these materials to obtain a safety permit
    prior to transporting these hazardous materials. The Office of
    Management and Budget (OMB) is currently reviewing the SNPRM for
    Hazardous Materials Safety Permits.
        Question. The March 2001, General Accounting Office report to
    Congress concluded that FMCSA oversight of the household goods moving
    industry and enforcement of the consumer protection regulations has
    been minimal since 1996. As a result of this vacuum, rogue movers have
    proliferated and are literally holding consumers' possessions as ransom
    for addition payment.
        (a) Ms. Sandberg, what is your plan to address this problem?
        (b) How is the budget increase for household goods enforcement
    planning to be used specifically for enforcement and investigation?
        Answer. (a) FMCSA has taken a proactive approach by developing a
    comprehensive Household Goods (HHG) Outreach and Enforcement Program to
    focus on addressing consumer complaints and enforcing regulations on
    non-compliant carriers.
        A HHG Program Manager has been hired to administer and implement
    the agency's overall HHG Enforcement Program, as well as coordinate
    regulatory strike force activities.
        FMCSA has enhanced its enforcement program by developing
    enforcement criteria to identify the most egregious HHG violators and
    to conduct enforcement strike forces on targeted carriers. HHG
    carriers/brokers identified for investigation under this process have
    demonstrated a continuous pattern of noncompliance with our commercial
    regulations.
        (b) The budget request supports a study on the moving industry
    dispute settlement programs for resolving loss and damage claims, and
    provide funding to hire seven additional commercial investigators to
    conduct HHG investigations on the most egregious violators of the
    commercial regulations.
                                     ______

                  Questions Submitted by Senator Patty Murray

        Question. Ms. Sandberg, your 2004 budget includes $9 million for
    the agency's regulatory development program. This funding will be used
    to establish a medical review board and a national medical examiner
    registry in an effort to upgrade the quality of commercial driver
    medical examinations nationally.
        As you know, the FAA has its own program to ensure that pilots are
    medically qualified. What input, if any, have you had from the FAA in
    developing this program?
        Answer. FMCSA is conducting a planning analysis to identify a
    feasible set of strategies to be used to develop and maintain a
    national registry of medical examiners and a program to certify all
    medical examiners that perform commercial driver physical examinations.
    It will review the procedures that the FAA and other Federal agencies
    use to certify medical examiners and investigate different approaches
    for establishing a national database of medical examiners.
        Question. When precisely can we expect this registry to be fully
    implemented?
        Answer. Estimation of a precise implementation date for the
    registry of medical examiners is complicated by uncertainties in
    designing a new program that is not yet defined in a Notice of Proposed
    Rulemaking (NPRM). Until the agency has completed its planning analysis
    for the national registry and published a final rule, an estimation of
    a full implementation date would be speculative.
        Question. NHTSA's 2004 budget includes the first $10 million
    installment of your $60 million proposal to update the 30-year-old Tri-
    Level Study on motor vehicle crash causation. The motor vehicle crash
    causation study is expected to commence at the completion of the truck
    crash causation study that has been funded through the Federal Motor
    Carrier Safety Administration but conducted by NHTSA over the last 3
    years. The 2003 Conference Report directed NHTSA to have the CDC's
    National Center for Injury Prevention and Control evaluate the adequacy
    of the crash causation research design.
        Ms. Sandberg, the Transportation Research Board has provided your
    agency with a series of recommendations on the crash causation study.
    Which, if any, of TRB's recommendations have you decided not to
    implement?
        Answer. FMCSA hired the Transportation Research Board to consult on
    the design and implementation of the Large Truck Crash Causation Study.
    The TRB panel, consisting of experts from varying fields, met five
    times over the past 3 years. A panel subcommittee met an additional two
    times to address several specific issues. The TRB panel made many
    suggestions, but made only a few formal recommendations for the sample
    design, the data collection forms and data coding protocol. Numerous
    changes were incorporated into the LTCCS as a result of the TRB
    suggestions. Of the formal recommendations, two were not implemented:
      --``Exclude two-axle straight trucks from the study to focus
            exclusively on larger straight trucks and combination
            vehicles'' (November 15, 2000, letter to FMCSA). Since FMCSA
            regulates these vehicles, we need crash causation data on
            crashes involving these vehicles.
      --``Study should collect more data on vehicle components, vehicle
            dynamics, brake condition, measurement of skid marks, roadway
            geometry, and objective estimates of pre-crash speed''
            (December 4, 2001, letter to FMCSA). Collection of some
            information on many of these elements is already part of the
            study. However, collection of more in-depth data would require
            complete reconstructions of each crash and vehicle, which was
            not possible given the study resources, design, and timeline.
        Question. Ms. Sandberg and Dr. Runge, Americans all across the
    country rely on your two agencies to establish strong safety
    regulations to ensure that our trucks and cars are safe and that their
    drivers operate their vehicles in a safe and sober manner.
        What are your top three priorities for safety rules in the coming
    year that you think will achieve the most for highway safety?
        Answer. For FMCSA, the top three safety rules that will achieve the
    most for highway safety are:
      --Implementing the new driver hours-of-service rule to help minimize
            the number of crashes due to large truck driver fatigue.
      --Implementing the new entrant interim final rule to ensure that new
            motor carriers are in compliance with safety regulations at the
            onset of their operations.
      --Developing a notice of proposed rulemaking that would merge the
            requirement for driver medical certification with that of
            obtaining a commercial driver's license (CDL). The 1999
            Louisiana bus crash might have been avoided had such a
            requirement been in place.
        Question. Ms. Sandberg, your testimony refers to a revised process
    for the development of motor carrier safety regulations that is
    designed to improve both the quality and timeliness of your agency's
    rulemakings.
        Why should we be convinced that these changes would result in
    greater motor carrier safety? How much time will you be saving in the
    rulemaking process--are we talking months or years?
        Answer. FMCSA's new Rulemaking Order, which was signed in January
    2003, established for the first time a clearly defined process by which
    FMCSA can develop its safety regulations. While it is difficult to
    predict specific time saved, I anticipate that it will have a positive
    impact on both the quality and timeliness of our rulemakings, as well
    as commercial motor vehicle (CMV) safety. In the legislation that
    established the FMCSA, Congress placed special emphasis on the
    importance of timely rulemaking as an important way to achieve
    reductions in the number and severity of CMV crashes.
        Question. This new process is designed to build consensus with
    senior managers earlier in the rule's development. Does this new
    process also include any sort of negotiated rulemaking process--similar
    to what the FRA uses with its Rail Safety Advisory Committee? Under
    what scenarios might you choose to use a negotiated rulemaking process
    where both industry and safety groups engage in the rule's development?
        Answer. The FMCSA has no standing advisory committee similar to
    FRA's Rail Safety Advisory Committee, which was formally established
    under the Federal Advisory Committee Act. However, FMCSA's new
    rulemaking process provides for negotiated rulemaking. The Agency would
    use, and has used, this approach when there are complex issues and
    there is sharp disagreement among the regulated parties that cannot
    otherwise be resolved through the standard notice and comment approach
    to rulemaking. An example where the Agency has used this approach is
    the recently published regulation on driver hours-of-service.
        Question. Ms. Sandberg, just over a year ago, the Inspector General
    released a report on your agency's oversight of the Commercial Driver's
    License (CDL) program. The principal findings of the IG's report were
    as follows: first, CDL fraud is a significant problem; second, that
    FMCSA needs to strengthen its oversight of State CDL programs; and
    third, the FMCSA should use sanctions when necessary to enforce
    compliance with CDL requirements.
        (a) What specific steps has your agency taken to reduce CDL fraud
    and to strengthen your oversight of the State CDL programs?
        (b) Given what you know about the effectiveness of sanctions from
    your experience as Deputy Administrator of NHTSA, has your agency
    withheld any highway funds from States that have failed to correct
    significant CDL problems?
        Answer. (a) Through a cooperative agreement with the American
    Association of Motor Vehicle Administrators, FMCSA is using an $8
    million fiscal year 2002 supplemental appropriation to develop a 14-
    task effort to better detect and prevent fraudulent activities within
    the State CDL programs. These tasks include activities such as
    fraudulent document recognition training for State licensing agency
    staff, uniform identification practices and documents, the development
    of best practices for State and third party test examiners, and the
    conducting of a CDL Fraud Symposium in November 2002, where States
    shared information on efforts to detect and prevent fraud.
        FMCSA has strengthened and enhanced the CDL compliance and
    oversight program. A 3-year cycle of this enhanced CDL compliance
    process has just been completed where written administrative procedures
    and laws are reviewed and a complete ``hands on'' operational review is
    conducted to make sure that written procedures are being followed.
    Starting in 2002, a legal sufficiency review is being conducted on
    State CDL laws, statutes, and administrative procedures.
        (b) No. To date, FMCSA has not withheld any Federal-aid highway
    funds from any State in order to get significant CDL compliance
    problems and deficiencies corrected. While FMCSA has initiated the
    process to withhold funds in several States, these States were able to
    correct the deficiencies before the funds were withheld. The
    withholding of funds has been used as a last resort. The Agency has
    been successful in getting States to develop reasonable action plans
    and schedules to correct deficiencies. Continued monitoring of these
    action plans has been instrumental in correcting deficiencies within
    the agreed time period.
        Question. Ms. Sandberg, when Secretary Mineta appeared before this
    subcommittee on May 8th, I asked him whether the Department intended to
    appeal the Ninth Circuit's decision regarding the U.S.-Mexico
    commercial vehicle border crossings. He stated that the administration
    was weighing its options as to whether the decision should be appealed
    to the Supreme Court or alternatively, whether the Department should
    prepare the required environmental impact statement.
        Which option has the administration decided to pursue?
        Answer. FMCSA does not view seeking Supreme Court review of the
    Ninth Circuit decision and preparing an environmental impact statement
    (EIS) as mutually exclusive options. Although the administration has
    not yet determined whether to file a petition for review with the
    Supreme Court, FMCSA has solicited bids from contractors for EIS
    preparation and expects to select a contractor within the next 30 days.
    Therefore, the Agency is taking the necessary steps to prepare an EIS
    regardless of whether the administration seeks further legal review of
    the Ninth Circuit decision.
        Question. Despite the delay in opening the border, this
    subcommittee has funded every penny you have requested to build up the
    inspection force and your oversight capacity at the border. As a
    result, you currently have 43 percent of all of your Motor Carrier
    Field Safety Enforcement personnel located at the U.S.-Mexican Border.
        (a) Given the anticipated delay in the opening of the border
    because of this court case, do you believe it still makes sense in
    terms of improving truck safety nationwide to have 43 percent of all of
    your truck safety enforcement personnel at the Mexico border?
        (b) Would you like this Committee to consider a temporary statutory
    waiver that would allow you to move these safety enforcement personnel
    throughout the United States?
        Answer. (a) Federal staffing at the Southern Border is necessary to
    conduct inspections, safety audits, and compliance reviews on U.S. and
    Mexican carriers. With 80,000 distinct vehicles making over 4.3 million
    crossings a year, there is a need for a significant Federal presence at
    border crossings. Although Border States have an enforcement presence
    at crossings, the extended hours crossings are open, coupled with large
    crossing volumes, require a Federal presence. In addition, FMCSA is
    responsible for conducting safety audits and compliance reviews for a
    large commercial zone population of carriers. Once the border is open,
    the added burden of conducting reviews on long-haul carriers will be
    placed on the Federal staff.
        (b) The ability to efficiently and effectively deploy staff can be
    accomplished under authorities FMCSA currently has available.
    Therefore, a statutory waiver is not necessary.
        Question. Ms. Sandberg, the Motor Carrier Safety Improvement Act
    required that your agency conduct safety reviews for each new entrant
    trucking firm within the first 18 months after the trucking company
    begins operations. These new entrants, which total anywhere from 40,000
    to 50,000 a year, pose a significant commercial motor vehicle safety
    risk. Your testimony indicates that 46 States have agreed to either
    partially or fully conduct new entrant safety audits. Your 2004 budget
    requests $16.2 million along with $17 million in Motor Carrier Safety
    Assistance Program for the joint Federal and State efforts.
        (a) Which States have not agreed to conduct new entrant safety
    audits and why haven't they agreed to do so?
        (b) How, if at all, will these new entrant audits differ from the
    safety audits that you conduct on trucking companies with existing
    operating authority?
        Answer. (a) Delaware, the District of Columbia, Oregon, and Wyoming
    have indicated they will not participate in the new entrant program,
    due primarily to their inability to staff the program at the State
    level.
        (b) A new entrant safety audit is a requirement for all new motor
    carriers applying for a U.S. DOT number after January 1, 2003. The
    purpose of the safety audit is to provide educational and technical
    assistance to the new entrant and gather safety data needed to make an
    assessment of the new entrant safety performance and the adequacy of
    its safety management controls. The motor carrier contact is required
    to be conducted within the first 18 months of operations. It is non-
    enforcement oriented and will result in a pass/fail outcome based upon
    the motor carrier's overall safety management controls. If the carrier
    fails the safety audit, it must take corrective actions or it will not
    be granted permanent operating authority.
        A compliance review is an on-site investigation of the motor
    carrier's compliance with the Federal motor carrier safety and
    hazardous materials regulations and is usually conducted on motor
    carriers that are determined to be higher risk. Higher risk can be
    derived from data gathered regarding on-road performance, including
    inspections and crashes, as well as prior compliance reviews,
    complaints, and special projects. Unlike safety audits, motor carriers
    are not required to undergo a compliance review as a condition of
    authority but are always subject to a compliance review, even during
    the initial 18 months of operation. Compliance reviews result in a
    rating of satisfactory, conditional, or unsatisfactory, based upon the
    violations discovered during the investigation and the data gathered
    from on-road activity. If a carrier is rated unsatisfactory, it must
    have the rating upgraded in order to avoid an operations out-of-service
    declaration within 60 days of the compliance review for private and
    for-hire carriers, and within 45 days for transporters of passengers
    and placarded hazardous materials. The compliance review is a
    compliance monitoring and enforcement event. The motor carrier and
    drivers are subject to fines and other penalties for serious
    noncompliance with Federal safety and hazardous material violations.
        Question. The Inspector General's follow-up audit on the
    implementation of the safety requirements at the U.S.-Mexico border
    includes a recommendation to use safety auditors and investigators for
    the new entrant program while the border opening is delayed due to the
    Ninth Circuit Court decision.
        Do you intend to use these auditors and investigators to conduct
    new entrant safety audits?
        Answer. FMCSA is assessing the recommendations contained in the
    Inspector General's report on implementation of safety requirements at
    the U.S.-Mexico border and will respond formally to those
    recommendations in the very near future. One of the issues we must
    consider in using border auditors and investigators for new entrant
    audits is that we maintain an appropriate level of enforcement staff at
    the border to ensure commercial zone safety.
                                     ______

              Questions Submitted to Mothers Against Drunk Driving

                Questions Submitted by Senator Richard C. Shelby

        Question. Mr. Hurley and Ms. Hamilton, have you analyzed the
    funding levels proposed in the current budget and in the SAFETEA
    proposal?
        Answer. The Department of Transportation's fiscal year 2004 budget
    request and ``SAFETEA'' reauthorization proposal are woefully
    inadequate in terms of addressing the rising levels of alcohol-related
    traffic deaths in America.
        NHTSA Fiscal Year 2004 Budget.--NHTSA's funding request appears to
    have increased monies for behavioral funding, however, this is not the
    case. The fiscal year 2004 request is significantly less than the
    fiscal year 2003 request. The fiscal year 2004 request includes $222
    million of TEA-21 resources for the Sections 157 and 163 grant programs
    formerly appropriated in the Federal Highway Administration budget.
    NHTSA has always administered these funds and is now requesting receipt
    of this funding directly. This apparent increase is really no increase
    at all.
        The fiscal year 2004 request for behavioral funding is
    $516,309,000, however when Section 157 and 163 monies are subtracted,
    the amount is reduced to $294,309,000. The fiscal year 2004 request is
    a quarter of a million less than the fiscal year 2003 request.
    Additionally, only a percentage of this funding is guaranteed for
    behavioral safety since States are able to use this funding for roadway
    safety/highway construction projects.
        The levels of funding specifically for impaired driving
    countermeasures are reduced in the fiscal year 2004 request. The fiscal
    year 2004 request provides a $50 million impaired driving grant program
    to a limited number of ``problem'' States to demonstrate the
    effectiveness of a comprehensive approach to reducing impaired driving
    and for identifying causes of weakness in a State's impaired driving
    control system. This funding level is $100 million less than funds
    available to States in fiscal year 2003 for impaired driving
    improvements.
        Additionally, the NHTSA Impaired Driving Division budget request is
    significantly lower than fiscal year 2002 enacted levels ($10.9 million
    in fiscal year 2004 request compared with $13.5 million fiscal year
    2002 enacted).
        SAFETEA Proposal.--The administration's ``SAFETEA'' proposal
    significantly decreases funding for alcohol-impaired programs (-67
    percent). SAFETEA proposes an impaired driving program totaling only
    $50 million, far less than current funding levels. In fiscal year 2003,
    TEA-21 authorized $150 million for alcohol-impaired driving
    countermeasures (impaired driving grants and .08 BAC incentives) and
    contained requirements for States to enact repeat offender and open
    container laws. If States failed to pass these alcohol-impaired driving
    laws then a percentage of their Federal construction funds were
    transferred. Not only does ``SAFETEA'' slash impaired driving funding
    to $50 million, it fails to include incentives to States to enact
    effective alcohol-impaired driving countermeasures.
        While the administration, the Department of Transportation and
    NHTSA claim reducing alcohol-related traffic fatalities is a top
    priority, their fiscal year 2004 budget request and ``SAFETEA''
    proposal fails to provide a coherent plan to address the carnage caused
    by alcohol-impaired driving on America's roadways.
        Question. Ms. Hamilton, do you have any thoughts about Dr. Runge's
    discussion of NHTSA's plans and would you propose to approach the
    problem differently?
        Answer. MADD believes that Dr. Runge and NHTSA have a strong
    understanding of what is needed to drive down the number of people
    killed and injured in alcohol-related crashes. However, their fiscal
    year 2004 budget proposal and administration's SAFETEA plan fails to
    provide adequate funding, fails to apply effective data and science
    driven countermeasures, and fails to provide leadership to seriously
    address the increasing amount of death and injury due to alcohol-
    related traffic crashes.
        MADD believes that progress will occur when adequate funding is
    provided for traffic safety programs and when a commitment is made to
    put proven impaired driving countermeasures, such as law enforcement
    mobilizations, into place. More accountability is needed at the
    national, regional and State levels to ensure that Federal funds are
    being used in a strategic and coordinated effort. Additionally, States
    should be encouraged to enact priority traffic safety laws, such as
    primary seat belt enforcement, and laws targeting higher-risk drivers
    (high BAC and repeat offenders).
        Question. Ms. Hamilton, this year NHTSA is running paid media in
    concert with the impaired driving mobilizations. I am interested in
    knowing if MADD was involved at all in the development of these ads and
    how effective you believe they will be in getting the message out?
        Answer. MADD would like to thank Senator Shelby and Senator Murray
    for their leadership in this area and for providing funds for these
    life-saving efforts. MADD strongly supports the expansion of well-
    publicized law enforcement campaigns to curb drunk driving and increase
    seat belt use. These law enforcement activities should utilize frequent
    and highly visible sobriety checkpoints and/or saturation patrols.
    Research and field applications have shown these law enforcement
    activities to be among the most effective tools used to deter impaired
    driving. The CDC found that sobriety checkpoints can reduce impaired
    driving crashes by 18 to 24 percent. Checkpoints are especially
    effective when coupled with media campaigns that raise the visibility
    and awareness of alcohol-impaired driving enforcement efforts in the
    community with the objective of deterring impaired driving before it
    happens. Senate Bill 1139, introduced by Senator Mike DeWine and
    Senator Frank Lautenberg, provides funding for increased enforcement
    efforts across the country and if enacted will enhance the work of this
    committee and result in lives saved and injuries prevented.
        MADD is pleased with the quality and content of the advertising
    developed for this campaign. The first deployment of this campaign will
    occur from June 20 to July 13, 2003. MADD believes that raising public
    awareness through a coordinated national media campaign coupled with
    high visibility law enforcement (sobriety checkpoints and/or saturation
    patrols) will be successful. Based on the success of the Click-it-or-
    Ticket campaign and several demonstration sobriety checkpoint programs
    these combined efforts have the greatest potential to save lives.
    However, it is vital that DOT/NHTSA commit 100 percent to promote this
    program, and they can demonstrate this commitment by ensuring that
    national wire services cover the kick off press event, by aggressively
    reaching out to diverse news outlets, by working closely with law
    enforcement and traffic safety partners, and by evaluating results.
        MADD was included in weekly NHTSA meetings that commenced
    approximately 4 weeks before the mobilization kickoff. MADD had
    occasional contact with NHTSA during the campaign's development did not
    participate in the development of the national ad. We would welcome
    more regular opportunities to work with NHTSA to ensure that these
    campaigns are as successful as possible.
        Question. The NHTSA budget proposes a new initiative to award
    discretionary grants to States to demonstrate the effectiveness of a
    comprehensive approach to reducing impaired driving. Ms. Hamilton and
    Mr. Hurley, I am interested in your thoughts about this new
    discretionary grant program and how effective you both believe that it
    will be.
        Answer. Sanctions are clearly the more effective approach to
    encourage States to adopt proven highway safety laws. While incentive
    programs have had some success, it is clear that--particularly with
    alcohol-related traffic laws--penalties have shown greater results than
    incentives. DOT estimates that the 21 Minimum Drinking Age (MDA) law
    has saved thousands of lives since the national standard was put in
    place in 1984. A national zero tolerance standard for youth, adopted by
    Congress is 1995, was also successful in getting States to enact better
    laws for underage drivers. Clearly the national .08 BAC standard,
    enacted in 2000, has been much more effective than the TEA-21 incentive
    program. Under the incentive program, only two States passed .08 BAC
    laws. Since the national .08 standard was enacted, 22 States have
    passed this important law.
        In addition, DOT's proposed grant program is flawed because it is
    only made available to States with the worst alcohol-related incidents,
    leaving the rest of the Nation with no access to these funds. And, the
    pot of money is not nearly as substantial as it should be to effect
    needed change.
                                     ______

                  Questions Submitted by Senator Patty Murray

        Question. This will be the first year that national media will be
    used for the drunk driving mobilization efforts in July and December.
    Ms. Hamilton, what does MADD hope that we will accomplish through these
    national ads and what kind of contact has your organization had with
    NHTSA during the development of this media effort?
        Answer. MADD would like to thank Senator Shelby and Senator Murray
    for their leadership in this area and for providing funds for these
    life-saving efforts. MADD strongly supports the expansion of well-
    publicized law enforcement campaigns to curb drunk driving and increase
    seat belt use. These law enforcement activities should utilize frequent
    and highly visible sobriety checkpoints and/or saturation patrols.
    Research and field applications have shown these law enforcement
    activities to be among the most effective tools used to deter impaired
    driving. The CDC found that sobriety checkpoints can reduce impaired
    driving crashes by 18 to 24 percent. Checkpoints are especially
    effective when coupled with media campaigns that raise the visibility
    and awareness of alcohol-impaired driving enforcement efforts in the
    community with the objective of deterring impaired driving before it
    happens. Senate Bill 1139, introduced by Senator Mike DeWine and
    Senator Frank Lautenberg, provides funding for increased enforcement
    efforts across the country and if enacted will enhance the work of this
    committee and result in lives saved and injuries prevented.
        MADD is pleased with the quality and content of the advertising
    developed for this campaign. The first deployment of this campaign will
    occur from June 20 to July 13, 2003. MADD believes that raising public
    awareness through a coordinated national media campaign coupled with
    high visibility law enforcement (sobriety checkpoints and/or saturation
    patrols) will be successful. Based on the success of the Click-it-or-
    Ticket campaign and several demonstration sobriety checkpoint programs
    these combined efforts have the greatest potential to save lives.
    However, it is vital that DOT/NHTSA commit 100 percent to promote this
    program, and they can demonstrate this commitment by ensuring that
    national wire services cover the kick off press event, by aggressively
    reaching out to diverse news outlets, by working closely with law
    enforcement and traffic safety partners, and by evaluating results.
        MADD was included in weekly NHTSA meetings that commenced
    approximately 4 weeks before the mobilization kickoff. MADD had
    occasional contact with NHTSA during the campaign's development but did
    not participate in the development of the national ad. We would welcome
    more regular opportunities to work with NHTSA to ensure that these
    campaigns are as successful as possible.
        Question. Ms. Hamilton, how would you assess the funding levels in
    NHTSA's budget that are directed toward reducing drunk driving?
        Answer. NHTSA's fiscal year 2004 budget request is woefully
    inadequate in terms of addressing the rising levels of alcohol-related
    traffic deaths in America. NHTSA's testimony before the Committee gives
    the false impression that they have increased monies for behavioral
    funding in their fiscal year 2004 budget request. However, a detailed
    review of their proposal shows that this is not the case.
        The fiscal year 2004 request proposes $516,309,000 for behavioral
    funding, however when Section 157 and 163 monies are subtracted the
    amount is reduced to $294,309,000. The request includes $222 million of
    TEA-21 resources for the Sections 157 and 163 grant programs formerly
    appropriated in the Federal Highway Administration budget, which NHTSA
    has always administered and is now requesting receipt of this funding
    directly. This apparent increase is really no increase at all.
        The fiscal year 2004 request is actually $250,000 less than the
    fiscal year 2003 request. Additionally, only a percentage of funding
    guaranteed for behavioral safety since States are able to shift this
    funding to roadway safety/highway construction projects. The levels of
    funding for impaired driving countermeasure programs administered by
    NHTSA are reduced in the fiscal year 2004 request. The NHTSA Impaired
    Driving Division budget request is significantly lower than fiscal year
    2002 enacted levels ($10.9 million in fiscal year 2004 request compared
    with $13.5 million fiscal year 2002 enacted).
        NHTSA's State & Community Highway Safety Program drastically
    reduces funds available to States for impaired driving initiatives. The
    fiscal year 2004 request provides a $50 million impaired driving grant
    program to a limited number of ``problem'' States to demonstrate the
    effectiveness of a comprehensive approach to reducing impaired driving
    and for identifying causes of weakness in a State's impaired driving
    control system. This funding level is $100 million less than funds
    available to States in fiscal year 2003 for impaired driving
    improvements.
        Question. Ms. Hamilton and Mr. Hurley, how would you assess NHTSA's
    oversight of State highway safety plans and what specific changes would
    you suggest to improve their accountability?
        Answer. In May 2003, the General Accounting Office released a
    report that determined NHTSA's ``performance based'' approach to
    oversight of State and Community Highway Safety Program expenditures by
    the States has not yielded measurable safety benefits. GAO states that:

        `` . . . NHTSA's oversight of highway safety programs is less
    effective than it could be, both in ensuring the efficient and proper
    use of Federal funds and in helping the States achieve their highway
    safety goals.''

        Last year, members of this committee noted the disturbing increase
    in alcohol-related fatalities and questioned NHTSA's pronouncements
    that it would intensify its efforts to combat impaired driving. MADD
    shares the concerns raised by the GAO and Congress regarding the lack
    of accountability for traffic safety programs under TEA-21.
        MADD asks Congress to hold the National Highway Traffic Safety
    Administration, the agency's regional offices, and the States more
    accountable for the expenditure of Federal highway safety funds. Our
    goal is not to make their jobs more difficult. It is to recognize that
    political pressures and ``flavor of the month'' traffic safety issues
    can influence how dollars are spent. DOT claims that its primary goal
    is to reverse the current trend, but clearly it is time for Congress to
    create a more consistent process that ensures the efficient and proper
    use of Federal funds to help the Nation achieve its highway safety
    goals.
        Some suggested changes include:
      --Establish three levels of accountability: (1) NHTSA must be held
            accountable--i.e., how does NHTSA spend its research and
            evaluation funds, its demonstration project funds, and plan/
            create a strategy for use of other expenditures from
            headquarters; (2) NHTSA Regional Offices must be held
            accountable--i.e., how do the Regional Offices work to assist
            the States in reaching their goals; (3) State highway safety
            offices must be held accountable, i.e., what kind of programs
            are States spending resources on--are they research based and
            do they reflect the needs in that particular State.
      --Establish a memorandum of understanding between the Regional
            Offices and the State highway safety offices to clearly lay out
            the role of the regions and the role of the States.
      --Regional Offices (RO's) should be more involved in the planning
            process with the States. RO's should assist the States with:
            problem identification, development of a data-driven State
            highway safety plan, setting States' goals, and in the
            selection of proven countermeasures/programs that will work to
            meet these goals. RO's need training and expertise to assist
            the States.
      --State highway safety offices must create a highway safety plan that
            reflects the needs in their States based on the data (i.e., if
            alcohol-related deaths are high in a particular State, then
            that State's highway safety plan should adequately reflect the
            need to reduce alcohol-impaired driving with research-based,
            proven solutions.)
      --A more systematic approach should be used--as shown by the GAO--to
            ensure that NHTSA and the RO's use tools (i.e., Improvement
            Plans and High-Risk designation) to improve State performance.
      --NHTSA and the RO's should provide the States with ``best
            practices'' training and documents. NHTSA's publications and
            website should be improved to reflect years of research in
            terms of what works and what does not work. A catalogue of
            research and resources should be available to the RO's and to
            the States.
      --NHTSA must do a better job to ensure that proven, effective
            countermeasures are being implemented. Decades of research is
            being ignored.
        Question. Ms. Hamilton, as I mentioned, the Checkpoint Strikeforce
    project used public awareness, saturation patrols and sobriety
    checkpoints. Which of these three strategies do you believe is the most
    effective in deterring drunk driving?
        Answer. Sobriety checkpoints and saturation patrols coupled with a
    public information and enforcement campaign have proven to be highly
    effective in deterring impaired drivers. Research conducted both in the
    United States and abroad indicates that the use of sobriety checkpoints
    has been associated with substantial reductions in alcohol-related
    crashes. In addition, checkpoints can be instrumental in the
    enforcement of other traffic safety laws such as zero tolerance for
    youth and graduated licensing. The use of sobriety checkpoints is
    permitted in 41 States and the District of Columbia; in other States
    the use of saturation patrols has been proven to be a successful
    strategy. The research seems to indicate that sobriety checkpoints,
    when done effectively, are the best enforcement tool because they deter
    impaired driving and have a broader reach than other enforcement
    methods.
        As an example of the kinds of reductions that may be achieved with
    a large and sustained program, the State of Tennessee conducted an
    intensive sobriety checkpoint effort combined with public awareness
    from April 1994 to March 1995. Nearly 900 checkpoints were conducted
    and more than 140,000 drivers were checked for alcohol impairment with
    nearly 800 DUI arrests. Analysis indicated a 20 percent reduction over
    the number of impaired driving fatal crashes that would have occurred
    with no intervention. It was estimated that there was a reduction of 9
    impaired driving fatal crashes per month due to the influence of the
    checkpoint program, amounting to more than 100 lives saved over the
    intervention period. A check of five comparison States showed non-
    significant increases in impaired-driving-fatal crashes over the same
    period.
        Question. Overrepresentation of repeat offenders is a public health
    problem. Is NHTSA collaborating with other agencies (DHHS) to address
    this problem? Any thoughts?
        Answer. MADD agrees that the crime of drunk driving involving
    ``higher-risk'' drivers is a major public health problem. Higher-risk
    drivers often are repeat offenders--people who repeatedly drive after
    drinking, especially with high blood alcohol content (BAC). These
    drivers are particularly resistant to changing their behavior. Most
    U.S. drivers convicted of driving while intoxicated have a .15 percent
    BAC or higher. A driver at .15 BAC is over 300 times more likely to be
    involved in a fatal crash. While an estimated 85 percent of drivers in
    alcohol-related fatal crashes don't have prior drunk driving
    convictions, those who do pose a substantially greater risk of causing
    an alcohol-related crash.
        MADD believes that NHTSA should be working more actively with
    Federal agencies--health, justice and education--to address this
    serious problem. NHTSA should not have to be prompted by Congress to
    utilize the best research, disciplines and expertise to combat drunk
    driving. Recent evaluations of State efforts--including vehicle
    impoundment and forfeiture, license plate impoundment and tagging, and
    alcohol ignition interlock devices--demonstrate that a combination of
    proven measures help deter higher-risk offenders. These measures,
    combined with other effective tactics including license suspension and
    alcohol assessment/treatment programs, provide a growing array of tools
    for managing higher-risk drivers. Embracing this research, MADD has
    developed a practical program for all 50 States. MADD's Higher Risk
    Driver Program calls for:
      --Restricting vehicle operation by these offenders by suspending
            their licenses for substantial periods, impounding or
            immobilizing their vehicles and requiring alcohol ignition
            interlock devices on their vehicles to prevent them from
            starting if the offenders have been drinking.
      --Requiring these offenders to make restitution to the community and
            drunk driving crash victims through fines and mandatory
            incarceration and financial restitution to crash victims.
      --Promoting recovery programs for offenders with alcohol abuse
            problems through mandatory alcohol assessment and treatment,
            intensive probation and attendance at victim impact panels.
        Although most of the remedies in MADD's plan are not new, they
    typically have been implemented on a piecemeal basis, producing a
    system full of loopholes. Senate Bill 1141 incorporates all of these
    solutions. This comprehensive approach if enacted would reduce crashes
    caused by these high-risk drivers.
                                     ______

               Questions Submitted to the National Safety Council

                Questions Submitted by Senator Richard C. Shelby

                           HIGHWAY SAFETY INITIATIVES

        Question. Dr. Runge's opening statement says that NHTSA has
    ``pledged to solve the highway safety issues confronting this Nation.''
    However, other than consolidating some grant programs and a new
    accounting of other grant programs, I see no new, innovative programs
    included in this budget or in the reauthorization proposal that would
    convince me that NHTSA is on the way to solving the highway safety
    issues confronting this Nation.
        Mr. Hurley, from your perspective, do you think that the SAFETEA
    proposal will be successful in reducing highway fatalities? If not,
    what, in your view, could be done to improve the proposal to allow us
    to experience the greatest benefits?
        Answer. I know that the administration's intent is clearly to save
    lives, as demonstrated by their focus on primary belt laws and
    significant incentives to States that enact such laws. We support the
    intent of this provision. However, SAFETEA does not provide additional
    specific funding for high visibility enforcement of belt and alcohol
    laws, as well as targeted funds for programs that support those
    enforcement initiatives. These funds need to be added to the proposal.

                      HIGHWAY SAFETY GRANT FUNDING LEVELS

        Question. I am concerned that much of this ``increase'' in funding
    for highway safety is merely the shifting of funds from Highways to
    NHTSA. I have expressed this to the Secretary and still believe that we
    need more information to conduct a proper analysis.
        Mr. Hurley and Ms. Hamilton, have you analyzed the funding levels
    proposed in the current budget and in the SAFE-TEA proposal?
        Answer. The proposed $50 million in the administration budget for a
    13-State demonstration program should be placed in Section 403 and
    supplemented by $150 million along the lines proposed by the DeWine-
    Lautenberg bill, S. 1139. This would provide adequate funding for the
    fundamentally important enforcement mobilizations for safety belts and
    alcohol.

                                  SAFETY BELTS

        Question. With respect to seat belt usage, Dr. Runge has said, ``we
    have a model that works. For every 1 percent increase in belt use, we
    get $800 million in economic costs saved, 2.8 million more people
    buckling up, 276 lives saved, and reduce the severity of 6,400 moderate
    to critical injuries.''
        Mr. Hurley, how prudent is it to eliminate funding for ``Click It
    or Ticket'' campaigns?
        Given that it is the centerpiece of the Air Bag & Seat Belt Safety
    Campaign, I am interested in hearing how you will move forward absent
    these federally driven mobilizations and how effective you believe the
    campaign will be?
        Answer. The funding for national paid advertising to support the
    ``Click It or Ticket'' and ``You Drink and Drive. You Lose.'' Campaigns
    is a direct result of the leadership of this subcommittee. We strongly
    support continued funding of these initiatives because they are proven
    to work. Since the Air Bag & Seat Belt Safety Campaign Mobilizations
    began in May 1997, belt use nationally has increased from 61 percent to
    75 percent. As Dr. Runge has estimated, that means 39.2 million more
    people buckling up and 3,864 lives saved each year. Until May of 2002,
    the Mobilizations primarily relied on earned media coverage by the news
    media to reach those who continue to violate the belt and child
    restraint laws. In large part due to the success of these
    Mobilizations, most people who listen to the news are now buckled. It
    should be stressed that the 75 percent use rate, while representing
    remarkable progress, is a daytime measurement. The 25 percent who still
    have not been reached by previous Mobilizations are inherently high
    risk. They are literally twice as likely to be in fatal crashes, which
    often occur late at night. The best proven way to reach this highest
    risk group, particularly young males which includes many teenagers and
    drunk drivers, is to target paid advertisements. These advertisements
    are focused on enforcement and targeted to the broadcast media they
    watch, which does not often coincide with the evening news. The funds
    provided by this subcommittee enabled NHTSA to do exactly that, in
    partnership with the States and the Air Bag & Seat Belt Campaign.
    Eliminating these critical funds would not only end perhaps the most
    proven effective initiative NHTSA has ever undertaken, but could well
    put in jeopardy the hard won gains that have already been achieved.
    While the Campaign and law enforcement nationwide would continue to
    make best efforts at these goals using earned media strategies,
    extensive research indicates that further progress would be extremely
    difficult to achieve.

                                IMPAIRED DRIVING

        Question. The NHTSA budget proposes a new initiative to award
    discretionary grants to States to demonstrate the effectiveness of a
    comprehensive approach to reducing impaired driving.
        Ms. Hamilton and Mr. Hurley, I am interested in your thoughts about
    this new discretionary grant program and how effective you both believe
    that it will be.
        Answer. NHTSA's initiative is likely to be effective in the 13
    States that are included, but by definition, it is not likely to have
    much, if any, effect on the other States and jurisdictions. This is
    exactly the kind of program NHTSA should conduct as part of its Section
    403 activities, but simply does not credibly address the national
    impaired driving problem. After 20 years of progress, impaired driving
    fatalities has increased in each of the last 3 years. This is an
    unmistakable trend requiring urgent national strategies such as those
    set forth in the DeWine-Lautenberg bill, S. 1139.

                               CHILD SAFETY SEATS

        Question. For the past several years, the Committee has provided
    funding for child safety seat campaigns. These campaigns have been very
    successful at increasing the proper use of child safety seats while we
    developed the second generation of child safety seats which are now
    accompanied by LATCH systems in all new passenger vehicles to allow for
    easier installation and safer car seats.
        One of the reasons that this campaign has been so successful is due
    to the broad base of support coming from State and local public safety
    community, community activists, and private industry. Without this
    coalition of support it is difficult to imagine that the campaign would
    have had the effect of continued decreases in child fatalities.
        Mr. Hurley, what is the Safety Council's view of how to build upon
    the positive results we are seeing in child occupant protection as well
    as how programs like this can be targeted in other areas to safe lives
    on our roads?
        Answer. Child passenger safety is a remarkable public health
    success story. Car seat use, the vaccine for the leading risk kids
    face, was 2 percent when Tennessee enacted the first mandatory use law
    in 1977. Now, it is nearly universal for infants, excellent for
    toddlers, and still lagging in booster seat use. Leadership by this
    subcommittee, the National Transportation Safety Board, and many other
    public and private organizations has made this possible. Correct use is
    one key part of this issue. Kids don't set the level of risk they face
    on the highway. Adults do that for them, hence the special obligation
    we all have to get it right. In less than 5 years, the number of
    Certified Child Passenger Technicians has gone from a mere handful, to
    more than 30,000 today. There are very few places in the United States
    where correct use assistance is unavailable.
        Having said that, it is essential to focus on two issues that
    sometimes get overlooked. Beginning with the air bag crisis of mid-
    1990's, major efforts were undertaken to get kids properly restrained
    in the rear seat, where data indicated they are 35 percent better
    protected, with or without a front passenger air bag. With the advent
    of advanced air bag systems beginning in September 2003, there is a
    very real concern that some of the hard won gains may be lost to the
    implied but false message that is OK to put kids back in the front
    seat. It will take all of our collective efforts to re-imprint on a new
    generation of parents that proper restraint in the back seat, where
    possible, is still the best advice. Second, there has been a 20 percent
    reduction in child passenger fatalities in the last 5 years. While
    correct use is essential, it is critical to point out that most child
    passenger fatalities come not from incorrect use, but rather non-use.
    The clear majority of child passenger fatalities are completely
    unrestrained, far more often with unbelted drivers. And the leading
    risk children face from drunk drivers is as passengers of the drunk
    driver themselves. There is simply no excuse for these findings. The
    greatest proportion of the 20 percent reduction in child passenger
    fatalities has come from high visibility zero tolerance enforcement of
    seat belt, car seat, and drunk driving laws. Through the leadership of
    this subcommittee, we are very hopeful that funding will be provided to
    continue these lifesaving efforts.
                                     ______

                  Questions Submitted by Senator Patty Murray

              NHTSA'S INCENTIVE PROGRAM AND PRIMARY SEAT BELT LAWS

        Question. When the Federal Government has tried to get the States
    to enact meaningful safety laws, it has taken two approaches. In some
    instances, like the Minimum Drinking Age Act and the 0.08 law, we have
    withheld highway construction funds from States that don't pass the
    law. In other instances, we have provided incentive payments to get
    States to make safety improvements. The record is clear, when we
    sanction highway construction funds, all the States eventually comply.
    When we provide incentive payments, the record is quite mixed. NHTSA's
    own data show that seat belt use increases as much as 15 percent in
    States that have primary seat belt laws on the books. Currently, 18
    States and the District of Columbia have primary seat belt laws in
    effect, including my own State of Washington. Yet, the 2004 budget
    request includes $100 million for a new primary seat belt incentive
    grant program. This program is designed to encourage the remaining 32
    States to pass a primary seat belt law.
        Mr. Hurley, how confident are you that States will pass a primary
    seat belt law as a result of this grant program?
        Answer. We are very hopeful at the Air Bag & Seat Belt Safety
    Campaign that the $100 million proposed by the administration will
    help, but not guarantee the passage of more primary belt laws. The
    fiscal situation in most States has increased their interest in
    incentives such as the one being proposed. In Illinois, where Campaign
    support was successful in helping Illinois to pass a primary law, the
    prospect of significant Federal incentive funds was very helpful, but
    not the primary factor for passage. In Florida, and Massachusetts, the
    funds increased the priority of the issue, but were not in themselves
    sufficient to overcome opposition to primary belt legislation. While we
    fully support the proposal, the National Safety Council also supports
    highway trust fund sanctions in the final year of the upcoming
    reauthorization of the highway program.

                         MOTORCYCLE FATALITY INCREASES

        Question. Motorcycle deaths have gone up every year since 1997 and
    the deaths of older cyclists have been rising for an even longer
    period. The early estimates for 2002 indicate that the overall number
    of motorcycle fatalities increased by 3 percent over 2001. And while
    the number of fatalities for younger riders decreased, for riders over
    the age of 50, there was an astounding 24 percent jump in the number of
    motorcyclists killed.
        Mr. Hurley, where do you think NHTSA should concentrate its efforts
    to improve motorcycle safety?
        Answer. The three areas where NHTSA should concentrate its efforts
    are: (1) defining through evaluation the contribution of repeal of
    helmet laws to the increased fatalities by State and nationally, (2)
    defining through peer reviewed evaluation the extraordinary taxpayer
    subsidies to injured motorcyclists, such as the Harborview study of 10
    years ago that found the costs of caring for injured motorcyclists at
    64 percent paid by the taxpayers, and (3) defining through evaluation
    and reducing through enforcement the frequency of alcohol impaired
    motorcycle fatalities and injuries.

                        NHTSA'S PAID ADVERTISING PROGRAM

        Question. Over the last few years, this subcommittee provided
    funding for paid media to support the highly successful ``Click It or
    Ticket'' program. In fact, the national ads for this program have been
    running this month during the seat belt mobilization campaign. This
    year, we expanded the program to include national media for the drunk
    driving mobilizations that will occur in July and December.
        Dr. Runge and Mr. Hurley, what kind of feedback have you been
    getting about the ``Click It or Ticket'' ads?
        Answer. The feedback on the advertising has been overwhelmingly
    positive. The Air Bag & Seat Belt Safety Campaign conducts both pre-
    and post-public opinion surveys before and after each Mobilization.
    There is now tracking data spanning the past 7 years.
        Unaided recall of ``Click It or Ticket'' among all Americans jumped
    from 6 percent in the pre-test to 28 percent after the Mobilization.
    (Unaided recall means respondents could say with no prompting that the
    seat belt enforcement effort they had heard of was ``Click It or
    Ticket'' in an open end question.) Among the target audience of men 18-
    34, unaided recall of ``Click It or Ticket'' moved 30 percentage points
    from the pre-survey of 12 percent to the post-survey of 42 percent.
        More importantly, recall of the ad is linked to higher recall of
    key campaign success measures such as perceived likelihood of getting a
    ticket for not wearing a seat belt and the perception that police are
    more aggressively enforcing seat belt laws. For the first time, there
    was a statistically significant increase in the percentage of men 18-34
    who said their seat belt use had increased in the past 6 months. This
    age group is one of the hardest to reach with this type of public
    health message, according to researchers.
        We also found clear evidence that cumulative advertising over
    repeated Mobilizations increases the overall effectiveness of the
    Mobilizations and the impact on key campaign success measures. These
    measures were all higher in States where paid advertising has run for
    consecutive years compared to States where paid advertising ran only in
    May 2003.
        It's clear from this data that the ad campaign was effective in
    reaching and influencing our target audience.

                   NHTSA'S OVERSIGHT OF STATE SAFETY PROGRAMS

        Question. The second word in the administration's SAFETEA proposal
    stands for ``accountable.'' Yet, the recent report released by the
    General Accounting Office draws the conclusion that NHTSA has been
    inconsistent in holding the States accountable for their highway safety
    programs. The GAO reported that NHTSA's use of management reviews
    varied from region to region and that the regional offices have made
    limited and inconsistent use of improvement plans. While some States
    may do a good job at meeting their safety objectives, it is clear that
    others may benefit from greater input and guidance from NHTSA.
        Ms. Hamilton and Mr. Hurley, how would you assess NHTSA's oversight
    of State highway safety plans and what specific changes would you
    suggest to improve their accountability?
        Answer. The recent GAO report lays out very well the critical need
    for effective oversight by NHTSA of federally funded State programs. It
    simply was a mistake for NHTSA to unilaterally give up State plan
    approval. For the best performing States, the plan approval process
    should be minimal, with the emphasis on how NHTSA can best assist the
    achievement of excellence. For the middle tier States, the plan
    approval should make sure that scarce funding is only spent on those
    things proven to work. For the bottom performing States, there should
    be extensive review of the State programs, beginning with the data.
    Where States are unwilling or unable to meet reasonable objectives,
    there should be consideration of what other delivery mechanisms can
    best meet critical needs.

             COORDINATED GOVERNMENTAL EFFORT TO FIGHT DRUNK DRIVING

        Question. Roughly one-third of all drivers arrested or convicted
    for DUIs or DWIs were repeat offenders. These individuals are over-
    represented in fatal crashes and less likely to be influenced by
    education or legal sanctions. Given that these hard-core drinkers are
    probably the toughest individuals to reach, it seems that there ought
    to be a coordinated governmental effort to reach them. Last year, we
    directed NHTSA to work with the Attorney General's office to identify
    the best strategies to reduce plea bargaining and to make sure that
    impaired driving convictions are applied in a consistent manner. Beyond
    that, I think it is important that we look at the public health aspects
    of this problem to make sure that people are getting the treatment that
    they need. I know that NHTSA spoke to the National Institute on Alcohol
    Abuse and Alcoholism in February about how the two agencies might work
    together on this very challenging problem.
        Mr. Hurley and Ms. Hamilton, do you have any thoughts you would
    like to add?
        Answer. Perhaps the most critical piece missing in the current
    effort to reduce drunk driving is now being implemented through the
    leadership of this subcommittee. The advent of national paid
    advertising to support coordinated enforcement will likely have
    substantial results. In North Carolina's ``Booze It and Lose It''
    Campaign in 1995, arrests of intoxicated motorists at nighttime
    checkpoints were cut by more than half, to .87 percent. This remains
    one of the lowest levels ever achieved in this country. The National
    Safety Council also fully supports MADD's Hard Core Drunk Driver
    Initiative.

                    BLUE RIBBON COMMISSION ON HIGHWAY SAFETY

        Question. The administration's SAFETEA proposal includes a total of
    $7 million over 6 years for a National Blue Ribbon Commission on
    Highway Safety. The purpose of this safety commission is to study the
    Nation's highway safety needs and to make recommendations on how to
    reduce highway fatalities. The final report of the Commission would be
    delivered as late as February 1, 2009.
        I'd like the entire panel to answer this question. Given what we
    know about the benefits of seat belts, tough drunk driving laws, and
    strong vehicle safety standards, why do we need 6 years and $7 million
    to study a problem to which we already know the solutions?
        Isn't this Commission just an excuse to put off meaningful action
    on the safety remedies that we already know work?
        Answer. The National Safety Council believes that most national
    commissions have not delivered on their promise, requiring far more
    work and yielding few tangible results. One clear exception was
    President Reagan's Drunk Driving Commission which consolidated what was
    known and proven to work, providing a blue print for progress for the
    next 20 years. As Sen. Murray indicated, commissions are often a
    convenient way of postponing critical decisions, rather that enabling
    real progress to occur.
        Much of what is necessary for reducing fatal and serious injuries
    on the highway is known in the peer review literature. What is lacking
    is often the political will to bring about progress. Commissions are a
    weak lever on political will. Before allowing such an initiative to go
    forward, thorough discussion and debate should take place on the
    Commission's precise leadership, membership, and scope. The Commission
    should also be strictly focused on only those efforts that have been
    proven to work.

                             CONCLUSION OF HEARINGS

        Senator Campbell. So I appreciate you appearing here, and
    the subcommittee is recessed. Thank you.
        [Whereupon, at 11:58 a.m., Thursday, May 22, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

      DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
              RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                                           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 Transportation, Treasury and General
    Government, and Related Agencies for inclusion in the record.
    The submitted materials relate to the fiscal year 2004 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 the National Association of Railroad Passengers
        The National Association of Railroad Passengers is a non-partisan
    organization funded by dues and contributions from approximately 16,000
    individual members. We have worked since 1967 to support improvement
    and expansion of passenger rail, particularly intercity passenger rail.
        We strongly support Amtrak's request for $1.812 billion in fiscal
    2004. We recognize the constraints placed on your ability to find
    funding for all transportation needs while forced to operate in an
    environment dominated by guaranteed spending programs. Nevertheless, we
    believe the committee has an obligation to develop a policy that puts
    more balance in the nation's transportation system. Minor (or even
    major) reductions in Amtrak's route structure would not yield any
    meaningful savings for a couple of years but would drain energy--at
    Amtrak, on Capitol Hill, and in the executive branch--away from the
    productive efforts David Gunn has initiated to ``reform'' Amtrak from
    within.
        One cannot overstate the importance of his efforts to get Amtrak to
    a ``state of good repair'' for the first time ever. This effort--
    combined with capital improvements such as recent track work on the
    Chicago-St. Louis line and signal improvements on part of the Chicago-
    Detroit line--could produce very impressive ridership, even before
    there are any results from the much-needed higher speed rail program
    that we expect the authorizing committees to approve outside the
    regular appropriations process.
        We appreciate that the Bush Administration's request for $900
    million is 73 percent higher than its $521 million request for fiscal
    year 2003, but this would be a 14 percent cut from what Amtrak received
    in fiscal year 2003, and is only half of what Amtrak says it needs in
    fiscal year 2004. It has been said that $900 million nonetheless
    represents an increase over ``average'' funding levels of the past ten
    years--but Amtrak's delicate financial situation today is a direct
    result of inadequate funding through much of that period, and Amtrak's
    2004 request of $1.812 billion is meant to start to make up for those
    past deficiencies. Looked at another way, $900 million is 40 percent
    below the inflation-adjusted average for 1982-1984.
        More recently, between fiscal year 1997 and 2002, Amtrak averaged
    $1.1 billion a year in federal funding, with much of that coming
    through the Taxpayer Relief Act of 1997 (TRA), which provided Amtrak
    with $2.2 billion outside of the appropriations process.
                  public wants more travel choices, not fewer
        Although public support for passenger rail was well established
    before September 11, 2001, as reflected in polls discussed near the end
    of this statement, the 9/11 catastrophe focused and energized public
    interest in having more transportation choices, not fewer, and thus in
    retaining and improving our national passenger rail network.
        Because of the combined impacts of the ``airport hassle'' factor
    and fear of flying, people who formerly flew to avoid four-hour ground
    trips now accept ground trips of about eight hours in order to avoid
    flying. Ironically, the majority of those trips are by car even though
    plane travel remains far safer than driving. Where good train service
    is offered in such markets, business is thriving even in the face of a
    weak travel and tourism industry. The public--by its purchase of
    tickets--has shown that it will ride conventional-speed services in
    large numbers in many markets. Such trains need not come anywhere near
    the speed of a TGV; they need only be reasonably fast and reasonably
    frequent to be attractive to many travelers. This is not to deny the
    importance of continuing to work towards world-class high speed rail,
    particularly in longer corridors.
        During the first seven months of Fiscal 2003 (October-April), the
    following services posted travel increases in the face of extraordinary
    weakness in the travel and tourism markets. The percentages shown are
    increases in passenger-miles compared with the year-earlier period.
    (The passenger-mile--one passenger carried one mile--is the standard
    measure of intercity travel.)
      --Chicago-Grand Rapids, +30.7 percent.
      --New York-Pittsburgh Pennsylvanian, +21.1 percent. \1\
    ---------------------------------------------------------------------------
        \1\ Primarily the result of restructuring the train to run at
    ``passenger-friendly'' rather than ``freight-friendly'' times.
    ---------------------------------------------------------------------------
      --Boston-Portland Downeaster service, +12.5 percent.
      --Pacific Surfliner (primarily San Diego-Los Angeles-Santa Barbara),
            +10.6 percent.
      --Chicago-New Orleans City of New Orleans, +9.7 percent.
      --San Joaquin Valley Service, +7.6 percent.
      --New York-Charlotte Carolinian, +7.2 percent.
      --Chicago-Carbondale Illini, +7.1 percent.
      --Chicago-Quincy Illinois Zephyr, +6.7 percent.
      --Sacramento Area-Bay Area-San Jose, +6.5 percent.
      --Chicago-Seattle/Portland Empire Builder, +5.9 percent.
      --Chicago-St. Louis, +5.8 percent.
        Reflecting the relationship between an aging population and
    interest in alternatives to driving, the American Association of
    Retired Persons in its new ``Public Policies 2003'' states: ``Congress
    should support nationwide passenger rail service that is integrated and
    coordinated with regional, state and local passenger rail [and should]
    establish a dependable funding mechanism that insures continuing
    passenger rail service.''

                     ANALYZING ROUTE FINANCIAL PERFORMANCE

        DOT Inspector General Kenneth Mead, in February 27, 2002, testimony
    before a House appropriations subcommittee, called operating grants
    needed for long-distance trains (what we call national network trains)
    ``chump change'' compared with ``the annual capital subsidy required to
    continue operating'' Northeast Corridor trains. He said national
    network operating losses are only about 30 percent of NEC capital
    requirements.
        We offer the following comments about measurements:
        First, the passenger mile--one passenger traveling one mile--is the
    standard measure of intercity travel. Trip lengths vary widely and use
    of the passenger-mile reflects that. Thus, subsidy per passenger-mile
    is a more meaningful way to measure the relative efficiency of Amtrak's
    routes. To illustrate how results can differ, the fiscal year 2001 data
    in the Amtrak Reform Council final report showed that the Southwest
    Chief had the fifth best operating ratio but the fifth worst subsidy
    per passenger. (Operating ratio--costs divided by revenues--is another
    good way to measure economic performance.)
        Second, the absolute numbers that have been widely quoted, though
    they exclude depreciation, are based on fully allocated costs
    (including, for example, a share of the Amtrak CEO's expenses) and thus
    exceed savings that might be realized by discontinuing a specific
    route.
        Third, the Sunset Ltd. in particular has been hampered by
    exceedingly poor on-time performance, much of which is related to heavy
    track work on a largely single-track railroad as Union Pacific has
    worked to eliminate deferred maintenance on former Southern Pacific
    lines. There is hope for improvement. Union Pacific Chairman and CEO
    Dick Davidson, Railway Age magazine's ``Railroader of the Year,'' is
    quoted in their January issue saying, ``We do want to be a good partner
    with Amtrak, and we're doing our best to get our railroad upgraded on
    the Amtrak routes and work with them to improve performance.''
        Finally, our Association strongly believes that the existing
    network is a skeletal foundation, from which the system should grow,
    and that all the routes that ``should'' be discontinued--and some that
    should not have been--have already been discontinued. Thus, the only
    purpose for ranking routes would be to identify where special actions
    might be needed to improve performance, not to identify routes for
    discontinuance.
        We question the relevance of the planning process used to
    restructure the Northeast rail freight network in the 1970s. That
    network was dense and arguably overbuilt, so that it was easy to take
    out many route miles without harming major markets. The Amtrak network
    by contrast is skeletal. The ability to take out individual routes
    without collapsing the system is limited because of the
    interrelationships among the routes in terms of shared revenues
    (connecting passengers) and shared costs (common facilities).

              EXAMPLES OF IMPROVED EFFICIENCY AT ``GUNN'S AMTRAK''

        Gunn and his key people have impressive knowledge specific to
    railroading and to budget discipline, which appears to be paying off
    already.
        One change visible to passengers is the now-consistent, dining-car
    requirement that sleeping-car passengers sign their names and room
    numbers. Meals are included in the sleeping-car charge, but not in
    coach fares. Reinstitution of the signature process--and an audit
    (comparing dining car checks with passenger manifests)--aims to
    determine more accurately food/beverage revenues and costs and to help
    eliminate abuse (e.g., coach passengers getting free meals).
        Amtrak is fixing, scrapping or selling equipment that has been out
    of use, realizing that there is a cost to the indefinite storage of
    such equipment. Elderly, costly-to-maintain coaches have been kept in
    service (especially on the New York-Philadelphia ``Clockers'') while
    modern equipment that needed only minor repairs was sidelined; Amtrak
    is undertaking those minor repairs.
        Amtrak is making good use of sizable inventories left over from
    previous projects cut short by funding shortages. For example, Amtrak
    has found orange upholstery to use when overhauling coaches with ratty
    old upholstery of the same color. The end result may not be the color
    one would have chosen for the new century, but it will be clean and
    new--and did not require any new purchase.
        Amtrak is covering a lot of old carpeting with plastic, which is
    easier to clean and doesn't hold dirt, odor, or splashed coffee.
        A new frequency--the 10th Acela Express on the New York-Boston
    run--was added January 27 without increasing crew costs.
        Amtrak's organizational structure has been flattened by elimination
    of the Eastern and Western general manager positions, so that the seven
    divisional general superintendents now report directly to the vice
    president of operations.
        Amtrak announced January 24 that it would close its Chicago call
    center, the smallest of its three centers, at the end of December. Even
    if the number of agents added at empty desks in Riverside and
    Philadelphia equals the number of agent positions eliminated in
    Chicago, Amtrak expects to save $3 million a year in management,
    facility and technology costs. Any net reduction of agents--such as
    might be possible because of the continuing migration of business to
    the internet--would increase the savings.

         APPENDIX I.--POLLS INDICATE PUBLIC SUPPORT FOR PASSENGER RAIL

        Polls over the years have consistently shown public support for
    faster, more frequent, and reliable passenger trains, including two
    national polls last summer. A poll conducted by CNN/Gallup/USA Today
    near the height of Amtrak's June, 2002, cash crisis (June 21-23) found
    that 70 percent of the public support continued Federal funding for
    Amtrak. Similarly, The Washington Post found that 71 percent of
    Americans support continued or increased federal funding for Amtrak
    (August 5, 2002, article reporting on July 26-30 poll).
        An October 27, 1997, nationwide Gallup Poll sponsored by CNN and
    USA Today asked whether ``the federal government should continue to
    provide funding for the cost of running Amtrak, in order to ensure that
    the U.S. has a national train service, or the federal government should
    stop funding Amtrak, even if that means the train service could go out
    of business if it doesn't operate profitably on their own.'' Favoring
    continued funding were 69 percent of respondents, with 26 percent
    against (and 6 percent other responses). State-specific polls also have
    been positive.
    Wisconsin
        A poll by Chamberlain Research Consultants of Madison, released by
    the Wisconsin Association of Railroad Passengers in June, 2002,
    indicated that
      --77 percent of Wisconsin residents ``support a nationwide system of
            passenger trains with increased routes, frequencies, and
            shorter travel time.''
      --76.6 percent said they would use the trains if the planned nine-
            state Midwest Regional Rail network becomes available to them.
      --54.3 percent responded positively to this question: ``If federal
            funding is available for improving intercity passenger rail
            services, Wisconsin may try to attract these rail improvement
            funds by pledging to pay for a portion of the project with
            state money as we do now with highway and airport projects. Is
            this something you favor, oppose, or neither favor nor oppose
            as a way to raise money to develop passenger rail services in
            Wisconsin?''
        The survey, which was conducted over a week-and-a-half ending in
    mid-February, took place as the future of Amtrak and the need for a
    nationwide rail passenger service was being debated by Congress, and as
    Wisconsin state government wrestled with its most serious financial
    crisis ever. More information is available at http://www.wisarp.org.
    Ohio
        The Ohio State University Center for Survey Research (OSU-CSR)
    released a poll (``Tracking Ohio'') on March 8, 2001, which found that
    80 percent of Ohioans want the state to develop passenger rail service.
    The following question produced a 74 percent positive response: ``If
    Ohio had a modern, convenient and efficient passenger rail network, do
    you think it would improve the quality of life in Ohio or would it have
    no effect?'' About two-thirds (65 percent) of respondents said state
    money should be used to attract federal passenger-rail funding to Ohio,
    if such federal funding were available. More than half (53 percent)
    said the best way to relieve road traffic congestion is to ``improve
    all forms of transportation including mass transit and high-speed
    rail.'' The statewide poll was conducted by telephone January 2-31,
    2001, as part of the OSU-CSR's monthly Buckeye State Poll. The margin
    of sampling error was no more than +/-4.3 percent.
    New York
        In 1998, the Marist College Institute for Public Opinion
    (Poughkeepsie) released results of a poll it conducted of New York
    State registered voters regarding state investment in intercity rail
    passenger service (trips longer than 75 miles one way). Findings: 82
    percent believed that having modernized intercity passenger train
    service is at least as important as having good highways and airports
    (of this figure, 12 percent felt rail service was even more important);
    87 percent favored an increase in government spending for intercity
    passenger train service. The poll was based on approximately 600
    responses with a margin of error of no more than
    +/-4 percent. It was commissioned by the Empire State Passengers
    Association and the Empire Corridor Rail Task Force.

             APPENDIX II.--BENEFITS OF AMTRAK AND PASSENGER TRAINS

        In crowded corridors, passenger trains represent vital people-
    moving capacity and help relieve air and road congestion. This benefit
    will grow over time as travel demand continues to grow while airport
    and highway construction face more intense local opposition and ever-
    tighter limits on funding and sheer availability of land.
        Amtrak is far safer than auto travel.
        During inclement weather, Amtrak is safer and usually more reliable
    than airplanes and buses. Amtrak was the only thing going in the
    Northeast in the recent President's Day storm.
        In most cities, Amtrak helps mass transit, downtown areas and
    transit-dependent people by serving--and increasing the visibility and
    economic viability of--transit-accessible downtown locations. Amtrak
    feeds connecting passengers to transit. Amtrak shares costs with
    transit at joint-use terminals and on joint-use tracks. Positive
    impacts have been observed even in small cities with minimal Amtrak
    service. Mayor John Robert Smith of Meridian, Miss., on Amtrak's New
    York-Atlanta-New Orleans run (one train per day in each direction),
    says property values have tripled in recent years around the railroad
    station, site of a relatively new intermodal terminal.
        By contrast, new airports intensify energy-inefficient suburban
    sprawl and stimulate auto-dependent development. This leads to the
    social costs of getting transit-dependent people to work, or the need
    to address the consequences of their not working.
        Amtrak is important to those who cannot fly due to temporary or
    permanent medical problems, and to those for whom physical and
    financial considerations rule out driving long distances, for example,
    seniors and students. (The editor of Frequent Flier, forced by doctor's
    orders to take the train to Florida, wrote a favorable column about the
    trip.) Indeed, some of those medical problems have come about as a
    result of flying.
        Amtrak serves many communities where alternative transportation
    does not exist, is not affordable or only serves different
    destinations. Trains can make intermediate stops at smaller cities at
    minimum cost in energy and time. This is apparent in corridors--where
    benefits go to such cities as Jefferson City, Lancaster, Trenton,
    Kalamazoo, Wilmington, Bloomington/Normal and Tacoma. It also means,
    for example, that the Empire Builder can stop at eight small cities in
    Washington (plus Seattle and Spokane), 12 in Montana and seven in North
    Dakota without compromising the train's appeal to those riding between
    Chicago or Minneapolis and Seattle or Portland. Similarly, the
    California Zephyr serves five Colorado points (plus Denver) and five
    points each in Iowa and Nebraska. Also, Amtrak serves 14 North Carolina
    points.
        Here is an example of long-distance travel that I encountered on
    the Southwest Chief: a mother and her 14-month-old child rode from
    Garden City, Kansas, to Barstow, California. The family was moving to
    California; the husband was driving the U-Haul; the wife and child were
    on the train ``so the move would not be so traumatic'' for the child.
    They did not consider the plane because they felt it would be too
    cramped for the child. Also, airfare out of Garden City was
    prohibitive.
        Amtrak is part carrier (like United and Greyhound) and part
    infrastructure. Thus Amtrak provides important passenger-moving
    capacity, unlike airlines and bus companies. In much of the Northeast
    Corridor and a few other places, Amtrak is the rail equivalent of the
    air traffic control system, airport authorities and airlines. (Among
    the ``other places'': the Chicago terminal, part of the Chicago-Detroit
    line and the track between Albany, New York, and the Massachusetts
    state line.) Elsewhere, Amtrak is the only carrier with legal access to
    freight railroads' tracks--a quid pro quo for relieving the railroads
    of their passenger-train obligations in 1971.
         Amtrak's national network trains are transportation ``melting
    pots.'' Intercity travelers by all modes had an average annual income
    of $70,000. The comparable figure for travelers on Amtrak's national
    network trains is $51,000. [This is 1999 data inflated to 2002 and thus
    probably good for 2003 as well.] However, the majority of passengers on
    these trains ride coach. Surveys available to us six years ago
    indicated that, for 30 percent of coach passengers traveling over 12
    hours, average income was less than $20,000 (for 11 percent, it is less
    than $10,000). Obviously, most standard- and deluxe-room sleeping car
    passengers have considerably higher incomes and pay much higher fares.
    Nonetheless, anyone who characterizes these trains as land versions of
    cruise ships should try walking the coaches, especially at night.
        Trains, especially on longer trips, offer a form of social contact
    almost lost in this country today--the opportunity to meet and relax
    with total strangers that one may or may not ever see again.
        Amtrak over much of its network enables one to enjoy gorgeous
    scenery in total comfort. Some examples: the Connecticut and California
    coastlines, the Hudson River in New York, the Colorado Rockies, the
    mountains of Vermont and northern New Mexico, Glacier Park in Montana
    and West Virginia's New River Gorge.
        Amtrak uses only 79 percent of the energy airlines use to move a
    passenger a mile, and only 22 percent of the energy general aviation
    uses (to do the same). This statement is based on the following 2000
    data from the Oak Ridge National Laboratory's annual Transportation
    Energy Data Book (Edition 22, published September 2002) and available
    on-line: Amtrak--2,902 British thermal units per passenger-mile;
    Airlines--3,666; General aviation--12,975. Just two years earlier, in
    1998, Amtrak was at 2,441. Amtrak is much less polluting than
    airplanes. (Energy efficiency is a good proxy for air pollution.)
        Thanks to a growing array of connecting buses available with train
    travel in a single ticket transaction, Amtrak puts people on intercity
    buses who would not otherwise have considered using them. ``Thruway''
    is Amtrak's copyrighted name for connecting buses that can be booked
    and ticketed through Amtrak's reservation system. Thruways first
    developed in a big way in California, where the state underwrites an
    impressive network of dedicated, feeder buses. Elsewhere, depending on
    the situation, Amtrak or the private bus companies themselves bears the
    financial risks for many Thruway runs themselves.

                            APPENDIX III.--SUBSIDIES

        Virtually all federal spending on highways is generated from user
    fees. However,
      --Federal policy helps encourage states and local governments to
            spend primarily on highways and aviation, where federal funds
            cover 50-80 percent of project costs, and not on railroads,
            where federal funding generally is zero.
      --A total of $34 billion in 2001 highway spending came from non-user
            sources in all levels of government (while $10 billion in
            highway user payments went to ``nonhighway purposes'' (Table
            HF-10, Highway Statistics 2001).
      --A mode-specific trust fund system insures massive continued
            investment in the modes that are already dominant, regardless
            of whether they are the best solution for tomorrow's
            transportation problems, and regardless of the needs of the
            users paying those taxes. A large proportion of them are soon
            to be senior citizens who will place greater value on non-
            automobile travel choices.
      --User fees clearly do not cover environmental and other external
            costs associated with highways and aviation.
        The proportion of general funds covering FAA Operations grew by
    about $2 billion from fiscal year 2002 to fiscal year 2003 and now
    represents about half of FAA Operations costs. As to airport
    construction is done through public rather than private finance. The
    savings associated with financing an airport project with tax exempt,
    government-backed bonds rather than with commercial loans sought
    directly by the airlines is substantial. The various sources available
    to fund airports, like the mode-specific trust fund system, fall into
    the category of reinforcing the dominance of modes that are already
    dominant whether or not they offer the best solution for today's
    transportation problems.
                                     ______

     Prepared Statement of the People for the Ethical Treatment of Animals
                                     (PETA)
        Chairman Shelby, Ranking Member Murray, 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 the fiscal year 2004 appropriations for the
    Department of Transportation (DOT). Our testimony will focus on
    chemical tests allowed or required by the DOT to be conducted on
    animals.
        As you may know, the DOT requires hazardous materials to be
    categorized and labeled for shipping. Traditionally, a chemical's
    dermal corrosive potential has been estimated by applying the substance
    to the shaved, abraded skin of animals. Fortunately, there are non-
    animal test methods that are just as effective. Human skin equivalent
    tests such as EpiDermTM and EpiSkinTM have been
    scientifically validated and accepted in Canada, the European Union,
    and by the Organization for Economic Cooperation and Development (OECD)
    (of which the U.S. is a key member) as total replacements for animal-
    based skin corrosion studies. Another non-animal method,
    CorrositexTM, has been approved by the U.S. Interagency
    Coordinating Committee on the Validation of Alternative Methods.
    However, the DOT continues to allow the use of animals in many skin
    corrosion studies, despite the availability of data from validated,
    non-animal tests.
        In 2000, PETA discovered that the DOT was using rabbits for
    corrosivity tests for which, according to the agency's own guidelines,
    CorrositexTM could have been used instead. In 2001, at
    PETA's urging, the DOT's Office of Hazardous Materials Enforcement
    added language to its operation procedures requiring that DOT staff
    arranging for testing of materials ``inform the prospective laboratory
    that you want testing to be conducted using the CorrositexTM
    testing protocol, when testing using animals is not required. Advise
    the laboratory that testing using animals is to be conducted only when
    absolutely necessary.''
        We were glad to see that change in policy. However,
    CorrositexTM is not considered sufficient by the DOT to test
    all of the hazardous materials for which the agency requires
    corrosivity tests. According to the DOT's policy,
    CorrositexTM can only replace animal tests for organic and
    inorganic acids and bases as well as acid derivatives. PETA would like
    the agency to require the use of EpiDermTM and
    EpiSkinTM so that all of the hazardous materials could be
    tested for corrosivity with non-animal methods. The cruel rabbit tests
    for corrosivity are no longer necessary in any situation.
        Secondly, to our knowledge, there is no DOT policy of enforcement
    to ensure that only non-animal methods are used. Therefore, we are
    requesting that the subcommittee include report language ensuring that
    no funds for the DOT (including salaries or expenses of personnel) may
    be used for the purpose of assessing data from an animal-based test
    method when a non-animal test for the desired endpoint has been
    validated and/or accepted by the OECD or its member countries.

                      ANIMAL TESTS CAUSE IMMENSE SUFFERING

        Traditionally, the degree to which corrosive materials are
    hazardous has been measured by the very crude and cruel method of
    shaving rabbits' backs and applying the test substance to the animals'
    abraded skin for a period of hours. As one can imagine, when highly
    corrosive substances are applied to the backs of these animals who are
    not given any anesthetics or analgesics, the pain is excruciating.

       THE RELIABILITY AND RELEVANCE OF ANIMAL TESTS TO HUMAN BEINGS IS
                                  QUESTIONABLE

        The assessment of damage to the rabbits' skin is highly subjective
    and variable, which limits the reproducibility of the animal test
    (which, unlike non-animal tests, has never been scientifically
    validated). One study, which compared the results of rabbit tests with
    real-world human exposure information for 65 chemicals, found that the
    animal test was wrong nearly half (45 percent) of the time in its
    prediction of a chemical's skin damaging potential (Food & Chemical
    Toxicology, Vol. 40, pp. 573-92, 2002).

               VALIDATED METHODS EXIST WHICH DO NOT HARM ANIMALS

        Fortunately, non-animal test methods, such as EpiDermTM,
    EpiSkinTM, and CorrositexTM, have been found to
    accurately predict chemical corrosivity without harming animals. In
    fact, although the DOT continues to accept data from animal tests, the
    agency specifically allows an exemption from animal testing for organic
    and inorganic acids and bases as well as acid derivatives if
    CorrositexTM tests are used instead. The DOT has the power
    to allow a similar exemption for EpiDermTM and
    EpiSkinTM so that no animal tests would be required for any
    of DOT's skin corrosivity data needs.
        EpiDermTM and EpiSkinTM are comprised of
    human-derived skin cells, which have been cultured to form a multi-
    layered model of human skin. The CorrositexTM testing system
    consists of a glass vial filled with a chemical detection fluid capped
    by a membrane, which is designed to mimic the effect of corrosives on
    living skin. As soon as the corrosive sample destroys this membrane,
    the fluid below changes color or texture. Users simply record the time
    it takes for the sample to break through the membrane. Then, depending
    on their needs, they can assign the proper U.N. Packing Group
    classification for DOT compliance, or use the data to substantiate
    marketing claims.

                       NON-ANIMAL TEST METHODS SAVE TIME

       Unlike animal testing that can take two to four weeks,
    CorrositexTM testing can provide a Packing Group
    determination in as little as three minutes and no longer than four
    hours.

                 THE DOT CONTINUES TO ALLOW THE USE OF ANIMALS

        From materials obtained through the Freedom of Information Act,
    PETA learned that the DOT itself has used rabbits to test the
    corrosivity of products whose labeling accuracy was questioned by a
    competitor.
        Listed below are some of the products that the DOT has tested on
    animals.

    ------------------------------------------------------------------------
                  Name of Product                          Results
    ------------------------------------------------------------------------
    Spoke Wheel Cleaner.......................  Full-thickness skin
                                                 destruction.
    Whitewall Cleaner.........................  Full-thickness skin
                                                 destruction.
    Savage Acid...............................  Full-thickness skin
                                                 destruction.
    Goodbye Graffiti..........................  Full-thickness skin
                                                 destruction.
    Heavy Duty Spoke Wheel Cleaner............  Full-thickness skin
                                                 destruction.
    Amazing Rust Stain Remover................  Full-thickness skin
                                                 destruction.
    Oxalic Acid...............................  Tissue necrosis.
    ------------------------------------------------------------------------

                                    SUMMARY

        The skin corrosivity of all the products listed above could--and
    should--have been measured using CorrositexTM,
    EpiDermTM, or EpiSkinTM. There simply is no
    excuse for causing this kind of suffering to animals when three fully
    validated non-animal tests are available.
        We therefore hereby request, on behalf of all Americans who care
    about the suffering of animals in toxicity tests, that you please
    include language in the report accompanying the fiscal year 2004
    Transportation, Treasury and General Government Appropriations bill
    stating that no funds for the DOT (including salaries or expenses of
    personnel) may be used for the purpose of assessing data from an
    animal-based test method when a non-animal test for the desired
    endpoint has been validated and/or accepted by the OECD or its member
    countries.
        Thank you for your consideration of our request.
                                     ______

         Prepared Statement of the Coalition of Northeastern Governors

        Dear Mr. Chairman: As the Subcommittee begins the fiscal year 2004
    transportation appropriations process, the Coalition of Northeastern
    Governors (CONEG) is pleased to share with the Subcommittee testimony
    on the fiscal year 2004 Transportation and Treasury Appropriations
    bill. The CONEG Governors commend the Subcommittee for its past support
    of funding for the nation's highway, transit, and rail systems.
    Although we recognize the extensive demands being made upon federal
    resources in the coming year, we urge the Subcommittee to continue the
    important federal partnership role that is vital to strengthening the
    multi-modal transportation system. This system is a critical
    underpinning to the productivity of the Nation's economy and the
    security and well-being of its communities.
        First, the Governors urge the Subcommittee to fund the combined
    highway, transit and safety programs at levels that will continue the
    progress made over the last several years to improve the condition and
    safety of the Nation's highways, bridges and transit systems. In both
    urban and rural areas, these infrastructure improvements are not only
    necessary for moving people, but are also critical for improving the
    projected substantial growth of freight movements along the Nation's
    surface transportation system. The U.S. Department of Transportation's
    2002 Conditions and Performance Report to Congress documented the
    improvements in the physical condition of the nation's highway, bridge
    and transit infrastructure as a result of the federal-state investments
    made under the Transportation Equity Act for the 21st Century (TEA-21).
    It also found that a combined federal highway and transit program of
    $53 billion annually is needed simply to maintain our Nation's highways
    and transit systems in the current conditions, and a program level of
    $74.8 billion is needed to actually improve our Nation's highways and
    transit systems.
        Within the Transit program, the Governors strongly urge the
    Subcommittee to address the solvency of the mass transit account while
    maintaining the basic program structure. Further, the Governors urge
    the Subcommittee to continue the traditional 80/20 federal/state match
    for the New Start Program and the Bus and Bus Facilities Discretionary
    Grant Program. These programs have been instrumental in ensuring that
    needed funds are invested to improve and extend transit services in
    both our urban and rural communities.
        Second, the Governors strongly urge the Subcommittee to provide at
    least $1.8 billion in fiscal year 2004 for intercity passenger rail.
    Intercity passenger rail is an vital part of the Nation's
    transportation system, particularly in the Northeast and Mid-Atlantic
    region, where it provides essential mobility, enhances capacity of
    other modes, and provides much needed redundancy to the Nation's
    transportation system. This funding level is critically needed to
    maintain services and begin a program of essential investments in
    equipment and infrastructure to bring the system back to a state of
    good repair for reliable service. The United States Department of
    Transportation Inspector General has noted that over $1 billion in
    capital funds is needed annually just to sustain the current intercity
    passenger rail system, regardless of who operates that system. The
    states are already major investors in the current intercity passenger
    rail system, with the Northeast and Mid-Atlantic states already
    investing over $4 billion in intercity passenger rail operations and
    infrastructure since 1991. A funding level of $1.8 billion in fiscal
    year 2004 will help provide a period of stability for intercity
    passenger and commuter rail operations while the Congress,
    Administration and states work cooperatively to determine the future of
    intercity passenger rail and Amtrak in the Nation's transportation
    system.
        Third, the Governors urge the Subcommittee to continue funding for
    investments in Intelligent Transportation Systems (ITS). It is vital
    that the Nation's transportation system maintain and enhance the
    capabilities made possible by investments in ITS. The densely populated
    Atlantic Coast region relies heavily on ITS to improve operations every
    day on both highways and transit. The Northeast's rural areas and
    communities also benefit significantly from ITS investments. The
    region's ITS systems, including those provided by TRANSCOM and the I-95
    Corridor Coalition, have demonstrated their critical role, both in the
    emergency management and recovery phases, when security demands put
    added pressure on the region's transportation networks.
        Fourth, safety on the Nation's highways, transit and rail systems
    remains a priority of the Governors. The safety of the aging rail
    tunnels along the Northeast Corridor is a particular concern, and we
    urge the Subcommittee to fund life safety improvements for the
    Baltimore and New York tunnels. The Governors also support maximum
    funding for the Railway-Highway Crossing Hazard Elimination Program. As
    part of the federal-state partnership to correct hazardous conditions
    on the Nation's highways, investments in highway-rail crossings can
    reduce injuries and death from accidents even as they allow higher
    train speeds and increased reliability.
        Fifth, the Governors urge the Subcommittee to provide sufficient
    funding for border crossing and gateway infrastructure projects,
    particularly those transportation projects that are required to meet
    new federal security requirements.
        Sixth, the Governors also support the President's funding request
    of $20 million for the Surface Transportation Board.
        Finally, the Governors support continued federal investment in
    transportation research and development programs, particularly the
    Federal Railroad's Next Generation High Speed Rail program. This
    program enhances safety and helps stimulate the development of new
    technologies, which will benefit improved intercity rail service across
    the Nation.
        The CONEG Governors thank you, Ranking Member Murray and the entire
    Subcommittee for the opportunity to share these priorities and
    appreciate your consideration of these requests.
                                     ______

       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 Senate Committee on
    Appropriations, Subcommittee on Transportation.
        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 Federal Aviation Administration (FAA).
        The fiscal year 2004 budget request for the FAA should support the
    Administration's and the country's commitment to a safe, efficient, and
    modern aviation system. Weather research contributes to this
    commitment. In testimony before the House Committee on Transportation
    and Infrastructure last month, Charles Keegan, Associate Administrator
    for Research and Acquisitions for the FAA, stated, ``weather continues
    to be a major safety factor for all types of aircraft. A recent
    estimate by the FAA identified weather as being responsible for 70
    percent of flight delays and approximately 40 percent of accidents. To
    mitigate the effects of weather, the FAA's Aviation Weather Research
    Program conducts applied research in partnership with a broad spectrum
    of the weather research and user communities with a goal of
    transitioning advanced weather detection technologies into operational
    use.'' Leveraging the work of the research community, the FAA has made
    tremendous strides in understanding and mitigating severe weather on
    aviation. Current research on turbulence, thunderstorm forecasting,
    oceanic weather, icing, and other areas will result in even more
    savings, in lives and dollars.
        Regarding the fiscal year 2004 request for the FAA, I would like to
    comment on accounts related to aviation weather research that fund the
    collaborative work of researchers in universities and federal
    laboratories. These accounts are relatively small in dollar amounts,
    but the work is potentially life saving for our Nation's pilots and
    passengers.

                            FACILITIES AND EQUIPMENT

    C. Overall Aviation Safety Improvement
    1C01 Advanced Technology Development Prototyping
        Within Advanced Technology Development Prototyping of the
    Facilities and Equipment section of budget, please add $5.5 million to
    continue the development and implementation of a terrain-induced
    windshear alert system. This project would be done in the Juneau,
    Alaska, area because of the complex terrain surrounding the airport.
    The technology developed could lead to a National Terrain-Induced
    Windshear and Turbulence Alerting System that would be installed in
    airports nation-wide to help prevent crashes like the one that occurred
    in 1991 on approach to the Colorado Springs Airport. Work would include
    verifying the prototype alert system and transferring the technology to
    FAA systems developers. I urge the Committee to provide $2.98 billion
    for Facilities and Equipment in fiscal year 2004 (the same level as
    last year and a 2 percent increase over the President's request), which
    will fund a number of worthy programs, including the development and
    implementation of a terrain-induced, windshear alert system.

                  RESEARCH, ENGINEERING AND DEVELOPMENT (RE&D)

        Those of us involved in aviation weather research are deeply
    concerned about the fiscal year 2004 request for the FAA Research,
    Engineering and Development (RE&D) budget. The total request for this
    budget is $100 million, $48 million less than the final fiscal year
    2003 appropriated amount and almost half the amount appropriated in
    fiscal year 2002. The Administration's inadequate budget request will
    reduce research in aviation weather by approximately one-third (over 30
    percent), and will result in the termination of a number of critical
    and potentially life-saving projects. I urge the Committee to fund the
    FAA RE&D at $148 million in fiscal year 2004.
    A12. Improve Efficiency of Air Traffic Control System
        Eliminated from the RE&D line in the fiscal year 2004 budget
    request is line A 12. Improve Efficiency of Air Traffic Control System.
    While it is true that airline delays are far less frequent due to the
    decrease in commercial airline traffic attributable to the economic
    slowdown and terrorist activities, the R&D that is now being described
    as relevant only to efficiency clearly has as much to do with safety
    issues as with delays. Research in the areas of severe convective
    weather, visibility hazards, wake turbulence, and oceanic weather would
    be eliminated under the current plan. In order to make this
    appropriation, I ask that the Committee not transfer funds from line
    A11. Improve Aviation Safety (see below). Moving money from one line to
    the other will result simply in the same cuts to important aviation
    safety R&D work. I urge the Committee to restore line A12 and fund
    Weather Research Efficiency, at the very least, at the fiscal year 2003
    appropriated level of $12.1 million.
    A11. Improve Aviation Safety
        Within line A11. Improve Aviation Safety, the Weather Research
    Safety program funds many R&D projects including a focus on turbulence.
    Over half of all turbulence-related injuries are caused by turbulence
    in the vicinity of thunderstorms, leading to $22 million fatalities,
    injuries and aircraft damages annually. Current research is focused on
    forecasting the location and duration of thunderstorms, work that will
    be reduced or terminated if this budget is cut. The request for Weather
    Research Safety is down $1 million from the fiscal year 2003 approved
    bill. Within line A11, Improve Aviation Safety, I urge the Committee to
    provide Weather Research Safety, at the very least, the fiscal year
    2003 appropriated level of $21.9 million.
        On behalf of UCAR, as well as all U.S. citizens who take to the
    skies, I want to thank the Committee for the important work you do for
    this country's scientific research, training, and technology transfer.
    We understand and appreciate that the Nation is undergoing significant
    budget pressures at this time, but a strong nation in the future
    depends on the investments we make in Research and Development today.
    We appreciate your attention to the recommendations of our community
    concerning the fiscal year 2004 FAA budget and we appreciate your
    concern for safety within the Nation's aviation systems, particularly
    during this extraordinary time in our Nation's history.
                                     ______

      Prepared Statement of the American Public Transportation Association

        APTA is a nonprofit international association of over 1,500 public
    and private member organizations including transit systems and commuter
    rail operators; planning, design, construction and finance firms;
    product and service providers; academic institutions; transit
    associations and state departments of transportation. APTA members
    serve the public interest by providing safe, efficient and economical
    transit services and products. Over 90 percent of persons using public
    transportation in the United States and Canada are served by APTA
    members.

                                  INTRODUCTION

        Mr. Chairman and members of the subcommittee, on behalf of the
    American Public Transportation Association (APTA), I thank you for this
    opportunity to address the need for federal investment in public
    transportation programs under the Transportation, Treasury and
    Independent Agencies Appropriations bill for fiscal year 2004.

                                   ABOUT APTA

        APTA's 1,500 public and private member organizations serve the
    public by providing safe, efficient, and economical public
    transportation service, and by working to ensure that those services
    and products support national economic, energy, environmental, and
    community goals.
        APTA member organizations include public transit systems and
    commuter railroads; design, construction and finance firms; product and
    service providers; academic institutions; and State associations and
    departments of transportation. More than 90 percent of the people who
    use public transportation in the United States and Canada are served by
    APTA member systems.

                                    OVERVIEW

        Mr. Chairman, throughout the United States, public transportation
    is undergoing a renaissance. Steady increases in transit investment
    have dramatically improved and expanded public transportation services,
    attracting record numbers of riders on state-of-the-art systems in
    metropolitan, small urban and rural areas.
        In a recent five-year period alone, public transportation use has
    increased by 22 percent--growing faster than vehicle miles and airline
    passenger miles traveled over the same period. In 2001, Americans used
    public transportation 9.5 billion times--the highest ridership level in
    40 years.
        Communities across the country are rehabilitating and expanding
    public transportation systems and constructing new ones. More than 550
    local public transportation operators currently provide services in 319
    urbanized areas; 1,260 organizations provide public transportation in
    rural areas; and 3,660 organizations provide services to the aging
    population and disabled individuals.
        Through improved mobility, safety, security, economic opportunity
    and environmental quality, public transportation benefits every segment
    of American society--individuals, families, businesses, industries and
    communities--and supports important national goals and policies.
        At the same time, the growing problem of traffic congestion
    continues to choke America's roadways and constrain community and
    business development. Polls consistently show that most Americans view
    congestion as a serious problem that continues to grow every year. In
    April of 2003, APTA and the American Automobile Association (AAA)
    released the results of a poll that showed 95 percent of Americans said
    traffic congestion, including commutes to and from work, has grown
    worse over the last three years. The poll also showed 92 percent of
    Americans said it was either very important (71 percent) or somewhat
    important (21 percent) for their community to have both good roads and
    viable alternatives to driving.

                             FISCAL YEAR 2004 GOALS

        Annual Federal appropriations for the Federal transit program have
    increased significantly in each of the last 6 years under the
    Transportation Equity Act for the 21st Century (TEA-21). Federal
    funding increased from just under $4.4 billion in fiscal year 1997 to
    $7.2 billion in fiscal year 2003, a 65 percent increase.
        The stable and predictable growth in the Federal investment in TEA-
    21 led to impressive results for transit. While service was expanded
    and improved, and ridership reached its highest level in 40 years,
    public demand for additional capital investment, new transit services,
    and improvements to existing systems continued to grow. This demand for
    additional service and capital projects comes at a time when many
    existing assets are nearing the end of their useful lives and need to
    be improved or replaced. Indeed, a 2002 American Association of State
    Highway and Transportation Officials report estimates that $44 billion
    is needed annually to meet current transit capital needs for new
    projects and improvements to existing systems.
        APTA's recommendations for TEA-21 reauthorization have been made
    available to committee members and staff and they contain detailed
    funding and programmatic recommendations for the next 6 years. Most
    critically, APTA's proposal urges Congress to continue to grow the
    Federal investment in public transportation to address critical
    national transportation needs, and to fund the Federal transit program
    at no less than $8.1 billion in fiscal year 2004.
        We recognize that the Fiscal Year 2004 Budget Resolution assumes
    $7.3 billion in funding for public transportation in fiscal year 2004.
    However, a provision in the resolution granted authority to increase
    funding beyond that amount if Mass Transit Account (MTA) revenues
    exceed expected levels. Revenues accruing to the MTA could be increased
    in a number of ways. These would include providing interest on the
    balance of the MTA, particularly if outlays from the account were
    scored as they are from the highway account; or if user fees were
    adjusted to account for inflation. Therefore, we urge the committee to
    make every effort to set transit funding in excess of the level assumed
    in the Fiscal Year 2004 Budget Resolution, in order to better address
    transit capital investment needs.

                  FEDERAL INVESTMENT IN PUBLIC TRANSPORTATION

        The results of TEA-21 have been profound--more Americans have
    access to efficient, safe, and modern transit options than ever before.
    Federal investment in public transportation produces tangible assets in
    our communities that citizens can see and use. These assets include
    light rail lines, buses for commuting, and transit stations that
    attract economic development because of convenient access to
    transportation options.
        Investment in transit makes sense because it is in demand.
    Nationwide, many systems are bursting at the seams, with the highest
    ridership in 40 years and a huge backlog of capital improvements
    identified. In growing communities where transit has not been a
    priority in the past, citizens are demanding new services and capital
    projects. Public transportation supports a solid and growing economy by
    providing access to labor, decreasing time lost to congestion, and
    freeing highway and road space for the movement of goods and people.
    Public transportation represents an efficient use of scarce financial
    resources, because it helps to mitigate congestion in densely populated
    areas and provides a mobility option to millions of Americans. Public
    transportation represents an environmentally responsible transportation
    option because it uses less fuel and emits far less pollution per
    passenger than the automobile. A recent report by economists Robert
    Shapiro and Kevin Hassett demonstrates that if Americans used public
    transportation for only 10 percent of their daily travel needs, the
    United States could significantly reduce its dependence on foreign oil.

                                INCREASED DEMAND

        Growing demand nationwide for transit services shows the
    effectiveness of federal investment. In a recent 5 year period, transit
    ridership grew 22 percent, greater than the growth rate of highways and
    domestic air travel during the same time frame. In that same time
    period Chicago's MTA system saw ridership increase from 419 million
    trips to 450 million; in Dallas, ridership on the DART system rose from
    52 million to 60 million; and in LaCrosse, Wisconsin, from 713,000 to
    819,000.
        Support for increased transit service remains high. In February
    2003, Wirthlin Worldwide Public Opinion Poll showed 81 percent of
    Americans support the use of public funds for the expansion and
    improvement of public transportation; 56 percent say the need to reduce
    traffic congestion has become more important over the last 5 years. The
    poll also stated 57 percent agree their community needs more public
    transportation options, including 64 percent of urban residents, 59
    percent of suburban residents, 51 percent of rural residents, and 55
    percent of small-town residents.
        This poll demonstrates that support for public transportation has
    increased dramatically not only in our biggest cities, but in smaller
    urban communities and rural areas as well, where 40 percent of
    America's rural residents have no access to public transportation, and
    another 28 percent have substandard access. It is estimated that rural
    America has 30 million non-drivers, including senior citizens, the
    disabled and low-income families who need transportation options.
    According to a survey of APTA members, bus trips in areas with
    populations less than 100,000 increased from 323 million to 426 million
    in a recent 5 year span.
        Another focus of the support for transit service is in the area of
    security. During the September 11th attacks, hundreds of thousands of
    citizens in New York and Washington were able to evacuate those cities
    quickly and safely because of transit. As long as security threats
    endanger our cities, transit serves an invaluable role as a method of
    evacuation that will help get people out of harm's way.

                              ECONOMIC IMPORTANCE

        Investment in public transportation plays a key role in stimulating
    local economies and the national economy as a whole. Investment in
    transit infrastructure creates jobs. Transit-oriented development
    around transit stations stimulates construction, new business and
    housing which increases land value and property taxes. Transit service
    provides employers with access to workers and workers with a way to get
    to jobs.
        Investment in transit creates jobs and significant economic growth
    outside of the communities in which the systems are located. Optima Bus
    Corporation (formerly Chance Coach), located in Wichita, Kansas, built
    a 125,000 square foot assembly plant in 2000 and doubled its workforce.
    Optima builds buses and trolleys to be used in systems around the
    country. The same is true for North American Bus Industries in
    Anniston, Alabama; Neoplan USA bus company in Lamar, CO; and MCI Buses
    in Pembina, ND. These and many other companies supply goods and
    services to the transit industry, employ workers and generate economic
    activity in their communities with TEA-21 resources.
        Public transportation's role in stimulating local economies is
    profound. According to a Cambridge Systematics Inc. study, for every
    $10 spent on transit capital projects, $30 in business sales is
    generated. Every $10 invested in transit operations results in $32 in
    business sales. Each $1 billion in federal transportation invested
    creates 47,500 jobs. As States and local governments struggle to find
    revenues, public transportation has provided a strong return on
    investment. In Dallas the taxable value of properties located near its
    DART system increased 25 percent faster than elsewhere in the metro
    area. In this area, the state of Virginia will reap $2.1 billion in tax
    revenues as a result of transit investment over the next 7 years.
        Another benefit of public transportation to a healthy economy is
    providing job access and reliability for an expanding labor pool. In
    cities large and small, businesses and other service providers are
    choosing to locate or relocate in areas convenient to public
    transportation. Transit systems are working with local businesses to
    provide transit passes and tax benefits to both employees and
    employers. Transit continues to provide a reliable, convenient option
    for employees who wish to avoid crowded highways or who cannot afford
    to travel by car.
        Indeed, public transportation plays a very specialized role in this
    aspect of economic growth and stability. With the help of public
    agencies in local communities, transit helps low income workers who
    cannot afford other options stay productively employed and off of
    welfare. A project in New Jersey provides passes and tickets to welfare
    recipients for work-related travel. In Myrtle Beach, South Carolina,
    the Pee Dee RTA coordinates with the county department of social
    services to run a 24 hour commuter service linking rural residents with
    jobs in the city. The Albuquerque transit department provides reduced
    rate transit service for low income workers.
        Further, savings as a result of transit are significant. Atlanta's
    MARTA system saved an estimated $2.2 billion over a 14-year period by
    providing motorists a public transportation alternative. A study by the
    Texas Transportation Institute concludes that a single year's increase
    in automobile traffic requires 27 miles of freeway and 37 miles of
    principal streets in each city in America just to keep up. This is
    significant when considering urban rail systems can provide more
    capacity in a 100 foot right-of-way than a 6 lane freeway, which
    requires three times as much space.

                             ENVIRONMENTAL FACTORS

        Public transportation represents an effective way to improve air
    quality without imposing new government mandates. According to a report
    released last summer by economists Dr. Robert Shapiro of the Brookings
    Institution and Dr. Kevin Hassett of the American Enterprise Institute,
    public transportation generates 95 percent less carbon monoxide, 92
    percent less volatile organic compounds, and about half as much carbon
    dioxide and other pollutants per passenger mile than individuals in
    private automobiles. The study also shows that public transportation
    already saves more than 855 million gallons of gasoline and 45 million
    barrels of oil a year. This is equivalent to the energy used to heat,
    cool, and operate one quarter of all American homes annually, or half
    the energy used to manufacture every computer and piece of electronic
    equipment in America every year.
        The study also found that if one in ten Americans used public
    transportation regularly, U.S. reliance on foreign oil could be cut by
    more than 40 percent. This is nearly equivalent to the amount of oil
    imported from Saudi Arabia annually. It reported that even small
    increases in transit use would help most of the 16 major cities that
    currently fail to meet EPA standards for carbon monoxide emissions; and
    that transit is twice as fuel efficient as private vehicles for each
    passenger mile traveled.

                          PRESIDENT'S BUDGET PROPOSAL

        In February, the President's fiscal year 2004 budget proposal was
    released. It calls for a 6 percent increase in funding for the
    Department of Transportation, but no increase in overall investment for
    public transportation. Prior to unveiling his budget, the President
    identified his priorities for the Nation in the annual State of the
    Union Address. These included revitalizing the Nation's economy,
    reducing dependence on foreign sources of energy, helping the
    environment by investing in hydrogen powered vehicles and applying the
    compassion of America to solve disadvantaged American's problems.
        Public transportation assists in reaching each of these goals.
    Regarding the economy, 47,500 jobs are created by every $1 billion
    invested in the public transportation infrastructure. $30 million in
    private business sales are generated for every $10 million invested in
    transit. Transit provides efficient access to labor and mitigates
    congestion so that goods may travel more freely.
        With regard to reducing dependence on foreign sources of energy,
    public transportation reduces by millions of barrels the amount of oil
    that would otherwise be imported every year. In terms of the
    environment, public transportation produces less pollution per rider
    than the automobile. It reduces the amount of volatile organic
    compounds and nitrogen oxides that contribute to smog and illnesses
    related to polluted air such as asthma.
        Public transportation is a compassionate way to address the
    mobility needs of millions of Americans. It provides transportation
    options to the disabled and those who are unable to drive. It provides
    an inexpensive way for lower-income workers to commute to work,
    allowing them to save money for their families that would otherwise be
    spent on driving expenses. It provides a safe way for the elderly to
    visit the doctor or go to the grocery store.
        APTA questions the Administration's proposal to restructure a
    Federal transit program that has worked so well in recent years. APTA's
    recommendations for the reauthorization of the Federal transit program
    build on the success of the current program without eliminating any of
    the major elements of that program. We do not believe that bus
    replacement and facility needs can be addressed by folding the
    discretionary bus program into the formula and fixed guideway programs.
    We support retention of a distinct fixed guideway modernization program
    that helps improve the efficiency of systems that often operate at
    capacity and serve large numbers of citizens in communities that depend
    on public transportation.
        Further, APTA opposes the Administration's proposal to reduce the
    Federal share of new fixed guideway transit projects from 80 percent to
    50 percent because we believe it would bias decisions on transportation
    investments that are made at the local level. APTA believes that such
    decisions should be based on project merit and local transportation
    needs, and not on the basis of the Federal share of transportation
    project costs. Communities that want to build rail and other fixed
    guideway projects already make a substantial commitment of local
    resources for project construction under existing law. Further, to
    receive Federal funding for such projects, the community must
    demonstrate to the Federal Transit Administration that it has the local
    resources to operate and maintain the system once it is built. The full
    funding grant agreement (FFGA) process protects against the funding of
    projects that fail to provide good benefits to the community or do not
    have adequate local funding for long-term operations. Good rail and
    other fixed guideway systems can provide enormous benefits to a
    community, including a wide array of economic benefits, and they should
    be considered with other transportation investments in the local
    transportation planning process on a level playing field.
        We strongly believe that growth of the Federal investment in public
    transportation can help advance many of the Nation's goals, and that
    freezing Federal funding for transit will erode purchasing power and
    increase the backlog of unmet transit capital needs. We urge the
    committee to fund the Federal transit program in fiscal year 2004 at no
    less than $8.1 billion.

                                   CONCLUSION

        Public transportation can play a key role in meeting the goals of
    the Administration and Congress in providing economic development,
    energy dependence, transportation options for Americans who cannot
    afford to drive or are not able to, and preserving the environment. To
    do so it requires a commitment on the part of the Federal government in
    the form of increased predictable investment.
        Mr. Chairman, we look forward to working with the Committee as it
    advances legislation to invest in national transportation
    infrastructure needs.
                                     ______

     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 2004 funding request of $500,000
    from the Department of Transportation (DOT) for CCOS as part of a
    Federal match for the $9.1 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 8-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, and
      --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
    $9.1 million for the field study. The Federal government has
    contributed $3,730,000 to support some data analysis and modeling. In
    addition, CCOS sponsors are providing $2 million of in-kind support.
    The Policy Committee is seeking Federal co-funding of an additional
    $6.25 million to complete the remaining data analysis and modeling and
    for a future deposition study. California is an ideal natural
    laboratory for studies that address these issues, given the scale and
    diversity of the various ground surfaces in the region (crops,
    woodlands, forests, urban and suburban areas).
        There is a national 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, the 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 also cost-effective since it builds on other
    successful efforts including the 1990 San Joaquin Valley Ozone Study.
    Federal assistance is needed to effectively address these issues.
        For fiscal year 2004, our Coalition is seeking funding of $500,000
    from DOT through highway research funds. DOT is a key stakeholder
    because Federal law requires that transportation plans be in conformity
    with SIPs. The motor vehicle emission budgets established in SIPs must
    be met and be consistent with the emissions in transportation plans.
    Billions of dollars in Federal transportation funds are at risk if
    conformity is not demonstrated for new transportation plans. As a
    result, transportation and air agencies must be collaborative partners
    on SIPs and transportation plans. SIPs and transportation plans are
    linked because motor vehicle emissions are a dominant element of SIPs
    in California as well as nationwide. Determining the emission and air
    quality impacts of motor vehicles is a major part of the CCOS effort.
    In addition, the deposition of motor vehicle emissions and the
    resulting ozone is a nationwide issue.
        Thank you very much for your consideration of our request.
                                     ______

          Prepared Statement of the American Passenger Rail Coalition

        Chairman Shelby and Members of the Subcommittee on Transportation,
    Treasury and General Government, thank you for the opportunity to
    present testimony on fiscal year 2004 appropriations for Amtrak and for
    rail safety, research and development programs under the Federal
    Railroad Administration (FRA). My name is Harriet Parcells and I am the
    Executive Director of the American Passenger Rail Coalition (APRC), a
    national association of railroad equipment suppliers and rail
    businesses.
        The American Passenger Rail Coalition (APRC) urges the Subcommittee
    to appropriate $1.812 billion for Amtrak in fiscal year 2004. This is
    the level of funding Amtrak has stated is needed to operate the
    existing national passenger rail system and to make crucial capital
    investments. Under the leadership of Amtrak President David Gunn and
    the Amtrak Board of Directors, Amtrak has been taking critical actions
    to stabilize and improve the national passenger rail network, reduce
    operating costs and bring a new candor and openness to Amtrak's
    accounting and operations. A strong Federal appropriation in fiscal
    year 2004 is essential to Amtrak's ability to continue these successful
    actions and bring the national passenger rail system into a good state
    of repair.
        A modern, reliable and efficient national passenger rail system is
    in the mobility, economic and national security interests of the
    country. In busy metropolitan corridors, intercity passenger rail
    offers a safe, cost-effective alternative to congested highways and
    airports. For citizens of rural communities, Amtrak trains provide
    dependable and affordable mobility that is frequently the only
    convenient, all-weather intercity public transportation available.
    Government investments in intercity passenger rail enhance national
    security as was demonstrated in the days and weeks following the
    terrorist attacks of September 11, 2001. Investments in rail also yield
    significant economic and environmental benefits for cities, States and
    the Nation. Public opinion polls consistently show that Americans
    across all regions of the country, income and education levels,
    strongly support Federal government investment in the national Amtrak
    system.

             AMTRAK TRAINS ARE AN ATTRACTIVE TRAVEL CHOICE FOR MANY

        Ridership on Amtrak trains rose steadily for 5 years, from fiscal
    year 1997-fiscal year 2001, and reached 23.5 million riders in fiscal
    year 2001. Over the past 18 months, a weak economy, security concerns
    by the public since the September 11th attacks and the war in Iraq and
    other factors, have adversely impacted travel on air, rail and other
    modes and the travel sector of the economy overall. The fact that
    Amtrak ridership dipped only slightly in fiscal year 2002 from the
    prior year's ridership is a good indication of the public's support and
    comfort with travel by rail. In the first 5 months of fiscal year 2003
    (October 2002-February 2003), travelers have continued to select rail
    travel for many trips. Amtrak ridership has dipped 1.5 percent
    nationwide compared to fiscal year 2002. In the West, Amtrak ridership
    has increased 4.3 percent compared to one year ago, with western
    corridor trains showing strong gains of 8 percent. California's strong
    commitment to and investments in improved passenger rail service over
    many years are paying off as growing numbers of people leave their cars
    behind and take the train to their destination. Ridership on Amtrak's
    Surfliner service that operates between San Diego and Los Angeles is up
    21 percent in the first 5 months of fiscal year 2003, compared to one
    year ago. Ridership on the state's Capitol Corridor and San Joaquin
    trains is also up, 8 percent and 5.5 percent, respectively. In March
    2003, total Amtrak ridership was up 2.3 percent over March 2002.
    Ridership gains have been helped by some travel promotions Amtrak has
    run--as have the airlines--to attract travelers who are feeling the
    pinch of a weaker economy and anxieties about the possibility of future
    terrorist acts. Thus, Amtrak passenger revenues for the first 5 months
    of fiscal year 2003 are 12 percent below revenues one year earlier.

        AMTRAK'S NEW LEADERSHIP FOCUSED ON STABILIZING THE RAIL NETWORK

        Amtrak President David Gunn and the Amtrak Board of Directors have
    been taking actions over the past year to stabilize Amtrak's finances,
    bring the passenger railroad into a good state of repair, reduce
    operating costs and bring greater transparency to Amtrak's finances.
    Under Mr. Gunn's leadership, Amtrak's management structure has been
    streamlined to reduce costs and be more efficient. Amtrak has largely
    exited the express freight business, which was losing money rather than
    generating revenues for the railroad. Amtrak has embarked upon a
    program to repair wrecked rolling stock that has been out of service.
    Nearly 10 percent of Amtrak's equipment was in need of wreck repair
    last year. As of the end of April 2003, 22 railcars will have been
    repaired to go back into service on routes around the country.

             CAPITAL FUNDING NEEDED TO ADDRESS CRITICAL INVESTMENT

        Insufficient capital funding and Amtrak's focus in recent years on
    achieving operating self-sufficiency, as mandated by Congress, resulted
    in deferral of investment in important capital projects. Amtrak's
    fiscal year 2004 request of $1.812 billion includes $1.04 billion to
    address critical capital needs. These needs include infrastructure
    investments on the Northeast Corridor that are crucial to operation of
    the high-speed Acela Express service and investments to continue to
    repair and return to service rolling stock that has been sidelined. The
    remaining $768 million is needed for operation of the national Amtrak
    system. Amtrak is pursuing a sound course and APRC urges Congress to
    provide this critical funding to enable Amtrak to make needed
    investments in the year ahead.

       FEDERAL INVESTMENTS IN TRANSPORTATION SUPPORT ECONOMIC DEVELOPMENT

        Federal investments in transportation infrastructure are vital to
    the economic productivity of states and the nation. Every billion
    dollars invested in transportation infrastructure projects generates
    approximately 42,000 jobs. These investments ripple through the
    economy, amplifying the economic benefits of the investment.
    Investments in intercity passenger rail will create new jobs, spur
    economic development and enhance the economic competitiveness of
    regions that invest in improved passenger rail service.
        The U.S. government has underinvested in passenger rail for years.
    The U.S. government invests only 1 percent of total transportation
    spending on intercity passenger rail each year. Other industrialized
    nations, with whom the United States competes in the global market, by
    contrast, invest over 20 percent of total transportation capital
    spending in rail. It is time to reverse this pattern of
    underinvestment. The returns to the Nation will be substantial.

         RAIL BENEFITS RURAL AMERICA AS WELL AS METROPOLITAN CORRIDORS

        The need for intercity passenger rail service in congested
    metropolitan corridors is clear to most policy makers. What appears to
    be less appreciated is the value intercity passenger rail service
    provides to small cities and communities across the country. Yet,
    intercity passenger rail service is vital to the economic health of
    hundreds of America's small cities and rural communities and the
    mobility of their citizens. Airlines have reduced or abandoned air
    service to many small cities, making the role of intercity passenger
    rail even more important to the mobility of citizens in these
    communities. Residents of Tuscaloosa and Anniston, AL, of Marshall and
    Gainesville, Texas, of Rugby, Minot and Devils Lake, ND and hundreds of
    other communities from coast to coast value and depend upon the
    passenger trains that connect their communities to the rest of the
    Nation.

                    RAIL CONTRIBUTES TO OTHER NATIONAL GOALS

        Travel by passenger trains is energy-efficient, consuming about 38
    percent less energy (BTU's) per passenger-mile than travel by
    commercial airline. Transportation is the only sector of the U.S.
    economy that consumes more oil today than it did 20 years ago. U.S.
    dependence on imported oil has been rising and since 1997, exceeds 50
    percent of our daily petroleum use. Last year, the United States spent
    $90 billion for imported oil. Investments in improved passenger rail
    service are a sensible way to reduce the vulnerability created by the
    nation's heavy and costly dependence on imported oil. Lower energy
    consumption translates into benefits to air quality. Investments in
    passenger rail help reduce harmful air pollutants and contribute to
    state and community efforts to achieve healthy air quality.
        In conclusion, APRC urges the Subcommittee to fully fund Amtrak's
    request for $1.812 billion in fiscal year 2004 to enable Amtrak to
    continue down the path it is pursuing to improve the reliability and
    quality of passenger rail service nationwide. APRC also supports strong
    funding of rail safety and research and development programs under the
    Federal Railroad Administration.
        Thank you Chairman Shelby and Members of the Subcommittee for the
    opportunity to provide this testimony on behalf of our rail business
    association.
                                     ______

            Prepared Statement of the Railway Supply Institute, Inc.

        On behalf of the Railway Supply Institute (RSI), I offer the
    following comments on Amtrak's fiscal year 2004 appropriation request.
        RSI is a trade association that represents the domestic railway
    supply industry. Our members provide goods and services to the Nation's
    freight and passenger railroads as well as to rail rapid transit
    systems. We are a $20 billion a year industry employing some 150,000
    people nationwide.
        RSI supports Amtrak's request of $1.8 billion for fiscal year 2004
    to operate the current nationwide route structure and begin the process
    of stabilizing our nation's intercity railroad passenger system. In
    addition to allowing Amtrak to continue to operate its network of
    intercity passenger trains, that amount will allow the railroad to
    begin the task of rebuilding wrecked equipment so it can be put back
    into revenue service as well as beginning the process of rebuilding the
    Northeast Corridor infrastructure. RSI members will provide a
    significant portion of material needs for the capital projects outlined
    in the Amtrak request. This will provide a much-needed boost to an
    industry that has suffered through the recent economic downturn.
        As the Department of Transportation's Inspector General has stated
    time and again, the real problem with Amtrak is not management
    efficiency or the cost of the route system but the burden of funding
    its infrastructure. Until Congress develops a way to address these
    infrastructure costs, cutting trains or attempting to extract
    management efficiencies will not achieve the desired results. RSI
    believes David Gunn has demonstrated the ability to manage Amtrak
    effectively. He has eliminated waste, reduced management levels, cut
    costs, brought fiscal responsibility to the railroad and improved
    Amtrak's credibility.
        Amtrak's workable five-year capital investment plan is what Amtrak
    needs to become a good, solid, reliable passenger railroad. The
    railroad's strategic plan will bring Amtrak's capital assets up to a
    state of ``good repair'' and maintain current rail operations. To
    support the strategic plan, Amtrak proposes, and RSI supports, that
    annual federal funding range from $1.8 million in fiscal year 2004 to
    under $1.5 billion in fiscal year 2008 for the combined capital
    investment and operating needs.
        RSI does recognize the constraints of the appropriations process.
    In response to this, we have developed a proposal that would create a
    Rail Finance and Development Corporation (RFDC). RFDC is designed, in
    part, to supplement federal appropriations for Amtrak by supporting the
    significant infrastructure costs that Amtrak must address in the
    Northeast Corridor and other parts of the system. This supplemental
    funding source could significantly reduce the burden of the
    Appropriations Committee and allow it to use its limited resources to
    maintain basic service levels for rail passenger service. RFDC would be
    a private, non-profit, federally chartered corporation similar to
    Fannie Mae, that would issue up to $50 billion in tax-credit bonds over
    a six-year period for rail related infrastructure investments. Eligible
    investments would include higher speed intercity rail; rail access to
    ports intermodal terminals and airports; increased freight rail
    capacity; short line infrastructure needs; and rail line relocation. We
    have enclosed a white paper describing the RFDC proposal and I ask that
    this statement and the White Paper be included in the record.
        Until RFDC, or some other supplemental funding mechanism, becomes
    policy, we urge the Senate Transportation Appropriations Subcommittee
    to provide the resources Amtrak needs to survive.
        RSI looks forward to working with the Senate to create a long-term
    stable source of funding for Amtrak and our nations freight railroad
    system.
                                     ______

        Prepared Statement of the Air Traffic Control Association, Inc.

        The Air Traffic Control Association, Inc. (``ATCA''), located in
    Arlington, Virginia, USA is a professional association of forty-seven
    years' standing dedicated to advancement in the science and profession
    of air traffic control and aviation safety. Its membership is worldwide
    in scope, and represents all aspects of the air traffic control
    discipline, from air traffic control specialists and airway facilities
    technicians who operate and maintain the air traffic control system, to
    those individuals and companies who develop, manufacture and provide
    the technology, equipment, and services which support the system, to
    the citizens, government agencies, and airlines who use the system.

                 INTRODUCTION: THE CHANGED AVIATION MARKETPLACE

        Immediately after September 11, 2001, most aviation experts
    predicted that the market effects of the terrorist attacks on air
    transportation would be short lived, and that conditions prevailing
    before those events--economic prosperity, increasing demand, congestion
    and delay--would recur within 18 months or so. Although temporary
    depression in air transportation demand was anticipated, the aviation
    community admittedly did not foresee the lingering, intensifying
    economic doldrums, global political instability and war to come.
    Certainly few, if any prognosticators envisioned air traffic would be
    so persistently and profoundly depressed that major airlines and
    related aviation enterprises would today be struggling for their very
    existence.
        Now, with the war against terrorism continuing and military action
    in Iraq just winding down, and health concerns heightened, the aviation
    community is becoming reconciled to the reality that sluggish air
    transportation market conditions likely will prevail for some time.
    Airlines, airports and policy makers are adjusting perspectives, plans,
    programs, and expectations to suit new financial and operational
    realities.
        First among these realities is the stressed, and in some cases
    desperate financial condition of commercial aviation. Income is down
    across the board. Fewer passengers are traveling at lower fares,
    meaning less ticket revenue for airlines and concession income for
    airports. Fewer flights and smaller capacity aircraft mean reduced tax
    and user fee income for government and private air traffic service
    providers. And with airlines, airports and air traffic service
    providers in difficulty, aviation suppliers including travel agents,
    aircraft manufacturers, aviation technology companies and airport
    construction firms are also suffering.
        To make matters worse, aviation costs have not diminished
    proportionately, but rather have remained constant or, like fuel
    prices, have increased. Airlines, air traffic service providers, and
    airports still must make payments on aircraft and other capital
    equipment, pay rent, employee wages and benefits, and meet other
    contractual obligations. Moreover, as a result of the terrorist
    attacks, airlines, airports, air traffic service providers, and
    government organizations must absorb significant additional costs of
    intensified and additional security measures. Since September 11, 2001,
    the airline industry alone reports having suffered a loss of $18
    billion; they expect 2003 losses to exceed $10 billion.
        Consequently, virtually all aircraft operators are economizing in
    every way possible, reducing or rationalizing services, deferring
    capital expenditures, renegotiating labor agreements, freezing hiring,
    laying off workers, and selling or mothballing aircraft. Many
    organizations, including major airlines, are regrouping, reforming,
    reorganizing, realigning, or disappearing entirely through merger or
    bankruptcy. Airlines are adjusting schedules, equipage, and even route
    structures in an effort to match service to demand. Some carriers are
    switching to smaller capacity aircraft and maintaining or increasing
    frequency. Others are abandoning hubs in favor of more point-to-point
    service. Many high-end and business travelers are abandoning commercial
    service altogether, instead electing to use corporate and fractional
    ownership aircraft or substituting telecommunications alternatives to
    travel.
        Air traffic service providers are doing all they can to economize
    in their own operations while continuing to provide equal or better
    service, and making system enhancements that will improve operating
    safety and efficiency. But after years of belt tightening and resource
    deprivation, there is precious little room in most air traffic service
    organizations for significant additional efficiencies. A significant
    point to recognize is that even though the benefits of ATM system and
    interfacing aircraft enhancements will outweigh the costs in the long
    run, they do not come for free, and there simply is precious little
    cash available--either in ATS provider or aircraft operator coffers--to
    invest today.
        There is another aspect of the U.S. air transportation system that
    current events should amplify--that the U.S. National Airspace System,
    in contrast to many other national systems, is a ``common'' civil-
    military system. Its infrastructure and air traffic controllers support
    our National Defense and Homeland Security aircraft as well. This is
    but another reason that the ATM system must be sustained and upgraded
    to meet the challenge of a new era.

            AVIATION SAFETY AND SECURITY IS A FEDERAL RESPONSIBILITY

        Aviation--a critical segment of the Nation's GNP and, even more
    important, enabler of U.S. tourism, commerce and industry--clearly is
    on the ropes. Now is not the time to retrench and watch the Nation's
    air transportation system--jewel of U.S. ingenuity and free
    enterprise--disintegrate. Rather, the Federal government must do all it
    can to preserve and strengthen U.S. aviation, especially in these
    difficult times. To that end, the Air Traffic Control Association urges
    the following.
        First, it was necessary and appropriate for the Federal Government
    to provide financial relief to the Nation's airlines, to help them
    weather the aftermaths of the 9/11 attacks and market impacts of the
    War on Terrorism and military action in Afghanistan and Iraq. Although
    aviation was the vehicle, the 9/11 attacks were directed against the
    United States as a whole. Protecting the Nation against future
    terrorism is the Federal Government's responsibility, and the costs--be
    they for National Defense or Homeland Security purposes--should be
    borne by all Americans. Nevertheless, airline passengers, aircraft
    operators, and airports are shouldering the lion's share of the costs
    of air transportation system security--from direct fees for security,
    to aircraft and terminal modifications, to Airport and Airway Trust
    Fund expenditures for security infrastructure improvements. And this at
    a time when the entire aviation community is suffering
    disproportionately compared with other segments of the economy from the
    negative market and financial consequences of public fear and wartime
    disruptions to travel and tourism.
        Because airport and airline security is an ongoing National and
    Homeland Defense function, security fees should be discontinued
    permanently, and the costs of TSA screening activities, related
    equipment and construction instead paid for with appropriations derived
    from the general fund. To use trust fund dollars for this purpose
    unfairly assesses passengers and shippers for the costs of safety and
    security measures that benefit everyone. Protecting aircraft from
    hostile attack and takeover such as we experienced in 2001 benefits the
    aircraft operator, the passengers and crew and, no less importantly,
    people and property on the ground that could be impacted. Moreover,
    using the trust fund in this way mortgages U.S. aviation's future by
    depleting the fund without corresponding replenishment. The Association
    looks forward to the announced plan of the Transportation Security
    Administration to establish a program whereby TSA would issue Letters
    of Intent (LOI) to reimburse 75 percent-90 percent of the costs of
    federally mandated security upgrades, to be paid with appropriated
    funds.

            FAA OPERATIONS APPROPRIATION SHOULD BE ``RE-BASELINED''

        The Federal Government must rededicate itself to the mission of
    modernizing and improving airport and airway infrastructure and
    technology. Modernization will enable air carriers and other aircraft
    operators to operate efficiently as well as safely and securely during
    these difficult times, sustain the National Defense and Homeland
    Security mission, and prepare a robust, capable air transportation
    system for the future.
        The Administration is demonstrating its commitment to U.S. aviation
    by proposing to continue the FAA funding profile established by the
    Wendell H. Ford Aviation Investment and Reform Act for the 21st Century
    (AIR-21). That landmark legislation boosted Federal spending limits for
    air transportation infrastructure improvement, and established
    budgetary mechanisms to assure that appropriations matched authorized
    levels. The Administration is seeking $7.5 billion per year in fiscal
    year 2004 for FAA Operations, increasing over the authorization period
    at least at the rate of inflation. For FAA Facilities and Equipment,
    the Administration proposes $2.9 billion in fiscal year 2004, gradually
    increasing to $3.1 billion in fiscal year 2007. And the Administration
    proposes to continue the current funding level of $3.4 billion per year
    for Airport Grants. $100 million per year would be available for FAA
    Research, Engineering and Development. The Association believes that
    this request understates the real needs of the FAA. Although it
    represents the Administration's judgment of the proper apportionment of
    financial resources, we believe it does so at the sacrifice of
    activities and programs that should not be further deferred.
        The Air Traffic Control Association agrees with the Administration
    that continued robust funding for air transportation operations and
    National Airspace System improvements is a national imperative. Public
    reliance on air transportation is strong and increasing, and recent
    history shows that the occasional market dips coincident with military
    action or economic recession tend to be temporary. When conditions
    improve, the air transport market recovers rapidly. Immediately prior
    to the 9/11 terrorist attacks, aviation was experiencing unprecedented
    growth, with overcrowding and congestion clogging many major
    facilities. Current projections are that aviation markets will recover
    to pre-9/11 conditions--including congestion and delay--sometime in
    2005-2006. Even with a brief hiatus in demand, the aviation community
    will be hard pressed to progress sufficiently on needed capacity
    improvements in time to avoid a repeat of the near gridlock conditions
    prevailing during the summer of 2001. Now is not the time to hesitate
    about moving on with modernization.
        For the following reasons, therefore, the Air Traffic Control
    Association urges the Congress to take a more proactive approach to
    funding operations and modernization of the National Airspace System
    than the Administration proposes. First, the Administration's fiscal
    year 2004 funding proposal (3.2 percent increase, less than the rate of
    inflation) understates the real resource requirements of FAA's
    Operations functions. FAA's air traffic services, airway maintenance,
    and regulation and certifications organizations already are debilitated
    by years of funding deprivation. Because 95 percent of FAA's Operations
    budget is dedicated to personnel and related costs, years of rate-of-
    inflation increases have barely covered the costs of mandatory pay
    increases for on-board staff and plant maintenance and have not
    addressed the backfill overtime costs associated with training
    controllers to deal with new situations and systems. Almost no money
    has been available for projects and activities necessary to prepare for
    future needs. FAA has barely begun the process of hiring and training
    significant numbers of air traffic controller and airway facilities
    technician candidates to replace the ``bubble'' of employees eligible
    and expected to retire. (The Administration is requesting $14 million
    to hire 300 controller candidates in fiscal year 2004, but because
    training a controller takes years and many ``wash out'' of the process,
    there are some who estimate that 1,000 per year is a more realistic
    hiring goal.) Schedules for installation, check out, and training of
    workers on new equipment and technologies are stretching out, delaying
    benefits until the new items can be put into service. Less than maximum
    effort can be devoted to development and certification of new
    technologies. Efforts to devise capacity, efficiency, and safety
    enhancing air traffic procedures and operating techniques are under
    resourced. And these chronic shortages are being exacerbated by
    diversion of resources to satisfy post-9/11 security activities and
    requirements. Before FAA can begin to survive on rate-of-inflation
    increases in its operations and maintenance funding the financial base
    on which these increases are calculated must be increased
    substantially. ATCA therefore urges Congress to authorize and
    appropriate Operations funding in fiscal year 2004 at least 15 percent
    over and above the Administration's $7.5 billion estimate, or $9
    billion.

                   PROTECT AIR TRAFFIC SYSTEM MODERNIZATION!

        The Administration's $2.9 billion per year request for FAA
    Facilities and Equipment authorization and appropriation falls far
    short of what is required to sustain a really robust modernization and
    improvement effort. This amount is $100 million less than the amount
    enacted in fiscal year 2002, and 2 percent less than the fiscal year
    2003 requested amount. But needs for F&E dollars have increased
    significantly in since then. FAA must first of all sustain existing
    capability, which is becoming ever more costly. Although much has been
    replaced, a significant portion of equipment and software in use today
    is operating well beyond its intended service life and is therefore
    increasingly trouble prone and costly to repair or replace. Moreover,
    in the aftermath of 9/11, significantly more of this legacy equipment
    will remain in service and must be maintained indefinitely, for
    example, primary radars and geographically dispersed navigation aids
    and communications systems have renewed value and need to be retained.
    Other items, many intended to meet joint security and defense needs of
    FAA, DOD, and Homeland Defense, are being added to FAA's shopping cart.
    And F&E dollars also pay for the modernization of the Nation's air
    traffic control system. Most of these projects are well underway,
    requiring large capital outlays. Disruptions due to budget adjustments
    are very costly, both in terms of money and foregone operating
    benefits. And the F&E account also supports implementation of FAA's
    Operational Evolution Plan (OEP), a 10 year rolling blueprint for
    applying advanced technologies and other improvements to garner near
    term safety, capacity and efficiency benefits. The most recent
    iteration of the OEP covering fiscal years 2004-2013 is estimated to
    cost $12.4 billion over the ten years--up $1 billion over the fiscal
    years 2001-2010 version.
        In 1998, the FAA estimated that modernization costs alone reflected
    in Version 3.0 of the NAS Architecture would be approximately $3
    billion per year. Add to this the annual costs of sustaining and
    refurbishing equipment in use--much of which is now permanently off the
    decommissioning list, new National Defense and Homeland Security
    requirements, and the expanding price of the OEP, and it becomes clear
    that the real necessary level of FAA funding for F&E in fiscal year
    2004 and the foreseeable future is more in the order of $4 billion per
    year. This is the amount the Association urges Congress to authorize
    and appropriate.
        In addition, the Association urges the Administration and Congress
    to assure that dollars appropriated for NAS improvements are not
    diverted to other purposes. To be specific, because NAS improvement
    projects are multi-year endeavors requiring multi-year budgeting and
    financial management, annual rescission of unexpended funds wreaks
    havoc with overall planning. Often, the ``unexpended funds'' are
    associated with worthwhile projects and activities already in motion,
    and do not represent overlooked or obsolete requirements. It would be
    helpful if this practice were avoided. Or, alternatively, Congress
    might consider instituting a mechanism that increases the bottom line
    appropriation that compensates for earmarks rather than, as presently
    occurs, broader based activities or programs being decreased. Second,
    FAA prioritizes projects and activities with the objective of achieving
    the best result for the entire air transportation system. Although
    legislators understandably are concerned about aviation issues in their
    home districts, resisting the temptation to earmark F&E funds for
    specific local projects would greatly benefit the entire system. Third,
    other aviation priorities such as the Essential Air Service Program
    should be funded through the regular budget process, not through
    diversion of FAA F&E dollars intended for NAS modernization. Each year
    hundreds of millions of FAA F&E dollars redirected through these budget
    procedures--dollars that otherwise would have been applied to improving
    the safety, capacity and efficiency of the NAS.

                    THE PROBLEM OF ASYNCHRONOUS IMPROVEMENTS

        The promise of air traffic system modernization will not be
    realized, regardless of the sufficiency of funding, without
    corresponding upgrade of aircraft technologies that interface with the
    ATC system. At a recent Air Traffic Control Association symposium, one
    speaker estimated that the cost of equipping each commercial aircraft
    to take advantage of new ATC technologies and procedures is
    approximately $465,000. Avionics for business and general aviation
    aircraft are correspondingly expensive. Much of this equipage expense
    will be offset by the value to the aircraft operator of efficiencies
    and flexibility derived from the new systems (e.g. fuel and time
    savings from more direct routings, less holding, reduced delays, more
    operationally efficient altitudes.) FAA as the air traffic service
    provider also will derive safety, efficiency and capacity benefits from
    implementation of modern systems, for example reduced separation
    between aircraft thereby increasing airspace capacity, or preventing
    collisions and improving traffic flow on the airport surface.
        But no one will enjoy the maximum payback from modernization unless
    ATC improvements and aircraft upgrades take place contemporaneously,
    and all aircraft in given airspace are comparably equipped. If new ATC
    system implementation lags behind aircraft equipage, operators will
    have made an investment with no immediate payback. If the ATC system is
    equipped without corresponding aircraft capability, neither the users
    nor FAA will derive full benefits. And if ATC improvements are made but
    only some aircraft are equipped for the new environment, airspace must
    be segregated to allow those who are equipped to derive benefits while
    still permitting those not so capable to continue operating and the
    underlying infrastructure must support both.
        Universal aircraft equipage can be achieved in three ways. First,
    aircraft operators may be encouraged to equip voluntarily if the
    operating benefits are sufficient to outweigh the cost. Second,
    disincentives may be imposed on operators that fail to equip. For
    example, they may be foreclosed entirely from some environments,
    subjected to less optimal operating conditions (e.g. sub-optimal
    routings, non-preferred altitude), or charged higher fees or taxes. A
    third alternative is for the Government to mandate minimum equipage for
    everyone.
        The first option--voluntary compliance--benefits everyone. But
    there are situations in which the cost/benefit ratio of a given
    improvement is positive for the entire system, yet negative for a
    specific aircraft or fleet. In that case, a rational operator may well
    choose not to invest. And cash poor operators--and today many of the
    Nation's largest air carriers are in this category--may simply be
    unable to invest in improved aircraft systems regardless of the
    potential compensating benefits. Using the second option--operating
    restrictions--to coerce compliance is not a good choice because such
    mechanisms work by degrading the operating environment for those less
    advantaged, increasing their costs and as a result perpetuating the
    disparity. Moreover, selective restrictions tend to disadvantage those
    who are least able to afford it, e.g. smaller commercial operators
    providing service to remote and underserved localities, and general
    aviation.
        The third option, Government mandate, is the only 100 percent
    effective approach. But in the current economic environment, with the
    equivalent of one-third the U.S. commercial airline fleet in mothballs
    and one quarter of commercial airline capacity operating in bankruptcy,
    a mandate to equip with expensive new avionics could precipitate or
    accelerate liquidation of major aviation companies. For reasons stated
    previously in connection with aid to financially distressed airlines,
    the Air Traffic Control Association urges the Administration and
    Congress to consider making updated aircraft avionics an integral part
    of federally funded NAS modernization projects. This approach assures
    that necessary technologies will reliably be deployed congruent with
    corresponding new FAA systems. And in this way, safety and operating
    efficiency of the National air transportation system will be maximized
    without risking widespread collapse of the aviation industry. We also
    would ask that Members of transportation authorizing and appropriations
    committees collaborate with their colleagues to enact legislation that
    would enable corresponding equipage of military, homeland security and
    government aircraft.

                         AIRPORTS FUNDING NEEDS A BOOST

        The Administration proposes to continue into the future the current
    AIR-21 annual amount of $3.4 billion for Airport Grants. This level of
    support should be increased.
        The Airports Council International--North America estimates that
    the actual average annual cost of airport capital development for the
    years 2003-2006 has grown to $15 billion. Although Federal AIP is not
    intended to pay all the capital costs of airport improvements, since
    2000 when AIR-21 was enacted, and especially since the events of 9/11,
    airport need for federal funding has increased significantly. On the
    one hand, because airport revenues are largely tied to traffic levels,
    income is down drastically since the terrorist attacks and initiation
    of military action in Afghanistan and Iraq. On the other hand, costs
    are way up. Approximately two-thirds of airport capital spending is for
    new runways and other facilities to accommodate future growth. Most of
    this work already is underway, and contract requirements including
    schedules of expenditures are firm. The other one third is used to
    preserve existing infrastructure and maintain compliance with
    standards--also non-discretionary expenditure. Neither of these
    categories of expenses fluctuates downward with traffic counts.
    Meanwhile, airports are facing significant new security costs such as
    terminal modifications to accommodate large baggage screening machines,
    stepped up grounds and terminal security including more personnel, and
    enhanced access system technology. And, we foresee that increasing
    reliance on point-to-point versus connecting passenger service will
    accelerate the need for improvements at airports heretofore not
    anticipating significant growth. If Federal funding is continued only
    at the AIR-21 level, the national system of airports will continue to
    fall behind the power curve. To support recovery of the air transport
    industry, the Federal Government must significantly increase--not
    merely continue--its contribution toward expansion and improvement of
    the Nation's airports.

                    AVIATION RESEARCH MUST BE REINVIGORATED

        Fourth, and perhaps most important for the future of U.S. aviation,
    the level of effort of FAA RE&D must be increased four- to five-fold--
    that is, $400 to $500 million per year.
        The Administration proposes a funding amount of $100 million for
    this function. This is $25 million less than the fiscal year 2003
    enacted amount, and one half the amount approved in fiscal year 2002.
    This funding trend reflects an alarming deterioration in commitment of
    the Federal Government to maintaining the United States on the global
    forefront of aviation and aeronautical science and industry. The
    Administration's fiscal year 2004 proposal is paltry by any standard,
    and if approved as requested will sound the death knell for any notion
    of an independent FAA R&D capability related to air traffic control.
    (ATC efficiency research is ``zeroed out'' in the fiscal year 2004
    proposal.) In today's ``bottom line'' business environment, and
    especially with the economy in recession, private industry cannot be
    counted on to fill the void.
        If the United States is going to continue being the world leader in
    aviation and aerospace technology, it is long past time to renew the
    Nation's financial commitment to the government-sponsored research
    programs needed to make that happen. This means multiplying by four or
    five times the amount of money now going each year to FAA RE&D. It also
    means generously supporting all manner of research being conducted by
    NASA as well. Although NASA's activities cannot substitute for a
    vigorous, well-funded FAA RE&D capability, in some areas of research it
    offers expertise and research resources that increasingly complement
    those of FAA and support FAA's mission and objectives. However, the
    breadth of appropriate FAA RE&D goes well beyond NASA and DOD's
    interests, and should not be dismissed.

          DEVELOPING A VISION OF THE FUTURE AIR TRANSPORTATION SYSTEM

        Important for the future will be a Government-wide, interagency
    activity to coordinate aviation and aerospace requirements both
    existing and for the future, define research needs and applications for
    the next generation air traffic management system, and assemble a
    unified budget report covering all aviation system funding needs.
    Government-wide planning will allow various organizations to share
    knowledge and facilities, avoid duplication of effort, and leverage
    resources through joint and cooperative activities. The Department of
    Transportation should lead the coordination activity, with the
    Departments of Defense, Commerce, and Homeland Security, and FAA and
    NASA participating. As part of this effort, FAA should undertake to
    define the next generation air traffic management plan for the United
    States, with involvement of all private sector aviation stakeholders,
    members of the public, and government agencies with relevant missions.
        Senate bill S. 788, the ``Second Century of Flight Act'', sponsored
    by Senators Hollings, Brownback, Rockefeller, Inouye, Cantwell and
    Kerry provides an excellent framework for just such a Government-wide
    collaboration to enable the United States to maintain its leadership in
    aeronautics and aviation. The bill would establish and fund in DOT an
    ``Office of Aerospace and Aviation Liaison'' to lead the interagency
    coordination activity, and create in the FAA a ``National Air Traffic
    Management System Development Office'' responsible for developing a
    next generation air traffic system plan for the United States in
    collaboration with other organizations having an aviation mission. S.
    788 also would authorize for FAA RE&D expenditures $289 million in
    fiscal year 2004, $304 million in fiscal year 2005, and $317 million in
    fiscal year 2006. These amounts are less than ATCA advocates, but a
    good start nonetheless. The Air Traffic Control Association supports
    the principles stated in S. 788, and urges Congress to enact the
    legislation.

                                   CONCLUSION

        Terrorism, war, and economic uncertainty have exacted a significant
    toll on air transportation enterprises around the world, especially in
    the United States where air carrier aircraft were hijacked to be the
    instruments of attack. Among sectors of the Nation's economy, aviation
    has paid more than its share of the price of those sad events. The
    lasting financial and market impacts are presenting a serious challenge
    for the United States in maintaining a leadership role in air
    transportation and aerospace technology, working together with other
    nations to achieve a safe, secure, efficient, capable, seamless global
    air transportation system. With the full support of the Administration
    and Congress, however, the United States can retain rather than
    relinquish its stature in the world aviation community, and continue to
    apply the fruits of its efforts in partnership with other nations
    toward the betterment of air transportation around the world.
        To that end, the Air Traffic Control Association urges Congress to
    assure a robust and reliable funding stream for operations,
    maintenance, and modernization of the National Airspace System, and to
    initiate under the leadership of the Department of Transportation and
    fully fund a government-wide Federal aviation and aerospace research
    and development capability to support the air traffic management system
    envisioned for the future. Together we must prepare for the future,
    rather than react to the past.

            MATERIAL SUBMITTED SUBSEQUENT TO CONCLUSION OF HEARINGS

        [Clerk's note.--The following statement was not presented
    by the publication date of Nondepartmental Statements, but was
    submitted to the subcommittee for inclusion in the record:]

     Prepared Statement of Gerard J. Reis, President, Strategic Technology
                               Enterprises, Inc.

        The committee has long recognized and maintained that cabin air
    quality is an important safety issue for passengers and aircrew, and
    has pursued actions to support research, development, and
    implementation of measures that would advance the capability to
    mitigate against the threats posed by biological and chemical
    contaminants. The committee's interest in these issues is well placed,
    not only because of the potential risks and dangers that passengers and
    aircrew may face during routine flight operations, but also because of
    the safety issues that may occur as consequences of terrorist activity.
    Particularly in light of the SARS outbreak, the entire issue of cabin
    air quality, contamination, and decontamination has now taken on an
    added dimension of significance and urgency.
        The recent outbreak of SARS highlights the dangers that passengers
    and aircrew may encounter from both intentional and unintentional
    release of biological and chemical contaminants, particularly in an
    aviation or in-flight environment. Although SARS may be a relatively
    simple virus within the context of biological contaminants, its
    presence and cross-border transmission alerts us to the potential
    dangers that might accompany biological and chemical contamination of
    aircraft and aviation assets.
        In addition to the immediate dangers posed to passengers and
    aircrew, we must consider the potential impacts that intentional
    release of biological and chemical contaminants would have on the air
    transportation network and the airline industry. A contaminated or
    suspect-contaminated aircraft, filled with passengers, would present
    significant challenges for the Federal Government and the various
    airport authorities, and disruptions to the network. Further, there is
    not at present a system, procedure, or capability to process
    contaminated passengers and aircrew, nor is there a system, procedure,
    or capability to decontaminate an aircraft and return it to service.
    The committee understands these challenges and has actively pursued the
    development of capabilities and systems to overcome the challenges and
    ensure the safety of passengers and aircrew.
        The Flight-100--Century of Aviation Flight Reauthorization Act as
    submitted (H.R. 2115) directs the Administrator of the Federal Aviation
    Administration (in Sec. 425) to perform, at a minimum, only three of
    the activities called for in the report of the National Research
    Council (NRC) entitled ``The Airliner Cabin Environment and the Health
    of Passengers and Crew.'' The three activities specified in the
    submission would involve study and analysis, which, albeit important,
    would not prepare us to respond quickly and effectively to an
    intentional or unintentional release of biological and chemical
    contaminants. Nor would the provisions of the submitted draft
    legislation develop a system, procedure, or capability to process
    contaminated passengers and aircrew, or decontaminate an aircraft and
    return it to service.
        These are all serious deficiencies in the draft legislation.
    However, the safety of passengers and aircrew, and the need to
    decontaminate passengers, aircrew, and aircraft, were extensively
    discussed in the NRC report and in the FAA's subsequent response to the
    NRC recommendations. For example, the Airliner Cabin Environment Report
    Response Team of the FAA developed a series of recommended actions to
    implement the recommendations in the NRC report. These recommended
    actions were submitted to the FAA Administrator by the Associate
    Administrator for Regulation and Certification.
        A Chemical/Biological Threat Mitigation Proposal was developed
    within FAA as a safety initiative that would address two compelling
    recommendations of the NRC report. These two NRC recommendations, which
    are ignored in the draft legislation, support a requirement to develop
    immediately a system, procedure, and capability to process contaminated
    passengers and aircrew, and to decontaminate aircraft.
        Technologies and capabilities are needed now to address cabin air
    quality and chemical/biological threat mitigation, especially for
    decontaminating exposed passengers and crew and returning contaminated
    aircraft to service with minimum disruption to the air traffic network.
    The Chemical/Biological Threat Mitigation Proposal reflects this
    urgency. The strong recommendation was made for funding this activity
    at $4.74 million in fiscal year 2004 and $6.36 million in fiscal year
    2005. However, despite the FAA's public announcement\1\ that Flight-100
    provides a substantial investment in safety research, Chemical/
    Biological Threat Mitigation is not funded in the draft legislation.
    The committee should consider authorizing these funds specifically for
    this safety program, in addition to the funds requested by the
    Administration.
    ---------------------------------------------------------------------------
        \1\ DOT 22-03, ``Flight-100 FAA Authorization Proposal Charts New
    Century of Safer, More Efficient Aviation.'' Office of Public Affairs,
    U.S. Department of Transportation, March 25, 2003.
    ---------------------------------------------------------------------------
        Given the quickly-changing and serious nature of terrorist threat
    conditions, the deficiencies in capabilities that have been illustrated
    in the SARS outbreak and in various preparedness exercises, and
    considering the set of dangers inherent in routine operations and
    encompassed in the subject of cabin air quality, there appears to be
    more than a compelling, urgent need to fund Chemical/Biological Threat
    Mitigation.
        As envisioned by FAA AVR, the technology and systems needed to
    perform decontamination are potentially common to cabin air quality
    functions. By funding Chemical/Biological Threat Mitigation, the
    committee would advance both cabin air quality and decontamination. In
    any case, a genuine safety need exists to put in place capabilities
    that would address decontamination of passengers, crew, and aircraft.
    We cannot afford to wait for an incident to begin development of these
    capabilities.
        The impressive, demonstrated efficacy of Vaporized Hydrogen
    Peroxide (VHP) in patented technologies developed by STERIS Corporation
    presents the aviation community with a proven-effective approach for
    mitigating both chemical and biological threats, as well as potentially
    significant applications in cabin air quality for routine operations.
    STERIS's proprietary technologies have been universally recognized as
    the standard in the pharmaceutical and health care industries for the
    past 10 years as highly effective and economical systems for
    decontaminating and sterilizing both environments and equipment. In
    addition, VHP technology can perform prophylaxis decontamination
    without damaging the surfaces where the technology is employed or items
    on those surfaces, including sophisticated electronic components.
    Further, VHP has already demonstrated in two high profile anthrax
    contamination incidents that its potential for application in
    biological decontamination situations is highly significant.
        Published reports of this technology's efficacy are available and
    three are attached. These include ``Vapor Phase Hydrogen Peroxide
    Decontamination of Food Contact Surfaces,''\2\ ``Room Decontamination
    with Hydrogen Peroxide Vapor'' and ``Room Decontamination with
    Vaporized Hydrogen Peroxide (VHP) for Environmental Control of Mouse
    Parvovirus.'' These reports and other literature in the public domain
    illustrate the potential for near-immediate aviation safety
    applications.
    ---------------------------------------------------------------------------
        \2\ McDonnell, Gerald, George Grignal and Kathy Antloga. Dairy,
    Food and Environmental Sanitation, November 2002, pp. 868-873.
    ---------------------------------------------------------------------------
        The demonstrated performance of VHP, particularly in challenging,
    complex contamination situations, affords our Nation in general and the
    aviation community in particular a well-developed technology that can
    be applied to aircraft safety issues quickly and efficiently within the
    program described in the Chemical/Biological Threat Mitigation
    Proposal.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Air Traffic Control Association, Inc., Prepared Statement of the.   319
    American:
        Passenger Rail Coalition, Prepared Statement of the..........   316
        Public Transportation Association, Prepared Statement of the.   311

    Bennett, Hon. Robert F., U.S. Senator from Utah, Statement of....    46
    Blakey, Marion C., Administrator, Federal Aviation
      Administration, Department of Transportation...................     1
        Biographical Sketch of.......................................    12
        Prepared Statement of........................................     8
        Questions Submitted to.......................................    59
        Statement of.................................................     5
    Brownback, Hon. Sam, U.S. Senator from Kansas:
        Prepared Statement of........................................   124
        Questions Submitted by.......................................   170
        Statement of.................................................   138
    Byrd, Hon. Robert C., U.S. Senator from West Virginia:
        Questions Submitted by.......................................   171
        Statement of.................................................   191

    California Industry and Government Central California Ozone Study
      (CCOS) Coalition, Prepared Statement of the....................   315
    Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado,
      Statements of................................................123, 225
    Coalition of Northeastern Governors, Prepared Statement of the...   308

    Durbin, Hon. Richard J., U.S. Senator from Illinois, Questions
      Submitted by..................................................69, 172

    Grams, Todd, Chief Financial Officer, Internal Revenue Service,
      Department of the Treasury.....................................    73

    Hamilton, Wendy J., National President, Mothers Against Drunk
      Driving........................................................   242
        Prepared Statement of........................................   248
        Questions Submitted to.......................................   291
    Hurley, Charles, Vice President, National Safety Council.........   254
        Prepared Statement of........................................   256
        Questions Submitted to.......................................   296

    McLean, Donna, Assistant Secretary of Transportation for Budget,
      Department of Transportation...................................   119
    Mead, Kenneth M., Inspector General, Office of the Inspector
      General, Department of Transportation..........................    13
        Prepared Statement of........................................    16
    Mikulski, Hon. Barbara A., U.S. Senator from Maryland, Questions
      Submitted by..................................................69, 111
    Mineta, Norman Y., Secretary, Department of Transportation.......   119
        Prepared Statement of........................................   127
        Statement of.................................................   125
    Murray, Hon. Patty, U.S. Senator from Washington:
        Opening Statements of..........................3, 75, 121, 177, 221
        Prepared Statement of........................................   223
        Questions Submitted by..................63, 103, 276, 288, 293, 298

    National Association of Railroad Passengers, Prepared Statement
      of the.........................................................   301

    People for the Ethical Treatment of Animals (PETA), Prepared
      Statement of the...............................................   306

    Railway Supply Institute, Inc., Prepared Statement of the........   318
    Reis, Gerard J., President, Strategic Technology Enterprises,
      Inc., Prepared Statement of....................................   325
    Ressel, Teresa Mullet, Acting Assistant Secretary, Management and
      Budget, Office of the Secretary, Department of the Treasury....   175
    Runge, Jeffrey W., M.D., Administrator, National Highway Traffic
      Safety Administration, Department of Transportation............   221
        Prepared Statement of........................................   228
        Statement of.................................................   226

    Sandberg, Annette, Acting Administrator, Federal Motor Carrier
      Safety Administration, Department of Transportation............   235
        Prepared Statement of........................................   237
    Shane, Jeffrey N., Under Secretary for Policy, Office of the
      Secretary, Department of Transportation........................    29
        Prepared Statement of........................................    32
        Questions Submitted to.......................................    70
    Shelby, Hon. Richard C., U.S. Senator from Alabama:
        Opening Statements of...............................1, 73, 119, 175
        Prepared Statement of........................................   224
        Questions Submitted by.....59, 70, 96, 150, 213, 270, 284, 291, 296
    Snow, Hon. John, Secretary, Office of the Secretary, Department
      of the Treasury................................................   175
        Prepared Statement of........................................   180
        Statement of.................................................   179
    Specter, Hon. Arlen, U.S. Senator from Pennsylvania:
        Question Submitted by........................................   169
        Statement of.................................................   193
    Stevens, Hon. Ted, U.S. Senator from Alaska:
        Questions Submitted by.......................................   102
        Statement of.................................................   148

    University Corporation for Atmospheric Research, Prepared
      Statement
      of the.........................................................   309

    Wenzel, Robert E., Acting Commissioner, Internal Revenue Service,
      Department of the Treasury.....................................    73
        Prepared Statement of........................................    78
        Statement of.................................................    76

                                 SUBJECT INDEX

                                  ----------

                           DEPARTMENT OF THE TREASURY

                            Internal Revenue Service

                                                                       Page

    Building on a Good Foundation....................................    78
    Business Systems Modernization..............................87, 94, 113
    Campus Consolidation.............................................    93
    Compliance.......................................................    81
    Continued Investment in Business Systems Modernization (+65
      Million and 0 FTE).............................................    83
    Customer Service.................................................    93
    Earned Income Tax Credit.........................................    89
    Electronic Filing................................................85, 97
    Excise Tax Calculation...........................................   102
    Fiscal Year 2004 Resource Request................................    80
    Free File Initiative.............................................    86
    Has the IRS Improved its Customer Service?.......................   108
    Impact of Unforeseen Costs on Staffing Levels....................    84
    IRS:
        Financial Management.........................................   111
        Free File Initiative.........................................    92
        Modernization................................................   109
        On Privatizing Tax Collection................................   111
    Modernization....................................................    99
    Modifications to the IRS Restructuring and Reform Act of 1998
      (RRA 98).......................................................    85
    Offers in Compromise.............................................    95
    Private Collection Agencies.....................................88, 100
    Public Employees Retirement Systems Ruling.......................   102
    Reinvestments....................................................    82
    Security.........................................................    96
    Should the IRS be Allowed to Use Private Collection Agencies
      (PCAs) to Help Collect Delinquent Tax Debts?...................   104
    Will the IRS Try to Increase Earned Income Tax Credit (EITC)
      Participation?.................................................   103

                            Office of the Secretary

    Accounting Profession and Capitalism.............................   199
    Byrd Amendment...................................................   211
    Debt Limit.......................................................   206
    Deficits.........................................................   203
    Departmental Offices.............................................   213
    Earned Income Tax Credit (EITC)................................186, 187
    Economic Sanctions Against Iraq..................................   200
    Economy...................................................193, 196, 210
    Ensuring the Tax System is Fair for All Through a Comprehensive
      Compliance Effort..............................................   181
    Establishment of a Central Bank in Iraq..........................   209
    Executive Office for Terrorist Financing and Financial Crimes....   186
    Extraterritorial Income (ETI)....................................   190
    FinCEN...........................................................   215
    Flat Tax.........................................................   196
    Foundation for Success--The President's Management Agenda........   184
    Global Economies.................................................   199
    Internal Revenue Service.........................................   215
    Maintaining the Integrity of Our Nation's Financial Systems and
      Safeguarding Our Nation's Currency.............................   183
    New $20 Bill.....................................................   208
    President's Tax Package..........................................   185
    Private Collection Agencies......................................   191
    Privatization of Tax Collections.................................   195
    Providing Economic Security, Jobs, and Growth....................   181
    Rebuilding Iraq..................................................   202
    Restructuring Treasury...........................................   184
    Serving a Critical Role in the Financial War Against Terrorism...   182
    Tax:
        Bill.........................................................   203
        Cut..........................................................   194
    Terrorist Financing..............................................   207
    U.S. Currency Circulation in Iraq................................   209

                          DEPARTMENT OF TRANSPORTATION

    Additional FTE's.................................................   154
    Adoption of Safety Countermeasures...............................   156
    Airline Industry Subsidies.......................................   148
    Airport Competition..............................................   142
    Amtrak....................................................126, 132, 133
        Reform Proposal..............................................   150
    Areas Currently Eligible for CMAQ Funding........................   160
    ASR-11...........................................................   137
    ``At-Risk'' Mega Projects........................................   166
    Aviation.........................................................   131
        Industry.....................................................   138
        Related Research.............................................   139
    Border Planning, Operation and Technology Program................   160
    Colorado Blood-Alcohol Standards.................................   137
    Commercial Passenger Aircraft Fuel Tank Safety...................   169
    Competitive Sourcing.............................................   171
    Congestion Mitigation............................................   159
    Context Sensitive Solutions......................................   165
    Ecosystem and Habitat Conservation Initiatives...................   163
    Environmental Streamlining.......................................   167
    FAA Operational Errors...........................................   142
    Federal Aviation Administration Reauthorization..................   132
    Fiscal Year 2004 Funding Request for Amtrak......................   172
    FTE Distribution.................................................   168
    Highway:
        Performance and Maintenance Initiative (IPAM)................   153
        Reauthorization..............................................   129
        Related Fatalities...........................................   152
        Safety Initiatives...........................................   150
    Hours of Service.................................................   136
    Improving Pavement Ride Quality..................................   153
    Infrastructure and Performance Maintenance Initiative..........131, 150
    Intelligent Vehicle Initiative...................................   155
    Intersection Safety..............................................   158
    Maritime Administration Title XI Program.........................   141
    Mega Projects Oversight..........................................   165
    New Entrant Program..............................................   141
    Overseas Repair Facilities.......................................   173
    Patriot Act......................................................   153
    Pedestrian and Bicyclist Safety at Intersections.................   158
    Reauthorization of Surface and Aviation Programs.................   126
    Requirements for Amtrak to Receive Federal Subsidy...............   153
    S. 788 Century of Flight Act.....................................   171
    Ship Disposal....................................................   151
    Short Line Railroads.............................................   170
    Small Community Air Service......................................   173
    Sound Transit....................................................   135
    Southern Border..................................................   148
    SR 210/Foothill Freeway Additional FTE...........................   167
    State:
        Spending on Hazard Elimination Projects......................   157
        Strategic Highway Safety Plans...............................   159
    Strategic Highway Network........................................   165
    The Administration's Vision for Intercity Passenger Rail.........   172
    Tracking of Hazardous Material...................................   149
    Transit Reauthorization..........................................   147
    Truck Monitoring.................................................   148
    Upgrading and Protecting the Existing Information Resource
      Management Infrastructure......................................   169

                        Federal Aviation Administration

    A Safer, Simpler, Smarter and More Business-like FAA.............    11
    ACE-IDS..........................................................    69
    Aerospace Commission.............................................    63
    AIP and Security Related Funding.................................    55
    Air Traffic:
        Control as a Commercial Activity.............................    65
        Modernization................................................    68
    Airport(s):
        Improvement Program..........................................    66
        Which Will Benefit from New Runways..........................    70
    Aviation Trust Fund Reductions...................................    63
    Budget...........................................................     9
    Capacity.........................................................     7
        Building.....................................................    49
    Carrier Safety Oversight.........................................    64
    Chief Operating Officer..........................................    63
    Controller Retirements...........................................    63
    Cost Accounting System...........................................    62
    Environmental Review Process For:
        Airport Projects.............................................    66
        Capacity Projects............................................    59
    FAA's Oversight of Foreign Repair Stations.......................    58
    Financial Management and Costs Control...........................     7
    Fiscal Year 2004 Budget Request..................................     5
    Graphic Advisories for General Aviation Pilots...................    67
    Most Important Air Traffic Control Projects......................    54
    Oceanic Air Traffic..............................................    61
    Operational:
        Efficiency in the NAS........................................    69
        Errors and Runway Incursions.................................    62
        Evolution Plan...............................................    41
    Oversight of Foreign and Domestic Repair Stations................    64
    Performance-Based Pay System.....................................     8
    Reauthorization..................................................     9
        Proposal.....................................................     5
    Repair Stations..................................................    58
    Revision of the Operational Evolution Plan.......................    65
    Rising Operating Costs...........................................    42
    Safer, Simpler, Smarter..........................................     9
    Safety...........................................................     6
    San Juan County's Airspace Frequency.............................    67
    Status of the ASR-11 Radar and Stars.............................    65
    Wake Turbulence Research.........................................    62
    Working Group on the Airline Industry's Financial Crisis.........    69

                  Federal Motor Carrier Safety Administration

    Additional Committee Questions...................................   284
    Commercial Drivers License (CDL) Grants..........................   239
    HAZMAT Safety and Security.......................................   238
    Household Goods Enforcement......................................   239
    Medical Programs.................................................   240
    New Entrant Program..............................................   237
    Organizational Excellence........................................   240
    Regulatory Development...........................................   239
    Southern Border Enforcement......................................   238

                 National Highway Traffic Safety Administration

    Additional Committee Questions...................................   270
    Blue Ribbon Commission on Highway Safety.........................   283
    Budget Reductions in Impaired Driving Program....................   265
    Child Safety Seats...............................................   274
    Coordinated Governmental Effort to Fight Drunk Driving...........   281
    Crash Causation..................................................   280
    Diverting Impaired Driving Funds.................................   267
    Emergency Vehicle:
        Crash Avoidance Technologies.................................   264
        Sensors......................................................   263
    Flexibility and Accountability...................................   268
    High Visibility Enforcement for Impaired Driving.................   263
    Highway Safety:
        Grant Funding Levels.........................................   272
        Initiatives..................................................   272
    Impaired Driving.................................................   273
    Increase of Alcohol-Related Fatalities...........................   279
    Motorcycle:
        Fatalities...................................................   262
        Fatality Increases...........................................   277
    NHTSA Efforts to Improve SUV Safety/Reducing Rollovers and
      Aggressivity...................................................   282
    NHTSA's:
        ``Checkpoint Strikeforce'' Campaign..........................   280
        Oversight of State Safety Programs...........................   279
        Paid Advertising Program.....................................   277
    Occupant Protection..............................................   274
    Program Highlights...............................................   230
    Reauthorization Proposal Effect on Impaired Driving Program......   266
    Safety Belts.....................................................   272
    Share the Road...................................................   276
    State Data Accountability........................................   267
    Steps NHTSA is Taking to Improve Vehicle Blind Spots.............   282
    Top Priorities for NHTSA and FMCSA's Safety Regulatory Agenda....   281

                        Office of the Inspector General

    AIP Spending.....................................................    57
    Aviation Safety..................................................    28
    Building Aviation System Capacity and More Efficient Use of
      Airspace to Prevent a Repeat of the Summer of 2000.............    26
    Controller-In-Charge Program and Operational Errors..............    56
    General State of FAA.............................................    19
    Making FAA a Performance-Based Organization Through Controlling
      Costs in Operations and Major Acquisitions.....................    22
    Rising Operating Costs...........................................    42
    Service to Small and Medium Sized Communities....................    19
    Stars and Other Programs' Cost Growth............................    57
    State of the Airline Industry....................................    17
    Striking a Balance Between How Airport Funds Will Pay for
      Capacity and Security Initiatives..............................    27

                            Office of the Secretary

    Administration's:
        Position on Airline Aid......................................    53
        Representative...............................................    50
    Airline Industry.................................................    48
    Business Travelers...............................................    47
    FAA Management of Procurement....................................    70
    Government Intervention..........................................    51
    Post-9/11 Impact on Aviation Industry............................    44
    Reimbursement to the Carriers....................................    40
    Relief:
        Package for Aviation Industry................................    42
        To the Airline Industry......................................    40
    Role of the Office of the Secretary in FAA Matters...............    70
    Supplemental Appropriations Act..................................    45
    The Future of the U.S. Aerospace Industry........................    71
    TSA..............................................................    48