[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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                      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 51" woman 
driving a Chevrolet Avalanche has a 50 foot blind spot in back of her. 
Even a 59" 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

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