    [Senate Hearing 108-162]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 108-162

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT 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. 2861/S. 1584

     AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF VETERANS AFFAIRS
    AND HOUSING AND URBAN DEVELOPMENT, AND FOR SUNDRY INDEPENDENT AGENCIES,
      BOARDS, COMMISSIONS, CORPORATIONS, AND OFFICES FOR THE FISCAL YEAR
               ENDING SEPTEMBER 30, 2004, AND FOR OTHER PURPOSES

                                   __________

          American Battle Monuments Commission
          Corporation for National and Community Service
          Department of Health and Human Services: Agency for Toxic
            Substances and Disease Registry
          Department of Housing and Urban Development
          Department of the Army--Civil
          Department of the Treasury: Community Development Financial
            Institutions Fund
          Department of Veterans Affairs
          Environmental Protection Agency
          Executive Office of The President: Office of Science and
            Technology Policy
          Federal Deposit Insurance Corporation: Office of Inspector
            General
          National Aeronautics and Space Administration
          National Credit Union Administration
          National Science Foundation
          Neighborhood Reinvestment Corporation
          Nondepartmental Witnesses
          Selective Service System
          U.S. Chemical Safety and Hazard Investigation Board
          U.S. Court of Appeals for Veterans Claims

                                   __________

            Printed for the use of the Committee on Appropriations

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

                                     ______

                        U.S. GOVERNMENT PRINTING OFFICE
    85-944                      WASHINGTON : 2003
    ____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800
    Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001

                          COMMITTEE ON APPROPRIATIONS

                         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
                  Terrence E. Sauvain, Minority Staff Director
                                     ------

               Subcommittee on VA, HUD, and Independent Agencies

                    CHRISTOPHER S. BOND, Missouri, Chairman
    CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
    RICHARD C. SHELBY, Alabama           PATRICK J. LEAHY, Vermont
    LARRY CRAIG, Idaho                   TOM HARKIN, Iowa
    PETE V. DOMENICI, New Mexico         ROBERT C. BYRD, West Virginia
    MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
    KAY BAILEY HUTCHISON, Texas          HARRY REID, Nevada
    TED STEVENS, Alaska (ex officio)

                               Professional Staff

                                  Jon Kamarck
                                    Cheh Kim
                                  Allen Cutler
                            Paul Carliner (Minority)
                         Gabrielle A. Batkin (Minority)
                            Alexa Sewell (Minority)

                             Administrative Support

                               Jennifer Storipan

                                C O N T E N T S

                                  ----------

                            Thursday, March 6, 2003

                                                                       Page
    Department of Housing and Urban Development......................     1

                            Thursday, March 13, 2003

    Department of Veterans Affairs...................................    75

                            Thursday, March 20, 2003

    Environmental Protection Agency..................................   141

                            Thursday, April 3, 2003

    Executive Office of the President: Office of Science and
      Technology Policy..............................................   221
    National Science Foundation......................................   221

                            Thursday, April 10, 2003

    Corporation for National and Community Service...................   271
    Department of the Treasury: Community Development Financial
      Institutions Fund..............................................   325

                             Thursday, May 1, 2003

    National Aeronautics and Space Administration....................   351
    Material submitted by agencies not appearing for formal hearings:   403
        American Battle Monuments Commission.........................   440
        Department of Health and Human Services: Agency for Toxic
          Substances and Disease Registry............................   417
        Department of the Army--Civil................................   424
        Federal Deposit Insurance Corporation: Office of Inspector
          General....................................................   427
        National Credit Union Administration.........................   403
        Neighborhood Reinvestment Corporation........................   444
        Selective Service System.....................................   451
        U.S. Chemical Safety and Hazard Investigation Board..........   408
        U.S. Court of Appeals for Veterans Claims....................   413
    Nondepartmental witnesses........................................   455

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                            THURSDAY, MARCH 6, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:03 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond and Mikulski.

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    STATEMENT OF MEL MARTINEZ, SECRETARY
    ACCOMPANIED BY:
            MICHAEL LIU, ASSISTANT SECRETARY, PUBLIC AND INDIAN HOUSING
            KENNETH DONOHUE, INSPECTOR GENERAL
            JOHN C. WEICHER, ASSISTANT SECRETARY, HOUSING, AND FEDERAL
                HOUSING COMMISSIONER
            PHILIP MANGANO, EXECUTIVE DIRECTOR, INTERAGENCY COUNCIL ON
                HOMELESSNESS

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Good morning, Mr. Secretary. The hearing of
    the Senate VA-HUD Appropriations Subcommittee will come to
    order.
        As we begin our hearings on the fiscal year 2004 requests,
    it is a pleasure to welcome Secretary Martinez and other guests
    from the Department of Housing and Urban Development who have
    joined us here this morning to testify on the President's
    fiscal year 2004 budget request. This is your third visit
    before the subcommittee on HUD's budget, Mr. Secretary, and I
    hope not the last.
        As we have discussed, the Department remains a troubled
    agency plagued by a morass of program and management problems
    that, in most cases, you inherited from previous
    administrations. I think I warned you privately before you took
    it on that you were taking on a huge challenge and I know you
    have found it to be everything that I promised you it would be.
        Your committed leadership and steady hand has made a big
    difference already, and continued stability at the top can only
    strengthen and enhance the reforms that have already occurred
    within HUD. Please remember I said that, because there will be
    some comments I have later on that really point out some
    problems that you and I face together, and we have to resolve
    them because we want to see HUD be the kind of agency of which
    all of us can be proud.
        The request for fiscal year 2004 proposes $31.3 billion, an
    increase of $872 million over the fiscal year 2003 funding
    level of $30.43 billion. As was the case with the fiscal year
    2003, the Subcommittee will be facing some very difficult
    funding decisions in fiscal year 2004, including funding
    decisions for HUD. In addition, the tightness of the HUD budget
    request for fiscal year 2004 only makes these decisions more
    difficult, especially since, as always, we will have to stack
    up the funding by priorities of the many needs and priorities
    of many other agencies and programs within the jurisdiction of
    this Subcommittee, including such priorities as VA medical
    care, National Science Foundation, the Environmental Protection
    Agency and NASA, which itself faces a whole set of special
    needs as we attempt to understand what went horribly wrong with
    the reentry of the Space Shuttle Columbia.
        In addition, HUD's fiscal year 2004 budget request is tied
    to a number of very ambitious legislative recommendations and
    program changes, which if enacted, and you and we know the
    likelihood of that, would represent a landmark restructuring of
    many of the Department's most important and largest programs. I
    will highlight a few of the most important and potentially
    controversial funding decisions and legislative
    recommendations.
        First, the administration is proposing to restructure the
    various Section 8 programs by creating a new Section 8 tenant-
    based voucher program that would be called Housing Assistance
    for Needy Families, or HANF. HANF would be funded at about
    $12.5 billion in fiscal year 2004 and would transition to a
    block grant program of the States in fiscal year 2005. As part
    of this proposals, the Section 8 project-based programs would
    continue to be administered by HUD through State housing
    agencies and PHAs.
        While I understand the administration's frustrations with
    the Section 8 tenant-based voucher program with its annual
    rescissions and poor cost projections, HANF does not appear to
    be the best possible replacement for the existing voucher
    program. Being a former governor and having been an advocate of
    block grants, I believe there are areas in which they can be
    very helpful, but instead we need to provide more flexibility
    in a low-income-housing program based on local decision making,
    I fear that HANF merely moves the responsibility for voucher
    administration to the States and otherwise appears to duplicate
    much of what the HOME program already is capable of doing. HANF
    likely will put new burdens on States and localities to meet
    rising housing costs as well as low-income housing needs. And
    as history tells us, block grant programs seldom receive any
    significant increased funding once the programs are
    established. I think that is particularly troubling during a
    period of time when most States and localities are facing
    increasingly difficult financial decisions and large budget
    shortfalls, and I find it unlikely that the States would be
    willing to pick up any of these responsibilities.
        In summary, in my view, HANF is premature. The fiscal year
    2003 appropriations bill created a new funding structure for
    Section 8 vouchers where PHAs receive the funding for all the
    vouchers in use and will be able to apply for any vouchers they
    need to help reach the PHA authorized level. This funding
    approach, we believe, if we worked it out in cooperation with
    my colleagues, this results in a more realistic assessment of
    Section 8 funding needs, reducing the need to go through the
    annual ritual of rescinding large amounts of unused excess
    Section 8 assistance. And as we all know, that becomes a piggy
    bank which gets raided not for use in the HUD budget but for
    everything else under the sun, and I think it is going to take
    several years for us to see if this new system will work, but I
    am optimistic that it is a better solution and will give us a
    better gauge of both the actual cost and the use of vouchers.
        As for public housing, the HUD budget request of $3.57
    billion for the Public Housing Operating Fund is roughly the
    same as the fiscal year 2003 funding. The HUD budget request of
    $2.6 billion for the Public Housing Capital Fund is some $70
    million less than the fiscal year 2003 level. I compliment Mr.
    Liu, the Assistant Secretary for Public and Indian Housing, on
    taking much needed corrective measures when it was discovered
    that the Department has been inappropriately awarding PHAs with
    additional operating funds by raiding current year public
    housing operating funds for prior year obligations. The fiscal
    year 2003 appropriations bill put a final stop to this activity
    while funding for at least one last time the existing prior
    year obligations owed to a few PHAs for fiscal year 2003. While
    not a perfect solution, I believe it is a fair solution and
    should leave all PHAs on an equal footing. I never ever want to
    see this problem again.
        I am also troubled by the Department's decision to
    eliminate all funding for the public housing HOPE VI program. I
    want to give you some history with that HOPE VI program. It
    started in the authorizing committee when we finally committed
    to tear down the very troubled almost uninhabitable public
    housing in St. Louis, and replace it with a model public
    housing program. Working through this Subcommittee we designed
    the HOPE VI program to carry on with tearing down the most
    distressed and obsolete public housing, while replacing the
    housing with new mixed income and public housing developments.
    This not only provides good housing for low-income families,
    but helps to anchor the economic and fiscal redevelopment of
    many distressed communities. Frankly, despite the fact that
    HOPE VI had problems at its inception, I think it is a program
    that works.
        The loss of this $574 million HOPE VI program is
    particularly disturbing to me because there has never been any
    real attempt to have a meaningful dialogue between the
    administration and the Congress on the future of HOPE VI. We
    have asked and asked, and we have received no discussion, no
    dialogue, which puzzles me, why the administration has failed
    to discuss the various options related to HOPE VI, eliminating
    the program, continuing it, improving it, or creating a
    substitute program.
        No matter how one views the HOPE VI program, the loss of
    $574 million will mean a huge reduction in available resources,
    both public and private, for public housing capital needs. This
    is a critical concern since HUD has identified some $20 billion
    and more in deferred maintenance and capital needs. These
    issues are further compounded by the loss of funding associated
    with the elimination of the Public Housing Drug Elimination
    program in fiscal year 2002.
        Now I know the administration is proposing a new public
    housing loan guarantee program that could possibly meet some or
    many of the goals of the HOPE VI program. We need to know more
    about the program, especially its goals and its projected
    impact. I am concerned that the $131 million price tag for the
    credit subsidy for this new loan guarantee program is paid for
    from the public housing capital fund, further eroding needed
    funds for capital and deferred maintenance needs.
        Many of these policy and funding decisions under this
    budget request further underline the need for a housing
    production program with many extremely low-income families who
    are unable to find affordable housing, and we are willing to
    continue to work to find such a program and the funding for it.
    We would welcome the opportunity to have input from your
    Department and we look forward to working on this question in a
    bipartisan basis to come up with a program that meets the
    needs.
        There are many proposals out there, most of which chase the
    elusive phantoms, and they are not the magic pixie dust that is
    going to allow us to avoid the Budget Act if we try to raid
    that money for a new housing production program.
        The HUD budget also calls for consolidating the Homeless
    Assistance Grants, as well as a revised formula for the
    Community Development Block Grant program. I have supported the
    block granting of homeless assistance for many years, so long
    as the legislation insures that HUD accountability and
    oversight are part of the process. A new formula for the CDBG
    program that better targets poor and distressed communities is
    a laudable goal. Nevertheless, part of the success of the CDBG
    program is that it is a national program that can reach all of
    our communities, and that all of the communities have a stake
    in the program. Also, I would hate to see that many of the good
    ideas in the HUD budget being lost because of the distraction
    of a food fight over the formula by which the CDBG program
    allocates funding.
        There is also a number of other HUD propositions that merit
    discussion but in the interest of time, I am only going to
    focus on a few more.
        The administration has proposed $50 million for what is
    called the Samaritan Housing Initiative. The program is
    designed as a broad interagency strategy to address
    homelessness, involving HUD, HHS and VA and is consistent with
    a 2-year innovative demonstration included in the VA-HUD fiscal
    year 2003 appropriations bill. The administration is also
    proposing $25 million for a lead-based paint abatement program.
    Again, this proposal is basically consistent with the new $50
    million lead paint abatement program that was included in the
    fiscal year 2003 bill. I am very gratified by these common
    priorities, but I am going to match these programs and raise
    them.
        The proposed FHA home ownership program for persons with
    poor credit is also a good idea. This proposal would allow
    these persons an opportunity to repair their credit and
    demonstrate their financial reliability while providing an
    opportunity for home ownership. All too often, low-income
    persons make financial mistakes while young and without
    resources. Unfortunately, these persons are often haunted by
    these mistakes and are unable to obtain housing and other
    credit as they mature and become more financially responsible.
    This is the type of program where the Federal Government can
    make a difference and provide a second chance opportunity to
    make home ownership a reality.
        I am unhappy about a number of HUD funding recommendations
    for fiscal year 2004. Most especially, I am unhappy that the
    administration continues in every HUD budget request to
    recommend eliminating the Rural Housing and Economic
    Development Program. I guess nobody listens to us up there.
    Urban areas always get the attention of Congress while rural
    areas too often are ignored and underfunded. I live in a rural
    area where the housing needs are very strong, and I trust you
    will find it in other States as well. It has been estimated
    that over the last 2 fiscal years, some 4,000 jobs have been
    created and over 8,200 persons have been trained. In addition,
    over 2,200 housing units have been constructed with some 3,700
    rehabilitated. In the last year, 367 businesses have been
    created and 1,400 existing businesses assisted. This program is
    a good program. It makes a difference with a small price tag
    and big results.
        I also feel compelled to reiterate that HUD faces many
    challenges and there is much more work to be done. As I have
    discussed already, the Department has been misleading Congress
    for some 10 years by overpaying PHAs for their operating costs
    from current year funding for prior year obligations. I
    understand this problem has been corrected and I expect it has
    been.
        However, equally or more serious, at the very end of the
    conference on the fiscal year 2003 appropriations bill, the
    House and Senate VA-HUD Appropriations Subcommittees were
    advised that HUD exceeded its stated employee levels by upwards
    of 300 FTEs, with a cost of $30 million that was not reflected
    in the HUD fiscal year 2003 budget justification and budget
    request. These hires occurred during the spring and summer of
    2002 and despite the significant impact on HUD's budget needs
    for fiscal year 2003, HUD never once made any attempt to inform
    the Congress of its decision to hire significantly more staff
    than provided for in the HUD fiscal year 2003 budget
    justifications. In addition, HUD only reported these staff
    increases when it determined that the fiscal year 2003 budget
    request for salaries and expenses could not support the added
    staff.
        In addition, there are many significant questions as to
    whether HUD comported with existing staffing requirements and
    hiring procedures, including requirements consistent with HUD's
    resource estimation and allocation process or REAP. In fact, it
    appears that some HUD offices hired significantly more staff
    than needed while other offices hired significantly less. It is
    unclear whether there was top level management controls or any
    adult supervision during this hiring spree. HUD and the
    responsible officials will be held accountable for this mess.
    In any case, a $30 million funding shortfall as well as HUD's
    failure to provide timely notice of the problem is
    unacceptable.
        The reform of HUD remains a huge and daunting challenge. It
    has been troubled and dysfunctional, but we believe it serves a
    critical role, and so we will continue to work together to
    rebuild the public confidence in HUD as it performs its many
    housing and community development needs.
        Mr. Secretary, I look forward to your testimony, and I now
    turn to my ranking member, Senator Mikulski.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Mr. Chairman, the public has been waiting
    with bated breath to not only talk to Secretary Martinez, but
    also to wish you happy birthday. On behalf of the Subcommittee
    and myself I am glad your birthday comes before mine. I know
    today is your birthday and we want to wish you well.
        This is a bipartisan, low-fat muffin, and I want to present
    it to you.
        This is in no way to indicate that an adequate
    appropriation is to let them eat muffins. We really do wish you
    good health.
        Senator Bond. Thank you.
        Senator Mikulski. I want to welcome Secretary Martinez, and
    in the interest of time, I will summarize my opening statement.
        For fiscal year 2004, the administration's request, which
    is a $300 million increase over last year, is only 1 percent.
    That indeed, I think is too skimpy to be able to meet the
    compelling needs facing us in the area of housing.
        My primary principle for HUD is absolutely simple. I
    believe that HUD needs to be in the community development
    business and not think of itself as just being in the building
    business. I think that HUD needs to be able to build
    communities, not only houses, communities where people can
    live, work, worship and shop, to strengthen communities,
    whether in small town U.S.A. or big town America.
        And I know, Mr. Secretary, you share my principles that
    these homes not only need to be affordable, but the
    neighborhoods have to be safe, and that whatever the Federal
    Government does, we protect both the taxpayer and the consumer
    against fraud.
        Looking at what we need to do in terms of neighborhood and
    community development, I wanted to first focus my comments on
    HOPE VI. The administration has zeroed out HOPE VI at the end
    of this year. This means that there is going to be $600 million
    cut out of community development. HOPE VI was not about
    building new housing for the poor, it was about building new
    opportunities for the poor. It was about using typical
    architecture, tearing down decrepit housing, and at the same
    time using a new empowerment architecture, insisting that the
    residents be involved in both the stake in the community as
    well as in job training, since public housing should be seen
    not only as a way of life but a way to a better life.
        We would hope as the loans have been zeroed out, we take a
    look at this because the administration does not provide
    continued funding for the program, or even suggest how to
    improve HOPE VI by simply eliminating it or taking $600 million
    out of the people development program and out of the community
    development. I think we need a vigorous conversation about HOPE
    VI and I will be asking you some questions about it.
        It is a program that needs to be reformed or if it is not
    going to stay as HOPE VI, we need to then think about how else
    we can create hope. Remember, it is not about housing, it is
    about opportunity.
        The other issue that I am concerned about is brownfields.
    Brownfields were eliminated from the budget request last year.
    With brownfields, the cleanup responsibility lies with EPA, but
    part of the economic development responsibility lies with HUD.
    In my own home State of Maryland and in the Baltimore
    metropolitan area, a study done for the Maryland Port Authority
    showed that we have 3,000 acres of brownfields in and around
    the Baltimore waterfront, in Baltimore City and east Baltimore
    County.
        What a cornucopia of opportunity to turn brownfields into
    green fields, not only from the environmental standpoint, but a
    tremendous opportunity to create new jobs, new places for work,
    and even new housing. Let us take a look at these brownfields
    and let us work with Administrator Whitman to look at not only
    large communities, but in others that we could do this.
        Third, we need to look at the funding and attitudes related
    to housing for the elderly. Most of the housing for the elderly
    was built in the 1970's and 1980's. It is old. We have many,
    many units that were built in the 1960's to the 1980's. We now
    have elderly who are now frail elderly, and the buildings
    themselves are getting decrepit. We need to look at this and
    how they are going to renew those buildings, and also look at
    the way the elderly have been aging in place at something
    called the naturally occurring retirement communities.
        Let us take a look at how with the boomers coming on line,
    what are we going to be able to do about this, and I think we
    have to have a commitment to what we offer the elderly. And Mr.
    Martinez, this could be a successful faith-based program, and I
    believe it has been, because it has been a partnership between
    the Federal Government with Catholic charities, Jewish
    charities, other faith-based organizations. I just think this
    is a great opportunity to continue the faith-based initiative
    and yet at the same time look at both the housing and the
    people who are aging in place.
        The other area that I appreciate your work on is fraud. I
    know you share with me the total frustration and outrage when
    people try to scam the consumer and scam the taxpayer. I want
    to salute you for what you have been doing in the area of
    fraud. Your approach in trying to deal with the scams and
    schemes in settlement costs for home ownership I think should
    be absolutely commended, because when people buy their home,
    they are looking at not only the price of the home, but also
    the price of the settlement, and often there are those hidden
    fees that really do gouge that home buyer, particularly that
    first-time home buyer. So kudos to you for that.
        Second, I want to thank you for your work against predatory
    lending. The way you have worked with both me in Baltimore City
    and this Committee with Senator Bond to make sure that when we
    have FHA mortgage, we are able to provide first-time home
    ownership, that we were not using them to gouge people by
    selling them houses that were bought at $15,000 and sold 72
    hours later for $85,000, with balloon payments of $100,000. So,
    congratulations.
        But you know, the schemers and the scammers are really
    scummers. Wherever you go, they think of something new. We had
    a new situation in Baltimore, and you wonder why is it in
    Baltimore, because we are pretty tough. But we now have a new
    situation where a company is buying up mortgages, and in the
    process of buying up these mortgages, what they are doing is
    essentially telling, foreclosing people who are making
    payments.
        There was an investigative report revealed on local
    Baltimore TV about this corporation sending false letters to
    home buyers telling them they were delinquent in their loan,
    that they were going to foreclose, scaring the heck out of home
    buyers, actually moving to foreclosure, and creating chaos in
    their minds, chaos in the marketplace.
        This company provides customer service but they are not the
    lender. The Community Law Center in Baltimore has gotten 90
    complaints from people being scammed by this corporation. We do
    not know whether any of these loans have FHA insurance on them,
    but they are approved as an FHA partner. I am going to give you
    more information about this. I want to discuss this with the
    Inspector General, because we want to know who is this company
    and what are they doing. How can we stop the fraud? If someone
    has been a victim, where can they go? We want to get at the
    system of the fraud, and we want to help the local consumer
    that has been once again, schemed and scammed, and get to the
    bottom of it. And I know your deep commitment on this, and I
    say thank you.
        Money is in short supply in the Federal Government, in the
    Federal checkbook and it is in shorter supply in the family
    checkbook, and we have to stand firmly against any fraud
    scheme, scam or scum. I am prepared now to hear your testimony.
        Mr. Chairman, thank you very much.

                 PREPARED STATEMENT OF SENATOR PATRICK J. LEAHY

        Senator Bond. Senator Leahy has submitted testimony which
    he would like submitted for the record.
        [The statement follows:]
                 Prepared Statement of Senator Patrick J. Leahy
        Mr. Secretary thank you for taking the time to come and testify
    before us today, as always it is a pleasure to have you before the VA-
    HUD and Independent Agencies Subcommittee.
        Last year was a long and trying one where Federal appropriations
    were concerned. We had not yet finished our work on the fiscal year
    2003 bills when the President's proposal for fiscal year 2004 was
    delivered to Capitol Hill.
        I know that both Senator Bond and Senator Mikulski worked very hard
    to produce VA-HUD appropriations bill for fiscal year 2003 that met the
    needs of our Nation's most vulnerable populations and for that I thank
    them. They made the best of a very difficult situation.
        In the end however under an artificially low spending cap imposed
    by the administration it was difficult to adequately fund many
    important domestic programs. I am concerned that if we follow up on
    this fiscal year with the meager budget proposed by the
    administration--by most calculations it amounts to a mere 1.3 percent
    increase for HUD programs--we would only entrench this country's
    affordable housing crisis.
        Mr. Secretary, this administration has talked at length about the
    importance of housing and homeownership in creating stability and
    promoting wealth--but this budget does not reflect those sentiments.
        The administration's proposal to block grant Section 8 voucher
    assistance to States is particularly troubling. This program serves
    over 5 million low-income families who rely on the rental assistance to
    help maintain stable housing. One preliminary study of this policy
    estimates that over 137,000 vouchers could go out of circulation if
    this proposal is implemented.
        Most troubling is that the proposal to block grant is made in the
    wake of the bipartisan Millennium Housing Commission report that found
    the voucher program to be successful in its mission and at a time when
    voucher utilizations rates are going up.
        I doubt there is anyone on this Subcommittee who would argue that
    the Section 8 program does not have its flaws, and I am not averse to
    looking at new ways to make the system more efficient; however we
    simply do not have enough details to thoroughly evaluate this proposal.
    I look forward to seeing more details as soon as possible.
        For the third year in a row, the administration also proposes
    severe cuts to public housing. By most estimates the President has
    proposed over $2.5 billion in cuts to public housing over the last 3
    years.
        The Public Housing Capital Expenses program is recommended at $200
    million less then fiscal year 2002, and the administration suggests we
    eliminate the HOPE VI program that has helped many communities around
    the Nation revitalize.
        Last year by HUD's own miscalculations there was a $250 million
    dollar shortfall in the Public Housing Operating Fund--a shortfall HUD
    must make up by borrowing from the fiscal year 2003 allocation. Yet the
    administration proposes only a $44 million increase for this fund from
    the fiscal year 2002 level, leaving many of us to wonder how HUD will
    make up the difference.
        Mr. Secretary, it is one thing to argue the merits of expanding
    programs in this economic environment, but shouldn't at least live up
    to our current obligations?
        This budget does not do that.
        There is no question that we are facing an affordable housing
    crisis in this Nation. Nearly 5 million households in the United States
    are paying over half of their incomes to rent alone--leaving precious
    little to put groceries on the table, gas in their cars, or buy clothes
    for their kids.
        My home State of Vermont has not been immune to this trend. The
    number of homeless families being served by homeless shelters in
    Chittenden County has risen 400 percent over the last 3 years. Many of
    these families are working families.
        It is in this light that I am troubled by the priorities set forth
    in the administration's proposed budget for the Department of Housing
    and Urban Development.
        Mr. Secretary, I know you did not take on an easy task when you
    came on board at this Department, and I look forward to working with
    you throughout the year to address these concerns.
        Again, I thank you for coming before us today; I have some
    additional questions that I will submit for the record.

        Senator Bond. Thank you, Senator Mikulski. We are supposed
    to have a vote coming up, but I think we will try to move
    along. We will go to your testimony and try to get it in before
    we have to go to vote.

                           STATEMENT OF MEL MARTINEZ

        Secretary Martinez. Mr. Chairman, in the interest of time
    what I would like to do is just offer my full remarks for the
    record.
        Senator Bond. We will be happy to include them.
        Secretary Martinez. And rather than go through more
    prepared remarks, perhaps what I could do is just try to go
    through some of the things that I know are of interest to the
    Chairman and the Ranking Member.
        Senator Bond. Please.
        Secretary Martinez. First of all, let me say to both of you
    that it is a real pleasure to come before you, and it is a real
    pleasure to meet with you as your commitment and concern with
    this Department and its work, show by your depth and breadth of
    knowledge of our programs and your interest in what we do. That
    is gratifying and I understand, Mr. Chairman, that at times
    with that level of interest and knowledge also comes a little
    bit of scolding, and I am prepared for that today as well,
    because I do understand that from time to time this Department,
    as you well foretold for me at the time of my arrival in this
    city, can be a little daunting. So we will be prepared to
    discuss some of those issues with you as well.

                            PROMOTING HOME OWNERSHIP

        Let me say that our Department continues to focus on the
    issue of home ownership with our $31.3 billion budget, but we
    obviously have some things that are very important to us to
    move American families into home ownership. The American Dream
    Downpayment Initiative contributing $200 million into the HOME
    program is the cornerstone of that.
        Related to the issue of predatory lending or fraud abuse,
    and frankly of providing families with, as you so well said,
    Madam Senator, is not a way of life but a way to a better life.
    We also believe that home ownership provides that way to a
    better life, and so home ownership education is a big component
    of this budget. We have made a continuing commitment to
    increasing funding in that. In this year's budget, $45 million
    is dedicated to home ownership counseling and education.
        But we hope to bring families from our minority communities
    into home ownership and teach them skills to avoid predatory
    lenders, how to avoid bad credit, how to fix that credit, how
    to approach the whole home buying process is important.
        As you pointed out again, I am working on the issue of
    reform, we are proud of that commitment and we continue to look
    for that to occur in the late spring or early summer.
        In addition to that, we are continuing to promote housing
    Section 8 vouchers for home ownership.

                                  HOME PROGRAM

        All of these we believe to be significant and important
    commitments. In the HOME program, which we believe to be a real
    hallmark for providing affordable opportunities for housing for
    many families, we, this year, are very proud of the President's
    commitment to this aspect of our work. The increase of 5
    percent, $113 million devoted to the HOME program, will enable
    us with the additional funds that have been committed by the
    Congress over many years of over $2 billion yearly, to produce
    over 1 million units of housing over the next 10 years.
        We believe that is a very substantial production program
    that will help us to continue in two veins. Number one, not add
    any more rent programs and number two, not raid and lose the
    money which is frankly, no more than the insurance reserve
    fund, in order to provide about an equal number of homes. So, I
    believe that is the right way to go.

                                      HANF

        I am willing to engage in vigorous debate over our block
    granting of Section 8. I do think it is important to look at
    this proposal as a possible way to avoid some of the pitfalls
    of Section 8 in the past. I would point out to the Chair that
    it is a flexible program where States who might not be in a
    position to undertake it, it could still be managed in the
    traditional way that we have done it in the past. But it would
    open a window of opportunity for those States who would be in a
    position to manage it, and perhaps do so in a way that is more
    direct and close to the people and perhaps in a more efficient
    way that would avoid the problem of recapture that you so aptly
    pointed out in your remarks, Mr. Chairman.

                                    HOPE VI

        The issue of HOPE VI is one that I find painful to have it
    appear as something that we are not committed to. I believe
    HOPE VI has been a very successful and good program. I believe
    that while it has done a great deal that much of its promise
    remains unfulfilled.
        One of the things I would like to point is out is the
    commitment of HOPE VI over the last 10 years, and it is a 10-
    year program, and OMB felt that it was a program for 10 years,
    this being the 10th year, and coming up for reauthorization
    that we should take a pause and look. The reason for that also
    is that while we have funded over 165 programs or projects,
    only 14 have been completed to date. So when I say that the
    promise remains largely unfulfilled, that is because $2.5
    billion that have already been awarded have not come out of the
    ground yet.
        In addition to that, the round of grants from this year,
    which we should be announcing, as well as the ones from next
    year, would add an additional billion dollars in grant monies
    that would be out.
        I am not being critical of those who put these deals
    together. They are complicated and by the nature of the deal,
    they leverage funds with the private sector. So they are very
    good deals and they do take time to come together. But I would
    like to just point to a chart that we prepared that would give
    you a graphic visual of exactly where the program is in terms
    of the spend-out.
        As you can see, we have the number of units that have been
    planned or funded, and on the right in the red you see the
    number of units that have been completed through today. But in
    the reinvention of the future of HOPE VI, we could look to a
    program that is going to be continuing, that is not going to
    end. I will clarify for you that those projects that have
    received the grant will continue to see that grant paid out and
    their projects will all be done. So no one who was expecting to
    do a HOPE VI because they received a HOPE VI grant will be
    disappointed, and any who are still hoping to do one can still
    enter the next round of funding.
        We are also excited, Mr. Chairman, about utilizing the
    private resources and private capital to attract private
    capital. Some cities like Chicago are committing hundreds of
    millions of dollars of their own money to revitalize public
    housing neighborhoods, and HUD is also seeking additional
    approval of Congress such as the Public Housing Reinvestment
    Initiative.
        So we look forward to continuing the discussion with you.
    Senator Mikulski mentioned the possibility of a task force; I
    think that would be helpful. I believe that in coming together
    with those who have had an interest or stake in the past, who
    have offered possibilities, who have dealt with some of the
    problems of displacement of the people and things of that
    nature, would also come up with good solutions for us on that
    issue.

                               MANAGEMENT ISSUES

        With respect to the issue of management issues of HUD, Mr.
    Chairman, I will say to you first and foremost and from the
    top, that the buck stops here. You made me well aware of what I
    was taking on and I realize that.
        And with respect to the hiring issues that have arisen, I
    am the person responsible. I am though, and I assure you, Mr.
    Chairman, that I am going to be looking into the details of how
    the hiring problems occurred. We are taking steps to ensure
    that no such lack of coordination at the top takes place in
    what traditionally has been a problem since we have
    traditionally been undermanned and that has impacted our
    program performance.
        What we did this year was to try and employ a number of
    means to reach our staffing levels. What we did is we overdid
    it, and it lacked a certain top control that we clearly
    recognize was a mistake, and that we already have and continue
    to look to correcting that deficiency in our management. But we
    do know that all the hires were from the critical hire list, so
    we are hiring people that needed to be there to perform an
    important function for HUD.
        I will be happy to answer more questions in detail on that
    issue, but I did want to let you know of my deep concern for it
    and my great commitment not only to this but other areas of
    management, to ensure that HUD does not continue to be a
    troubled agency.

                               PREPARED STATEMENT

        Mr. Chairman, with that, I think I will just assure you of
    my continued desire to work with the Committee and to look
    forward to doing so as we go through this next budget cycle,
    and look forward to answering your questions.
        [The statement follows:]
                       Prepared Statement of Mel Martinez

                                    OVERVIEW

        Chairman Bond, Ranking Member Mikulski, Distinguished Members of
    the Committee: Thank you for the invitation to join you this morning. I
    am honored to outline the Fiscal Year 2004 Budget proposed by President
    Bush for the U.S. Department of Housing and Urban Development (HUD).
        HUD has achieved measurable success since 2001 in carrying out its
    mission and meeting the many challenges confronting a Cabinet-level
    Department. Today, HUD annually subsidizes housing costs for
    approximately 4.5 million low-income households through rental
    assistance, grants, and loans. It helps revitalize over 4,000
    localities through community development programs. The Department
    provides housing and services to help homeless families and individuals
    become self-sufficient. HUD also encourages homeownership by providing
    mortgage insurance for more than 6 million homeowners, many of whom
    would not otherwise qualify for loans.
        Supported by HUD's proposed $31.3 billion fiscal year 2004 budget,
    this important work will continue. Housing remains a critical component
    of both the President's plan to promote economic growth and his focus
    on meeting the common challenges faced by Americans and their
    communities.
        The President does not intend to change his 2004 Budget based on
    the program or agency levels included in the 2003 Omnibus bill the
    Congress adopted in mid-February. The President's 2004 Budget was
    developed within a framework that set a proposed total for
    discretionary spending in 2004, and each agency and program request
    reflected the administration's relative priority for that operation
    within that total. While we recognize that Congress may believe there
    is a need to reorder and adjust some of these priorities, the
    administration intends to work with Congress to stay within the 2004
    overall amount.
        HUD's proposed budget offers new opportunities for families and
    individuals--and minorities in particular--seeking the American Dream
    of homeownership.
        It offers new opportunities for renters by expanding access to
    affordable housing free from discrimination.
        It provides new opportunities for strengthening communities and
    generating renewal, growth, and prosperity--with a special focus on
    ending chronic homelessness.
        And our budget creates new opportunities to improve HUD's
    performance by addressing the internal management issues that have long
    plagued the Department.

                     INCREASING HOMEOWNERSHIP OPPORTUNITIES

        Americans place a high value on homeownership because its benefits
    for families, communities, and the Nation as a whole are so profound.
        Homeownership creates community stakeholders who tend to be active
    in charities and churches. Homeownership inspires civic responsibility,
    and owners vote and get involved with local issues. Homeownership
    offers children a stable living environment that influences their
    personal development in many positive, measurable ways--at home and in
    school.
        Homeownership's potential to create wealth is impressive, too. For
    the vast majority of families, the purchase of a home represents the
    path to prosperity. A home is the largest purchase most Americans will
    ever make--a tangible asset that builds equity, credit health,
    borrowing power, and overall wealth.
        Due in part to a robust housing economy and Bush Administration
    budget initiatives focused on promoting homeownership, more Americans
    were homeowners in 2002 than at any time in this Nation's history. The
    national homeownership rate is 68 percent. That statistic, however,
    masks a deep ``homeownership gap'' between non-Hispanic whites and
    minorities: while the homeownership rate for non-Hispanic whites is
    nearly 75 percent, it is less than 50 percent for African-Americans and
    Hispanics.
        The administration is focused on giving more Americans the
    opportunity to own their own homes, especially minority families who
    have been shut out in the past. In June 2002, President Bush announced
    an aggressive homeownership agenda to increase the number of minority
    homeowners by at least 5.5 million by the end of this decade. The
    administration's homeownership agenda is dismantling the barriers to
    homeownership by providing down payment assistance, increasing the
    supply of affordable homes, increasing support for homeownership
    education programs, and simplifying the homebuying process.
        Through ``America's Homeownership Challenge,'' the President called
    on the real estate and mortgage finance industries to take concrete
    steps to tear down the barriers to homeownership that minority families
    face. In response, HUD created the Blueprint for the American Dream
    Partnership, an unprecedented public/private initiative that harnesses
    the resources of the Federal Government with those of the housing
    industry to accomplish the President's goal.
        Additionally, HUD is proposing several new or expanded initiatives
    in fiscal year 2004 to continue the increase in overall homeownership
    while targeting assistance to improve minority homeowner rates.
        As a first step, HUD proposes to fund the American Dream
    Downpayment Initiative at $200 million. First introduced in fiscal year
    2002, this program targets funding under the HOME program specifically
    to low-income families wanting to purchase a home. The fiscal year 2003
    appropriations provided for $75 million for this initiative, which will
    be sufficient to begin the program. The fiscal year 2004 budget
    provides funding to assist approximately 40,000 low-income families
    with down payment and closing costs on their homes.
        The HOME Investment Partnerships Program (HOME) plays a key role in
    addressing the shortage of affordable housing in America. As reflected
    in this year's program assessment, the HOME program is successful
    because it is well managed and its flexibility ensures local decision-
    making. In 2004, a total of $2.197 billion is being provided to
    participating jurisdictions (States, units of local government, and
    consortia) to expand affordable housing, which represents a 10 percent,
    or $200 million, increase for HOME from the 2003 enacted level. The
    funds dedicated to expanding and improving homeownership will be spent
    rehabilitating owner-occupied buildings and providing assistance to new
    homebuyers. Based on historical trends, 36 percent of the
    homeownership-related funds will be used for new construction, 47
    percent for rehabilitation, and 14 percent for acquisition.
        Recipients of HOME funds have substantial discretion to determine
    how the funds are spent. HOME funds can be used to expand access to
    homeownership by subsidizing down payment and closing costs, as well as
    the costs of acquisition, rehabilitation, and new construction. To
    date, HOME grantees have committed funds to provide homebuyer
    assistance to more than 288,000 low-income households.
        To promote the production of affordable single-family homes in
    areas where such housing is scarce, the administration is proposing a
    tax credit of up to 50 percent of the cost of constructing a new home
    or rehabilitating an existing home. This new tax credit targets low-
    income individuals and families; eligible homebuyers would have incomes
    of not more than 80 percent of their area median.
        HUD is committed to helping families understand the homebuying
    process and how to avoid the abuses of predatory lending. Housing
    counseling has proven to be an extremely important element in both the
    purchase of a home and in helping homeowners keep their homes in times
    of financial stress. The fiscal year 2004 budget will expand funds for
    counseling services from $40 million in fiscal year 2003 to $45
    million. This will provide 550,000 families with home purchase and
    homeownership counseling and about 250,000 families with rental
    counseling.
        The fiscal year 2004 budget strengthens HUD's commitment to the
    Self-Help Homeownership Opportunity Program (SHOP). SHOP provides
    grants to national and regional non-profit organizations to subsidize
    the costs of land acquisition and infrastructure improvements.
    Homebuyers must contribute significant amounts of sweat equity or
    volunteer labor to the construction or rehabilitation of the property.
    The fiscal year 2004 budget request for $65 million triples the funding
    received in 2002, reflecting President Bush's commitment to self-help
    housing organizations such as Habitat for Humanity. These funds will
    help produce approximately 5,200 new homes nationwide for very low-
    income families. Funds are provided as a set-aside within the Community
    Development Block Grant account.
        The Federal Housing administration (FHA) is the Federal
    Government's single largest program to extend access to homeownership
    to individuals and families who lack the savings, credit history, or
    income to qualify for a conventional mortgage. In 2002, FHA insured
    $150 billion in mortgages for almost 1.3 million households, most of
    them first-time homebuyers, which represents a 21 percent increase over
    the previous year. Thirty-six percent were minority households.
        FHA offers a wide variety of insurance products, the largest being
    single-family mortgage insurance products. FHA insures single-family
    homes, home rehabilitation loans, condominium loans, energy efficiency
    loans, and reverse mortgages for elderly individuals. Special discounts
    are available to teachers and police officers who purchase homes that
    have been defaulted to HUD and who promise to live in their homes in
    revitalized areas.
        HUD is proposing legislation for a new mortgage product to offer
    FHA insurance to families that, due to poor credit, would either be
    served by the private market at a higher cost or not at all. It is
    anticipated that borrowers will be offered FHA loan insurance under
    this new initiative that will allow them to maintain their home or to
    purchase a new home. The new Mutual Mortgage Insurance Fund (MMI)
    mortgage loan program is expected to generate an additional $7.5
    billion in endorsements for 62,000 additional homes.
        Through its mortgage-backed securities program, Ginnie Mae helps to
    ensure that mortgage funds are available for low- and moderate-income
    families served by FHA and other government programs such as VA and the
    Rural Housing Service of the U.S. Department of Agriculture.
        During fiscal year 2002, Ginnie Mae surpassed a total of $2
    trillion in mortgage-backed securities issued since 1970. Reaching this
    milestone means that more than 28.4 million families have had access to
    affordable housing or lower mortgage costs since Ginnie Mae's
    inception. HUD is proud of Ginnie Mae's accomplishments and its
    important role in helping to support affordable homeownership for low-
    and moderate-income families in America. HUD's role in the secondary
    mortgage market provides an important public benefit to Americans
    seeking to fulfill their dream of homeownership.
        The fiscal year 2004 budget supports five HUD programs that help to
    promote homeownership in Native American and Hawaiian communities.
        The Native American Housing Block Grants (NAHBG) program provides
    funds to tribes and to tribally designated housing entities for a wide
    variety of affordable-housing activities. Grants are awarded on a
    formula basis that was established through negotiated rulemaking with
    the tribes. The NAHBG program allows funds to be used to develop new
    housing units to meet critical shortages in housing. Other uses include
    housing assistance to modernize and maintain existing units; housing
    services, including direct tenant rental subsidy; crime prevention;
    administration of the units; and certain model activities.
        The Title VI Federal Guarantees for Tribal Housing program provides
    guaranteed loans to recipients of the Native American Housing Block
    Grant who need additional funds to engage in affordable-housing
    activities but who cannot borrow from private sources without the
    guarantee of payment by the Federal Government. Because the grantees
    have not applied for all funds appropriated in prior years, the amount
    of subsidy required in fiscal year 2004 is reduced from $2 million to
    $1 million, and the loan amount supported is reduced from $16.6 million
    to $8 million. Prior-year funds remain available until used.
        The Indian Housing Loan Guarantee (Section 184) program helps
    Native Americans to access private mortgage financing for the purchase,
    construction, or rehabilitation of single-family homes. The program
    guarantees payments to lenders in the event of default. In fiscal year
    2004, $1 million is requested in credit subsidy for 100 percent Federal
    guarantees of approximately $27 million in private loans.
        The Hawaiian Homelands Homeownership Act of 2000 established the
    Native Hawaiian Home Loan Guarantee Fund, which is modeled after
    Section 184. The fiscal year 2004 budget will provide $1 million in
    credit subsidy to secure approximately $35 million in private loans.
        Modeled after the NAHBG, the Native Hawaiian Housing Block Grant
    (NHHBG) was authorized by the Hawaiian Homelands Homeownership Act of
    2000. The fiscal year 2004 budget will provide $10 million. Grant funds
    will be awarded to the Department of Hawaiian Home Lands and may be
    used to support acquisition, new construction, reconstruction and
    rehabilitation. Activities will include real property acquisition,
    demolition, financing, and development of utilities and utility
    services, as well as administration and planning.

                      PROMOTING DECENT AFFORDABLE HOUSING

        Ideally, homeownership would be an option for everyone, but even
    with its new and expanded homeownership initiatives, the administration
    recognizes that many families will have incomes insufficient to support
    a mortgage in the areas where they live. Therefore, along with boosting
    homeownership, HUD's proposed fiscal year 2004 budget promotes the
    production and accessibility of affordable housing for families and
    individuals who rent. This is achieved, in part, by providing States
    and localities new flexibility to respond to local needs.
        HUD has three major rental assistance programs that collectively
    provide rental subsidies to approximately 4.5 million households
    nationwide. The major vehicle for providing rental subsidies is the
    Section 8 program, which is authorized in Section 8 of the U.S. Housing
    Act of 1937. Under this program, HUD provides subsidies to individuals
    (tenant-based) who seek rental housing from qualified and approved
    owners, and also provides subsidies directly to private property owners
    who set aside some or all of their units for low-income families
    (project-based). Finally, HUD subsidizes the operation, maintenance,
    and modernization of an additional 1.2 million public housing units.
        HUD is proposing a new initiative--Housing Assistance for Needy
    Families (HANF)--under which the funding for vouchers, which has been
    allocated to approximately 2,600 public housing authorities (PHAs),
    would be allocated to the States. States, in turn, could choose to
    contract with PHAs or other entities to administer the program. The
    funding for both incremental and renewal vouchers will be contained in
    the HANF account.
        There are a number of advantages to providing the voucher funds to
    the States. The allocation of funds to States rather than PHAs should
    allow for more flexibility in efforts to address problems in the
    underutilization of vouchers that have occurred in certain local
    markets. The allocation of funds to the States will be coupled with
    additional flexibility in program laws and rules, to allow States to
    better address local needs and to commit vouchers for program uses that
    otherwise would go unused. In the former Housing Certificate Fund, more
    than $2.41 billion has been recaptured over the last 2 years from the
    Housing Choice Voucher program. These large recaptures have resulted in
    a denial of appropriated housing assistance for thousands of families,
    which will be avoided under HANF. The administration of the HANF
    program should run more smoothly, with HUD managing fewer than 60
    grantees compared to approximately 2,600 today.
        Allocation of the funds to the States should allow for more
    coordinated efforts with the Temporary Assistance for Needy Families
    (TANF) program, and the One-Stop Career Center system under the
    Workforce Investment Act, successfully administered by the States, to
    support the efforts of those now receiving public assistance who are
    climbing the ladder of self-sufficiency.
        HUD proposes that fiscal year 2004 be a transition year in which
    PHAs would continue to receive voucher funds directly while States ramp
    up in preparation for administering the HANF program. Up to $100
    million would be made available to assist States with this effort. In
    addition, States could apply for incremental vouchers if they are ready
    to do so, and could request waivers that would assist in the
    implementation of their programs.
        The HANF account would contain $13.6 billion in funding for voucher
    renewals and incremental vouchers. This would include funding for up to
    $36 million in incremental vouchers for persons with disabilities,
    additional incremental vouchers to the extent that funding is
    available, $252 million for tenant protection vouchers to prevent
    displacement of tenants affected by public housing demolition or
    disposition of project-based Section 8 contract terminations or
    expirations, and $72 million for Family Self-Sufficiency Coordinators.
        For fiscal year 2004, the administration proposes separate funding
    for vouchers under the new HANF account. The Project Based Rental
    Assistance Account will retain funding for renewals of expiring
    project-based rental assistance contracts under Section 8, including
    amounts necessary to maintain performance-based contract
    administrators. An appropriation of $4.8 billion is requested for these
    renewals in fiscal year 2004, which is a $300 million increase over the
    current fiscal year. In addition to new appropriations, funds available
    in this account from prior-year balances and from recaptures will
    augment the amount available for renewals and will be available to meet
    amendment requirements for on-going contracts that have depleted
    available funding, as well as a rescission of $300 million.
        It is anticipated that approximately 870,000 project-based units
    under rental assistance will require renewal in fiscal year 2004, an
    increase of about 50,000 units from the current fiscal year, continuing
    the upward trend stemming from first-time expirations in addition to
    contracts already under the annual renewal cycle. The HANF account
    funds an estimated 30,300 units in subsidized or partially assisted
    projects requiring tenant-protection vouchers due to terminations, opt-
    outs, and prepayments.
        Public Housing is the other major form of assistance that HUD
    provides to the Nation's low-income population. In fiscal year 2004,
    HUD anticipates that there will be approximately 1.2 million public
    housing units occupied by tenants. These units are under the direct
    management of approximately 3,050 PHAs. Like the Section 8 program,
    tenants pay approximately 30 percent of their income for rent and
    utilities, and HUD subsidies cover the remaining costs.
        HUD is programmatically and financially committed to ensuring that
    the existing public housing stock is either maintained in good
    condition or is demolished. Maintenance is achieved through the subsidy
    to PHAs for both operating expenses and modernization costs.
    Legislation to implement a new financing initiative is included and
    enhanced in the fiscal year 2004 budget. This will allow for the
    acceleration of the reduction in the backlog of modernization
    requirements in public housing facilities across the Nation.
        The formula distribution of funds through the Public Housing
    Operating Fund takes into account the size, location, age of public
    housing stock, occupancy, and other factors intended to reflect the
    costs of operating a well-managed public housing development. In fiscal
    year 2004, HUD will increase the amounts provided for operating
    subsidies from $3.530 billion to $3.559 billion, plus $15 million to
    fund activities associated with the Resident Opportunities and
    Supportive Services (ROSS) program.
        The Public Housing Capital Fund provides formula grants to PHAs for
    major repairs and modernization of its units. The fiscal year 2004
    budget will provide $2.641 billion in this account. This amount is
    sufficient to meet the accrual of new modernization needs in fiscal
    year 2004.
        Of the funds made available, up to $40 million may be maintained in
    the Capital Fund for natural disasters and emergencies. Up to $30
    million can be used for demolition grants--to accelerate the demolition
    of thousands of public housing units that have been approved for
    demolition but remain standing. Also in fiscal year 2004, up to $40
    million will be available for the ROSS program (in addition to $15
    million in the Operating Fund), which provides supportive services and
    assists residents in becoming economically self-sufficient.
        To address the backlog of capital needs, the Department is
    including a legislative proposal in its 2004 budget called the Public
    Housing Reinvestment Initiative (PHRI) that will allow PHAs to use
    their Operating Fund and Capital Fund grants to facilitate the private
    financing of capital improvements. This initiative also will encourage
    development-based financial management and accountability in PHAs.
        These objectives would be achieved by authorizing HUD to approve,
    on a property-by-property basis, PHA requests to convert public housing
    developments (or portions of developments) into project-based voucher
    assistance. The conversion of units to project-based vouchers will
    allow the PHAs to secure private financing to rehabilitate or replace
    their aging properties by pledging the property as collateral for
    private loans for capital improvements.
        The fiscal year 2004 budget enhances this proposal, which was made
    in last year's budget request, by also proposing a guarantee of up to
    80 percent of the principal of loans made to provide the capital for
    PHRI. There was substantial interest by PHAs and others in last year's
    budget proposal; the loan guarantee should greatly facilitate the
    involvement of private lenders. The budget includes $131 million in
    subsidy for this guarantee, which would allow the guarantee of almost
    $2 billion in loans and significantly accelerate the improvement in
    public housing conditions.
        The PHRI reflects our vision for the future of public housing.
        For 10 years, the HOPE VI program has been the government's primary
    avenue for funding the demolition, replacement, and rehabilitation of
    severely distressed public housing. With $2.5 billion already awarded
    but not yet spent, and an additional $1 billion to be awarded in 2002
    and 2003, HOPE VI will continue to serve communities well into the
    future.
        When HOPE VI was first created, it was the only significant means
    of leveraging private capital to revitalize public housing properties.
    But that is no longer the case. Today, HUD has approved bond deals that
    have leveraged over $500 million in the last couple of years. PHAs can
    mortgage their properties to leverage private capital. In Maryland,
    PHAs are forming consortiums to leverage their collective resources and
    assets to attract private capital. Cities such as Chicago are
    committing hundreds of millions of dollars of their own money to
    revitalize public housing neighborhoods. HUD is also seeking additional
    tools from Congress such as the Public Housing Reinvestment Initiative.
        HOPE VI has served its purpose. Established to revitalize 100,000
    of the Nation's most severely distressed public housing units, the
    program has funded the demolition of over 115,000 severely distressed
    public housing units and the production of over 60,000 revitalized
    dwellings. There are also more effective and less costly alternatives.
    The average cost per rebuilt HOPE VI unit is approximately $120,000,
    compared to $80,000 in HUD's HOME program. Only 20,000 new HOPE VI
    units have been completed to date. On average, 5 years pass between the
    time a HOPE VI award is made and a new unit is occupied. In contrast,
    during the same period, HUD's HOME program produced 70,000 new rental
    units with an average construction time of about 2 years. It is time to
    look to the future and pursue new opportunities, such as those I have
    noted, which can more effectively serve local communities.
        Among HUD's other rental assistance programs, FHA insures mortgages
    on multifamily rental housing projects. In fiscal year 2004, FHA will
    reduce the annual mortgage insurance premiums on its largest apartment
    new construction program, Section 221(d)(4), for the second year in a
    row--from 57 basis points to 50 basis points. With this reduction, the
    Department estimates that it will insure $3 billion in apartment
    development loans through this program, for the annual production of an
    additional 42,000 new rental units, most of which will be affordable to
    moderate-income families, and most of which will be located in
    underserved areas. Additionally, because this program is no longer
    dependent on appropriated subsidies, FHA avoids the uncertainty and the
    suspensions that have plagued the program in prior years. When combined
    with other multifamily mortgage programs, including those serving non-
    profit developers, nursing homes, and refinancing mortgagors, FHA
    anticipates providing support for a total of some multifamily 178,000
    housing units.
        In addition to the extensive use of HOME funds for homeownership,
    the HOME program has invested heavily in the creation of new affordable
    rental housing. The program has, in fact, supported the building,
    rehabilitation, and purchase of more than 322,000 rental units. Program
    funds have also provided direct rental assistance to more than 88,000
    households.
        The Native American Housing Block Grant (NAHBG) and Native Hawaiian
    Housing Block Grant (NHHBG) are also used for a wide variety of
    affordable-housing activities. Several other HUD programs contribute to
    rental assistance, although not as a primary function. For example, the
    flexible Community Development Block Grant (CDBG) program can be used
    to support rental housing activities.
        Regulatory barriers on the State and local level have an enormous
    impact on the development of rental and affordable housing. HUD is
    committed to working with States and local communities to reduce
    regulatory and institutional barriers to the development of affordable
    housing. HUD plans to create a new Office of Regulatory Reform and
    commit an additional $2 million in fiscal year 2004 for research
    efforts to learn more about the nature and extent of regulatory
    obstacles to affordable housing. Through this office, researchers will
    develop the tools needed to measure and ultimately reduce the effects
    of excessive barriers that restrict the development of affordable
    housing at the local level.

                           STRENGTHENING COMMUNITIES

        HUD is committed to preserving America's cities as vibrant hubs of
    commerce and making communities better places to live, work, and raise
    a family. The fiscal year 2004 budget provides States and localities
    with tools they can put to work improving economic health and promoting
    community development. Perhaps the greatest strength of HUD's economic
    development programs is the emphasis they place on helping communities
    address locally determined development priorities through decisions
    made locally.
        The mainstay of HUD's community and economic development programs
    is the CDBG program. In fiscal year 2004, total funding requested for
    CDBG is $4.732 billion. Funding for the CDBG formula program will
    increase $95 million from the fiscal year 2003 enacted level, to $4.436
    billion. Currently, 865 cities, 159 counties, and 50 States plus Puerto
    Rico receive formula grant funds.
        HUD is analyzing the impact of the 2000 Census on the distribution
    of CDBG funds to entitlement communities and States. Based on this
    review, revisions to the existing formula may be proposed so that funds
    are allocated to those communities that need them the most and will use
    them effectively. Any proposals will, of course, consider measures of
    need and fiscal capacity, as well as other factors.
        Of the $4.732 billion in fiscal year 2004, $4.436 billion will be
    distributed to entitlement communities, States, and insular areas, and
    $72.5 million will be distributed by a competition to Indian tribes for
    the same uses and purposes. This budget presumes legislative changes
    proposed in fiscal year 2003 to fund CDBG grants to insular areas as
    part of the formula, and to shift administration of the Hawaii Small
    Cities program to the State. The remaining $224 million is for specific
    purposes and programs at the local level and is distributed generally
    on a competitive grant basis.
        As it did in fiscal year 2003, the fiscal year 2004 budget again
    proposes $16 million for the Colonias Gateway Initiative (CGI). The CGI
    is a regional initiative, focusing on border States where the colonias
    are located. Colonias are small, generally unincorporated communities
    that are characterized by substandard housing, lack of basic
    infrastructure and public facilities, and weak capacity to implement
    economic development initiatives. The fiscal year 2004 funds will:
    provide start-up seed capital to develop baseline socio-economic
    information and a geographic information system; identify and structure
    new projects and training initiatives; fund training and business
    advice; and provide matching funds to develop sustainable housing and
    economic development projects that, once proven, could be taken over by
    the private sector.
        HUD participates in the privately organized and initiated National
    Community Development Initiative (NCDI). The fiscal year 2004 budget
    will provide $30 million for the NCDI and Habitat for Humanity, in
    which HUD has funded three phases of work since 1994. A fourth phase
    will emphasize the capacity building of community-based development
    organizations, including community development corporations, in the
    economic arena and related community revitalization activities through
    the work of intermediaries, including the Local Initiatives Support
    Corporation and the Enterprise Foundation.
        The fiscal year 2004 budget provides $31.9 million to assist
    colleges and universities, including minority institutions, to engage
    in a wide range of community development activities. Funds are also
    provided to support graduate programs that attract minority and
    economically disadvantaged students to participate in housing and
    community development fields of study.
        Grant funds are awarded competitively to work study and other
    programs to assist institutions of higher learning in forming
    partnerships with the communities in which they are located and to
    undertake a wide range of academic activities that foster and achieve
    neighborhood revitalization.
        The fiscal year 2004 budget requests $65 million for the YouthBuild
    program. This program is targeted to high school dropouts ages 16 to
    24, and provides these disadvantaged young adults with education and
    employment skills through constructing and rehabilitating housing for
    low-income and homeless people. The program also provides opportunities
    for placement in apprenticeship programs or in jobs. The fiscal year
    2004 request will serve more than 3,728 young adults.
        The Community Renewal Tax Relief Act of 2000 authorized the
    designation of 40 Renewal Communities (RCs) and nine Round III
    Empowerment Zones (EZs), and provided tax incentives which can be used
    to encourage community revitalization efforts. Private investors in
    both RC and EZ areas are eligible for tax benefits over the next 10
    years tied to the expansion of job opportunities in these locations.
    These programs allow communities to design and administer their own
    economic development strategies with a minimum of Federal involvement.
    No grant funds have been authorized or appropriated for RCs or Round
    III EZs. Round II Empowerment Zone communities have received grant
    funding in the past, but after 4 years of funding, still have balances
    of unused funds available. Of course, all of the tax and other benefits
    associated with Zone designation remain intact. Also, both HOME and
    CDBG funds can be used for the same activities.
        The administration is deeply engaged in meeting the challenge of
    homelessness that confronts many American cities. Across the scope of
    the Federal Government, funding for homeless-specific assistance
    programs increases 14 percent in the fiscal year 2004 budget proposal.
    We are fundamentally changing the way the Nation manages the issue of
    homelessness by focusing more resources on providing permanent housing
    and supportive services for the homeless population, instead of simply
    providing more shelter beds.
        HUD is leading an unprecedented, administration-wide commitment to
    eliminating chronic homelessness within the next 10 years. Persons who
    experience chronic homelessness are a sub-population of approximately
    150,000 individuals who often have an addiction or suffer from a
    disabling physical or mental condition, and are homeless for extended
    periods of time or experience multiple episodes of homelessness. For
    the most part, these individuals get help for a short time but soon
    fall back to the streets and shelters. Research indicates that although
    these individuals may make up less than 10 percent of the homeless
    population, they consume more than half of all homeless services
    because their needs are not comprehensively addressed. Thus, they
    continually remain in the homeless system.
        As a first step, the administration reactivated the U.S.
    Interagency Council on Homelessness. Reactivating the Council has
    provided better coordination of the various homeless assistance
    programs that are directly available to homeless individuals through
    HUD, HHS, VA, the Department of Labor, and other agencies. $1.5 million
    is earmarked within the Homeless Assistance Account for the operations
    of the Council in fiscal year 2004.
        HUD and its partners are focused on improving the delivery of
    homeless services, which includes working to cut government red tape
    and make the funding process simpler for those who provide homeless
    services. The fiscal year 2004 budget continues to provide strong
    support to homeless persons and families by funding the HUD homeless
    assistance programs at the record level of $1.528 billion.
        Several changes to the program are being proposed that will provide
    new direction and streamline the delivery of funds to the local and
    non-profit organizations that serve the homeless population.
        The fiscal year 2004 budget includes funding for a new program to
    address the President's goal of ending chronic homelessness in 10
    years: the Samaritan Initiative. Funded by HUD at $50 million, the
    Samaritan Initiative will provide new housing options as well as
    aggressive outreach and services to homeless people living on the
    streets. This program is part of a broader, coordinated Federal effort
    between HUD, HHS, VA and the Interagency Council on Homelessness.
        In order to significantly streamline homeless assistance in this
    Nation and increase a community's flexibility in combating
    homelessness, HUD will propose legislation to consolidate its current
    homeless assistance programs into a single program.
        The administration is also proposing legislation that would
    transfer intact the Emergency Food and Shelter Program (EFSP) that was
    administered by FEMA to HUD. The transfer of this $153 million program
    would allow for the consolidation of all emergency shelter assistance--
    EFSP and the Emergency Shelter Grant program--under one agency. EFSP
    funds are distributed to a National Board, which in turn allocates
    funds to similarly comprised local Boards in eligible jurisdictions.
    Eligibility for funding is based on population, poverty, and
    unemployment data. The Board will be chaired by the Secretary of HUD
    and will include the American Red Cross, Salvation Army, and the United
    Way, as well as other experts.
        In addition to funding homeless supportive services, the fiscal
    year 2004 funds services benefiting adults and children from low-income
    families, the elderly, those with physical and mental disabilities,
    victims of predatory lending practices, and families living in housing
    contaminated by lead-based paint hazards.
        Nearly two million households headed by an elderly individual or a
    person with disabilities receive HUD rental assistance that provides
    them with the opportunity to afford a decent place to live and
    oftentimes helps them to live independent lives.
        The fiscal year 2004 budget will provide the same level of funding
    for Housing for the Elderly and Housing for Persons with Disabilities
    as was requested for fiscal year 2003. The effectiveness of the Housing
    for the Elderly program was evaluated this past year using the Office
    of Management and Budget's new Program Assessment Rating Tool (PART),
    and received low performance scores. The administration recognizes the
    need to improve delivery of housing assistance to the elderly (Section
    202) and will examine possible policy changes or reforms to strengthen
    performance. Funding for housing for the elderly is awarded
    competitively to non-profit organizations that construct new
    facilities. The facilities are then provided with rental assistance,
    enabling them to accept very low-income residents. In fiscal year 2004,
    $773 million plus $10 million in recaptures will be provided for
    elderly facilities. Many of the residents live in the facilities for
    years; over time, these individuals are likely to become frailer and
    less able to live in rental facilities without some additional
    services. Therefore, the program is providing $30 million of the grants
    for construction to convert all or part of existing properties to
    assisted-living facilities. Doing so will allow individual elderly
    residents to remain in their units. In addition, $53 million of the
    grant funds will be targeted to funding the services coordinators who
    help elderly residents obtain needed and supportive service from the
    community.
        The budget for fiscal year 2004 proposes to separately fund grants
    for Supportive Housing for Persons with Disabilities (Section 811) at
    $251 million. The disabled facilities grant program will also continue
    to set aside funds to enable persons with disabilities to live in
    mainstream environments. Up to 25 percent of the grant funds can be
    used to provide Section 8-type vouchers that offer an alternative to
    congregate housing developments. In fiscal year 2004, $42 million of
    the grant funds will be provided to renew ``mainstream'' Section 8-type
    vouchers so that, where appropriate, individuals can continue to use
    their vouchers to obtain rental housing in the mainstream rental
    market. The Housing for Persons with Disabilities program also received
    low performance scores when it was evaluated using the PART. The
    Department proposes to reform the program to allow faith-based and
    other nonprofit sponsors more flexibility in using grant funds to
    better respond to local needs. In addition, the reformed program would
    recognize the unique needs of people with disabilities at risk of
    homelessness, and give priority to serving this group as part of the
    administration's Samaritan Initiative to end chronic homelessness.
        One of the targeted uses of new incremental vouchers under the
    Section 8 program is for non-elderly disabled individuals who are
    currently residing in housing that was designated for the elderly.
    Disabled individuals are provided Section 8 vouchers to continue their
    subsidies elsewhere. If a sufficient number of applications for these
    vouchers are not received, the PHAs may use them for any other disabled
    individuals on the PHAs' waiting lists. In fiscal year 2004, the
    Department will allocate $36 million for the non-elderly disabled to
    fund approximately 5,500 vouchers.
        HUD will also provide $297 million in fiscal year 2004 in new grant
    funds for housing assistance and related supportive services for low-
    income persons with HIV/AIDS and their families. This is an increase of
    $5 million over the fiscal year 2003 level and is based on the most
    recent statistics prepared by the Centers for Disease Control and
    Prevention. Although most grants are allocated by formula, based on the
    number of cases and highest incidence of AIDS, a small portion are
    provided through competition for projects of national significance. The
    program will renew all existing grants in fiscal year 2004 and provide
    new grants for an expected three new jurisdictions. Since 1999, the
    number of formula grantees has risen from 97 to an expected 114 in
    fiscal year 2004.
        HUD's Lead-Based Paint Program is the central element of the
    President's program to eradicate childhood lead-based paint poisoning
    in 10 years or less. In fiscal year 2004, funding for the lead-based
    paint program will increase to $136 million from $126 million provided
    in the President's request for fiscal year 2003. Grant funds are
    targeted to low-income, privately owned homes most likely to expose
    children to lead-based paint hazards. Included in the total funding is
    $10 million in funds for Operation LEAP, which is targeted to
    organizations that demonstrate an exceptional ability to leverage
    private sector funds with Federal dollars, and funding for technical
    studies to reduce the cost of lead hazard control. The program also
    conducts public education and compliance assistance to prevent
    childhood lead poisoning. The President's budget requests an additional
    $25 million for a new, innovative lead hazard reduction demonstration
    program to eliminate lead-based paint hazards in homes of low-income
    children, funded under the HOME program. This new program will provide
    creative ways of identifying and eliminating lead-based paint hazards--
    methods that will serve as models for existing lead hazard control
    programs, such as replacing old windows contaminated with high levels
    of lead paint dust with new energy-efficient windows.
        Also included is $10 million for the Healthy Homes Initiative,
    which is targeted funding to prevent other housing-related childhood
    diseases and injuries such as asthma and carbon monoxide poisoning.
    Working with other agencies such as the Centers for Disease Control and
    the Environmental Protection Agency, HUD is bringing comprehensive
    expertise to the table in housing rehabilitation and construction,
    architecture, urban planning, public health, environmental science, and
    engineering to address a variety of childhood problems that are
    associated with housing.
        HUD is requesting $17 million in fiscal year 2004 to meet the
    expanded costs of its Manufactured Housing Standards Program. This is a
    $4 million increase over the current fiscal year. These funds will meet
    the costs of hiring contractors to inspect manufacturing facilities,
    make payments to the States to investigate complaints by purchasers,
    and cover administrative costs, including the Department's staff. Fees
    have been set by regulation to support the operation of this program.

                     ENSURING EQUAL OPPORTUNITY IN HOUSING

        In this land of opportunity, no one should be denied housing
    because of that individual's race, color, national origin, religion,
    sex, familial status or disability. The administration is committed to
    the fight against housing discrimination, and this is reflected in
    HUD's budget request for fiscal year 2004.
        HUD is the primary Federal agency responsible for the
    administration of fair housing laws. The goal of these programs is to
    ensure that all families and individuals have access to a suitable
    living environment free from discrimination. HUD contributes to fair
    housing enforcement and education by directly enforcing the Federal
    fair housing laws and by funding State and local fair housing efforts
    through two programs: the Fair Housing Assistance Program (FHAP) and
    the Fair Housing Initiatives Program (FHIP).
        The fiscal year 2004 budget will provide $29.7 million--an increase
    of $4 million above the fiscal year 2003 level--under FHAP to support
    State and local jurisdictions that administer laws substantially
    equivalent to the Federal Fair Housing Act. The increase will provide:
    (1) an education campaign to address persistently high rates of
    discrimination against Hispanic renters (as identified by the 2000
    Housing Discrimination Study); (2) funding for a Fair Housing Training
    Academy to better train civil rights professionals and housing partners
    in conducting fair housing investigations; and (3) additional funding
    for expected increases in discrimination cases processed by State and
    local fair housing agencies as a result of increased education and
    outreach activities. The Department supports FHAP agencies by providing
    funds for capacity building, complaint processing, administration,
    special enforcement efforts, training, and the enhancement of data and
    information systems. FHAP grants are awarded annually on a
    noncompetitive basis.
        The fiscal year 2004 budget will provide $20.3 million in grant
    funds for non-profit FHIP agencies nationwide to directly target
    discrimination through education, outreach, and enforcement. The FHIP
    program for fiscal year 2004 is structured to respond to the finding of
    the 3-year National Discrimination Study and related studies, which
    reflect the need to expand education and outreach efforts nationally as
    a result of continuing high levels of discrimination.
        Fighting predatory lending is an important activity for FHIP
    agencies, as reports continue to show that abusive lenders frequently
    target racial minorities, the elderly, and women for mortgage loans
    that have exorbitant fees and onerous conditions.
        Educational outreach is a critical component of HUD's ongoing
    efforts to prevent or eliminate discriminatory housing practices. HUD
    will continue its work to make individuals more aware of their rights
    and responsibilities under the Fair Housing Act. A major study titled
    ``How Much Do We Know'' emphasized the continuing need for public
    education on fair housing laws; in fiscal year 2004, FHIP organizations
    throughout the country will continue to fund a major education and
    public awareness campaign in support of study findings.
        The colonias have many barriers to fair and affordable housing in
    both rental and homeownership. Many of the residents are recent
    immigrants unaware of their rights under the Fair Housing Act. Funds
    will be targeted to FHIP agencies that provide education and
    enforcement efforts in those areas. FHIP-funded fair housing
    organizations with grants targeted to the colonias will provide
    residents with information on the Fair Housing Act and substantially
    equivalent laws and respond to allegations of discriminatory practices.
        The FHIP program will continue to emphasize the participation of
    faith-based and community partners. Recognizing the tremendous impact
    that education has on the implementation of fair housing laws,
    virtually any entity (public, private, profit, and non-profit) that
    actively works to prevent discrimination from occurring is eligible to
    apply for funds under this initiative.
        Faith- and community-based partnerships in FHIP will empower
    citizens by: (1) encouraging networking of State and local fair housing
    enforcement agencies and organizations; (2) working in unison with
    faith-based organizations; and (3) promoting a fair housing presence in
    places where little or none exists today. HUD will emphasize
    partnerships with grassroots and faith-based organizations that have
    strong ties to those groups identified in the 2000 Housing
    Discrimination Study as being most vulnerable to housing
    discrimination, particularly the growing Hispanic population.
        Promoting the fair housing rights of persons with disabilities is a
    Departmental priority and will remain an important initiative within
    FHIP. Fair Housing Act accessibility design and construction training
    and technical guidance is being implemented through Project Fair
    Housing Accessibility First (formerly called the Project on Training
    and Technical Guidance). The project, which is now in its second year,
    will provide training at 48 separate venues to architects, builders,
    and others on how to design and construct multifamily buildings in
    compliance with the accessibility requirements of the Fair Housing Act.
    During that same period, Project Fair Housing Accessibility First will
    maintain a hotline and a website to provide personal assistance to
    housing professionals on design and construction problems.
     promoting the participation of faith-based and community organizations
        HUD's Center for Faith-Based and Community Initiatives (``the
    Center'') was established by Executive Order 13198 on January 29, 2001.
    Its purpose is to coordinate the Department's efforts to eliminate
    regulatory, contracting, and other obstacles to the participation of
    faith-based and other community organizations in social service
    programs.
        The Center will continue to play a key role in fiscal year 2004 in
    facilitating intra-Departmental and interagency cooperation regarding
    the needs of faith-based and community organizations. It will focus on
    research; law and policy; development of an interagency resource center
    to service faith-based and community partners; and expanding outreach,
    training, and coalition building. Additionally, the Center will
    participate in the furtherance of HUD's overall strategic goals and
    objectives--particularly as they relate to partnership with faith-based
    and community organizations.
        On December 12, 2002, the President issued Executive Order 13279,
    ``Equal Protection of the Laws for Faith-Based and Community
    Organizations.'' Its intent is to ensure that faith-based and community
    organizations are not unjustly discriminated against by regulations and
    bureaucratic practices and policies. The Order directs the Center to:
    (1) amend any policies that contradict the Order; (2) where
    appropriate, implement new policies that are necessary to further the
    fundamental principles and policymaking criteria set forth in the
    Order; (3) implement new policies to ensure collection of data
    regarding the participation of faith-based and community organizations
    in social service programs that receive Federal financial assistance;
    and (4) report to the President the actions it proposes to undertake to
    implement the Order.
        In compliance with Executive Orders 13198 and 13279, the Center
    will continue to participate in implementing HUD's strategic goals and
    objectives, as well as the following key responsibilities: conduct an
    annual Department-wide inventory to identify barriers to participation
    of faith-based and community organizations in the delivery of social
    services; initiate and support efforts to remove said barriers; widen
    the pool of grant applicants to include historically excluded groups;
    identify and reach out to faith- and community-based organizations with
    little or no history of working with HUD; work with HUD program offices
    to strengthen and expand their faith-based and community partnerships;
    and educate HUD personnel and State and local governments on the faith-
    based and community initiative.

       EMBRACING HIGH STANDARDS OF ETHICS, MANAGEMENT, AND ACCOUNTABILITY

        Improving the performance in HUD's critically needed housing and
    community development programs begins at home in the Department, by
    embracing high standards of ethics, management and accountability. The
    President's Management Agenda is focused on how we can better manage to
    fulfill our mission by addressing the Department's longstanding major
    management challenges, high-risk program areas, and material management
    control weaknesses. Accountability begins with clarity on the
    Department's goals, priorities and expectations for performance
    results. We have integrated the goals of the President's Management
    Agenda with our budget, our annual management operating plans, and our
    management performance evaluation processes, to better assure
    accountability and results.
        A key focus of the President's Management Agenda is to address
    deficiencies in HUD's management of its financial and information
    systems and human capital, which have hindered the Department's ability
    to properly control and mitigate risks in the rental housing assistance
    and single family mortgage insurance programs. There are no quick fixes
    for these longstanding problems, but we continue to pursue a deliberate
    and methodical improvement process that is clearly demonstrating
    progress in improving HUD's program delivery structure and performance
    results.

    Financial Management and Information Systems
        A primary focus of the past 2 years has been on addressing the
    Department's most significant financial management systems deficiencies
    in the FHA, and on stabilizing and enhancing HUD's existing core
    financial management systems operating environment. The FHA Subsidiary
    Ledger Project is proceeding on-schedule as a multi-year, phased effort
    to replace FHA's commercial accounting system with a system that fully
    complies with Federal requirements, including budgetary accounting and
    funds control and credit reform accounting. A major project milestone
    was accomplished with the successful implementation of the new FHA
    general ledger system in October 2002. Enhanced funds control
    capabilities of the new system are scheduled for implementation in
    2004, and FHA will continue to adapt and further integrate its 19
    insurance program feeder systems over the next several years to achieve
    full systems compliance by 2006.
        While FHA awaits the completion of these systems improvements, they
    have been working with the HUD Chief Financial Officer on a Department-
    wide effort to improve HUD's funds control. HUD's handbook on policies
    and procedures for the administrative control of funds had not been
    updated since 1984. We updated and strengthened these policies and
    procedures in a new Administrative Control of Funds Handbook issued in
    December 2002.
        With respect to HUD's core financial management system, the HUD
    Central Accounting and Program System (HUDCAPS), we have been focused
    on stabilizing and enhancing systems operations to support the
    accelerated preparation and audit of HUD's consolidated financial
    statements. We eliminated two reportable conditions from the OIG's
    fiscal year 2000 financial statement audit related to: (1) the
    reliability and security of HUD's critical financial systems, and (2)
    controls over fund balance with Treasury reconciliations. We prepared
    mid-year financial statements in fiscal year 2002 and have begun the
    preparation of quarterly statements in fiscal year 2003. Our year-end
    audit and reporting process was accelerated by 1 month for fiscal year
    2002, and we have plans for further acceleration the next 2 years to
    meet the OMB mandate for issuance of our fiscal year 2004 audited
    financial statements by November 15, 2004.
        HUD has received unqualified audit opinions on the Department's
    consolidated financial statements for the last 3 consecutive years--a
    strong indicator of financial management stability and accountability.
    However, the audit of our fiscal year 2002 financial statements was not
    trouble free. It contained 3 material weakness and 10 reportable
    conditions. Addressing these remaining internal control deficiencies is
    a high priority for the Department.
        While HUD's core financial management system, HUDCAPS, is
    substantially compliant with Federal financial management systems
    requirements, it is inefficient and expensive to maintain. We initiated
    the HUD Integrated Financial Management Improvement Project (HIFMIP) to
    study options for the next generation core financial management system
    to replace HUDCAPS. Previous HUD systems integration improvement
    efforts failed to fully meet their intended objectives due to
    inadequate planning and commitment. HUD is taking the time to properly
    plan this project. A HIFMIP Executive Advisory Committee was convened
    in January 2003--with representation from the Principal Staff of HUD's
    major organizational components, including FHA and GNMA, and an
    advisory role has been provided for the HUD OIG. A new Assistant CFO
    for Systems was hired in October 2002, and Project Manager was hired
    for HIFMIP in February 2003. The HIFMIP Vision is scheduled for
    completion by January 2004, and feasibility studies with a systems
    recommendation by July 2004.
        HUD's overall fiscal year 2004 information technology (IT)
    portfolio will benefit from our continuing efforts to improve the IT
    capital planning process, convert to performance-based IT service
    contracts, strengthen IT project management to better assure results,
    extend the data quality improvement program, and improve systems
    security on all platforms and applications. HUD is also continuing to
    pursue increased electronic commerce and is actively participating in
    the President's ``E-Government'' projects to better serve our citizens
    and realize cost-efficiencies through standardized systems solutions in
    common areas of information and processing need.

    Human Capital Management
        HUD's staff, or ``human capital,'' is its most important asset in
    the delivery and oversight of the Department's mission. Effective human
    capital management is the purview of all HUD managers and program
    areas, and improvements have been geared towards meeting HUD's primary
    human capital management challenges. HUD has taken significant steps to
    enhance and better utilize its existing staff capacity, and to obtain,
    develop and maintain the staff capacity necessary to adequately support
    HUD's future program delivery. Building upon the REAP and TEAM
    management tools, a new staff resource estimation and allocation system
    implemented in 2002, HUD will complete a Comprehensive Workforce
    Analysis in 2004 to serve as the main component to fill mission
    critical skill gaps through succession planning, hiring and training
    initiatives in a Five-Year Human Capital Management Strategy.
        HUD is working to determine where application of competitive
    sourcing to staff functions identified as commercial would result in
    better performance and value for the government. We have worked with
    OMB to ensure the appropriate amount and mix of competitive sourcing
    opportunities, taking into account the workforce we have inherited,
    including the significant downsizing and extensive outsourcing of
    administrative and program functions over the past decade. HUD's
    Competitive Sourcing Plan identifies some initial opportunities for
    consideration of possible outsourcing, in-sourcing or direct conversion
    studies to realize the President's goals for cost efficiency savings
    and improved service delivery. HUD will continue to assess its
    activities for other areas where competitive sourcing studies might
    benefit the Department.

    Strengthening Controls Over Rental Housing Assistance
        HUD's considerable efforts to improve the physical conditions at
    HUD-supported public and assisted housing projects are meeting with
    success. HUD and its housing partners have already achieved the
    original housing quality improvement goals through fiscal year 2005 and
    are raising the bar with new goals. However, HUD overpays hundreds of
    millions of dollars in rental housing subsidies due to the incomplete
    reporting of tenant income and the improper calculation of tenant rent
    contributions. Under the President's Management Agenda, HUD's goal is
    to reduce rental assistance program errors and resulting erroneous
    payments 50 percent by 2005. HUD has established aggressive interim
    goals for a 15 percent reduction in 2003 and a 30 percent reduction in
    2004.
        To achieve our erroneous assistance payments reduction goal, we
    have taken steps to reestablish an adequate HUD monitoring capacity in
    the field to oversee intermediary performance. Field staff is
    conducting intense, on-site monitoring reviews to detect and correct
    income verification and subsidy calculation errors. We are also working
    to provide intermediaries with improved program guidance and automated
    tools to more efficiently and effectively administer the rental
    assistance programs. Program simplification proposals are also under
    consideration, along with a pending legislative proposal for increased
    authority to perform more effective computer matching with tenant
    income data sources to enable intermediaries to perform upfront
    verifications of income used in rent and subsidy calculations. Updated
    error measurement studies will be performed on program activity in 2003
    through 2005 to assess the effectiveness of our efforts to reduce
    program and payment errors.

    Improving FHA's Single Family Housing Programs Risk Management
        FHA manages its single-family housing mortgage insurance program
    area in a manner that balances program risks with the furtherance of
    program goals, while maintaining the financial soundness of the
    Mortgage Mutual Insurance (MMI) Fund that supports these programs. The
    MMI Fund is financially sound and the single-family housing programs
    are contributing to record homeownership rates, with a focus on
    homebuyers that are underserved by the conventional market.
    Nevertheless, overall program performance and the condition of the MMI
    Fund could be further improved if all lenders, appraisers, property
    managers and other participants in FHA's program delivery structure
    fully adhered to FHA program requirements designed to reduce program
    risks and further program goals.
        In the past 2 years, FHA has initiated or completed numerous
    actions to improve the content, oversight and enforcement of its
    program requirements, including consideration of alternative business
    processes. FHA developed 16 rules to address deceptive or fraudulent
    practices. This includes the new Appraiser Watch program, improvements
    to the Credit Watch program that will identify problem loans and
    lenders earlier on, new standards for home inspectors, a final rule to
    prohibit property ``flipping'' in FHA programs, and rules to prevent
    future swindles like the 203(k) scam that threatened the availability
    of affordable housing in New York City. These reforms, and the greater
    transparency they ensure, will make it more difficult for unscrupulous
    lenders to abuse borrowers. The HUD budget ensures that consumer
    education and enhanced financial literacy remain potent weapons in
    combating predatory lending.
        In addition, FHA continues to enhance its staff capacity for
    administering this program area, and continues to achieve favorable
    property disposition results through its performance-based management
    and marketing (M&M) contracts. M&M contracts have resulted in a steady
    decline in FHA's property inventory, from 36,000 homes at the end of
    fiscal year 2000 to 30,113 at the end of fiscal year 2002. The loss per
    claim on insured mortgage defaults has been cut from 37 percent to 29.5
    percent.

                                   CONCLUSION

        As we implement our proposed fiscal year 2004 budget, we will also
    judge our success by the lives and communities we have helped to change
    through HUD's mission of compassionate service to others: the young
    families who have taken out their first mortgage and become homeowners,
    the homeless individuals who are no longer homeless, the neighborhoods
    that have found new hope, the faith-based and community organizations
    that are today using HUD grants to deliver social services, and the
    neighborhoods once facing a shortage of affordable housing that now
    have enough homes for all.
        Empowered by the resources provided for and supported by HUD's
    proposed budget for fiscal year 2004, our communities and the entire
    Nation will grow even stronger. And more citizens will come to know the
    American Dream for themselves.
        I would like to thank each of you for your support of my efforts,
    and I welcome your guidance as we continue our work together.
        Thank you.

        Senator Bond. Thank you very much, Mr. Secretary. Senator
    Mikulski has agreed that she would go ahead and vote, and she
    has a couple of other responsibilities this morning. I am going
    to ask some questions and adjourn temporarily until she
    returns, and I have asked her since she has some commitments,
    to take all the time she needs when she comes back, and then I
    will pick up from there.
        First, I appreciate your willingness to work with us on
    HOPE VI. Surely everybody understands the program has been
    around and there are obviously ways that it can be improved or
    changed, and I am not resistant to that. But as I believe
    Senator Mikulski very clearly indicated, we both have a strong
    commitment that this is a vitally needed part of so many
    communities in this country. And yes, there are a lot fewer
    completed than planned. It takes a long time, as you well know,
    to get these things out of the grand. Maybe they could be doing
    a better job, but from what I know of the projects, they spend
    about 2 or 3 percent in the first year, and then they really
    take off over time.
        So if there are problems, let us figure out how to proceed,
    whether you can revise the program or a new program. As I said,
    I am skeptical about a loan program that is structured to
    replace it, but we will work together.

                                     HIRING

        With respect to the problems in hiring, the personnel
    problems, we will look forward to discussing those with you
    privately, which I believe would be more appropriate, but
    clearly, that one, we have had a couple of thoughts like that
    in some of the other departments this committee is fortunate
    enough to fund, and for the life of me, I cannot understand why
    people cannot count. I know it is complicated, but there are
    basic math skills that are needed.

                                      HANF

        Let me go back to your proposal for block granting for
    needy families. I have expressed my concerns. Clearly you
    recognize and we recognize that there has been some problems in
    the Section 8 program. Why should we convert it to a block
    grant program to the States? Would States be required to
    maintain the current Section 8 subsidy requirements in 801 of
    30 percent? Why would this be good for Section 8 residents? So
    maybe you can share some of your thoughts on this.
        Secretary Martinez. Mr. Chairman, I think that those are
    all good questions, and questions we should address as we go
    forward in implementing legislation for something like this.
        First of all, let me say that I find it troubling that what
    I think is basically a retail program should be managed from
    Washington. The fact that a fair market grant in a given
    community somewhere in America would have to have that fair
    market grant adjusted by an approval from Washington sometimes
    delays that process by 5 or 6 months, which is inevitably built
    into the bureaucracy of the Housing Authority and that of our
    own Department, and those things occur.
        In addition to that, I believe that dealing with over 2,600
    housing authorities on this particular program, versus dealing
    with 50 States, would ease the way we manage and the way we
    handle programs.
        In addition to that, I believe by giving the States the
    local flexibility in the utilization of the housing vouchers,
    that a full utilization of our vouchers would be achieved. I,
    like you, am terribly troubled by the recurring problem with
    recapture because unfortunately, we find year after year that
    that money, as you all pointed out, is not necessarily just
    spent on housing and it is----
        Senator Bond. Almost never. It gets raided. Everybody sees
    the pot of money and it goes to whatever happens to be hot at
    the time.
        Secretary Martinez. And so you know, I feel like, in any
    event, however we can fix that problem and put more money in
    the hands of the people who really need it, which is the intent
    of the Congress at the time that you appropriated it. So all of
    those reasons coming together, in addition to the fact, Mr.
    Chairman, that the intent of the welfare plan which the States
    are administering, would be a nice conduit for this program to
    also fit with.
        The population of folks that the States are dealing with on
    the welfare roles or in their medical needs also have housing
    needs, and now we would put all of that together. It has had a
    good reception from a number of governors. I think that wound
    ensure that the money would be preserved for housing, that it
    would be preserved in the program, much like we now have it. I
    think all the safeguards that we would want in terms of
    eligibility or whatever else, I think would be built into the
    authorizing framework to make it a successful program.
        But you know, I know from your experience as a former
    governor and your strong knowledge of the program, that I would
    really look forward to a dialogue on this on the shortcomings
    of this proposal, and perhaps I could persuade you on helping
    us to make it better rather than just legislating that it does
    not work.

                                   SECTION 8

        Senator Bond. Clearly, we have to do some things about
    Section 8. We included, as I said, a change in the approach.
    The House had one view, we had a different view. I think what
    we came up with should be workable, we want to work with you to
    find out whether it is, because there is certainly enough
    problems in the area, and we have to see how this new fund
    works.
        And I would like your comments on the approach we took for
    fiscal year 2003 and what steps HUD has taken to assure that
    HUD has adequate and reliable information to the numbers of
    vouchers as well as the number of additional vouchers that are
    likely to be used to obtain housing. We found this information
    in the past has not been reliable.
        Secretary Martinez. Mr. Chairman, I appreciate the new
    approach that has been taken. I think it is a step in the right
    direction and should help us to a fuller utilization of the
    Section 8 vouchers.
        What I would like to do with the Chair's permission is to
    liberally rely on my Assistant Secretaries when you have
    specific questions, and I ask Assistant Secretary Liu to step
    up and perhaps address some of those.
        Senator Bond. All right. Mr. Liu.

                            STATEMENT OF MICHAEL LIU

        Mr. Liu. Good morning, Mr. Chairman. First of all, we
    welcome the fiscal year 2003 reforms as passed by Congress for
    the Section 8 program, and we think it is a step in the right
    direction for budgetary reform. As the Secretary has mentioned
    and I think as you have alluded to, there are still things that
    can be done so the program can make things work.
        Specifically as to what we are doing as to implement the
    fiscal year 2003 proposals, I can assure you that when we first
    heard of the possibility, we started working to improve our
    reporting requirements because right now we have been faced
    with situation where under the best of circumstances they are a
    year, sometimes a year and a half old, which has compounded our
    problems. We are working toward refining existing systems, so
    we are not talking any new systems, but working with the
    existing systems to gather information on Section 8, to
    streamline the release of information and usage on a much more
    current realtime basis, and we are moving forward on that.
        Senator Bond. I look forward to working with you on that.
        I do have to go for the vote but let me raise one more
    thing, and that would be in GAO's report, the GAO asserts that
    errors in determining the amount of rental income from the
    Section 8 program has resulted in estimated excess of some $2
    billion, or 11 percent of the funding in fiscal year 2001. $2
    billion would be enough to pay for a new affordable housing
    production program. If that figure is accurate, the loss means
    that we really are missing some opportunities to utilize it.
    What are you doing to reduce that error rate, that overpayment?
        Secretary Martinez. Mr. Chairman, we have focused on this
    issue, and I would ask Assistant Secretary Liu to address the
    specifics.
        Mr. Liu. We have aggressively worked to not only have
    legislation introduced to get new hires that we need, and
    hopefully that will pass. But not waiting simply for the
    legislation we have aggressively been trying to get agreements
    signed with States around the country to keep better track of
    wage and hiring information, which is key to our being able to
    keep track of the truth in terms of what is being required.
        Senator Bond. Has the IRS given you any help in that?
        Mr. Liu. We have talked to the IRS.
        Senator Bond. The Committee will stand in recess until
    Senator Mikulski returns, and I will be back shortly
    thereafter.

                                    HOPE VI

        Senator Mikulski [presiding]. The Subcommittee will
    reconvene with the concurrence of Senator Bond, and I have a
    bipartisan responsibility I must attend to as close to 11:00 as
    I can.
        As you can see, we have many commitments, Mr. Secretary,
    and we know you do as well. Senator Bond is voting and in the
    interest of your time and ours, I am just going to proceed.
        I am going to start off my questions with HOPE VI, and we
    have had many private conversations on the topic. And second, I
    also want to thank you and your staff for supporting the study
    which resulted in a report on lessons learned on HOPE VI. They
    have completed study one, which I think raises some very
    significant issues related to the program, but also contains
    some suggestions, which I think will maximize this very great
    opportunity that I know you and I are committed to.
        Second, there has been always the issues of relocation,
    where do they go, what happens to them?
        And number three, is the focus now on buildings only, or
    also on the human development services. And remember, the goal
    is public housing, not a way of life but a way to a better
    life, and I think we should focus on that.
        Now, could you tell us what you are thinking about in terms
    of HOPE VI, where do you want it to go once it is zeroed out?
    We are very concerned. This is $600 million that we could use.
        Secretary Martinez. Senator, I think the reason we are in
    this situation is that because of whatever issues did arise
    within the administration, that the process of developing an
    alternative did not keep pace with the budgetary cycle which
    required us to not fund it.
        Let us say that our concern on HOPE VI is that we are
    studying this and we are looking to have many resources come
    together, people in the academic community who have looked at
    HOPE VI, in addition to practitioners in the development
    projects, mayors who have tried to revitalize urban areas, and
    pull together the best of all of that thinking as to how we
    should reauthorize a HOPE VI, or whatever we arrive at. We
    think that the mission of HOPE VI is not over.
        I think what has occurred is that we had a 10-year program
    with a substantial amount of money. With this chart I would
    like to go through where they are in terms of the opportunity
    and the spend-out, and again, it is not to be critical but only
    to point out to you that we do have a moment here to take a
    breath as we go forward into the future.
        But as you see, in Chicago, there are people there that are
    doing a terrific job in revitalizing parts of that city, but
    you can see that there is still the signs where the spend-out
    is not----
        Senator Mikulski. Mr. Secretary, my bifocals are not
    working.
        Secretary Martinez. Let me give you a little help, if I
    might, just to be casual if I may.
        Basically we are looking at Chicago for instance; they have
    been awarded this much, they have only spent this little bit
    here so they still have a number of projects, they are going to
    be deferred to later.
        Senator Mikulski. Let us go to St. Louis and Baltimore.
        Secretary Martinez. Baltimore actually has spent well over
    50 percent of what they have been granted, so that is the good
    news, and St. Louis has a little bit less.
        Senator Mikulski. So Mr. Secretary, we have spent a
    billion?
        Secretary Martinez. Baltimore has been the best relative to
    what was awarded.
        Senator Mikulski. Let us look ahead to October 1, 2003, for
    the fiscal year. Where will we be with this? You indicated that
    there is money funded that local communities still will be
    completing their project on that is the completion owe money I
    got to complete it, so it is not like when it comes to October
    1, it stops.
        Secretary Martinez. All of these projects, we will still
    bring them to completion.
        Senator Mikulski. And then they----
        Secretary Martinez. At that point HUD would have to go
    through one more round of communities out there who today would
    be anticipating the possibility of doing a HOPE VI or trying to
    put a deal together or maybe some that were in the running this
    year but did not quite get to allocation, so next year there
    would be one more cycle of HOPE VI grants that we could issue,
    all of whom I hope is, and our challenge is to work with the
    communities who are doing a good job but who still have
    problems.
        Senator Mikulski. Let us move on, because I do have to go.
    Here is what I am going to say. First of all as I understand
    HOPE VI, we spent a total, since the program was created a
    decade ago, over a billion dollars, and the results show there
    are successes here as well as lessons learned. I do not want to
    give up on the HOPE VI framework. I think what you have just
    said is you are asking for the opportunity to pull together a
    group of people who know the most about HOPE VI, which is the
    advocates who have had criticism, academics like the Urban
    Institute who have done studies on it, and the mayors who have
    to run it. And I think what you are asking for as we have this
    small window, is the opportunity to pull together a task force
    that could bring forth either a HOPE VI reform package or a new
    building on lessons learned, a new framework for legislation.
        Secretary Martinez. I would love to pull that kind of thing
    together. I would also seek the authority to also commit a
    funding package to go with it.
        Senator Mikulski. I understand that and also that there is
    the authorization issue as well.
        Secretary Martinez. Correct. Something has to happen this
    year in any event.
        Senator Mikulski. I would like to talk about a timetable.
    First of all, we asked HUD for a report that was due in June
    2003 on the status of severely distressed units, we want to
    know what is left out there and the need.
        There is a second need that is not related directly to HOPE
    VI but it is also important, and that is the backlog on public
    housing capital repair. That is both regular public housing--
    but I understand there is a huge backlog. I also do not know if
    it includes the housing for the elderly. Remember when I said
    that most of this housing was built in the 1970's and 1980's.
        Secretary Martinez. The 202's would not be included.
        Senator Mikulski. So that is a whole other issue there.
        Secretary Martinez. Right.
        Senator Mikulski. So really this is the program that was
    initiated by President Ford, it gained momentum under President
    Carter, it was one of the really signatures of the Reagan
    Administration, so this is really a bipartisan effort among the
    seniors.
        I do not know that we want this to go to a commission, that
    requires presidential appointments and executive directors, et
    cetera, but I am going to ask you internally that you pull
    together a task force among the categories of stakeholders that
    you have just enumerated, and we will work with you on this to
    say where do we go next. And then bring this to the authorizers
    and we appropriators to see if we can do something this year so
    when the money in the pipeline runs out, we have a new
    framework. I really do not believe that President Bush, who I
    believe is a real conservative, wants to in fiscal year 2004, a
    presidential election year, have a program that just sputters
    out.
        So much has been done on a truly bipartisan basis, let us
    now look at the new framework based on needs both of residents
    and the distressed housing, and also on the lessons learned and
    where we might need to be placing emphasis on human capital. So
    I really extend my hand to you in partnership to work on this.
    The only outcome I am interested in is to keep the framework,
    physical architecture that develops human capital, and people
    have a way of moving to a better life, just like welfare to
    work.
        Secretary Martinez. Alright.

                      PUBLIC HOUSING--ELDERLY/MINIMUM RENT

        Senator Mikulski. I am very concerned about the issues
    related to the elderly housing and we would welcome your ideas
    on what we are doing and can do about housing for the elderly
    as well as in public housing.
        Another issue with which I am concerned is public housing
    minimum rent. As I understand it, there are many residents that
    are going to be affected by this change. Could you tell me why
    HUD should determine minimum rents and not the local public
    housing authorities?
        Secretary Martinez. Senator, for a long time, housing
    authorities have, for the most part, determined a minimum rent,
    and in fact today out of the 4 million families that are
    currently receiving Federal assistance, only 250,000 will be
    affected by this new minimum rent proposal, which is only about
    8 percent of the families that are currently served by public
    housing.
        So the idea is that, at a time when it is felt that a
    minimum rent of $50 would be something that all families who
    reside in public housing should be contributing, that it is
    appropriate to set out a place where all should go. What occurs
    often times is that if there is not some clarity on this, that
    on the one hand maybe minimum rents will go beyond $50, which
    is not appropriate in many cases, or that folks who next door
    may be making their $50 contribution have a neighbor who is
    equally able to make it or even better off and yet does not
    make it.
        So our goal is to try to insure that there is some equity
    in this. Most housing authorities have a minimum rent fee today
    of $25 to $50. Over 50 percent of housing authorities have a
    $50 minimum rent, and so we believe that this is trying to
    create a little equity in public housing.
        And also, this is teaching a certain responsibility because
    as you have said, it is not a way of life and there is no such
    thing as free rent. So if people have a sense of obligation to
    pay in some amount of their money for rent, it can begin to
    lead them to a path of self sufficiency and out of the public
    housing morass and into a life of their own.
        Senator Mikulski. As you know, there are advocates who are
    very troubled by this. And local public housing authorities are
    troubled. I know Mr. Grazziano and the Baltimore folks are also
    troubled by this, and I would ask, number one, that you take a
    look at this decision and number two, consult with the local
    public housing authorities and see what they think about it.
        And the thing we do not want to do with any of these
    policies is penalize the poor. I understand the need for
    responsibility, we encourage responsibility, but where there is
    some unexpected hardships like illness, they may not be able to
    pay.
        Secretary Martinez. Let me also say, I did not point this
    out, Senator, but the elderly and the disabled, of course, are
    exempt from the $50 rent, so it is only for the rest of the
    population.

                                     FRAUD

        Senator Mikulski. Let us go now to issues of fraud. I would
    like to bring up the issue that I talked about earlier.
        Secretary Martinez. Could I ask the Inspector General to
    join me?
        Senator Mikulski. Yes.
        First of all, I do find it commendable what you have been
    doing. We have had prosecutions, we have had indictments, and
    even jail sentences as well as FHA reform.
        I am not going to name the company but we will share it
    with you privately, but it is a Utah based loan server. And
    what they do is they send false letters to home buyers telling
    them they were delinquent on their loans, that they were going
    to be foreclosed on their loans, and to send them money, when
    there was nothing wrong with the loan. People panicked and of
    course as you know, people will do anything not to lose their
    home.
        What the TV station has identified, because people went to
    TV and the community law center, this company provides customer
    services but again, they are not the lender. The Community Law
    Center in Baltimore has received 90 complaints from the one
    same company. We do not know if any of these loans have FHA
    insurance on them. We do know that it is an approved FHA
    partner.
        And so my questions would be number one, to ask both the
    Department and the FHA to look into this and Mr. Donohue, for
    you to look into this particular company to stop this, to
    identify what they are doing and to stop it, and to see if this
    is even going on in other parts of the country, because I do
    not believe they are a national company. And then we need to
    know if someone has been a victim, where should they go to get
    help. Do you want to comment, any of you, on this?
        Secretary Martinez. I have also Housing Commissioner
    Weicher.
        Senator Mikulski. It just seems with flipping when we close
    3 loopholes and the scammers and the scummers find 5 more. That
    is what a predator is.

                          STATEMENT OF KENNETH DONOHUE

        Mr. Donohue. Senator, we became aware of some of these
    tactics in the midwest United States, and we have also seen,
    just to add to, we have seen additional types of activities of
    this sort. Such as global operations used to identify and
    target mortgages facing foreclosure, soliciting financing that
    involves high fee structures and charges that add to the cost
    of the loan and the price of the mortgage. We have found
    entities that pray upon mortgages that----
        Senator Mikulski. Can you just tell me what we are going to
    do on it?
        Mr. Donohue. We are aware of it, we are opening an
    investigation with regard to this matter, specifically to the
    matter at hand in Maryland.
        Senator Mikulski. To the general issue or to this company
    as well?
        Mr. Donohue. We are looking at the general issue and we are
    going to take a specific look at the matter that you have
    raised.
        Senator Mikulski. Thank you very much. And I want to here
    more of your testimony, but I do have this obligation with
    Senator Frist. And I want to thank you for listening. Did you
    want to add something, Mr. Weicher?

                          STATEMENT OF JOHN C. WEICHER

        Mr. Weicher. Senator, simply that if these are FHA loans,
    and you indicated that that has not been established, if they
    are FHA loans, we do have the ability to intervene. We have
    loss mitigation requirements in the event borrowers are in fact
    delinquent. And we certainly have the ability to prevent
    foreclosures when borrowers are not delinquent.
        Senator Mikulski. And I do not know if they are
    foreclosing. I just think they are sending scare letters. They
    are not a lender, they are providing so-called customer
    services, but they send scare letters and accept payments when
    there is no payment to be accepted. These are when loans are
    current, when loans are current.
        Mr. Weicher. If that is happening, I am not a lawyer, but
    to me that sounds like fraud and we would be certainly
    interested in sanctioning that entity insofar as it has FHA
    approval, and we would be certainly working with the IG.
        Senator Mikulski. What I would like to suggest is that at
    the conclusion of this hearing, my staff present to you what we
    currently know about this, and second, I would ask that you
    contact the Community Law Center in Baltimore, they are
    energetic lawyers who have gotten 90 complaints from people. So
    they have kind of a documentation staff there, and someone
    could then see that.
        If someone has received one of those, what should they do
    and where should they go? Or do you want to think about that
    and tell us?
        Mr. Donohue. If I may. I would think that if it is a matter
    with regard to a violation of Federal law, I think they should
    contact us, or speak to the appropriate HUD Field Office--we
    work very closely in Baltimore with the FBI and U.S. attorney's
    office, any means to get that information to us or contact
    directly is fine.
        Senator Mikulski. Well, what I would like you to understand
    is the specific method, and I would like you to really think
    about this, because we do need a method for them to either come
    to the Community Law Center or they come to you. So please
    think about it, so we can let these 90 people know, but I have
    a feeling that there are others out there.
        Mr. Chairman, thank you. I hope we pursue this. And then
    second, where we are on all of these aspects related to
    predatory lending. And if they know we are on it, then it tends
    to have a chilling effect. So thank you very much.
        Secretary Martinez. You are very welcome.

                         PUBLIC HOUSING OPERATING FUND

        Senator Bond. Thank you very much, Senator Mikulski. I
    think that your questions covered a number of the questions I
    had, so I am going to try to move on, and Mr. Secretary, I
    would also like to discuss with you in private what internal
    steps you have taken to ensure that the public housing
    operating fund over-expenditure does not happen again. We will
    talk about that in a one-on-one conversation.

                           FAITH-BASED ORGANIZATIONS

        With respect to faith-based organizations, I understand HUD
    is revising a number of the regulations to make it easier for
    faith-based organizations to participate in HUD programs,
    including enhanced eligibility for grants. I strongly support
    the role of churches and other faith-based organizations in
    making our communities strong and safe, but there have been a
    number of news reports that infer that HUD is trying to divide
    churches and faith-based organizations with expanded access to
    Federal funds including grants to build churches where a church
    is involved with community issues.
        What programs are involved, and is their truth about this
    providing grants for church construction, and how would you
    deal with this constitutional potential problem here?
        Secretary Martinez. Mr. Chairman, we have embraced the
    President's call to level the playing field for faith-based
    organizations to insure the full participation of the faith
    community in a lot of our programs and to insure that the
    regulations and other rulings of the game are fair, even, no
    matter what the program may be. We are in the process of
    finalizing some regulations which we hope will not have the
    conclusions that I think some of those news reports have
    reached.
        We believe that if there is a building related to a church
    but not the church itself, which may be involved in a social
    service of some sort, that perhaps some funding for
    accommodating that work could be done, but we are going to try
    to be very clear that we stay away from any direct funding of
    church buildings, things of that nature. Houses of worship are
    different from places where social services may be rendered.
        So we are looking very carefully at these regulations, they
    are not final. As we go forward, I think the caution that you
    have raised certainly needs to be kept in mind.
        Senator Bond. I think it is important to steer that path
    very carefully, and I certainly endorse wholeheartedly the
    President's initiative.

             PUBLIC HOUSING REINVESTMENT LOAN GUARANTEE INITIATIVE

        Your budget request for new public housing loan guarantee
    program and $131 million in credit subsidy, according to the
    budget representation, this program will leverage some $2
    billion in loans and accelerate capital improvements. That
    sounds like a fairly complex program for most PHAs.
        How quickly do you think you could get it up and running,
    what do you think the cost of the actual per unit basis will
    be, and how will it compare with HOPE VI, what kind of tax
    credits are expected to be part of any financing? Mr. Liu?
        Mr. Liu. Mr. Chairman, we certainly are excited about the
    public housing reinvestment loan guarantee initiative. We
    appreciate the concept of loan guarantees which was proposed by
    the chairman last year, because we think that credit
    enhancement has to be a key component for this concept of
    utilizing private sector debt financing to work.
        We are building this program on the experience over the
    past 4 or 5 years where similar deals without credit
    enhancement have gone forward. Over the past 4 or 5 years and
    really mainly in the past 2 years, we have raised over $500
    million through the debt markets, over 80 transactions of
    various sources, where capital fund grants have been used as
    either equity and/or as leveraged capital for bond deals,
    loans, and other situations.
        We have done some analysis of cities where this tool might
    be used, and per unit costs ranged from $17,000 to $55,000.
    This is really in line with what we are doing now in
    rehabilitation and modernization use of the capital fund at
    this point in time. So we think that the program can be up and
    running fairly quickly. In fact, we have proposals already at
    the door from public housing authorities that are interested in
    being first in line should the concept move forward.

                                      FHA

        Senator Bond. All right, thank you. Let me turn now to an
    FHA question. According to the GAO 2003 high risk report on
    HUD, the FHA single family mortgage insurance program remains a
    high risk area because of continued weakness in the insurance
    process, evidence of fraud, and a variety of challenges that
    HUD faces in implementing correcting action. What steps are
    being taken by HUD to address these concerns?
        Secretary Martinez. The FHA Commissioner, Mr. Weicher, is
    going to address that, Mr. Chairman.
        Mr. Weicher. Yes, Mr. Chairman. We have taken a number of
    actions to address the problems of fraud and lender
    incompetence in our programs. Senator Mikulski alluded to our
    flipping rule. We have a series of rules in process, literally
    a dozen rules to address fraudulent or deceptive practices in
    FHA loans.
        We established a program called Credit Watch where we track
    the loan performance of individual lenders to see how their
    loans are performing the first couple of years after
    origination, compared to other lenders in the market area. We
    know that if they are bad loans, the problems arise the first
    couple of years.
        We originally set a threshold of 3 times the default rate
    for the market area as being grounds for sanction. We are in
    the process of lowering that quarter by quarter from 3 to 2\3/
    4\, 2\1/2\, and by next fall, next October, it will be double.
    We are chasing out, removing their ability to do business with
    us, those lenders who show early default rates in excess of
    their market by a substantial amount unless they can provide
    some evidence that there is a reason for that.
        We are in the process of extending that to appraisers,
    because you cannot really have a predatory loan without a bad
    appraisal, or corrupt appraisal. We have issued advance notice
    of proposed rule making on that program, we received comments,
    and we are in the process of developing a rule to put that into
    place.
        We are moving on these and it shows up in the overall
    performance of the FHA funds as you alluded to in your opening
    remarks. We are having fewer claims, fewer losses, and that is
    one significant reason why our reserves are increasing.
        Senator Bond. Okay. Let me ask you on your risk management,
    you launched a demo in 2002 known as the 2001 Accelerated Claim
    Disposition Program to reduce foreclosure losses. On October 31
    last year, you awarded Salomon Brothers Realty a 70 percent
    equity interest in a joint venture to dispose of 5,100
    nonperforming loans. HUD said this would help restructure the
    mortgage notes to improve performance. What is the status of
    that particular program?
        Mr. Weicher. This is the Section 601 demonstration
    authorized by Congress in, I believe, the 2000 Appropriations
    Act. We have, as you described, conducted that auction and made
    that transaction with Salomon Brothers, and we are in the
    process of providing loans to--and these are loans which have
    gone into default but which we have not had to foreclose and
    take title.
        We pay a claim on the loan to Salomon Brothers. Salomon
    Brothers in turn takes the responsibility for management of the
    loan. There are a couple of purposes to this. One is that it is
    more cost effective for us to sell the notes than to proceed to
    foreclosing, taking title and funding the property ourselves.
    The other is the private sector has more ways of avoiding a
    foreclosure than we do, the private sector can take it down on
    a partial basis and write down in ways that we cannot.
        In conversations we have had with Salomon Brothers, they
    have indicated that over 70 percent of the families in these
    homes want to work with them on work-out programs. If they are
    able to make that work, then many of those families will remain
    in their homes, and they could not have remained in their homes
    if they had gone to claim with us, gone to foreclosure with us,
    and I think that is going to strengthen the communities, as
    Senator Mikulski stressed in her opening remarks, by keeping
    stability, keeping people in their homes.

                            ASSET CONTROL AREA DEMO

        Senator Bond. Thank you. In last year's appropriations
    bill, we directed HUD to enter into contracts and agreements
    under the Asset Control Area demonstration program to design
    and promote home ownership. What is the current status of that?
        Mr. Weicher. We did, in fact, issue new procedures for the
    program on September 15 of last year. We actually issued two
    sets of procedures, one, the program as prescribed specifically
    by statute, and a second based on our experiences in the
    program under our pilot authority. We put together a program
    which seemed to us likely to work significantly better. We
    received a number of comments on the programs and a number of
    expressions of interest from individual communities.
        We have received applications under the pilot program from
    Baltimore, Camden, Cleveland and Hartford. We have received
    expressions of interest and have had conversations with
    Rochester, Chicago and Los Angeles. All of those except
    Baltimore and Camden participated in the earlier program. We
    have revised our proposed procedures in light of conversations
    we had with many of these groups and we sent out letters saying
    we are ready to accept your application, we sent those out in
    late February and we expect that program will be fully
    operational soon.
        Senator Bond. Why did it take so long?
        Mr. Weicher. We met the September 15 deadline. We then
    received comments from local organizations on a wide variety of
    issues, issues they wanted to have addressed, and we have been
    working to address those issues so we have a consistent program
    that would work.
        Secretary Martinez. One thing I would point out is that
    some of these programs that we have inherited, while well
    intended, sometimes do not have the built-in tools for us to
    properly monitor them like you would want us to do. So I think
    we wisely stopped the program when we felt that it just could
    not be managed in a way that would ensure good oversight and
    then restart them. I understand we may have taken a little
    longer than we should have in restarting it, but we put it back
    on track and allowed the communities to participate in them.
        But the program we had which was littered with fraud and
    problems, since we have reinitiated it after stopping it for
    only 90 days, I think is really being successful and is, in
    fact, fulfilling the promise of what it was intended to do, and
    we look forward to the same with this particular program.

                      INTERAGENCY COUNCIL ON HOMELESSNESS

        Senator Bond. Mr. Secretary, you soon will be coming to the
    end of your term as Chairman of the Interagency Council on
    Homelessness. Our thanks for working with this Committee on
    resuscitating the Council, and hopefully you will continue to
    play a strong role.
        Can you tell us what you think the Council accomplished
    during your chairmanship, and I would just ask you to address
    the efforts of the council, whether agencies such as VA and HHS
    have come forward with adequate resources.
        Secretary Martinez. Clearly the revitalization of the
    Council on Homelessness by this administration, I think is one
    very important step and milestone in the fight to end
    homelessness in America. We have taken the approach of
    attacking the chronic population as a way of attacking
    homelessness in general.
        By dealing with the chronic population, the interagency
    council's focus on the chronic population, a program designed
    to deal with that population, and encouraging others to jump on
    that band wagon, has been one of the real successes of the
    program. We have cities now like Chicago who are embracing the
    concept of ending homelessness, ending chronic homelessness as
    a step to ending homelessness.
        The Council was able to pull together the resources and the
    interests of HHS and VA, along with HUD, to do the Samaritan
    Grant program. We think this is an innovative approach which is
    going to allow us to deal with that chronic population in a way
    that allows them to be helped not just with shelter, but also
    with medical needs and the VA with all the programs that they
    do. The Samaritan program has a contribution of $10 million and
    $10 million from each of those two other departments, with HUD
    contributing $50 million from our budget.
        We want a greater and fuller partnership because we do know
    that the chronic population oftentimes lacks medical care, has
    addiction problems and things of that nature.
        Senator Bond. I have seen the figures on the addiction
    problem, and I would call Mr. Mangano forward to give us a
    brief update, if you would please. Welcome.

                          STATEMENT OF PHILIP MANGANO

        Mr. Mangano. The first thing I would like to say, Mr.
    Chairperson, is that it is really the personal and professional
    commitment and support of Secretary Martinez that has eased the
    revitalization of this council in this inaugural year of its
    existence, and I would say personally it has eased my own
    Baptism into the Federal Government. So I am very thankful to
    both Secretary Martinez and to his staff and even as I look at
    his staff here, every one of them has made a contribution to
    the well being of the council over the last year.
        In the council, as Secretary Martinez indicated, we have
    developed some themes, and one of the key themes we have
    developed is prevention of homelessness. That has been
    something that has been absent from Federal policy around
    homelessness in the past. So what have we really engaged in for
    the last 20 years? We have moved people out of homelessness,
    but more people have fallen in, and that has been the
    continuous saga. So a lot of the attention of this
    administration is on prevention and especially on, as Secretary
    Martinez indicated, the President's initiative and the
    Secretary's initiative to end chronic homelessness.
        We know that the research indicates that 10 percent of the
    population consumes over 50 percent of the resources, and our
    hope is that by focusing on that population and ending that
    population's homelessness, there will be additional resources
    to address the homelessness of other populations of homeless
    people as well.
        We are also looking to increase the access to mainstream
    resources on behalf of homeless people. A GAO report in 1999
    indicated that the resources that are targeted for homeless
    people in the Federal budget are really insufficient, but that
    there are hundreds of billions of dollars of resources
    available in the mainstream programs. So we have been working,
    again, with HUD and HHS and VA and Labor and SSA, to ensure
    that better access is available to mainstream programs for
    homeless people.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Bond. Thank you. We appreciate your good work on
    it.
        Mr. Secretary, anything you want to add? I have a few more
    questions but I am going to submit them for the record.
        [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 Christopher S. Bond
                     housing assistance for needy families
        Question. Under the proposed funding formula and out-year
    estimates, how many vouchers would each State be able to fund under
    this formula? How does this compare to current year voucher use? How
    does this compare to the number of voucher contracts currently
    authorized for PHAs in each State assuming that tenants have no income?
        Answer. Under HUD's proposal, the State would receive funding
    sufficient to at least cover all vouchers currently under lease through
    PHAs within the State. HUD believes that even more families will be
    assisted due to the ease with which States can utilize the funding.
    Full utilization will also help justify increases in funding.
        HUD expects that lease-up and utilization of funds will increase as
    a result of the HANF reforms.
        Under HUD's proposal any family currently receiving voucher rental
    assistance would continue to receive such assistance through 2009. HUD
    also anticipates States being able to serve even more families, both
    through efficiencies and additional funding.
        Question. The administration is proposing to restructure the
    various Section 8 programs by creating a new Section 8 tenant-based
    voucher program that will be called the Housing Assistance for Needy
    Families program or HANF. HANF would be funded at some $12.5 billion in
    fiscal year 2004 and would transition to a block grant program to the
    States in fiscal year 2005.
        HANF does not appear to be the best possible replacement for the
    existing voucher program. I have concerns that the funding levels may
    be inadequate to meet future voucher use and will burden States at a
    time when States are already facing significant budget shortfalls.
    Also, while we have not seen the proposed legislation, after the
    requirement that States maintain the rental subsidy for existing
    voucher holders, this program looks a lot like the HOME program.
        Why should Congress convert the Section 8 program to a block grant
    program for States? What is the advantage for States? Why would this be
    good for Section 8 residents? What is HUD's responsibility under this
    proposed program? When will the legislation be submitted?
        Answer. HUD and Congress share concerns that this key program is
    not functioning efficiently to the detriment of both needy families and
    the taxpayer. The tenant-based assistance program now provides rental
    and homeownership assistance to more than 1.8 million families. Despite
    this success, during the past several years, billions of dollars of
    funds appropriated for tenant-based assistance have remained unspent,
    and as a result several hundred thousand families have not been
    provided housing assistance made available by Congress.
        The advantages to providing tenant-based housing assistance through
    a State-administered block grant are:
      --increasing program flexibility so that funds are used promptly and
            effectively to assist needy families;
      --facilitating greater program responsiveness to local markets and
            needs by delegating decision-making, such as setting rents,
            closer to the communities and families affected, by their
            elected officials;
      --allowing flexibility at the State level for reallocation of funds
            or other actions that may be necessary so that program funds
            are expended promptly; and
      --improving government support of self-sufficiency efforts by
            assisted families, by facilitating greater coordination with
            the TANF program and other State programs.
        States would have control of the funding to directly address the
    housing needs of their low-income citizens. States would have the
    flexibility to ensure that the funds work effectively in their local
    housing markets. States would have the ability to reallocate the funds
    or take other actions that may be necessary so that program funds are
    expended promptly and meet the needs of low-income families in an
    efficient manner. States will also be able to better coordinate housing
    assistance with other State-run assistance programs to more effectively
    target resources and achieve self-sufficiency for those in need.
        The program would be more flexible and would work more effectively
    in local housing markets in increasing housing opportunities for low-
    income families. Program rules would be greatly simplified, increasing
    landlord participation in the program. The program would be able to
    react much more quickly to fluctuations in local rental markets to
    ensure the subsidy is sufficient to allow families to find housing with
    the tenant-based assistance. Economic self-sufficiency and
    homeownership efforts by assisted families would receive greater
    support through better coordination with other State programs. Under
    the HANF program the Secretary will establish performance standards for
    States, including the improved living conditions for elderly and
    disabled families; the effectiveness of voucher assistance in helping
    families move toward homeownership and self-sufficiency; and the extent
    to which State or local governments remove barriers to affordable
    housing.
        HUD is responsible for establishing performance standards for
    States that include funds utilization, financial management, number of
    families served, quality of housing, reduction of homelessness,
    improved living conditions for elderly and disabled families, the
    effectiveness of voucher assistance in helping families move toward
    homeownership and economic self-sufficiency, and the extent to which
    State or local governments remove barriers to affordable housing. HUD,
    also, is responsible for ensuring that States are administering the
    program in accordance with Federal law and program regulations and will
    review the State's performance report. Further, HUD will make such
    reviews and audits that are necessary to determine whether the State is
    carrying out the housing assistance activities and objectives in a
    timely and effective manner, and whether it has met any performance
    standards established by HUD for the program.
        The legislation was introduced in the Senate on April 29, 2003.
        Question. Will States be required to maintain the current Section 8
    subsidy requirement that families pay no more than 30 percent of
    adjusted income?
        Answer. The legislation proposes to greatly simplify the current
    income and rent calculations by eliminating the dozens of statutory and
    regulatory exemptions and deductions. HANF proposes that a family will
    not be required to pay more than 30 percent of gross income. They may
    elect to pay more, if they so choose.

                           SECTION 8 CERTIFICATE FUND

        Question. As you know, the VA-HUD Fiscal Year 2003 Appropriations
    bill created a new funding structure for Section 8 vouchers where PHAs
    receive funding for all vouchers that are currently in use and for any
    vouchers that can be used up to a PHA's authorized level through a
    reserve fund maintained by HUD. This funding approach should result in
    a more realistic assessment of Section 8 funding needs and reduce the
    need to go though the annual ritual of rescinding large amounts of
    unused, ``excess'' Section 8 assistance.
        I would like your comments on this approach to funding Section 8
    vouchers. Also, what steps is HUD taking to ensure that HUD has
    adequate and reliable information on the number of vouchers in use as
    well the number of additional vouchers that are likely to be used to
    obtain rental housing?
        Answer. The funding methodology for vouchers introduced in the VA-
    HUD Fiscal Year 2003 Appropriations bill provides an improved method of
    providing public housing authorities PHAs with the appropriate level of
    funding required to manage the voucher program and meet current and
    future leasing requirements. The methodology also provides the
    Department current leasing and cost data to be used as a management
    tool necessary for efficient and effective program management in the
    following ways:
      --significantly reduced program recaptures;
      --realistic budget estimates provided to the Congress;
      --improved funds control by the Department;
      --timely identification of PHAs with poor utilization, to better
            target technical assistance resources; and
      --early identification of the cost impact related to program policies
            for use in shaping future program policy decisions.
        The Department has developed a data collection tool for PHAs to
    report monthly cost and lease-up levels. The data will be collected via
    internet transmission from PHAs and used by the Department to determine
    PHA renewal funding levels, administrative fees, and additional
    requirements from the Central Reserve. The first submission from PHAs
    requests actual data for the prior 6 months. Thereafter, the PHA is
    required to report to HUD quarterly. Renewal funding will be based on
    more current lease-up and costs identified by the PHA to ensure that
    the appropriate level of funding is provided to the PHA.
        Prior to using the data to determine funding levels, the data will
    be reviewed using a series of quality control edits for accuracy and
    reasonableness. PHAs that do not comply with the data collection effort
    will have funding provided based on prior year leasing and costs. As
    per the law, failure to report on the administrative fee reserve
    balance will also prevent the PHA from receiving an administrative fee.
        The data collection effort has been reviewed and approved by OMB as
    meeting the requirements of the Paperwork Reduction Act. To date, the
    following has occurred:
      --PHAs have received advance notification of the new requirements.
      --A PHA Focus Group was convened to test the data collection effort.
      --Based on the comments of the Focus Group, FAQs have been developed
            to assist PHAs with reporting.
      --A help desk has been established to assist PHAs.
      --The website will be launched into production the week of March 24,
            with the results used to determine funds required for contracts
            expiring April 30, 2003.
      --PHA industry groups have been consulted.
        This data collection effort is the first step taken by the
    Department to ensure that the requirements of the Act are met. The
    Department will continue to work toward full automation in the coming
    year.
        Question. As you know, my staff recommended that HUD update all
    Section 8 information as early as last October 2002. Identify all
    requests to PHAs for Section 8 utilization information in the last 7
    months. (In the past much of this information has been unreliable.)
        Answer. PHAs traditionally provide data on utilization to HUD with
    their year-end statements. PHA fiscal year ends cover the four calendar
    quarters. Therefore, HUD receives year-end information each quarter for
    a subset of PHAs.
        The data collection tool described in the previous question
    requires that all PHAs provide data to HUD each quarter. This provides
    HUD with the updated information on utilization for the entire PHA
    inventory. The first data requested from PHAs was in March 2003,
    covering the period of July 2002 through January 2003. Going back to a
    6-month period provides HUD with some historical information that can
    be used in trend analysis. The next update will be requested in May
    2003, covering the period of February through April 2003. As you can
    see from the timeline, HUD's database of PHA information will be
    approximately 45 days behind, a major improvement over data
    approximately 12-15 months old.
        HUD will continue on a cycle of quarterly requests for updates
    until the final automated system is complete that will require monthly
    updates from PHAs.

                     SECTION 8 RENTAL SUBSIDY OVERPAYMENTS

        Question. According to GAO's most recent evaluation of HUD's Major
    Performance and Accountability Challenges, errors in determining the
    amount of rental assistance under HUD's Section 8 program has resulted
    in estimated excess rental payments of some $2 billion or 11 percent of
    the funding for the program in fiscal year 2001. Two billion dollars
    are enough to pay for a new affordable housing production program and
    is an unacceptable level of loss for this program. This has been a
    recurrent problem that has been repeatedly identified over then last 4
    years and longer. What is HUD doing to reduce this fraud and abuse and
    recover these losses? What has HUD done in the last 12 months? In the
    last 6 months? How much money has been saved?
        Answer. Under the President's Management Agenda, HUD has
    established a goal for reducing both the frequency of calculation/
    processing errors and the amount of overpayments by 50 percent by the
    year 2005 with interim goals of 30 percent by 2004 and 15 percent by
    2003. These goals apply to all HUD's rental assistance programs,
    including Section 8 and public housing.
        The Department's comprehensive plan for reducing all types of
    errors and improper payments is carried out through the following
    Rental Housing Integrity Improvement Project (RHIIP) initiatives: (1)
    statutory and regulatory simplification, including the Housing
    Assistance for Needy Families (HANF) proposal which reduces complex
    income requirements to a simple formula (up to 30 percent gross
    income); (2) increased HUD monitoring of program processing by HUD
    intermediaries, using risk-based targeting indicators; (3) increased
    use of automated sources of tenant income data to address the problem
    of unreported tenant incomes well as a legislative proposal for access
    to the National Directory of New Hires Data Base (HR 1030); (4) new
    Fact Sheets, guidebooks, training and technical assistance for HUD
    staff and program intermediaries; (5) stronger performance incentives
    and sanctions; (6) increased IG investigation of serious tenant fraud
    cases; and (7) an ongoing quality control program.
        With respect to RHIIP initiatives for regulatory and statutory
    simplification, the HANF legislation proposes to greatly simplify the
    current income and rent calculations by eliminating the dozens of
    statutory and regulatory exemptions and deductions. HANF proposes that
    a family not be required to pay more than 30 percent of gross income.
    Under the proposed HANF program procedures will simplify and streamline
    the rent calculation process and greatly contribute to reducing the
    subsidy error. Also, with HANF, States will be motivated to use their
    own and new hires database to verify tenants' reported income.
        Those RHIIPs initiatives implemented during the last 12 months are:
    (2) increased HUD monitoring of program processing by HUD
    intermediaries, using risk-based targeting indicators; (4) new Fact
    Sheets, guidebooks, training and technical assistance for HUD staff and
    program intermediaries; and (7) an ongoing quality control program.
    Those initiatives implemented during the last 6 months are: (1)
    statutory and regulatory simplification, including the HANF proposal
    which reduces complex income requirements to a simple formula (up to 30
    percent gross income); (3) increased use of automated sources of tenant
    income data to address the problem of unreported tenant incomes well as
    a legislative proposal for access to the National Directory of New
    Hires Data Base (HR 1030); (5) stronger performance incentives and
    sanctions; and (6) increased IG investigation of serious tenant fraud
    cases.
        The Quality Control Program (7) is the Department's approach for
    measuring the extent to which the above-mentioned goals are met. The
    measurement of 15 percent error reduction will be reflected in the
    fiscal year 2003 Performance and Accountability Report.

                        PUBLIC HOUSING OPERATING FUNDING

        Question. As I previously stated, Mr. Liu, the Assistant Secretary
    for Public and Indian Housing, deserves a lot of credit for taking much
    needed corrective measures when senior HUD officials discovered that
    the Department has been inappropriately awarding PHAs with additional
    operating funds by raiding current year public housing operating funds
    for prior year obligations. The VA-HUD Fiscal Year 2003 Appropriations
    bill put a final stop to this activity while providing up to $250
    million in funding for one last time for existing prior year
    obligations owed to a few PHAs for fiscal year 2003.
        Nevertheless, how could this overspending happen and how could it
    happen without the awareness of the senior officials in the Department
    and OMB?
        Answer. There are four main reasons why HUD overspending happened:
      --HUD failed to develop a new accounting system to track the Interim
            Formula and should not have implemented the Interim Rule prior
            to doing so. Further, the legacy system had been neglected for
            at least a year (2000-2001). So the lack of a system to track
            the interim formula made it very difficult to manage the
            program.
      --No system and poor quality data meant that setting accurate funding
            levels, or proration levels, were set with old data, causing
            the level to be inappropriately high, which is what caused the
            shortfall.
      --Culture among PIH staff was such that setting accurate funding
            levels was never imperative due to the common practice of using
            next year's funding to make up for any shortfall. Such
            decisions were apparently made without consulting senior
            management.
      --Funding levels for each fiscal year had been established based on
            data at least a year old. HUD has changed this practice and
            will not commit to funding levels until all PHA budgets are
            submitted, accepted, and analyzed with regard to current
            appropriated amounts.
        No senior officials outside of PIH knew about or had any role in
    the over commitment of funds.
        Question. Identify all HUD officials that knew about this
    overspending and all corrective measures taken against these
    individuals.
        Answer. The Deputy Assistant Secretary and Office Director managing
    the Operating Subsidy program are no longer in a management capacity,
    nor are they involved with the operating subsidy program. No office
    outside of PIH knew about or had any responsibility for the overage.
        Question. What steps have you taken to ensure that this type of
    mistake does not happen again?
        Answer. The Department has taken sound steps to ensure that the
    amounts provided in appropriations acts for a specific year will be
    spent only for that year's subsidies and that the commitments being
    made to PHAs never exceed the amounts provided by Congress. First, the
    Department has increased the number of resources available for this
    program, both in the terms of Federal employees and contractors and has
    created a separate task force to help specifically re-engineer this
    program in terms of business process and policy.
        In addition, the Department has created a new budget collection and
    accounting tool, which captures that data in a format that allows for
    easier data analysis, ad-hoc reporting, and program oversight. This
    collection tool is currently being used for the collection and
    processing of the fiscal year 2003 data. Enhanced data and quality
    control checks are being used to ensure accuracy of the data. Full use
    of actual budget data will be used in the determination of the final
    proration factor--which will never be set again until HUD has collected
    all current year budgets and compared total eligibilities with current
    year funding.
        Question. What steps has the Department taken in corrective
    measures against the staff who are responsible for these errors? Have
    staff been demoted? Have any of the responsible staff received bonuses
    for their work in the last year?
        Answer. The Deputy Assistant Secretary and Office Director managing
    the Operating Subsidy program are no longer in a management capacity,
    nor are they involved with the Operating Subsidy program. None of the
    staff has received a bonus.

                           FAITH-BASED ORGANIZATIONS

        Question. I understand that HUD is revising a number of regulations
    to make it easier for faith-based organizations to participate in HUD
    programs, including enhanced eligibility for grants. While I strongly
    support the role of churches and other faith-based organizations in
    making our communities strong and safe, there have been a number of
    news reports that infer that HUD is planning to provide churches and
    faith-based organizations with expanded access to Federal funds
    including grants to build churches where a church is involved with
    community issues.
        What programs are we talking about and is there is any truth that
    HUD is looking to provide grants to churches for church construction?
    This would be very controversial and how is HUD dealing with the
    constitutional issues?
        Answer. HUD has proposed a rule that would eliminate unwarranted
    barriers to faith-based organizations in eight HUD programs. The public
    comment period closed March 6, 2003, and HUD is currently reviewing the
    comments and preparing a final rule.
        The eight programs affected by the rule are HOME Investment
    Partnerships; Community Development Block Grants; Hope for
    Homeownership (HOPE 3); Housing Opportunities for Persons with AIDS;
    Emergency Shelter Grants; Shelter Plus Care; Supportive Housing; and
    YouthBuild.
        The proposed rule clarifies that HUD funds may not be used for the
    acquisition, construction, or rehabilitation of structures to the
    extent that those structures are used for inherently religious
    activities such as worship, religious instruction, and proselytization.
    Where a structure is used for both eligible activities and inherently
    religious activities, HUD funds may not exceed the cost of the portion
    of the acquisition, construction, or rehabilitation attributable to
    eligible activities. HUD has at no time intended that its funds be used
    to acquire, construct, or rehabilitate sanctuaries and other structures
    used principally for worship, and it will clarify this intent further
    in the final rule.

                             PUBLIC HOUSING HOPE VI

        Question. The Public Housing HOPE VI program has been eliminated
    under HUD's Budget Request for fiscal year 2004. This program was
    created in large part by this Subcommittee in response to the need to
    address the approximately 86,000 units that were termed severely
    distressed by the National Commission on Severely Distressed Public
    Housing in 1992. However, this program has done much more than just
    respond to distressed public housing, it has been tremendously valuable
    in turning this distressed housing into mixed income and public housing
    developments as well acting as an economic anchor for the redevelopment
    of distressed communities.
        And while it may be time to move on and build on the successes of
    the HOPE VI program, I am concerned that we have not had a meaningful
    dialogue on what we have accomplished and need to do next.
        The Department has eliminated the program in the Budget Request,
    including the funding of some $574 million which is critical funding
    needed to address the backlog of some $22 billion in capital needs.
    What does HUD believe is the next step?
        Answer. The Department is preparing to launch a review initiative
    that will consist of a series of meetings with industry experts in the
    field of affordable housing. It is intended to seek advice from a wide
    range of experts and stakeholders about the state of the program and
    its future. We are currently working on the details, including meeting
    topics and participants. Second, the Department has executed a
    Cooperative Agreement with the Urban Institute to investigate
    alternative ways to maximize the amount of private capital that can be
    leveraged using Federal funds, investigate more efficient ways to
    deliver Federal funds, investigate ways to accelerate project
    completion and the construction of units, and assist in the development
    of a new definition for severely distressed.
        Question. How does HUD currently define severely distressed public
    housing and how many units meet this definition now?
        Answer. At this time, there are many ways to define severe
    distress. HUD has had to work with five different definitions of severe
    distress as provided in Sections 18, 24, and 202 of the 1937 U.S.
    Housing Act, the HOPE VI appropriations and the Commission of Severely
    Distressed Public Housing. Even the National Commission on Severely
    Distressed Public Housing acknowledged the difficulty in identifying,
    specifically, distressed projects and opted to only estimate the total
    number of distressed units nationwide rather do an inventory. We
    believe that a standard definition of severe distress must be agreed
    upon prior to an evaluation of the entire remaining inventory. The
    Department is currently working with the Urban Institute to assess,
    among other things, the various definitions and establish one standard
    that can be used Department-wide to analyze the entire inventory.
    Therefore, the Department does not have a mechanism to review the
    entire public housing inventory and determine how many units are
    severely distressed at this time.
        Question. What criteria did the administration look at in
    determining this program had outlived its usefulness?
        Answer. The Department provided Congress a report, ``HOPE VI: Best
    Practices and Lessons Learned, 1992-2002,'' on June 15, 2002 which
    provided a comprehensive, factual, and balanced view of the program.
    The report provided information about what has been accomplished and
    what questions still remain to be answered. On balance, the Department
    believes that it has provided sufficient funds for the HOPE VI program
    to achieve its goals. HOPE VI has funded grants to relocate 57,000
    families, demolish 77,000 units and build 85,000 of which 45,000 are
    public housing (as of March 31, 2003; fiscal years 1993-2001 grants).
    We believe the funds already provided, in conjunction with other public
    housing programs, have more than addressed the 86,000 severely
    distressed public housing units identified by the Commission. Our
    report correctly points out, however, that grantees have been slow to
    spend funds and rebuild housing. Of the $4.5 billion awarded in the
    past 10 years, PHAs have only spent $2 billion. Only 17 of 165 grants
    have built all their planned units. In addition, it is important to
    remember that PHAs have more tools available to them today than 10
    years ago. For example, we now have regulations in place to guide
    mixed-finance developments and PHAs may use capital funds for
    accelerated modernization. As of March 31, 2003, the Department has
    received requests to allow PHAs use Capital funds to collateralize and
    pay debt service on nearly $933 million, of which $482 million has been
    approved. Furthermore, the Department believes that the Public Housing
    Reinvestment Initiative (PHRI) is intended to provide a financing tool
    for housing authorities to prevent developments from becoming severely
    distressed. It's another development tool to assist PHAs in addressing
    the backlog and accrual needs. It's time to reassess how to move
    forward and find new, creative ways to revitalize public housing.

                          PUBLIC HOUSING CAPITAL FUND

        Question. HUD is proposing some $70 million less in Public Housing
    Capital Funds for fiscal year 2004 than fiscal year 2003. In addition,
    the fiscal year 2004 funding request is some $200 million less than the
    fiscal year 2002 enacted level. These reductions are especially
    troubling when considered in conjunction with the administration's
    recommendation to eliminate the HOPE VI program and the fact that
    public housing throughout the country has a capitalization backlog of
    over $20 billion. These funding levels will likely result in deferred
    maintenance and deferred capital investment. How does HUD justify these
    reductions in funding?
        Answer. For fiscal year 2004, the amount of the Public Housing
    Capital Fund accrual is estimated to be approximately $2.2 billion.
    However, the Department is requesting approximately $2.6 billion for
    the Public Housing Capital Fund, which is approximately $400 million
    more than fiscal year 2004 estimated accrual needs of $2.2 billion.
    Further, public housing agencies (PHAs) are encouraged to use other
    vehicles to address needed improvements. For example, PHAs are already
    permitted to leverage their Capital Funds to finance additional amounts
    needed to make improvements to existing public housing. Such tools have
    already leveraged approximately $800 million in the last few years. In
    addition, the Department proposes the Public Housing Reinvestment
    Initiative (PHRI) that will provide PHAs with further opportunities to
    address the physical condition of public housing.
        Question. In addition, the HUD Fiscal Year 2004 Budget requests
    authority for a new Public Housing loan guarantee program and includes
    $131 million in credit subsidy from the Public Housing Capital Fund.
    According to HUD budget representations, this program will leverage
    some $2 billion in loans and accelerate capital improvements. This
    sounds like a fairly complex program for most PHAs. How quickly do you
    expect this program to get up and running? What do you expect the
    actual cost of this program to be on a per unit basis? How will it
    compare to HOPE VI? Will tax credits be expected to be part of any
    financing package?
        Answer. It is also important to keep in mind that PHRI is voluntary
    for PHAs. No PHA will be forced to make use of this new tool. For those
    who do choose to participate, PHRI can be up and running in a matter of
    months. HUD is giving this initiative the highest priority and will
    begin preparations even as the proposal progresses in Congress. HUD has
    already had broad discussions with PHAs, their representatives, and
    others who would be involved, including potential lenders. Many PHAs
    have provided substantial expressions of interest in pursuing PHRI.
    Indeed, many are asking whether there is any way under current law to
    implement it. Unfortunately, there is not.
        The ``cost'' of PHRI is simply the credit subsidy of $131 million,
    which comes from public housing capital funds. These funds are set
    aside to cover any losses resulting from the 80 percent loan guarantee
    and are based on a credit reform analysis by the Office of Management
    and Budget. Otherwise, PHRI is not designed to produce any budgetary
    impact. Rather, public housing subsidies are merely converted into
    Section 8 subsidies to facilitate financing. While PHAs, with HUD
    review and approval, have issued debt secured by public housing capital
    funds, these transactions are not property-based. Thus, the debt
    service coverage they require limits the amount of debt a PHA can
    issue. Borrowing under PHRI would not be limited to that degree.
        Both PHRI and HOPE VI are programs designed to aid PHAs with
    renovating public housing stock, however, the operation and focus of
    these two programs are different. HOPE VI is a competitive grant
    program directed at enabling PHAs to revitalize severely distressed
    developments, while PHRI is a voluntary loan guarantee program that
    enables PHAs to access conventional financing to address their backlog
    of capital repair needs.
        Under the HOPE VI application process, PHAs are scored on their
    ability to leverage private and public sector financing in the form of
    tax credit equity, loans, or other grants which will augment their HOPE
    VI request. The total financing package together with HOPE VI is the
    amount necessary to address revitalization needs which often encompass
    an array of public housing and community service projects.
        PHRI provides PHAs the ability to access adequate mortgage
    financing based on projected and specific cost and income analysis for
    targeted properties. The 80 percent loan guarantee provides the credit
    enhancement lenders seek before making investments.
        HOPE VI rewards some PHAs for seeking private/public sector
    leveraging; PHRI provides the means to leverage a PHA's greatest
    asset--its housing stock and thus addresses required repairs across the
    entire inventory of public housing.
        The loan guarantee is structured to permit private financing raised
    through PHRI to be supplemented by other resources including tax
    credits. However, in many instances, tax credits would not be required
    for PHRI to finance sufficient capital needed to address backlog needs.
    There may be instances where tax credit equity may be necessary to
    enable a PHA to cover the debt service associated with the financing
    required to address the current and long-term capital needs of selected
    properties.
        Question. Doesn't this proposal just shift the cost of public
    housing from the Public Housing Operating and Capital Funds to the
    Section 8 Fund? Why not tie the costs for loan repayments to the Public
    Housing Capital and Operating Funds?
        Answer. When a PHA obtains capital financing using the PHRI loan
    guarantee, PHAs voluntarily select properties to be converted from
    public housing contracts to project-based voucher funded contracts. For
    PHAs that choose to participate in this program, PHAs could commit
    capital and operating funds for initial expenses during the first year
    of the project-based voucher contract. After the first year, the
    reliance will be on the income and financing stream made possible by
    the PHRI.
        There are currently tools to access Capital Funds to undertake
    modernization projects, namely the Capital Fund Bond Financing Program.
    This has been a very successful leveraging mechanism, which has
    generated close to $500 million in bond financing for approximately 20
    PHAs. But even this successful program will take many years to address
    the estimated $18 billion backlog of capital needs. PHRI has the
    potential to reach a wide variety of public housing developments in a
    project-specific manner. It can be a powerful mechanism to help
    identify those developments most in need of additional assistance.
        PHRI and the associated loan guarantee is a more feasible property-
    based financing tool that is more typical of multifamily rental
    financing. In these financial transactions, the rents from the property
    and a mortgage on the property are pledged as security for a loan.
    Additionally, the Section 8 contract, subject to annual renewals,
    provides security with which lenders are more familiar.

                                    STAFFING

        Question. While the Congress was finishing up the fiscal year 2003
    Omnibus Appropriations bill, the House and Senate VA-HUD Appropriations
    Subcommittees were advised that HUD exceeded its stated employee levels
    for fiscal year 2003 by upwards of 300 FTEs with a cost of some $30
    million that is not reflected in the HUD Fiscal Year 2003 Budget
    Justifications and Budget Request. These hirings occurred during the
    Spring and Summer of 2002 and, despite the significant impact on HUD's
    budget needs for fiscal year 2003, HUD never once made any attempt to
    inform the Congress of its decision to hire significantly more staff
    than provided for in the HUD fiscal year 2003 Budget Justifications. In
    fact, HUD only reported these staff increases when it determined that
    its Fiscal Year 2003 Budget Request for Salaries and Expenses could not
    support these added staff.
        There also are significant questions as to whether HUD comported
    with existing staffing requirements and hiring procedures, including
    requirements consistent with HUD's Resource Estimation and Allocation
    Process (REAP). It also appears that some HUD offices hired
    significantly more staff than needed while other offices hired
    significantly less staff than needed. This clearly raises questions as
    to whether there were top level management controls on this hiring
    spree.
        Has HUD reviewed these hiring actions?
        Answer. Yes, a thorough review of the hiring actions has been
    completed and a Corrective Action Plan has been developed. This Plan is
    being submitted to the House and Senate Subcommittees under separate
    cover.
        Question. To what extent do these hiring decisions comport with
    personnel requirements?
        Answer. HUD has undertaken a thorough review of all hiring actions
    and has determined that there were no violations of any Federal civil
    service laws, rules, regulations, and merit system principles.
        Question. To what extent do these hiring decisions comport with
    REAP?
        Answer. REAP was not used as a basis for hiring. The Corrective
    Action Plan requires that each program bring their individual offices
    into alignment with REAP analyses as well as achieve an overall REAP-
    based ceiling. This Plan has been submitted to Congress under separate
    cover.
        Question. What steps is HUD taking to ensure that similar hiring
    binges do not occur in the future?
        Answer. Yes, a thorough review of the hiring actions has been
    completed and a Corrective Action Plan has been developed. This Plan is
    being submitted to the House and Senate Subcommittees under separate
    cover.
        Question. Are the responsible officials being held accountable for
    this hiring problem and in what way?
        Answer. Yes, responsible parties are being held fully accountable.
    Corrective actions are in place to ensure over-hiring is not repeated.
    The Corrective Action Plan will freeze all program offices who are
    currently over ceiling. The programs will need to align their offices
    with the REAP analyses.

                           LACK OF AFFORDABLE HOUSING

        Question. There is a lack of affordable housing in many communities
    throughout the country, especially for extremely low-income families
    (those at or below 30 percent of median income). Vouchers do not work
    well in these communities and housing is too expensive to build to
    assist many of these low-income families. While I support a block grant
    production program to address these needs, I am willing to look at
    other approaches such as tax options, interest rate buy-down approaches
    and loan guarantees or a combination of these approaches. I do not
    think the proposed HANF proposal will work as currently proposed or
    funded. How would you get at this need for affordable housing for
    extremely low-income families?
        Answer. The Department is confident that the HANF program will work
    but remains open to consider other options towards addressing the lack
    of affordable housing in communities.

                   GAO HIGH RISK--FHA SINGLE FAMILY INSURANCE

        Question. According to GAO's January 2003 High Risk Report on HUD,
    the FHA single family mortgage insurance programs remain a high-risk
    area because of continued weaknesses in the mortgage insurance process,
    evidence of fraud and the variety of challenges that HUD faces in
    implementing corrective actions. What steps is HUD taking to address
    these concerns?
        Answer. The Department is attacking these weaknesses on two fronts:
    adopting technological advances to limit HUD's exposure to fraud and
    misrepresentation and engaging in substantial rule-making to protect
    HUD and the borrowers it serves from predatory lending practices.
        In May 2002, HUD completed a business process reengineering effort
    on its Single Family Mortgage operations. From this work, HUD
    identified a number of tools that can be employed to limit exposure,
    including those that provide estimates of the property's appraised
    value and alert lenders and the Department of recent property transfer,
    i.e., ``flipped'' properties. In addition, to combat identity theft,
    HUD has been studying various kinds of name and social security number
    verification tools that can be obtained directly from the Social
    Security Administration.
        Predatory lending practices affect FHA's insurance risk and
    contribute to community deterioration. To combat such practices, HUD
    has published a number of rules to reduce the possibility that
    unwitting and unsuspecting homebuyers and homeowners will become
    victims of unscrupulous lenders abetted by appraiser collusion. Soon,
    FHA will no longer insure properties re-sold within 90 days, and will
    require additional evidence of the property's appraised value if the
    resale (within 1 year) price exceeds a certain threshold. FHA has also
    published rules that will make the lender equally accountable for the
    quality of the appraisal, and require that appraisers meet specific
    qualification standards in order to make appraisals for FHA insured
    mortgages.

                      FHA SINGLE FAMILY MORTGAGE INSURANCE

        Question. I am concerned that FHA single family mortgage insurance
    tends to take the highest risk of default despite currently exceeding
    actuarial requirements. What is the current rate of default on FHA
    single family mortgage insurance? How does this compare to the private
    market? At what point does a downturn in the economy put the Mutual
    Mortgage Insurance Fund at risk of failing to meet its actuarial floor?
        Answer. FHA's total default rate reached 5.276 percent in March
    2003. At the same time, FHA's claim rate was an annualized 1.246
    percent, which is only slightly above its 10-year average of 1.08
    percent. FHA has a higher default rate than the conventional market,
    but a lower default rate than the subprime market. Compared to the
    conventional market, FHA serves borrowers with lower incomes, poorer
    credit histories, and fewer assets. FHA's capital ratio has continued
    to grow as the share of first-time and minority homebuyers with FHA-
    insured purchase mortgages has increased.
        In pursuit of its mission to serve first-time and minority
    homebuyers, FHA reached out to riskier borrowers. These borrowers are
    more vulnerable to temporary economic setbacks and are more likely,
    compared to less risky borrowers, to go in and out of default. To
    assist these borrowers to avoid foreclosure, FHA offers incentives to
    servicers who practice loss mitigation. By providing borrowers with
    forbearance and tailored repayment plans, loan modifications, and soft
    second mortgages, servicers assist borrowers to remain in their homes.
    Last year, they helped over 68,000 homeowners--up from 50,000 the year
    before.
        While these families are in the loss mitigation program, they are
    counted as defaults. So FHA's default rate appears higher. But the
    claim rate has not risen commensurately. Most loss mitigations are
    successful--two-thirds result in the owner catching up on the mortgage
    and staying in the house. The program is cost effective--FHA spends
    about $1,400 per loss mitigation effort, and saves approximately
    $30,000 every time and avoids a foreclosure.
        As reported in the Actuarial Review of FHA's Mutual Mortgage
    Insurance (MMI) Fund for fiscal year 2002, the performance of the FHA's
    books of business, measured by the economic value of the MMI Fund, is
    affected by changes in economic variables. Higher mortgage interest
    rates raise initial and ongoing payment burdens on household cash flows
    and claim risks of new originations while decreasing the risk of claims
    on older loans with below-market interest rates. Lower mortgage
    interest rates have the reverse effect and tend to accelerate
    refinancing of earlier originations while increasing insurance claims.
    Faster average house price growth facilitates the accumulation of home
    equity, which tends to reduce the likelihood of a claim. It also
    contributes to greater mobility and household asset portfolio
    rebalancing, leading to greater turnover of housing and refinancing,
    thereby increasing prepayment rates. Faster income growth reduces the
    relative burden of mortgage payments on household cash flows over time,
    reducing the risk of claims as mortgages mature.
        FHA's actuaries projected that under 5 economic scenarios
    (baseline, low house price appreciation, high interest rates, high
    unemployment/low personal income, and using 2001 selected loss rates)
    the Fund will exceed the capital ratio target of 2 percent.

                              ASSET CONTROL AREAS

        Question. Under the Fiscal Year 2002 Supplemental Appropriations
    Act, HUD was required to enter into new contracts and agreements under
    the Asset Control Area Demonstration program no later than September
    15, 2002. This is an important program designed to promote
    homeownership in distressed communities. What is the current status of
    this program?
        Answer. On September 15, 2002, via written correspondence, HUD
    informed former Asset Control Area (ACA) program participants of the
    terms of the revised ACA program. At that time, former participants
    also received a chart comparing the Congressionally mandated Program
    (i.e., Program A which tracks to Section 602) to Program B which tracks
    to requirements delineated in Section 204(g). They were asked to submit
    an application for the previous demonstration program, Program A, or
    Program B, the revised ACA Program. Although HUD is fully prepared to
    implement both programs, the feedback received from most of our former
    participants indicated that Program B was the preferred program;
    however, several former participants requested further policy changes
    to make this program more effective.
        From the end of October 2002 to December 2002, HUD held numerous
    conference calls and meetings with former program participants to
    discuss their additional recommended changes for the ACA Program. We
    were asked to consider revising: (1) our demolition policy; (2) the way
    we administered the Officer and Teacher Next Door Program in
    conjunction with the ACAs; (3) the resale price/the percentage of
    allowable net development costs; (4) the Census data used to determine
    revitalization areas (i.e., use 2000 data); and (5) our definition of
    eligible buyers for the purpose of disposing of multi-use and mixed-use
    properties; and (6) the requirement for all properties to be sold to
    income eligible buyers (i.e., participants wanted to be allowed to
    administer a lease purchase program).
        During this period, HUD continued to maintain a good rapport with
    former participants, and offered assistance with our newly expanded ACA
    application process. Likewise, potential new program participants were
    given information about the new ACA Program and encouraged to apply. As
    a result, HUD received seven applications from new and former ACA
    program participants. While the HOCs reviewed these applications and
    worked with participants to obtain missing documents needed to complete
    the application process, the headquarters' ACA team developed
    operational procedures to accommodate the suggested policy changes.
        In February 2003, former and potential program participants
    received a letter indicating the final terms of the new ACA Program
    with the changes highlighted. HUD offered broader latitude in each of
    the six areas identified above. Currently, HUD is reviewing all six
    applications and requesting additional documents as required.
    Concurrently, HUD is requesting that specific areas be identified for
    the proposed ACAs. Contract language is being modified to incorporate
    recently agreed to changes. Other concurrent actions include final
    internal review of draft regulations, completion of an OMB-required
    Front End Risk Assessment, and updates to HUD's internal standard
    operating procedures.

          FHA MULTIFAMILY AND SINGLE FAMILY CONTRACTOR ACCOUNTABILITY

        Question. GAO has indicated that HUD has poor control over its FHA
    multifamily and single family contractor payment accountability. Please
    provide an assessment of FHA versus private sector costs associated
    with single family and multifamily asset control. In other words, what
    is the per unit cost in the private sector versus FHA of foreclosed
    housing, both single family and multifamily? Please identify the
    individual costs associated with all units in the FHA foreclosed
    multifamily housing inventory. What steps has HUD taken to reduce costs
    in the last 2 years? What savings have been achieved?
        Answer. Multifamily.--The Secretary is required by statute to
    manage and dispose of HUD-held mortgages or HUD-owned multifamily
    properties in a manner, that among other goals, preserves certain
    housing so that it can remain available to and affordable by low-income
    persons; preserves and revitalizes residential neighborhoods, maintains
    existing stock in decent, safe and sanitary condition; minimizes the
    involuntary displacement of tenants, and minimizes the need to demolish
    multifamily housing.
        Because of these statutory objectives to maintain and preserve low-
    income housing resources, the Department's multifamily disposition
    program is significantly dissimilar to private sector objectives at the
    time of default or foreclosure of private sector rental housing.
    Because of the statutory mandates, the Department undertakes repairs to
    preserve occupied mortgagee-in-possession or HUD-owned multifamily
    properties. Further, it requires purchasers of many properties, either
    at foreclosure or HUD-owned sales, to repair and maintain properties as
    affordable rental housing resources via recorded deed restrictions. All
    of these actions have a significant impact on the value of these
    properties at foreclosure or HUD-owned sales and consequently the
    ultimate return to the Department of the defaulted amount of the FHA
    insured mortgage or HUD debt.
        The preservation and maintenance of these properties is
    accomplished through the use of area-wide property management service
    contracts. These contracts are procured on a national, competitive
    basis. Contracts are awarded on the basis of experience and competency
    to perform the required management tasks and reasonable price.
        The Department's oversight of managed contracts is conducted in
    several ways. Upon the Department's operational takeover of a property,
    the property is assigned to a property management contractor. The
    property manager performs a repair needs assessment and develops an
    operational budget for the property. One of the Department's two
    multifamily property disposition centers performs an analysis of the
    repair assessment and the operational budget and approves, modifies or
    rejects the proposals, as appropriate. Thereafter, the management and
    operation of the property is dictated by the approved repair plan and
    the operating budget for the property.
        At the property level, the property manager is required to obtain
    competitive quotes or bids, as required, to engage in any contracting
    for services or repairs. Accurate and complete records for all
    contracting services are required to be maintained by the property
    managers. All activities must be within the approved budget for the
    property. Finally, the Department's property disposition centers have
    an oversight contractor whose services include the comprehensive and
    detailed review and oversight of the property managers' maintenance and
    management of the properties. The oversight contractor performs on-site
    reviews of operational activities/expenditures performed by the
    property managers against file records and site inspections of actual
    work performed.
        The Department has taken a very aggressive position on expediting
    the processing of foreclosure and HUD-owned property sales. By reducing
    the time in the foreclosure process, where most properties are not
    making mortgage payments, the Department is able to obtain whatever
    value remains on the property at the foreclosure sale and eliminate
    additional expenditures if the Department is mortgagee-in-possession.
    Similarly, expediting the sale of HUD-owned properties, the Department
    is able to curtail at an early date funds that may have to be expended
    on the property above rental income. This management strategy for the
    foreclosure/HUD-owned inventory has reduced the HUD-owned inventory
    from approximately 60 properties to 26 properties over the last 2
    fiscal years.
        The Department does not track private sector foreclosure or lender
    owned inventory sales. Because there was no Departmental involvement in
    those transactions, we would have no authority to obtain any of that
    information. Further, because the Department's foreclosure and HUD-
    owned inventory sales are required to meet numerous statutory goals and
    objectives versus private sector unrestricted transactions, the
    comparison would be difficult, if not impossible to assess two
    dissimilar transactions.
        Single Family.--HUD has been able to increase the net return that
    we realize on the sale of HUD properties over the past 3 years. In
    fiscal year 2000, single family property sales numbered 80,628 at a
    total value of $4.343 billion (average sales price of $53,865)
    representing a recovery rate of 62.9 percent. In fiscal year 2001,
    single family property sales numbered 63,581 at a total value of $3.708
    billion (average sales price of $58,319) representing a recovery rate
    of 66.8 percent. In fiscal year 2002, single family property sales
    numbered 59,736 at a total value of $3.801 billion (average sales price
    of $63,630) representing a recovery rate of 71.2 percent.
        There is no publicly available source of information on asset
    disposition costs of private sector institutions, such as Fannie Mae
    and Freddie Mac. Moreover, even if daily holding costs were made public
    for these institutions, it would be difficult to compare them to FHA
    holding costs without knowing exactly what cost items were included. In
    other words, there is no single agreed-upon definition of holding costs
    in this context.
        The Department has done a number of things to be proactive in its
    sales program. First, HUD has been offering sales incentives to
    encourage owner-occupant purchasers to buy its properties. HUD and its
    Management and Marketing Contractors perform outreach to communities to
    encourage their participation in our sales program.
        HUD has established performance standards and developed tighter
    management controls for its management and marketing contractors to
    ensure that compliance with contract requirements are adhered to.
    Property conditions have improved since implementation of these
    standards.
        Question. Please identify over the last 5 years, the number of
    foreclosed FHA multifamily housing units and the loss per year per
    unit. Please identify over the last 5 years, the number of foreclosed
    FHA single-family housing units and the loss per year per unit per
    State. Please identify over the last 5 years, the number of foreclosed
    FHA multifamily housing units and the loss per year per unit.
        Answer. The Department has provided the chart below that indicates
    by calendar year, the net loss based on number of foreclosed units
    where HUD has become the property owner.

    ----------------------------------------------------------------------------------------------------------------
                                                               Net profit or
                                                                   (loss)                           Income or (loss)
                         Calendar year                        acquisition plus        Units             per unit
                                                               holding costs
    ----------------------------------------------------------------------------------------------------------------
    1998...................................................     ($208,484,235)              5,693          ($36,621)
    1999...................................................       (93,221,230)              3,833           (24,321)
    2000...................................................      (102,336,898)              3,166           (32,324)
    2001...................................................      (148,544,223)              4,418           (33,623)
    2002...................................................      (135,544,682)              2,621           (51,715)
    2003 Year to Date 5/1/2003.............................      (165,551,410)              1,571          (105,380)
    ----------------------------------------------------------------------------------------------------------------

        The Department has provided the chart below that indicates the
    number of foreclosed FHA Single-Family housing units, the average loss
    per year, per unit and per State.

    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   1998                            1999                            2000                            2001                            2002
                  State              ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Units acquired  Avg. loss/unit  Units acquired  Avg. loss/unit  Units acquired  Avg. loss/unit  Units acquired  Avg. loss/unit  Units acquired  Avg. loss/unit
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    AK..............................              79         $26,506              79         $32,059              82         $38,493              72         $33,443              76         $39,231
    AL..............................             723         $15,106             802         $17,955             890         $20,968           1,072         $22,059           1,441         $24,196
    AR..............................             745         $18,793             757         $19,622             780         $20,946             836         $21,303             858         $21,969
    AZ..............................           1,311         $11,529           1,192         $15,179             953         $17,150           1,008         $13,737           1,481         $16,831
    CA..............................          22,666         $42,741          19,002         $38,687          14,398         $33,215           9,210         $24,645           6,243         $18,683
    CO..............................             418         $14,210             526         $15,098             423         $21,381             393         $21,763             696         $27,693
    CT..............................           1,101         $66,540             971         $56,236             811         $49,870             630         $43,929             552         $33,893
    DC..............................             289         $54,354             292         $54,365             265         $62,230             204         $60,564             149         $38,596
    DE..............................             104         $36,380             134         $35,813             138         $37,108             145         $31,193             131         $25,102
    FL..............................           7,366         $23,200           7,119         $24,231           6,671         $22,983           5,564         $18,588           5,504         $16,958
    GA..............................           2,360         $16,720           2,038         $18,333           1,878         $18,230           1,971         $18,101           2,748         $21,213
    GU..............................               0         ( \1\ )               2         ( \1\ )               0         ( \1\ )               5         $77,786               7         $81,262
    HI..............................             194         $84,520             295         $92,765             466         $91,216             363         $81,530             247         $64,306
    IA..............................             129         $14,785             113         $13,162             139         $19,907             163         $21,231             292         $23,774
    ID..............................             249         $22,456             309         $25,340             358         $25,873             381         $25,265             532         $26,835
    IL..............................           2,852         $42,198           2,978         $39,844           2,952         $39,612           2,375         $35,842           3,047         $30,595
    IN..............................           1,027         $23,053           1,251         $23,864           1,377         $25,842           1,669         $29,106           2,453         $32,121
    KS..............................             441         $19,500             487         $19,598             431         $20,516             378         $20,533             621         $21,327
    KY..............................             168         $19,739             241         $19,974             270         $22,861             316         $22,571             459         $27,077
    LA..............................             842         $20,118             835         $20,889             824         $21,024           1,054         $20,842           1,228         $23,280
    MA..............................             422         $56,825             426         $44,347             295         $41,358             191         $34,367             176         $24,620
    MD..............................           3,143         $41,193           4,104         $44,518           3,775         $49,429           3,452         $43,663           3,449         $33,650
    ME..............................             127         $47,637             125         $44,582             152         $43,105              94         $34,124             103         $31,210
    MI..............................           1,246         $16,113           1,067         $17,001           1,057         $19,269           1,215         $22,235           1,859         $26,593
    MN..............................           1,091         $17,585             759         $14,441             436         $12,417             292         $12,006             291         $16,040
    MO..............................           1,206         $22,170           1,281         $21,754           1,155         $21,027           1,084         $20,365           1,496         $22,989
    MS..............................             537         $15,281             557         $16,865             615         $18,082             669         $21,033             793         $20,740
    MT..............................             102         $17,966             143         $22,004             133         $25,359             132         $25,963             184         $26,462
    NC..............................             760         $16,345             737         $17,675             817         $18,458             882         $21,545           1,462         $25,575
    ND..............................              85         $22,443              95         $21,352              96         $22,158              88         $23,646             110         $25,275
    NE..............................             147         $13,187             152         $14,669             176         $18,043             190         $19,353             338         $21,644
    NH..............................              72         $37,819              78         $35,476              43         $29,850              22         $22,414              31         $19,272
    NJ..............................           1,721         $53,531           2,031         $52,850           2,301         $50,446           2,010         $43,931           1,871         $35,393
    NM..............................             206         $20,758             338         $25,517             419         $26,800             513         $28,110             622         $29,784
    NV..............................             859         $14,383           1,129         $20,249           1,126         $26,376           1,152         $25,020           1,440         $23,627
    NY..............................           3,207         $49,408           3,380         $52,135           3,967         $51,535           3,452         $47,229           3,520         $43,040
    OH..............................           1,571         $26,331           1,489         $28,046           1,661         $30,333           1,781         $32,275           2,312         $34,653
    OK..............................             825         $18,946             929         $15,857             863         $19,535             914         $18,842           1,083         $21,884
    OR..............................             102         $21,663             180         $19,409             249         $26,599             343         $27,874             555         $27,799
    PA..............................           2,026         $37,809           2,272         $38,554           2,435         $41,183           2,252         $40,126           2,643         $36,158
    PR..............................             103         $15,503              76         $15,532             152         $16,167             112         $12,689             159         $10,632
    RI..............................             235         $56,414             203         $44,728             202         $45,307             101         $33,135              72         $14,335
    SC..............................             553         $22,313             536         $20,958             564         $20,547             489         $20,700             583         $23,186
    SD..............................              84         $30,553              82         $26,116              86         $21,780              54         $26,628              59         $27,282
    TN..............................           1,504         $17,153           1,694         $17,693           1,620         $19,892           1,893         $20,685           2,562         $24,386
    TX..............................           5,261         $18,700           5,257         $17,565           4,714         $16,360           4,214         $16,921           5,675         $21,602
    UT..............................             192         $17,209             391         $24,689             530         $30,079             749         $29,030           1,365         $36,083
    VA..............................           3,377         $28,653           3,003         $28,846           2,670         $29,281           2,089         $22,937           1,738         $21,378
    VI..............................               0         ( \1\ )               5         ( \1\ )               8         $47,907               7         $64,722               4         $72,287
    VT..............................              32         $61,037              25         $50,990              29         $42,263              15         $39,634              16         $41,273
    WA..............................             596         $26,862             715         $24,015             790         $29,490             799         $27,887           1,356         $29,268
    WI..............................             189         $23,057             170         $24,562             242         $26,600             257         $24,182             289         $27,558
    WV..............................              77         $17,610              74         $20,245              63         $26,111              77         $25,655              89         $25,669
    WY..............................              88         $18,515             133         $20,098             126         $23,521             121         $20,924              96         $19,662
                                     ---------------------------------------------------------------------------------------------------------------------------------------------------------------
          TOTAL.....................          74,008         $32,166          73,059         $31,311          67,591         $31,380          59,514         $28,430          67,166         $26,151
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ No sales.

                                   ITAG/OTAG

        Question. The HUD IG was required to audit all recipients of
    technical assistance under the Mark-to-Market program and determine
    whether each recipient was in compliance with the required uses of such
    assistance. Under Section 1303 of the fiscal year 2002 Defense
    Appropriations Act, HUD is prohibited from providing any additional HUD
    funding for 4 years to any recipient who misused such technical
    assistance. The HUD IG has identified some 10 instances of abuse. What
    steps has HUD taken in response to these determinations?
        Answer. The IG published its report on March 31, 2003, and the
    Department is in the process of implementing the required sanctions
    specified in Section 1303 of the Defense Appropriations Act of fiscal
    year 2002.

                       NEW YORK DISASTER ASSISTANCE FUNDS

        Question. NY/NYC was provided some $3.5 billion in CDBG Disaster
    Assistance funds for economic rebuilding efforts in response to the 9/
    11 terrorist attacks on New York City. The Empire State Development
    Corporation (ESDC) was charged with the administration of these funds.
    What steps has HUD taken to ensure these funds have been used in a
    manner consistent with the funding agreements?
        Answer. HUD is taking a number of steps to ensure that the
    Community Development Block Grant disaster funds for New York are used
    in a manner consistent with the funding agreement, appropriations
    statutes, and waivers and alternative requirements granted and
    established for the use of those funds.
        HUD program staff conducts management/compliance reviews of ESDC
    and Lower Manhattan Development Corporation (LMDC) approximately every
    6 months. Reviews of ESDC were conducted in May 2002 and January 2003,
    and a review of LMDC was conducted in October 2002; the next review of
    LMDC is planned for late April 2003. In addition, HUD program staff
    maintains almost daily contact with the grantees either on-site or via
    telephone and e-mail to provide oversight and technical guidance, and
    HUD monitors grantee expenditures through HUD's Line of Credit Control
    System. HUD reviews independent audits of the grantees, as well.
    Grantees submit quarterly progress reports to HUD via a web-based
    Disaster Recovery Grant Reporting system that are used in HUD's
    submission of quarterly reports to the Appropriations Committees.
        Also, HUD's Office of the Inspector General submits its reviews of
    those grants to the Congress in its semi-annual reports.

                              CDBG FORMULA FUNDING

        Question. I understand that HUD is looking to revise the CDBG
    funding formula to allocate more funds to poorer communities and those
    in distress. What sort of issues is the Department looking at while
    performing this analysis?
        Answer. The Department is committed to doing a CDBG formula study
    of the effects of adding all the 2000 Census data and considering
    options to change the formula factors to ensure that the formula
    continues to be highly targeted to need and community distress. The
    first phase will be done shortly, probably in spring of 2003. The
    second component, which is more complex, will be done in the fall. The
    second phase is more complex because HUD must develop a basis to
    explore how effectively the targeting is working for the vast majority
    of grantees. All aspects of the current formula will be considered,
    possible new factors and combination of factors as well as how the
    basic formula is constructed. In developing the CDBG dual formula and
    assessing the effect of the 1980 and 1990 Census on how the formula
    allocated funds, the Department has compared per capita allocations to
    CDBG jurisdictions relative to a broad-based measure of community need.
    This measure includes indicators of social, economic, and housing
    needs. The study currently underway will be similar to those done
    periodically since the mid-1970's. In addition, this year's study will
    consider the effect of the revisions to the definitions of metropolitan
    areas, since they affect CDBG eligibility and the distribution of
    funds.

                 RURAL HOUSING AND ECONOMIC DEVELOPMENT PROGRAM

        Question. The HUD Budget request again eliminates the Rural Housing
    and Economic Development program. This is a small $25 million program
    that makes a tremendous difference for small, rural communities. It has
    been estimated that over the last 2 fiscal years, some 4,000 jobs have
    been created and over 8,200 persons have been trained. In addition,
    over 2,200 housing units have been constructed with some 3,700 units
    rehabilitated. In the last year, 367 businesses have been created and
    1,400 existing businesses assisted. This is a good program that makes a
    difference with a small price tag and big results. Since this program
    works and HUD has expertise different from the RDA, why eliminate this
    program?
        Answer. There will be $100 million available in fiscal year 2004
    for the Rural Strategic Investment Grant Program in USDA pursuant to
    Section 6030 of the Farm Security and Rural Investment Act of 2002,
    Public Law 107-171. This new program will ``provide rural communities
    with flexible resources to develop comprehensive, collaborative and
    locally based strategic planning processes; and will implement
    innovative community and economic development strategies that optimize
    regional competitive advantages.'' These are activities that clearly
    mirror those in HUD's program. HUD's fiscal year 2004 Budget proposal
    to terminate the Rural Housing and Economic Development Program
    reflects the existence of duplicative HUD and U.S. Department of
    Agriculture (USDA) efforts and the fact that USDA has far greater
    resources in this area.
        In addition, USDA manages a portfolio of rural housing grant
    programs and economic development grant programs. USDA's current rural
    development portfolio vastly exceeds HUD's Rural Housing and Economic
    Development Program in terms of programs and services from budgets to
    staffing. The rural housing grant programs are the Rural Housing
    Assistance Program, the Rural Housing Voucher Program, and the Mutual
    and Self-Help Housing Program. The economic development grant programs
    are the Rural Development Enterprise Program and the Rural Business
    Opportunity Program.

                       SECTION 8 PROJECT-BASED ASSISTANCE

        Question. I remain concerned about the administration's
    longstanding commitment to Section 8 vouchers to the detriment of
    preserving Section 8 project-based housing especially in tight rental
    markets. Over the last 3 years, how many projects and units have opted
    out of the Section 8 project-based program with the tenants converting
    to Section 8 tenant-based assistance?
        Answer. During the past 3 fiscal years, Section 8 opt-outs are
    estimated at:

    ------------------------------------------------------------------------
                   Fiscal year                   Contracts         Units
    ------------------------------------------------------------------------
    2000....................................             254          10,256
    2001....................................             224           9,496
    2002 (prelim) \1\.......................             169           7,487
    ------------------------------------------------------------------------
    \1\ The Office of Housing is currently conducting its annual
      verification survey of potential opt outs. Results of the survey may
      vary from the estimated, fiscal year 2002 numbers shown above.

        Question. How many of these projects have been elderly projects or
    designated for persons with disabilities? How many projects and units
    have opted to stay in the program? How many of these projects have been
    elderly projects or designated for persons with disabilities? How many
    projects and units have opted to stay in the program?
        Answer. Within these totals, opt outs of projects targeted to the
    elderly or disabled were:

    ------------------------------------------------------------------------
                   Fiscal year                   Contracts         Units
    ------------------------------------------------------------------------
    2000....................................              30           1,519
    2001....................................              41           1,201
    2002 (prelim) \1\.......................              20             876
    ------------------------------------------------------------------------
    \1\ The Office of Housing is currently conducting its annual
      verification survey of potential opt-outs. Results of the survey will
      be available in late spring, and may vary from the preliminary figures
      shown above.

        During fiscal years 2000-2002, 10,742 contracts (782,427 units)
    were processed for renewal and are still active. This includes 4,347
    contracts and 318,804 units targeted for the elderly or disabled.

                              HOMELESS ASSISTANCE

        Question. HUD Budget Request indicates that HUD will be submitting
    a legislative proposal to block grant or consolidate the McKinney-Vento
    homeless assistance grant program. I support this approach assuming
    there is adequate oversight and accountability. Nevertheless, since the
    current programs work much like a block grant, what significant changes
    will the Department be proposing?
        Answer. Our current homeless programs are all competitive, with the
    exception of the Emergency Shelter Grant (ESG) program. The proposed
    consolidation of the competitive programs is intended to make the funds
    more flexible and get the available funds to the communities that need
    them more efficiently. The new program will serve all homeless
    population, not just particular ones. The program will have a single
    menu of eligible activities not different menus of activities for
    different projects. The new program will emphasize and provide more
    permanent housing and will allow new emphasis on homelessness
    prevention efforts.
        Question. When can we expect this proposed legislation for our
    consideration?
        Answer. The Department is currently developing legislation which
    will be submitted to Congress in the coming weeks.

                                 MARK-TO-MARKET

        Question. The Section 8 Mark-to-Market program was enacted to
    provide a mechanism to reduce the cost of oversubsidized, expiring
    Section 8 contracts to market rents while preserving this housing as
    affordable, low-income housing. How much Section 8 funding has actually
    been saved since the beginning of the program?
        Answer. Section 8 savings from the beginning of the program to
    March 1, 2003 are approximately $180 million. The Present Value of the
    future stream of savings from M2M restructures already completed is
    $1.4 billion.
        Question. How many projects have been preserved with Section 8
    project-based contracts?
        Answer. As of March 1, 2003, 1,579 properties with a total of
    131,551 units have been preserved through the Mark-to-Market program.
        Question. How many projects have been removed from the Section 8
    inventory by owners who opted out of their Section 8 project-based
    contracts?
        Answer. Since fiscal year 1999, 74 properties, with a total of
    4,157 units in the Mark-to-Market program, have opted-out of Section 8
    project-based contracts.

                      NATIVE AMERICAN HOUSING BLOCK GRANTS

        Question. The Native American Housing Block Grant fund has been
    largely flat funded at some $650 million since its inception. How many
    low-income units have been preserved with these funds? How many new
    units are created each year with these funds?
        Answer. The Native American Housing Assistance and Self-
    Determination Act of 1996, as amended (NAHASDA), provides funds through
    the Native American Housing Block Grant (NAHBG) Program to Indian
    tribes or their tribally designated housing entities (collectively
    ``grant recipients''). Grant recipients assist eligible low-income
    Native American families through NAHASDA's six affordable housing
    activities. Beginning in fiscal year 1998, the first year that funds
    were appropriated under the IHBG Program, through fiscal year 2001, the
    4 years for which data is available, grant recipients have provided
    assistance designed to preserve the viability of, on average, 53,463
    units each fiscal year. This information differs from the information
    previously reported due to the collection of more accurate data
    obtained from the Annual Performance Reports (APR) submitted by grant
    recipients.
        The unit count includes moderate or substantial rehabilitation, and
    modernization and operating assistance related to units currently in
    management. It does not include other eligible affordable housing
    activities under the NAHBG, such as down payment and buy down
    assistance, minor rehabilitation of under $5,000, housing services,
    housing management services, crime prevention and safety, and model
    activities. The total does include Section 8-type programs operated by
    a grant recipient.
        Using the 4 years of NAHBG funding data available, on average,
    2,536 units have been created each year. Fiscal year 2002 figures are
    incomplete as of this date because grant recipients' fiscal years vary
    from tribe to tribe, and APRs are not required to be submitted until 90
    days after the end of a grant recipient's fiscal year. The Department
    will submit information on the first two quarters when it becomes
    available.
        Under the NAHBG Program, grant recipients are involved in a much
    wider variety of programs and projects, often using innovative,
    leveraged and mixed financing. Unit totals are not currently available
    to track these initiatives and projects.

                      PUERTO RICO PUBLIC HOUSING AUTHORITY

        Question. What is the current status of the Puerto Rico Housing
    Authority (PRPHA)? This has been the most troubled PHA in the country
    over the last decade. I know there has been a lot of progress made.
    What is the status now?
        Answer. The PRPHA has been making steady progress during the past 2
    years in procurement and other areas. Examples of the progressive
    initiatives that PRPHA has taken are as follows:
      --The PRPHA received a clean audit for the first time for fiscal year
            ending June 30, 2002.
      --The procurement review of December 2002 showed significant
            improvement and no major procurement deficiencies.
      --Management decisions to comply with OIG recommendations in Report
            00-AT-201-1801 are closed.
      --Management decisions to comply with recommendations in OIG Report
            00-AT-201-1003 are closed with the exception of those coded J
            and recommendations 1A and 1B. For these, the termination date
            was extended to August 2003.
      --The PRPHA began implementation of a 2-year pilot project to
            transfer management of public housing projects to four
            municipalities. This new initiative is in partnership with
            municipalities to determine new alternatives for management of
            public housing. All partners signed a Memorandum of
            Understanding on February 28, 2003. Four contracts have been
            signed with the Municipalities of Caguas, Carolina, Manati, and
            Guaynabo.
      --In July, HUD will be providing on-site training and program reviews
            to these four municipalities. The PRPHA completed the
            negotiations with Management Agents by the first week of May as
            scheduled. Report on negotiations and recommendations on
            contracts with Management Agents should be reviewed by the Bid
            Board and the PRPHA Board of Directors in their meetings the
            end of June and beginning of July for appropriate action. To
            date, two contracts have been cancelled and management of those
            areas reorganized at substantial savings to PRPHA. Preliminary
            agreements have been reached with four other Management Agents
            for renegotiated contracts with lower management fees.
      --Executed an agreement to return to PRPHA control of the HOPE VI
            Program that was put under receivership by HUD on July 6, 2001.

                  FINANCIAL MANAGEMENT AND INFORMATION SYSTEMS

        Question. IT has been a priority for Congress to the extent that
    recent VA-HUD Appropriations bills have segregated IT funds to ensure
    the funds are not raided for other purposes. What is the status of
    HUD's IT systems and when will they be fully up and running and
    compatible?
        Answer. The administration requested and Congress has approved a
    change in the mechanism for funding the Working Capital Fund (WCF).
    This change was important for a number of reasons, including the need
    to begin funding the maintenance of existing systems and the
    development of new Department-wide systems from a central account
    rather than the previous process of taxing those program offices which
    had the authority to transfer funds to the WCF. A number of HUD
    programs could not legally transfer funds without specific authority in
    annual appropriations bills.
        The Appropriations of the central WCF activities then leaves
    program offices with the authority to transfer funds to the WCF only
    for the activities which directly benefit the program and especially
    the grantees. In doing this we have ensured that program funds are not
    raided to pay for Department-wide activities and that central
    activities and systems, such as the central accounting system HUDCAPS
    is adequately funded through the review and approval process in
    appropriations acts. Hence this segregation of IT funds between central
    activities and program specific activities, in the administration's
    view, will work to strengthen the distinct functionalities of each.
        The IT plan called for by Report language in the 2003
    Appropriations Act which was submitted to the House and Senate
    Appropriations staff on December 15, 2002 and again on March 19, 2003.
    Specifically cites the status of each IT project that is under
    development. A third submission which will include the information in
    the OMB 300 submissions and the full life cycle costs and timeframe for
    each major project (about 40) will be submitted to the Congress mid-
    June, 2003.
                                     ______

                   Question Submitted by Senator Conrad Burns

       ELIMINATION OF THE RURAL HOUSING AND ECONOMIC DEVELOPMENT PROGRAM

        Question. Does the Department of Agriculture Budget compensate for
    the elimination of the HUD Rural Housing and Economic Development
    Program? If so, why?
        Answer. There will be $100 million available in fiscal year 2004
    for the Rural Strategic Investment Grant Program in USDA pursuant to
    Section 6030 of the Farm Security and Rural Investment Act of 2002,
    Public Law 107-171. This new program will ``provide rural communities
    with flexible resources to develop comprehensive, collaborative and
    locally based strategic planning processes; and will implement
    innovative community and economic development strategies that optimize
    regional competitive advantages.'' These are activities that clearly
    mirror those in HUD's program. HUD's fiscal year 2004 Budget proposal
    to terminate the Rural Housing and Economic Development Program
    reflects the existence of duplicative HUD and U.S. Department of
    Agriculture (USDA) efforts and the fact that USDA has far greater
    resources in this area.
        In addition, USDA manages a portfolio of rural housing grant
    programs and economic development grant programs. USDA's current rural
    development portfolio vastly exceeds HUD's Rural Housing and Economic
    Development Program in terms of programs and services from budgets to
    staffing. The rural housing grant programs are the Rural Housing
    Assistance Program, the Rural Housing Voucher Program, and the Mutual
    and Self-Help Housing Program and the Rural Business Opportunity
    Program.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                              SAMARITAN INITIATIVE

        Question. Mr. Secretary, HUD's proposed fiscal year 2004 budget
    includes a $50 million request for the President's ``Samaritan
    Initiative'' to move toward ending chronic homelessness over the next
    decade. This proposal builds on efforts by this Subcommittee in recent
    years to push the Federal response on homelessness in this very
    direction--setting a minimum threshold within McKinney-Vento for
    permanent supportive housing, ensuring stable funding for Shelter Plus
    Care renewals and pushing greater Federal interagency collaboration for
    funding of services to chronically homeless individuals. Your budget
    proposal includes a reference to an unspecified commitment for $10
    million each in fiscal year 2004 from both HHS and the VA toward
    services funding as part of the Samaritan Initiative.
        Can you identify for the Subcommittee from where within the budgets
    of HHS and the VA these funds will be coming?
        Answer. HHS funds will come from both the Substance Abuse and
    Mental Health Services Administration (SAMHSA) for substance abuse
    treatment, mental health and related supportive services and from the
    Health Resources and Services Administration (HRSA) for primary health
    care services. VA funds will come from its Medical Care appropriation
    to enable local VA facilities to address the specific needs of
    chronically homeless veterans.
        Question. What role do you envision the Interagency Council on
    Homelessness playing in allocating these funds?
        Answer. The funds being requested for the Samaritan Housing
    Program, if approved, would be included in the applicable
    appropriations bills of HUD, HHS and VA and, therefore, would become
    the responsibility of these agencies to administer. However, there is
    no question that all three agencies would actively collaborate among
    themselves as well as consult with the Interagency Council on
    Homelessness to ensure that the program was established and operated in
    a coordinated and effective manner.

                      SECTION 811 HOUSING FOR THE DISABLED

        Question. Mr. Secretary, the administration is requesting $251
    million for the Section 811 program for people with disabilities for
    fiscal year 2004. This represents an $8 million reduction from fiscal
    year 2003 funding. However, according to estimates included in your own
    budget proposal, renewal of all expiring 811 ``mainstream'' tenant-
    based rent subsidies will cost $42 million in fiscal year 2004 ($10
    million more than in fiscal year 2003). In addition, renewal of
    expiring 811 project-based subsidies (known as PRACs) are estimated to
    cost $8 million ($2 million more than in fiscal year 2003). This
    appears to increase the proposed reduction to the 811 program to at
    least $18 million if measured in terms of production of new units for
    people with disabilities. Further, this renewal burden associated with
    the 811 program is expected to continue growing in the coming years,
    consuming an ever greater percentage of the program, severely
    undermining 811's role as a production program.
        The administration's budget contains an unspecified proposal to
    fold Section 811 into the Samaritan Chronic Homeless Initiative. This
    appears to be at odds with the targeting requirements for Section 811
    that have been established by Congress, i.e. to direct resources to
    non-elderly people with severe disabilities that need housing related
    supports to live in the community. While this can include people with
    disabilities experiencing chronic homelessness, it also includes
    individuals that are in transition from institutional settings (nursing
    homes, psychiatric hospitals) or adults living with aging parents that
    can no longer provide care at home.
        Does HUD have an estimate of the reduced number of new production
    units and new vouchers under the 811 that would result under the
    administration's budget?
        Answer. The estimates included in the Department's Budget reflects
    that the number of Section 811 units awarded in fiscal year 2004 would
    be 1,749. The number assumed to be awarded in fiscal year 2003 is
    1,804. That is about a 3 percent decrease in the number of units
    awarded with the same level of appropriations. However, these estimates
    do not include additional units that may be awarded using recaptures
    from prior years or from revised estimates of the amount of new
    appropriations needed for renewals. We have found that in many cases,
    higher than expected balances remain on contracts approaching
    expiration. These additional funds can be used to offset the impact of
    renewal costs.
        Question. Does HUD have a plan to deal with the rising burden
    associated with renewal of project-based and tenant-based subsidies
    under the 811 program?
        Answer. Within the amounts that are made available in future years,
    the Department is committed to maximizing the level of assistance
    available to eligible families. The Department has underway an
    aggressive and comprehensive effort to move greater numbers of projects
    to completion and occupancy as quickly as possible. This effort is also
    identifying amounts that can be recaptured from projects that cannot
    make reasonable progress so that these funds can be applied to
    additional awards. Over the next few years, these efforts should
    increase the pace by which additional units are brought into service.
    Ultimately, however, additional funding will be required each year to
    continue the current level of newly constructed units and, at the same
    time, renew expiring contracts.
        Question. What measures might be taken to account for this 811
    renewal burden as Congress has done for Shelter Plus Care?
        Answer. Renewal of expiring rental assistance contracts is an
    integral aspect of the Section 811 housing program as it is for the
    Shelter Plus Care program. In both cases, funding of renewals is
    priority within the amounts appropriated in the account.
        Question. Can you please describe for the Committee how HUD's
    proposal for integrating 811 into the Samaritan Initiative would impact
    current targeting requirements for 811?
        Answer. The Department has a pending budget request of $50 million
    for the Samaritan Housing Program in fiscal year 2004, in addition to
    the $251 million requested for the Section 811 program. For the fiscal
    year 2004 Section 811 grant awards, the Department is proposing a
    preference for applications that address those disabled fitting the
    profile of people at risk of homelessness. This effort to prevent
    homelessness is intended to complement the Samaritan program's focus on
    addressing the critical needs of those experiencing chronic
    homelessness. The details on how the new preference will be
    incorporated into existing Section 811 selection criteria will be
    developed in the next several months based on discussions with all
    interested parties.

                         METROPOLITAN STATISTICAL AREA

        Question. Mr. Secretary, although New Mexico is considered one of
    the Nation's poorest States, there is an odd problem in the Santa Fe
    and Los Alamos areas with regard to qualifying for HUD assistance. HUD
    currently combines these two New Mexico cities into one Metropolitan
    Statistical Area or MSA. Although at one time this practice was a
    benefit to both communities, it has now become a hindrance to their
    ability to receive HUD assistance in meeting actual local housing
    needs.
        As it is today, Los Alamos County median income is over twice as
    high as Santa Fe County, about $82,000 to $40,000. This disparity
    clearly has negative impacts in both counties for housing assistance
    when Fair Market Rents (FMR) are calculated and then averaged for this
    single MSA.
        By artificially raising median incomes in one county, Santa Fe, and
    lowering it in the other, Los Alamos, neither community has housing
    assistance targeted to their real incomes.
        One solution, as has been attempted in the State of New York, is to
    remove the distortion be separating the affected communities from their
    shared MSA. I am attempting to do just that through a piece of
    legislation introduced a few weeks ago.
        Do you believe that such a legislative fix would adequately solve
    this dilemma?
        Answer. Separating the counties of Los Alamos and Santa Fe from a
    shared MSA would reduce the distortions in income and rent calculations
    for HUD programs. Currently, Santa Fe County benefits from the higher
    income and higher rents of Los Alamos County. More people could be
    served in Santa Fe County with lower FMRs, and lower income limits will
    ensure that the needy receive housing services. However, in Los Alamos,
    the reverse will occur. A substantially higher FMR for Los Alamos will
    mean that there will be fewer people served.
        HUD follows the OMB definition of metropolitan areas. New OMB
    definitions will be released this summer, and the Department will bring
    the issue to their attention.

                      SECTION 811 HOUSING FOR THE DISABLED

        Question. Would separating Los Alamos and Santa Fe from a shared
    MSA remove the distortions and allow more people to receive the
    assistance they need?
        Answer. No. Breaking out the two areas would have no impact in the
    Section 811 distribution. Allocations are done by State or State
    portion within a field office jurisdiction; consistent with the
    requirements of 24 CFR 791 and the Section 202 and 811 program
    requirements. Second, the allocations for Section 811 are not done
    separately for metropolitan versus non-metropolitan areas. Third, and
    more importantly, given the level of funding in total, New Mexico's
    ``fair share'' in fiscal year 2002 would have been only 10 units (based
    on the minimum number of units set aside for each office). However,
    since the New Mexico Office is not a Multifamily Program Center, its
    development functions are under the jurisdiction of the Ft. Worth
    Office. Under the Ft. Worth Office's jurisdiction, the sponsors
    applying to develop Section 202 and Section 811 units in New Mexico had
    the ability to compete for 45 units of assistance in fiscal year 2002
    rather than the 10 units if New Mexico was advertised separately.

                                NAHASDA FUNDING

        Question. Mr. Secretary, I serve a State with over 20 Indian tribes
    including 19 pueblos and the Navajo Nation. Many of their members live
    in substandard housing due to economic circumstances facing the tribes.
    Providing adequate housing for low-income individuals and families is
    one of the primary tenets of your Department. It is also one tool the
    Federal Government has for meeting the spirit of its trust
    responsibility for the tribes.
        One powerful tool in our belts is the Native American Housing
    Assistance and Self-Determination Act of 1996, otherwise referred to as
    NAHASDA. NAHASDA has been a great boon to the Indian people through its
    consolidation of prior housing programs and allocation of block grants
    to the tribes.
        That tool, however, seems dulled of late. While the program has led
    to heartening developments in Indian country, many still wait for
    adequate housing. It is estimated that over 200,000 housing units are
    required to meet current needs. While funding for this program is
    high--at a requested $646.6 million--it has not increased in many
    years. Inflation and population growth have eaten away at the real
    value of this money. Perhaps in this round of appropriations we can do
    something about that.
        First, is it fair to say that the real money value of the NAHASDA
    funds has decreased due to its stagnation and the pressures of
    inflation and population growth?
        Answer. Yes, it would be fair to say this.
        Question. In order to combat this situation, would appropriating
    $700 million for fiscal year 2004 begin to address some of the
    desperate housing needs in Indian Country?
        Answer. The NAHASDA program has made significant improvements in
    its program delivery and tracking of accomplishments. Grant recipients
    assist eligible low-income Native American families residing on Indian
    reservations, in the Pueblos, in Alaska Native Villages, and in other
    traditional Indian areas. Using NAHASDA's six affordable housing
    activities, Indian tribes and their tribally designated housing
    entities (TDHE) create housing opportunities for eligible low-income
    Native American families.
        Beginning in fiscal year 1998, the first year that funds were
    appropriated under the NAHBG Program, through fiscal year 2001, the 4
    years for which data is available, grant recipients have provided
    assistance designed to preserve the viability of, on average, 53,463
    units each fiscal year. The unit count includes moderate or substantial
    rehabilitation, and modernization and operating assistance related to
    units currently in management.
        Using the 4 years of NAHBG funding data available, on average,
    2,536 units have been created each year. Under the NAHBG Program, grant
    recipients are involved in a much wider variety of programs and
    projects, often using innovative, leveraged and mixed financing. These
    activities stretch NAHBG dollars and result in increased housing
    assistance for Native American families.
        The 2004 Budget request provides sufficient funding to implement
    the administration's goals to address the housing needs in Indian
    country.
                                     ______

                   Questions Submitted by Senator Mike DeWine

                    OUTREACH AND TECHNICAL ASSISTANCE GRANTS

        Question. Mr. Secretary, I am very thankful for all the great work
    that your organization has done. As I am sure you are aware, the
    Outreach and Technical Assistance Grants (OTAG) have played a valuable
    role in permitting housing organizations to hold many community
    outreach events including regional and State-wide meetings of housing
    organizations, HUD, local officials and non-profit developers to stay
    informed about HUD program and coordinate their efforts to preserve and
    improve housing in their local communities.
        I understand that several organizations have not passed their
    audits of this program and that this is not uncommon. As a result of
    these findings, HUD has suspended the work of these organizations and
    is delaying issuing a Notice of Fund Availability on the basis that the
    audit findings are not resolved.
        I am concerned that HUD's delay in resolving these audits is
    jeopardizing the future of this valuable program. What are your
    intentions for the program and how do you plan to deal with this
    situation?
        Answer. The consolidated audit report was published on March 31,
    2003, and the Department is currently implementing the management
    decisions associated with these findings.
        Regarding the future funding of Section 514 Grants, the Department
    has committed to perform a Comprehensive Management Review of the
    administration of the Section 514 Grant process, including the
    deficiencies identified by the Inspector General in the recent audit
    reports. After this review is completed and appropriate program
    safeguards are incorporated into the program, the Department will be in
    a position to consider new opportunities for funding under Section 514.

                                 GSE OVERSIGHT

        Question. Mr. Secretary, Congress passed legislation in 1992
    requiring that HUD review all new programs that Fannie Mae and Freddie
    Mac are considering before they enter into those programs. In the past
    decade, that law has been all but ignored. I know you are committed to
    full implementation of laws duly passed. What are you doing to ensure
    that a pre-clearance mechanism is established?
        Answer. The Federal Housing Enterprises Financial Safety and
    Soundness Act of 1992 (FHEFSSA) mandated that the Department review the
    GSEs' activities for approval in all instances that meet the statutory
    definition of a new program. As I stated during the recent budget
    hearing, I take this responsibility seriously. It is my belief that the
    Department must provide the level of new program oversight envisioned
    by Congress when it enacted FHEFSSA in order to ensure that new
    programs initiated by the GSEs are consistent with their charters and
    public mission. To achieve this objective, I have directed my staff to
    thoroughly review the Department's current regulatory procedures in an
    effort to promote more efficient and effective regulation.
                                     ______

               Questions Submitted by Senator Barbara A. Mikulski

                     NEW LEAD-BASED PAINT ABATEMENT PROGRAM

        Question. In the Public Law 108-7, the Committee created a new lead
    based paint abatement program and appropriated $50 million for the
    program. Please provide the following information in regards to this
    program:
        How is the Department collecting the data required to determine
    which areas meet the criteria for ``highest lead based paint abatement
    needs'' as set forth in the Public Law 108-7?
        Answer. The Department is requiring that all applicants for these
    grants report to HUD the total number of documented cases of lead-
    poisoned children from the most recent calendar year for which data are
    available and the number of pre-1940 rental units within the relevant
    jurisdiction. HUD will be working with the CDC and Prevention to
    conduct quality control on the data submitted by applicants on lead
    poisoned children. The Department will also compare reported numbers of
    units to 2000 Census data for quality control. HUD will publish these
    data in its progress report to the Committee on March 1, 2004 or
    earlier, as required. In addition, HUD will publish in the Notice of
    Funding Availability data from the U.S. Census showing the 100 areas
    with the highest number of pre-1940 rental units.
        Question. How many jurisdictions qualify for grants under this
    program?
        Answer. Approximately 100 areas are eligible for grants. These
    areas are identified in an Appendix to the NOFA.
        Question. When will the Department issue a NOFA for this program?
    When does the Department expect to make awards?
        Answer. The NOFA will be published in May 2003. The Department
    expects to make awards no later than September 2003.
        Question. How will the Department monitor the outputs and outcomes
    of grant awards?
        Answer. The Department will track both expenditures and number of
    units made lead safe through its web-based data system, which helps the
    Department ensure compliance with the terms and conditions of the grant
    agreement. In 2004, HUD will also be conducting another national survey
    of the prevalence of lead-based paint in U.S. housing to measure the
    impact of this program and other lead hazard control efforts in
    reducing the number of units with lead-based paint hazards. Previous
    HUD studies showed that the number of housing units with lead-based
    paint declined from 64 million in 1990 to 38 million in 2000 (See
    Jacobs et al., ``The Prevalence of Lead-Based Paint Hazards in U.S.
    Housing,'' Environ Health Perspect 110:A599-606, October 2002). In
    addition, HUD will be working with the CDC to quantify the decline in
    the number of lead poisoned children through the National Health and
    Nutrition Examination Survey, which showed that the number of lead
    poisoned children declined from 890,000 in the mid-1990's to 434,000 in
    1999-2000.
              housing opportunities for persons with aids (hopwa)
        Question. Of the $290,000,000 appropriated to the HOPWA program,
    how many of the funds are expected to renew existing grants? How many
    grants does this represent?
        Answer. HOPWA competitive programs constitute 10 percent of program
    funds. In fiscal year 2003, HUD has available $28.811 million to award
    for HOPWA projects to be selected under the criteria published in the
    Department's SuperNOFA. As required by the Appropriation Act, HUD will
    give priority to the selection of competitive grants that provide
    permanent supportive housing and meet all program requirements.
    Selections will be made later this year after the receipt of
    applications and completion of the Department's review of these
    applications. It cannot be determined which winning applications will
    renew existing grants until the competitive process is completed.
        HOPWA competitive grants are funded for up to a 3-year operating
    periods. As such, many projects operate for their intended 3-year use
    period and are likely to seek additional funding to continue program
    operations. Beginning in fiscal year 2001, the Appropriation Act
    required that HUD give priority to the renewal of existing projects
    that meet program requirements. In fiscal year 2002, the renewal
    requirement specified that projects that provided permanent supportive
    housing receive priority in the selection process. In those
    competitions, HUD established the review criteria in the Department's
    SuperNOFA process. At the completion of these prior competitions, most
    of the available funding was awarded to renew existing projects, for 22
    of 25 projects selected in 2001, and for 14 of 28 projects selected in
    2002. In 2001, 3 new projects were selected and in 2002, 11 new
    projects were selected for funding along with three transitional
    housing projects that receive funding to continue those efforts.
        There are nine grantees operating under fiscal year 1999 awards and
    21 grantees operating under fiscal year 2000 awards, which would
    constitute the likely groups of applicants for renewal requests. Based
    on prior experience, HUD does not expect that all of these projects
    will seek renewal funding in this period or qualify for selection under
    the published criteria as projects that provide permanent supportive
    housing, since some involve transitional housing activities.

                             HOPWA RENEWED GRANTEES

        Question. Please provide a list of these grantees, and a brief
    explanation of what each grant is being used for.
        Answer. The list of these grantees with brief descriptions of their
    existing grant is listed below:
    Housing Opportunities for Persons with HIV/AIDS (HOPWA)
    1999 Competitive Grants--9 Grants Not Yet Renewed

                California
        City of San Jose, Department of Housing.--$1,346,000, ``Shared
    Housing Assistance Placement and Supportive Services'' (SHAPSS) in
    collaboration with the AIDS Resources Information & Services of Santa
    Clara County and Health. Services include: transitional housing,
    roommate referral service, tenant based rental subsidies and supportive
    services, serving 80 clients and 15 families.

                Colorado
        Del Norte Neighborhood Development Corporation.--$959,330, to
    rehabilitate a 15-bed single-room occupancy (SRO) facility in Denver.
    Project serves very-low income homeless persons living with AIDS,
    dually or triply diagnosed with substance abuse and/or mental illness
    issues. Services are individually tailored including group and
    individual counseling, transportation assistance, food bank access, HIV
    education, daily meals, and self-sufficiency training, which are
    coordinated with the Colorado AIDS Project.

                Delaware
        Delaware HIV Consortium.--$934,487, for the acquisition,
    rehabilitation and operation of a housing facility in collaboration
    with the Connections Community Support Programs, Inc., to develop and
    operate ten units of permanent housing with intensive supportive
    services with a primary focus on the needs of women with co-occurring
    substance use and/or mental health disorders.

                District of Columbia
        Safe Haven Outreach Ministries.--$1,286,000, to support 46 units of
    transitional housing for dually and multiply diagnosed homeless adults.
    This program will convert a public housing building, into one- and two-
    bedroom units. On-site substance abuse counseling, basic medical care,
    mental health treatment, case management, assistance with daily living
    and job readiness training which will stabilize 256 homeless
    individuals with permanent housing, while clients with former criminal
    justice issues will receive assists in reentry supports.

                Idaho
        Idaho Housing and Finance Association.--$1,299,837 for rental
    assistance, will provide low-income persons with long-term rental
    assistance in 45 units of short-term rental and utility assistance,
    case management, dental and psychiatric services. The project will
    expand the existing supportive service delivery system, assisting 384
    persons living with AIDS and their families throughout the State of
    Idaho.

                Massachusetts
        Community Healthlink, Inc.--$1,236,000, to establish and operate an
    eight-unit residence for pregnant homeless women also challenged with
    substance abuse issues. Services and support will focus on preventing
    neonatal transmission of HIV and provide prenatal care otherwise not
    accessible for homeless women. This project will serve an estimated 48
    persons with current needs due to homelessness, pregnancy and substance
    abuse and enable them to transition to more stable and independent
    living.
        Justice Resource Institute (JRI).--$1,256,815, for tenant-based
    rental assistance program, with scattered-site rental subsidies to
    access housing for low-income and homeless individuals and families
    with HIV/AIDS. The program will assist 95 persons and their families.

                New Hampshire
        State of New Hampshire, Department of Health and Human Services,
    Office of Community Support and Long Term Care.--$520,448 in
    conjunction with three service organizations will provide housing and
    services to 90 persons and 35 families, and an additional 75 persons
    will only receive supportive services.

                Pennsylvania
        Asociacion de Puertorriquenos en Marcha, Inc.--$1,193,511, to
    continue La CASA (Community AIDS Services Advancement), a program of
    rental assistance, counseling and other services for clients in the
    Latino neighborhood of north Philadelphia, serving persons with HIV/
    AIDS and their families through 20 units of tenant based rental
    assistance, security deposits, housing counseling, case management,
    medical monitoring, emergency child care, and transportation within a
    bilingual/bicultural setting.

    Remaining 2000 Competitive Awards by State

                Alaska
        Alaska Housing Finance Corporation.--$572,600, to provide housing
    and comprehensive support services to 100 households, such as case
    management, employment services, treatment and transportation,
    especially in addressing needs to access health care in rural areas.
    State agencies and community-based organizations have committed over
    $2,000,000 in resources.

                California
        Salvation Army, Southern California Division.--$927,888 to support
    operating costs and supportive services at a 45-unit transitional and
    permanent housing program for families affected by HIV/AIDS. The
    project will adjust to changes in service needs and help maintain
    families as they transition to permanent housing.
        County of Sacramento, Department of Human Assistance.--$1,300,142
    for a collaborative of human service agencies from both the Homeless
    Continuum of Care and the HIV Services Continuum in Sacramento. This
    project will complete the continuum of care by addressing an
    underserved population of persons who are homeless and avoid
    traditional shelter programs. The City committed 120 tenant-based
    Section 8 permanent housing for clients who successfully complete the
    programs.
        San Francisco Redevelopment Agency.--$1,370,000 to improve the
    current housing conditions for underserved homeless persons living with
    HIV/AIDS in the City and County of San Francisco, by assisting persons
    with support in getting a job or returning to work. In addition, many
    clients may also need support to address homelessness, mental health
    and substance use issues, serving 125 households with access to 10
    units of service-enriched SRO housing units.

                Colorado
        Colorado Division of Housing.--$1,370,000 to provide rental
    assistance and short-term rent payments and related services in areas
    outside the Denver metropolitan area. Nonprofits will offer about 50
    units of tenant-based rental assistance and assist 487 households with
    short-term rent payments to prevent homelessness. An estimated 537
    individuals and their families will receive some form of housing
    assistance.

                Georgia
        City of Savannah, Bureau of Public Development.--$1,197,572 to
    expand on collaborations with Union Mission, Inc. and six other project
    sponsors with the Savannah-Chatham AIDS Continuum of Care in a one-stop
    service and medical center for persons living with HIV/AIDS that will
    streamline the intake process for housing services and expand substance
    abuse treatment to 20 persons receiving housing assistance.

                Hawaii
        Gregory House Programs.--$1,030,000 to continue the supportive
    housing programs and allow for a continuum of services for persons with
    multiple diagnoses who are living in the Honolulu metropolitan area.
    The project uses two housing components: 40 units of tenant-based
    rental assistance and operational costs for an 11-bed transitional
    housing facility.

                Illinois
        AIDS Foundation of Chicago.--$1,362,846 to direct assistance to
    underserved racial and ethnic minority communities that have been
    impacted by AIDS and poverty. The Renaissance Care Network assists an
    underserved population of African-Americans who reside in the greater
    Roseland area of Chicago. HOPWA funds will be used to lease 21
    scattered site apartments and an array of supportive services relating
    to HIV counseling, testing, outreach, parenting, child care, substance
    abuse and mental health.

                Kentucky
        Kentucky Housing Corporation.--$1,320,000 to support more than 490
    persons by establishing a substance abuse treatment network that covers
    all 120 Kentucky counties. The project is an expansion and renewal of
    the 1997 HOPWA grant in short-term housing assistance which will reach
    231 homeless or low-income persons with chemical dependencies in
    connection with substance abuse treatment services.

                Maine
        The AIDS Project (TAP).--$1,333,286 to continue a program and
    expand services to underserved persons in rural areas in the remaining
    areas of the State where no HOPWA funds have previously been available.
    Assistance creates a range of housing options, including 63 units of
    tenant-based rental assistance, 39 units of emergency shelter, 42 units
    of short-term rent, mortgage and utility assistance as well as 192
    security deposits to obtain housing.

                Maryland
        Health Care for Homeless (HCH), Inc.--$1,301,703 to assist an
    underserved population of medically fragile HIV/AIDS homeless persons
    in Baltimore with difficult challenges. The Project will connect
    housing support for 180 clients with a new level of intensive case
    management and comprehensive services to address the needs for the
    homeless or those at risk of homelessness and medically fragile.

                Massachusetts
        Cambridge Cares About AIDS (CCAA).--$1,326,917 to support the Bay
    State Supportive Housing Alliance program fill gaps in housing services
    through 24 units of transitional housing for 24 months to individuals
    and families living with HIV/AIDS across eastern Massachusetts. Eighty-
    two persons will be assisted with specialized substance abuse treatment
    efforts and related supportive services.

                Mississippi
        South Mississippi AIDS Task Force.--$935,500 to construct and
    operate Client House, an emergency shelter and transitional housing for
    low income and homeless people living with AIDS and their families. The
    facility will house 12 individuals and 2 families in Biloxi and will
    serve the southern six counties of the State. The project is being
    coordinated with the Mississippi Department of Health and 25
    organizations that provide related supportive services for clients.

                New York
        Church Avenue Merchants Block Association, Inc. (CAMBA).--
    $1,080,000 to renew the multiple diagnoses initiative program Housing
    Start. The project provides scattered site apartments in Brooklyn for
    40 low-income homeless persons living with HIV, who have mental illness
    or chemical addictions or both. The project will link HIV, substance
    abuse, mental health services, treatment education, health care,
    intensive independent living skills training and other supportive
    services with housing assistance to maximize independent living and
    self-determination.
        Housing Works, Inc.--$707,177 to address the needs of women who are
    exiting the criminal justice system, with 12 units of transitional
    housing and a range of supportive services to reinforce behavioral
    changes, that will reintegrate 75 women into the community pending
    release or recently released from incarceration. A minimum of 20 of
    these women will receive support such as security deposits and moving
    expenses into permanent housing, linked to a full range of medical,
    clinical, psycho-social, case management services.
        The Fortune Society.--$1,274,875 to develop Coming Home Program to
    meet the needs of underserved primarily African American and Latino
    homeless persons who are released from jails and prisons, with
    extensive substance abuse issues. The program will assist 125 clients
    with support in permanent housing, after emergency, transitional,
    supported permanent and independent permanent housing in addition to 12
    beds for emergency and transitional housing in West Harlem that will
    continue as a permanent resource for the target population.
        Center for Children and Families.--$1,278,906 to continue New York
    City's first system-wide housing assistance program for homeless HIV
    and multiple diagnosed minority youth from 18-24 years old in the Times
    Square area. An estimated 270 youth will be assisted with overnight
    shelter and other support. This program involves the operation of a
    number of specialized facilities, such as Safe Space, a 24-hour drop in
    center, and using two mobile units which canvass for homeless youth on
    the streets.

                Pennsylvania
        Family Health Council of Central PA, Inc.--$367,040 to establish a
    program that links health to housing for clients in a 14 county region
    of south and central Pennsylvania through eight area AIDS sponsors.
    These providers will deliver rental assistance support to an estimated
    150 clients, especially women in rural areas of the State.

                Texas
        Bexar County, Department of Housing and Human Services.--$1,320,000
    to target an underserved population of women with children. Twenty-
    eight families who are homeless or at risk of becoming homeless will be
    housed in an acquired and rehabilitated building that consists of eight
    units of transitional housing. Residents will receive treatment and
    family services intended to help stabilize women in housing, help
    address health concerns, and when able, move to permanent housing.

                Vermont
        Burlington Housing Authority.--$471,392 to continue a program of
    rental assistance and support services for residents of an 11-unit
    supportive housing. A wide range of supportive services is available to
    residents, with a combination of public and private funding.

                Wyoming
        Wyoming Department of Health.--$588,191 to expand services on a
    statewide basis through the use of a short-term rent payments program
    to respond to client requests. Funds will allow the State and its
    sponsors, the Wyoming AIDS Project and Casper Housing Authority to
    continue to meet supportive service needs and address short-term
    housing assistance of 175 low-income persons.

                    NATIONAL HOMELESS DATA ANALYSIS PROJECT

        Question. Please provide a status report on the national homeless
    data analysis project, including an accounting of how the $11,000,000
    will be spent, and estimated future costs of this project.
        Answer. Congress has directed HUD to improve the collection of data
    on the extent and nature of homelessness locally and nationally. HUD
    has set October 2004 as the goal for each Continuum of Care (CoC) to
    implement a Homeless Management Information System (HMIS). HUD is
    providing $4.1 million in technical assistance to CoCs to help ensure
    they are able to meet this goal. HUD is also undertaking a $3 million
    3-year effort to: (1) develop data and reporting standards; (2) develop
    an 80 jurisdiction national sample; and (3) collect and analyze
    homeless data from the sample and all CoC systems for an Annual
    Homeless Assessment Report (AHAR) to Congress. While implementing a
    HMIS is a complex, time-consuming, and costly process, CoCs have been
    making progress in meeting the 2004 goal. In spring 2002, 25 percent of
    the CoCs reported they had implemented or were upgrading or expanding
    their HMIS, 51 percent indicated they were selecting software and
    hardware, 22 percent were meeting and considering implementation, and 2
    percent had not started to consider a HMIS.
        Concerning the fiscal year 2003 funding targeted for additional
    HMIS technical assistance requirements: HUD is currently assessing the
    nature of community needs for HMIS technical assistance and will
    prepare a request for proposals in the near future.
        Currently HUD does not have a reliable estimate on the total costs
    for CoCs to implement and operate a HMIS. In 2001, 49 dedicated HMIS
    projects were funded, totaling $13 million and in 2002, 83 projects
    totaling $25 million were funded. Nearly all of these were 3-year
    grants. We expect a significant number of communities to apply for
    funds in the 2003 competition. In addition, CoCs are using a variety of
    public and private sources in addition to Supportive Housing Program to
    fund their HMIS. We will conduct further analysis of the HMIS costs
    after awarding the 2003 Continuum of Care competitive grants.

      FISCAL YEAR 2003 TECHNICAL ASSISTANCE FOR HOMELESS ASSISTANCE GRANT
                                    PROGRAM

        Question. Please detail how the Department will spend the
    $6,600,000 for technical assistance appropriated to the homeless
    assistance grants program.
        Answer. Of the $6.6 million appropriated for homeless technical
    assistance, $3.6 million is being made available through HUD's 2003
    SuperNOFA process for technical assistance on the national level. The
    remaining $3 million is being distributed to HUD's field offices for
    award at the local level to winning technical assistance providers.
        As announced in the fiscal year 2003 SuperNOFA, the $3.6 million
    national technical assistance funding is focused on the following 5
    types of activities: (1) facilitating the exchange of information
    between community organizations to assist them to develop and implement
    a community-wide discharge plan for individuals exiting publicly funded
    institutions; (2) improving the ability of eligible applicants to
    develop and operate permanent housing for chronically homeless persons;
    (3) developing materials on effective grant administration for grantees
    and sponsors; (4) improving the ability of eligible grantees and
    sponsors in reaching out to and enumerating chronically homeless
    persons; and (5) improving the ability of grantees and sponsors in
    coordinating services available through mainstream resources with
    current housing units available for homeless persons.

                          TECHNICAL ASSISTANCE IN CDBG

        Question. Why doesn't the Department request funds for the
    technical assistance (TA) in the CDBG account?
        Answer. While CDBG TA has not been funded since fiscal year 1999,
    the President's Budget requested $7.5 million in 2000, $15 million in
    2001, nothing in 2002, $3 million in 2003 and $3 million in 2004. HUD
    strongly believes that it needs TA to support the $4.4 billion CDBG
    program.
        Question. What need do CDBG grant recipients have for TA?
        Answer. CDBG grant recipients need TA for training in basic CDBG
    implementation as well as in specialized areas as local performance
    measurement. Instead of requiring individual grantees to develop ways
    to address an issue or a training program, HUD could be providing
    methods already proven to be successful. These funds would be provided
    through contracts or grants and would not be used to pay HUD staff
    travel or training.
        In fiscal year 2004, TA would address new homeownership assistance,
    affordable housing, timely expenditure of funds, particularly by
    States, training programs for grantees staff to ensure better
    understanding of accountability requirements, data enhancements, faith-
    based community groups, energy enhancement, and meeting lead-based
    paint safety requirements.
        In addition, some of these funds will be used to implement any
    revisions to the Consolidated Plan Improvement Initiative, as required
    by the President's Management Agenda, HUD's charge is to streamline the
    Consolidated Plan and make it more results-oriented and useful to
    communities in assessing their own progress in addressing the problems
    of low-income areas.
        Question. Has the Department received specific requests for CDBG
    technical assistance?
        Answer. Over the past 3 years, HUD has received a steady stream of
    requests from CDBG grantees for base level technical assistance (TA)
    because of considerable staff turnover at the local level as well as
    requests from stakeholders for TA to address such emerging issues as
    lead based paint hazards and housing and economic development issues
    within the colonias.

                             NEIGHBORHOOD NETWORKS

        Question. What is the status of the Neighborhood Networks program
    in public housing?
        Answer. In the 4 years since HUD introduced the Neighborhood
    Networks (NN) Centers program, the Centers' services and programs have
    expanded widely. Local partners, such as educational institutions and
    nonprofits offer tutoring, mentoring programs and other needed
    services. The program was developed to serve residents of public
    housing who often lack the skills necessary to become economically
    self-reliant. The Centers were designed to give these individuals an
    educational opportunity practically at their doorstep. Learning how to
    use a computer is the core of the Neighborhood Networks' philosophy
    because computers have become a gateway to knowledge and employment.
        The NN Centers are typically located on-site or near a Public
    Housing facility. The Centers are equipped with computers and Internet
    access. They help lower-income residents reach their goals and achieve
    economic self-sufficiency through access of education and job training;
    help children become better students; provide parents and adults access
    to job skills; and assist senior citizens to remain independent.
        Question. How many grants have been awarded? What is the average
    grant award amount?
        Answer. Fiscal year 2002 as well as fiscal year 2003 Appropriations
    Acts appropriated $15 million from the Public Housing Capital Fund and
    $5 million from the HOPE VI program to establish or expand existing
    Public Housing NN Centers.
        In fiscal year 2002, 78 grants were awarded to PHAs to operate
    centers across the country. The average award amount is $168,743. The
    fiscal year 2002 HOPE VI funding has not been awarded at this time, but
    will be by September 30, 2003. The Department anticipates the award of
    approximately 28 grants to HOPE VI sites.
        Question. How is the Department monitoring the outcomes of the
    program?
        Answer. For the fiscal year 2003 Notice of Funding Availability
    (NOFA), the Department developed a reporting requirement of performance
    measures and outcomes known as the Logic Model. Applicants are required
    to address their previous results, and present proposed program
    outcomes, outputs, benchmarks, and performance indicators. If the
    applicant is a successful awardee, then the applicant is required to
    report semi-annual against their work plan the achievement of these
    performance measures.

                      COMMUNITIES SERVED UNDER BROWNFIELDS

        Question. How many communities have been served over the life of
    the Brownfields program? What activities does the HUD Brownfields
    program fund that are not eligible under the EPA Brownfields program?
        Answer. Since 1998, HUD has awarded 108 Brownfields Economic
    Development Initiative (BEDI) grants to 85 communities. In some cases,
    additional communities may be served through those applications, such
    as when a county receives a BEDI grant for the redevelopment of
    multiple sites in a number of communities within the county.
        The 2002 Small Business Liability Relief and Brownfields
    Revitalization Act expanded the funding that EPA can provide to support
    the assessment and cleanup of brownfields properties. The authorities
    granted to EPA under the new law, however, are limited to property
    characterization, assessment, and cleanup. The law permits recipients
    of EPA's grants or loans to use funds to conduct planning but only when
    associated with property assessment and cleanup. In addition, the law
    permits a recipient of an EPA grant or loan to purchase insurance, but
    again, only for activities associated with the characterization,
    assessment or remediation of a brownfields site. EPA has given out
    approximately 400 grants, and their funds can be used for site
    beautification projects, known as greenspace.
        HUD's objective regarding brownfields is to assist projects whose
    focus is the end of the redevelopment process, i.e., projects with
    plans by identified parties that will return contaminated sites to
    productive economic use, as differentiated from assessment and cleanup
    which are the beginning phases of the overall redevelopment process.
        Because BEDI grants may currently be used only in conjunction with
    Section 108 guaranteed loans, BEDI may support any activities eligible
    for assistance under the Section 108 Loan Guarantee program, provided
    those activities are undertaken in connection with the redevelopment of
    a brownfields site. Communities may seek BEDI assistance for a wide
    range of redevelopment activities, including the acquisition,
    demolition, clearance or preparation of a brownfields site;
    installation of infrastructure; construction or rehabilitation of
    housing, commercial or industrial buildings; business loans and job
    training to attract or expand businesses; and the establishment of
    public facilities such as child care and community centers (the full
    scope of eligible activities that may be supported with BEDI funds is
    provided at 24 CFR 570.703).
        The Department did not request funding for the Brownfields Economic
    Development Initiative in fiscal year 2004, but the Department will
    continue to support the redevelopment of brownfields through the
    Community Development Block Grants program.
        The following table depicts the activities eligible under the
    respective EPA and HUD authorizing legislation:

    ------------------------------------------------------------------------
                Activity                      EPA                 HUD
    ------------------------------------------------------------------------
    Assessment......................  Yes...............  Yes.
    Remediation.....................  Yes...............  Yes.
    Acquisition.....................  No................  Yes.
    Construction and Rehabilitation.  No................  Yes.
    Business Attraction or Expansion  No................  Yes.
    Housing.........................  No................  Yes.
    Clearance and Demolition........  Only If Integral    Yes.
                                       to Remediation.
    Public Facilities...............  Only If Integral    Yes.
                                       to Remediation.
    ------------------------------------------------------------------------

        Although BEDI may also finance site characterization, assessment
    and remediation activities, between 2000-2002, just 9.1 percent of
    funds provided by BEDI grants and associated Section 108-guaranteed
    loans were used for this purpose. Indeed, BEDI grantees have
    demonstrated considerable success in accessing EPA resources for site
    characterization, assessment and remediation, with nearly 82 percent of
    BEDI funds allocated to sites that have received EPA brownfields
    assistance for the early phases of redevelopment.

                             HANF FUNDING PROPOSAL

        Question. The new funding method adopted in the fiscal year 2003
    appropriations bill will mean that local agencies will have to draw
    funds from their reserves, and possibly from the new central fund, in
    order to have sufficient money to pay rent to owners when additional
    families succeed in locating units. This could require fairly quick
    action by HUD. If owners do not receive timely payments, they are
    unlikely to agree to participate in the program. What will HUD do to
    ensure that housing agencies can access the necessary funds quickly, so
    that owners can be paid on time?
        Answer. HUD has implemented a data collection tool that requires
    PHAs to submit updates to leasing and cost activities quarterly. This
    current data will be used as the basis to fund expiring contracts on a
    quarterly basis and provide PHAs with the appropriate level of funding.
        There will be times when a PHA must use reserves and/or require
    additional funding from the Central Reserve. HUD is well aware of the
    importance of providing this funding to PHAs in a timely manner and is
    prepared to do so. HUD also has the responsibility to ensure that the
    funding required, up to the authorized level, is made available to PHAs
    within 30 days of a request. HUD has developed a PIH Notice that
    outlines procedures for PHAs to request access to reserves and/or
    additional funding. The notice is going through an internal clearance
    process and should be issued in the very near future.
        Question. Is HUD planning to issue guidance to housing agencies
    explaining the new funding method adopted for fiscal year 2003? If so,
    when do you anticipate the guidance will be issued?
        Answer. HUD notified all PHAs by letter and e-mail of the changes
    in the funding methodology resulting from the fiscal year 2003
    appropriations and requirements of PHAs. HUD has also developed an
    implementation notice that outlines the changes in more detail. The
    notice is in internal clearance and should be issued in the very near
    future.

                            UNUSED BUDGET AUTHORITY

        Question. For housing agencies with fiscal years ending 6/30/02, 9/
    30/02 and 12/30/02, what percentage of total allocated budget authority
    was used, and what was the dollar amount of unused budget authority?
        Answer. See table below.

    ----------------------------------------------------------------------------------------------------------------
                                                    2003          2006          2009          2012          Total
    ----------------------------------------------------------------------------------------------------------------
    Table allocated BA used (percent).........          89.7          95.6          96.3          92.1          94.0
    Unused BA.................................  $149,506,470  $287,272,551  $107,281,709  $149,018,101  $693,089,101
    ----------------------------------------------------------------------------------------------------------------

                     HOUSING ASSISTANCE FOR NEEDY FAMILIES

        Question. Does HUD anticipate recapturing the full amount of unused
    BA before the end of fiscal year 2003? If not, why not?
        Answer. The recapture process in August 2003 will recapture all
    unused budget authority from fiscal year 2002 and prior appropriations
    that have accrued to PHAs' program reserves. However, a month reserve
    amount for all PHAs will be excluded from recapture. In addition, funds
    provided to Moving-to-Work agencies units under litigation and certain
    special fees intended for future years will also be excluded from
    recaptures. Funds provided to Moving-to-Work agencies are excluded from
    recaptures pursuant to the legal agreement between HUD and the agencies
    involved.

                                    RESERVES

        Question. How much of the BA recaptured during fiscal year 2003
    will be needed to replenish PHA reserves?
        Answer. PHA program reserves are replenished at the end of each PHA
    fiscal year. The fiscal year 2003 appropriation allows for the
    replenishment of reserves up to the authorized level of units due to
    increased costs from the Central Fund.
        The estimate to replenish reserves, based on the cost per unit
    currently provided by PHAs, is approximately $200 million.

                              VOUCHER UTILIZATION

        Question. What steps is HUD planning to take this year to continue
    to encourage PHAs to increase the percentage of vouchers they are
    using?
        Answer. The Department proposes the Housing Assistance for Needy
    Families (HANF) initiative as a means to reform and improve the voucher
    program. HANF will provide tenant-based housing assistance through
    State-administered block grants. This initiative will simplify current
    income and rent calculations by eliminating dozens of statutory and
    regulatory exemptions and deductions. Implementation of HANF will:
      --provide for the program flexibility and oversight so that funds are
            used promptly and effectively to assist needy families;
      --facilitate greater program responsiveness to local markets and
            needs;
      --provide for the administrative decision-making closer to the
            communities and families affected, by their elected officials;
      --provide for additional program flexibility to address local needs;
      --allow flexibility at the State level for reallocation of funds or
            other actions that may be necessary so that program funds are
            expended promptly; and
      --improve government support of self-sufficiency efforts by assisted
            families, by facilitating greater coordination with the TANF
            program and other State programs.
        Question. Is HUD continuing to notify agencies that fail to use at
    least 90 percent of their vouchers (or budget authority) that if they
    do not improve substantially HUD will reallocate some of their vouchers
    to another agency?
        Answer. The Department is reviewing procedures related to the
    reallocation of vouchers and will determine if reallocation will be
    conducted this summer. However, budget reform made by Congress in
    fiscal year 2003 may negate the necessity to do so.
        Question. Has HUD reduced the number of vouchers allocated to any
    agencies due to poor performance during this fiscal year? If so, please
    provide details on the agencies and number of vouchers affected. Have
    these vouchers been reallocated to other agencies?
        Answer. HUD has not reallocated vouchers from under-performing
    agencies in fiscal year 2003.

                          STUDY ON VOUCHER UTILIZATION

        Question. HUD has commissioned a study on how high-performing
    agencies have improved voucher utilization that the study contains more
    recent data on voucher utilization than HUD has provided to Congress,
    and that it has been ready to be issued for 6 months. When this study
    will be made public? Please provide the Committee with a copy of the
    study.
        Answer. The report is being finalized now and should be sent to the
    printer in the next few weeks.

                              VOUCHER UTILIZATION

        Question. HUD's budget request assumes that the average cost of
    vouchers in fiscal year 2004 will be $6,468, including administrative
    fees, yet the average cost of the requested incremental vouchers is
    $6,545. Please explain the discrepancy. The Congressional Budget Office
    in its March baseline estimates that the average cost of vouchers in
    fiscal year 2004 will be $6,842. Please explain the discrepancy between
    the administration's estimate and CBO's.
        Answer. In fiscal year 2004, up to $36 million are requested for
    non-elderly disabled vouchers as a set-aside that might result in
    approximately 5,500 units depending on the region or area where they
    will be utilized. There is a cap on the funding of $36 million that can
    be used for the non-elderly disabled vouchers. However, there is no
    floor or ceiling on the number of units that can be awarded from the
    amount set-aside for this purpose. The estimate of 5,500 units is just
    an estimate to provide some context and should not be viewed as an
    absolute final number. It should not be used to calculate a per unit
    cost of $6,545. The dollar amount is the only limiting factor for non-
    elderly voucher set-aside. The average per unit cost of $6,648 was
    calculated based on the PHA's latest year-end financial statements and
    the actual cost of approximately 2 million units was taken into
    consideration. In addition, the local and regional inflation factor was
    used to project cost for fiscal year 2004.
        The Department does not know the assumptions used by CBO to
    calculate the PUC, therefore, we are unable to address the discrepancy
    between HUD & CBO.
        Question. In HUD's budget justifications, page A-16, the
    administration says it is requesting renewal funding for 1,935,649
    vouchers. This is only 90.9 percent of the 2,130,000 vouchers that
    require renewal in fiscal year 2004. Using the administration's cost
    estimate of $6,468 per voucher and including the central fund,
    approximately 94.7 percent of vouchers can be supported by the total
    budget request of $13.047 billion for voucher renewals. Yet HUD's
    Fiscal Year 2002 Performance and Accountability Report states that
    voucher utilization reached 94 percent that year, and the Budget
    Justifications submitted by HUD to Congress in February 2003 indicate
    that HUD anticipates continued improvement in voucher utilization, to
    95 percent and 96 percent respectively, in fiscal years 2003 and 2004.
    Can you explain these discrepancies?
        Answer. The 2.1 million vouchers identified represent the entire
    inventory of authorized vouchers projected in fiscal year 2004. Not all
    vouchers in the inventory require renewal funding in fiscal year 2004
    because existing budget authority exists as a result of a long-term
    contract, or new budget authority is available for vouchers awarded for
    tenant protection actions and/or incremental vouchers. Further, a 1-
    month reserve will be available to PHAs to cover increases in cost or
    lease up to the authorized level.
        The renewal estimate provided in the budget is based on a leasing
    level of approximately 96 percent, and includes funding requirements
    for increased costs and additional leasing. This leasing level is
    consistent with leasing projected in the fiscal year 2002 Performance
    and Accountability Report.
        Question. Of the total requested appropriation of $13.607 billion
    for HANF, some $12.535 billion represents new budget authority. The
    remaining $1.072 billion is assumed to be carried over from recaptures
    of voucher appropriations from prior years. Based on the most current
    information available, what is HUD's current expectation of the amount
    of carry-over funds that will be available in fiscal year 2003?
        Answer. The only amounts expected to carryover are $1.072 billion,
    which is already assumed in the fiscal year 2004 Budget. All other
    funds are expected to be committed for specific purposes or used to
    meet the fiscal year 2003 rescission.

                       SEVERELY DISTRESSED PUBLIC HOUSING

        Question. Please detail how the Department is complying with Senate
    direction to ``submit a report by June 15, 2003, on the number and
    location of severely distressed public housing units that are in need
    of substantial revitalization or demolition''?
        Answer. At this time, the Department does not have a mechanism to
    review the entire public housing inventory and determine how many units
    are severely distressed. Even the National Commission on Severely
    Distressed Public Housing acknowledged the difficulty in identifying
    specifically distressed projects and opted to estimate the total number
    nationwide rather than do an inventory. Furthermore, a standard
    definition of severe distress needs to be agreed upon prior to an
    evaluation of the entire inventory. HUD has to work with 5 different
    definitions as provided in Sections 18, 24, and 202 of the 1937 U.S.
    Housing Act, the HOPE VI appropriations and the Commission of Severely
    Distressed Public Housing. The Department is currently working with the
    Urban Institute to assess, among other things, the various definitions
    and establish one standard that can be used Department-wide.

                                    HOPE VI

        Question. During the fiscal year 2004 budget hearing, Secretary
    Martinez indicated that the Department would be convening an ``internal
    work group'' on HOPE VI, to consider reauthorization. Please provide a
    status report on this work group.
        Answer. The Department is coordinating the Public Housing and
    Community Development Resources Review Initiative. As part of this
    initiative, the Department is convening experts who will provide input
    on the type of revitalization program that is needed given the current
    public housing stock and 10 years of lessons learned from HOPE VI and
    other affordable housing programs.
        The HOPE VI Review Initiative convened on May 28 and June 12, 2003.
    A final meeting is scheduled for June 19, 2003. In addition, HUD
    officials will continue to draw on information from a wide variety of
    sources.
        The Department also contracted with the Urban Institute to write a
    lessons learned report on HOPE VI and the revitalization of distressed
    public housing. This report will be used along with the information
    collected from the HOPE VI Review Initiative and other sources to
    examine alternative methods of public housing revitalization.

                      INTERACTIVE WEB-BASED LEAD DATABASE

        Question. This Subcommittee provided $3.5 million in fiscal year
    2002 for the development of an interactive, web-based lead database
    that utilizes ``real time'' information and mapping capabilities to
    provide local, State, and Federal Government officials, public and
    private organizations, health care providers and families with easy
    access to childhood lead poisoning prevention data and educational
    information, and to facilitate multi-disciplinary collaboration to
    further childhood lead poisoning prevention efforts. The Committee is
    aware of, and delighted with HUD's goal of having the Lead-Safe Homes
    data system fully operational by February 2004. In light of additional
    funding provided for abatement of lead in homes, how do you plan to
    expand the current pilot program from three cities to a nationwide
    interactive web-based database so their abatement funds are used most
    efficiently?
        Answer. HUD believes this database will help local jurisdictions
    target their resources to those areas in greatest need. The data are
    most helpful if they are provided at the level of the individual
    housing unit and not restricted to only the block or census tract
    level. In Boston and Chicago, unit-specific data have been provided,
    although in Baltimore, unit-level data have been restricted, reportedly
    due to local authorities' concerns about confidentiality of medical
    records. The Fiscal Year 2003 Appropriations Act provides that the lead
    hazard reduction demonstration program funds can be used for
    inspections, risk assessments, interim controls, abatement, and
    temporary relocation of families during the hazard control work. Since
    explicit language was not provided in the Act, expansion of the
    database may not be an eligible expense for grantees under this
    program. For the existing lead hazard control grant program, the cost
    of database development is an eligible expense and HUD will develop
    incentives to encourage its grantees to enter their data into this
    system. Additional resources could also be provided through the use of
    local matching funds.
        Question. Do you see expansion as a slow process, adopting
    information from a limited number of cities at a time? Do you envision
    rapid expansion once you feel the system is capable of handling data
    from numerous cities around the county?
        Answer. Because the development costs associated with the pilots
    have already been covered, we can achieve significant economies of
    scale by expanding the project to other cities. Once the database for
    the pilot cities is released and fully operational, HUD expects that
    jurisdictions will recognize its value in short order. Several other
    jurisdictions have expressed interest, such as Philadelphia, Milwaukee,
    Providence, and the States of Maryland and Massachusetts. The expansion
    of the database is likely to proceed most rapidly in those communities
    at highest risk. However, the expansion of the database is likely to be
    slower if it is dependent on the resources of State and local
    governments, given their current financial status. Rapid expansion
    could be facilitated by additional appropriations for those communities
    at greatest risk.

          INTERAGENCY INVESTMENT IN CHILDHOOD LEAD POISONING REDUCTION

        Question. How does HUD plan to accomplish interagency investment in
    ending childhood lead poisoning by 2010?
        Answer. At the Federal level, the President's Task Force on
    Environmental Health and Safety Risks to Children coordinates all lead-
    based paint activity among the different agencies. On April 18, 2003
    the President signed an Executive Order extending the Task Force for 2
    years. HUD also serves on the CDC Childhood Lead Poisoning Prevention
    Advisory Committee as an ex-officio member. At the State and local
    level, HUD has been encouraging the creation of strategic plans to
    eliminate childhood lead poisoning by 2010. Such plans are under
    development in: Detroit; Philadelphia; Rochester, NY; Milwaukee; and
    the State of Rhode Island. ``Summit conferences'' to develop such local
    plans either have been or will be held shortly in Cleveland and
    Chicago. Both HUD and the Centers for Disease Control and Prevention
    are requiring their respective grantees to develop local plans to
    achieve the 2010 goal.
        Question. What other agencies does HUD envision partnering with to
    fulfill the goal of eradicating childhood lead poisoning?
        Answer. Partnering agencies include, but are not limited to, the
    following: Centers for Disease Control and Prevention, Environmental
    Protection Agency, Office of Management and Budget, Departments of
    Justice, Energy (weatherization), Agriculture (rural housing), Defense,
    Treasury, National Institute of Environmental Health Sciences, Center
    for Medicaid and Medicare Services, Office of the Public Health
    Service, and the Consumer Product Safety Commission.
                                     ______

                Questions Submitted by Senator Patrick J. Leahy

                          HOMELESS FUNDS IN BURLINGTON

        Question. Mr. Secretary, I want to raise a concern I have with the
    Continuum of Care program that I hope you can address. It has come to
    my attention that several years ago the Department made a significant
    change in the way it evaluates these grants which has dramatically
    impacted one of Vermont's neediest communities.
        In 1997 the Department began using the Community Development Block
    Grant (CDBG) formula to establish a level of ``Pro-Rata'' need--a base
    level of funding for each community. Before this time Burlington, and
    the Chittenden County Continuum of Care, often received over $1 million
    to run a variety of homeless programs. The need was great and the
    programs were widely praised--receiving Best Practices Awards from the
    U.S. Conference of Mayors and from HUD.
        Based on the new formula Burlington's pro rata need was estimated
    at a fraction of what the funds they had been receiving--and HUD
    awarded more points to projects that fell within that arbitrary number.
    The result was a drastic decline in the number of projects that were
    funded and in the total amount of money they received--from $1.6
    million in 1996 to $350,000 in 2002. The result has been a slow but
    painful erosion of their system of care in the county. This happened at
    time when the area was seeing a 400 percent increase in the number of
    families seeking assistance.
        My question to you is this: Can HUD show any data, or have you
    collected any information, that demonstrates a link between community
    development needs, as evaluated by the CDBG formula, and the homeless
    needs in each individual community?
        Answer. Prior to 1994, HUD did not have an objective measure to
    assess the need for competitive homeless program assistance, a
    statutory selection factor. Individual projects were asked to provide
    narratives about the particular homeless sub-population they intended
    to serve in their community. As a result, there was no ability for HUD
    to assess the need for homeless assistance of one community relative to
    another. At the same time, a significant number of communities began
    submitting applications, making this relative determination of need
    even more difficult. For instance, prior to 1994, fewer than 1,000
    projects were submitted to HUD annually for competitive funding. In
    1994, 2,655 applications were received.
        Beginning in 1994, HUD instituted its pro rata need approach to
    provide a more objective and fair measure of need. HUD examined Census
    and other data on homelessness to determine how need would be measured.
    As there were no readily available and reliable direct measures of
    homeless need, HUD turned to the Congress for direction. In creating
    the Stewart B. McKinney Homeless Act of 1987, Congress stipulated that
    HUD's only homeless assistance formula program, Emergency Shelter
    Grants, be allocated using the factors contained in the Community
    Development Block Grant (CDBG) program. The CDBG factors prescribed by
    Congress are: population, poverty, housing overcrowding, growth lag and
    age of housing. Given this direction from Congress and no other readily
    useable measures of homeless need, HUD uses the CDBG factors in
    determining pro rata need in Continuum of Care competition.
        In 2001, Congress directed HUD to review the pro rata need approach
    used for HUD's competitive homeless assistance programs. In April 2001,
    HUD sponsored a conference on this subject and invited representatives
    from numerous national organizations; Federal, State and local
    officials, including Congressional staff; homeless providers; homeless
    advocates and academics. At the conclusion of the conference, there was
    overall agreement that the current approach which utilizes the only
    current available data for determining need for McKinney-Vento funding
    was working well. This approach will be improved prospectively as we
    receive national HMIS data in fiscal year 2005.
        Question. Is HUD currently collecting information and data about
    homeless populations in order to determine how best to approach these
    complex problems or how best to allocate funds?
        Answer. With direction from Congress, HUD is working to improve the
    collection of data on the extent and nature of homelessness locally and
    nationally. HUD has set October 2004 a goal for each Continuum of Care
    to implement a Homeless Management Information Systems (HMIS). HUD is
    providing financial and technical assistance to Continuums to meet this
    goal.
        It is noteworthy that the State of Vermont and the Chittenden
    County Continuums are collaborating on a State-wide HMIS. It is our
    understanding that planning and implementation of this system are on
    course for meeting the 2004 national implementation goal. In fact, the
    State of Vermont has been a leader in suggesting innovative proposals
    for enhancing the HMIS initiative. These efforts will contribute to
    better understanding homelessness and how to address it.
        Question. Secondly, have you heard from other rural States, such as
    Vermont, that are facing similar problems with their funding formula,
    and has the Department ever considered the need for a small State
    minimum in this program?
        Answer. There are two key provisions in pro rata need to help
    ensure communities can more fully address their local homeless needs.
        The first protects communities that have existing HUD-funded
    projects. HUD assures that if the cost of operating such projects for 1
    year exceeds the community's pro rata need amount, HUD will provide an
    upward adjustment to that amount to ensure that all such projects can
    fully operate.
        The second provision allows each community to receive additional
    funding by requesting as its number one priority, a new permanent
    housing project. This provision has been in place for a number of
    years. Unfortunately, Chittenden County has consistently declined to
    request this bonus funding. Had they requested a fundable project in
    2002, the continuum's pro rata need would have doubled from $226,000 to
    $452,000. We are hopeful that the continuum will fully exercise its
    options in 2003.
        The State of Vermont, which administers a Continuum of Care system
    covering the remainder of the State, receives significant assistance
    through HUD's Continuum of Care process. For instance in December 2002,
    the State's Continuum was awarded over $1.2 million in homeless
    assistance. As a result, the combined Continuum of Care funding award
    amount in 2002 for Vermont was approximately $1.4 million.

                                     ______

                 Questions Submitted by Senator Robert C. Byrd

                         PUBLIC HOUSING OPERATING FUND

        Question. The U.S. Department of Housing and Urban Development
    recently revealed a $250 million funding shortfall in the Public
    Housing Operating Fund for Fiscal Year 2002. The January 18, 2003,
    edition of the National Journal cites a Housing and Urban Development
    official saying that an internal problem with HUD's system for
    estimating costs had led to the shortfall.
        Yet, despite the Department's admission that the funding shortfall
    is a result of their own error, the Department has refused to request
    additional funding in fiscal year 2004 to rectify the situation.
    Instead, the Department of Housing and Urban Development has
    significantly reduced subsidies to public housing authorities,
    threatening the housing of the nearly 3 million people who currently
    occupy public housing.
        Why, specifically, is the Department of Housing and Urban
    Development experiencing a funding shortfall?
        Answer. In 2001, HUD changed its funding formula, in part to
    redirect some funding from large to small PHAs. At the time, however,
    HUD did not change its reporting and accounting systems to support this
    change. This failure led to inadvisable management practices. For
    example, HUD used 1999 data for 2001 funding due to an inability to
    access 2000 data.
        Unfortunately, the previous system made it difficult to forecast
    future funding streams correctly and to set percentage funding levels
    responsibly, resulting in some years in significant funding shortfalls.
    For example, in 1998 (a 100 percent funding year), there was a $102
    million shortfall, leading to a 92.5 percent funding level the next
    year. In short, poor accounting systems and practices led, in some
    years, to the setting of inappropriately high funding percentages,
    which in turn led to funding shortfalls.
        Over the past decade, HUD's practice at the operational level has
    been to automatically dip into future years' appropriations to
    compensate for any shortfalls. This is an unacceptable and
    irresponsible practice, which had apparently been going on for some
    years without the knowledge HUD's senior management or Congress. Upon
    senior management's discovery and confirmation of the problem, HUD took
    action to inform the appropriations and authorizing committees of both
    House and Senate of the practice and the resulting $250 million
    shortfall.
        Question. Why is the administration not requesting additional
    funding to cover this shortfall, thus, choosing to make the residents
    of public housing suffer for the Department's mistake?
        Answer. When the Department discovered the $250 million funding
    shortfall in the Public Housing Operating Fund for fiscal year 2002, it
    did have many conversations and meetings with all appropriate parties.
    One of the outcomes of these discussions was the inclusion of language
    in the 2003 Appropriations Act, which provided the Department with $250
    million to cover the funding shortfall in the Public Housing Operating
    Fund. While the remaining 2003 funding will not cover 100 percent of
    the eligibility needs for the public housing industry, historically the
    Department has funded PHAs at less than 100 percent, including a
    funding level of 89 percent in 1996. PHAs should be able to accommodate
    this level of funding through efficiencies and economies in their
    operations and, where needed, by utilizing reserves and other funding
    sources available to them.
        Question. What specific actions is HUD undertaking to ensure such a
    shortfall does not occur again?
        Answer. The Department has taken the following actions to ensure
    that a shortfall does not occur again in this program. Specifically,
    the Department has:
      --implemented a new interim Operating Subsidy system that will enable
            HUD to provide more timely and accurate funding to PHAs;
      --enhanced its internal controls and managerial reporting system; and
      --put in place new managerial staff and have added support staff to
            ensure that appropriations enacted in 2003 and beyond for this
            program are managed in a responsible manner.
        Question. Since HUD has announced an intended funding cut in the
    operating subsidies provided to public housing authorities, I have
    received letters from numerous constituents expressing concern about
    this proposal and outlining the ways it would adversely effect the
    residents of public housing in West Virginia. Public housing
    authorities will have to postpone maintenance and renovation of
    apartments, eliminate many tenant services, and possibly closing
    housing units.
        What do you believe the repercussion to public housing will be by
    reducing the operating fund subsidy to public housing as HUD intends?
        Answer. HUD did not intend that the funding level of 70 percent
    announced in Notice 2003-1 would be the final level. After
    Congressional action was completed on HUD's fiscal year 2003
    appropriations, HUD did provide full funding to PHAs for their fiscal
    year 2002 subsidy eligibility and is now funding fiscal year 2003
    eligibility at 90 percent.
        Question. What level of funding is required in fiscal year 2004 to
    ensure that public housing authorities are not financially penalized
    for HUD's mistake?
        Answer. In fiscal year 2002, the Department experienced a $250
    million funding shortfall in this program. The shortfall occurred
    because of system and business process problems that prevented the
    Department from timely tracking and accounting for PHA eligibility and
    program funds. To cover the shortfall, Congress provided funds in the
    fiscal year 2003 Appropriations Act. To ensure that shortfalls do not
    occur again and to address issues with the accounting systems, the
    Department has enhanced its internal controls, management oversight,
    and business procedures for this program. These enhancements will
    ensure the proper and timely accounting of PHA eligibility and funds
    administration.
        For fiscal year 2004, the administration requested $3.574 billion.
    This amount should fully satisfy fiscal year 2004 operating subsidy
    requirements. No portion of the request will be used for prior fiscal
    year shortfalls.

                               EMPOWERMENT ZONES

        Question. In 1999, Huntington, West Virginia, and Ironton, Ohio,
    were together designated a Round II urban Empowerment Zone. This
    program is encouraging significant economic development in the
    designated region.
        In President Bush's budget proposal for fiscal year 2004, the
    success of the Empowerment Zone program is recognized and abundantly
    praised. In fact, the budget states:

        ``The Empowerment Zone initiative helps revitalize city
    neighborhoods by attracting business development and providing
    employment opportunities to residents of empowerment zones. Empowerment
    Zone principles include a strategic vision for change, a community-
    based partnership, providing economic opportunity and sustainable
    community development.''

        The budget continues:

        ``E[mpowerment] Z[one]s are helping to stimulate billions of
    dollars in private investment, reviving inner city neighborhoods and
    supporting jobs, and helping families move from welfare to work.''

        Yet, the President's budget provides no funding for this program.
        Why is there no funding provided in the President's budget for
    Empowerment Zones, when the administration has nothing but commendation
    for the program?
        Answer. The administration is very supportive of the Empowerment
    Zone program. Accordingly, HUD is sponsoring three workshops across
    America in Jacksonville, FL; Memphis, TN; and Tucson, AZ to train local
    leaders on how to let businesses know about the $22 billion in Federal
    tax incentives available to them. Empowerment Zones have over $6
    billion in incentives targeted towards them. This is far more than the
    limited grant funds that Congress has appropriated to local leaders in
    the past. It delivers funds directly into businesses' hands without
    passing through State and local governments. Round II EZs will continue
    to have access to their cumulatively appropriated funds of $360
    million.
        Additional funding was not recommended for two reasons. First,
    there are HUD and Congressional concerns regarding the slow expenditure
    of previously appropriated funds. As of January 31, 2003, $212 million
    in funds remained unspent and an additional $30 million in fiscal year
    2003 funds had yet to be allocated. As the program entered its sixth
    year, 63 percent of the funds remain unused. Second, there is a higher
    priority assigned to the multi-billion tax credits that are available.

                              SUBCOMMITTEE RECESS

        Secretary Martinez. Mr. Chairman, I appreciate the
    opportunity to meet with you to discuss the hiring issue. We
    know that is important to you.
        Senator Bond. And we have lots of things, as we indicated.
    We appreciate your willingness to work on these legislative
    proposals. As you noted, we do have some questions about them
    and some skepticism on a few of them, but we know that there is
    lots of progress being made.
        Well, thanks to you and all who participated, and we will
    recess the hearing. Thank you, sir.
        [Whereupon, at 11:36 a.m., Thursday, March 6, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

    DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                            THURSDAY, MARCH 13, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:22 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond and Mikulski.

                         DEPARTMENT OF VETERANS AFFAIRS

    STATEMENT OF ANTHONY J. PRINCIPI, SECRETARY OF VETERANS
                AFFAIRS
    ACCOMPANIED BY:
            ROBERT H. ROSWELL, M.D., UNDER SECRETARY FOR HEALTH
            VICE ADMIRAL DANIEL L. COOPER (USN RET.), UNDER SECRETARY FOR
                BENEFITS
            ERIC BENSON, ACTING UNDER SECRETARY FOR MEMORIAL AFFAIRS
            WILLIAM H. CAMPBELL, ASSISTANT SECRETARY FOR MANAGEMENT
            RICHARD GRIFFIN, INSPECTOR GENERAL

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. The subcommittee will come to order. Thank
    you very much for waiting for us. Senator Mikulski and I had a
    vote, and she is over here very engaged in preparations, and
    she suggested I go ahead and begin. We apologize for the delay,
    but those of you who have dealt with the schedule of the Senate
    know that Murphy was an optimist in drafting Murphy's Law.
        This morning, the VA, HUD, and Independent Agencies
    Subcommittee will conduct its budget hearing on the fiscal year
    2004 budget for the Department of Veterans Affairs. It is a
    pleasure to welcome back Secretary Tony Principi to our
    subcommittee, and his colleagues. Mr. Secretary, I am very
    pleased to have you here today to discuss your Department's
    fiscal 2004 budget. Before I launch into the budget, I join
    with my many, many colleagues in expressing our deep gratitude
    and appreciation for the hard work you and your team are doing
    and the time you put into responding to the needs of our
    Nation's veterans, and for my part most especially, to the
    needs of some 566,000 veterans in my home State of Missouri.
        Mr. Secretary, when you entered office 2 years ago you were
    faced with some of the most difficult challenges of any Cabinet
    head. However, I can say unequivocally that you have met those
    challenges head on with strong leadership, decisiveness,
    compassion, and persistence.
        I congratulate you on the tremendous progress you have made
    in correcting some of VA's longstanding problems. We are
    impressed by your accomplishments, and look forward to
    continuing to work with you in meeting the needs of our
    Nation's veterans. Nevertheless, VA continues to face some
    extremely difficult challenges, most notably in the area of
    providing quality and accessible health care to our Nation's
    veterans.
        Addressing the health care needs of our veterans is even
    more sensitive to all of us because of the great uncertainties
    of what perils lie in the seeming inevitability of war against
    Iraq. It is unfortunate we are in this position, and I know
    that all of us, including the President, believe that war
    should only be used as a last resort. History, however, has
    demonstrated that military force must be used on occasion to
    preserve the peace and prevent even greater death and
    destruction.
        Nevertheless, our hearts and prayers go out to the 240,000
    men and women of our Armed Forces who are currently in the
    Persian Gulf region and to those forces of the other allied
    nations. Mr. Secretary, I know you personally know all too well
    the horrors and tragedies of war, and it is that perspective
    that I know influences and helps guide your actions in thinking
    and helping our Nation's veterans.
        Last year when you appeared before the committee, we talked
    a great deal about the growing health care crisis facing VA.
    Unfortunately, despite significant funding increases and
    regulatory actions taken by the VA, access to the health care
    system continues to be a major problem.
        Today's problems with the VA health care system can be
    traced back through the history of the VA. The veterans medical
    care system was originally created to provide needed care to
    veterans injured or ill from wartime service, veterans with
    service-connected disabilities. Over the time, the system has
    become a safety net for veterans with service-connected
    disabilities, veterans with specialized service needs, and
    lower-income veterans. These three groups are the VA's core
    constituents. VA's first and foremost mission is to assist
    these veterans.
        Up until 1996, VA served its core constituents. However,
    eligibility reform enacted in 1996 expanded VA medical care
    services to veterans not previously served. These veterans do
    not have service-connected disabilities, and have comparably
    higher incomes than those of VA's core constituents. The
    Veterans Health Care Eligibility Reform Act of 1996 required VA
    to create priority categories for enrollment to manage access
    in relation to available resources. Therefore, a higher
    priority for enrollment was provided to veterans with service-
    connected disabilities, lower incomes, or specialized service
    needs.
        These higher priority enrollees are ranked in priority
    order from 1 through 6. Veterans without service-connected
    disabilities and with relatively higher incomes are ranked
    priorities 7 and 8. While the act requires the creation of
    these priorities, all priorities were provided equal access to
    health care services. In other words, the act created a first-
    come, first-served system.
        The 1996 act predicted that the new requirements and
    expansion of services to previously unserved veterans would
    have no net funding impact to the Federal Government. In other
    words, it would be budget-neutral, because there would be few
    new enrollees.
        The committee report stated that the view of VA being
    besieged by a large wave of new enrollees for VA care is
    unrealistic. In case you missed it, let me restate that
    statement. The committee report said the view of VA being
    besieged by a large wave of new enrollees for VA care is
    unrealistic, close quote.
        The report also quotes testimony about Paralyzed Veterans
    of America. They found VA's best potential market is those who
    have the most familiarity with the system, that is, those
    currently using the system, close quote. Even data from the
    VA's 1995 national survey of veterans indicated a large
    proportion of veterans would rather go to a non-VA facility for
    their medical care if given a choice, close quotes. In other
    words, neither the authors nor the veterans service
    organization believed that VA would attract new veterans into
    the system. Amazing. What a bad guess.
        In 1999, Congress further expanded health care benefits for
    veterans by passing the Millennium Health Care Act. This act
    provides additional benefits such as long-term care and
    emergency services. Further, Congress encouraged and funded
    hundreds of new VA community based outpatient clinics to
    increase access delivery points for veterans living in areas
    far from in-patient centers. The creation of new CBOC's
    verified the truth behind the old saying, if you build it, they
    will come, and they did.
        Since 1996, the fastest-growing segment of the VA health
    care system has been those veterans without service-connected
    disabilities and with higher incomes. Many of these veterans
    have other health insurance options compared to VA's core
    constituents, and they have other health care options, but the
    view of VA being besieged by a large new wave of enrollees for
    VA care is not unrealistic, it is a fact. VA now serves 2
    million more veterans than it did prior to the implementation
    of the 1996 act.
        Further, VA cannot provide generous health care benefits
    for all veterans and expect to maintain quality and timely
    health care service delivery. VA cannot be everything to
    everybody. The uncontrollable demand of veterans seeking VA
    health care benefits has resulted in a waiting list of over
    200,000 veterans. These veterans have been told that they
    cannot get an appointment for at least 6 months--6 months. In
    some cases, veterans have been told to wait 1 to 2 years.
        That is unacceptable. We cannot ignore the many medical
    needs that require immediate attention. Moreover, many of these
    veterans on the waiting list are VA's core constituents, those
    with service-connected disabilities, lower income, or with
    specialized service needs.
        Mr. Secretary, I read with great interest about the Gordon
    Mansfield experiment, when you sent out your Assistant
    Secretary for Legislative Affairs to eight VA clinics. I was
    appalled to learn that Mr. Mansfield, who is a service-
    connected disabled veteran who served with distinction in the
    Vietnam conflict, was wait-listed at six of those clinics. It
    is unconscionable that veterans in the position of Mr.
    Mansfield are in this situation.
        In addition, the sad fact is that more veterans like Mr.
    Mansfield will face this situation if we do not act. The
    outyear projections of even more non-core patients coming into
    the VA system are staggering. The convergence of these factors,
    combined with a lack of a Medicare prescription drug benefit,
    an aging veteran population, and the greatly improved quality
    of care provided by VA clinics, created the current dilemma we
    are facing today. The system is in crisis, a storm that we
    could call the perfect storm.
        Mr. Secretary, you are in the eye of the storm, and to
    bring our core constituent veterans out of it you made some
    difficult decisions. Last year, VA began requiring health
    centers to provide priority access for service-connected
    veterans rated 50 percent or greater. This past January, the
    Secretary exercised legislative authority to suspend new
    enrollments of priority 8 veterans.
        The decision to suspend priority 8 enrollments was not
    popular, but it was consistent with the Eligibility Reform Act
    of 1996, which provided the authority to suspend enrollments.
    As the committee report states, the VA may not enroll or
    otherwise attempt to treat so many patients as to result either
    in diminishing the quality of care to an unacceptable level or
    unreasonably delaying the timeliness of VA care delivery.
        Mr. Secretary, you did the right thing. It was not popular,
    but doing something popular is not always right, and doing
    something right is not always popular. I support your
    decisions, and you did what the law expected you to do, because
    we cannot compromise health care quality and access for our
    core constituents. These men and women rely on VA's health care
    system. They have nowhere else to go. We cannot and must not
    leave these men and women behind.
        Despite the huge waiting list and the growing demand for
    VA's health care services, I am optimistic that we can resolve
    this crisis. You have my personal commitment that I will work
    with you to solve the crisis fully. The record demonstrates
    this committee in a bipartisan manner has viewed medical care
    funding as its top priority and, as chairman, I will continue
    to keep that as our top priority. It has always been my belief
    that our goal should be to fund fully the health care needs of
    the core constituency priorities 1 through 6. The record shows
    that we have, in fact, accomplished that goal, but we have not
    achieved the results.
        Part of the solution is resolving the crisis in funding. In
    terms of the fiscal 2004 budget, the President proposed $62.8
    billion for VA. It includes $30.1 billion for discretionary
    programs, and $32.7 billion for mandatory. The discretionary
    funding request is $2.1 billion, 7.5 percent more than the
    fiscal year 2003 enacted level.
        The most notable item is $25.4 billion for medical care, a
    $1.5 billion increase over fiscal year 2003. We increased the
    2003 medical care budget by more than $2.5 billion over 2002.
    These funding increases are not only a cry of need, but a cry
    for help. I regard the budget request for medical care as a
    floor, but there is a ceiling due to our other compelling needs
    such as affordable housing, environmental protection,
    scientific research, and the Space Shuttle and its safety.
        Further, it is clear that the funding level for VA medical
    care cannot be sustained without reform of the system.
    Nevertheless, under any budget climate this is a good budget.
    This is the largest dollar increase ever submitted by any
    administration, and would provide VA almost $9 billion more
    funds for medical care than provided in fiscal 1996.
        The request also contains a number of policy initiatives to
    refocus health care on the core constituents. I think they are
    worthy of further discussion. They appear to be reasonable, and
    I think the $250 annual enrollment fee, an increase in co-pays
    deserve a fair and full examination.
        It also provides in the budget a down payment of $225
    million for the CARES program, which is a positive step, and I
    fully support CARES, because we cannot pour resources into
    half-empty hospitals or exist primarily to serve research and
    financial interests of medical schools. VA's first and foremost
    mission is to care for our Nation's veterans. CARES is an
    integral part of assuring that we focus on that and align our
    expenditures to those needs.
        I am committed to funding the health care needs, but it is
    more than a funding matter. There is much more to be done in
    the management area, and greater accountability in performance
    and consistency are required throughout the VHA. Third party
    collections of the VHA are projected to collect $524 million
    this year compared to last year at a time when the GA has found
    that VA has improved collections, but suggests that VA could
    have collected hundreds of millions more.
        The VAIG report estimated that it could have collected $500
    million more. Due to the operational limitations of VA,
    however, VA lacks a reliable estimate of uncollected dollars
    and therefore does not have the ability to assess the
    operational effectiveness.
        Collections continue to be a problem, but one of the most
    infuriating problems I have seen recently is the time and
    attendance controls for VA-paid part-time physicians. The
    Inspector General audit of the Lexington, Kentucky Veterans
    Affairs Medical Center found that VA was paying for part-time
    physicians who are not actually treating veterans. They were
    from medical schools, performing research or other duties
    outside VA.
        The IG said that some time and attendance cards were
    falsified. These actions resulted in $1.15 million in annual
    salary costs for physicians not performing their duties at the
    VA hospital. That jeopardizes patient safety. Ward nurses did
    not have the resources to deal with matters like patient
    restraint and medication changes. This is appalling and
    unacceptable, and I will follow up with some questions for Dr.
    Roswell on this.
        The last point I should touch on is a variance in the
    network. Veterans from Missouri and across the Nation have told
    me about the wide performance variance among the 21 divisions.
    Some veterans have complained that specialized services have
    gotten the short end of the stick. I supported Dr. Kaiser's
    reorganization of VHA, but I believe it has gone too far, and
    we cannot afford to have the networks operated as 21 fiefdoms.
    Veterans in Missouri are very, very pleased to have such good
    service but why should a veteran in Missouri receive better
    care than a veteran in Kansas? I think it is time to review the
    structure of the 21 networks.
        Finally, Mr. Secretary, let me restate my appreciation for
    your hard work and the great leadership you provided. Your work
    on improving claims processing has been outstanding. I commend
    you on your efforts for CARES. I am gratified by your visits to
    Missouri, and responsiveness in addressing some horrible
    sanitary problems at the Kansas City VA Medical Center after
    they have been ignored for years. I look forward to our
    continued working relationship in addressing the needs, and I
    will turn now to my colleague, Senator Mikulski, for her
    statement.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Good morning, Mr. Secretary, and to all
    the people of the VA team. Mr. Secretary, we want to thank you
    for visiting the Baltimore VA medical facility earlier this
    week, and bringing Secretary Thompson to the VA in Baltimore to
    show how we have been using technology to provide more
    efficient care in acute care, and to be able to provide better
    care when that patient returns to the primary care situation.
        I thought it was fascinating that it showed that the best
    way to provide technology for patient care was not to treat it
    as a billing system, as we were advised, but to treat it as a
    patient management system. You can bill off of it, but you
    cannot manage patients off of a billing system, but you can
    bill off of a management system.
        I thought it was great that Tom Scully was there. He was
    there, because the issues that we are seeing in VA and that are
    grappled with not only in Baltimore but throughout the VA
    system are models for what we need to do in private sector
    care, so we were honored to have you, and I know the staff
    appreciated your coming and I know you, like I, were very proud
    of what they are doing there.
        And I think Secretary Thompson got an eyeful and his staff
    got an earful, because he kept saying, why can we not do that,
    why can we not do that now?
        We are glad that the VA is a model.
        We know that the VA medical system is under a tremendous
    stress, with the passing of the World War II generation and
    their very unique and often multiple needs, the coming ever-
    increasing numbers of the Korean War veterans, as well as the
    Vietnam veterans, so just in terms of the sheer population, we
    know that VA faces a number of challenges, and we also know
    that VA will be a significant back-up as we go to war, to be
    able to deal with the possibility of significant casualties,
    and we also know that the VA medical system stands in support
    of our war against terrorism, where our major metropolitan
    areas could face mass casualties.
        But as we look at the VA budget, first of all we appreciate
    the President's increase in veterans' medical care. We also
    appreciate the fact that you are focusing on those four areas,
    and we want to work with you. You are a Vietnam vet. You have
    served your country in war, and you continue to serve it as the
    Secretary of VA, but when I looked at the VA budget, I had two
    things in mind. First, we have got to keep the promises, keep
    the promises we made to our veterans, and second, that the
    budget needs to make highest and best use of taxpayers' dollars
    so that both the Veterans' Administration and the veterans
    themselves get a bang for the buck.
        What I am concerned about, though, is that in this year's
    budget we place toll charges on veterans. This means there is
    now an entrance fee to get VA medical care if you are category
    7 or if you have been grandfathered into category 8, and also
    that there will be higher co-pays.
        I am also concerned that there are now waiting lines to get
    medical care, waiting lines for medical care. I have had a
    longstanding work--going back when you worked for President
    Bush's dad as Deputy, we have been concerned about the claims-
    processing time, and to me, if you are a veteran and you are
    coming for medical care, there should be no waiting lines, and
    as we understand it there are almost one-quarter million
    veterans who now have a waiting time issue, and we want to talk
    with you about that. I am concerned that the budget OMB gave VA
    does not really help you, or help you address those needs.
        When we look at the priority 8 veterans and even the
    priority 7 veterans, we see that from both the IG's report and
    the GAO report, and I believe your own analysis that we
    discussed with you last year, they are primarily coming to VA
    because of a prescription drug benefit, not only because of the
    changes in the law, as Senator Bond has articulated, but they
    are coming for a prescription drug benefit.
        I note that the GAO report says that we spent $418 million
    on outpatient pharmacy benefits for priority 7 last year, and
    that priority 7 use of pharmacy benefits have increased
    rapidly. Also, they say for those in categories 1 through 6,
    they have increased, but given the nature of their wounds and
    their age, we would expect that, but it would seem to me that
    the category 7s, based on GAO reports--and I can go over the
    figures. You know the figures.
        Well, we went from 107,000 veterans to 827,000 veterans.
    That is the budget-buster, but the question is, why are they
    coming? Well, first of all, there is good care, but I also
    believe they are coming because of the failure in public
    policy. I believe they are coming because there is no reliable
    prescription drug benefit that many of them have access to in
    the private sector.
        When you look at the Inspector General's report, you also
    see that veterans in those categories are coming not only for a
    prescription drug benefit, but in many instances they have been
    written by their own physician, but they are coming to you to
    be their drugstore because of the prescription drug benefit.
    These are real challenges, and I want to discuss them, and I
    believe that the way that you are trying to meet them is by the
    $250 entrance fee, and also the increase in copayments.
        Now, I want to get why you think that is going to work, is
    that the way to do it, do we need a prescription drug benefit
    that really addresses those needs, because I believe it is
    going to be worse. I believe that many of the veterans who are
    coming are either people--primarily men, though some women--who
    work, who have no health insurance. They are either self-
    employed or they work in small business. They might have names
    like Hank or Buck, and they work in home improvement and so on.
    They need you. You are the safety net for them.
        But I also know that with the downturn in manufacturing,
    the collapse of 300,000 jobs in our economy, where many had
    worked for companies, whether it is steel industries, like
    Pennsylvania, and my home State of Maryland, Beth Steel, the
    airline industry, the collapse of those industries that
    normally had a defined benefit plan and the collapse of their
    health insurance means that they are diverting themselves to
    VA.
        I do not fault them. This, I believe, is a matter of fact.
    This is not a matter of fault, but we are either going to have
    to have a national policy to address those needs, or it is
    going to continue to fall on VA, and you are going to
    continually invent mechanisms that put you in a prickly
    position with veterans, and we have got to get at how to deal
    with this, and I wonder if you agree with my analysis when we
    do this.
        I could go on, but I feel that this is one of the number
    one challenges, the lack of health insurance for many, and then
    a lack of prescription drug benefit for even more as the
    population gets older.
        Now, I am really proud of what you are doing in medical
    research, and I am proud of our research community. People are
    alive longer and live better because of the research that is
    being done both by VA to help the veterans that then moves into
    the common medical practices, but as a result, people are
    living longer with chronic conditions. Those chronic conditions
    are managed by prescription drugs, access to primary care, and
    then ancillary services like physical therapy and chiropractic
    and other care.
        So we have got to get a handle not only on the budget, but
    recognize the needs of the population and see why they are
    coming. We could keep building it, and they are going to keep
    coming, and then that will take us to how we are going to deal
    with the waiting lists, how we are going to deal with the
    clients' processing times, and how we are going to work on
    those issues, so these are not only budget issues and
    appropriations issues, I believe they are some of the most
    significant challenges.
        Now, just as the VA has led the way in technology, and I
    have seen it in my own home town--Senator Bond, you would be
    pleased, the technology that we did there for patient
    management has made the use of physicians' and nurses' time
    more efficient, reduced medical errors, and actually improved
    patient outcomes, and we had the data to show it, but we did
    not go for some big megasystem where we ended up with a
    boondoggle. We ended up with a patient management system that
    has improved management. Just as we are the leader in that
    area, I think we now have to be a leader in how we are going to
    deal with prescription drugs.
        So there are many other issues on research and others that
    I would like to raise.
        The other thing is, I am glad you are taking up the
    cemetery issue. The World War II generation is passing on. We
    need to retire them with honors. Yesterday, we laid to rest my
    uncle, Florian Mikulski. He fought at the Battle of the Bulge.
    He was a Purple Heart guy, he was a Bronze Star guy, so there
    was an honor guard at the funeral, which meant a lot to our
    family.
        He went to a private Catholic cemetery, but when you look
    at him he was an ordinary guy. He helped run our fabulous
    Mikulski's baker's shop. He went off to war. He was a hero, and
    came back with a steel plate and all the permanent things, went
    to work, never said another word about it, and we have got to
    look out for those guys. We have got to look out for them in
    their medical care, and when they pass on, to do it in a place
    that has as much dignity as they deserve, so thank you for
    taking that up, and I look forward to your testimony.

                               PREPARED STATEMENT

        Senator Bond. Thank you very much, Senator Mikulski.
    Senator Johnson submitted a statement which he would like to
    have included in the record.
        [The statement follows:]

                   Prepared Statement of Senator Tim Johnson

        Mr. Chairman, I thank you and Ranking Member Mikulski for calling
    today's hearing to talk about the fiscal year 2004 budget for the
    Veterans Administration (VA). Your commitment to caring for our
    nation's veterans and your leadership on this Subcommittee is greatly
    appreciated by me and the veterans of South Dakota.
        I would also like to thank Secretary Principi for appearing before
    the Subcommittee. You have a very difficult job and I thank you for
    your continued willingness to serve our nation.
        At a time in which we are asking so much of the men and women
    serving in our Armed Forces, I believe it is essential that we send a
    clear signal of our commitment to care for our military personnel both
    on active duty and as veterans. For decades, the men and women who
    joined the military were promised educational benefits and lifetime
    health care for themselves and their families. Those promises have too
    often not been kept.
        Mr. Chairman, several weeks ago I had the opportunity to visit VA
    facilities in South Dakota. This gave me the chance to meet with
    veterans and to listen to their thoughts. By far, the issue of greatest
    concern to them is health care. These veterans rely on the VA for their
    health care, they see a continued erosion in their benefits, and they
    are deeply troubled about the long-term viability of the VA health
    system. They want assurances that they will be able to access quality
    care in the future.
        Unfortunately, years of inadequate funding for VA health care have
    pushed the system to the brink of crisis. I am concerned that the
    quality of care is starting to suffer. Let me be clear, this has
    nothing to do with the men and women who work in the VA health care
    system. They are dedicated professionals who care about the veterans
    they serve, but they are being asked to do too much with too few
    resources.
        Instead, I believe the problems in the VA health care system stem
    for the administration's failure to ask for adequate funding. While the
    number of veterans in the United States has decreased over the years,
    the number of veterans utilizing the VA health care system has
    increased exponentially. This is due in large part to the availability
    of Community-Based Outpatient Clinics and the prescription drug
    benefits available through the VA. According to the VA, the number of
    veterans enrolled in the health care system has increased from 3.8
    million in 1996 to 6.8 million in 2002.
        While the VA has become the health care system of choice for many
    veterans, the system is simply not equipped to handle this kind of
    patient influx at the current funding level. The strain on the system
    is evident in that the VA estimates over 200,000 veterans are waiting
    for appointments--half of them will end up waiting six months or more.
    In Sioux Falls, a veteran can wait up to twelve months to get an
    appointment at the VA.
        The VA tells us these problems stem from having to operate with
    ``limited resources.'' Based on this explanation, one would think
    Congress has been providing the VA with less funding than requested by
    the President. Nothing could be further from the truth. In fact, the
    VA-HUD Appropriations Subcommittee, under the leadership of Senators
    Mikulski and Bond, has provided funding for veterans health care in
    excess of the VA's request for the past several years.
        In fiscal year 2001, Congress provided a $1.4 billion increase in
    veterans health care funding over the Administration's initial request.
    In fiscal year 2002, we succeeded in adding $1.1 billion during
    consideration of the VA-HUD Appropriations bill. In addition, as a part
    of the fiscal year 2002 Emergency Supplemental Appropriations bill,
    Congress included another $417 million for veterans health care. Even
    though Secretary Principi argued the VA needed all of this additional
    funding, the President refused to spend $275 million that was earmarked
    for veterans medical care.
        In fiscal year 2003, the President requested just $22.7 billion for
    the VA health system, far less than what was needed. Congress, once
    again, was forced to step in and appropriate an additional $1.2
    billion.
        Mr. Chairman, this pattern of the President underestimating the
    VA's needs and then relying on Congress to make up the difference is
    simply unsustainable over the long-term. And as I look at the
    President's request for fiscal year 2004, I fear we find ourselves once
    again in the same situation. The good news is the President has
    requested an additional $1.3 billion in appropriated funds for VA
    health care over what Congress provided in fiscal year 2003. This is a
    step in the right direction.
        However, the bad news is this is still not enough money to fund the
    needs of the VA health system. According to the Independent Budget--an
    independent analysis of the VA budget prepared by AMVETS, the Disabled
    American Veterans, the Paralyzed Veterans of America, and the Veterans
    of Foreign Wars--the President's request shortchanges the VA by about
    $2 billion. The failure to provide sufficient funding will have real
    consequences for veterans. It will mean veterans will continue to have
    to wait up to twelve months to get an appointment, it will mean the VA
    will not be able to hire additional health care professionals, and it
    will mean there will be a further decline in the quality of care
    provided for our veterans.
        Rather than addressing the problem and providing the needed
    funding, the President apparently has decided his solution is to turn
    veterans away from the system. The President's budget includes a
    proposal to carry-out the VA's recent decision to deny enrollment of
    future Category 8 veterans, which will leave at least 360,000 veterans
    without access to care. In addition, he is seeking authority for a $250
    enrollment fee for certain veterans. According to the VA's own
    estimation, this will force 1.3 million veterans to leave the system.
    Finally, the President has proposed significant increases in co-
    payments for pharmacy and primary care benefits, thus shifting an even
    larger financial burden to our veterans.
        Rather than contracting and restricting VA medical care, I believe
    we need to look for ways to improve access and quality of care so that
    we can fulfill our past promises to our veterans.
        Mr. Chairman, for me, fully funding the VA is a national security
    issue. Veterans are our most effective recruiters. However, inadequate
    benefits and poor health care options make it difficult for these men
    and women to encourage the younger generation to serve in today's
    voluntary military. Although we once again face difficult budgetary
    decisions, the only question is whether veterans health care should be
    a priority or an afterthought.
        Every time I have the opportunity to meet with veterans, I am
    reminded of the tremendous sacrifices they have made on behalf of our
    country. We owe each of them a debt of gratitude that can never be
    fully repaid. One of the things we can--and must--do for our veterans
    is to honor the promises we have made to them. This starts with
    providing those veterans with access to the quality health care they
    deserve.
        As we begin consideration of the fiscal year 2004 VA-HUD
    Appropriations bill, I look forward to working with my colleagues on
    the Subcommittee to ensure full funding for the VA.
        Once again, I thank Secretary Principi for taking the time to
    appear before the Subcommittee this morning. I look forward to hearing
    your thoughts on the many issues of importance to South Dakota's
    veterans.

        Senator Bond. Now, Mr. Secretary, if you would proceed,
    please.

                    FISCAL YEAR 2004 BUDGET REQUEST SUMMARY

        Secretary Principi. Thank you very, very much, Mr.
    Chairman, Senator Mikulski. Of course, I thank you for the
    opportunity to present and discuss our proposed budget for
    fiscal year 2004, but perhaps more importantly, I thank you for
    your tremendous support for my Department and the people we
    serve. I believe the budget we have this year is eloquent
    testimony to that support, and I assure you we will do
    everything in our power to achieve the goals that we share and
    use that money wisely.
        Our budget sets forth clear priorities. However, priorities
    necessarily call for choices, and where difficult choices are
    necessary, our budget identifies and acknowledges them and, as
    you have both so eloquently stated, we do have enormous
    challenges that lie ahead, but I am confident that by working
    together we can get there.
        This is a good budget in absolute terms, in percentage
    terms, and in comparative terms. In absolute terms, the
    President requests a total of $63.6 billion, $33.4 billion for
    entitlement programs and $30.2 billion for discretionary
    spending. In comparative terms, the President is asking for a
    greater percentage increase for VA than for any other
    Department of Government, and in percentage terms, this
    represents an increase of 7.7 percent over this year, and a
    21.4 percent increase over the past 2 years. I am proud of the
    work of our leadership team who are here with me today and
    their efforts with OMB in fashioning and helping us get this
    budget to present to you.
        The budget the President submitted to Congress will fund
    the Veterans Benefits Administration's--Admiral Dan Cooper, our
    Under Secretary is with us--continued progress towards
    achieving my goal of benefits decisions in 100 days with no
    more than 250,000 cases in our working inventory.
        This budget also funds the activation of four new national
    cemeteries--Acting Under Secretary Benson is with us--advanced
    planning on a fifth for activation in 2005, and will allow us
    to make continued progress toward our commitment to maintain
    our cemeteries as national shrines.
        For health care--Dr. Roswell, our Under Secretary is to my
    left--the program that dominates our discretionary budget--the
    President asks the Congress to commit an additional $2.1
    billion to treat veterans' illnesses and disabilities.
    Approximately $500 million will come from increased collections
    or copayments, and $1.5 billion, as you indicated, will come
    from increased appropriations of taxpayers' dollars.
        In addition, the budget directs VA to identify
    approximately $950 million through management efficiencies. I
    am acutely aware that every dollar unnecessarily expended is a
    dollar unavailable to provide health care to sick veterans. I
    know that $950 million is a lot of money, and it sounds like a
    lot of money, but I would point out that in this country in
    2002 the annual increase in productivity across the Nation in
    the business sector, business productivity, manufacturing
    productivity has increased by 4.7 percent, and this increased
    efficiency of $950 million represents only 3.4 percent, so I
    think it is achievable. It is aggressive, but I believe we can
    do it.
        I established a Business Oversight Board, directed
    construction of information technology enterprise architecture,
    chartered a procurement reform task force, and placed a high
    priority on improving our collection of copayments and
    insurance payments, an issue that has been of great concern to
    you and to this committee. Our progress leaves me comfortable
    with an aggressive but achievable goal for management
    efficiencies.
        I will not hide from the fact that this budget assumes that
    VA will sharpen its focus of our care on those veterans
    identified by Congress as having the highest priority, our
    service-disabled, those who have few options for health care in
    this country, as some of the issues that Senator Mikulski
    highlighted in her statement, the lower-income people, and
    those who need our specialized programs, such as spinal cord
    injury, mental health, blind rehabilitation.
        We project that we will treat 167,000 more of these
    veterans in 2004, but as you well know, our projections have
    not been very accurate for the very reasons, again highlighted
    by you, that we have an open enrollment policy with the
    exception of category 8, and changes in the economy, no
    prescription drug benefit, has caused more and more veterans to
    come to us seeking care.
        Last year, we enrolled almost 900,000 new veterans in the
    VA health care system. We have grown from about 2.9 million
    enrolled in 1998 to 6.8 million enrolled today. Overall, we
    enrolled almost 200,000 more than we expected, 70,000 more
    users than we expected last year, again for some of the reasons
    that you highlighted that they are coming to us, and it has
    clearly stretched our system to the breaking point.
        There is no question that we face enormous challenges in
    providing care with a fixed budget for this ever-increasing
    number of veterans who come to us for treatment and
    pharmaceuticals. When demand for care exceeds our capacity,
    veterans have to wait longer for that care. On behalf of those
    veterans and the VA health care professionals who will treat
    them, I thank you for the $2.5 billion increase that you gave
    us this year.
        Those funds, combined with management actions I have
    directed, should allow us--and I made it a very high priority--
    to eliminate this backlog of veterans waiting for care, waiting
    more than 30 days to see a primary care physician, by the end
    of this fiscal year. All of our energies and those of my Under
    Secretary for Health and all of our people around the country
    are focused on using that $2.5 billion to increase our
    treatment capability to bring that backlog down.

                                 WAITING LISTS

        I would note that most of the veterans who were on last
    year's waiting lists have now been seen, only to be replaced by
    additional veterans who have sought care since then. The
    existence of waiting lists illustrates the tension between
    fixed resources and potentially unlimited demand for care. The
    Congress clearly anticipated this tension when it both enacted
    the statutory requirement for me to make an annual enrollment
    decision and designated priority groups for constraining
    enrollment when necessary, priority groups 1 through 8.
        Last year's waiting lists were symptoms of an imbalance
    and, as I am required to do, I took action to bring veterans
    health care back into balance. I directed the VHA to continue
    informing veterans about their benefits, to be part of the
    community but to cease actively recruiting new patients until
    we can get a handle on this backlog.
        I suspended enrollment of additional higher-income priority
    8 nonservice-connected veterans and, as part of the budget
    before you today, I proposed policy to strengthen VA's focus on
    veterans in the higher-priority groups established by Congress,
    eliminated the copayments for the poorest of the poor.
        Currently, we collect copayments from any veteran who has
    an income of $9,000 or more. I proposed to eliminate the
    copayment for any veteran who has an income of $16,000 or less,
    but I have also proposed, for those who can most afford to
    share a little of the cost of their care and who have other
    options, to have a slightly increased copayment and to make an
    annual enrollment fee premium of $250, which is very consistent
    with the military's TRICARE Prime program, where any military
    retiree who is entitled to health care must make an annual
    enrollment payment.

                      SUSPENSION OF PRIORITY 8 ENROLLMENT

        I acknowledge that my recent decision to suspend additional
    enrollment of veterans in the priority 8 group has put us on a
    course through uncharted waters, and I will monitor our
    outcomes. I will monitor our growth in workload very carefully
    to ensure that we do not overshoot the mark, because I want to
    make sure that we see as many veterans as possible who seek
    care from the VA as long as we can do it in a timely and
    quality manner, and I will not hesitate to act to right the
    course, to reopen enrollment if I believe we can care for
    veterans in priority group 8. However, failure to address a
    continuing imbalance would inevitably result in longer waiting
    lists, poorer quality of care, and perhaps even actual
    disenrollment of priority 8 veterans, a decision that I would
    be loath to make.
        I have to emphasize that the tension between resources and
    demand for care is not a 1-year issue. A decision to reject
    demand management initiatives this year would only compound the
    problem for us in future years, because veterans who are
    enrolled today may not seek to use the health care system
    today, but next year or the year after, so the costs grow
    exponentially as veterans become older and sicker.
        My enrollment decision does not mean that VA believes
    higher-income veterans are unimportant. They are very, very
    important. We are working with HHS, and I am so pleased that
    Secretary Thompson and I visited Baltimore to begin to break
    down the barriers and the walls that have all too often existed
    in this city between agencies of Government who have similar
    missions. In health care, it is VA, it is HHS, and DOD.

                               PREPARED STATEMENT

        Oftentimes we get caught up on turf and jurisdiction, and
    we do not see the benefits of working together collaboratively
    to provide the health care that veterans, that military
    retirees and that Medicare-eligible citizens receive, and I
    think that by working together across the spectrum of health
    care, in research, in prescription benefits, and in health care
    in general, I think we can do a lot more by working together,
    and I think this visit demonstrated a willingness on Secretary
    Thompson's part for doing that. I thank you, Senator Mikulski,
    for joining with us on that important visit.
        Mr. Chairman, Senator Mikulski, and really all the members
    of the committee who cannot be here today, I appreciate your
    advocacy and support for veterans, and we are prepared to
    answer your questions.
        [The statement follows:]

            Prepared Statement of the Honorable Anthony J. Principi

        Mr. Chairman and members of the Committee, good morning. I am
    pleased to be here today to present the President's 2004 budget
    proposal for the Department of Veterans Affairs (VA). The centerpiece
    of this budget is our strategy to bring balance back to our health care
    system priorities. I have by my decisions and by my actions focused VA
    health care on veterans in the highest statutory priority groups--the
    service-connected, the lower income, and those veterans who need our
    specialized services. This budget reflects those priorities.
        The President's 2004 budget request totals $63.6 billion--$33.4
    billion for entitlement programs and $30.2 billion for discretionary
    programs. This represents an increase of $3.3 billion, which includes a
    7.7 percent rise in discretionary funding, over the enacted level for
    2003, and supports my three highest priorities:
      --sharpen the focus of our health care system to achieve primary care
            access standards that complement our quality standards;
      --meet the timeliness goal in claims processing;
      --ensure the burial needs of veterans are met, and maintain national
            cemeteries as shrines.
        Virtually all of the growth in discretionary resources will be
    devoted to VA's health care system. Including medical care collections,
    funding for medical programs rises by $2.1 billion. As a key component
    of our medical care budget, we are requesting $225 million to begin the
    restructuring of our infrastructure as part of the implementation of
    the Capital Asset Realignment for Enhanced Services (CARES) program.
        We are presenting our 2004 request using a new budget account
    structure that more readily presents the funding for each of the
    benefits we provide veterans. This will allow the Department and our
    stakeholders to more effectively evaluate the program results we
    achieve with the total resources associated with each program.

                                  MEDICAL CARE

        The President's 2004 budget includes $27.5 billion for medical
    care, including $2.1 billion in collections, and represents an 8.0
    percent increase over the enacted level for 2003. These resources will
    ensure we can provide health care for over 4.8 million unique patients
    in 2004.
        The primary reason VA exists is to care for service-connected
    disabled veterans. They have made enormous sacrifices to help preserve
    freedom, and many continue to live with physical and psychological
    scars directly resulting from their military service to this Nation.
    Every action we take must focus first and foremost on their needs. In
    addition, our primary constituency includes veterans with lower incomes
    and those who have special health care needs. By sharpening the focus
    of our health care system on these core groups, we will be positioned
    to achieve our primary care access standards.
        The demand for VA health care has risen dramatically in recent
    years. From 1996 to 2002, the number of patients to whom we provided
    health care grew by 54 percent. Among veterans in Priority Groups 7 and
    8 alone, the number treated in 2002 was about 11 times greater than it
    was in 1996. The combined effect of several factors has resulted in
    this large increase in the demand for VA health care services.
        First, the Veterans Health Care Eligibility Reform Act of 1996 and
    the Veterans Millennium Health Care Act of 1999 opened the door to
    comprehensive health care services to all veterans. Second, the
    national reputation and public perception of VA as a leader in the
    delivery of quality health care services has steadily risen, due in
    part to widespread acknowledgement of our major advances in quality and
    patient safety. Third, access to health care has greatly improved with
    the opening of hundreds of community-based outpatient clinics. Fourth,
    our patient population is growing older and this has led to an increase
    in veterans' need for health care services. Fifth, VA has favorable
    pharmacy benefits compared to other health care providers, especially
    Medicare, and this has attracted many veterans to our system. And
    finally, some feel that public disenchantment with Health Maintenance
    Organizations, along with their economic failure, may have caused many
    patients to seek out established and traditional sources of health care
    such as VA. All of these factors have put a severe strain on our
    ability to continue to provide timely, high-quality health care,
    especially for those veterans who are our core mission.
        Through a combination of proposed regulatory and legislative
    changes, as well as a request for additional resources, our 2004 budget
    will help restore balance to our health care system priorities and
    ensure we continue to provide the best care possible to our highest
    priority veterans. The most significant changes presented in this
    budget are to:
      --assess an annual enrollment fee of $250 for nonservice-connected
            Priority 7 veterans and all Priority 8 veterans;
      --increase co-payments for Priority 7 and 8 veterans--for outpatient
            primary care from $15 to $20 and for pharmacy benefits from $7
            to $15;
      --eliminate the pharmacy co-payment for Priority 2-5 veterans whose
            income is below the pension aid and attendance level of
            $16,169;
      --expand non-institutional long-term care with reductions in
            institutional care in recognition of patient preferences and
            the improved quality of life possible in non-institutional
            settings.
        Revolutionary advances in medicine moved acute medical care out of
    institutional beds and rendered obsolete ``bed count'' as a measure of
    health care capacity. The same process is underway in long-term care
    and this budget proposes to focus VA's long-term care efforts on
    increased access to long-term care for veterans, rather than counting
    institutional beds. This budget focuses long-term care on the patient
    and his or her needs. Our policies expand access to non-institutional
    care programs that will allow veterans to live and be cared for in the
    comfort and familiar setting of their home surrounded by their family.
        While we will shift our emphasis to non-institutional forms of
    long-term care, we will continue to provide institutional long-term
    care to veterans who need it the most--veterans with service-connected
    disabilities rated 70 percent or greater and those who require
    transitional, post-acute care. Coupled with this, our budget continues
    strong support for grants for state nursing homes.
        In addition, we are working with the Department of Health and Human
    Services to implement the plan by which Priority 8 veterans aged 65 and
    older, who cannot enroll in VA's health care system, can gain access to
    a new ``VA+Choice Medicare'' plan. This would allow for these veterans
    to be able to use their Medicare benefits to obtain care from VA. In
    return, we would receive payments from a private health plan
    contracting with Medicare to cover the cost of the health care we
    provide. The ``VA+Choice Medicare'' plan will become effective later
    this year as the two Departments finalize the details of the plan.
        Coupled with my recent decision on enrollment, these proposed
    regulatory and legislative changes would help ensure that sufficient
    resources will be available to provide timely, high-quality health care
    services to our highest priority veterans. If these new initiatives are
    implemented, veterans comprising our core mission population will
    account for 75 percent of all unique patients in 2004, a share
    noticeably higher than the 67 percent they held in 2002. During 2004,
    we will treat 167,000 more veterans in Priority Groups 1-6 (those with
    service-connected disabilities, lower-income veterans, and those
    needing specialized care).
        In return for the resources we are requesting for the medical care
    program, we will be able to build upon our noteworthy performance
    achievements during the past 2 years. During 2002, VA received national
    recognition for its delivery of high-quality health care from the
    Institute of Medicine in the report titled ``Leadership by Example.''
    In addition, the Department received the Pinnacle Award from the
    American Pharmaceutical Association Foundation in June 2002 for its
    creation of a bar code medication administration system. This important
    patient safety initiative ensures that the correct medication is
    administered to the correct patient at the proper time. Patient
    satisfaction rose significantly last year, as 7 of every 10 inpatients
    and outpatients rated VA health care service as very good or excellent.
        We will continue to use clinical practice guidelines to help ensure
    high-quality health care, as they are directly linked with improved
    health outcomes. We will employ this approach most extensively in the
    management of chronic disease and in disease prevention. For 16 of the
    18 quality of care indicators for which comparable data from managed
    care organizations are available, VA is the benchmark exceeding the
    best competitor's performance.
        Mr. Chairman, one of our most important focus areas in our 2004
    budget is to significantly reduce waiting times, particularly for
    patients who are using our health care system for the first time. As we
    begin to rebalance our health care system with a heightened emphasis on
    our core service population, we will drive down waiting times. By 2004,
    VA will achieve our objective of 30 days for the average waiting time
    for new patients seeking an appointment at a primary care clinic. In
    addition, we have set a performance goal of 30 days for the average
    waiting time for an appointment in a specialty clinic. With this budget
    and the enacted funding level for 2003, we will eliminate the waiting
    list by the end of 2003.
        We remain firmly committed to managing our medical care resources
    with increasing efficiency each year. The 2004 budget includes
    management savings of $950 million. These savings will partially offset
    the need for additional funds to care for an aging patient population
    that will require an ever-increasing degree of health care service, and
    rising costs associated with a sharply growing reliance on
    pharmaceuticals necessary to treat patients with complex, chronic
    conditions. We will achieve these management savings by implementing a
    rigorous competitive sourcing plan, reforming the health care
    procurement process, increasing employee productivity, increasing VA/
    DOD sharing, continuing to shift from inpatient care to outpatient
    care, and reducing requirements for supplies and employee travel.
        Our projection of medical care collections for 2004 is $2.1
    billion. This total is 32 percent above our estimated collections for
    2003 and will nearly triple our 2001 collections. By implementing a
    series of aggressive steps identified in our revenue cycle improvement
    plan, we are already making great strides towards maximizing the
    availability of health care resources. For example, we have mandated
    that all medical facilities establish patient pre-registration to
    include the use of software that assists in gathering and updating
    information on patient insurance. We are in the midst of a series of
    pilot projects at four Veterans Integrated Service Networks to test the
    implementation of a new business plan that calls for reconfiguration of
    the revenue collection program by using both in-house and contract
    models. In addition, the Department will award the Patient Financial
    Services System this spring to Network 10 (Ohio) which will acquire and
    deploy a commercial system of this type. This project involves
    comprehensive implementation of standard business practices and
    information technology improvements.
        As you know Mr. Chairman, one of the President's management
    initiatives calls for VA and the Department of Defense (DOD) to enhance
    the coordination of the delivery of benefits and service to veterans.
    Over the past year, our two Departments have undertaken unprecedented
    efforts to improve cooperation and sharing in a variety of areas
    through a Joint Executive Council (JEC). To expand the scope of
    interdepartmental cooperation, a benefits committee has been added to
    complement the longstanding Health Executive Council. The VA and DOD
    Benefits Executive Council is exploring improved transfer and access to
    military personnel records and a pilot project for a joint physical
    examination to improve the claims process for military personnel. The
    JEC provides overarching policy direction, sets strategic vision and
    priorities for the health and benefits committees, and serves as a
    forum for senior leaders to oversee coordination of initiatives. To
    address some of the remaining challenges, the Departments have
    identified numerous high-priority items for improved coordination such
    as the joint strategic mission and planning process, computerized
    patient medical records, eligibility and enrollment systems, joint
    separation physicals and compensation and pension examinations, and a
    joint consolidated mail-out pharmacy pilot.

            CAPITAL ASSET REALIGNMENT FOR ENHANCED SERVICES (CARES)

        The 2004 budget includes $225 million of capital funding to move
    forward with the Capital Asset Realignment for Enhanced Services
    (CARES) initiative. This program addresses the needed infrastructure
    realignment for the health care delivery system and will allow the
    Department to provide veterans with the right care, at the right place,
    and at the right time. CARES will assess veterans' health care needs
    across the country, identify delivery options to meet those needs in
    the future, and guide the realignment and allocation of capital assets
    so that we can optimize health care delivery in terms of both quality
    and access.
        As demonstrated in Veterans Integrated Service Network 12,
    restructuring will require significant investment to achieve a system
    that is appropriately sized for our future. Our preliminary estimate
    for resources that can be redirected to medical care between now and
    2010 as a result of the appropriate alignment of assets and health care
    services, and the sale or enhanced-use leasing of underutilized or non-
    performing assets, is $6.8 billion. It is extremely important to have
    funding in 2004 to begin the multiyear effort to restructure. Given the
    timing associated with identifying CARES projects, we will be working
    with your committee on the authorization process in order not to delay
    the start of these projects.

                        MEDICAL AND PROSTHETIC RESEARCH

        Mr. Chairman, we are requesting $822 million in funding for VA's
    clinical research program, an increase of 2.6 percent from the 2003
    level. For the first time, our request includes funds in the form of
    salary support for clinical researchers, resources that previously were
    a component of the Medical Care request. This approach provides a more
    complete picture of VA's resources devoted to this program. In addition
    to the Department's funding request, nearly $700 million in funding
    support comes from other federal agencies such as DOD and the National
    Institutes of Health, as well as universities and other private
    institutions.
        This $1.5 billion will support more than 2,700 high-priority
    research projects to expand knowledge in areas critical to veterans'
    health care needs--Gulf War illnesses, diabetes, heart disease, chronic
    viral diseases, Parkinson's disease, spinal cord injury, prostate
    cancer, depression, environmental hazards, women's health care
    concerns, and rehabilitation programs.

                               VETERANS' BENEFITS

        The Department's 2004 budget request includes $33.7 billion for the
    entitlement and discretionary costs supporting the six business lines
    administered by the Veterans Benefits Administration (VBA). Within this
    total, $1.17 billion is included for the management of these programs--
    compensation; pension; education; vocational rehabilitation and
    employment; housing; and insurance.
        Improving the timeliness and accuracy of claims processing is a
    Presidential priority, and during the last year we have made excellent
    progress toward achieving this goal. A year ago, I testified that I had
    set a performance goal of processing compensation and pension claims in
    an average of 100 days by the summer of 2003. I am pleased to report
    that we are on target to meet that goal and we will maintain that
    improved timeliness standard for 2004. When we reach this goal, we will
    have reduced the time it takes to process claims by more than 50
    percent from the 2002 level.
        At the same time that we are improving timeliness, we will be
    increasing the accuracy of our claims processing. The 2004 performance
    goal for the national accuracy rate is 90 percent, a figure 10
    percentage points higher than last year's level of performance, and
    markedly above the accuracy rate of 59 percent in 2000.
        The driving force that will allow us to make this kind of progress
    with only a slight budget increase continues to be the initiatives we
    are implementing from the Claims Processing Task Force I established in
    2001. Located at the Cleveland Regional Office, our Tiger Team has been
    working over the last year to eliminate the backlog of claims pending
    over 1 year, especially for veterans 70 years of age or older. This
    aggressive effort of reducing the backlog and improving timeliness is
    underway at all of our regional offices. VBA has established
    specialized processing teams, such as triage, pre-determination,
    rating, post-determination, appeals, and public contact. Other Task
    Force initiatives, such as changing the procedure for remands, revising
    the time requirements for gathering evidence, and consolidating the
    maintenance of pension processing at three sites, have allowed us to
    free up resources to work on direct processing at the regional offices.
        This budget includes additional staff and resources for new and
    ongoing information technology projects to support improved claims
    processing. We are requesting $6.7 million for the Virtual VA project
    that will replace the current paper-based claims folder with electronic
    images and data that can be accessed and transferred electronically
    through a web-based solution. We are seeking $3.8 million for the
    Compensation and Pension Evaluation Redesign, a project that will
    result in a more consistent claims examination process. In addition, we
    are requesting $2.6 million in 2004 for the Training and Performance
    Support Systems, a multi-year initiative to implement five
    comprehensive training and performance support systems for positions
    critical to the processing of claims.
        In support of the education program, the budget proposes $7.4
    million for continuing the development of the Education Expert System.
    These resources will be used to expand upon an existing prototype
    expert system and will enable us to automate a greater portion of the
    education claims process and expand enrollment certification. This
    initiative will contribute toward achievement of our 2004 performance
    goal of reducing the average time it takes to process claims for
    original and supplemental education benefits to 27 days and 12 days,
    respectively.
        VA is requesting $13.2 million for the One-VA Telephone Access
    project, an initiative that will support all of VBA's benefits
    programs. This initiative will result in the development of a Virtual
    Information Center that forms a single telecommunications network among
    several regional offices. This technology will allow us to answer calls
    at any place and at any time without complex call routing devices.
        All of these information technology projects are consistent with
    the Department's Enterprise Architecture and will be supported by
    improved project administration from our Chief Information Officer.

                                     BURIAL

        The President's 2004 budget includes $428 million for VA's burial
    program, which includes operating and capital funding for the National
    Cemetery Administration (NCA), the burial benefits program administered
    by VBA, and the State Cemetery Grant program. This total is $17
    million, or 4.2 percent, over the 2003 level.
        This budget request includes $4.3 million for the activation and
    operation of five new national cemeteries in 2004. NCA plans to open
    fast-track sections for interments at four new national cemeteries
    planned for Atlanta, South Florida, Pittsburgh, and Detroit. Fort Sill
    National Cemetery opened a small, fast-track section for interments in
    November 2001, and Phase 1 construction of this cemetery should be
    complete by June 2003. In addition to resources for these five new
    cemeteries, this budget request also includes resources to prepare for
    the future opening of a fast-track section of an additional national
    cemetery near Sacramento. The locations of these national cemeteries
    were identified in a May 2000 report to Congress as the six areas most
    in need of a new national cemetery.
        With the opening of these new cemeteries, VA will increase the
    proportion of veterans served by a burial option within 75 miles of
    their residence to nearly 82 percent.
        The $108.9 million in construction funding for the burial program
    in 2004 includes resources for Phase 1 development of the Detroit
    cemetery, expansion and improvements at cemeteries in Fort Snelling,
    Minnesota and Barrancas, Florida, as well as $32 million for the State
    Cemetery Grant program.
        The budget request includes $10 million to support the Department's
    commitment to ensuring that the appearance of national cemeteries is
    maintained in a manner befitting a national shrine. One of the key
    performance goals for the burial program is that 98 percent of survey
    respondents rate the appearance of national cemeteries as excellent.
        A new performance measure established for NCA is marking graves in
    a timely manner after interment. We have established a 2004 performance
    goal of marking 75 percent of graves in national cemeteries within 60
    days of interment. When we achieve this goal, it will represent a
    dramatic improvement over the 2002 level of 49 percent.

                            MANAGEMENT IMPROVEMENTS

        Mr. Chairman, we have made excellent progress during the last year
    in implementing, or developing, several management initiatives that
    address our goal of applying sound business principles to all of the
    Department's operations. We are particularly pleased with our
    accomplishments in addressing the President's Management Agenda that
    focuses on strategies to improve the management of the Federal
    government in five areas--human capital; competitive sourcing;
    financial performance; electronic government; and budget and
    performance integration.
        We have developed a sound workforce and succession plan that
    includes strategies VA will pursue to implement a more corporate
    approach to human capital management, and a workforce analysis of
    several of the Department's critical positions--physicians, nurses, and
    compensation and pension veterans service representatives. We are
    moving forward with a competitive sourcing study of our laundry
    service, and other studies will be conducted of our pathology and
    laboratory services, and facilities management and operations. With
    regard to financial performance, we achieved an unqualified audit
    opinion for the fourth consecutive year. During 2003 and 2004, we will
    be involved in 10 electronic government studies. And finally, we
    continue to progress in our efforts to better integrate resources with
    results. One major accomplishment in this area is the restructuring of
    our budget accounts. This new account structure is presented in our
    2004 budget and will lead to a more complete understanding of the full
    cost of each of our programs.
        VA has a variety of other management improvement efforts underway
    that will lead to greater efficiency and will be accomplished largely
    through centralization of several of our major business processes. I am
    committed to reforming the way we conduct our information technology
    (IT) business, and to help the Department meet this objective, we have
    aggressively pursued new approaches to accomplishing our IT goals. We
    have developed a One-VA enterprise strategy, embarked on a nationwide
    telecommunications modernization program, and laid a solid foundation
    for a Departmental cyber security program. In order to facilitate and
    enhance these efforts, I recently centralized the IT program, including
    authority, personnel, and funding, in the office of the Chief
    Information Officer. This realignment will serve to strengthen the IT
    program overall and ensure that our efforts remain focused on building
    the infrastructure needed to better serve our Nation's veterans.
        This budget includes $10.1 million to continue the development of
    the One VA Enterprise Architecture and to integrate this effort into
    key Departmental processes such as capital planning, budgeting, and
    project management oversight. Our request also includes $26.5 million
    for cyber security initiatives to protect our IT assets nationwide.
    These initiatives aim to establish and maintain a secure Department-
    wide IT framework upon which VA business processes can reliably deliver
    high-quality services to veterans.
        The 2004 budget includes funds to continue the CoreFLS project to
    replace VA's existing core financial management and logistics systems--
    and many of the legacy systems interfacing with them--with an
    integrated, commercial off-the-shelf package. CoreFLS will help VA
    address and correct management and financial weaknesses in the areas of
    effective integration of financial transactions from VA systems,
    necessary financial support for credit reform initiatives, and improved
    automated analytical and reconciliation tools. Testing of CoreFLS is
    underway, with full implementation scheduled for 2006.
        We are developing a realignment proposal for finance, acquisition,
    and capital asset functions in the Department. A major aspect of this
    effort centers on instituting much clearer delegations of authority and
    improved lines of accountability. This plan would establish a business
    office concept across the Department and would enhance corporate
    discipline that will lead to uniformity in operations and greater
    accountability, and will make the transition to the new financial and
    logistics system much easier to implement. A component of the plan
    under review and consideration will result in a consolidated business
    approach for all finance, acquisition, and capital asset management
    activities.

                                    CLOSING

        Mr. Chairman, I am proud of our achievements during the last year.
    However, we still have a great deal of work to do in order to
    accomplish the goals I established nearly 2 years ago. I feel very
    confident that the President's 2004 budget request for VA will position
    us to reach our goals and to continue to provide timely, high-quality
    benefits and services to those who have served this Nation with honor.
        That concludes my formal remarks. My staff and I would be pleased
    to answer any questions.

        Senator Bond. Thank you very much, Mr. Secretary. Senator
    Mikulski has been summoned to a very important meeting, so I am
    going to let her ask questions as long as she wishes, as long
    as she needs, and then I will finish up with what is left.
        Senator Mikulski. I thank the chairman for his courtesy. I
    am part of a bipartisan special project task force under
    Senator Frist and have to leave shortly, but let me get right
    to my questions, Mr. Secretary, and it goes to the issues
    related to the management of the number of veterans coming in
    for prescription drugs.
        Let me go right to the IG report. In the IG report, they
    discussed in great detail about priority 7. They said 90
    percent of those who come had either access to private non-VA
    health care, they had health insurance to see a doctor, but
    they did not have health insurance to get their prescription
    drugs. The IG recommended a change--and they were coming to VA
    to get their prescription filled, but it was not written by a
    VA doctor.
        The IG recommended a change in the law so that veterans
    could have privately written prescriptions filled by the VA,
    and it was the original estimate by the IG that VA could save
    $1 billion a year by doing this. Now, this seems like a
    solution that would deal with, where you are not going being
    overwhelmed in the primary care department, and yet also meet
    those needs.
        Could you tell me, Mr. Secretary, or your team, Dr.
    Roswell, have you looked at this, and what do you think about
    the IG's recommendation, and would it be good patient care, and
    would it be good stewardship over our financial resources?
        Secretary Principi. Let me begin, because it is a very
    timely issue and one we are seriously grappling with. I do not
    say that lightly. I have been spending a lot of time, we spent
    a lot of time on this issue yesterday, and it is one of concern
    to us, and I will let Dr. Roswell follow up, but I think the
    concern, Senator Mikulski, is if we go down this road and
    basically just fill prescriptions, we do not know where it will
    lead.
        Although the growth in the VA workload has increased
    dramatically, as we all talked about here earlier, we are still
    seeing a microcosm of the 25 million veterans, and there are a
    lot more Medicare-eligible veterans out there, and if we became
    something akin to a drugstore, although I do not care for that
    term, we do not know what kind of influx we would have and how
    we could possibly support financially that increased workload
    of just filling prescription drugs.
        We are already stretched kind of to the limit, moved so
    much of our resources into primary care. If we had an influx
    of, let us say, 1 million or 2 million Medicare-eligible
    veterans who have never sought their care from the VA, how
    would we fund that?
        I think that is the only real disagreement. Perhaps it is a
    projection issue with the IG. I commend them for their report,
    but it is something that we are looking at at least right now
    to deal with the backlog issue, veterans who are currently on
    the backlog, to see if there is something we could do there, to
    fill their prescriptions.
        Senator Mikulski. But if I could just jump in, because the
    time is ticking here, you say you are worried that you will be
    overwhelmed by more people. The IG says, though, by doing this
    you are going to save $1 billion. That is a big bucket of
    change, and also has an impact on the number of primary care
    visits.
        Dr. Roswell, first would it save money, and second, would
    it help you with the staffing, and if not, why, because the IG
    usually has some pretty good recommendations.
        Dr. Roswell. The IG made a very astute observation. In
    fact, based on the unprecedented and unpredictable demand for
    care the IG is currently in the process of amending their
    recommendations and, in fact, the savings may exceed $2 billion
    a year.
        The savings come from replication of physical examination
    services and primary care services that have been provided by
    non-VA providers in the community, that now by law must be
    provided by the VA again before we can issue prescription drug
    benefits, and while we do not argue with the savings that the
    IG talks about in his study, it is important to point out that
    those are savings associated with replicated or duplicated
    physical examination and patient care services, but it does not
    reflect the incremental cost to our medical care appropriation
    for the additional pharmaceutical product that would be
    consumed by those people once prescriptions are issued by the
    VA.
        Last year, a typical patient in priority 7 or 8 received
    over $750 in prescription products. Now, seeing a patient once
    or twice a year, which would be necessary to evaluate them and
    rewrite the prescriptions written by their non-VA provider,
    would conservatively cost between $150 and $200 a year, but if
    we save $150 or $250 a year and then turn around and spend an
    additional $750 on pharmaceutical product, the impact on the
    appropriated dollar is phenomenal, so the savings are really
    more than offset by the additional cost of the drugs.
        Senator Mikulski. Well, first of all, from what I could
    see, any change would require statutory and regulatory change.
    Before we embark upon that, though, I think we need some
    recommendations that are consistent from both the VA itself and
    the VA IG, because I think we are onto something, but we want
    to be sure that the something leads to good care and to cost
    savings that do not reduce care, therefore maximizing the role
    that private insurance plays in our system.
        You already have a consistent problem collecting money from
    private insurance.
        Secretary Principi. Yes.
        Senator Mikulski. They always kind of dance us around.
        Secretary Principi. That is correct.
        Senator Mikulski. However, if you are going to your primary
    care doctor with whom you have a relationship and that primary
    care doctor also has a relationship with your spouse, that is a
    good place for the veteran to be, because it is holistic, it is
    family-oriented, they probably have known that vet since he or
    she came back home so we just need to see, then, how we can
    maximize this, and do that.
        I really think this could be a very important tool as we
    get to our appropriations, while we are then working for a
    national program, so I would like us to take a look at it. I am
    not committed to this method, but I am committed to us
    examining this recommendation and coming up with perhaps, not a
    compromise, but a balanced approach where you all feel very
    good about it.

                                 ENROLLMENT FEE

        Let me go on, then, to another issue, which goes to the
    $250 enrollment fee. How did you arrive at $250? It is
    essentially like a deductible. How did you arrive at it, and
    why do we need it?
        Secretary Principi. Well, again I think we looked at, in
    assessing what would be an appropriate enrollment premium for
    the higher income, I think we looked at the potential savings
    from those who may have some other options, who may have
    insurance, but may use the VA on a periodic basis. We looked at
    the TRICARE program. We looked at what the assessment is for
    military retirees who spend 20 or 30 years in uniform to be
    enrolled in the TRICARE Prime program.
        Senator Mikulski. They have to pay an enrollment fee?
        Secretary Principi. Yes. Yes, they do.
        Senator Mikulski. How much is that?
        Secretary Principi. It is $456 a year for a married couple
    and I believe it is probably around $250 for a military retiree
    who has no spouse, but usually it is a family. It is a $456 a
    year payment, so here on the one hand we have a military
    retiree with 20 or 30 years of service is required to make a
    payment, and we thought that it would be reasonable, just for
    this, again the nondisabled, higher-income, those who may have
    spent 2 years or 4 years on active duty, to make a payment of
    $250, so that is how we reached it.
        We looked at the potential revenues, the savings that you
    allow us to keep at the VA medical center where it is collected
    so that we can provide more health care, and we looked at what
    was comparable in other Federal sectors.
        Senator Mikulski. Well, this is going to be a little
    touchy, but did the VA decide on an enrollment for cost
    reasons, or did you also think by an enrollment, it would also
    be a deterrent for those people to come to you?
        Secretary Principi. No, clearly I think there is some
    suppression, Senator Mikulski. For people who have no option,
    $250 is the greatest deal in the world, even in America. When
    the average cost is about $4,000 a year, for that individual to
    pay $250 is a very, very small percentage, and for a very rich
    benefit as well, I might add.
        But for those who do have other options, are insured by
    Blue Cross or Blue Shield, or have TRICARE coverage through the
    military, they might say, well, it does not pay for me to spend
    $250 a year. I can just go ahead and stick with my current
    insurance program. So, indeed, there is a suppression.
        Senator Mikulski. It would give a pause.
        Secretary Principi. I'm sorry.
        Senator Mikulski. It would give a pause, an analysis.
        Secretary Principi. Yes.
        Senator Mikulski. Well, I know that these are other issues
    the chairman will ask about as well. I have other questions I
    would like to submit to the record, but let me go to the last
    question, and it goes, first, what are we doing for gulf war
    veterans, and second, tell me what the VA is doing as we look
    at what we are about to face in Iraq and what we continually
    face here in the war on terrorism.

                                GULF WAR LESSON

        I am absolutely delighted about your collaboration with
    Secretary Thompson. I cannot encourage you more for both ideas,
    efficiencies, good policies, et cetera, but we are facing
    serious issues on bioterrorism and possibly chemical terrorism,
    possibly even something as repugnant as a dirty bomb. Where
    does the VA come in? So thinking about our gulf war veterans,
    what they were subjected to in that hot desert, they are going
    right back out there again. What are we doing for the ones
    here, what are we getting ready for, God forbid, if they come
    back sick, and second, what is the VA doing in the war against
    terrorism?
        Secretary Principi. Senator, I harken back to my days
    riding river boats in the Mekong Delta, Vietnam, and the whole
    issue of Agent Orange, so I get pretty personally sensitive to
    this issue, and when I came on board I said I just did not want
    to repeat the mistakes of the past with regard to the Persian
    Gulf, and so I think we have really taken a very fresh look at
    it, appointed a new advisory committee of people who sometimes
    think out of the box and explore unconventional theories. That
    is not to say I reject conventional theories.
        You know, I immediately service-connected when we had some
    evidence of veterans with Lou Gehrig's disease. One of my
    predecessors, my good friend, Jesse Brown, died of ALS, and we
    service-connected the veterans who served in the gulf between
    1990 and 1991 with ALS. I recently directed that we service-
    connect veterans with chronic lymphocytic leukemia, and I just
    asked the Institute of Medicine to take a look at the Sarin gas
    that was exposed when we hit the Kamisiyah ammunition dump in
    Iraq and some Sarin gas was released into the atmosphere to see
    if there are long-term chronic effects.
        So we are continually, continually looking at this issue to
    see what caused these illnesses and to try to apply those
    lessons now to the Persian Gulf, Iraq II, and I will let Dr.
    Roswell talk about the things he is doing with the Department
    of Defense to make sure.
        Senator Mikulski. And I am also mindful of time, so if we
    could----
        Dr. Roswell. Very briefly, it is an excellent point. We are
    working with unprecedented collaboration not only with HHS, but
    with the Department of Defense. There is a Joint Executive
    Council and a Health Executive Council with the Deployment
    Health Group. It is managed between the two Departments. We
    have communicated clearly and consistently with DOD what we
    believe the needs are. They are fully supportive of those
    needs.
        Specifically, we are making a maximal effort to do
    predeployment surveys of all personnel going to the gulf who
    may be involved in a war with Iraq. That predeployment survey
    assesses premorbid conditions, health status at the time they
    are deployed.
        We also have an aggressive level of monitoring in theater,
    looking not only at incidents after they occur, but also doing
    proactive monitoring before an incident occurs. That
    information will be shared with VA as soon as it can be
    declassified and made available.
        We will be doing a post-deployment survey as well to assess
    their health at the time they are separated and redeployed back
    to the United States. There is also a serum repository in which
    virtually every military personnel deploying to the gulf
    theater will have a serum sample that is no more than 1 year
    old placed in that national serum repository, and that will be
    available for testing after a conflict in the gulf war should
    it be needed.
        So there is really an awful lot of collaboration.
        Senator Mikulski. What about the war on terrorism? There
    are 162 VA hospitals. Many of them are in high-threat areas.
    Are you participating with the CDC in terms of the national
    preparation for a possible biological attack on our citizens?
    Are the VA employees getting the vaccines? What is the role of
    the VA in being part of a network?
        Second, you are under the command and control of the United
    States of America. You are very different from any of the other
    health care, you are different from any other acute care
    facilities, because you are essentially, in terms of
    administration, management, and even national public directive,
    you are a one-stop shop.
        Dr. Roswell. We have a very high level of cooperation with
    the new Department of Homeland Security. We participate in the
    National Disaster Medical System. We have created new Federal
    partners: that was actually an innovation of Secretary Principi
    to work with other Departments in that response.
        VA has issued pharmaceutical caches at our critical
    locations.
        Senator Mikulski. Are you getting the smallpox vaccine?
        Dr. Roswell. We have smallpox vaccine.
        Senator Mikulski. Have the workers been vaccinated?
        Dr. Roswell. A very small number have been vaccinated.
        Senator Mikulski. In the event of a casualty, like in a
    city like Baltimore, or New York, or San Francisco, would the
    VA hospitals there be prepared to deal with the casualties, and
    are you part of the network that is going on in those
    individual towns?
        Dr. Roswell. We are a part of the network and we are taking
    appropriate steps to be prepared, with protective equipment,
    with decontamination equipment.
        Senator Mikulski. Well, I appreciate that, but right now at
    Johns Hopkins, the University of Maryland and other hospitals,
    they are getting vaccinated, and they are asking for volunteers
    to do it. It is a very complicated situation. I have my own
    flashing yellow lights about it, but is the VA as active as the
    local community hospitals?
        Dr. Roswell. VA personnel receive the smallpox vaccine in
    two different ways. We have actually requested our own supply
    of vaccine which HHS has promised to make available to us. We
    are also participating by the States--the CDC vaccination plan
    for smallpox, you may recall, is on a State-by-State----
        Senator Mikulski. Maybe I am asking this at the third
    paragraph. Are you going to be one of the hospitals that will
    be designated to be one of the primary facilities accepting
    this, or if there is a smallpox outbreak, are they going to go
    to community hospitals and VA is not going to be involved?
        Dr. Roswell. If the President activates the Federal
    Response Plan, the VA will be able to respond through the
    National Disaster Medical System.
        Senator Mikulski. What about the local medical system?
        Secretary Principi. Well, just as during 9/11, I made our
    facilities in New York City available to treat casualties, and
    I would do precisely the same thing if something should happen
    in Baltimore or Kansas City, or wherever disaster might hit. If
    the resources of the VA are needed to assist the community in
    responding, we will be prepared to do so.
        Senator Mikulski. Mr. Chairman, you have been more than
    generous. I think these are things that we need to continue to
    pursue.
        Thank you, and we look forward to working with you.
        Senator Bond. Thank you, Senator Mikulski. You raised many
    good questions.
        Going back to the prescription drug questions that Senator
    Mikulski asked, I have heard stories that large companies have
    sent out memoranda to huge numbers of their employees who might
    be veterans telling them that they are entitled to get
    prescription drugs from the VA. Now, this would not be illegal.
    As a matter of fact, this would be provided, but can you tell
    me, have you heard of such an example?
        Secretary Principi. Yes, Mr. Chairman, and I have received
    a copy of a memo that was prepared by an individual who manages
    the medical care prescription drug benefit for one of the
    Nation's largest and most prestigious Fortune 500 companies
    recommending to his superiors at this company that----
        Senator Bond. IBM, I believe.
        Secretary Principi (continuing). IBM, that there are 50,000
    employees of the company who are veterans, and that the
    corporation could save enormous health care costs, prescription
    drug costs if the employees used the VA health care system for
    that benefit, so I do not know if that memo was approved by the
    higher-ups at that company, but certainly it was of great
    concern to us, because we do not believe that that is what was
    intended by eligibility reform, but nonetheless, it is
    perfectly legal for employees of any corporation to go seek,
    get their health care from the VA, but it just points out the
    enormous demand that is being placed upon us.
        Senator Bond. Any company that has an opportunity to lessen
    health care costs, if it is within the law--I may not agree
    with it from a policy standpoint, but the law provides it, and
    that is why I think it is absolutely essential that we build
    into the law some protections for the core constituencies,
    those that do not have other prescription drug options, and so
    we do not have people with other, with higher incomes, no
    service-connected disabilities, crowding out the core
    constituents.
        Just to follow up another question, Dr. Roswell I think
    answered and raised some good points about the IG report, but
    if you were to consider the IG report as allowing only already-
    enrolled priority 1 to 6 veterans to have their private
    physician phone in or direct their prescriptions to the VA
    pharmacy, would that save some time? Maybe those people are
    only getting their prescriptions from VA doctors, but is there
    a smaller potential savings in that group?
        Dr. Roswell. There is a potential savings. The concern I
    think I have is that if we made that benefit available to
    currently enrolled priority 1 through 6 veterans we would have
    no way to curtail the demand for new enrollment in those
    priorities that such a benefit might create, and again, I mean,
    as the Secretary said, this is an area where we are getting
    into uncharted waters. We simply do not know, but certainly we
    are actively exploring a number of options.
        Senator Bond. As my colleague from Maryland indicated, we
    obviously want to work with you. These are uncharted
    territories. It may be a good idea, it may not.
        Speaking of those ideas, I have heard from a number of
    health care policy gurus, when I have been involved in health
    care debates, that having an appropriate and affordable co-pay
    ensures responsible use of the prescriptions. In other words,
    if you have to put cash on the barrelhead, then you only get
    the prescriptions that you intend to use, and you take care of
    them and make sure you do not flush them, or drop them, or lose
    them, and that it has an impact on the responsibility of use.
    Do you believe this is a valid principle?
        Dr. Roswell. Mr. Chairman, I think you make an excellent
    point. It certainly is a valid principle, and we have tried to
    incorporate that in some of the policy recommendations in the
    2004 budget proposal.

                             RAISING OF COPAYMENTS

        Senator Bond. There have been some questions about raising
    the co-pay from $7 to $15. If you could not raise the
    copayment, or did not have the copayment, what impact would
    that have (a) on usage, the number of people using it, and (b)
    what would be the additional dollar cost without that co-pay?
        Dr. Roswell. Our estimates are that by increasing the
    prescription co-pay from $7 to $15 for priorities 7 and 8 that
    we would obviate the need for almost $250 million in
    appropriated medical care dollars in 2004, so it is fairly
    significant.
        Senator Bond. Do you happen to know how much of that is the
    fees actually collected, and how much of that results from what
    might euphemistically be characterized as suppression?
        Dr. Roswell. $181 million would be what you call
    suppression, decreased usage, $65 million would be increased
    collections, for a net offset of the appropriation of $246
    million, estimated.

                                 WAITING LISTS

        Senator Bond. With respect to the waiting lists, some
    advocates have said that we need more staff for the VA, but
    looking at the GAO report, the GAO was rather critical, saying
    many of the delays, the waiting lists were the result of poor
    scheduling procedures and inefficient use of staff.
        Now, some of the clinics I think are apparently making good
    progress working with the Institute for Health Care Improvement
    to develop strategies to reduce waiting time. Can you describe
    what kind of actions you have taken and any response you have
    to the GAO report?
        Dr. Roswell. You are absolutely correct. In fact, I was in
    Boston the day before yesterday working with Don Berwick and
    the Institute for Health Care Improvement, where we have a
    major ongoing meeting on advanced clinic access. This is a
    series of actions to more effectively schedule care and better
    utilize the existing primary and specialty care capacity we
    have.
        We have got senior leadership from all over the Nation
    participating on this collaborative effort. It is an ongoing
    series, and we have really been able to achieve some remarkable
    results in improving panel size, in improving access to care
    using a very finite resource.
        Let me point out that since enrollment, as you pointed out
    in your opening remarks, we have doubled the number of veterans
    we are caring for and yet today our workforce is actually
    smaller than it was in 1986, so it is fairly remarkable that we
    only have 200,000 people on a waiting list. We are working with
    IHI and the advanced clinic access principles to improve that.
    We have a new electronic waiting list. We have a major
    physician and nursing recruitment initiative, coupled with the
    2004 budget that we plan to pursue as well.
        Senator Bond. Do you have an idea, in percentage terms, how
    much the new procedures, the IHI procedures could reduce the
    waiting list or improve efficiency, or is that still in the
    works?
        Dr. Roswell. I do not have it in actual percentage terms.
    Let me point out, though, that in July of last year, we had
    317,000 people on a waiting list. We were able to take over
    200,000 people off that waiting list during a period we were on
    a Continuing Resolution and we were operating on a fiscal year
    2002 funding level. I think that speaks to the potential of the
    advanced clinic access for improving our efficiency.
        Senator Bond. Mr. Secretary, I expressed my views on what
    apparently was found to be going on at Lexington, Kentucky VA
    med center. Can you briefly summarize your response to that
    audit, and can you discuss whether this practice exists at
    other VA facilities?
        Secretary Principi. Sure. Well, this is a very, very
    troubling issue for me, Mr. Chairman, and I am obviously deeply
    concerned by the preliminary findings in Lexington. I have not
    seen a final report by the IG, but obviously if the allegations
    are borne out then in and of itself at that facility it is a
    serious, serious problem, and it needs to be addressed, but
    based upon a national audit, that also has not been finalized--
    I have a copy of the draft report on my desk--it really points
    out an institutional problem.
        I am very, very supportive of the affiliations. I think
    medical education and the VA have been able to make tremendous
    advances in health care delivery and research. However, I find
    it completely unacceptable to have doctors who are being paid
    by the VA with veteran dollars, taxpayer dollars who are not
    doing the work that they are being paid to do, and at the same
    time we have long waiting lists.
        This culture of subsidization to the medical schools simply
    has to stop, and all I ask for is equity, but as I intend to be
    held accountable, I intend to hold my leadership accountable to
    correct this problem once and for all, and we will be taking
    some decisive steps, hopefully in a very constructive way, to
    address this issue and ensure that all physicians, part-time,
    full-time, are devoting the time necessary to their
    responsibilities for which they are being paid by the American
    people.
        Senator Bond. I was stunned by the revelation. I do believe
    that the medical school collaboration has tremendous benefits.
    I know that you attract good quality physicians where they can
    work with a university in addition to serving patients, but I
    am appalled, as you were. I think that if this system is found
    to exist, I would think that the VA might ask for repayment of
    some of those reimbursements.
        Secretary Principi. Oh, I certainly will demand a repayment
    wherever it is found that the work was not performed.
        I would add, you know, I have traveled this country a great
    deal over the past 2 years, and we have been together in
    Missouri----
        Senator Bond. Sure.
        Secretary Principi (continuing). and the overwhelming
    number of our physicians are loyal, dedicated public servants.
    In many, many cases they do more than is expected of them, and
    it is a travesty that there is a certain percentage that are
    undermining the VA's great strengths, and it needs to end, and
    this culture needs to change, and again bring this situation
    back in balance and to get on with caring for veterans. That is
    our first and primary mission, patient treatment, treating
    veterans, and everything else is there to support it, to ensure
    that we have the right doctors, the most professional, highly
    skilled physicians, and so, it is an issue that I will report
    to you on, Mr. Chairman.
        Senator Bond. We appreciate that.
        Secretary Principi. Be assured that we take it very
    seriously.
        Senator Bond. When will the national audits be published?
    When will that come out?
        Secretary Principi. I expect quite soon, perhaps as early
    as next month. The IG is here, and he might be able to provide
    additional information. This is a report I asked for.
        Mr. Griffin. The report went to VHA about 3 weeks ago. The
    normal response time is 30 days. Sometimes that gets stretched
    out a little bit, but we would hope to issue the final within
    30 days.
        Senator Bond. Thank you very much. I hope, as you do, that
    this is an isolated problem, but it has got to end, and
    certainly I have seen the doctors who work and serve VA
    patients and also are serving in the medical schools, we cannot
    lose that, but this system has to stop.
        On the staffing question, Dr. Roswell, in 1991 the
    Institute of Medicine provided suggestions to VA on staffing
    standards, and in January of last year Congress enacted
    legislation requiring VA to establish staffing standards. It
    appears that has been delayed. I would like to know why.
    Without staffing standards, how do we know what type of
    physicians are needed where?
        Dr. Roswell. First of all, let me assure you that efforts
    to comply with the requirement are well underway. We expect the
    staffing standards to be reported back to us within the next 60
    days or so, so they are in progress.
        Staffing standards in health care, let me point out, is a
    very difficult subject, as even the IOM has pointed at in
    previous reports. We use a variety of ways to assess current
    staffing needs, but admittedly they are based on access-to-care
    issues, so where we have greater waits for clinics, where we
    have waits for procedures or types of specialty services is
    where we focus our staffing requirements. The staffing
    standards we hope will help us improve productivity, and we
    look forward to those, as do you.
        Senator Bond. Thank you, sir.
        Let us see, I am told that the DOD has staffing standards.
    Are you learning from them?
        Dr. Roswell. We have looked at DOD staffing standards, and
    maybe we should take a lesson. DOD does not use part-time
    physicians, which has all the attendant problems we just
    discussed, but sometimes the staffing standards that DOD uses
    do not translate to VA's pattern of health care delivery
    directly, but we certainly are looking at those.
        Senator Bond. Moving on to another subject I addressed
    about the inconsistency among VISNs, as I said, Mr. Secretary,
    I supported Dr. Kaiser's changes. I am concerned that
    decentralization has gone too far. There is inconsistent
    compliance with pharmaceutical policies. Is there too much
    freelancing going on among divisions? I hate to use the word
    fiefdoms, but that seems to come to mind.
        Secretary Principi. Well, I think there is always a little
    tension, if you will, between centralization and
    decentralization. Perhaps early on there was a move toward more
    decentralization, and it resulted in 21 or 22 network directors
    perhaps moving off in different directions, and not recognizing
    the importance of the whole, so to speak, and I recognize, too,
    that neither Dr. Roswell nor I can manage the VA health care
    system from Washington, D.C. You need strong leaders out in the
    field, closest to the patient, to the veteran, to make those
    day-to-day decisions.
        However, there needs to be one policy and one direction,
    and everybody needs to be marching in the same direction, and
    that was not the case. We have had 22 networks competing
    against one another, competing out there in enrollment drives
    so that this network would do better than the network next door
    in terms of the VERA allocation dollars, and lots of other
    areas as well, and I think we have strengthened the oversight,
    we have strengthened the direction, and that people understand
    that policy is made in Washington. We expect them to adhere to
    that policy, and within that, they are to manage the system.
        Senator Bond. I thought the policy of decentralization was
    great, and I think maybe you have hit the right note on that.
        I am going to finish up, because I know you have other
    commitments, and I know you would be disappointed if I did not
    submit some questions for the record so I will not give you a
    chance to answer all of them here. I would like to ask you what
    is the status of the CARES project? I really appreciate your
    request to jump-start CARES. What is your funding priority? How
    much do you think this could save in costs to be redirected to
    health care services for veterans?
        Secretary Principi. Well, I think it is one of the most
    important undertakings that the VA has embarked on in a long
    time. It is on track, Mr. Chairman. I expect to have a report
    on my desk in early October with the recommendations of the
    commission. I will make a decision based on that report shortly
    thereafter.
        I think the savings can be significant, savings that can be
    used, if you will, to truly expand the reach of health care and
    the manner in which health care is being delivered in America
    today, and it would probably take an investment up front to
    realign the system, if you will, to move us in the right
    direction. I do not have a dollar figure now, but I do believe
    that our request is a good down payment for the CARES process.
        I would only highlight, Mr. Chairman, I know your strong
    interest in this issue, and I would never spend money on a
    facility I know needs to change its mission, but we have an
    aging infrastructure out there, and it is beginning to
    deteriorate, and we need to get on with making some needed
    repairs in some areas.
        As you know, Kansas City was a good example of some of the
    things that we needed to do, so I am anxious to get this
    process completed and get a report up to you, and hopefully we
    can then find the dollars to make the necessary changes.
        Senator Bond. I certainly hope so.
        One last question. You have a decentralization problem. I
    have a decentralization problem. There are 50 different States
    represented in the Senate, and every single one of them needs a
    new cemetery. The VA recently completed the national shrine
    study. Can you tell me about the study, and the VA's process
    for prioritizing funding requests for the cemeteries?
        Secretary Principi. Well, certainly we have a very
    aggressive schedule of opening new cemeteries. We have four new
    cemeteries that are in the process, and a fifth one in the
    advanced planning stage. That is the Sacramento cemetery.
        The cemetery study did point out some deficiencies in a
    number of our cemeteries. The Acting Under Secretary is in the
    process now of prioritizing our needs, and deciding which ones
    are the most important, but there is a lot of maintenance and
    repair that needs to be made to many of our national
    cemeteries. The dollar figure is quite high. We have a small
    down payment towards that effort.
        Do you have anything to add, Eric, on the cemetery, the
    national shrine?
        Mr. Benson. Mr. Chairman, we have instituted a set of
    standards for operations and appearances in our national
    cemeteries which will include the new national cemeteries we
    are opening. We believe those standards will enable our
    employees, who are very dedicated, to bring cemetery
    appearances up to standard, as well as to provide us with the
    prioritization of cemeteries in the States that you mentioned.
        Senator Bond. Well, Mr. Secretary, unless you want to add
    anything, I think to enable us to get on with our schedules, we
    will submit the rest of the questions for the record. We
    appreciate the answers from you and your staff. Obviously, we
    have a lot of challenges and work ahead of us. We look forward
    to continuing to work with you to meet those challenges to
    continue to improve the viability of our service to the
    veterans.

                         ADDITIONAL COMMITTEE QUESTIONS

        Secretary Principi. The only thing I would like to add, Mr.
    Chairman, is just to congratulate you on the receipt of a very
    prestigious VFW award last evening, an award truly deserved for
    your enormous support for our agency. We thank you, very, very
    much.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

           Questions Submitted to the Department of Veterans Affairs
               Questions Submitted by Senator Christopher S. Bond

                              COST-SHARE PROPOSALS

        Question. Your fiscal year 2004 budget request proposes to charge a
    $250 annual enrollment fee and raise the prescription copayment from $7
    to $15 for Priority 7 and 8 veterans. Both of these initiatives require
    legislative action.
        If these legislative proposals are not enacted, how much more money
    will we need in fiscal year 2004 for the medical care account to
    eliminate the waiting list? Have you considered other options to
    address the waiting list problem?
        Answer. VA's fiscal year 2004 budget contains several policy
    proposals that will allow the VA health care system to refocus on
    better meeting the needs of our core population, veterans with service-
    connected disabilities, veterans with lower incomes, and veterans with
    special health care needs. Since eliminating the wait lists is closely
    tied to all our efforts to refocus the system, failure to enact any or
    all these proposals could adversely impact our ability to eliminate the
    wait lists.
        The table below provides the additional appropriations resources
    that would be required in 2004 if Congress denied the medical care
    policies proposed in the 2004 President's budget.

          IMPACT OF CONGRESSIONAL DENIAL OF PROPOSALS ON APPROPRIATION
                              (Dollars in millions)
    ------------------------------------------------------------------------
                                                                   2004
                             Policy                           Appropriation
    ------------------------------------------------------------------------
    Stop new enrollment of P8 veterans.....................          -$335.2
    Assess $250 annual enrollment fee for NSC P7 and                  -531
     Enrolled P8s..........................................
    Increase Outpatient Primary Care Copay from $15 to $20             -14.7
     NSC P7 and Enrolled P8s...............................
    Increase Pharmacy Copay from $7 to $15 for NSC P7 and             -245.6
     Enrolled P8s..........................................
    Increase Copay, Threshold to Aid and Attendance Level..            +33.0
    Limit Long-Term Care benefits to P1a Veterans..........           -222.4
    Bill HMOs and PPOs.....................................            -69.0
                                                            ----------------
          Total............................................         -1,384.9
    ------------------------------------------------------------------------

                                  WAITING LIST

        Question. Some advocates believe that additional funding for more
    staff is the answer to solving the waiting list problem but GAO
    reported, ``given the inefficiencies we found, it was difficult to
    determine the extent to which clinics would have benefited from
    additional staff.'' GAO also found that many of the delays were the
    ``result of poor scheduling procedures and inefficient use of staff.''
    Some clinics were making noteworthy progress in reducing waiting times
    through management reforms because of collaborative work with the
    Institute for Healthcare Improvement (IHI)--a private contractor that
    was retained to develop strategies to reduce waiting times.
        Can you briefly discuss what actions you have taken to address the
    waiting list problem, including your response to GAO's findings? How
    will you ensure that the VISNs will implement the IHI reforms?
        Answer. We have made substantial progress in working on our waiting
    times problem since the GAO did their study several years ago. The
    Veterans Health Administration (VHA), in collaboration with the
    Institute for Health Care Improvement (IHI), developed a model for
    large system change that is resulting in significant access
    improvement. This Advanced Clinic Access (ACA) initiative is oriented
    to meeting the demand of its patient population for care at the time
    the request is made.
        VA has been faced with increased demand and increased Congressional
    and public scrutiny related to waiting times. In July 2002, VA found
    itself in the untenable situation of having over 300,000 veterans who
    were not able to get an appointment within 6 months of their desired
    date. Substantial efforts have been made to remove patients from the
    wait list. However, for every 100 veterans we remove, an additional 95
    veterans are added to the wait list. By utilizing the key components of
    our Advanced Clinic Access initiative, clinics are able to make office
    practice efficiencies that ultimately result in increased capacity.
    Only when a clinic has made all of the identified efficiencies can one
    truly justify increased resources. With ACA, providers can now provide
    the necessary data for addressing the resource issue. However,
    implementing ACA requires time, patience, leadership support and
    culture change.
        VHA developed an electronic wait list (EWL) that facilities are
    using as a management tool to track veterans who are waiting for an
    appointment to be scheduled. The (EWL) software allows VHA to uniformly
    record veterans awaiting appointments in VistA to more consistently and
    accurately reflect demand across VHA. This software integrates with the
    existing VistA scheduling software at each site to allow placement of
    veterans on waiting lists as part of the automated scheduling process
    when appointments are not available in the desired timeframe. This
    software is in full use across the VA medical centers. Additional
    software was released to allow this information to be rolled up from
    the medical centers into a national database located at the Austin
    Automation Center. National reports will provide information about the
    number of patients waiting for specific types of care at VA facilities
    and the length of time that they have been on the wait list.
        To ensure that VISNs implement the IHI reforms, VHA developed an
    infrastructure to sustain improvement gained from ACA implementation
    and to facilitate the spread of ACA across the VHA system. The
    infrastructure includes the following:
      --An Advanced Clinic Access Steering Committee, chaired by a VISN
            director, and charged with oversight of ACA implementation, is
            in its third year of operation.
      --The steering committee appointed liaisons to each of the six
            performance measure clinics. These liaisons have established
            regular conference calls to accelerate the spread of ACA.
            Attendance at these calls ranges from 50 to 100 clinicians per
            call.
      --VHA has developed a network of ACA coaches/experts who have
            implemented ACA in their own clinics and are willing and able
            to teach others. Four meetings of ACA coaches, designed to
            further the development of these coaches and to develop
            additional coaches, have been held over the last three years.
            Regional conferences across the country are planned for the
            fall of 2003. The goal is to double the number of ACA coaches
            over the next 18 months.
      --Additionally, VHA has established ACA Points of Contact in each
            VISN and each facility. Each VISN has developed a plan for
            implementation of ACA.
      --In October 2002, VHA appointed a full-time Clinical Program Manager
            to continue the work begun by IHI and provide coordination and
            oversight of the implementation of ACA across all of its
            clinics.
        Oversight of ACA implementation is accomplished through regular
    review of the data related to waiting times, daily communication
    between the VHA program manager and the field, and articulation of the
    importance of ACA implementation by VHA senior leaders. A handbook
    outlining the ACA principles and implementation strategies will be
    published this spring.

                               PRESCRIPTION DRUGS

        Question. We have heard that a significant number of veterans on
    the waiting list are coming to VA simply to have their privately
    written prescriptions filled because VA provides a generous
    prescription drug benefit. In its December 20, 2000 report, the IG
    recommended increasing the pharmacy copay from $7 to $10 and
    streamlining the current VA process of filling prescriptions written by
    private physicians. The IG estimated that VA's administrative costs for
    re-writing prescriptions obtained from private healthcare providers was
    $1.3 billion in fiscal year 2001.
        Are there ways to structure a more streamlined and cost-effective
    approach so that veterans do not have to wait to have their
    prescriptions filled?
        Answer. VHA has not concurred with the findings of the December
    2000 OIG report or the draft update of the report. VHA has met with OIG
    to review its concerns and, as a result, OIG is currently in the
    process of recalculating its estimates of cost avoidances.
        VA is aware that the lack of Medicare prescription drug coverage is
    causing some veterans to turn to VA for access to prescription drugs.
    While VA acknowledges that some veterans have stated that they only
    want VA to provide drugs and not medical care, data suggest that
    approximately 25 percent of veterans who have stated that they are
    seeking VA care primarily for prescription drugs actually end up using
    other VA services as well, including eye care, cardiology, urology,
    and, in some cases, inpatient care. Any analysis must also consider the
    potential for significantly increased demand--an unintended consequence
    of most proposals.
        VA has agreed to work with Congress to find a solution to the
    vexing problem of waiting lists. VA is currently examining options for
    prescription drug benefits and, in doing so, is carefully assessing the
    likely impacts (financial and clinical) of such policies. VA must take
    care to ensure that the actions taken have no unintended consequences
    that could adversely affect VA's ability to provide timely, quality
    health care to enrolled veterans.
        Lastly, VA believes that a VA/Medicare+Choice cooperative
    initiative between VA and the Department of Health and Human Services
    will be a major step forward in addressing this problem and is looking
    forward to continuing that project's development.

                                     CARES

        Question. First, congratulations on implementing the CARES program
    in Chicago. I know your decision was difficult but it was the right
    thing to do. For the rest of the Nation, you are undertaking a very
    ambitious plan to have all the CARES plans completed by the end of this
    year. I also appreciate the $225 million in the request to jumpstart
    CARES in fiscal year 2004.
         Do you have any preliminary estimates of the cost-savings you
    expect to achieve from CARES and how will these savings be re-directed
    to health care services for veterans?
        Answer. The Department estimates approximately $3 billion in net
    savings over a five-year period, beginning in fiscal year 2006. This
    estimate was developed via a five-year investment plan, based upon the
    experience and the data compiled from the completed VISN 12 (Chicago
    Area) CARES study, and extrapolated to the VA healthcare system
    nationwide. While the majority of savings will be from operational
    efficiencies, some receipts and in-kind consideration may also be
    generated by VA enhanced-use lease program. The potential sale of
    excess or underutilized real property may also yield some savings. The
    redirecting of resources from underutilized facilities to direct
    patient care will allow VA to better serve veterans.
        When the National Cares Plan is completed, potential investment
    needs and cost savings related to implementing CARES will be revised.
    The plan will be monitored and updated with each budget submission.

                                  COLLECTIONS

        Question. VA projects to collect $524 million more in 2004 compared
    to 2003 yet its collections efforts continue to have problems. The GAO
    recently reviewed VA's operations and found that VA has improved its
    collections but it continues to confront operational problems, such as
    billing opportunities that limit the amount VA collects. A VA IG report
    estimated that VA could have collected over $500 million more than it
    actually did in fiscal years 2000 and 2001. However, due to VA's
    operational limitations, the GAO reported that VA lacks a reliable
    estimate of uncollected dollars, and therefore does not have the basis
    to assess its system-wide operational effectiveness.
        How is VA responding to these issues? Will you reach your
    collections goal for fiscal year 2003? How confident are you in
    reaching your projected goal of collecting $2.1 billion in fiscal year
    2004?
        Answer. VA has collected $715 million through March of 2003, which
    is 95.5 percent of our target collection goal at this point in the
    fiscal year. We anticipate being very close to our annual collection
    goal of $1.6 billion by the end of September 2003 given the multitude
    of program enhancements being put in place. In particular, we are
    continuing to evaluate and enhance the current VistA system in order to
    support a pilot commercial billing and collection system in the future.
    These changes will continue to achieve our collection goals in fiscal
    year 2004 and future years.

                                  HOMELESSNESS

        Question. Last year, with this Committee's support, the
    Administration reactivated the Interagency Council on Homelessness to
    improve the coordination of federal homeless programs--most notably
    between HUD, HHS, and VA. One of the most notable products of the ICH
    is the recent launching of a new $35 million collaborative program
    between HUD, HHS, and VA to provide permanent housing, health care, and
    other services to chronic homeless people.
        Can you tell me more about this program and your plans for fiscal
    year 2004, including the proposed Samaritan program? What are your
    views about the ICH? Due to the current waiting time problems, are
    homeless veterans waiting for medical care services?
        Answer. As you know, in March I was appointed the Vice Chair of the
    Interagency Council on Homelessness (ICH). The ICH provides an
    excellent forum for discussing the problems facing homeless people,
    including homeless veterans. It also serves as a vehicle for developing
    the federal strategy to end chronic homelessness in America.
        One of the keys to ending chronic homelessness is assuring that
    homeless people have access to mainstream services such as Medicaid,
    Food Stamps, Temporary Aid to Needy Families (TANF), and other
    programs. HHS, HUD and VA are sponsoring State Policy Academies to
    bring together state leadership teams to identify policies and develop
    strategic plans to assure that homeless people have better access to
    health care, mental health care, and support services that can help
    chronically homeless people exit from homelessness. Eighteen states
    have sent teams to two Policy Academies on chronic homelessness. We
    hope to hold three more Policy Academies on chronic homelessness over
    the next 6 months so that all states will have an opportunity to
    participate in developing strategies to end chronic homelessness.
        The $35 million joint HUD/HHS/VA Initiative is also designed to
    address the needs of chronically homeless people. Under this
    initiative, HUD will provide $20 million to support permanent housing,
    HHS will provide $10 million to support primary care, mental health
    care, and substance abuse treatment, and VA is providing $5 million to
    support case management for homeless veterans involved in the funded
    projects. VA will also support program monitoring and evaluation of all
    funded projects. Coordinated applications from interested service
    providers are due by April 14, 2003. The Samaritan Program is expected
    to be an expansion of the joint HUD/HHS/VA initiative.
        Homeless veterans, like all veterans seeking health care from VA
    are experiencing some problems with waiting times at some VA medical
    facilities. VA is taking aggressive steps to reduce waiting lists and
    waiting times for veterans enrolled in VA's health care system. These
    steps include providing urgent care within 24 hours, providing priority
    care for veterans who are 50 percent service connected or greater, and
    initiating procedures to improve scheduling of appointments.

                               HOMELESS SPENDING

        Question. For fiscal year 2004, VA estimates that it will spend
    almost $1.4 billion for veterans who are homeless and that nearly 90
    percent of that spending will come from mainstream services, such as
    medical care. These funds are not targeted to homeless veterans. This
    demonstrates that homeless veterans have access to these mainstream
    services. Research from other kinds of health care systems, however,
    shows that investment in housing for homeless people, and certainly for
    chronically homeless people, can more than pay for itself in reductions
    in the number and length of hospitalizations, not to mention how it
    improves the lives of the individuals in question.
        How is VA responding to the permanent housing needs for chronically
    homeless veterans, especially those who are frequently in and out of
    your hospital system?
        Answer. Since 1992, VA and HUD have participated in the joint HUD-
    VA Supported Housing (HUD-VASH) Program in 35 locations. Under the
    program, homeless veterans have received dedicated Section 8 rental
    vouchers and VA provides ongoing case management services for homeless
    veterans who receive the vouchers. HUD has committed 1,753 Section 8
    vouchers to this program. Over the course of the past 10 years, 4,400
    homeless veterans have had access to these vouchers and have secured
    permanent housing. The median length of stay for veterans in the HUD-
    VASH program is 4.1 years. A rigorous long-term follow up of the HUD-
    VASH Program showed that rental assistance, coupled with case
    management services, provides a successful treatment strategy to help
    homeless veterans gain access to permanent housing and receive
    treatment for medical, mental health, and substance abuse disorders
    which helps them remain in permanent housing.
        VA also has implemented its Supported Housing (SH) Program in 23
    locations. Clinicians in the SH Program provide long-term case
    management services to homeless veterans and help them find and remain
    in long-term transitional or permanent housing. The difference between
    the HUD-VASH Program and the SH Program is that veterans in SH do not
    have access to dedicated Section 8 vouchers, although many veterans in
    this program secure Section 8 vouchers through traditional procedures.
    In fiscal year 2002, 1,639 veterans were assisted with housing and were
    provided clinical case management services. The median length of stay
    for veterans in the SH Program is about 8 months.
        Although not yet operational, it is expected that homeless veterans
    will have access to permanent housing through the HUD/HHS/VA Initiative
    and the Samaritan Program.
        It is also expected that VA's Loan Guarantee for Multifamily
    Transitional Housing for Homeless Veterans Program will assist in
    making funding available to organizations interested in developing
    long-term transitional housing for homeless veterans. While this is not
    a permanent housing program, we believe that homeless veterans who can
    live in long term transitional housing that offers a substance free
    environment and access to supportive services will have greater
    opportunities to move on to permanent housing.

                               CLAIMS PROCESSING

        Question. Will you meet your goal of processing in an average of
    100 days?
        Answer. We are committed to meeting the Secretary's goals for
    improving the timeliness of disability claims processing. Acting upon
    recommendations from the VA Claims Processing Task Force, the Under
    Secretary for Benefits has established specific performance targets for
    regional offices that are in line with the national goal of processing
    disability compensation claims in 100 days, on average, by September
    2003. In addition, we have implemented changes to our business
    processes. We are consistently tracking our progress and have seen a
    steady decline in the average processing days over the past year.
    Although much progress has been made, achievement of this goal remains
    our biggest challenge.
        Question. By improving the timeliness of claims processing, are you
    compromising the accuracy?
        Answer. VBA has experienced a steady increase in our accuracy rate
    for rating related actions over the past two years. In March 2001, our
    accuracy rate for rating related actions was 67 percent. As of March
    2002, this rate had increased to 79 percent. Based on our most recent
    data, from January 2003, our accuracy rate for rating related actions
    is 83 percent. We have also implemented several measures to ensure
    continued improvement in accuracy rates, including implementation of
    national performance standards for key positions in the Veterans
    Service Centers.
        Question. Are more claims being re-examined because of errors?
        Answer. We have not experienced a significant increase in the
    number of claims re-adjudicated as a result of the correction of errors
    identified by national or local reviews. We will continue to monitor
    the cases where errors are found and provide necessary oversight to
    ensure that the requisite corrections are made expeditiously. In
    addition to correcting these errors, stations will provide employees
    with feedback and training, where necessary.

                       MANDATORY SPENDING FOR HEALTH CARE

        Question. What are your views on moving VA health care from
    discretionary to mandatory funding?
        Answer. VA does not support the concept of using a fixed formula to
    determine VHA funding. Although VA recognizes the appeal of such an
    approach, particularly in these times when the Department finds it is
    unable to provide care to all veterans who seek enrollment in the
    system, we believe the would prove to be unworkable and is
    inappropriate for funding a dynamic health care system, like VA's.
        The provision of care evolves continually to reflect advances in
    state of the art technologies (including pharmaceuticals) and medical
    practices. It is very difficult to estimate both the costs and savings
    that may result from such changes. Moreover, patients' health status,
    demographics, and usage rates are each subject to distinct trends that
    are difficult to predict. Using a proposed formula could not take into
    account any changes in these and other important trends. As such, there
    is no certainty that the amount of funding dictated by the proposed
    formula would be adequate to meet the demands that will be placed on
    VA's health care system in the upcoming years.
        Perhaps more importantly, use of an automatic funding mechanism
    would also diminish the valuable opportunity that members of the
    Congress and the Executive Branch now have to carry out their
    responsibility to identify and directly address the health care needs
    of veterans through the funding process. It might also tend to depress
    the Department's incentive to improve its operations and be more
    efficient.
        Finally, VA does not believe this proposal would ensure open
    enrollment. The Department would still be required to make an annual
    enrollment decision, and that decision would directly affect the number
    of enrolled veterans and thus the amount of funding calculated under
    the formula. Indeed, references to ``guaranteed funding'' may give the
    public the false impression that this bill would give VA full funding
    to enroll all veterans and to furnish care for all their needs, which
    would not be the case.
        Question. What impact does this have on Congress' ability to
    oversee the expenditure and performance of the VA's health care
    programs?
        Answer. VA would be able to provide the same detailed programmatic
    and cost information to Congress as it does today. However, by shifting
    VA health-care to a formulaic funding methodology Congress may be
    inclined to shift its focus away to other discretionary programs.

               HEALTH CARE QUALITY MANAGEMENT AND PATIENT SAFETY

        Question. What specific actions have been taken in response to the
    OIG report, Review of Security and Inventory Controls Over Selected
    Biological, Chemical, and Radioactive Agents Owned by or Controlled at
    Department of Veterans Affairs Facilities (Report No. 02-00266-76,
    dated March 2002)?
        Answer. A number of offices within VHA and the Office of
    Preparedness formed a joint work group to address the issues raised in
    the OIG Report No. 02-00266-76. A number of meetings resulted in
    specific actions to address this report. VHA has subsequently taken
    actions to address the recommendations as summarized below.
        Security is a standing agenda item for National Radiation Safety
    Committee (NRSC) meetings. The primary basis to review the status of
    security issues is the security status report. The report includes
    information about the strategy for oversight, Office of Inspector
    General (OIG) report response, site visit results, source disposals,
    and information dissemination.
        The NRSC actions or strategy for security include having a standing
    agenda item for NRSC committee meetings, monitoring the National Health
    Physics Program (NHPP) focus on security, responding to OIG, NRC, and
    other initiatives, and evaluating changes for the handbook/directive.
        The NHPP actions or strategy for security include having a focus on
    security during inspections/site visits, providing updates to the
    security status report, providing information to the medical centers,
    preparing changes for the handbook/directive, evaluating disposal
    options for sources, and monitoring regulatory changes.
        The medical centers actions or strategy for security include
    increasing VA Police Service coordination, reviewing their radiation
    safety footprint at least annually, maintaining security of radioactive
    materials and/or radiation sources, and implementing the VHA Directive
    2002-075, ``Control of Hazardous Materials in VA Research
    Laboratories.''
        VHA Directive 2002-075, which directly addressed seven of the OIG
    recommendations, codified and clarified existing procedures and also
    complied with requirements mandated in the USA Patriot Act of 2001. The
    directive, which includes over 18 pages of detailed instructions to VA
    medical centers (VAMC) to specifically address the OIG report, has been
    discussed with all the VAMCs through conference calls as well as
    informal discussions with those in leadership positions at the VAMCs
    charged with implementing the recommendations. In addition, all sites
    with research programs have been notified about the impact of the USA
    Patriot Act of 2001. VHA and VA's Office of Policy, Planning and
    Preparedness have jointly signed a letter to all VHA facilities
    outlining additional controls necessary to control the access to these
    agents.
        VHA conducts annual work place evaluations for safety of all VHA
    facilities and increased security and compliance with VA and Joint
    Commission on Accreditation of Health Care Organizations (JCAHO)
    emergency management activities are getting increasing scrutiny. JCAHO
    in their accreditation surveys are also emphasizing emergency
    management plans and programs necessary to meet their standards.
        VHA has also begun a comprehensive assessment of the potential
    vulnerabilities of VA BSL 3 laboratories. Medical facilities have
    received a security self-assessment checklist for BSL 3 sites, and
    completed a self-assessment that all items on the checklist have or
    will be completed. In calendar year 2003 VHA will begin announced and
    unannounced inspections of sites with BSL 3 laboratories to ensure
    compliance with the checklist and the directive. VHA will suspend
    operations in BSL 3 laboratories that cannot demonstrate an appropriate
    level of security will be maintained.
        An Emergency Management Program Guidebook has also been developed
    and provided to each VAMC to improve their emergency management
    programs to meet VHA and JCAHO standards for emergency management. This
    guidebook provides sample policies procedures and best practices for
    emergency management including the VAMC from potential terrorist
    threats and events as well as research and clinical laboratories.
        VHA has initiated a program to spend more than $2 million to
    upgrade laboratory security at more than 50 sites in February 2002, and
    that office will systematically review all research sites over the next
    3 years as part of its infrastructure program to identify and fund
    equipment needs that include security devices. Thirty-eight sites have
    received or been approved for funding. VHA will review the revised
    applications from another 26 sites in fiscal year 2003.
        Question. Is there funding in the fiscal year 2004 budget request
    to cover the full cost to implement controls and make necessary
    changes?
        Answer. We believe that the fiscal year 2004 budget request
    contains sufficient funding. A survey conducted within VHA documented
    that approximately $13 million was spent in the last year for security
    enhancements, including security of laboratories. Individual projects
    to implement all of the requirements mentioned above that are beyond
    the resources of individual VA medical centers will have to be
    requested as part of VHA's capital resources process and compete with
    other patient care infrastructure initiatives.

                                     ______

                  Questions Submitted by Senator Conrad Burns

        Question. Many in Montana Veterans have significant trouble getting
    in to see doctors due to scheduling backlogs. Does the VA budget
    compensate to enable faster processing, in order to meet this demand?
    If so how?
        Answer. Yes, the 2004 budget proposes to reduce the average waiting
    time for new patients seeking primary care clinic appointments to 30
    days in 2004 and reduce the average waiting time for next available
    appointment in specialty clinics to 30 days in 2004. VA is working to
    improve access to clinic appointments and timeliness of service. VA
    continues efforts to develop ways to reduce waiting times for
    appointments in primary and specialty care clinics. By refocusing VA's
    health care system on these groups, VA will be positioned to achieve
    our primary and specialty care access standards.
        Question. The VA claims process currently takes 9 to 12 months to
    file claims, and 9 to 11 months for remands. Does the VA budget provide
    for the resources necessary in order to expedite the claims processing
    process?
        Answer. Budget authority of $621.4 million and 6,816 FTE (without
    OBRA) are requested to fund the discretionary portion of the
    Compensation program in 2004. Compared to the 2003 current estimate,
    budget authority is expected to show a net increase of $15.0 million.
        Budget authority of $151.7 million and 1,635 FTE (without OBRA) are
    requested to fund the discretionary portion of the Pension program in
    2004. Compared to the 2003 current estimate, budget authority is
    expected to decrease by $2.4 million.
        We believe the reorganization of service centers into specialized
    work teams, as prescribed by the Claims Processing Task Force report,
    will increase work efficiencies in the Compensation program. Based on
    workflow analysis, VBA believes the discretionary portion of the
    compensation program budget will be sufficient.
        While the discretionary portion of the pension program budget shows
    a decrease, we believe that the consolidation of pension workload in
    the Pension Maintenance Centers will lead to a gain in workflow
    efficiencies. Therefore, the reduction in this area should not
    negatively affect the pension claims process.
        Question. Many veterans that need hospitalization sometimes have a
    problem traveling long distances, and not all patients are reimbursed
    for their travel expenses. Does the VA budget compensate for providing
    veterans that need hospitalization transportation to the hospital?
        Answer. Yes, VA's budget includes compensating certain veterans for
    hospital transportation to and from a department facility, but only if
    they meet the eligibility requirements set forth under current law. In
    accordance with 38 U.S.C. Sec. 111(b)(1), VA is authorized to reimburse
    the following category of veterans for their travel:
      --veterans or other persons whose travel is in connection with
            treatment or care for a service-connected disability;
      --veterans with a service-connected disability rated at 30 percent or
            more;
      --veterans receiving pension under section 1521 of title 38 USC;
      --veterans whose annual income does not exceed the maximum annual
            rate of VA's pension;
      --a veteran or other person who is required to travel by special mode
            and who is unable to defray the expenses of travel; and
      --a veteran whose travel to a Department facility is incident to a
            scheduled compensation and pension examination.
        Question. Does the budget compensate for reimbursing all patients
    for their travel? If so, how?
        Answer. VA is not authorized to reimburse all patients for their
    travel. VA may only authorize travel reimbursement for those veterans
    who meet the eligibility requirements under 38 U.S.C. Sec. 111(b)(1).
    For those veterans who are determined to be eligible, reimbursement may
    be authorized based on mileage allowance or common carrier, whichever
    is less. If mileage reimbursement is authorized, a veteran is
    reimbursed at the rate of 11 cents per mile and is subject to a $3.00
    deductible for each one-way visit and a $6.00 deductible for each
    round-trip visit. The deductible is capped at an $18 monthly
    deductible.
        Additionally, when a clinical determination is made that special
    mode transportation is required, VA may also authorize a veteran to be
    transported by ambulance services or by other modes of special mode
    transportation. However, in these cases, a determination must be made
    by VA that the veteran is unable to defray the expenses of travel.
        Question. Does the VA budget allow for additional clinics in rural
    areas? If so, what are the plans for these new facilities?
        Answer. Decisions on new Community-Based Outpatient Clinics will be
    made on a case-by-case review until the CARES study is completed.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                       COMMUNITY-BASED OUTPATIENT CLINICS

        Question. Mr. Secretary, I am pleased with the 7.5 percent increase
    that President Bush has proposed for the Department of Veterans Affairs
    budget for fiscal year 2004. This kind of investment allows us to keep
    our commitments to America's veterans and I look forward to working
    with you to implement this budget.
        Of course, challenges remain and I am committed to addressing them,
    as well. One of those challenges concerns the stability of Community-
    Based Outpatient Clinics.
        Last year, veterans in southeastern New Mexico notified me that
    Artesia Clinic was not accepting new patients because there were not
    enough doctors to accommodate the caseload.
        Although, the delay in service was only temporary, it was a cause
    of anxiety for many veterans. I am concerned about this because so many
    of New Mexico's veterans rely on clinics for their outpatient needs.
        I wrote to you about my concerns and in your response you noted
    that actual increases in the use of VA health care systems had outpaced
    projections.
        As we work together to find a solution to this problem, to what
    should we attribute the backlog of patient caseload in the VA health
    system? Is it a matter of more veterans needing care? Is it a shortage
    of medical staff? Is it a lack of funds? If it is a combination of
    these factors, what approach do you recommend to alleviate the problem?
        Answer. Public Law 104-262, the Veterans Health Care Eligibility
    Reform Act of 1996, mandated the VA to establish and implement a
    national enrollment system to manage the delivery of healthcare
    services to veterans. This legislation led the way for the creation of
    a Medical Benefits Package to provide a standard health plan for all
    veterans. Enactment of this legislation opened up the VA health care
    system to all veterans and generated a significant increase in VA
    enrollees and patient users. This has precipitated serious problems
    with access to VA outpatient care. In addition to the increased demand,
    VA has also been faced with pockets of nursing shortages and problems
    in recruiting physicians to the VA system. We have many initiatives to
    address some of these problems such as the physician pay bill, hiring
    of retired annuitants, recruitment and retention bonuses, incentive
    pay, and specialty pay schedules. So the answer to your question is
    that it is a combination of many factors.
        To ensure that VISNs implement clinic management efficiencies as
    part of our Advanced Clinic Access (ACA) initiative, VHA developed an
    infrastructure to sustain improvement gained from ACA implementation
    and to facilitate the spread of ACA across the VHA system. The
    infrastructure includes the following:
      --An Advanced Clinic Access Steering Committee, chaired by a VISN
            director, and charged with oversight of ACA implementation, is
            in its third year of operation.
      --The steering committee appointed liaisons to each of the six
            performance measure clinics. These liaisons have established
            regular conference calls to accelerate the spread of ACA.
            Attendance at these calls ranges from 50 to 100 clinicians per
            call.
      --VHA has developed a network of ACA coaches/experts who have
            implemented ACA in their own clinics and are willing and able
            to teach others. Four meetings of ACA coaches, designed to
            further the development of these coaches and to develop
            additional coaches, have been held over the last three years.
            Regional conferences across the country are planned for the
            fall of 2003. The goal is to double the number of ACA coaches
            over the next 18 months.
      --Additionally, VHA has established ACA Points of Contact in each
            VISN and each facility. Each VISN has developed a plan for
            implementation of ACA.
      --In October 2002, VHA appointed a full-time Clinical Program Manager
            to continue the work begun by IHI and provide coordination and
            oversight of the implementation of ACA across all of its
            clinics.
        In addition to our Advanced Clinic Access initiative that assists
    clinics in making office practice efficiencies, we monitor through the
    network performance plan the following key indicators for access to
    care:

    Measure: Waiting Times--Clinic
        By September 30, 2003, networks will improve waiting time for key
    clinics as measured by a combination of indicators to include:
      --a. Primary Care--New Patients.--Percent of new patents at 3rd Qtr
            of the SHEP Survey who answer ``yes'' to the question, ``Did
            you get an appointment when you wanted one?'' Target--79
            percent.
      --b. Primary Care--Established Patients.--Percent of established
            patents at 3rd Qtr of the SHEP Survey who answer ``yes'' to the
            question, ``Did you get an appointment when you wanted one?''
            Target 79 percent.
      --c. Specialty Care.--Wait time from date entered into scheduling
            package until date of appointment for ``Next Available
            Appointment'', in September 2003 for patients in (all
            individual targets must be met):
        --i. Eye care.--Target 63 days or less.
        --ii. Urology.--Target 44 days or less.
        --iii. Orthopedics.--Target 43 days or less.
        --iv. Audiology.--Target 40 days or less.
        --v. Cardiology.--Target 42 days or less.
        In July of last year, all networks submitted plans for reducing
    their backlog in anticipation of supplemental dollars. Because of the
    continuing resolution, many of these plans were placed on hold. Now
    that we have a budget, networks are working on implementing those plans
    such as recruiting and hiring providers or contracting for scarce
    services and buying equipment.
        We developed an electronic wait list that serves as a management
    tool for monitoring those veterans who have yet to be scheduled for an
    appointment. We routinely provide reports and monitor the progress
    being made in removing patients from the wait list.
        Non-acceptance of new patients into the New Mexico Healthcare
    System's Artesia CBOC was a temporary situation caused by a lack of
    physician staffing. However, the issue has now been resolved. Beginning
    January 2003, new patients are being accepted into the Artesia CBOC for
    care. Patients with a 50 percent or greater service-connected
    disability have priority for appointments.
        The current staffing level at the Artesia CBOC is able to provide
    care to 2,400 veterans and currently has 2,100 veterans enrolled. When
    an eligible veteran applies for care at the Artesia CBOC, the veteran
    is provided a New Patient Health Questionnaire. Following the
    completion and return of the questionnaire, the veteran is scheduled
    for a new patient appointment. On-going care for the veterans in
    southeastern New Mexico will remain a priority.

                               CLAIMS PROCESSING

        Question. Is there something the VA can do to process claims more
    efficiently?
        Answer. The Claims Processing Task Force examined a wide range of
    issues affecting the processing of claims, from medical examinations
    and information technology to efforts to shrink the backlog and
    increase the accuracy of decisions. Numerous countermeasures were
    implemented to address the issue of the growing backlog. At the
    beginning of 2002, over 432,000 cases were pending rating action, 47
    percent of which were over six months old. As of March 14, 2003, the
    number of cases pending rating action had been reduced to just over
    310,000, with approximately 29 percent pending over six months. We
    continue to strive toward the Secretary's goal of 100 days average
    processing time and reduction of our claims inventory to 250,000 by the
    end of fiscal year 2003.
        Question. Is there merit in the idea of calling on veterans'
    organization to help process claims on a voluntary basis?
        Answer. While the ultimate responsibility for claims processing
    rests with the Veterans Benefits Administration (VBA), the assistance
    provided by veterans service organizations (VSOs) is extremely valuable
    in timely processing of claims. To improve the relationship that
    already existed, a partnership between VBA and VSOs was formed through
    the Training Responsibility Involvement and Preparation (TRIP)
    initiative to enhance service to claimants by combining resources and
    focusing on shared concerns. The vision of the TRIP initiative is to
    improve the claims adjudication process by:
      --reducing duplication of effort and combining resources,
      --providing a more direct focus on claims preparation,
      --placing a stronger emphasis on front-end of claims processing,
      --improving the quality of claims submission, and
      --improving timeliness of claims processing.
        We have recently expanded TRIP training to include a Train-The-
    Trainer program. This program is a course of instruction on how to
    teach the TRIP program given to a service officer who has already
    completed the training. This is particularly beneficial to VSOs with
    out-based employees and helps to reduce travel expenses incurred in
    TRIP training. We have conducted successful Train-The-Trainer programs
    in Delaware, Florida, Alabama, and the District of Columbia. Other
    sessions are planned soon in Washington and in California.
        There are legal issues involved in having VSOs help process claims
    on a voluntary basis. The VA General Counsel would have to consider
    these before the concept could be taken into consideration.

                               HOMELESS VETERANS

        Question. I am concerned about the growing number of homeless
    veterans in my state. Many suffer with mental health conditions and
    substance addictions. Unfortunately, many are reluctant to seek
    assistance from the VA.
        How does the VA budget request for fiscal year 2004 address the
    problem of homelessness among veterans? Does the VA approach to
    homelessness pro-actively seek out those veterans who need assistance?
        Answer. Approximately $174 million of VA's proposed fiscal year
    2004 medical care budget is specifically targeted for specialized
    services for homeless veterans. Over the last 16 years, VA has
    developed the largest integrated national network of services for
    homeless people in the country. Components of VA's continuum of care
    include:
      --aggressive outreach to homeless veterans living on the streets or
            in emergency shelters;
      --clinical assessment to determine treatment needs;
      --linkage to VA medical center programs for medical, mental health,
            and substance abuse treatment;
      --case management services;
      --residential rehabilitation in VA's Domiciliary Care for Homeless
            Veterans (DCHV) programs and Transitional Residence Programs
            for veterans in Compensated Work Therapy (CWT) Program and
            supported, community-based housing through VA's Grant and Per
            Diem Program;
      --assistance with employment through VA's CWT Program; and
      --assistance with permanent housing.
        Outreach to homeless veterans is an integral component of VA's
    continuum of care for homeless veterans. In fiscal year 2002,
    approximately 370 VA staff were dedicated to outreach and case
    management services for homeless veterans. These VA clinicians
    contacted almost 43,000 homeless veterans through outreach.
        Question. Does the VA plan to incorporate a continuum of care for
    veterans with mental illness that includes availability and
    accessibility to physician services, state of the art medications,
    supported housing and integrated substance abuse treatment?
        Answer. VA has been in the forefront in providing a full continuum
    of care for veterans requiring mental health services. The VHA Policy
    Manual (M-2, Part X, Chapter 3, June 29, 1993) describes a fully
    integrated psychiatric continuum of mental health including physician
    services, state of the art medications, supported housing, and
    integrated substance abuse treatment. This was followed by a VHA
    Program Guide 1103.3, Mental Health Program Guidelines for the New
    Veterans Health Administration, published June 23, 1999. This guidance
    expands on the manual, incorporates elements from the Eligibility
    Reform Act of 1996, includes the evidence base for our programs, and
    describes in more detail the continuum of care for special populations.
    These special populations include veterans with a serious mental
    illness, those with substance use disorders including dually diagnosed
    patients, those with post-traumatic stress disorders, homeless mentally
    ill veterans, elderly veterans with psychogeriatric problems, veterans
    in rural areas, and special considerations for women and other minority
    veterans. It includes principles involving integration of mental health
    and primary care management, and psychosocial rehabilitation including
    an integrated work rehabilitation program.
        The issue of availability and accessibility to mental health
    services involves how the VHA budget is distributed among our many
    facilities and clinics through the Veterans Equitable Resource
    Allocation (VERA) system and how decisions are made at the Veterans
    Integrated Services Network (VISN) level and at each medical center or
    health care system. VHA policy is to provide equitable access to
    funding and clinical care for veterans with a mental disorder as
    compared to those with all other disorders. The final decision
    generally rests at the facility level where local needs and priorities
    can be balanced for all veterans seeking care.

                           ANTIPSYCHOTIC DRUG ZYREXA

        Question. Mr. Secretary, on March 4, 2003, USA Today reported that
    Eli Lilly is facing multiple lawsuits over the antipsychotic drug
    Zyprexa (olanzapine) for deadly diabetic conditions caused by the drug.
    Many veterans are prescribed Zyprexa to treat their mental illness.
    Consequently, many veterans have been or will be exposed to the same
    diabetes risks that are the subject of these new lawsuits.
        What is the VA doing to address the side effect risks posed to
    veterans who are prescribed Zyprexa? Has the VA studied the effects of
    Zyprexa on veterans at risk of developing diabetes? Has the VA
    considered what, if any, potential liability it may incur to veterans
    who develop diabetes as a result of Zyprexa treatment received at the
    VA?
        Answer. I'm pleased to report that VA was one of the first large
    managed care organizations in the United States to address the issue of
    weight gain and diabetes associated with the atypical antipsychotic
    drug class at the enterprise level. In August 2001, in cooperation with
    the VA Mental Health Strategic Health Care Group, the VA Medical
    Advisory Panel and Pharmacy Benefits Management Strategic Health Care
    group developed and published guidance to VA practitioners regarding
    the relative safety and cost of the atypical antipsychotics available
    on the VA National Formulary. The published medical literature is
    continuously monitored for emerging data and when appropriate, the
    guidance is updated. Most recently guidance was updated in June 2002.
        In addition, VA is in the process of updating its Schizophrenia
    Clinical Practice Guideline and will include all available and relevant
    information regarding the known risks associated with this class of
    drugs.
        Finally, the VA Pharmacy Benefits Management Strategic Health Care
    Group and Medical Advisory Panel are currently working with the United
    States Food and Drug Administration (FDA) on a quality improvement and
    appropriateness of use analysis of the atypical antipsychotic drug
    class in veteran patients. It is expected that a joint report will be
    issued before the end of calendar year 2003.
                                     ______

               Questions Submitted by Senator Barbara A. Mikulski

                           PRIORITY 7 AND 8 VETERANS

        Question. VA recently announced that Priority 8 veterans can no
    longer enroll in the VA medical care system. I understand this decision
    to mean that Priority 8 veterans coming to VA for the first time will
    not be able to enroll, but that Priority 8 veterans who are already in
    the system will be ``grandfathered-in.'' Is this correct?
        Answer. That is correct; veterans enrolled in Priority Group 8 on
    January 16, 2003, remain enrolled and eligible for VA health care
    benefits. Veterans applying for enrollment on or after January 17,
    2003, whose financial status places them in Priority Group 8, are
    ineligible for care. An exception is that veterans with service-
    connected conditions rated zero percent disabling may seek care for
    their service-connected condition(s).
        Question. Is this decision temporary, or permanent? Does VA's 2004
    budget continue this policy?
        Answer. The Secretary is required to assess veteran demand and
    availability of resources and make an enrollment decision on an annual
    basis. The decision to restrict enrollment of Priority Group 8 veterans
    will be reconsidered during this annual process. The VA 2004 budget
    request continues the policy of restricting enrollment of Priority
    Group 8 veterans.
        Question. Can you please explain VA's authority to make this
    decision?
        Answer. The bases for VA's patient enrollment system are found in
    38 U.S.C. Sec. 1705 and 38 C.F.R. 17.36 through 17.38. Section 17.36(c)
    of title 38 C.F.R. specifically delineates the Secretary's need to
    review estimates of veteran demand and all available resources and to
    make an annual enrollment decision.
        Question. VA tells us that the number of Priority 7 and 8 veterans
    in the VA system is skyrocketing. Do you think this is because of VA's
    prescription drug benefit?
        Answer. The number of Priority Group 7 and 8 veterans treated in
    2002 was about 11 times greater than in 1996. The combined effect of
    several factors that resulted in this large increase in demand has
    severely strained VA's ability to continue to provide timely, high-
    quality health care. First, the Veterans Health Care Eligibility Reform
    Act and the Millennium Health Care Act opened the door to comprehensive
    health care services to all veterans. Second, access to health care has
    greatly improved with the opening of hundreds of community-based
    outpatient clinics. Third, our patient population is growing older and
    this had led to an increase in veterans' need for health care. Fourth,
    VA has favorable pharmacy benefits compared to other health care
    providers, especially Medicare, and this has attracted many veterans to
    our health care system.
        However, VHA's actual experience in fiscal year 2002 shows that of
    the 2,129,317 Priority 7 enrollees, approximately 50 percent were
    users. Of those 1,075,040 users, 63 percent had three or more
    encounters, which indicates a reliance on VHA for health care in
    addition to pharmacy. In addition, VA analyzed the actual utilization
    of newly enrolled veterans who indicated in the VHA New Enrollee Survey
    that their primary reason for VA enrollment was pharmacy access. These
    enrollees experienced 3.4 visits per patient and 4.5 clinic stops per
    patient and the services used were not limited to primary care and
    pharmacy. Twenty-five percent of the non-ancillary encounters were to
    specialty clinics, such as eye care, cardiology and urology and in
    fact, some of the patients had inpatient admissions. This indicates
    that although a pharmacy benefit was stated as the primary reason for
    enrollment, these enrollees use other VA services as well.
        Question. Do you think that VA is faced with absorbing this new
    demand because of a lack of national policies to address the aging of
    America and the collapse of many HMOs?
        Answer. Public disenchantment with health maintenance
    organizations, along with their economic failure, may have played a
    role in causing many patients to seek out established and traditional
    sources of health care such as VA. However, we believe that VA is faced
    with this new demand primarily because of our strength as a
    comprehensive health care system and because we so ably provide our
    veteran patients with a complete and comprehensive continuum of care in
    a coordinated and unified healthcare system, which includes a
    prescription drug benefit. More than half of those veterans who receive
    health care through VA are over age 65. VA patients are not only older
    in comparison to the general population, but they generally have lower
    incomes, lack health insurance, and are much more likely to be disabled
    and unable to work.
        The projected peak in the number of elderly veterans during the
    first decade of this century will occur approximately 20 years in
    advance of that in the general U.S. population. Thus the current
    demographics of the veteran population are one of the major driving
    forces in the design of the VA health care system into a comprehensive
    system centered on providing complete continuum of care in a
    coordinated and unified system.
        Question. In December 2000, the VA's Inspector General reported on
    the use of VA's prescription benefit by Priority 7 veterans. The IG
    studied a sample group of Priority 7 veterans and found that almost 90
    percent either had access to private non-VA health care and/or said
    that their only reason for using VA was to have their private
    prescriptions filled. The IG recommended a change in the law so that
    veterans could have privately written prescriptions filled at the VA.
    The IG said this could save VA over $1 billion per year. Has the VA
    looked at this recommendation? How would this idea affect VA? Could VA
    do something like this on a pilot basis to see if it would work?
        Answer. VHA has not concurred with the findings of the December
    2000 OIG report or the draft update of the report. VHA has met with OIG
    to review its concerns and, as a result, OIG is currently in the
    process of recalculating its estimates of cost avoidances.
        VA is aware that the lack of Medicare prescription drug coverage is
    causing some veterans to turn to VA for access to prescription drugs.
    While VA acknowledges that some veterans have stated that they only
    want VA to provide drugs and not medical care, data suggest that
    approximately 25 percent of veterans who have stated that they are
    seeking VA care primarily for prescription drugs actually end up using
    other VA services as well, including eye care, cardiology, urology,
    and, in some cases, inpatient care. Any analysis must also consider the
    potential for significantly increased demand--an unintended consequence
    of most proposals.
        VA has agreed to work with Congress to find a solution to the
    vexing problem of waiting lists. VA is currently examining options for
    prescription drug benefits and, in doing so, is carefully assessing the
    likely impacts (financial and clinical) of such policies. VA must take
    care to ensure that the actions taken have no unintended consequences
    that could adversely affect VA's ability to provide timely, quality
    health care to enrolled veterans.
        Lastly, VA believes that a VA/Medicare+Choice cooperative
    initiative between VA and the Department of Health and Human Services
    will be a major step forward in addressing this problem and is looking
    forward to continuing that project's development.
        Question. Does VA know how many Priority 7 and 8 veterans have
    other health insurance?
        Answer. The following chart shows the insurance coverage for non-
    compensable, zero percent service-connected (SC) and non-service-
    connected (NSC) enrollees in Priorities 7 and 8 according to the 2002
    VHA Survey of Veteran Enrollees:

                                                PERCENT OF ENROLLEES WITH VARIOUS TYPES OF INSURANCE COVERAGE \1\
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Private \3\
                               Priority                              Medicare   Medicare  Medigap \2\ ----------------------  Medicaid   TRICARE       No
                                                                        A          B                      HMO      Non HMO               for Life   Coverage
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    P7 SC.........................................................         65         58          39          12         15          6         11         16
    P7 NSC........................................................         71         67          47          13         16          8          4         13

    P8 SC.........................................................         54         51          35          18         24          4         22         10
    P8 NSC........................................................         59         55          42          18         23          4          7        10
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Source: 2002 VHA Survey of Veteran Enrollees' Health and Reliance Upon VA.

    \1\ Percentages do not total to 100 because enrollees may have multiple coverage.
    \2\ Or Medicare supplemental plan.
    \3\ Individual or group, excluding Medigap or Medicare supplemental plan.

        Question. Are veterans required to tell the VA if they have other
    health insurance?
        Answer. Veterans are not presently required to tell VA if they have
    other health insurance. However, VA does presently request that
    veterans voluntarily provide health insurance information on the
    Application for Health Benefits. Section 112 of Title I of Division K
    of Public Law 108-7, signed February 20, 2003, prohibits the use of
    appropriated funds for hospitalization or treatment of certain non-
    service connected veterans who do not disclose to VA their current
    health insurance information. Implementing regulations have not yet
    been issued.
        Question. The VA-HUD Subcommittee gave VA $1.1 billion more than
    the request in 2003, but VA still closed its doors to new Priority 8
    veterans. What is VA doing to ensure accuracy in its budgets?
        Answer. VA's ability to estimate veteran demand and expenditures
    has improved significantly with the use of an actuarial health care
    demand model. This model is based on private sector benchmarks adjusted
    for our veterans' age, gender, morbidity, utilization, reliance, and
    insurance. The model projects veteran enrollment, utilization, and
    expenditures, and provides detailed projections for approximately 50
    health care service categories.
        While this change to using actuarial projections in budget
    development now allows us to provide very accurate estimates of
    expected enrollment and expenditures, it also quantifies the escalating
    demand for veteran health care. It was clear that continued workload
    growth of the magnitude experienced in recent years is unsustainable in
    the current federal budget climate. Therefore, using the model, we
    developed health care policies designed to ensure that VA is able to
    fulfill its core mission--providing timely access to high quality
    health care to veterans with service connected disabilities, low
    incomes, and those with special needs.
        VA expects to provide health care to 3.6 million patients in core
    Priorities 1-6 in fiscal year 2004, an increase of 5 percent over
    fiscal year 2003. Priorities 1-6 alone are expected to cost $9 billion
    more by fiscal year 2008 (over fiscal year 2003).
        Question. The budget says that VA will come forward with a new
    ``VA+Choice'' program for Priority 8 veterans who can't enroll in VA.
    How will this happen? Will VA do this by regulation, or does it require
    authorizing legislation? What are the details of this plan? Will
    veterans in this program get a prescription drug benefit?
        Answer. With the assistance of the Department of Health and Human
    Services, VA is moving toward implementation of a plan to offer to
    Medicare-eligible veterans unable to enroll for VA health care the
    option of using their Medicare benefit to obtain health care through
    VA. VA plans to accomplish this by contracting with existing
    Medicare+Choice organizations to offer a special Medicare+Choice plan,
    which would be called VA+Choice; with the stipulation that VA would
    define the benefits under VA+Choice, and enrollees in VA+Choice would
    be able to receive Medicare benefits through VA facilities. The
    intention is to offer a benefit package that is competitive with those
    currently offered by M+C organizations and to include some type of
    additional benefit for prescription drugs.
        VA plans for the new VA+Choice plan to begin accepting enrollees by
    October 2003, and projects an initial demand of 25,000 enrollees within
    the first year. Medicare eligible Priority 8 veterans who are unable to
    enroll for VA health care would be offered the option of receiving
    their Medicare benefits through VA+Choice. The veteran's spouse or
    other Medicare eligible beneficiaries of the veteran would not be
    enrolled in the VA+Choice plan but would be able to enroll in a
    traditional Medicare+Choice plan, including one offered by the M+C
    organization offering a VA+Choice plan in their area.

                              $250 ENROLLMENT FEE

        Question. How did VA choose $250 as the amount for this annual
    premium?
        Answer. The proposed policies in VA's fiscal year 2004 President's
    budget were designed to ensure that VA is able to fulfill its core
    mission--providing timely access to high-quality health care to
    veterans with serviced connected disabilities, low incomes, and those
    with special needs.
        This fee is similar to the fee charged a military retiree who has
    devoted 20 years or more of his life to uniform--enlisted or officer.
    The military retiree who enrolls in the DOD Tricare Prime program has
    to pay $256 or $456 to receive health care after having served 20 years
    in uniform. VA tried to structure a proposal with a very small premium
    for veterans with relatively higher incomes who may have only served 1-
    4 years in uniform.
        The $250 enrollment fee and other cost-sharing proposals would only
    affect higher income, better-insured veterans in the lowest priorities
    and have been strategically priced to refocus the VA system on those
    veterans who need us most. Veterans in Priority 8 and non-service-
    connected veterans in Priority 7 are being asked to pay more towards
    the cost of their care, while at the same time, we propose eliminating
    prescription copayments for the lowest income veterans in Priority 5 by
    raising the income threshold to the non-service-connected pension and
    aid and attendance level.
        According to data from the 2002 VHA Survey of Veteran Enrollees, 90
    percent of Priority 8 enrollees and 87 percent of Priority 7 enrollees
    have some type of public or private health care coverage (compared to
    just 70 percent for Priority 5 and 73 percent for Priority 1
    enrollees). These policies discourage use of VA by veterans who, for
    the most part, do not use VA as their primary provider of care but
    supplement their other care options with services from VA when it is
    financially opportune for them. Under the proposed policies, these
    veterans who choose to use VA selectively, such as those who come to us
    only for prescriptions, can make the economic decision to continue to
    do so. Most importantly, those veterans who do not have other health
    care options can still access the high quality, comprehensive care VA
    provides at a very minimal cost.
        Question. What authority does VA have to require this $250 premium?
    Can VA do this through regulation, or does it require a specific change
    to the authorizing statutes?
        Answer. VA is requesting legislation that would authorize the
    Secretary to collect an enrollment fee of $250 per year from all
    veterans enrolling in Priority Group 8 and from all non-service-
    connected veterans enrolling in Priority Group 7.
        Question. How many veterans will have to pay this premium?
        Answer. In fiscal year 2004, 1,082,335 Priority 8 enrollees and
    non-service-connected Priority 7 enrollees are expected to choose to
    pay the $250 enrollment fee.
        Question. How many veterans will leave VA if they have to pay this
    premium?
        Answer. In fiscal year 2004, 1,136,225 Priority 8 enrollees and
    non-service-connected Priority 7 enrollees are not expected to pay the
    $250 enrollment fee.
        Question. How will VA collect this fee? Will VA send a bill to
    every middle-income veteran on its list?
        Answer. VA proposes to initiate bills at the beginning of each
    fiscal year for all enrolled veterans required to pay the fee. Bills
    for existing enrollees would be generated by each veteran's preferred
    facility. As new veterans subject to payment of the enrollment fee are
    enrolled, they would be billed at the time of enrollment. After
    appropriate due process, veterans failing to pay the enrollment fee
    would be disenrolled.
        Question. Some veterans are ``enrolled'' but they don't use the VA
    system. They're reserving their space in case their private insurance
    fails. Will these veterans have to pay $250 even if they don't come to
    VA yet? How many veterans are like them?
        Answer. Enrollees must pay the $250 enrollment fee at the beginning
    of fiscal year 2004 to remain enrolled and eligible for care in VA. In
    fiscal year 2002 the number of enrollees in Priority 8 and the non-
    service-connected enrollees in Priority 7 who did not use the VA system
    totaled 1,054,277. We expect that 65 percent of those under age 65 and
    90 percent of those over age 65 will not pay the $250 enrollment fee.

                              COPAYMENT INCREASES

        Question. How did VA choose $15 as the amount for prescription
    drugs?
        Answer. This and the other proposed policies in VA's fiscal year
    2004 President's budget were designed to ensure that VA is able to
    fulfill its core mission--providing timely access to high-quality
    health care to veterans with serviced connected disabilities, low
    incomes, and those with special needs.
        The $15 outpatient pharmacy copayment proposal and other cost-
    sharing proposals would only affect higher income, better-insured
    veterans in the lowest priorities and have been strategically priced to
    refocus the VA system on those veterans who need us most. Veterans in
    Priority 8 and non-service-connected veterans in Priority 7 are being
    asked to pay more towards the cost of their care, while at the same
    time, we propose eliminating prescription copayments for the lowest
    income veterans in Priority 5 by raising the income threshold to the
    Pension and Aid and Attendance level.
        These policies discourage use of VA by veterans who, for the most
    part, do not use VA as their primary provider of care but supplement
    their other care options with services from VA when it is financially
    opportune for them. Under the proposed policies, these veterans who
    choose to use VA selectively, such as those who come to us only for
    prescriptions, can make the economic decision to continue to do so.
    Most importantly, those veterans who do not have other health care
    options can still access the high quality, comprehensive care VA
    provides at a very minimal cost.
        Question. Can VA increase the prescription drug copayment by
    regulation, or does VA need authorizing legislation?
        Answer. The Secretary has the authority to increase the medication
    copayment at any time, and this has been specified in the current
    regulations. Any increase to the medication copayment would need to be
    put forth in new regulations. The medication copayment amount is based
    upon VA costs and does not include the cost of the medication. The
    current VA costs do not support an increase to $15 for the medication
    copayment. A legislative change will be required to remove the phrase
    from the current law that states the medication copayment is based on
    VA costs.
        Question. How did VA choose $20 per outpatient primary care visit?
        Answer. This and the other proposed policies in VA's fiscal year
    2004 President's Budget were designed to ensure that VA is able to
    fulfill its core mission--providing timely access to high quality
    health care to veterans with serviced connected disabilities, low
    incomes, and those with special needs.
        The $20 outpatient copayment proposal and other cost-sharing
    proposals would only affect higher income, better-insured veterans in
    the lowest priorities and have been strategically priced to refocus the
    VA system on those veterans who need us most. Veterans in Priority 8
    and non-service-connected veterans in Priority 7 are being asked to pay
    more towards the cost of their care, while at the same time, we propose
    eliminating prescription copayments for the lowest income veterans in
    Priority 5 by raising the income threshold to the Pension and Aid and
    Attendance level.
        These policies discourage use of VA by veterans who, for the most
    part, do not use VA as their primary provider of care but supplement
    their other care options with services from VA when it is financially
    opportune for them. Under the proposed policies, these veterans who
    choose to use VA selectively, such as those who come to us only for
    prescriptions, can make the economic decision to continue to do so.
    Most importantly, those veterans who do not have other health care
    options can still access the high quality, comprehensive care VA
    provides at a very minimal cost.
        Question. Can VA increase the outpatient copayment by regulation,
    or does VA need authorizing legislation?
        Answer. The Secretary has the authority to increase the copayment
    through a change to VA regulations. Legislation is not required.

                                  COLLECTIONS

        Question. How much will VA collect from insurance companies?
        Answer. VA estimates that it will collect approximately $760
    million in fiscal year 2003 from third-party insurance companies.
        Question. Does VA know how much it is owed by insurance companies?
        Answer. VA's gross account receivables are $488 million from third-
    party insurers. Payment is dependent upon the terms of the various
    policies issued to veterans.
        Question. How is VA's collections system set-up?
        Answer. VA presently handles collections through a combined effort
    of employed staff and private vendors who follow-up on accounts once
    they are delinquent. All staff employ a combination of follow-up
    letters, phone calls, and other tracking within VISTA computer software
    to prioritize accounts for follow-up action.
        Question. What is VA doing to get better? Is VA seeking help from
    the private sector to get better?
        Answer. VA is putting in place a number of program and operational
    enhancements with the expectation that they will improve revenue
    collections by streamlining production of accurate and timely claims.
    Initiatives include the following:
      --Technology.--In fiscal year 2002, the Deputy Under Secretary for
            Health for Operations and Management issued guidance for VHA
            sites to purchase encoding software. This software enables
            coders to more accurately and efficiently code encounters and
            to measure coding productivity. All sites have purchased
            encoder software.
      --Education.--VHA is pursuing a variety of educational programs to
            enhance the knowledge base of coding staff and improve medical
            record coding. Current educational initiatives include an
            online web-based coding curriculum, monthly satellite programs
            on specific coding and documentation topics, and publication of
            a VHA coding handbook and a quarterly coding newsletter.
      --Documentation and Coding.--As part of VHA coding improvement
            efforts, tools have been developed to improve the source
            documentation created by providers. Many VISN's and VA medical
            centers have contracted with external vendors to provide coding
            services as a means to improve lag time in billing and
            collections. Currently, VHA is pursuing a national coding
            contract, which will standardize requirements and enhance the
            quality of the coding provided by vendors.
      --Electronic Claims Submission.--To streamline VA medical center
            operations and to ensure compliance with the Health Insurance
            Portability and Accountability Act (HIPAA), software for
            submitting standardized electronic claims and currently, EDI
            claims software is live at all VA medical centers, and all
            sites are submitting electronic claims to commercial payers.
        VA is also seeking help from the private sector relative to
    collections including the implementation of a Patient Financial
    Services System (PFSS) demonstration project that will result in the
    integration of a commercial billing and accounts receivable system. The
    primary goal of the project is to demonstrate the feasibility of
    emulating industry proven business solutions to streamline workflow
    processes and further improve collections. VA is moving forward with
    the project and expects to select the recommended product in April 2003
    and complete installation by September 2003. Based on the outcome of
    the pilot, a recommendation for national deployment will follow.

                           MEDICAL CARE WAITING LINES

        Question. How many veterans are waiting to get a VA doctors
    appointment?
        Answer. As of April 2003, there are 167,852 veterans on the waiting
    list.
        Question. How is VA going to end the waiting list?
        Answer. It is estimated that if the current rate at which new
    enrollment for priority 1-7 veterans remains constant and the rate at
    which veterans are added and removed from the wait list remains
    constant, then the wait list will be ended by February of fiscal year
    2004.
        VA is aggressively working on its Advanced Clinic Access initiative
    to make office practice efficiencies. By implementing these principles,
    clinics can then free up slots to meet the increased demand.
        Question. How long does it take a veteran to get a specialty care
    appointment like dermatology and audiology?
        Answer. For patients that have scheduled appointments, the average
    next available wait time as of February 2003 is 61 and 28 days for
    Dermatology and Audiology, respectfully. For patients placed on the
    wait list the wait time is 117 days and 158 days, respectfully.
        Question. What standards does VA have for waiting times?
        Answer. VA has the standard to schedule appointments within 30 days
    of the desired appointment date. This is quantified by measuring the
    average waiting time for patients requesting the next available
    appointment and requires that there are no patients on the wait list
    waiting more than 30 days for their appointment.
        Question. How do these compare to the private sector?
        Answer. VA was unable to find benchmarks for similar health care
    systems.

                        CLAIMS PROCESSING WAITING TIMES

        Question. What is the current processing time for claims?
        Answer. VBA's current processing time for rating related claims is
    189.5 days for the month of March. The cumulative performance for the
    period from October 2002 through March 2003 is 198.5 days.
        Question. What is the goal?
        Answer. The cumulative target for average processing time for March
    2003 is 190.6 days. VBA will continue to improve the average processing
    time for rating related claims. Specific station performance targets
    have been established in line with the Secretary's goal of 100 days
    average processing time for rating related actions.
        Question. Why did average processing times increase from six to
    seven months last year?
        Answer. For the month of March 2002, VBA's average processing time
    for rating related claims was 233.5 days. During the first six months
    of fiscal year 2002, the cumulative average processing time for rating
    related claims was 224.3 days. Over the last year, VBA has improved the
    average processing time for rating related claims by 44 days, from
    233.5 days in March 2002 to 189.5 days in March 2003.
        Question. If times are increasing, how is VA going to make its
    goal?
        Answer. The leading timeliness indicator of performance is average
    days pending, rather than average processing time. In October 2002,
    VBA's average days pending was 168.2 days. In March 2003, the average
    days pending had improved to 144.5 days. This downward trend for
    average days pending indicates that our oldest claims are being
    processed. As these older claims are removed from the inventory, the
    processing time for rating related claims will continue to improve.
        Question. How much funding does VA anticipate devoting to improving
    claims processing time in 2004?
        Answer. The Veterans Benefits Administration has budgeted $22.3
    million in 2004 to improving claims processing time. The following
    initiatives have been devoted to accomplishing these improvements:

    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Training & Performance Support System (TPSS)............      $2,601,000
    Compensation & Pension Evaluation Redesign (CAPR).......       3,821,000
    Benefits Replacement System (VETSNET)...................       9,200,000
    Data Centric Benefits Integration (DCBI)................       6,662,000
                                                             ---------------
          Total.............................................      22,284,000
    ------------------------------------------------------------------------

        A detailed description of these initiatives is contained in the
    2004 Budget Submission, Volume 1, Benefits Programs, on pages 2-25
    through 2-31.
        Question. How many new employees has VA hired?
        Answer. VBA hired approximately 150 additional Veterans Service
    Representatives (VSRs) and 150 additional Rating Veterans Service
    Representatives (RVSRs) in December 2002.
        Question. How will VA retain these new employees so they will be
    able to make a real difference?
        Answer. The RVSRs were recruited through the Federal Career Intern
    Program. To attract the best-qualified candidates, VBA utilized the
    same ``focused recruitment activities'' that were developed to attract
    nurses and other health care professionals. Experience has demonstrated
    that people with some medical training or experience in the health care
    field develop the necessary skills of an RVSR more rapidly and become
    proficient within a relatively short time period (two years).
        Under the Federal Career Intern Program, new employees are enrolled
    in a comprehensive two-year training program. The employees will
    receive five weeks of centralized classroom training. They will use all
    available Training and Performance Support System (TPSS) modules at
    their home station. In addition, mentors have been assigned to the new
    employees to assist them with processing claims. Mechanisms have been
    established to track progress of these new hires during the two-year
    training program. VBA believes that the targeted recruitment, the
    structure of the Federal Career Intern program, the comprehensive
    training schedule and the assignment of mentors will assist in
    retaining these new employees. (VBA)
        Question. How will VA ensure accuracy while trying to reduce times?
        Answer. Budget authority of $621.4 million and 6,816 FTE (without
    OBRA) are requested to fund the discretionary portion of the
    Compensation program in 2004. Compared to the 2003 current estimate,
    budget authority is expected to show a net increase of $15.0 million.
        Budget authority of $151.7 million and 1,635 FTE (without OBRA) are
    requested to fund the discretionary portion of the Pension program in
    2004. Compared to the 2003 current estimate, budget authority is
    expected to decrease by $2.4 million.
        In developing the 2004 budget, VBA did not assume there would be
    armed conflict with Iraq. Therefore, our workload and performance
    projections did not address the potential effects. However, we believe
    the reorganization of service centers into specialized work teams, as
    prescribed by the Claims Processing Task Force report, will increase
    work efficiencies in the Compensation program. Based on workflow
    analysis, VBA believes the discretionary portion of the compensation
    program budget will be sufficient.
        While the discretionary portion of the pension program budget shows
    a decrease, we believe that the consolidation of pension workload in
    the Pension Maintenance Centers will lead to a gain in workflow
    efficiencies. Therefore, the reduction in this area should not
    negatively affect the pension claims process.

                         PHYSICIAN TIME AND ATTENDANCE

        Question. What is VA doing to ensure that when VA is paying a
    doctor, the doctor is working for veterans?
        Answer. By December 31, 2002, facility Directors were required to
    make all part-time VA physicians aware of VA time and attendance
    procedures, and all part-time VA physicians were required to certify
    that they were aware of and understood these requirements. The Under
    Secretary for Health also issued a VHA Directive (copy attached) that:
      --Outlined everyone's responsibilities related to this issue; and
      --Required facility Directors to:
        --Review the appointments of part-time physicians to determine
                whether they were consistent with patient care needs,
        --Establish procedures for monitoring the attendance of part-time
                physicians; and
        --Certify to the Director of their Veterans Integrated Service
                Network that the above actions had been completed.
        Question. What staffing standards are in place for part-time
    doctors?
        Answer. In the past, VA managers made staffing decisions based on a
    variety of factors such as anticipated physician productivity,
    characteristics of assigned patient populations, prior and anticipated
    workload, waiting times, referral patterns, availability of funds, as
    well as the availability of staff or equipment needed to support and/or
    complement the services to be acquired. VA is now managing primary care
    workloads through panel size (see below); however, we are aware of the
    need for more specificity in this area and are developing a physician
    productivity model in four key outpatient areas: primary care,
    cardiology, urology, and ophthalmology. These models will help local
    managers more accurately assess the need for physician staff.
        Question. How does VA estimate the number of doctors it needs? Is
    this comparable to the private sector?
        Answer. Local VA officials are currently estimating their
    requirements for primary care physicians based on panel size or based
    on the numbers of patients assigned to each primary care physician.
    This methodology is comparable to the private sector; however, VA panel
    sizes are smaller because of differences in patient acuity, age,
    incidence of disease, and other population characteristics.
        Question. Part-time doctors are critical to the VA--they often also
    work for affiliated research institutions and have many demands on
    their time. How does VA communicate clearly to doctors about keeping
    track of their time?
        Answer. Medical Center Directors and Chiefs of Staff are
    responsible for ensuring all part-time physicians are made aware of
    their responsibilities with respect to VA time and attendance
    procedures. All part-time physicians recently certified their
    understanding of VA policies and procedures. VA officials are also
    responsible for enlisting the cooperation of affiliate institutions in
    the implementation of VA time and attendance policies and procedures.
        Question. How does VA keep track of physician time, especially for
    part-time doctors?
        Answer. Supervisors establish tours of duty for all full-time and
    part-time employees and place these tours in an automated ``Enhanced
    Time and Attendance'' system, which generates electronic timecards
    every two weeks. Employees also request and obtain supervisory approval
    for absences through this system (e.g., annual leave, excused absence,
    leave without pay). Supervisors are responsible for ensuring that
    employees under their supervision were working or that the employee's
    absence was approved. After the supervisor verifies the employee's
    presence (by visually noting the employee's presence, calling the
    employee's work number, reviewing work records, etc.), the supervisor
    asks the timekeeper to electronically record the employee's attendance.
    At the end of the 2-week period, electronic timecards are certified by
    the supervisor and released to the payroll activity for payment.
        VA established ``Adjustable Work Hours,'' a program to accommodate
    varying VA patient care needs and part-time VA physicians with VA or
    non-VA patient care, research, or educational responsibilities that
    makes adherence to the same scheduled tour of duty every 2 weeks
    difficult. A work schedule is established for these employees, but they
    may, with prior supervisory approval and consistent with VA patient
    care requirements, adjust a portion of the tour (up to 75 percent) to
    meet these demands. The remainder of their tour is considered ``core
    time'' or time during which the employee must be present unless granted
    an appropriate form of leave or absence. All part-time physicians who
    have been authorized to be on adjustable work hours must record their
    time and attendance on subsidiary timesheets, which are certified by
    their supervisor and entered into the Enhanced Time and Attendance
    system by the timekeeper. After certifying the electronic time card,
    the records are released to the payroll activity for payment. As with
    other employees, supervisors are responsible for ensuring that
    employees on adjustable work schedules were either present or that
    their absence had been approved.
        Question. How does VA estimate the number of doctors it needs?
        Answer. Local facility managers are responsible for estimating the
    numbers and types of physicians needed to meet their patient care
    requirements. As indicated above, these decisions are based on a
    variety of factors; however, national productivity standards are being
    developed to assist them in making these determinations.

                                 LONG TERM CARE

        Question. The budget request proposes to limit nursing home care.
    Please explain this proposal.
        Answer. VA plans to provide nursing home care to all veterans
    mandated under the Millennium Act when those veterans in need of
    nursing home care choose to receive it from VA. In addition, VA plans
    to provide nursing home care to veterans who are in the discretionary
    group, with priority given to those in need of post-hospital
    rehabilitation or special care, hospice, respite, intensive geriatric
    evaluation and management, and veterans with a spinal cord injury/
    disease and in need of nursing home care. In accordance with the
    recommendations of the Federal Advisory Committee on the Future of VA
    Long-Term Care, VA will also continue to support a rising number of
    veterans in State home nursing homes. Increasingly, however, VA
    anticipates providing needed care for elderly veterans in less
    restrictive, less costly home-and community-based non-institutional
    settings.
        Question. What are the consequences of this proposal? How many
    veterans will not receive nursing home care under this proposal?
        Answer. VA's fiscal year 2004 budget policy would limit nursing
    home care in VA nursing homes and contract community nursing homes to
    Priority 1 veterans rated 70 percent service-connected disabled or
    greater or who require nursing home care because of a service-connected
    disability and to other veterans in need of post-acute rehabilitation,
    special or extensive care, comprehensive geriatric evaluation and
    management services, respite care, or hospice care. VA will provide
    nursing home care for all veterans who are mandated to receive nursing
    home care under the provisions of the Millennium Act, who seek to
    receive such care from VA, and whose medical and personal circumstances
    require such care. The budget continues to support increases in State
    veterans nursing home care--generally a less acute level of care. The
    fiscal year 2004 budget also recognizes that a substantial portion of
    long-term care needs are more appropriately met in non-institutional
    settings by providing for increased census in home and community-based
    services, including home respite that was authorized by the Millennium
    Act and a new home hospice service. This strategy will help assure that
    VA Nursing Home Care Units are available for care of service-connected
    veterans and for post-acute rehabilitation and special care needs while
    allowing veterans who do not need this level of care to receive care in
    their homes or closer to their homes in community settings.
        In 2004, VA will treat an additional 2,261 average daily census
    (ADC) over the 2003 level in a combination of institutional and non-
    institutional care settings.
        Question. Will VA do this by regulation, or does it require
    authorizing legislation?
        Answer. VA understands that a change to the Millennium Act is
    required in order to reduce the level of effort in VA nursing homes
    below the 1998 baseline level. VA is proposing that VA's three nursing
    home care programs (VA operated, contract community, and State home),
    VA and State domiciliary, and VA and contract home and community-based
    care in total be utilized as the 1998 baseline.
        Question. What is the status of VA's implementation of long term
    care overall?
        Answer. VA recently submitted to Congress an extensive report
    entitled, ``VA Extended Care: January 2003 Report to Congress of VA's
    Experience Under the Millennium Act''. A few highlights from that
    report include:
      --From fiscal year 1998-2001, the proportion of VA LTC patients
            treated in outpatient settings has grown from 57 percent to
            almost 64 percent;
      --The number of VA LTC patients treated in inpatient settings grew by
            6.7 percent;
      --The average daily census (ADC) in VA nursing homes declined by 12
            percent even though the number of patients grew (because of
            shorter lengths of stay);
      --ADC for respite care and geriatric evaluation and management units
            located in VA Nursing Home Care Units grew over 50 percent;
      --The budget for VA LTC programs grew by $200 million;
      --Full-time equivalent employees increased for both nursing home care
            units and outpatient LTC programs;
      --80 percent of patients surveyed about VA home-based primary care
            rated their care as very good or excellent.
        Since passage of the Millennium Act in November 1999, VA has issued
    directives on the new eligibility requirements, the new and expanded
    program types, and copayments in an effort to guide implementation of
    the Act.
        Question. How much will VA spend on long-term care in 2004?
        Answer. Estimated obligations for fiscal year 2004 are
    approximately $2.8 billion for institutional care and approximately
    $549 million for home- and community-based care.
        Question. What is the status of the long-term care assisted living
    pilots?
        Answer. VA is carrying out a three-year Assisted Living (AL) Pilot
    in Network 20 (Oregon, Washington, Idaho, Alaska). The pilot began
    enrolling veterans in January 2002 and to date has placed 286 veterans
    in AL facilities with which VA has established a contract. VA is
    authorized to pay the cost of AL for up to 6 months and then the
    veteran transitions into another payment arrangement (Medicaid or
    private pay) with the assistance of VA staff. The AL pilot is being
    evaluated by two of VA's Health Services Centers of Excellence. The
    evaluation report will be submitted to Congress in October 2004, 90
    days before the end of the pilot.

                       PATIENT SAFETY IN MEDICAL RESEARCH

        Question. How does VA safeguard patients who participate in VA
    research studies?
        Answer. In safeguarding research participants, VA follows the
    Common Rule (Federalwide Policy for the Protection of Human Research
    Subjects), found at 38 CFR Part 16, as well as pertinent regulations of
    the Food and Drug Administration. These regulations and implementing
    policy require Institutional Review Board Review of research involving
    human subjects of research, informed consent, and assurances from each
    VA Medical Center conducting human research of compliance with the
    Common Rule.
        Within VA, the Secretary recently approved establishment of the
    Office of Human Research Oversight (OHRO). This new office will be
    responsible for performing the oversight functions formerly performed
    by the Office of Research Compliance and Assurance (ORCA). It will
    investigate allegations of research misconduct and improprieties,
    develop event specific protocols as needed, and establish and implement
    procedures to report non-compliance with VA regulations and policies.
    In addition to staff in VA Central Office, OHRO will operate five
    field-based offices located at the former sites of the ORCA Regional
    Offices in Bedford, Massachusetts; Washington, D.C.; Decatur, Georgia;
    Chicago, Illinois; and Moreno Valley, California. At the same time, the
    new Program for Research Integrity, Development and Education (PRIDE)
    has been established within the Office of Research and Development
    (ORD). PRIDE will have responsibility for the training, education, and
    policy development functions formerly accomplished by ORCA.
        We expect that this new structure will enhance our ability to
    provide effective research oversight, while improving our ability to
    identify, communicate, and provide necessary training on complex issues
    in a timely and responsive manner. It will strengthen protection for
    our human research subjects, and the support and guidance we provide
    our research community.
        Question. How does VA make sure that patients are fully informed of
    the risks of the research?
        Answer. VA follows the Common Rule and the FDA regulations that
    require that, unless appropriately exempted or waived under regulation,
    all volunteers in research be fully informed through the informed
    consent process of the purpose of the research risks and possible
    benefits of research in which they are asked to participate; whom to
    contact for additional information; any compensation in case of injury;
    that they may choose not to participate or may withdraw without losing
    any benefits to which they are otherwise entitled; as well as other
    information stipulated by regulation and policy. The information to be
    provided and the informed consent process is approved and monitored by
    the Institutional Review Board. ORCA has also produced a brochure
    entitled ``I'm a Veteran. Should I Participate in Research?'' to help
    veterans understand some basics about research in the VA and their
    rights in research. The brochure, which has been widely distributed
    within VA, will also be produced in Spanish. A video is also in
    production to convey the same information to the veterans. ORCA has
    also produced information letters regarding informed consent for the VA
    research community and other educational initiatives dealing with this
    topic. The adequacy of the informed consent process is a key factor in
    oversight of VA facilities in activities undertaken by ORCA.
        VA's ORD has initiated research in how to improve the quality of
    the informed consent and the consenting process. The project entitled
    ``Enhancing Quality of Informed Consent'' (EQUIC) will attempt to
    determine the success and validity of the informed consent process by
    interviewing subjects immediately after they have given informed
    consent for a study. The information gained through these studies will
    be used to improve the informed consent and the informed consent
    process.
        During the past 3 years ORD has placed more emphasis on both the
    written informed consent and the consenting process through quality
    improvement efforts that include the ongoing EQUIC study that surveys
    research participants after they have consented to participate in a
    clinical trial; the development of focus groups composed of veterans
    that assist in the review; development of informed consents;
    presentations by ORD staff to national and regional conferences; and
    the State of the Art conference on informed consent held March 7-9,
    2001.
        In a recent quality improvement survey conducted by ORD, 97 percent
    of responding research subjects agreed with the statement ``The
    Informed Consent process including discussion with study staff gave me
    the information needed to make an informed decision about whether or
    not to participate in the study.''
        Question. What are VA's safety standards for research involving
    patients?
        Answer. VA adheres to the Common Rule at 38 CFR Part 16, FDA
    regulations at 21 CFR, and the implementing instructions developed by
    VA (M-3, Part 1, Chapter 9). A primary method of ensuring that risks to
    research participants is minimized is through Institutional Review
    Board review as required by the regulations, oversight at the VA
    facility through the research service and compliance personnel, and
    through ORCA.
        Question. Does VA ensure that all of the medical professionals who
    treat veterans have current licenses and credentials?
        Answer. The VA uses a peer review credentialing process with
    standards that are set forth by the Joint Commission on Accreditation
    of Healthcare Organizations. In this process the qualifications of
    providers, as well as periodic reviews of currently employed providers,
    are verified prior to appointment, reappointment, and privileging.
    Credentialing must be completed prior to initial appointment or
    reappointment and before transfer from another medical facility. In
    2001, the Veterans Health Administration (VHA) implemented VetPro, the
    VA Credentials Data Bank. As an Internet enabled program, the VA is
    able to obtain complete, validated, and verified credentials. The
    credentialing process includes verification of the individual's
    professional education, training, licensure, certification, and review
    of health status, previous experience (including any gaps greater than
    30 days in training and employment), clinical privileges, professional
    references, malpractice history, and adverse actions or criminal
    violations, as appropriate. Provider credentials are screened through
    the State Licensing Board (SLB) for all current and previously held
    licenses, the Federation of State Medical Boards (FSMB) Disciplinary
    File, and the National Practitioner Data Bank (NPDB). All information
    obtained through the credentialing process is carefully reviewed by the
    Facility Executive Committee of the medical staff before employment/
    privileging decision are made.
        Question. How does VA headquarters make sure that the networks are
    following these standards and procedures?
        Answer. Research Safeguards.--Information and instruction on the
    standards and procedures are coordinated through VA Central Office to
    the network offices. Several network offices have compliance officers
    who help educate the facilities about their responsibilities and
    conduct oversight if issues are detected. ORCA informs individual
    network offices of actions regarding oversight compliance issues. ORCA
    has also provided extensive and formal training for all network
    leadership and facility leadership on human subject protections issues.
    In addition, ORCA has issued information letters, alerts, and other
    updates to remind the networks of their responsibilities and provides
    copies to the network leadership on all official actions that it takes.
    ORCA negotiates the assurances of compliance required by the Common
    Rule with all VA facilities conducting research. Network directors have
    taken web-based training modules to describe the commitments made in
    the assurance and the basic protections afforded to subjects in VA
    research as required by the Common Rule and VA policy.
        The Chief Research and Development Officer requires all research
    offices to verify the credentials of not only VA employees but of all
    individuals who perform independent clinical activities as part of
    their research duties. In addition, all other individuals involved in
    human studies research must have their credentials confirmed, a scope
    of work established, and a record of such maintained and available for
    review. Sites must check the licenses of all licensed staff annually,
    and facilities will create an electronic means of tracking all without
    compensation (WOC) employees involved in human subjects research to
    facilitate the regular checking of these individuals against
    exclusionary lists.
        Credentialing in General.--By monitoring the VetPro credentialing
    process, VA can determine the extent to which VISNs and facilities are
    using this system. The system requirements ensure that the standards
    and procedures are followed to the extent that providers are
    credentialed via VetPro.

                                  FORT HOWARD

        Question. What is the status of the Mission Change and Enhanced use
    project underway at Fort Howard? What is the current timetable for the
    project?
        Answer. The Mission Change portion is completed. The current
    timeline for the Enhanced-Use project is as follows:

    ------------------------------------------------------------------------
                                            Target             Completed
    ------------------------------------------------------------------------
    Submit Business Plan...........  12/2002............  12/06/2002.
    Business Plan Approval.........  01/2003............  01/20/2003.
    Public Hearing.................  02/2003............  02/26/2003.
    Designation to Congress........  02/2003............  Pending (VACO).
    Solicitation/Request for         03/2003............  3/26/2003.
     Proposal (RFP).
    Evaluation.....................  07/2003.             ..................
    VA Capital Investment Board      09/2003.             ..................
     Review.
    OMB Notification and Review....  10/2003.             ..................
    Congressional Notification.....  10/2003.             ..................
    Award..........................  11/2003.             ..................
    ------------------------------------------------------------------------

        Question. What is the method the VA will use to broadcast [send
    out] its Request for Proposals (RFP) for Fort Howard? Will the VA rely
    solely on newspaper notices or will there be targeted mailings to
    companies which provide the type of development the VA is seeking at
    Fort Howard?
        Answer. Targeted mailings were made to over 240 parties that have
    previously expressed interest in Ft. Howard, or that have expressed
    interest or participated in other similar enhanced use projects. The
    RFP was also advertised in local newspapers.
        Question. What is the final date due for the RFP's? If there are no
    qualified bidders after the due date, will the VA make adjustments to
    the RFP and re-broadcast? What affect would such re-broadcast have on
    the current timeline for Ft. Howard?
        Answer. Proposals in response to the RFP are due on June 13, 2003.
    If there are no qualified proposals, VA will interview some of the
    firms that had expressed interest in an attempt to assess the reasons
    for the lack of response, and will revise and adjust the RFP if
    appropriate. Any such assessment, revision, and re-issue of the RFP was
    not envisioned in the aggressive timeline, and would add in excess of
    90 days to future milestones.
        Question. Will VA require the inclusion of assisted living and
    nursing care units at Fort Howard?
        Answer. No. The RFP specifies VA's preference for all elements of a
    continuous care retirement community but does not require them. Instead
    it allows potential proposers to present a plan for the redevelopment
    that they deem most appropriate and feasible.
        Question. Veterans with inpatient needs are being referred to the
    Baltimore VAMC. What has the VA done to prepare the Baltimore facility
    for its expected increase in workload? What facility improvements are
    being made? What is the VA doing to ensure that healthcare workers at
    the facility are able to provide quality customer service to an
    increased workload?
        Answer. The Fort Howard Mission Change did not impact the Baltimore
    VAMC. The Baltimore division of the VA Maryland Health Care System
    inpatient beds is dedicated to acute medical care and served the acute
    medical needs of the patients at Fort Howard prior to the Mission
    Change. Consequently, there is no projected impact on inpatient care at
    Baltimore as a result of the Mission Change.
        The inpatient programs that where located at Fort Howard were
    dedicated to intermediate medicine. The Mission Change relocated 68 of
    the 85 existing beds to the Loch Raven and Perry Point facilities,
    where excess capacity existed within the healthcare system. At the time
    the inpatient beds were relocated, the average daily census in
    intermediate medicine was 68 depicting that excess capacity existed.
    The VA Maryland Health Care System was given permission to close 17
    beds as a result of the low occupancy rate.
        Question. Will outpatient services continue at the Fort Howard
    campus throughout the entire transition?
        Answer. Yes. The Fort Howard campus will retain a Community Based
    Outpatient Clinic that will be staffed by VA physicians and support
    staff.
        Question. If the State does not authorize a new State Veterans Home
    at Fort Howard, what impact will it have on the Enhanced Use plan?
        Answer. The RFP requires all proposers to identify a 7-acre parcel
    of the campus that they will set aside in their redevelopment plan for
    future use as a site for a State Nursing Home. If at some future time
    the Department, after consultation with the State of Maryland,
    determines that this State Home is no longer a possibility, the
    Department may choose to offer this parcel to the enhanced-use lessee
    for additional consideration or could choose to pursue a separate
    enhanced-use lease for a purpose as yet to be determined.

                               HOMELAND SECURITY

        Question. VA's Fourth Mission is to serve as a backup to the DOD
    healthcare system in times of national emergency. What does VA propose
    to spend in 2004 to prepare for this mission?
        Answer. VA does not budget separately for preparedness to execute
    its plans to provide back up to the DOD health care system in times of
    war or national emergency. Medical preparedness actions to support DOD
    in wartime are part of an overall integrated comprehensive Emergency
    Management Program (EMP) used within VA and, in particular, the
    Veterans Health Administration (VHA). This concept employs an ``all
    hazards'' approach to emergency preparedness that addresses the broad
    range of threats and missions that VA can be called upon for response.
    This includes not only providing care to active duty service members in
    wartime, but also requests under the Stafford Act and other authorities
    for VA assistance in domestic disasters or terrorist incidents. Each of
    VHA's medical facilities must, as mandated by the Joint Commission on
    Accreditation of Healthcare Organizations, employ this comprehensive
    approach in development of their local Emergency Operations Plans. This
    includes planning for receipt of military casualties under activation
    of the VA-DOD Contingency Plan, as well as for other contingencies
    associated with natural or manmade events within their communities.
        Question. If there is a biological attack in Baltimore, what would
    be the role of the VA hospital?
        Answer. A biological attack would most likely prompt an activation
    of the Federal Response Plan (FRP). Under Emergency Support Function
    #8, ``Health and Medical,'' of the FRP, VA is cited as a support
    agency. The lead agency is the Department of Health and Human Services
    (HHS).
        VA could be tasked to provide support in several ways. The mostly
    likely forms of support would be:
      --Pharmaceuticals for immediate treatment and as prophylaxis (e.g.,
            antibiotics, as were administered after the anthrax incidents
            post 9-11). VA may oversee or assist with coordinating the
            logistics of various caches (Centers for Disease Control (CDC),
            HHS) or in providing pharmaceuticals from its internal sources.
      --VA may be requested to provide staff (especially clinical) to
            assist in administering pharmaceuticals and rendering
            treatment.
      --VA may be asked to support supplies (e.g., swabs, syringes/needles,
            culture materials) or equipment (ventilators, dialysis, or
            other biomedical equipment depending on the biological agent
            and its effects). In the short term, many of these requested
            resources would be provided by the Baltimore VA Medical Center.
        VA's role in such an attack would also depend on the local
    emergency plan and specific expectations cited in the plan. For
    instance, if the event is assessed to warrant decontaminating victims,
    VA may, through the Local Emergency Preparedness Committee (LEPC) be
    cited as a source to provide decontamination.
        Finally, in such an attack, the local VA medical center will
    activate their internal disaster plan, including implementing
    heightened security, facility level decontamination (and other
    preparedness measures), staff call-back roster implementation and
    vigilant surveillance, and reporting of actual or suspected bio-terror
    victims to the public health authorities.
        Question. Are employees there being vaccinated for smallpox? If
    yes, how? If not, why not?
        Answer. Yes, as of March 13, five members of VAMHCS have been
    vaccinated through the State plan as implemented through the University
    of Maryland Hospital. The remainder of the Smallpox Vaccination Team
    and of the Smallpox Healthcare Response Team has not been vaccinated.
    The Maryland Health Care System plans to vaccinate other team members
    when the VA supply of vaccine becomes available.

                          PHYSICIAN ASSISTANT ADVISOR

        Question. In previous Committee reports, the Committee has
    encouraged VA to make the Physician Assistant Advisor a full-time field
    position in close proximity to headquarters. What is the status of this
    position? Is it full-time? Where is it located?
        Answer. The Physician Assistant (PA) Advisor position was created
    pursuant to The Veterans Benefits and Health Care Improvement Act of
    2000 (Public Law 106-419) that directed VHA to create a position of PA
    Advisor to the Office of the Under Secretary for Health. This was an
    unfunded mandate. To prevent delay, VHA elected to create the position
    as a half-time national basis and half-time field-based position. The
    part-time PA Advisor reports within the Office of the Chief Consultant
    for Primary and Ambulatory Care in Patient Care Services, VHA. The
    current PA Advisor is based at the Milwaukee, WI, VAMC where he was
    employed before his appointment to this position.
        While Congress's interest in having a full-time PA Advisor is clear
    in principle, the current arrangement of the PA Advisor as part-time at
    the national level, while continuing to practice in a clinical capacity
    at the field level, is working well. The PA Advisor has established a
    highly functional communications network for PAs, has a national Field
    Advisory Group to assist him, serves on national committees and
    workgroups, and provides advice regarding clinical practice and
    employment and utilization of PAs within VHA. He is able to communicate
    effectively when critical time responses are required from the field or
    from VHA about PA issues.
        There are distinct benefits of having a field-based practicing
    clinical PA in the role of PA Advisor, and this is true for the other
    decentralized program directors as well. In addition, field-based
    positions allow for the recruitment of the best-qualified individuals
    rather than just those who are willing to move to Washington, DC.
    Consequently, VHA is not recommending that the PA Advisor be
    established as a VACO-based full-time employee equivalent position at
    this time.
        Question. What other Advisor positions are full time? Which ones
    are located at or close to headquarters?
        Answer. The PA Advisor position, which represents approximately
    1,400 PAs within VHA, is compatible with the other occupational
    representatives within Patient Care Services, all of who perform these
    duties on a part-time basis. Within VA's Office of Patient Care
    Services, the National Directors of Pathology, Radiology, Optometry,
    Ophthalmology, Podiatry, Neurology, and Anesthesia have part-time VACO
    appointments. The Chief Consultants for Spinal Cord Injury, Physical
    Medicine and Rehabilitation, and Diagnostic Services are also part-time
    VACO appointments. Of these, only the current Chief Consultant for
    Physical Medicine and Rehabilitation is based at the Washington, DC,
    VAMC where she is also Chief of the Audiology and Speech Pathology
    Service. The current Director of Optometry is based in Baltimore, MD.
    All other incumbents are at more distant locations, ranging from West
    Haven, CT, to the West Coast.
        Question. What is the budget request for travel and administrative
    support of this position?
        Answer. The PA Advisor has a travel budget to allow trips to VACO
    and to PA national meetings. This support allows him to perform his
    duties and meet with other federal PAs. VA provided $10,565 in fiscal
    year 2002 for the PA Advisor to travel to VACO for face-to-face
    meetings. VA also provided funding for a face-to-face meeting of the PA
    Field Advisory Group, which is composed of six members including the PA
    Advisor.
        VA has allocated $6,600 to the PA Advisor for fiscal year 2003
    travel. This funding level was established while VA was on continuing
    resolution and is commensurate with that of the Directors of Optometry
    and Podiatry, who are also within the Office of the Chief Consultant
    for Primary and Ambulatory Care. Funding for a face-to-face meeting of
    the PA Field Advisory Group is not provided in the fiscal year 2003
    budget due to limits on all VHA travel funding. When the PA Advisor
    serves on VHA committees or workgroups, travel may be funded through
    those groups. If additional funds become available during fiscal year
    2003, they will be distributed equitably in response to need. Funding
    of $6,600 has been requested for fiscal year 2004.
        Administrative support for the PA Advisor is not specifically
    funded, but the administrative support personnel in VA's Office of the
    Chief Consultant for Primary and Ambulatory Care are available to
    assist with administrative duties such as correspondence and responses
    to information requests. Satellite education conferences are supported
    by the Employee Education Service (EES) and face-to-face conferences
    for PAs have also been supported by EES in the past. Conference call
    capability is readily available to the PA Advisor.

                              TRANSITIONAL HOUSING

        Question. The budget proposes to convert Guaranteed Transitional
    Housing from a mandatory to discretionary account. Why?
        Answer. VA has found that many potential developers of transitional
    housing are in need of a cash grant or other sources of funds that do
    not require regular repayment. Based on numerous discussions with
    potential developers, VA has concluded that a grant would be of more
    benefit to such developers than a loan.
        The key advantage for the Federal government of changing from a
    guaranteed loan to a grant program is the reduction of financial loss
    resulting from loans defaulting. The current pilot program, as a loan
    guaranty, is full of risks (pre-development, construction, operating
    risks) and currently has a subsidy rate of 48.25 percent. The potential
    sponsors could apply for grant funding, in lieu of a loan guaranty,
    where repayment is not required.
        The proposal to convert this loan guaranty to a grant program
    resulted after VA's experience in trying to design the loan guaranty
    program and meeting with potential partners under this pilot program.
    In addition, numerous representatives of government, private and public
    lending institutions, and real estate developers of multifamily housing
    projects have advised VA of the high risk involved and high rates of
    defaults by borrowers.
        Veterans could be better served with the proposal to change from a
    loan guaranty to a grant program because VA believes more developers
    would be interested in and able to complete projects with the
    assistance of a grant rather than a loan that must be repaid.
    Therefore, there exists the likelihood that more projects will be
    completed and more beds will become available to homeless veterans if
    this program were converted to a grant.
        Question. How much will this proposal cost in 2004? How much is it
    expected to cost each of the next five years?
        Answer. VA anticipates spending approximately $9.6 million per year
    in grants to help develop long-term multifamily transitional housing
    for homeless veterans. Across a 5-year period, VA would offer
    approximately $48 million in grants. In addition, VA estimates eight
    FTE to administer and oversee this program at an average cost of
    $52,000 per FTE. Staffing costs would be approximately $416,000 per
    year. Cumulative staffing costs would be $2.08 million across a 5-year
    period. VA also anticipates spending $869,000 per year on contracts to
    help implement and administer the program. Contracting costs would be
    $4.345 million across a 5-year period.
                                     ______

                   Questions Submitted by Senator Tom Harkin

        Question. Mr. Secretary, as you know, physician assistants provide
    vital care to our nation's veterans. Physicians Assistants had 5.2
    million contacts with VA patients last year alone. Congress took an
    important step in recognizing this contribution when passing the
    Veterans Benefits and Health Care Improvement Act of 2000 (Public Law
    106-419), which included the creation of Physician Assistant Advisor
    position for the Veterans Health Administration (Title II, Subtitle A,
    Sec. 206). Since that time, the Committee has included language in
    fiscal year 2002 and fiscal year 2003 requesting VHA to make the
    position a full-time, field-based position with adequate travel and
    administrative support. The fiscal year 2003 language asked for a
    report on the status of this request. This report was due March 3,
    2003. I would like a report from VHA on the amount of travel and
    administrative support for the position in fiscal year 2002 and fiscal
    year 2003, as well as proposed fiscal year 2004 support? What is the
    timetable for making the PA Advisor position a full-time position, as
    requested by the Committee?
        Answer. Travel and Administrative Support.--The PA Advisor has a
    travel budget to allow trips to VACO and to PA national meetings. This
    support allows him to perform his duties and meet with other federal
    PAs. VA provided $10,565 in fiscal year 2002 for the PA Advisor to
    travel to VACO for face-to-face meetings. VA also provided funding for
    a face-to-face meeting of the PA Field Advisory Group, which is
    composed of six members including the PA Advisor.
        VA has allocated $6,600 to the PA Advisor for fiscal year 2003
    travel. This funding level was established while VA was on continuing
    resolution and is commensurate with that of the Directors of Optometry
    and Podiatry, who are also within the Office of the Chief Consultant
    for Primary and Ambulatory Care. Funding for a face-to-face meeting of
    the PA Field Advisory Group is not provided in the fiscal year 2003
    budget due to limits on all VHA travel funding. When the PA Advisor
    serves on VHA committees or workgroups, travel may be funded through
    those groups. If additional funds become available during fiscal year
    2003, they will be distributed equitably in response to need. Funding
    of $6,600 has been requested for fiscal year 2004.
        Administrative support for the PA Advisor is not specifically
    funded, but the administrative support personnel in VA's Office of the
    Chief Consultant for Primary and Ambulatory Care are available to
    assist with administrative duties such as correspondence and responses
    to information requests. Satellite education conferences are supported
    by the Employee Education Service (EES) and face-to-face conferences
    for PAs have also been supported by EES in the past. Conference call
    capability is readily available to the PA Advisor.
        Full-time Status.--The Physician Assistant (PA) Advisor position
    was created pursuant to the ``Veterans Benefits and Health Care
    Improvement Act of 2000'' (Public Law 106-419), which directed VHA to
    create a position of PA Advisor to the Office of the Under Secretary
    for Health. VA elected to create the position as a half-time national
    basis and half-time field-based position. The part-time PA Advisor
    reports within the Office of the Chief Consultant for Primary and
    Ambulatory Care in Patient Care Services in VHA. The current PA Advisor
    is based at the Milwaukee, WI, VAMC where he was employed before his
    appointment to this position.
        The current arrangement of the PA Advisor as part-time at the
    national level, while continuing to practice in a clinical capacity at
    the field level, is working well. The PA Advisor has established a
    highly functional communications network for PAs, has a national Field
    Advisory Group to assist him, serves on national committees and
    workgroups, and provides advice regarding clinical practice and
    employment and utilization of PAs within VHA. He is able to communicate
    effectively when critical time responses are required from the field or
    from VHA about PA issues.
        The PA Advisor position, which represents approximately 1,400 PAs
    within VHA, is compatible with the other occupational representatives
    with in Patient Care Services, all of who perform these duties on a
    part-time basis. Within the Office of Patient Care Services, the
    National Directors of Pathology, Radiology, Optometry, Ophthalmology,
    Podiatry, Neurology, and Anesthesia have part-time VACO appointments.
    The Chief Consultants for Spinal Cord Injury, Physical Medicine and
    Rehabilitation, and Diagnostic Services are also part-time VACO
    appointments. Of these, only the current Chief Consultant for Physical
    Medicine and Rehabilitation is based at the Washington, DC, VAMC, where
    she is also Chief of the Audiology and Speech Pathology Service. The
    current Director of Optometry is based in Baltimore, MD. All other
    incumbents are at more distant locations, ranging from West Haven, CT,
    to the West Coast.
        There are distinct benefits of having a field-based practicing
    clinical PA in the role of PA Advisor. Field-based positions allow for
    the recruitment of the best-qualified individuals, not simply those
    willing to make the transition to the Washington, DC, area.
    Consequently, VA is not recommending that the PA Advisor be established
    as a VACO-based full-time position at this time.
        Question. Mr. Secretary, can you tell me the current wait for
    appointments for new (non-emergent) patients at each of Iowa's
    facilities, the current plans for improving the situation, and how long
    you anticipate waits will be when those plans are implemented? Can you
    also compare the waits for appointments for new non-emergent patients
    in each of the VISN's?
        Answer. There are two VA health care facilities located in the
    State of Iowa, VA Central Iowa Health Care System (Des Moines/
    Knoxville) and Iowa City VAMC.
        The following chart provides waiting times to primary care for new
    non-emergent patients.

                                               IOWA FEB 2003 WAITING TIMES
    ----------------------------------------------------------------------------------------------------------------
                                                                                                            Average
                                                                                                              New
                                                                                                            Patient
                State               VISN    Station     Station Name      Clinic Type     Type of CBOC/    Wait Time
                                             Number                                          Division      (Recoded
                                                                                                            as next
                                                                                                          available)
    ----------------------------------------------------------------------------------------------------------------
    IA...........................      23  636A6....  Des Moines        PRIMARY........  VA PROVIDED....        61.2
                                                       Division--Centr
                                                       al Plains
                                                       Health Network.
    IA...........................      23  636A7....  Knoxville         PRIMARY........  VA PROVIDED....        35.2
                                                       Division--Centr
                                                       al Plains
                                                       Health Network.
    IA...........................      23  636A8....  Iowa City         PRIMARY........  VA PROVIDED....        38.8
                                                       Division--Centr
                                                       al Plains
                                                       Health Network.
    IA...........................      23  636GC....  Mason City......  PRIMARY........  VA PROVIDED....        63.9
    IA...........................      23  636GF....  Bettendorf......  PRIMARY........  VA PROVIDED....        73.7
    IA...........................      23  636GH....  Waterloo........  PRIMARY........  VA PROVIDED....        59.6
    IA...........................      23  636GJ....  Dubuque.........  PRIMARY........  VA PROVIDED....       125.2
    IA...........................      23  636GK....  Fort Dodge......  PRIMARY........  CONTRACT.......        27.5
    ----------------------------------------------------------------------------------------------------------------

        The Iowa City VAMC does not have a waiting list and can schedule an
    appointment for a new patient in less than 40 days, therefore, no other
    plans are being considered except for close observation of panel sizes
    to ensure that supply and demand are in balance.
        At all of the Central Iowa sites, they are actively working on
    implementing the Advanced Clinic Access principles, and they have
    brought in a fee basis physician to see new patients to accelerate the
    process at Des Moines. Des Moines also added a Nurse Practitioner at
    Mason City CBOC in November. The projection is that by July 2003, Mason
    City will be at 30 days or less. Based on the current rate of new
    patients requesting appointments and those who had previously been
    scheduled at Des Moines while they were waiting for Mason City, it is
    projected to be late June before the waiting time will be within 30
    days. In February and March, there were fewer applicants for care and
    that may also expedite the process.
        The following data compares waits for new non-emergent patients by
    VISN:

    ------------------------------------------------------------------------
                                                         New Patient Next
                          VISN                        Available Appointment
    ------------------------------------------------------------------------
    1..............................................                     44.1
    2..............................................                     30.0
    3..............................................                     43.8
    4..............................................                     46.1
    5..............................................                     41.6
    6..............................................                     47.5
    7..............................................                     51.4
    8..............................................                     65.2
    9..............................................                     60.7
    10.............................................                     41.9
    11.............................................                     51.5
    12.............................................                     59.5
    15.............................................                     54.8
    16.............................................                     43.1
    17.............................................                     50.9
    18.............................................                     46.6
    19.............................................                     56.3
    20.............................................                     41.7
    21.............................................                     46.6
    22.............................................                     31.3
    23.............................................                     59.9
    ------------------------------------------------------------------------

        Question. Last year, I joined the Senators representing the
    veterans in VISN 23 in writing you about reform of the VERA model. As
    you know, a recent GAO report I requested found that the VERA model is
    unfairly hurting several VISN's and examined the effects of including
    Priority 7 patients, using more patient categories, and using more
    recent data to determine the distribution. Can you tell me what
    changes, if any, you plan to make to the VERA model in distributing
    fiscal year 2003 and fiscal year 2004 funds? Please also give me any
    analysis the VA has done on how changes to the VERA model would affect
    the distribution of health care funds.
        Answer. Fiscal Year 2003 VERA Model Changes.--Based on the
    deliberations of VHA's internal VERA workgroups, and in response to a
    February 2002 General Accounting Office VERA report and the Rand
    Corporation recommendations, the Secretary approved the following
    improvements to the VERA methodology for fiscal year 2003:
      --Move from a VERA three case-mix model to a VERA ten case-mix model.
            This change expands the VERA patient price groups from three
            (Basic Vested Care, Basic Non-Vested Care, and Complex Care) to
            10 (6 Basic Care price groups and 4 Complex Care price groups)
            and better recognizes a differentiation in VA's ``core
            mission'' patients (veterans with service connected
            disabilities or those with incomes below the current threshold
            or special needs patients, e.g., the homeless).
      --Additional Allocation for High-Cost Patients.--This change provides
            an additional allocation to networks with the top 1 percent
            highest cost patients. This recognizes the impact on those
            networks with patients whose annual costs exceed $70,000, the
            threshold for the 1 percent highest cost patients. These
            networks will receive an additional allocation equal to the
            amount that a patient's actual costs exceed the $70,000
            threshold.
      --Implement a low cap (5 percent) and high cap (12.6 percent) for
            fiscal year 2003 funding increases above the final allocation
            received in fiscal year 2002. As a result, it is expected there
            will be no VERA adjustment or supplemental allocation provided
            in fiscal year 2003.
        These fiscal year 2003 VERA refinements will improve the equitable
    allocation of funds to the 21 networks by recognizing the financial
    differences in ``core mission'' patients, by continuing the basic
    patient classification structure of the VERA model, by minimizing the
    incentives for unconstrained workload growth, and by eliminating the
    need for supplemental funding for networks during the year.
        Priority 7 Veterans.--There was one VERA change recommended for
    fiscal year 2003 implementation that was not approved by the Secretary.
    In its February 2002 report on VERA (GAO-02-338), GAO recommended that
    VA ``Better align VERA workload measures with actual workload served
    regardless of veteran priority group.''
        Based on a careful assessment of all policy options, the Secretary
    determined not to include non-service-connected Priority 7 Basic Care
    patients in the VERA model for fiscal year 2003. Although the inclusion
    of non-service-connected/non-complex care Priority 7 veterans in the
    VERA Basic Care category would be a step toward better aligning the
    VERA allocation model with VA's actual enrollment experience, including
    these veterans in the VERA model would create financial incentives to
    seek out more of these veterans instead of veterans with service
    connected disabilities or those with incomes below the current income
    threshold or special needs patients (e.g., the homeless), veterans who
    comprise VA's core health care mission.
        VA experienced uncontrolled growth in the Priority 7 veterans
    (designated as Priority Group 8 for fiscal year 2003) when they were
    not included in the VERA model, and VA does not want to encourage
    unmanageable workload growth by including them in the VERA model in
    other than the Complex Care price groups. The allocation of fixed
    resources to networks is done on a zero sum basis. Increased resources
    for non-service-connected/non-complex care Priority 7 veterans would
    come at the expense of veterans who are service-connected, poor, or who
    require specialized services. The allocation of resources to areas with
    a disproportionate percentage of non-service-connected/non-complex care
    Priority 7 veterans would come at the expense of veterans who live in
    areas with disproportionately higher numbers of service-connected and
    lower income veterans.
        Fiscal Year 2003 Network Funding Allocations.--The table below
    depicts VERA allocations for the 21 Networks in fiscal year 2003
    compared to the VERA fiscal year 2002 year-end allocation.

                      FISCAL YEAR 2003 NETWORK ALLOCATIONS COMPARED TO FISCAL YEAR 2002 ALLOCATIONS
                                                 (Dollars in thousands)
    ----------------------------------------------------------------------------------------------------------------
                                                                      Fiscal Year 2003 VERA 10 (1% High Cost Adjust,
                                                                                5% Low Cap, 12.6% High Cap)
                                                        Fiscal Year  -----------------------------------------------
                         Network                      2002 VERA Year                      Dollars
                                                            End         Fiscal Year    Shifted from   Percent Change
                                                        Allocations      2003 VERA      Fiscal Year     from Fiscal
                                                                        Allocations      2002 Base       Year 2002
    ----------------------------------------------------------------------------------------------------------------
    01 Boston.......................................        $943,383      $1,012,354         $68,971             7.3
    02 Albany.......................................         507,386         556,418          49,032             9.7
    03 Bronx........................................       1,058,664       1,111,597          52,933             5.0
    04 Pittsburgh...................................         955,780       1,076,519         120,739            12.6
    O5 Baltimore....................................         575,640         617,523          41,882             7.3
    06 Durham.......................................         881,606         990,671         109,066            12.4
    07 Atlanta......................................       1,071,956       1,158,656          86,699             8.1
    08 Bay Pines....................................       1,470,056       1,655,761         185,705            12.6
    09 Nashville....................................         848,607         926,758          78,151             9.2
    10 Cincinnati...................................         697,551         771,274          73,723            10.6
    11 Ann Arbor....................................         766,210         849,127          82,917            10.8
    12 Chicago......................................         898,572         978,050          79,478             8.8
    15 Kansas City..................................         717,747         761,453          43,707             6.1
    16 Jackson......................................       1,499,125       1,688,502         189,377            12.6
    17 Dallas.......................................         850,104         936,733          86,629            10.2
    18 Phoenix......................................         731,784         803,265          71,481             9.8
    19 Denver.......................................         483,243         528,463          45,220             9.4
    20 Portland.....................................         840,081         902,764          62,683             7.5
    21 San Francisco................................         947,781       1,062,177         114,396            12.1
    22 Long Beach...................................       1,082,849       1,219,641         136,791            12.6
    23 Minneapolis..................................         874,116         917,822          43,706             5.0
                                                     ---------------------------------------------------------------
          VHA Totals................................      18,702,243      20,525,528       1,823,285             9.7
    ----------------------------------------------------------------------------------------------------------------

        Future Year VERA Changes.--The National Leadership Board (NLB)
    Finance Committee will continue to review and evaluate future potential
    enhancements to the VERA methodology. In addition to these refinements,
    a regression-based model being developed by the RAND Corporation, and a
    Diagnostic Cost Groups (DCGs) model will be evaluated for fiscal year
    2005 and beyond.
        Question. According to press reports last year, the VA health care
    system was short $400 million for fiscal year 2002. As you know,
    Congress approved an additional $417 million in supplemental funding to
    make up for this shortfall. Of this amount, $142 million had been
    requested by President Bush and was sent to the VA. Unfortunately, the
    President chose not to release a budget package that included the other
    $275 million. Can you tell me how large the shortfall for fiscal year
    2002 was and how you made up for the shortfall? Do expect a shortfall
    in fiscal year 2003?
        Answer. We do not anticipate a shortfall in fiscal year 2003. The
    demand for medical services in 2002 outpaced our capacity to provide
    timely, quality care to all who sought these services. As a result, we
    implemented policies to focus resources and care on our highest
    priority veterans--those with service connected conditions, low income
    and special needs veterans. To ensure that combat-disabled veterans can
    gain timely access to VA health care, VA published a regulation to
    provide for priority scheduling of appointments for veterans who are 50
    percent or more disabled from service-connected causes and other
    veterans who are seeking care for their service-connected conditions.
    In the first quarter of fiscal year 2003, VA made an enrollment
    decision to stop enrollment of most new Priority 8 higher income
    veterans for care starting on January 17, 2003. This decision allows VA
    to continue to focus on the care of our highest priority veterans.
        Question. Many of our veterans seek care at VA hospitals because of
    the excellent pharmacy benefits, sometimes even if they have another
    primary care physician. As you know, our elderly on Medicare do not
    have coverage for prescription drugs. Would it relieve some of the
    burden on the VA if Congress passed a real prescription drug benefit in
    Medicare?
        Answer. We believe that in the context of the President's Medicare
    modernization framework, which would provide for a pharmaceutical
    benefit to Medicare beneficiaries, some burden on the VA could be
    relieved since more than half of the veterans who receive health care
    through VA are over age 65. According to data from the 2002 VHA Survey
    of Veteran Enrollees, 90 percent of Priority 8 enrollees and 87 percent
    of Priority 7 enrollees have some type of public (Medicare/Medicaid) or
    private health care coverage (compared to just 70 percent for Priority
    5 and 73 percent for Priority 1 enrollees).
        However, it is the combined effect of several factors that has
    resulted in the large increase in demand that has severely strained
    VA's ability to continue to provide timely, high-quality health care.
    First, the Veterans Health Care Eligibility Reform Act and the
    Millennium Health Care Act opened the door to comprehensive health care
    services to all veterans. Second, access to health care has greatly
    improved with the opening of hundreds of community-based outpatient
    clinics. Third, our patient population is growing older and this had
    led to an increase in veterans' need for health care. Fourth, VA has
    favorable pharmacy benefits compared to other health care providers,
    especially Medicare, and this has attracted many veterans to our health
    care system. (In this regard, however, VA has found that even though
    many patients initially come to VA for drugs, some ultimately used
    other services, including cardiology, urology, eye care, and inpatient
    care.)
        VA will continue to face significant challenges, as the demand for
    health care services reaches unprecedented levels. At the same time, VA
    must continue to fulfill its core mission--providing timely access to
    high quality health care to veterans with service connected
    disabilities, low incomes, and those with special needs. The actuarial
    projections show that the increasing demand placed on VA health care
    system will continue to strain VA's ability to provide timely, high-
    quality health care for veterans in Priorities 1-6. VA expects to
    provide health care to 3.6 million patients in core Priorities 1-6
    (service connected and low-income veterans) in fiscal year 2004, an
    increase of 5 percent over fiscal year 2003. Priorities 1-6 alone are
    expected to cost $9 billion more by fiscal year 2008 (over fiscal year
    2003).
                                     ______

                   Questions Submitted by Senator Tim Johnson

        Question. For the past several years, Congress has provided
    additional funds over the President's request for VA health care. While
    your fiscal year 2004 budget request has an increase over what was
    funded in fiscal year 2003, the Independent Budget estimates you are
    still about $2 billion below what is needed for veterans medical care.
        Do you agree with the analysis of the VA's needs that is provided
    in the Independent Budget? Is your fiscal year 2004 VA medical care
    request sufficient to fund all the needs of the VA health system?
        Answer. As with the President's budget, the total Independent
    Budget is well articulated and certainly has veterans' health care
    foremost in mind. However, there are two fundamental differences
    between the two budgets. The President's budget uses collections and
    management efficiencies to help offset the overall cost of the
    increased workload and utilization. The cost-sharing proposals in the
    2004 budget only affect the lowest priority veterans in Priority 8 and
    non-service-connected veterans in Priority 7 and have been
    strategically priced to refocus the VA system on those veterans who
    need us most and those who need the specialized care VA provides. The
    management savings will be achieved by implementing a rigorous
    competitive sourcing plan; reforming the health care procurement
    process; increasing employee productivity; continuing to shift from
    inpatient care to outpatient care, a less costly alternative; and
    reducing requirements for employee travel, interagency motor pools,
    maintenance and repair services, operating supplies, and materials to
    redirect them to providing direct health care for veterans. When
    collections and efficiencies are taken into consideration, the
    President's budget request exceeds the Independent Budget by $108
    million. However, the sufficiency of the VA medical care request is
    dependent on passage of the policies proposed in the 2004 President's
    budget.
        Question. I recently had the pleasure of visiting several VA
    facilities in South Dakota. While there, I had the opportunity to talk
    to veterans who are having to wait up to a year to get an appointment.
    Nationally, according to the VA, there are over 200,000 veterans on
    waiting lists for appointments.
        Does your budget request for fiscal year 2004 provide sufficient
    funds to eliminate the waiting lists for VA appointments? If not, what
    is your plan to end the long waits for appointments at the VA?
        Answer. Yes, the 2004 budget proposes to reduce the average waiting
    time for new patients seeking primary care clinic appointments to 30
    days in 2004, and reduce the average waiting time for next available
    appointment in specialty clinics to 30 days in 2004. VA is working to
    improve access to clinic appointments and timeliness of service. VA
    continues efforts to develop ways to reduce waiting times for
    appointments in primary and specialty care clinics. By refocusing VA's
    health care system on these groups, VA will be positioned to achieve
    our primary and specialty care access standards.
        There are two VA facilities located in South Dakota. VA Black Hills
    Health Care System is an integrated facility with two campuses located
    in Fort Meade and Hot Springs. Sioux Falls houses the VA medical and
    regional office center and offers inpatient and outpatient primary and
    specialty care.
        The Black Hills Health Care System has a waiting list of 24
    patients and Sioux Falls VAM&ROC has a waiting list of 3,264 patients.
    When a name is removed from a waiting list the average wait time for a
    new patient appointment in primary care is less than 60 days.
        All of the medical facilities in South Dakota are using Advance
    Clinic Access practices to eliminate wait lists and reduce wait times.
    With the additional resources for new workload in fiscal year 2003, the
    network's plan is to release $2.1 million to Sioux Falls VAM&ROC. Wait
    lists at all facilities are expected to be eliminated by the end of
    this fiscal year.
        The following chart provides waiting times to primary care for new
    non-emergent patients.

                                           SOUTH DAKOTA FEB 2003 WAITING TIME
    ----------------------------------------------------------------------------------------------------------------
                                                                                                        Average New
                                                                                                       Patient Wait
                 State                 VISN    Station Number      Station Name       Clinic Type      Time (Recoded
                                                                                                          as next
                                                                                                        available)
    ----------------------------------------------------------------------------------------------------------------
    SD.............................       23  438.............  Sioux Falls......  PRIMARY..........            37.5
    SD.............................       23  438GD...........  Aberdeen (Brown    PRIMARY..........            49.6
                                                                 County).
    SD.............................       23  568.............  Fort Meade.......  PRIMARY..........            41.3
    SD.............................       23  568A4...........  Hot Springs......  PRIMARY..........            54.6
    SD.............................       23  568GA...........  Rapid City SD....  PRIMARY..........            47.1
    SD.............................       23  568HJ...........  Rosebud..........  PRIMARY..........            18.5
    SD.............................       23  568HM...........  Eagle Butte SD...  PRIMARY..........             0.0
    ----------------------------------------------------------------------------------------------------------------

        Question. As a part of the fiscal year 2002 Emergency Supplemental
    Appropriations bill, Congress provided an additional $417 million for
    VA medical care. Unfortunately, the President chose to veto $275
    million of this funding.
        What were the consequences in terms of care for our veterans of the
    President's decision not to spend this additional health care funding?
    Does your budget reflect these unmet fiscal year 2003 needs? Do you
    anticipate making a supplemental request for fiscal year 2003?
        Answer. We do not anticipate a shortfall in fiscal year 2003. The
    demand for medical services in 2002 outpaced our capacity to provide
    timely, quality care to all who sought these services. As a result, we
    implemented policies to focus resources and care on our highest
    priority veterans--those with service connected conditions, low income
    and special needs veterans. To ensure that combat-disabled veterans can
    gain timely access to VA health care, the VA has published a regulation
    to provide for priority scheduling of appointments for veterans who are
    50 percent or more disabled from service-connected causes and other
    veterans who are seeking care for their service-connected conditions.
    In the first quarter of fiscal year 2003, I made an enrollment decision
    to stop enrollment of most new Priority 8 higher income veterans for
    care starting on January 17, 2003 to continue the focus of care on our
    highest priority veterans.
        Question. Ron Porzio, the Director of the Sioux Falls VA Medical
    Center, has been on administrative leave for several months. The acting
    director has done a fine job, but has no interest in a long-term
    administrative job. I am starting to hear from veterans who are
    concerned that the lack of a full-time, permanent director is starting
    to affect the operations at the Sioux Falls Medical Center.
        When will this issue be resolved?
        Answer. In September 2002, an administrative review was convened to
    investigate allegations made by one of Mr. Porzio's employees. The
    review team visited the Sioux Falls VAM&ROC and the findings of that
    investigation are not complete. We cannot speculate or comment on the
    outcome of the review while the case remains open and under review. Mr.
    Porzio remains on temporary detail at the VISN office in Minneapolis,
    MN.
        On March 24, 2003, the Network Director appointed Rose Hayslett, an
    experienced Associate Director from Iowa City VAMC, as the Acting
    Director/Chief Operating Officer (COO) at the Sioux Falls VA Medical
    and Regional Officer Center (VAM&ROC). This appointment allows the
    Chief of Staff, serving as the Acting Director/COO, to fully
    concentrate on his clinical responsibilities. Ms. Hayslett was
    appointed Associate Director for Patient Care Services and Nurse
    Executive at the Iowa City VAMC in 1998. She served as Acting Medical
    Center Director for the Iowa City VAMC from September 2000 through
    January 2002.
                                     ______

                   Questions Submitted by Senator Harry Reid

        Question. As you may know, I have recently re-introduced the
    Retired Pay Restoration Act (S. 392) seeking full concurrent receipt
    for our nation's veterans. Can you tell me the position of the
    Department of Veterans Affairs on this legislation?
        Answer. S. 392 would amend 10 U.S.C. Sec. 1414, to permit a former
    service member who is eligible for military retired pay under title 10
    as well as disability compensation under Chapter 11 of title 38, U.S.
    Code, to receive both benefits without regard to 38 U.S.C.
    Sec. Sec. 5304 and 5305. S. 392 would also repeal special compensation
    programs, codified in section 1413 and 1413a of Title 10, which provide
    monthly monetary benefits for certain severely disabled veterans and
    provide combat-related special compensation to military retirees.
        Section 5304(a)(1) of Title 38 U.S. Code, prohibits, among other
    things, the award of VA disability compensation concurrently with
    military retirement pay, ``[e]xcept to the extent that retirement pay
    is waived under other provisions of law.'' Such waiver is authorized by
    38 U.S.C. Sec. 5305, which permits a retired service member to waive
    part or all of his or her retirement pay to receive instead an equal
    amount of VA benefits. Waiver is often advantageous to the veteran
    because VA compensation, unlike military retirement pay, is not subject
    to income taxes. The amendments made by S. 392 would override section
    5304 by expressly authorizing the concurrent payment of military
    retired pay and disability compensation for veterans.
        New section 1414 would also establish a special rule regarding the
    payment of retired pay and disability compensation in the case of a
    former service member with 20 years or more of creditable service, who
    retires due to physical disability under Chapter 61 of title 10. Such a
    person's retired pay would remain subject to reduction under 38 U.S.C.
    Sec. Sec. 5304 and 5305, but only to the extent that the individual's
    retired pay exceeds the amount of retired pay the individual would have
    been entitled to had they not retired under Chapter 61.
        The Congress has considered numerous bills over the past few years
    to partially or completely repealed the prohibition against concurrent
    receipt. The 108th Congress so far has been presented with two bills
    that would allow full concurrent receipt for retirees with at least 20
    years of service: H.R. 303 sponsored by Congressman Bilirakis, and S.
    392 sponsored by Senator Reid. Both of these bills would remove the
    prohibition against concurrent receipt for all retirees with 20 plus
    years of service. However, any amount of disability retired pay that
    exceeds what the member would receive for longevity retirement remains
    subject to offset. In effect then, payments under H.R. 303 and S. 392
    would work in much the same way as the recently enacted Combat-Related
    Special Compensation program, but without the requirement that the
    disabilities be combat-related. No added benefits would apply to those
    retired for disability with less than 20 years of service. But, full
    repeal of the existing prohibition is very expensive--our previous
    estimate is $58 billion over ten years ($42 billion associated with the
    additional cost of retired pay and the $16 billion associated with the
    payment of additional VA disability compensation for claims that would
    otherwise not be submitted). VA estimates that enactment would result
    in 700,000 original claims and 118,000 reopened claims over the next
    five years, increasing the existing backlog and adversely affecting
    timeliness. The Administration is on record as strongly opposing the
    changes included in these bills. Last year, the President's senior
    advisors recommended that he veto such legislation if it were presented
    to him.
        Question. Although we were not able to pass full concurrent receipt
    last year, we were able to broaden the special compensation programs.
    Under the law passed last year, veterans with a 60-100 percent combat
    related disability and Purple Heart recipients will be able to draw
    retirement pay and receive disability benefits concurrently. There has
    been a great deal of confusion about how this program will be
    implemented. Will the Department of Veterans Affairs play any role in
    distributing these benefits or is the Department of Defense (DOD)
    taking the lead?
        Answer. Department of Defense (DOD) will take the lead in
    administration of this program. VBA will continue to work closely with
    DOD to provide all necessary information required for effective
    implementation.
        Question. Please provide us with the office and contact person
    within DOD or the VA that is handling this matter.
        Answer. We defer to the Department of Defense regarding a DOD
    contact for this issue. The VA contact for this program is Thomas
    Pamperin, Assistant Director for Policy, Compensation and Pension
    Service.
        Question. Please provide an update on your plan for the VA Clinic
    in Las Vegas. What obstacles, if any, have you encountered in your
    efforts to plan for and build a new facility? Have you settled on a
    location for the clinic? What is the time frame for completion? In the
    interim period, what is your plan on how to treat the veterans living
    in the Las Vegas area?
        Answer. Based on VA's need to find a permanent location for our
    major Ambulatory Care Center (ACC) in Las Vegas, a planning committee
    was tasked with evaluating VA long-term workload requirements in
    Southern Nevada and options for the future delivery of services. That
    committee produced a report that is pending final review and approval
    but that was shared with Nevada congressional offices in January 2003.
    The committee evaluated four options and recommended the following as
    the preferred long-term strategy: 1) to locate the replacement ACC and
    a Veterans Benefits Regional Office in a downtown Las Vegas location,
    and 2) to meet projected VA hospital bed needs (84 beds total) by
    expanding inpatient care at the Mike O'Callaghan Federal Hospital.
        Based on an offer made by the City of Las Vegas, VA evaluated land
    in the former Union Pacific rail yard as a potential location for the
    replacement ACC. However, it has recently been determined that there is
    not sufficient available acreage that the City can make available at
    that location for the type of facility VA needs. VA is in need of a
    two- or three-story clinic on twenty to thirty acres of land, so that
    surface parking can be available. An advertisement soliciting land for
    the ACC was put in the local papers over the weekends of April 5/6 and
    April 12/13. VA's goal is for fast-track construction and to activate
    this clinic as soon as possible. It is not possible at this time to
    give a precise timetable for activation.
        In the interim, VA is in the process of relocating its operations
    from the current Addeliar Guy ACC to 10 separate and new locations in
    the Las Vegas metropolitan area. The plan is to be completely out of
    the current ACC location by the end of May or early June 2003. To date,
    surgical clinics from the ACC have been relocated to the Mike
    O'Callaghan Federal Hospital. Information Technology and
    telecommunications operations have been moved and the warehouse
    operation has been partially relocated to a new site.
        Prior to relocating any clinic operations to a new site, VA
    provides veterans with instructions and information regarding the new
    location and how their care will be provided. Contact points for
    appointment information and transportation information, including maps
    and directions, are included in this written instruction packet.
        To date, the relocations that have occurred have been done with a
    minimum of disruption for either staff or patients.
        Question. On numerous occasions when I have met with veterans from
    Northern Nevada they expressed concerns about the quality of care
    available in the Elko area. Do you foresee additional funding being
    directed to facilities in this region?
        Answer. The CARES planning process in VISN 19 has identified
    several population centers that could benefit from greater
    accessibility to VA health care services. Elko, Nevada is one of those
    areas. The Elko area is in the catchment area of the VA Salt Lake City
    Health Care System. Salt Lake is proposing a new CBOC to be located in
    Elko, and they are currently working on a business plan and proposal.
        Question. The Veterans Health Administration's facilities in Reno
    fall under the umbrella of the Sierra Pacific Network while facilities
    in northeastern Nevada are part of the Rocky Mountain Network. I
    believe it would benefit the Veterans Health Administration to
    incorporate Northeastern Nevada into the Sierra Pacific Network which
    is already dealing with the majority of cases from the northern region
    of my state, and is well versed in the needs of veterans from this
    area. Can you please comment on the feasibility of moving the boundary
    to incorporate Elko and surrounding areas into the Sierra Pacific
    Network?
        Answer. The original network boundaries were determined by
    historical referral and patient origin patterns. More veterans in
    northeastern Nevada use the Salt Lake City VA Medical Center than the
    Reno VA Medical Center. Elko and surrounding areas are slightly closer
    to Salt Lake City than Reno. Salt Lake City also provides a greater
    range of health care services than Reno. Reno refers many veterans in
    need of highly specialized services to the San Francisco Bay Area VA
    Medical Centers. There is no compelling advantage to change the network
    boundaries. As noted in the response to the previous question, Salt
    Lake City is proposing a new CBOC to be located in Elko, and they are
    currently working on a business plan and proposal.

                                     ______

                  Questions Submitted to the Inspector General
               Questions Submitted by Senator Barbara A. Mikulski

                         PHYSICIAN TIME AND ATTENDANCE

        Question. What did the IG find about physician time and attendance?
        Answer. VA medical center managers did not ensure that part-time
    physicians met employment obligations required by their VA
    appointments. Although VHA had established time and attendance policy
    and procedures to account for part-time physicians, neither VHA
    headquarters officials nor VA medical center managers enforced the
    policy. VHA management at many levels told us they were generally
    satisfied with physician productivity and believed VA received more
    value than it paid for from the services provided by part-time
    physicians, despite apparent timekeeping violations. Results of audit
    clearly showed that part-time physicians were not working the hours
    established in their VA appointments and as a result part-time
    physicians were not meeting their employment obligations to VA.
        VHA does not have effective procedures to align physician-staffing
    levels with workload requirements. VA medical centers did not perform
    any workload analysis to determine how many full time employee
    equivalents (FTE) were needed to accomplish the medical centers'
    workload or evaluate their hiring alternatives (such as part-time,
    full-time, intermittent, or fee basis). VA medical center managers
    responsible for staffing decisions did not fully consider the
    physicians' other responsibilities--such as medical research, teaching,
    and administration--when they determined how many physicians the VA
    medical centers needed. VHA officials told us the determination of the
    number of part-time physician FTEs needed has more to do with the
    financial needs of the affiliated university in meeting physician pay
    packages, than the number of hours needed by VA to meet patient
    workload requirements. In addition, only one of the managers at the
    five VA medical centers we visited, had informed their part-time
    physicians of what was expected of them to meet their VA employment
    responsibilities. We believe communication of expectations and
    responsibilities would significantly improve operations at the VA
    medical centers.
        Question. How much VA funding is ``lost'' due to this problem?
        Answer. The issue of lost VA funding is not just a consideration of
    paying physicians for time that was not directed towards VA duties. In
    considering the lost opportunity costs VA would need to evaluate the
    value of such issues as the costs of not providing care to veterans on
    waiting lists, the inability to bill for medical care that was provided
    by residents and not properly supervised by attending physicians, the
    value of any research conducted for which VA does not get credit as
    well as the salary paid for service that was not provided. While we did
    not quantify the value of the time that VA physicians did not spend at
    VA, at a minimum we noted, that about 11 percent of VA physicians were
    not meeting their employment obligations. In addition, from fiscal year
    1997 through the second quarter of fiscal year 2002, the Federal
    Government paid, on behalf of VA, at least $21 million for 63
    malpractice cases where VA's peer review panel found that the attending
    VA physicians provided substandard resident supervision. Based on our
    review of available documentation, the attending physicians were not
    present to supervise the residents during the performance of a
    procedure or the provision of a treatment to a veteran in at least
    eight cases resulting in malpractice settlements totaling $4.7 million.
    An additional pending case involves an attending surgeon who could not
    provide needed assistance to a VA medical center patient because he was
    operating on a non-veteran patient at the affiliated medical school.
        Question. Do you think this is a matter of fraud by VA doctors, or
    is it because of VA's lack of standards?
        Answer. There are cases where fraud is a possibility. In addition,
    some VHA managers were not willing to enforce existing time and
    attendance controls, and VHA does not have effective procedures to
    align physician-staffing levels with workload requirements.
        Further, inherent conflicts of interest that exist for the part-
    time physician with a dual appointment with the affiliated medical
    school contributed to the weak internal controls. Most VA supervisors
    of part-time physicians were also faculty members at the same
    university medical school as their subordinates. At one VA medical
    center, the service chiefs told us they did not consider themselves to
    be supervisors with any direct authority over their subordinate
    physicians--rather they were colleagues and served in a liaison role
    between VA medical center management and the physicians. From our
    discussions with managers and physicians at five VA medical centers and
    VA's Central Office, universities generally pay their physicians a base
    salary plus additional compensation based on the number of procedures
    or the level of productivity they achieved in their clinical practices.
    This compensation package provides a strong incentive for physicians to
    maximize the time they spend at the university medical schools. When
    the physician's supervisor has the same incentive based compensation
    package--as is apparently the case at affiliated VA medical centers--
    the integrity of the supervisory role is compromised. (IG)
        Question. The VA's budget proposes to hire 3,800 new doctors and
    nurses to address the waiting lists. How can VA ensure that new and
    existing doctors know what is expected of them?
        Answer. Require that Veterans Integrated Services Network (VISN)
    and medical center directors ensure part-time physicians meet their
    employment obligations and hold field managers accountable for
    compliance. (IG)
      --Determine what reforms are needed to ensure VA physician
            timekeeping practices are effective in an academic medicine
            environment and VA physicians are paid only for time and
            service actually provided. Recommend statutory or regulatory
            changes needed to implement the reforms and publish appropriate
            policy and guidance.
      --Establish performance monitors to measure VISN and medical center
            enforcement of physician time and attendance; ensure desk
            audits are conducted of timekeeping functions; provide
            continuing timekeeping education to supervisors, physicians,
            and timekeepers; require medical center managers to certify
            compliance with applicable policies and procedures to VHA's
            Deputy Under Secretary for Operations and Management annually;
            and hold VHA managers accountable for successful implementation
            of time and attendance requirements.
      --Apprise all part-time physicians of their responsibilities
            regarding VA timekeeping requirements.
      --Evaluate appropriate technological solutions that will facilitate
            physician timekeeping.
      --Develop comprehensive guidance for medical centers to use when
            conducting desk audits.
      --Establish appropriate training modules, making the best use of
            technological solutions for training VHA managers, VA
            physicians, and timekeepers in timekeeping requirements,
            responsibilities, and procedures.
      --Publish policy and guidance that incorporates the use of workload
            analysis to determine the number of physicians needed to
            provide timely, cost effective, and quality service to veterans
            seeking care from VA.
      --Require medical centers to review their staffing structures (such
            as part-time, full-time, intermittent, or fee basis) and
            determine if these appointments are appropriate to the needs of
            the medical center.
      --Require that VISN and medical center directors reassess staffing
            requirements annually and certify their staffing decisions to
            VHA's Deputy Under Secretary for Operations and Management.
      --Evaluate alternative methods to acquire physician services and
            publish national guidance to assist VISN and medical center
            directors in determining the best strategies for their
            regional, academic, and patient care circumstances.
      --Publish guidance describing how VISN and medical center managers
            should determine, monitor, and communicate the allocation of
            physician time among patient care, administrative duties,
            academic training, and medical research.

                                MEDICAL RESEARCH

        Question. Does VA have adequate controls to enforce patient safety
    in medical research?
        Answer. Currently, the Office of the Inspector General has an
    ongoing criminal investigation involving one facility's medical
    research program. The OIG cannot comment on a criminal investigation in
    progress. The OIG does not have any other work underway, or recent
    reviews, that could be a body of knowledge on the effectiveness of VA
    controls for patient safety in medical research.
        The Program on Research Integrity Development and Education
    (PRIDE), within the Office of Research and Development (ORD), is
    responsible for providing education and policy on protection of human
    participants in VA research.
        Please refer to VA's responses to questions on ``Patient Safety in
    Medical Research'' that provide information on VA safeguards for
    patients who participate in VA research studies, VA procedures to
    inform patients fully of the risks of research, and VA's safety
    standards for research involving patients.

                              SUBCOMMITTEE RECESS

        Senator Bond. A great honor, appreciated you being there.
    Thank you very much.
        The hearing is recessed.
        [Whereupon, at 11:40 a.m., Thursday, March 13, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                            THURSDAY, MARCH 20, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:02 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Craig, Mikulski, and Leahy.

                        ENVIRONMENTAL PROTECTION AGENCY

    STATEMENT OF HON. CHRISTINE TODD WHITMAN, ADMINISTRATOR
    ACCOMPANIED BY G. TRACY MEHAN III, ASSISTANT ADMINISTRATOR, OFFICE OF
                WATER

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Good morning. The Senate VA-HUD
    Appropriations Subcommittee will come to order. My
    distinguished Ranking Member is out temporarily and asked that
    I begin, so on her behalf let us welcome EPA Administrator
    Christine Todd Whitman and our other guests from EPA who have
    joined us here today to testify on the President's fiscal year
    2004 budget request for the Environmental Protection Agency.
        Let me say that because of many other activities going on
    today we are going to have to go through this hearing as
    quickly as we can. Senator Mikulski and I both have several
    other commitments but we will not ignore you. However, we will
    submit questions for the record if we do not have time to ask
    them.
        Madam Administrator, let me begin by saying that the EPA
    has one of the most important and difficult missions of any
    Federal agencies, with responsibilities from the cleanup of
    Superfund and brownfields sites to the funding of clean water
    and drinking water infrastructure to the enforcement of
    environmental laws to representing our Nation with regard to
    issues of global climate change.
        More recently, as part of the Federal Government's homeland
    security efforts, EPA has been named as the lead Federal agency
    for reducing the vulnerability of the chemical industry and the
    hazardous material sector of the Nation's critical
    infrastructure. I applaud you and EPA for your commitment to
    this responsibility.
        This year the administration has requested some $7.63
    billion in budget authority. This is a reduction of some $450
    million for the fiscal year 2003 funding level that I do not
    agree with. However, assuming a number of adjustments, if you
    put back in the administration's reduction of $460 million in
    congressionally designated EPA water and sewer grants and
    programs, the EPA funding level is approximately equivalent to
    the fiscal year 2003 level.
        Unfortunately, many of these designated grants go to
    communities with significant water infrastructure challenges as
    well as to programs administered by nonprofits that provide key
    support for many of EPA's programs and activities. I am
    convinced that the EPA would be very troubled if we failed to
    fund many of these nonprofit programs which are not included in
    the budget request, and I know that our environment would
    suffer significantly if these were not made available.
        I want to call your attention particularly to something
    that is a major crisis, identified in yesterday's copy of an
    article from yesterday's Springfield, Missouri, News Leader. In
    rural Christian County, Missouri, there are 12 trailers at the
    Starlight Mobile Home Park which flush their human waste into a
    pit that fails to meet even the minimum wastewater treatment
    standards. The untreated green sludge eventually oozes into a
    creek that is a tributary of the James River which feeds Table
    Rock Lake, which is one of our Nation's prime resource areas,
    and because it sits on limestone with cheese-like openings the
    water is traveling underground and what does not pollute the
    lake is polluting the underground water system.
        This is the State Department of Natural Resources' primary
    responsibility, but it is a situation that is intolerable, and
    it is as serious in Springfield, Missouri, as pollution of
    Chesapeake Bay is to all of my friends who live on and around
    the Chesapeake Bay.
        But, having said that, back to the broader issues. The VA-
    HUD Subcommittee is facing even more difficult funding
    decisions in 2004 than we faced in 2003. We have to balance the
    funding needs and priorities among other programs and agencies,
    VA medical care, HUD low-income housing, and in NASA reacting
    to the tragic loss of the Columbia orbiter.
        Particularly, without relief from the full committee in our
    subcommittee's allocation, we will have to make up a shortfall
    of some $1.1 to $1.4 billion in VA medical care and shortfalls
    of upwards of a billion dollars in a variety of other HUD
    programs. Also, as we face the onset of war, our first
    obligation will be to pay for the costs associated with the
    preservation and protection of our freedoms from the threat of
    terrorism and terrorist nations.
        I am gratified that the EPA budget request for 2004
    continues our Nation's commitment to a better environment and
    meets the primary funding needs of EPA's missions, programs and
    goals. I think it is generally a good budget that stays the
    course set in the administration's 2003 budget request and our
    appropriations for that year. I am glad EPA is focusing on
    meeting its primary programs and legal obligations rather than
    creating a new set of programs and responsibilities when we
    have not done enough to fund our existing top priority
    programs.
        I am very much concerned, however, one more time, about the
    failure to maintain the 2003 funding level of $1.35 billion for
    the Clean Water SRF. The administration proposes funding of
    $850 million, a reduction of half a billion dollars from 2003.
    Now, I understand that the Clean Water SRF has been capitalized
    since 1987 for a total of some $42 billion, including $19
    billion in Federal funds. But the Nation faces some $540
    billion in Federal funding needs alone for new and existing
    water infrastructure needs over the next 20 years.
        In addition, there are a number of other significant EPA
    infrastructure priorities. The EPA budget does not address
    that. It does not address the combined and separate sewer
    overflows funding needs which are a priority for some 772
    municipalities or the funding needs of many small communities
    in the West that must reconstruct their water systems because
    of the new arsenic water standards. We cannot mandate that
    people do things and not give them some help in getting them
    done.
        The bottom line is that, in addition to the EPA's
    environmental enforcement requirements, water infrastructure
    needs must be a much higher priority for EPA.
        The EPA also faces significant challenges with regard to
    new requirements for total maximum daily load, TMDL, of
    pollutants that impact public health and the environment by
    large animal feeding operations, statutory requirements for the
    protection of wetlands, and continued demands to expedite the
    cleanup of Superfund sites.
        With respect to TMDL, I plan to reintroduce this year a
    bipartisan Fishable Waters Act, which is widely supported by
    conservation and outdoor groups, fishing and hunting groups,
    that I think can begin to make a difference in some of the
    runoff streams using voluntary activities, and I would welcome
    EPA's support on the announcement of the Act.
        I am also concerned about issues relating to air quality
    standards under the Clean Air Act, including the status of
    implementation of new source review of the Clean Air Act, which
    authorizes the EPA to set standards for certain facilities for
    the installation of air pollution equipment. Substantial
    progress has been made since last year, this remains an
    important issue as we seek to maintain the economic viability
    of U.S. producers of energy while meeting the air quality
    standards of the Clean Air Act.
        Congress, I think, also needs to move forward on the
    administration's proposed Clear Skies legislation that will
    reduce emissions and encourage investments in new plants by
    providing certainty regarding future regulatory requirements.
        I would add one other thing. As an avid supporter of plant
    biotechnology, I am gratified that EPA has approved the use of
    a new genetically-engineered corn developed by Monsanto. This
    corn includes a gene from a soil bacteria that allows the roots
    of the corn plant to secrete a protein that kills the corn
    rootworm, the crop's number one pest. To reduce the chance that
    the rootworm will develop resistance to the corn, EPA has
    required growers to set aside 20 percent of the planted acreage
    for non-transgenic corn. I think this is a major breakthrough
    in the development of genetically-engineered crops and
    represents another significant step towards eliminating our
    Nation's dependence on harsh chemical pesticides.
        More importantly, as we develop heartier and more
    nutritious crops through genetic engineering, we are going to
    be able to feed starving people in developing countries in
    Africa and Asia and throughout the world that face unforgiving
    environmental conditions, including droughts and soils that are
    not productive for crops unless they are modified.
        Madam Administrator, I thank you for your inspired
    leadership and commitment to EPA's mission. I look forward to
    working with you on the challenges you face.
        Senator Bond. I now turn to my Ranking Member Senator
    Mikulski for her opening statement.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman. I want
    to welcome Administrator Whitman to her fifth hearing before
    the subcommittee. I look forward to during her tenure calling
    her ``Secretary'' because I do believe it should be a cabinet
    agency. I want to thank her for her continual availability to
    not only testify in the usual and customary hearings, but to be
    available for meetings and hearings related to the anthrax
    contamination of not only the Hart Building, but also of the
    Brentwood Post Office. So many of those workers there are my
    constituents, but even if they were not, they are our people.
    You have also been available for hearings pertaining to toxic
    cleanup in Anniston, Alabama.
        So we have worked together from arsenic to anthrax and so
    on. I feel we have had a very productive relationship. When I
    look, though, at the submittal of the budget, I am troubled at
    the 2004 budget request for EPA. The total of $7.6 billion is
    actually a $450 million decrease from the 2003 level. This is a
    cut of almost 6 percent, when we have such compelling needs to
    protect the environment and to protect public health.
        I am very, very, very troubled that the major cuts seem to
    be in water infrastructure funding and everything else is kept
    at the status quo. I believe that OMB in its work with EPA was
    not prepared to be bold about the administration's commitment
    to the environment.
        The budget is a planned budget. Instead of using it as a
    tool to help protect health and the environment, it seems that
    we are going to maintain the status quo, except in water and
    sewer programs. I want to just confirm the comments that the
    chairman has made about water and sewer. Governor Ehrlich, our
    new Governor of Maryland, says that his new number one priority
    is water and sewer projects and Maryland getting its fair
    share. Well, there is not a lot of fair share to get.
        We in Maryland, because we have a Republican Governor for
    the first time in 37 years, Senator Sarbanes and I want to do
    partnership politics because on issues like water and sewer,
    there is no politics. In the Chesapeake Bay alone,
    Administrator Whitman, there is a $4 billion list of water and
    sewer projects that could be funded this afternoon that meet
    the State priorities. That just shows the magnitude of what
    Governor Ehrlich is facing in just one State on a waterway that
    I know impacted you in New Jersey while you were Governor and
    in which you have had a very keen interest.
        Much is made about these earmarks that the Senate comes up
    with. Speaking for myself, I know that the number one request I
    get for earmarks from Members goes to water and sewer projects
    and as part of the mandate from the committee they have to be
    on the State priority list. So this is not about pork. It is
    about failed water systems.
        We could probably have a $50 billion bill of just water and
    sewer projects. So we are really going to be working on this,
    and you need to know that the subcommittee is very troubled
    about this and I am going to come back to it in my questions.
    Senator Bond has spoken very eloquently about it.
        This is partnership politics because water and sewer
    improvements could contribute to economic stimulus and add
    value for the dollar. It is federal funds working at the local
    level with a 45 percent match that could have an impact on
    creating jobs from the civil engineers to the people who will
    be digging the ditches. It will have value for protecting
    public health and the environment, and it will also impact on
    the ratepayers.
        Mayor O'Malley is under a decree from your agency, which I
    am not disputing, to fix the Baltimore water and sewer system
    for $900 million. Baltimore City does not have $900 million. We
    are going to have a 10 percent rate increase, so from our
    standpoint the EPA mandate is helping increase taxes. I am not
    trying to jackpot you, but I think you should know what we are
    facing.
        I think Senator Bond and Senator Craig have been outspoken
    on concern about the regulations on arsenic, but they need
    help. Those little communities that the Senator stood up for on
    the Senate floor need help.
        The second issue that I want to emphasize is brownfields. I
    know you are a brownfields baby as a past Governor of New
    Jersey. We feel that brownfields can be turned into green
    fields and, though the budget has been increased, we would
    really hope that we could move to the authorized level of $250
    million, because it is one of the major tools, I believe, for
    cleaning up the environment and again making grounds ready for
    economic development.

                               PREPARED STATEMENT

        There are other issues that I could raise, but I think we
    do need to get on with the hearing. But you see where the
    subcommittee is headed, towards those things that protect the
    environment, create the jobs, help local taxpayers, and also
    create an environment for even additional government. If you
    want to help a new Republican Governor, help me get water and
    sewer grants.
        [The statement follows:]

               Prepared Statement of Senator Barbara A. Mikulski

        EPA serves the very important mission of protecting human health
    and the environment. So I am troubled that the 2004 budget request for
    EPA totals just $7.6 billion, a $450 million decrease from the 2003
    level. This is a cut of almost 6 percent. I believe that instead of
    using the budget as a tool to protect public health and the
    environment, this administration prefers to make changes through the
    regulatory and legislative process.
        In the past few months, EPA has made a series of changes to
    environmental regulations and has proposed new legislation. This
    subcommittee provides the funding for EPA to develop these proposals.
    So it is our duty, on behalf of our taxpayers, to ensure that these
    proposals will protect public health and the environment. Maryland's
    taxpayers want clean and safe air and water and they want the
    Chesapeake Bay cleaned up. Specifically, I want to know how EPA's new
    Water Quality Trading Policy and Clear Skies legislation will
    accomplish these goals. We need to protect children and the elderly,
    who are most vulnerable to the health effects of air pollution. Many
    water quality problems in the Chesapeake Bay are due to air pollution.
    We must be sure that we are not backtracking on public health and
    environmental gain under the Clean Air and Clean Water Acts.
        I am puzzled about many areas of this budget proposal. I know that
    EPA didn't get everything it wanted from OMB but I really question some
    of the priorities. The most glaring example is water infrastructure.
    The budget request cuts over $800 million in critical water and sewer
    project funding. The budget cuts $500 million from the Clean Water
    State Revolving Loan Fund and $300 million targeted water projects.
    Congress funds these projects because there is no national framework
    that even comes close to addressing the national needs. This just
    doesn't make sense--for two reasons. First, our communities have
    enormous needs. Over the next 20 years, there will be a funding ``gap''
    for our communities of $540 billion. These needs have been studied and
    restudied. In April 2000, the Water Infrastructure Network reported
    that our Nation's water and wastewater systems will face a funding gap
    of $23 billion a year over the next 20 years. In November 2001, the
    General Accounting Office (GAO) reported that costs could range from
    $300 billion to $1 trillion over the next 20 years. In September 2002,
    the Environmental Protection Agency reported that over the next 20
    years, demands for improved sewer and drinking water systems will
    outstrip current levels by $535 billion. And in November 2002, the
    Congressional Budget Office (CBO) reported that water and sewer costs
    could average as much as $40 billion each year. The results are
    conclusive and the need is real.
        We can't expect communities to comply with growing regulations like
    arsenic, radon, and new requirements related to security to name just a
    few without increased financial assistance. If we don't help, the
    entire burden falls on local rate payers in many urban and rural low-
    income areas and rate increases are just not affordable.
        Second, the economy lost 300,000 jobs in February. Water
    infrastructure funding creates jobs: for every $1 billion we spend on
    water infrastructure up to 40,000 jobs are created. So I am puzzled why
    the budget skimps on this priority. I know this was probably a funding
    decision by OMB. But this cut really signals a failure in that we don't
    have a comprehensive national policy to address our communities' needs.
    We need new thinking on a new national policy to help communities pay
    for water and sewer projects.
        In January, EPA convened a conference on how to ``close the gap''
    including State and local officials, business, and other experts to
    exchange ideas about how to meet water and sewer challenges. I would
    like to hear what happened at that conference and what the next steps
    will be. I want to know what is EPA doing to develop new ideas to help
    communities meet these challenges and I want to know what EPA, as an
    advocate for the environment, is doing to make this a national priority
    and develop solutions for our communities.
        The authorizing committee is working to reauthorize the water loan
    funds at much higher levels in the future. And there are discussions
    underway about creating a Trust Fund for water infrastructure. Even
    though I have serious concerns about the new formula that has been
    proposed, I have applauded Senator Jeffords' leadership in seeking
    additional resources for critical water infrastructure improvements.
    But I hope that some new thinking can be incorporated into those
    efforts.
        I am also very concerned that EPA may be getting back into the
    business of allowing retired Navy and Maritime administration ships to
    be exported to developing countries for dismantling. In 1997, Pulitzer
    prize-winning series of articles in the Baltimore Sun exposed the
    dangerous conditions created at home and abroad because these ships
    contain PCBs, asbestos, and lead. In 1998, I began worked with the
    Defense Department to make sure that we dispose of these ships in a way
    that is: efficient, orderly, environmentally sensitive, and keeps the
    work in American shipyards where environmental and safety standards can
    be met and monitored. But a recent Washington Post article reported
    that EPA may be assisting the Maritime Administration to once again
    begin exporting ships to be dismantled overseas. I want to know what
    EPA's role will be. Does EPA think that these ships should be exported
    and if so, what has improved since 1997 when the Baltimore Sun first
    exposed this story?
        I also want to follow up on EPA's budget to enforce environmental
    laws. Over the last two years, the subcommittee has rejected EPA's
    proposals to shift enforcement funding to the States. The subcommittee
    had serious concerns that reductions in Federal enforcers would result
    in more polluters ignoring the law. We need both a strong Federal and
    strong State enforcement to achieve compliance with our environmental
    laws, not one or the other. I am pleased that this year's budget does
    not make the same mistake.
        Now, I would like EPA to tell us how priorities are being set
    within the enforcement funding we provided. We need to know how EPA is
    managing enforcement to ensure that the Agency is recruiting and
    retaining the experts needed to enforce environmental laws.
        Finally, Senator Bond and I have always taken the position that the
    VA-HUD bill should not be a vehicle for environmental riders. I hope
    that as we move a bill through the Committee this year, we can continue
    this policy. I thank Administrator Whitman for her testimony today and
    I look forward to hearing from her.

        Senator Bond. Wow, what a compelling reason. Thank you,
    Senator Mikulski.
        Senator Craig.

                        STATEMENT OF SENATOR LARRY CRAIG

        Senator Craig. Thank you very much, Mr. Chairman, and let
    me thank Barbara for her kind statements also and our concerns
    that we jointly share on this committee.
        Madam Director, welcome again before the committee. We
    appreciate your presence here. I have to go chair another
    committee in a few moments, but I did want to make a couple of
    comments reflective of some of the work we have done jointly
    this past year that I think is tremendously positive.
        I have been able to secure funding for about $800,000 in
    the omnibus bill that passed a few months ago for the National
    Academy of Science to undertake a review of the science behind
    EPA's decision in the Coeur d'Alene basin area, in Superfund
    sites in northern Idaho. That is to bring the science together,
    to have a third party review of it, and we think to modernize
    some of the overall adjustments.
        Of course, we did come with a record. Your regional
    administrator up there, John Iani, agreed that once the study
    had gelled that there could be possibly some adjustment in the
    record based on that science. So I think what is important for
    the whole of our record-setting agreement--and I mean this, Mr.
    Chairman, in the sense that EPA and the State of Idaho jointly
    are approaching something that I think is a model for other
    States for broader cleanup of the Superfund area and setting
    guidelines and some cooperative financing and joint
    decisionmaking that is very helpful. The director led in that,
    the Administrator. We are very pleased that you would do so.
        But it is also important we gel the balance of it. So your
    help in getting the National Academy's work under way is
    important, and I certainly appreciate the work of your
    administrator in Region 10. That is going to be awfully
    important.
        But, as is typical, Madam Administrator, we have what I
    call embedded bureaucrats, and I will be very blunt, in our
    Region 10 Seattle office, who are not asking, are not following
    your approach to applying common sense solutions to
    environmental challenges within current regulatory constructs.
    I would urge you to continue to pressure that recalcitrant and
    sometimes resistant bureaucracy to get with it. I think it is
    awfully important that they do for the sake of our children and
    a clean environment.
        You have had the privilege of being in the beautiful part
    of north Idaho where we think Mother Nature and EPA and the
    State in cooperation have made significant headway in cleaning
    up that site. The solution in this cooperative effort, Mr.
    Chairman, is the avoidance of literally hundreds of millions of
    dollars spent potentially in the downstream and also the
    reality that when you do all the right things in a timely
    fashion in concert with Mother Nature's great effort you can
    clean up a major site without it being so terribly disruptive
    as some might choose it to be, or for it to be a lifelong
    pursuit of somebody who is administering it who just happens to
    like to live in a beautiful area in which they are pursuing the
    end game.
        Thank you, Mr. Chairman.
        Madam Administrator, I must say in all sincerity we do
    greatly appreciate your cooperation and we think we have
    established a record out there and a model that other States
    and regions ought to take a look at, how you get it done in a
    cooperative fashion.
        Senator Bond. Thank you very much, Senator Craig, for your
    very informative statement.
        Senator Leahy.

                     STATEMENT OF SENATOR PATRICK J. LEAHY

        Senator Leahy. Thank you, Mr. Chairman.
        Administrator Whitman, welcome. It is good, as always, to
    have you here. It is said that you have one of the most
    difficult jobs in Washington and I am sure there are days you
    believe that. But you also have one of the most enviable jobs,
    a job where you can make decisions that have profound effects
    on our Nation's environment, not just for today but the
    Nation's environment that our children and our grandchildren
    will inherit.
        It is the mission of your agency, to safeguard our Nation's
    precious lands, air, water, protect the health of our citizens,
    especially our children. As we all know, our children are
    affected more than anybody else.
        I always enjoyed working with the EPA. I've done this for
    years. Under your leadership, EPA has been very responsive to
    my office and I appreciate that, and I might say responsive,
    respectful, and nonpartisan, and I think that reflects the
    direction they get from you, Governor.
        In my home State of Vermont, EPA has been instrumental in
    helping Vermont citizens restore the health of Lake Champlain
    and the Connecticut River watershed, the two bodies of water
    that border us on either side. Your New England regional office
    is working with local Vermont communities and my Vermont office
    to ensure the Elizabeth Mine Superfund site is properly
    maintained and cleaned.
        Just last week, EPA highlighted the immediate need for
    additional resources. There is a dam that holds back copper
    tailings. If there were a breach it would be catastrophic,
    there would be great loss of life, as well as environmental
    degradation, all the way down into the Connecticut River, and
    would also affect other States below us.
        So I see this and I see wonderful help and all, and then I
    worry about other things. The administration put forth
    proposals that I believe would reduce the objective oversight
    for the U.S. Fish and Wildlife Service and the National Marine
    Fisheries Service of the Endangered Species Act. We have all
    relied, both Republicans and Democrats, on their impartial
    oversight, and I am afraid that objectivity may be diminished
    and that would create a real problem for us and our own debates
    up here.
        The administration is delaying the issuance of a document
    which shows the impact of mercury on children in this Nation,
    something that I am very worried about and I know you are. I
    wish we could get the document issued.
        Most recently the administration suggested the Clean Water
    Act only applies to a fraction of our Nation's wetlands. And
    all this takes place in such rapid succession that I am afraid
    that the balance, the balance that has come up over the years,
    with the balance that we have seen in EPA programs, may come
    unglued. I express that to you as one who has great respect for
    you as a person and great respect for the EPA, as one who has
    seen the very good things you can do, but also one who worries
    very much if the EPA steps back from either objectivity or
    involvement.

                               PREPARED STATEMENT

        That is all my statement, Mr. Chairman. If I am not here at
    the time, I will have questions, especially on the Elizabeth
    Mine matter, because I want to know whether you will fully fund
    the plan to clean up that mine. Maybe you can answer that yes
    or no.
        Ms. Whitman. We are awaiting a record of decision on that.
    As you know, they did request the additional money for the dam,
    but we are waiting to have the full record of decision to know
    what the plan is and what the ultimate costs will be of doing
    that. But it is on the national priority list. It is clearly a
    priority for us as well as for the State.
        Senator Leahy. I appreciate that.
        I appreciate it, Mr. Chairman.
        Senator Bond. Thank you very much, Senator Leahy. We always
    appreciate your participation.
        [The statement follows:]

                 Prepared Statement of Senator Patrick J. Leahy

        Welcome Administrator Whitman. Thank you for taking the time to
    come to the Senate and testify.
        It has been said that you have one of the most difficult jobs in
    Washington, but it is also one of the most enviable. It is a position
    where the decisions you make today can have profound effects on the
    Nation's environment tomorrow. A successful Administrator will meet the
    EPA's mission of safeguarding our Nation's precious lands, air, and
    water and protecting the health of our citizens, particularly our
    children, from environmental pollutants.
        I have always enjoyed working with the EPA, and under your
    leadership, EPA has been respectful and responsive to my office. In my
    home State of Vermont, EPA has been instrumental in helping Vermont
    citizens restore the health of Lake Champlain and the Connecticut River
    watersheds.
        Even as we speak, your New England Regional Office is actively
    working with local Vermont communities and my Vermont offices to ensure
    that the Elizabeth Mine Superfund site is properly maintained and
    cleaned. Just last week, the EPA highlighted the immediate need for
    additional resources to ensure that a catastrophic breach of a dam,
    which holds back copper tailings, does not occur at the site.
        With that as a backdrop, Madam Administrator, I must tell you that
    I continue to be disappointed at how vigorously this administration has
    worked to emasculate over 30 years of environmental law that has
    significantly improved the nation's environmental health. Recently, the
    administration has put forward proposals that could reduce the
    objective oversight by the U.S. Fish and Wildlife Service and National
    Marine Fisheries Service of the Endangered Species Act; the
    administration has delayed the issuance of a document that shows the
    impacts of mercury on the children of this nation; and most recently,
    the administration suggested that the Clean Water Act only applies to a
    fraction of our Nation's waters.
        The careful balancing required to protect the public's health has
    been unbalanced at the EPA as the fingers of special interests are
    invited to shape this administration's environmental policy. I fear
    that the health of our environment has not markedly improved since the
    last time you testified here, Madam Administrator, and as the
    environment has suffered, so has the health of American citizens.

        Senator Bond. Now, Madam Administrator, if you would give
    your opening statement and then we will move on. Thank you very
    much.

                      STATEMENT OF CHRISTINE TODD WHITMAN

        Ms. Whitman. Thank you, Mr. Chairman, and I appreciate the
    opportunity to be here once again to discuss the President's
    proposed budget for fiscal year 2004. I do, with your
    permission, Mr. Chairman, have a longer statement to submit for
    the record.
        Senator Bond. Thank you, if you would.
        Ms. Whitman. I would like to begin by first congratulating
    you on assuming the chair. I also want to thank you for your
    leadership and attention earlier this year to the funding
    issues we discussed as you were wrapping up the fiscal year
    2003 appropriations. And all the members of the committee for
    that, your assistance was very much appreciated. I am looking
    forward, obviously, to working with you and members of the
    committee on the appropriations process to advance our shared
    goals of cleaner air, purer water, and better protected land.
        The President's budget request of $7.6 billion for EPA
    provides the funding that we need to advance these goals and to
    meet the Agency's mission of protecting human health and
    safeguarding America's precious environment. It is a fiscally
    responsible request that recognizes the many competing
    priorities that, as you mentioned, Mr. Chairman, on taxpayers'
    resources, particularly with respect to homeland security, a
    time of war, without shortchanging our commitment to
    environmental protection.
        This budget request also advances our commitment to
    building strong partnerships with State, local, and tribal
    governments. More than 40 percent of our budget request, some
    $3.1 billion, will go directly to provide assistance to our
    non-Federal partners.
        I would like to take just a few minutes to point out some
    of the highlights of the President's budget request and then I
    would obviously be happy to take any questions that you might
    have. To promote cleaner air, the President's budget requests
    $617 million in the next fiscal year. These funds will allow us
    to improve air monitoring and analysis and provide $16.5
    million in grants to States, tribal and local governments for
    air toxics monitoring. They will also allow us to raise to
    $23.9 million, a $3 million increase, our funding efforts to
    combat children's asthma.
        In addition, the President's budget supports the
    administration's Clear Skies proposal. Clear Skies would
    require a mandatory reduction in power plant emissions of
    sulfur dioxide, nitrogen dioxide, and mercury by 70 percent. It
    is the President's most important environmental legislative
    initiative of this year and I look forward to working with you
    and the committee on getting it to his desk for his signature.
        To promote purer water, the President's budget places a
    strong emphasis on our core water programs which have proven so
    successful over the years. We propose to increase spending on
    these programs by $55 million, for a total of $470 million.
    This includes $20 million in the Clean Water Section 106 grants
    and $12 million for public water system supervision grants for
    our non-Federal partners.
        Our proposed budget also includes a $5 million increase in
    grants to help State, local, and tribal governments protect
    wetlands and $20 million to again fund the program we began
    last year to advance protection efforts in 20 additional
    threatened wetlands around the Nation.
        This budget also seeks $850 million for the Clean Water
    State Revolving Fund, which is less than was requested last
    year, as has been pointed out by several Members. However, the
    administration is committed to financing the Clean Water SRF at
    this level through fiscal year 2011, 6 years beyond any
    previous commitment. This means that the long-term revolving
    level of the fund will be at $2.8 billion, a 40 percent
    increase over the $2 billion commitment made under the previous
    administration. We also propose to fund the drinking water SRF
    at $850 million a year through 2018, so it can revolve at $1.2
    billion a year or a 140 percent increase over the previous goal
    of $500 million.
        Given our proposed increase in our core water programs, the
    current fiscal restraints, and the variety of innovations we
    are pioneering, I believe that this budget does fully support
    the commitment to pure water across our country. To better
    protect the land, this budget includes two significant
    increases. The first, an additional $150 million for Superfund
    cleanup; these additional funds will allow us to start an
    additional 10 to 15 construction projects at Superfund sites
    nationwide. The second, a $10.7 million increase over last
    year's record request for brownfields programs, brings our
    request to $210.7 million.
        Over the years, both the Superfund and the brownfields
    program have demonstrated their value, not just in restoring
    the environment and protecting the health of America's
    families, but in revitalizing neighborhoods and communities in
    every part of our country.
        In addition to our traditional environmental mission, EPA
    plays an important role in homeland security. The President's
    budget requests $123 million for our homeland security efforts.
    These funds will allow us to carry on the work we are doing to
    help protect our Nation's water infrastructure and will give us
    the resources that we need to enhance our emergency response
    capabilities.
        Given our time constraints, Mr. Chairman, I would like to
    just briefly mention several other areas that are fundamental
    to our ability to meet our mission, our ability to use the best
    available science, and our ability to enforce the law. The
    President's budget requests a total of $607 million to develop
    and apply strong science to address both current and future
    environmental challenges.
        It also asks for $503 million, the largest ever requested,
    for enforcement and a $21 million jump from our request last
    year. This will allow us to add an additional 100 FTEs to our
    enforcement efforts.

                               PREPARED STATEMENT

        Mr. Chairman, I am confident that our budget request
    supports our obligation to be both good stewards of the
    Nation's environment and good stewards of the taxpayers'
    dollars. It gives us the resources we need to help ensure that
    we leave America's environment cleaner and healthier than we
    found it.
        Thank you very much for your time.
        [The statement follows:]

                  Prepared Statement of Christine Todd Whitman

        Mr. Chairman and Members of the Committee, I am pleased to be here
    to discuss President Bush's fiscal year 2004 budget request for the
    Environmental Protection Agency (EPA). The President's fiscal year 2004
    budget request of $7.6 billion provides funding necessary for the
    Agency to carry out our mission efficiently and effectively--to protect
    human health and safeguard the natural environment. Given the competing
    priorities for Federal funding this year, namely the War on Terrorism
    and Homeland Security, I am pleased by the President's commitment to
    human health and environmental protection.
        I would like to begin, Mr. Chairman, by emphasizing that the
    President's budget request for EPA reflects the Agency's commitment to
    cleaning, purifying, and protecting America's air, water, and land. The
    request promotes EPA's goals in a manner consistent with fiscal
    responsibility by strengthening our base environmental programs,
    fostering stronger partnerships, and enhancing strong science.
        This Agency remains committed to working with States, tribes, and
    other entities to protect human health and the environment. Of the $7.6
    billion budget, $3.1 billion would provide direct assistance to States,
    tribes, universities, local governments, and other partners. The
    President and I both believe that these partnerships are a vital part
    of effective environmental management and stewardship. Our budget
    request reflects that.
        As EPA continues to carry out its mission, I look forward to
    building upon a strong base of environmental progress. This budget, Mr.
    Chairman, will enable us to carry out our principal objectives while
    allowing us to react and adapt to challenges as they arise.

                                  CLEANER AIR

        The budget requests $617 million to fund our clean air programs,
    thereby helping to ensure that air in every American community will be
    clean and safe to breathe. This includes $7.7 million more for modeling
    and analysis to strengthen the Agency's clean air programs.
    Furthermore, this budget supports the President's Clear Skies
    initiative, an aggressive plan to cut power plant emissions by 70
    percent. Clear Skies legislation would slash emissions of three power
    plant pollutants--nitrogen oxide, sulfur dioxide, and mercury--by 35
    million tons over and above what would be obtained under current law.
    Such emissions cuts are an essential component of improving air quality
    and thus environmental and human health. The Clear Skies initiative
    would build upon the 1990 Clean Air Act's acid rain program by
    expanding this proven, innovative market-based approach to clean air.
    Many counties could be brought into attainment with new ozone and
    particulate matter air quality standards based solely on Clear Skies.
    Clear Skies would significantly improve air quality conditions even in
    counties that would require additional emission reductions. Such a
    program, coupled with appropriate measures to address local concerns,
    would provide significant health benefits even as energy supplies are
    increased to meet growing demand and electricity rates remain stable. I
    look forward to working with you, your fellow members of Congress, and
    the President on this landmark legislation.
        The budget also includes $16.5 million for air toxics monitoring
    grants to State, Tribal, and local entities, a $7 million increase from
    last year, aimed at improving our understanding of air toxics exposures
    to help implement EPA's comprehensive air toxics strategy. The budget
    dedicates $23.9 million, an increase of $3 million, to the Agency's
    efforts combating children's asthma. The successful Tools for Schools
    Program, which helps schools assess and improve the quality of air
    students breathe, and other such efforts will benefit from the added
    funding.

                                  PURER WATER

        EPA's budget request places a strong emphasis on core water
    programs to improve our water management framework, program
    implementation, and information sharing. The President's request boosts
    resources to States, tribes, and various entities to provide technical
    assistance, guidance, training, and additional funding. Our core water
    programs will increase by $55 million for a total of $470 million. This
    includes $20 million for Clean Water Section 106 Grants to help States
    improve implementation of the Clean Water Act (CWA) and $12 million
    aimed at enhancing State and Tribal drinking water program capacity
    through Public Water System Supervision (PWSS) grants. Other efforts
    reflected in the budget to provide clean and safe water to the American
    public include:
      --Additional Great Lakes Funding.--This budget nearly doubles the
            Agency's Great Lakes commitment. EPA is requesting $15 million
            in support of the Great Lakes Legacy Act to bolster
            contaminated sediment cleanup activities. In 2004 the Agency
            plans to begin cleanup on two to three new sites. Some of this
            funding will also be used for assessment and analysis,
            resulting in additional cleanups.
      --Extending the Federal Commitment to the Clean Water State Revolving
            Fund (SRF).--The President's budget is committed to funding the
            Clean Water SRF well above the previous administration's $2
            billion average annual revolving goal. It finances the Clean
            Water SRF at $850 million through 2011 and increases the long-
            term revolving level by $800 million to $2.8 billion, a 40
            percent increase over our previous goal. At present, there is
            $42 billion on loan or available for loans to States and
            tribes. The expanded commitment is projected to make $63
            billion available over 20 years thus allowing States and tribes
            to finance an additional 15,000 projects over that period.
      --Extending the Federal Commitment to the Drinking Water SRF.--EPA
            also proposes to fund the Drinking Water SRF at $850 million
            through 2018 so it can revolve at $1.2 billion per year, an
            increase of 140 percent above and beyond our prior goal of $500
            million.
      --Protecting Wetlands.--Due to a 2001 Supreme Court decision, tens of
            thousands of acres of isolated waters and wetlands may be
            subject to development that no longer requires a permit under
            the CWA. EPA's budget provides a $5 million increase for State
            and Tribal wetland protection grants to help them protect these
            waters and move the U.S. closer to no net loss of wetlands.
      --Helping States Address Nonpoint Source Pollution.--The President's
            budget allows EPA to work closely with State water quality
            agencies, USDA, conservation districts, and others to
            accelerate national efforts to reduce nonpoint source
            pollution. In light of significant increases in Farm Bill
            resources, EPA will shift the program's emphasis in
            agricultural watersheds from implementation of pollution
            reduction projects to planning, monitoring, and assisting in
            the coordination and implementation of watershed-based plans in
            impaired and threatened waters.
      --Safer Drinking Water in Puerto Rico.--To ensure public health
            protection, the Agency requests $8 million to design necessary
            infrastructure improvements to Metropolitano, Puerto Rico. When
            these infrastructure improvements are completed, EPA estimates
            that about 1.4 million more people will have access to safer
            and cleaner drinking water.

                             BETTER PROTECTED LAND

        To immediately reduce potential human health and environmental
    threats, this budget continues our long-standing commitment to clean up
    contaminated sites. Superfund, funded at $1.39 billion, includes a $150
    million increase over the President's fiscal year 2003 budget request
    to start an additional 10-15 construction projects at Superfund sites
    nationwide. By strengthening Superfund, one of our base programs, this
    budget will continue the progress we have made in completing cleanups
    at more than 800 National Priority List (NPL) sites. Cleanup has either
    begun or been completed at over 93 percent of Superfund NPL sites.
        EPA is committed to building and enhancing effective partnerships
    that allow us to safeguard and restore land across America. To do so,
    this budget provides $210.7 million, $10 million above last year's
    funding request, for the Brownfields program, one of the
    administration's top environmental priorities. The Brownfields program
    will draw on these additional resources to enhance State and Tribal
    response programs that restore and reclaim contaminated sites. By
    protecting land and revitalizing contaminated sites throughout the
    United States, EPA continues to expand efforts to foster healthy and
    economically sustainable communities and attract new investments to
    rejuvenated areas.

                               HOMELAND SECURITY

        EPA plays a vital role in preparing for and responding to terrorist
    or other intentional incidents because of our unique expertise and
    experience in emergency preparedness and response to hazardous material
    releases. To meet our obligation to protect America's homeland we are
    asking for $123 million and 142 FTEs. This request would allow the
    Agency to continue providing leadership and guidance for the protection
    of the nation's critical water infrastructure while upgrading and
    enhancing our emergency response capabilities.
        The President's budget reflects EPA's role in protecting public
    health and critical water infrastructure in the event of terrorist or
    other intentional acts. To ensure the safety and integrity of America's
    water infrastructure, resources would be dedicated to working with
    States, tribes, drinking water and wastewater utilities, and other
    entities to assess the security of these water facilities and develop
    emergency response plans where appropriate.
        Incorporated in this request are targeted investments to strengthen
    the Agency's readiness and response capabilities, including the
    establishment of a ``decontamination team,'' state-of-the-art
    equipment, and highly specialized training for On Scene Coordinators
    (OCSs). Meanwhile, EPA will conduct research and provide guidance and
    technical support for Federal, State, and local governments, and other
    institutions in the areas of building contamination (chemical and
    biological) prevention, treatment and cleanup activities, water
    security, and rapid risk assessment.
        This budget would also expand our radiological contamination
    detection ability across the country and enhance our capacity to
    provide near real-time biosurveillance information should a biological
    incident occur. In addition, this request provides resources for
    Antimicrobials Scientific Assessments, Acute Exposure Guideline Levels,
    IT management for vulnerability assessments, environmental crimes
    expertise, as well as resources to enhance the Agency's physical
    infrastructure security.

                            ENHANCING STRONG SCIENCE

        Sound science is a fundamental component of EPA's work. The Agency
    has long relied upon science and technology to help discern and
    evaluate potential threats to human health and the natural environment.
    Much of our decision-making, policy, and regulatory successes stem from
    reliance on quality scientific research aimed at achieving our
    environmental goals. The budget request supports EPA's efforts to
    further strengthen the role of science in decision-making by using the
    best available sound scientific information and analyses to help direct
    policy and establish priorities. We have requested $607 million to
    develop and apply strong science to address both current and future
    environmental challenges. Our budget supports a balanced research and
    development program designed to address administration and Agency
    priorities and meet the challenges of the Clean Air Act (CAA), Safe
    Drinking Water Act (SDWA), Federal Insecticide, Fungicide, and
    Rodenticide Act (FIFRA), Food Quality Protection Act (FQPA), and other
    environmental statues.
        This budget supports increases to funding for research of sensitive
    populations such as children and the elderly, our new Aging Initiative,
    programs such as Computational Toxicology research, which integrates
    modern computing with advances in genomics to help develop alternatives
    to traditional animal testing approaches, and the Agency's Integrated
    Risk Information System (IRIS). We propose to nearly quadruple our
    funding for the modernization and expansion of IRIS--an EPA database of
    Agency consensus human health information on environmental
    contaminants.
        Additionally, the Agency is taking steps to ensure a high quality
    scientific workforce. To do so, we are requesting resources for the
    Science Advisory Board (SAB), the newly established Science Advisor,
    and the STAR Fellowship program. EPA will expand its support for the
    SAB, an independent council to Congress and the Administrator on
    scientific, engineering, and economic issues that underpin EPA
    policies. Like the SAB, the Science Advisor will be responsible for
    ensuring the availability and use of the best science to support Agency
    policies and decisions and advise the Administrator. To help us educate
    new environmental scientists we have requested $5 million for the STAR
    Fellowship program. This grant program has funded some of the country's
    best scientists and engineers. In addition, we have asked to expand our
    post-doc initiative which has encouraged environmental scientists and
    engineers to join EPA.

                                  ENFORCEMENT

        Since EPA's inception nearly thirty years ago, many environmental
    improvements in our country can be attributed to a strong set of
    environmental laws and our efforts to ensure enforcement of those laws.
    State, Tribal, and local governments bear much of that responsibility.
    EPA partners with those governments and other Federal agencies to
    promote environmental protection and restoration. This budget requests
    $503 million, the largest amount ever and a $21 million increase over
    last year's request, for EPA's environmental enforcement program. These
    additional funds, coupled with our proposed 100 Full Time Equivalent
    (FTE) enlargement of the Federal enforcement workforce, would help the
    Agency maximize compliance and achieve environmental results through an
    integrated program of assistance and compliance assurance.

                       QUALITY ENVIRONMENTAL INFORMATION

        Information gathering, processing, and delivering are fundamental
    to EPA's work because of our reliance on scientific and analytical data
    and our close collaboration with external partners. Our goal is to
    provide the right information, at the right time, in the right format,
    to the right people. To achieve this goal, improve the Agency's
    information infrastructure, ensure that the American public has easy
    access to environmental information, and expand E-Government in support
    of the President's Management Agenda (PMA), we have proposed an
    additional $30.5 million investment for a total investment of $202
    million in EPA's Environmental Information office.
        We will continue development of the National Environmental
    Information Exchange Network. The Exchange Network is an electronic
    method of sharing environmental data using secure points of exchange.
    The primary components of the Exchange Network are the National
    Environmental Information Exchange Network Grant Program and the
    Central Data Exchange (CDX). The grant program assists States and
    tribes in evaluating their readiness to participate in the Exchange
    Network, enhances their efforts to complete necessary changes to their
    information management systems to facilitate Network participation, and
    supports State information integration efforts. The CDX is the focal
    point for securely receiving, translating, and forwarding data to EPA's
    systems--the electronic reporting gateway to the Agency's information
    network. This year the CDX will service 46 States and at least 2,000
    private and local government entities.

                               ENSURING SAFE FOOD

        The President's request includes $119.0 million to help ensure that
    all Americans will continue to enjoy one of the safest and most
    affordable food supplies in the world. To do so, EPA will continue
    implementation of the Food Quality Protection Act (FQPA) which focuses
    on new science-driven policies for pesticides review, seeks to
    encourage the development of reduced risk pesticides that provide
    alternatives to older versions, and develop and deliver information on
    alternative pesticides/techniques and the best pest control practices
    to pesticide users. The Agency is also working to help farmers
    transition, without disrupting production, to safer pesticide
    substitutes and alternative farming practices. We will reassess
    existing tolerances to ensure food safety, especially for infants and
    children, and ensure that all registered pesticides meet current health
    standards.

                       A COMMITMENT TO REFORM AND RESULTS

        The President's proposed EPA budget for fiscal year 2004 fully
    supports the Agency's work. The request demonstrates EPA's commitment
    to our principal objectives--safeguarding and restoring America's air,
    water, and land resources--by strengthening and refining our base
    environmental programs, fostering stronger partnerships, and enhancing
    strong science. As we look to the future, I am confident that this
    funding will ensure the Agency's fulfillment of our responsibilities to
    the American public.
        With that, Mr. Chairman and members of the Committee, my prepared
    statement is concluded. I would be pleased to answer any questions you
    may have.

        Senator Bond. Thank you very much, Madam Administrator.

                      CLEAN WATER SRF--PRESIDENT'S REQUEST

        As both my colleague from Maryland and I indicated, water
    infrastructure funding is an extremely high priority. We oppose
    the reduction in the Clean Water State Revolving Fund. The EPA
    gap analysis concluded the United States will need $540 billion
    over the next 40 years. Other estimates indicate that these
    costs could top $1 trillion.
        How does the administration justify reducing funding for
    clean water and when, where, and how are we going to be able to
    find the resources to meet our water infrastructure needs?
        Ms. Whitman. Well, Mr. Chairman, the Clean Water State
    Revolving Loan Fund has reached the previous revolving goal of
    around $2 billion as a long-term annual revolving level. Rather
    than saying that is where we are going to stay and nothing
    further will be committed, the administration has, through this
    budget, decided to increase this commitment effectively to an
    annual long-term revolving level of $2.8 billion through 2011,
    which will provide $4.4 billion more over those 6 years.
        When the legislation was initially enacted, there were no
    promises made and no assumptions made beyond the fact that this
    was eventually going to be something that was going to be taken
    over by the States. It is clear that there is always going to
    be the need of a Federal participation and there is a need for
    a substantial commitment to that, which is why the
    administration proposes taking it to 2011.
        There are also a number of other areas where we are
    providing funds to State, local, and Tribal governments for
    water, clean water, and drinking water infrastructure needs,
    and we are working with the States and trying to be as flexible
    as possible to allow them to move dollars from some of their
    other programs to address what may be their most pressing need
    on water infrastructure.
        But it is clear that we have dollar needs that are beyond
    any one part of government to meet. We had a conference--last
    month was it, Tracy?
        Mr. Mehan. Yes.
        Ms. Whitman [continuing]. In January, bringing together the
    stakeholders of various water systems representatives, as well
    as ratepayers and other State experts, to talk about some of
    these needs and identify things that we could do beyond just
    the straight dollars.
        But we believe that by providing a comprehensive program
    with dollars from a number of different sources, and the
    flexibility for States to apply these where their needs are the
    greatest, and by making the commitment to 2011, that we will in
    fact be able to continue to move this program forward.

                     COMBINED AND SANITARY SEWER OVERFLOWS

        Senator Bond. We need to do something more than just
    continue. I appreciate your mentioning Tracy. I know he has
    probably fished in Christian County and knows the problem and
    knows the area that I spoke about earlier.
        But while we are speaking about needs, the combined and
    separate sewer overflows, there are 772 municipalities that
    combine domestic sanitary sewage, industrial waste,
    infiltration from groundwater, and storm water collected, and
    they are overloaded and they result in tremendous pollution
    when they are overloaded. What is the cost to address these
    needs and how should these needs be paid?
        Ms. Whitman. What cost estimates do we have on sanitary
    sewer overflows, Tracy? I am looking to the expert on this one,
    Senator.
        Senator Bond. Why don't you get that answer for the record.
        Ms. Whitman. We would be happy to get you that answer for
    the record.
        [The information follows:]

                   Cost Estimates of Sanitary Sewer Overflows

        The Clean Watersheds Needs Survey (CWNS) does not include a
    category specifically for correction of sanitary sewer overflows
    (SSOs). Therefore, EPA is using a model to develop a SSO estimate for
    the CWNS 2000 Report to Congress. The model is based on reducing wet
    weather overflows within a collection system to every 5 years. This is
    a level of control that could be reasonably estimated by a model at
    this time using available information.
        The modeled estimate of SSO costs is $88.5 billion in January 2000
    dollars. This is an estimate of the capital investment required. The
    actual of capital investment needed can only be determined by a case-
    by-case analysis of each system. The modeled estimate does not include
    the cost of improved collection system management and operation and
    maintenance, which can be a significant factor in estimating SSOs.

                                ARSENIC STANDARD

        Senator Bond. Let me ask you another impossible question.
        Ms. Whitman. It's that Princeton education.
        Senator Bond. What steps is EPA taking to make sure that
    communities with water that exceeds the current standards for
    arsenic will be able to convert or rebuild the water systems to
    meet the----
        Ms. Whitman. Actually, Senator, we are doing a great deal
    on that. We have put out a request for willing communities to
    serve as hosts for pilot projects. We have had about 117
    responses. By the end of this year, we hope we will be
    beginning pilot programs, eight to ten pilot programs. Those
    will be in different States around the country.
        Really what we are looking for is we are testing new
    technology. A great deal of new technology has come forward to
    us that purports to be effective in reducing arsenic and will
    give us the opportunity to find less expensive methods, a host
    of methods.
        But we also recognize that there are geologic factors,
    there are different water concentrations, that impact how the
    arsenic is getting in the water. So we are looking for sites
    that represent both the different kinds of problems that we
    face on the ground and the different types of technology. We
    are providing additional money, with working with the
    Department of Agriculture. And we have also given a 3-year
    extension that is almost automatic for all the water companies
    to meet the goal. Then smaller water facilities can continue to
    get 2-year extensions, three more 2-year extensions. So we will
    give them time to meet these needs.
        Senator Bond. Well, I was going to try to sneak in another
    question. But let me turn now to my Ranking Member, Senator
    Mikulski.

                      CLEAN WATER SRF--PROPOSED REDUCTION

        Senator Mikulski. Well, as you can see, Madam
    Administrator, we are really focused on water quality. I am
    going to ask some of my questions and then leave others for the
    record because the Senate is working to draft a resolution in
    support of our troops. Today is a very tense day in the world.
    I know our thoughts are with our troops and the people with
    responsibility for leading them. I know, too, that you have
    been working very hard on homeland security.
        Let me go, though, to the water infrastructure issues. I
    just want to pick up again on what Senator Bond said. There is
    a group called the Water Infrastructure Network and they
    estimate there is a funding gap of $23 billion for a year. GAO
    says over the next 20 years there could be $300 billion. EPA
    itself said that over the next 20 years demands for improved
    sewer and drinking water could outstrip current levels by $535
    billion.
        Now let me go to this year's request for appropriations.
    The budget cuts $500 million from the Clean Water SRF and $315
    million in targeted water projects. How many water projects
    will not be funded as a result of these cuts and what will be,
    do you estimate, the impact on the environment?
        Ms. Whitman. Well, Senator, we have no way of knowing how
    many projects will not be funded because we have not set out a
    budget. We do not have all the requests in and we do not know
    how the States will be using those dollars. These are dollars
    that the States get to put toward their needs. So it would be
    difficult for us to say that.
        I think the important thing to remember here is this is a
    revolving fund. Over the long term, it will be revolving at
    better than $2 billion a year, which is where it was
    anticipated to be. And we are trying to make the commitment to
    ensure that that anticipation is going to be met in the out
    years as well.
        Senator Mikulski. Could you tell me, what was the rationale
    of going from, with water projects, from $1.3 billion to $850
    million? What was the rationale behind it?
        Ms. Whitman. Again, the assumption was that when you added
    together the fact that we were extending the Clean Water SRF to
    2011 and increasing the annual long-term revolving commitment
    to $2.8 billion, from the previous annual revolving level of $2
    billion, that would address those needs, understanding that
    there was no way we were going to have all the money to be able
    to do all of the projects that were out there. By putting that
    together with the other pots of money that we have for States
    and the other increases there is a very, as we say at the
    Agency, robust water program. There are a significant amount of
    dollars available to States and local districts to meet their
    needs.
        But the understanding is that we do not have all the money
    to do it.
        Senator Mikulski. State and local governments are really
    hurting and they are hurting because of, one, their own budget
    issues, which I know you have heard about from the Governors.
    Number two, they are hurting because, particularly in the
    coastal states, they are tremendously impacted by these cuts on
    water and because of the increased costs of homeland security.
    But they are also calling me and my colleagues about money to
    protect water infrastructure issues for homeland security. Then
    they see that their water and sewer projects are hurting.
        So I do not know what to tell them and how we are going to
    help them.
        Ms. Whitman. Well, I think it's important to note----
        Senator Mikulski. If you were with the Mayors Council or
    the National Association of Counties what would you tell them
    on how the Federal Government is on their side and how we are
    going to help them?
        Ms. Whitman. Well, I think it is important to note that we
    are proposing a $32 million increase in core water programs
    over the total budget of the Agency as it deals with water
    programs for States, local governments, and tribes. In
    addition, we are also increasing EPA's resources to provide
    guidance and technical assistance to local governments and to
    tribes.
        Over the nearly 30 years of the Clean Water Act and the
    Drinking Water Act we have worked together at all levels and
    made incredible progress. There is no question that there
    continue to be extraordinary needs, but with an increase of $32
    million overall in our core water programs and the guarantee of
    the revolving nature----
        Senator Mikulski. Excuse me, but that $32 million could be
    used by about five States and use it right up.
        There are other questions that I have, one of which is, I
    know in January EPA convened a conference on closing the gap
    with local officials on how to meet water and sewer challenges.
    Could I have for the record what came out of that meeting so we
    can have the best guidance of your own consultations?
        Ms. Whitman. Certainly.
        [The information follows:]
     Summary of Discussions From the Closing the Gap: Innovative Solutions
                  for America's Water Infrastructure Forum \1\
    ---------------------------------------------------------------------------
        \1\ This document is a summary of discussions during a public
    meeting and does not necessarily represent EPA's position.
    ---------------------------------------------------------------------------

                                JANUARY 31, 2003

                                  INTRODUCTION

        In an effort to facilitate and stimulate a national dialogue on the
    importance of finding innovative ways of enhancing and sustaining the
    Nation's water infrastructure which is vital for protecting public
    health and the environment, U.S. EPA Administrator, Governor Christine
    Todd Whitman, and the Assistant Administrator for Water, G. Tracy
    Mehan, convened a forum on Closing the Gap: Innovative Solutions for
    America's Water Infrastructure on January 31, 2003, in Washington, DC.
        The emerging theme from the forum was that Federal, State and local
    governments and the private sector, working with the public should
    extend their efforts in supporting the necessary water infrastructure.
    This infrastructure is critical for protecting public health and the
    environment, and maintaining local and national economies.
        Over the past several years, a number of studies have highlighted
    the need for substantial investment in the Nation's drinking water and
    wastewater infrastructure. (U.S. Environmental Protection Agency 1998,
    2001, and 2002; General Accounting Office 2002; Congressional Budget
    Office 2002; Water Infrastructure Network 2000 and 2001; American Water
    Works Association 2001.) While the estimates of the cost of this
    investment vary greatly, each study concludes that a significant
    increase in spending above current levels will be necessary to meet
    this investment need. In response, the U.S. Environmental Protection
    Agency (U.S. EPA) convened a forum of water system experts from
    industry, government, and academia to discuss options for meeting this
    investment need. While Federal subsidies for investment in drinking
    water and wastewater infrastructure would help finance needed
    investment, Federal support will not address the entire need;
    therefore, the U.S. EPA wants to consider other innovative responses to
    ensure the investment need is met in an efficient, timely, and
    equitable manner. These approaches could include improvements in
    management systems and water use, a watershed approach to resource
    management, and efficient pricing of drinking water and wastewater
    services.
        The forum was convened by the U.S. EPA Administrator, Governor
    Christine Todd Whitman, on January 31, 2003, in Washington, DC. The
    Assistant Administrator for Water, G. Tracy Mehan III, opened the forum
    and introduced Governor Whitman, who welcomed the participants and
    explained the purpose of the forum: to exchange information and views
    on innovative management and sustainable financing of the Nation's
    water and wastewater infrastructure. Following the Governor's remarks,
    the Assistant Administrator summarized the issues to be addressed
    during the day by two panels comprised of water system operators,
    regulators, environmentalists, and academics, focusing on four areas:
    better management, smarter water use, full-cost pricing, and a
    watershed approach. (The forum's agenda, the introductory remarks, and
    the list of panel members are appended at the end of this report.) The
    first panel focused on management of water and infrastructure assets.
    The second panel focused on infrastructure financing. In addition to 14
    panelists, more than 250 people attended the forum. The forum concluded
    with an open discussion with the Assistant Administrator for Water and
    panel members.
        The difference between the projected level of spending on drinking
    water and wastewater infrastructure and the projected level of spending
    required to meet future investment needs is referred to as the ``gap.''
    While the gap is a useful construct, it has limitations. The gap is a
    static estimate of a dynamic phenomenon; the level of investment
    required will change over time, depending on a wide range of variables
    and the actions of water and wastewater systems. The estimates are
    sensitive to the assumptions made regarding economic growth, population
    growth, and future spending on operations, maintenance, and investment.
    Finally, the high end estimates do not take into account how systems
    will use less water; adopt new, more efficient technologies; or better
    manage their assets.
        On the other hand, the gap analyses focus attention on the
    additional resources--financial, technical, and managerial--necessary
    to ensure water remains clean and safe. The issues raised by the forum
    can be organized into the following themes:
      --System management;
      --Technology;
      --Finance;
      --Efficient pricing;
      --Public education.
        This report summarizes the discussion and presents the basic
    conclusions of the forum. It presents the issues raised by the two
    panels and the public discussion that followed. It does not represent
    EPA policy; rather, it presents the issues and ideas raised during the
    forum about approaches for addressing the water and wastewater
    infrastructure needs.

                  AN INTEGRATED APPROACH TO SYSTEM MANAGEMENT

        Effective management integrates approaches across assets in
    watersheds and is coordinated with financing, including pricing, and
    public education to address clean water needs. Drinking water and
    wastewater systems need good management systems such as asset
    management and environmental systems management programs. Good
    watershed management can minimize the cost of future investment.
    Watershed management also requires regulatory flexibility to deal with
    a range of conditions that exist in different systems and watersheds.

    Asset Management
        Water systems need to conduct a full accounting of the costs to
    manage their assets, both for current operations and future investment
    needs. This accounting is also necessary to substantiate pricing water
    to cover the full cost to treat and deliver to consumers (addressed
    below). Asset management is an approach for an integrated assessment of
    future capital and operating needs and ensuring investments are made
    efficiently. By appropriately managing its assets, a system may be able
    to reduce its overall investment needs. The key focus of asset
    management is on improving the quality of information on which
    decisions are made. Asset management requires an information system
    that characterizes the risks associated with failure to repair or
    replace elements of infrastructure and a decision-making approach that
    uses risk assessment to measure the benefits of alternative approaches
    to infrastructure rehabilitation and replacement. Asset Management
    processes and techniques can be adapted to the complexity and scale of
    the organization's systems. For more complex systems, asset management
    is neither inexpensive nor easy to implement, but it can be a cost-
    effective means of closing the gap.
        Asset management is an inventory-based approach to planning.
    Systems must define the service levels required for end uses, from fire
    flow to residential water use. They then account for the physical
    assets in their inventory by assessing the age, condition, and
    importance of each asset. Age will give a sense of the condition of the
    asset, but its physical condition also must be evaluated. Condition
    assessments are focused on parts of the system that are most critical
    to continuing successful provision of the services. Physical
    inspections (such as walking through pipe or sending in cameras) may be
    needed. Other means also may be available. For example, systems can
    measure iron pick-up in the water in the distribution system over time
    as is done in England, which would indicate potential corrosion of the
    iron pipes. Use of operational data and statistical approaches also can
    be used to identify trends in performance.
        Systems also must determine how critical the asset in question is.
    For example, not all pipe of similar age and condition needs to be
    replaced at the same time. In some cases, a pipe break would have
    severe consequences: it could disrupt service for thousands of
    customers for several days, and it could be very expensive to fix. In
    other cases, a break can be repaired in several hours, with little
    impact on customers. By classifying how critical each asset is to
    service provision, a system can focus its investment where it is needed
    most.
        Based on this assessment, systems can then plan for the replacement
    of its assets. As with pricing, this may require changes in culture and
    attitude. In many cases, the approach towards public infrastructure is
    to build it and operate it, with minimal maintenance, until it wears
    out. Asset management entails a more proactive approach, looking at the
    asset over its entire life cycle. In addition to technological needs
    like fiber optics, cameras, and flow meters, system operators need
    training to implement asset management. Asset management requires a
    significant amount of information, and a major commitment on the part
    of the system to collect the data and manage the system. Seattle with
    more than 1,000 employees was able to commit four staff to asset
    management. Smaller systems may require outside assistance.

    Watershed Management
        A watershed approach that involves both institutional and physical
    integration of wastewater management, storm water management, water
    use, and land use could lower costs all around. A watershed approach
    would entail broad stakeholder involvement, hydrologically defined
    boundaries, and coordinated management across all aspects of policy
    that affect water. Through increased efficiency in water use and water
    reuse, water withdrawals can be lowered, reducing the need for new
    source development and reducing the amount of wastewater to be
    processed. By protecting source water, it may be possible to reduce the
    need for expensive treatment plants. Some regionalization of systems,
    through actual consolidation; sharing of management resources, computer
    systems, and information; or interconnection, can help lower costs for
    small systems and enhance the management of the watershed.
        One example of this type of integration happened in 1974 in the
    United Kingdom. Responsibility for all water and sewer policies was
    vested in ten new authorities that were defined by hydrological
    boundaries. The oversight of these regional authorities by national
    agencies concerned about water quality and the cost of service created
    the conditions for strong asset management policies. The United States
    is not the United Kingdom; therefore, there will not be a real
    opportunity for national watershed planning. But there are
    opportunities within States, as some States are moving forward in
    consolidating entities into larger units for decision-making on water
    beyond political boundaries.

    Regulatory Flexibility
        The regulatory regime also can have an impact on system planning
    and watershed management. Inflexible regulations can lead to
    inefficient management of the watershed. For example, controlling and
    managing non-point sources of pollution are very important to improve
    water quality and will require significant attention. But these sources
    are not the focus of current regulations, which force systems to put
    most of their resources towards curbing point sources of pollution.
    Increased regulatory flexibility may let systems meet clean water and
    drinking water standards at a lower cost. For example, Seattle was able
    to save a significant amount of money when it was allowed to invest in
    source water protection rather than install a filtration plant to
    comply with drinking water standards.
        Regulators tend to favor the traditional approaches, even though
    new approaches can be more cost effective. Seattle has experimented
    with using swales on both sides of a street and has succeeded in
    reducing runoff by 97 percent. This kind of ``thinking outside the
    box'' may be expensive at the beginning, but can produce significant
    savings in the long run from reduced maintenance costs.

    The Role of Technology
        Water infrastructure ranges from relatively simple pipe to complex
    treatment facilities. The need to replace infrastructure is the source
    of the funding need; technological innovations may provide a means for
    reducing the cost of the future investment. The use of fiber optics can
    help assess the condition of buried infrastructure, as has been done in
    the United Kingdom. Cleaning out and lining old pipes provide low-cost
    alternatives to replacement of distribution mains and sewer lines. New
    pipe material that reduces leaks will reduce water demand. Computers
    can free operators from monitoring dials to managing assets and other
    tasks. New membrane technologies will be useful, at least on a small
    scale. A host of decentralized wastewater technologies are very cost-
    effective for small communities compared to conventional sewers. Some
    of these technologies can be blended with conventional systems for
    urban and suburban areas.
        Not all promising innovations are complex technologies. Coca-Cola
    reduced water consumption by 25 percent in a matter of days by
    capturing wastewater onsite and using it to wash the company's trucks
    and crates. Other small technology changes, like replacing an old
    chlorinator with a state-of-the-art model, can yield significant cost
    savings as the Narragansett Bay Commission discovered.
        However, regulators, engineers, and drinking water and wastewater
    system operators tend to be conservative when it comes to adopting new
    technologies. The technology must be in use for it to even be
    considered. Laboratory testing likely will not be adequate to encourage
    operators to adopt new technologies; rather, full-scale demonstrations
    may be necessary. The Federal Government plays an essential role in
    promoting research, development, testing, and evaluation of new
    technologies and then in disseminating information about proven
    technologies. This role will remain important in the future.

                      FINANCING INFRASTRUCTURE INVESTMENT

        EPA's gap analysis (U.S. EPA, September 2002), like other studies,
    focuses on projected estimates of the cost of future investment in
    water infrastructure without identifying the source of funds to pay for
    this investment. While not the focus of the forum, funding was an
    underlying theme. Clean and safe water is a public good; therefore, the
    central question is to what extent taxpayers or rate payers will pay
    for the needed investment. The forum raised several issues with regard
    to the means of financing infrastructure investment.
        First, the drinking water and wastewater systems themselves--and by
    extension, their customers--will pay for the vast majority of the
    investment. Some argue that systems should move towards full-cost
    pricing that accounts for needed future investment to generate the
    necessary funds and to impart a clear signal of the cost of water to
    their customers. As mentioned earlier, many systems do not adequately
    account for their investment needs and charge rates below cost;
    therefore, they generate insufficient revenue to finance investment,
    and will need to increase their rates. Because water consumes a
    relatively small share of household income, most households may be able
    to afford a rate increase. To minimize rate payer backlash, systems
    must back-up rate increases with solid information on costs of service.
    Programs also will need to address affordability issues through
    mechanisms such as lifeline rates for low-income customers. It was also
    mentioned that accounting/financial reporting is needed to regulate the
    industry economically to press the case for proper rates.
        Second, the Federal Government will continue to play an important
    role. Appropriate incentives can promote improved management practices.
    The Federal Government can provide incentives to encourage systems to
    implement asset management, full-cost pricing, technological
    innovation, and water saving programs. The Federal Government also
    remains an important source of funds for water and wastewater
    infrastructure improvements. Some panelists called for additional
    resources by the Federal Government, including an increase in the
    Federal contribution to the Drinking Water State Revolving Fund and the
    Clean Water State Revolving Fund. Several panelists recommended that
    States should leverage these funds to generate additional resources.
    Some States leverage these funds, others do not. One controversial
    suggestion was the establishment of a Federal water trust fund, with
    dedicated funds tied to a water-related fee. Other panelists believed
    that increased Federal funding should not be the answer.
        To encourage sustainable financing, some argued that steps should
    be taken to level the playing field so that anyone interested in
    investing in public infrastructure for the public good has access to
    tax-exempt financing, which often is limited even for public utilities.
    This access can be provided by lifting the restrictions on tax-exempt
    financing for many communities and allowing private activity bonds.
    Municipal bond reform could generate additional funds by providing
    preferential tax treatment for water-related bonds issued by both
    publicly or privately owned systems. ``Green'' bonds--below market
    interest rate bonds to support water infrastructure and other
    environmental programs--also could be created to finance water
    projects. Also, many systems cannot float bonds for political or rating
    reasons, limiting access to capital markets.
        Creative measures are available for systems' rate structures as
    well. Connecticut and Pennsylvania allow water utilities to recover
    infrastructure investment through monthly bills for a particular period
    of time. The Elizabethtown Water Company can segment their market by
    charging for specialized services (e.g., insurance for line breaks
    between the curb and the house); these funds can then be used to
    finance infrastructure investment.
        The issue of financing sustainable infrastructure can be viewed in
    the framework of capacity development. While some systems may be able
    to meet their needs through a combination of increased rates, improved
    water use, and asset management, other systems--especially low-income
    small systems--may not be able to implement improved management
    techniques or raise sufficient funds. Many low-income small systems may
    not have the managerial, technical, or financial capacity to meet the
    investment challenge or national environmental and drinking water
    standards. Often these systems may not know what their needs are; in
    some cases, the State or other regional authority assesses the needs of
    the system and makes recommendations. Regionalization provides a means
    of upgrading assets at lower costs. For regionalization to succeed, a
    third party may be needed to provide an unbiased analysis of the
    situation. Regionalization will not always be the answer, however.
    Small, isolated systems should be screened to determine whether a
    structural solution is warranted, or if technical or financial support
    would address the system's needs.

                              THE ROLE OF PRICING

        Pricing water appropriately is important for water providers and
    consumers to get the right market signals. Like other utilities,
    drinking water and wastewater systems are typically either regulated
    monopolies or publicly owned. One of the key challenges facing systems
    under these circumstances is to provide their services in an
    economically efficient manner. Prices play an important role, but the
    price signal often is muted in publicly owned systems or regulated
    monopolies. The price of drinking water and wastewater services is
    rarely equal to marginal cost (i.e., the cost to the system of
    producing an additional unit of water), and is often below the average
    cost per unit of water service (implying some form of subsidy).
        It was discussed that switching to a pricing approach that recovers
    the full cost of water and wastewater services could address the
    infrastructure funding gap in two ways. First, full-cost pricing would
    tend to increase system revenue. Moving to full-cost pricing may
    require changes in accounting and management to ensure the rate covers
    the cost of future investment needs as well as current operations (see
    the discussion of asset management, above). With these changes in
    place, the revenue generated through full-cost pricing can provide
    systems with much of the funding necessary to finance infrastructure
    investment. Second, full-cost pricing can reduce future investment
    needs. The elimination of rate subsidies (explicit or otherwise) will
    send a clear signal of the value of water to consumers. The clear price
    signal can play an important role in demand-side management,
    encouraging conservation. Reduced demand, in turn, can reduce or delay
    planned investments.
        This dual effect of raising funds for investment and reducing the
    level of investment required is a theme that was present throughout the
    forum. The gap is analogous to the open jaw of an alligator. The top of
    the jaw represents the projected investment need over the next 20
    years, which, if not addressed, threatens to imperil the service level
    of existing water infrastructure. The bottom jaw represents the
    projected level of funding available to finance this investment which,
    if not sufficient, will not mobilize the necessary resources. The
    challenge for systems (and for public policy) is to close this jaw. It
    was argued by some that full-cost pricing works on both the top and
    bottom of the jaw, generating funds for investment, and reducing the
    amount of investment required.
        Appropriate economic incentives can encourage efficient allocation
    of resources for both publicly and privately owned water systems.
    Because of the requirements of the market, privately owned systems are
    more likely to use full-cost pricing. Privately owned systems tend to
    charge higher rates than publicly owned systems, because they must
    provide a return for investors and pay taxes. (Privately owned systems
    also are regulated by State public utility commissions, which approve
    their rates and hence provide political support not necessarily
    available to publicly owned systems.) Full-cost pricing helps make
    privately owned systems self-sustaining by providing them with the
    means for necessary infrastructure investment.
        It often is assumed that private companies are very good at project
    delivery and management. But privatization is not a panacea; it is not
    appropriate in all circumstances and must be evaluated on a case-by-
    case basis, considering service received for the price paid. Private
    firms can produce good results, but a bad contract can leave a
    community worse off. Whether publicly or privately owned, drinking
    water and wastewater utilities must recognize both the public service
    and business aspects of their systems. Some argue that publicly owned
    systems can benefit by using private sector management approaches,
    including full cost-pricing and asset management. The public has
    demanded input into decisions of privately owned systems regarding
    traditional public-sector issues like land use. A privately owned or
    operated system must provide service that is at least as good as a
    publicly owned and operated system. If service is not as good, it will
    be penalized; if it performs better than the public system, it may
    benefit.
        The issue raised by pricing is not simply one of ownership, but the
    incentives facing the system. Many publicly owned systems recover their
    costs through full-cost pricing. On the other hand, some privately
    owned systems do not face the incentive needed to adequately plan for
    investment. For example, a smaller privately owned system did not
    adequately plan for investment until it was acquired by a larger
    company and changes were made that affected how management made
    investment decisions. Both publicly and privately owned systems will
    need to address issues raised by more efficient operations, including
    operators' fear of job loss, changes in relationships with unions and
    other institutions, and the cost impact for households.
        Some systems have moved to full-cost pricing, and many systems have
    dramatically increased rates. For most households, water remains
    relatively inexpensive, comprising less than 1 percent of household
    income. However, many households will not be able to afford higher
    water rates. Furthermore, some households may be able to reduce water
    expenses through conservation, but others will not. For example, some
    systems have found that successful conservation programs can create
    revenue shortfalls, necessitating rate increases. As consumers had
    already implemented conservation measures, they could not further
    reduce their water use in response to the rate increase, and they saw
    their monthly water bill increase. The increased expenses can have a
    substantial impact, especially on low-income households which may have
    an inelastic demand for water and may not be able to reduce consumption
    further. Rate reduction programs are needed to cushion the impact of
    rate increases on low income households. These programs may include
    direct assistance for low-income households, similar to the U.S.
    Department of Health and Human Services' Low-Income Home Energy
    Assistance Program (LIHEAP). They also may include the use of lifeline
    rates or other rate structures that can reduce the cost of water to
    low-income households.

                                PUBLIC EDUCATION

        While full-cost pricing may be a necessary component of addressing
    the funding gap, public education is needed to explain to rate payers
    the need for rate increases. In fact, the move to full-cost pricing is
    itself part of public education, as it provides information to rate
    payers about the cost of the provision of drinking water and wastewater
    services. But other educational efforts also are needed. The need for
    rate increases may be promoted for water systems and accepted by
    consensus because they systems provide a high quality, reliable product
    at a relatively low price. Household spending on water is a fraction of
    what is spent on cable television, telecommunication services, or even
    bottled water. With public education and outreach, customers may be
    willing to pay higher rates for maintaining and improving their water
    infrastructure. Unfortunately, many of these improvements, such as
    replacement or repair of pipes, are installed below ground and cannot
    be seen or appreciated by the public. There are ways that utilities can
    create positive value as part of their infrastructure projects by
    making people aware of the importance of the projects.
        On the other hand, marketing water can be difficult. Regulated
    systems may not be allowed to expend funds to market because they are
    monopolies. Publicly-owned systems may find it politically difficult to
    launch an advertising campaign as well. And while households spend a
    larger share of their income on other goods and services, the
    comparison of water costs to other services is not simple. Furthermore,
    systems will ask customers to pay higher rates to maintain what may be
    perceived to be the same level of service (reliable, safe water),
    rather than to receive a new improved service in the form of higher
    quality water or more reliable but less (conserved) water supply.
    Finally, the public usually pays attention only when things go wrong.
    Utilities need to find opportunities to promote themselves when things
    go right.

                                   CONCLUSION

        Drinking water and wastewater systems, local regulators, the
    States, and the Federal Government will face many challenges over the
    next 20 years as they try to meet the Nation's water infrastructure
    investment need. Innovative responses are needed by both water systems,
    government authorities and consumers to close the gap. These may
    include the use of changes in system management, the adoption of new
    technologies, increases in external funding and full-cost pricing by
    systems. Public education also can play an important role as systems,
    the States, and the Federal Government all address the Nation's water
    infrastructure need. These responses can be divided into managerial,
    financial and technical approaches for closing the gap.

      SUGGESTIONS DISCUSSED BY FORUM PARTICIPANTS FOR MANAGERIAL RESPONSES

        Promote Asset Management Through Incentives and Assistance.--
    Integrated approach to management of water systems can help reduce the
    need for future investment in infrastructure. Asset management can help
    systems plan for needed investment and ensure the investment is timely
    and cost-effective. While asset management involves a substantial
    commitment by systems to develop and maintain information about the
    age, condition, and criticality of their systems, it presents an
    important source of potential savings. The government may play an
    important role by facilitating the adoption of asset management and by
    providing technical assistance to help systems implement an asset
    management program.
        Integrate Watershed Management with Asset Management.--An
    integrated approach to the management of an entire watershed also can
    help reduce the cost of future investments. A watershed approach that
    coordinates management across all aspects of policy that affect water
    can help ensure systems provide water that is clean and safe at the
    lowest possible cost. This may require additional regulatory
    flexibility by both the Federal Government and State regulators.
        Support Public Education on Water Value and Costs.--An important
    component of effective system management will be public education. To
    close the infrastructure gap, customers may be asked to pay higher
    rates and to take steps to use water more efficiently. Water systems
    need to inform their customers about the overall value of water as well
    as the systems' investment needs to garner their support for the steps
    needed to meet the Nation's water infrastructure needs.

      SUGGESTIONS DISCUSSED BY FORUM PARTICIPANTS FOR FINANCIAL RESPONSES

        Provide Incentives from Government.--Some argued that the
    government can play an important role in helping systems adopt full-
    cost pricing by providing incentives to encourage its adoption,
    technical assistance with rate design, and financial assistance to help
    cushion its impact on low-income households.
        Continue Low-interest Government Loans.--The public sector will
    continue to play an important role in funding water infrastructure
    investment. The Drinking Water and Clean Water State Revolving Funds
    will continue to be an important source of funds for systems, providing
    loans at below-market rates.
        Increase Leveraging Funds by States.--States may leverage the funds
    more aggressively to increase the funding available for investment in
    infrastructure; it was argued by some that the Federal Government
    should consider an increase in the level of capitalization of these
    funds.
        Establish a Water Infrastructure Trust Fund.--The idea was brought
    up that the Federal Government also may want to consider the
    establishment of a water trust fund, funded through water-related fees.
        Change Tax Laws to Increase Access to Capital.--Some participants
    brought up that other changes, including changes in tax laws, should be
    considered to level the playing field and increase systems' access to
    capital markets.
        Price Water at Full Cost.--Discussion included the idea that full-
    cost pricing could be one of the main tools available to systems to
    help address future investment needs. Full-cost pricing can help raise
    the revenue needed to finance infrastructure investment; it also may
    reduce the amount of investment required by encouraging efficient use
    of water.
        Incorporate Equity Considerations for Low-income Households--Some
    form of assistance may be needed to cushion the impact of rate
    increases on low-income households, through either innovative rate
    design or direct financial assistance.
    suggestions discussed by forum participants for technological responses
        Research and Develop Innovative Technologies.--New technologies may
    help reduce the cost of replacing existing infrastructure. Systems may
    need to explore innovative technologies when upgrading their
    infrastructure and managing their assets. Additional research and
    development, including full-scale demonstration of new technologies,
    can help reduce future investment needs. The public sector can play an
    important role in promoting this research and in disseminating its
    results to systems.

                                    SUMMARY

        The integrity of the Nation's water infrastructure is critical to
    public health, environmental quality, and economic vitality across the
    country. The forum focused on the challenges faced by water suppliers,
    wastewater managers, State and local officials, the Federal government,
    and consumers in addressing the growing needs to maintain, replace, and
    improve water infrastructure. In addition to identifying some of the
    myriad of challenges facing water systems, it fostered a discussion of
    innovative approaches for meeting these challenges. New management
    practices, consolidation, asset management, water conservation, public-
    private partnerships, environmental watershed management, full-cost
    pricing, and consumer education are some of the promising tools
    available to help meet future investment needs.
                                     ______

       Remarks of Governor Christine Todd Whitman to the National Water
                              Infrastructure Forum

        Thank you, Tracy (Mehan), for that introduction and for convening
    this forum. I hope this meeting will provide the opportunity to
    explore--and perhaps even begin to solve--some of the challenges posed
    by America's aging water infrastructure.
        About 2,300 years ago, the Roman Empire began construction of its
    amazing aqueduct system. By the time the system was completed--some 500
    years later--Rome's 260 miles of water infrastructure were capable of
    delivering 85 million gallons of water a day to the 1 million citizens
    of the ancient city.
        Yet, within about 100 years of the creation of this engineering
    marvel of the ancient world, Rome's ability to maintain its water
    infrastructure began to erode. The aqueduct system fell into disrepair,
    and eventually people who once had their water piped right into their
    homes had to dig wells and haul water from nearby rivers and lakes.
        The decline of Rome's water infrastructure and the fall of its
    Empire followed parallel tracks. For a whole host of reasons, that's
    history we do not want to repeat--and we won't.
        A safe, affordable, and abundant supply of drinking water is
    something we take for granted in America. We turn on the tap, and we
    don't have to worry whether what comes out will make us or our families
    sick. But there's no doubt that America's water infrastructure faces
    some critical needs in the years ahead.
        The full dimension of those needs is outlined in the Clean Water
    and Drinking Water Infrastructure Gap Analysis EPA released last fall.
    Our report takes a good, hard look at what America's water
    infrastructure needs will be through the year 2019.
        This report looks at infrastructure in the broad sense--everything
    it takes to deliver clean, safe water to America's homes and businesses
    and then remove and treat the waste water that results. From the water
    intake valve to the tap, from the kitchen sink drain to the outflow at
    the treatment plant, we looked at the entire picture.
        As you know, the funding gap we identified from now through 2019 is
    significant. Assuming no growth in revenues, the total needed for clean
    water--in both capital and operations and maintenance--exceeds $270
    billion. For drinking water, the gap approaches $265 billion.
        The size of the projected gap can be reduced substantially if we
    project real growth in revenues over the same period. Assuming a 3
    percent annual real growth in revenues, for example, the gap shrinks by
    nearly 90 percent on the clean water side and by about 80 percent on
    the drinking water side.
        The actual gap may end up somewhere in between these numbers--and
    there are an enormous number of considerations that will go into
    determining exactly how big the gap will be over time. But what's
    important now is that we begin the discussion of how to close the gap
    with a better understanding of what the dimensions of the challenge
    really are.
        As I said when I announced this forum last September in Chicago,
    the purpose of the forum is not simply to ask for more money from
    Washington. Instead, we've convened this meeting to give all the
    interested parties the opportunity to discuss how best to close the
    gap.
        One thing is clear--the challenge we face is clearly beyond the
    ability of any one entity to address. It will require the participation
    and contribution of government at all levels, utilities, and users.
        There's no doubt that this administration is committed to doing its
    part. We will continue to ensure the State Revolving Funds are robust
    and up to the job.
        After all, history has shown the SRFs to be the most effective tool
    we have to support your work. To date, the Federal Government has
    provided more than $19.7 billion in capitalization funding to States
    for the Clean Water SRFs and $3.6 billion for the Drinking Water SRFs.
        Because of the revolving nature of these funds, each Federal dollar
    invested leverages considerably more loans and assistance than would a
    traditional grant program. In fact, for every Federal dollar invested
    in the SRFs, we see a return on investment of $1.90. In addition, the
    SRF program gives the States flexibility to direct money to where it is
    most needed.
        The Bush Administration is committed to ensuring that the Federal
    Government does its fair share, and I know Congress is also considering
    various methods to address the situation. Of course, States,
    municipalities, and utilities will also need to do their part. Given
    the gap, we estimate that utilities will have to increase their own
    investment at an annual real rate of growth of 3 percent.
        Of course, money alone is not the answer. We need to tap into the
    creative, innovative thinking of the water community to find less
    costly and more efficient ways to narrow the gap. Only by embracing
    innovations that have been resisted by some in the past can we make the
    progress we need.
        Adopting new, innovative management practices is one way to help
    ensure the resources are available to meet our future infrastructure
    needs. Such practices include taking an asset management approach,
    forging a new public-private partnership, consolidating ownership or
    management, or starting an Environmental Management System.
        Another area of innovation that holds promise is reaching across
    existing local political boundaries to promote intergovernmental
    cooperation across entire watersheds. There are 168,000 public drinking
    water systems in the United States and 16,000 waste water utilities.
    EPA will continue to encourage utilities to consider ways to work
    together to achieve economies of scale or to ensure that they are
    working together to promote the health of the watershed they share.
        The innovations we need should also include efforts to promote
    conservation and smart water use, not just by the user, but by the
    utility as well. A faucet in someone's home that leaks just a drop
    every 3 seconds wastes more than 1,000 gallons of water a year. But a
    leaky water delivery system can waste billions of gallons of water
    annually.
        In the Detroit area, for example, it is estimated that every year
    more than 35 billion gallons of clean, fresh water leaks from water
    delivery pipes before it ever reaches the consumer. That's enough water
    to fill Yankee Stadium to overflowing more than 130 times. And while
    that probably wouldn't bother Tiger fans--or this Mets fan--if it would
    keep the Yankees out of the playoffs, there's got to be a better way.
        When we come down to it, that's why we're here today, to begin to
    find the better way to close the water infrastructure gap, not just
    through a flood of money, but through a tidal wave of good, creative
    ideas.
        The great Roman poet, Horace, who enjoyed the water brought to his
    city by the aqueducts I spoke of earlier, said, ``To have begun is half
    the job: be bold and be sensible.'' That would be my charge to you. We
    have begun the job of addressing the infrastructure gap by defining it.
    Now is the time to be both bold and sensible in tackling the next half
    of the job that confronts us.
        I look forward to learning from Tracy the results of this forum.
    And while neither Rome--nor its water infrastructure was built in a
    day--I believe today's efforts will help ensure that here in the United
    States, we will continue to provide all our people with a clean, safe
    water system that is the envy of the world--both ancient and modern--
    for many decades to come. Thank you.
                                     ______

                      Sustaining Our Water Infrastructure

     REMARKS DELIVERED BY G. TRACY MEHAN III, AT THE EPA FORUM ON CLOSING
       THE GAP: INNOVATIVE RESPONSES FOR SUSTAINABLE WATER INFRASTRUCTURE
                                JANUARY 31, 2003

        On behalf of the Office of Water, I want to thank you for your
    willingness to participate in this crucial dialogue on the future of
    America's water infrastructure.
        First, I want to thank the Administrator for convening this forum.
    Her leadership on this issue is very much appreciated by all of us in
    the national water program, especially her focus on innovation as one
    element of the solution to our investment needs in the years ahead.
        Let me build on the Administrator's introduction and sketch for you
    some of the promising developments in the public and private sector
    that will enhance our management of the infrastructure that ensures the
    protection of our water and the delivery of safe drinking water. These
    innovations will either reduce the need for infrastructure or bring
    down the costs of infrastructure--and hence ``close the gap'', the
    title of today's forum.
        Before we talk about ways of closing the ``gap,'' let's talk about
    what the ``gap'' is. This term ``gap'', I'm afraid, may be more a term
    of bureaucracy than a commonly understood phenomena. Two years ago,
    U.S. News and World Report (6/12/00) called it the ``sickening sewer
    crisis'' in an article that began with a description of an ordinary
    suburban family waking up to a basement flooded by a broken sewer line.
    U.S. News suggested that, without preventive action, this scenario
    represents our future all across America. Other magazines and
    newspapers across the country have published a number of stories on the
    emerging problems in the Nation's plumbing.
        EPA's report issued a few months ago was a bit more clinical.\1\ We
    talked about ``a gap between projected clean water and drinking water
    investment needs over the 20-year period from 2000-2019 and current
    levels of spending.'' Wall Street might call it an ``investment gap.''
    An economist might even call it a ``pricing gap.'' There are also
    different estimates of the size of this gap--the magnitude of our
    investment needs. But whatever our numbers and whatever our language,
    the problem we're here to discuss today is that our water and sewer
    systems are aging--even as our population is growing; and our clean
    water and drinking water rules are tightening.
    ---------------------------------------------------------------------------
        \1\ EPA-816-R-02-020, The Clean Water and Drinking Water
    Infrastructure Gap Analysis, Office of Water, September 2002. Website:
    http://www.epa.gov/owm/gapreport.pdf.
    ---------------------------------------------------------------------------
        Our hope is that today's forum will cover a range of solutions that
    will speak to everyone--whether you're from a small system facing new
    drinking water standards requiring treatment for the first time, a
    large system with a billion dollar combined sewer overflow (CSO) repair
    bill or a system in the arid West facing the worst drought in a decade.
    Today's challenges demand a multi-faceted approach to managing and
    sustaining our infrastructure assets. Not only are we going to have to
    manage better in both the public and private sectors, we're going to
    have to use less water and, yes, pay an adequate price for our
    infrastructure in our role as ratepayers. There is, as the saying goes,
    no free lunch in our future.
        The subjects I'd like to offer up for today's discussion include
    (but are not limited to) the following four areas.
        Better Management.--Better management practices like asset
    management, environmental management systems, consolidation, and
    public-private partnerships offer significant savings.
        Smart Water Use.--We need to create incentives to conserve and to
    protect our sources of drinking water.
        Full Cost Pricing.--Full cost pricing and rate restructuring can
    capture the actual costs of our water systems, raise revenues and
    provide incentives to conserve.
        The Watershed Approach.--We need to use a watershed approach,
    looking more broadly at water resources in a coordinated way.

    Better Management
        The 1996 Safe Drinking Water Act Amendments stressed capacity
    development--the proposition being that when drinking water utilities
    possess adequate technical, financial, and managerial capacity, they
    are better able to provide safe drinking water. States are using the
    capacity development provisions in the law to improve utility
    management. More recently, in the Office of Water, we've been looking
    at the potential for asset management techniques to reduce a utility's
    long-term costs and improve performance. This is a structured
    management approach that is based on information about the condition of
    a system's assets. Knowing the condition of your assets and linking
    that information to inventory, service levels, useful life, and repair
    costs will provide the information needed to make optimal management
    decisions--including decisions about funding future renewal and
    replacement.
        Recently, working with Australian and U.S. consultants, the Orange
    County Sanitation District approved an investment of $22-38 million,
    over a 6-year period, to implement its Asset Management Plan, as part
    of a $2 billion investment strategy over the next 20 years. This front-
    end investment in manpower, planning and assistance, information
    systems, software, training and other process changes will yield a 20-
    year return on investment (ROI) in the range of 9:1 to 16:1. This
    translates into a reduction of $150 million in their capital
    improvements program and a total life cycle cost savings of at least
    $200 million.
        This 10 percent savings from just one utility, admittedly a very
    large one, is equivalent to the current full amount of the Federal
    contribution to California's Clean Water State Revolving Fund (SRF)
    over 2 years!
        Environmental management systems (EMS) are another important tool
    to help utilities manage better and reduce costs. The EMS approach
    involves a comprehensive assessment of an organization's impact on the
    environment followed by specific targets and objectives and continual
    checking to make sure the desired results are achieved. EMS and asset
    management can complement each other and give utilities a powerful way
    to continually manage for better results and greater efficiency.
        EPA has also looked at cost savings that can be achieved by small
    systems through consolidating ownership or management with other small
    systems. Although consolidation is not always a viable option, by
    combining resources, systems can achieve a more sustainable level of
    technical, financial and managerial capacity. For instance, the system
    serving the city of Panora, Iowa consistently violated the public
    health standards for nitrate in drinking water. Rather than incur the
    cost of installing treatment, the city decided to purchase raw water of
    a higher quality from a neighboring system. In addition, the city
    pursued a partnership agreement with another neighboring system to
    assist with operating and monitoring its water treatment plant. This
    agreement enabled the city to take advantage of the other system's
    technical expertise and reduced the need for on-site operators.
        Public-private partnerships have helped a number of communities
    provide water and wastewater treatment at reduced cost. Whether
    providing basic wastewater treatment supplies (e.g., chemicals),
    maintaining a portion of the collection or treatment system under a
    contract, or providing contract operation and maintenance for all of a
    municipality's facilities, the private sector can serve an important
    role in the effort to control water pollution across the country. Over
    the past decade, we've seen an increased interest in using the private
    sector to meet water and wastewater funding needs. In fact, a
    Presidential Executive Order (12803) was issued in 1992 directing
    Federal agencies to remove obstacles to privatization, which offers one
    approach to improving the efficiency and sustainability of our drinking
    water and wastewater systems.
        The ultimate key to success lies in better management--irrespective
    of ownership.

    Smart Water Use
        In addition to managing better, we're going to have to learn to use
    water more efficiently. At the end of 2002, nearly half of the
    continental United States was in drought. In addition to reduced
    rainfall, most of our water systems also face a growing population and
    a growing economy. Moreover, we're reaching the end of the era in which
    we could always expand water supply--the era in which we built large
    dams and conveyance systems. Just this month, Secretary of Interior
    Gale Norton had to step in to reduce California's withdrawals of water
    from the Colorado River. As our waters are more stretched across
    competing demands, our supply side approach will have to be coupled
    with demand side management. During the next 100 years, we're going to
    have to become experts on the demand side of the equation:
    conservation, recycling, reuse and improved water-use efficiency. If we
    can reuse our treated wastewater for beneficial purposes such as
    irrigation, manufacturing or groundwater recharge, the environmental
    and economic benefits are manifold. If all communities would implement
    metering to measure their consumption, then there would be a basis for
    price incentives to begin to work. For example, Westfield,
    Massachusetts went from no meters to a fully metered system. The
    installation of meters enabled the city to set a metered water rate
    that allowed for complete cost recovery of its existing and projected
    expenses. Also the city found that it could abandon plans to develop a
    new surface water source, as its customers began to conserve water.
    Imagine the water savings if cities the size of Chicago and Sacramento
    fully metered their systems.
        Metering and reuse aren't the only ways to save water. Many of you
    probably know the other options available for enhancing water
    efficiency: plumbing retrofits, leak detection and repair, irrigation
    improvements, water-saving appliances, landscaping measures and public
    education. Using these measures, a number of American cities have
    reduced their water use by as much as 20 percent and still haven't
    exhausted all their conservation options. Many of these cities are
    featured in our publication, Cases in Water Conservation.\2\
    ---------------------------------------------------------------------------
        \2\ EPA832-B-02-003, Cases in Water Conservation, Office of Water,
    July 2002. Website: http://
    www.epa.gov/OW-OWM.html/water-efficiency/utilityconservation.pdf.
    ---------------------------------------------------------------------------
        EPA has a number of resources available to assist water efficiency
    efforts. We published the Water Conservation Plan Guidelines in 1998
    for public water systems and we sponsor a voluntary partnership program
    for businesses and institutions called WAVE (Water Alliances for
    Voluntary Efficiency). On our website \3\ you can also find a number of
    other publications and links to our water conservation clearinghouse
    and software.
    ---------------------------------------------------------------------------
        \3\ The Office of Water's website is http://www.epa.gov/ow.
    ---------------------------------------------------------------------------
    Full Cost Pricing
        In addition to managing better and using less, I believe we're
    going to have to pay more of the actual costs of maintaining our water
    systems over time. The Congressional Budget Office recently issued a
    report entitled Future Investment in Drinking Water and Wastewater
    Infrastructure \4\ which points out that increased future
    infrastructure costs will either have to be paid by taxpayers or
    ratepayers. To quote CBO: ``Ultimately, society as a whole pays 100
    percent of the costs of water services, whether through ratepayers'
    bills or through Federal, State, or local taxes.'' CBO raises strong
    efficiency arguments for ratepayers picking up the increased costs
    rather than taxpayers. Certainly the most direct route for funds to
    flow is straight from the ratepayer to the utility. In addition, we
    know that when prices rise, quantity demanded falls. Moreover, in this
    same report, CBO estimates that combined water and sewer bills
    currently average 0.5 percent of income in this country (i.e. one-half
    of 1 percent of average household income). There appears to be room for
    higher water bills among most households. In a recent draft report from
    the Organization for Economic Cooperation and Development,\5\ the
    United States had the lowest percentage of income going to water
    charges among the 18 OECD countries. CBO, in its report, calculated
    that even if future infrastructure needs fall into the very high range,
    average water bills will still only account for 0.9 percent of income
    on average. In a recent article, Harvard economist Robert Stavins
    describes our water prices as ``muffled''.\6\ He suggests that
    ratepayers need to hear stronger price signals so that they see a
    connection between their consumption and their water bill.
    ---------------------------------------------------------------------------
        \4\ Congressional Budget Office, Future Investment in Drinking
    Water and Wastewater Infrastructure, November 2002, ISBN 0-16-01243-3.
        \5\ OECD, 11-20-02 Draft, ``Social Issues in the Provision of Water
    Services'' Table 2-2.
        \6\ Sheila M. Cavanagh, W. Michael Hanemann, and Robert N. Stavins,
    ``Muffled Price Signals: Household Water Demand Under Increasing-Block
    Prices,'' December 31, 2001 ASSA Paper.
    ---------------------------------------------------------------------------
        This is not to overlook the affordability problems that low-income
    households may face. To alleviate these hardships, communities can
    offer rate structures that mitigate impacts on low-income customers.
    The most prominent example is ``lifeline rates'' where the charge for
    an amount of service considered non-discretionary (the minimum sanitary
    requirement) is kept low, but then higher unit charges are levied on
    water consumption beyond that amount. While affordability programs are
    offered by 14 percent of water utilities,\7\ there is still much to
    learn from the gas and electric utilities in their many years'
    experience in offering low-income assistance. We want rates that are
    affordable for most households, but not so ``muffled'' that we can't
    hear a price signal, a signal which conveys important information on
    the condition of the infrastructure which it supports.
    ---------------------------------------------------------------------------
        \7\ Survey by Raftelis Environmental Consulting (2002).
    ---------------------------------------------------------------------------
    The Watershed Approach
        Finally, in addition to managing better, using less and adequately
    pricing services, we're going to have to use the watershed approach.
    EPA views watersheds as the basic unit to define and gauge the Nation's
    water quality. The watershed approach is a term generally invoked to
    mean broad stakeholder involvement, hydrologically defined boundaries,
    and coordinated management across all aspects of policy that affect
    water. Leading the way are over 4,000 local watershed organizations in
    the United States working to advocate watershed restoration, source
    water protection, improved site design, erosion control, land
    conservation, stormwater management and many other aspects of water
    resource management. I have asked our senior managers to identify ways
    to advance the watershed approach, including how to increase our
    training and technical assistance for these local, State, and tribal
    watershed partnerships.
        Several facets of the watershed approach can be advanced by
    jurisdictions at all levels to reduce the cost of future
    infrastructure. I'll mention three areas:
        Targeting.--In the 1987 Amendments to the Clean Water Act, Congress
    created the Clean Water State Revolving Fund (SRF), and later, in the
    1996 Amendments, Congress created its sister program, the Drinking
    Water State Revolving Fund, to provide a water infrastructure funding
    resource in perpetuity. To the extent that flexibility is available
    under these Amendments, Federal, State, local and tribal governments
    need to target those watersheds and projects that have the greatest
    impact on human health issues, sources of drinking water and ecosystem
    protection. Some 19 States use integrated planning and priority setting
    so that highest priority water quality problems are addressed first
    with Clean Water SRF funds. This integrated approach helps direct SRF
    funds toward projects with the greatest water quality benefit.
        The Safe Drinking Water Act Amendments of 1996 encourage a
    watershed approach to drinking water protection. As directed by the
    Amendments, each of the States has developed a Source Water Assessment
    Program which analyzes existing and potential threats to the quality of
    drinking water. States may use funds from the Drinking Water SRF to
    conduct source water assessment and protection activities including
    land acquisition and wellhead protection. Protecting drinking water
    sources from contamination in the first place has been shown to reduce
    costs significantly. An EPA study has shown that prevention can be up
    to 40 times more cost effective than remediating or finding new
    drinking water sources.\8\ Clearly, targeting our assistance to control
    nonpoint sources and protect source waters are promising ways of
    bringing down the costs of future infrastructure.
    ---------------------------------------------------------------------------
        \8\ EPA-813-B-95-005, Office of Water, Benefits and Costs of
    Prevention: Case Studies of Community Wellhead Protection--Volume I.
    1996.
    ---------------------------------------------------------------------------
        Watershed-based Permitting.--A number of States are adopting a
    State-wide watershed approach and I want to expand our efforts to
    assist those States. I have directed our Office of Wastewater
    Management to accelerate its efforts to support authorized States and
    regions to issue NPDES permits on a watershed basis. Integrating our
    NPDES permitting system into a community's watershed management plan,
    we will have more efficient and environmentally focused management.
        Watershed Trading.--Watersheds are ideal for experimenting with
    market-based incentives; and our Water Quality Trading Policy \9\
    released on January 13th of this year renews our efforts to pursue
    water-quality trading for nutrients, sediments and other pollutants to
    reduce the cost of compliance with water-quality based requirements.
    With this policy, we're supporting States and tribes in developing
    trading programs that meet the requirements of the Clean Water Act. A
    water quality ``credit'' could be created by reducing pollution loads
    beyond the level required by the most stringent technology requirement.
    For example, an unregulated landowner or a farmer could create credits
    by changing cropping practices and planting shrubs and trees next to a
    stream. A municipal wastewater treatment plant then could purchase and
    use these credits to meet water quality limits in its permit. Trading
    for TMDL (Total Maximum Daily Load) implementation offers particular
    promise for its water quality and economic benefits. Our policy
    supports trading among and between regulated and unregulated sources.
    ---------------------------------------------------------------------------
        \9\ EPA, Office of Water, Final Water Quality Trading Policy,
    January 13, 2003. Website: http://
    www.epa.gov/owow/watershed/trading/finalpolicy2003.html.
    ---------------------------------------------------------------------------
        In its analysis of the Clinton Administration's Clean Water
    Initiative, EPA concluded that the total potential savings from all
    types of trading range from $658 million to $7.5 billion annually.\10\
    A current example of a successful trading effort, between point sources
    only, can be found on Long Island Sound where nitrogen trading among
    publicly owned treatment works in Connecticut is expected to save over
    $200 million in control costs.
    ---------------------------------------------------------------------------
        \10\ EPA-800-R-94-002, Office of Water, President Clinton's Clean
    Water Initiative: Analysis of Benefits and Costs, March 1994.
    ---------------------------------------------------------------------------
        A study of three watersheds in Minnesota, Michigan and Wisconsin by
    the World Resources Institute (2000) \11\ found that the cost of
    reducing phosphorous from point sources, traditional pipe-in-the-water
    dischargers, was considerably higher than those based on trading
    between point and non-point, or diffuse, sources of runoff which are
    not regulated by the Clean Water Act. The estimates for point source
    controls ranged from $10.38 per pound of phosphorus in the Wisconsin
    watershed to $23.89 in the Michigan watershed. Using trading between
    point and non-point sources, these costs could be lowered to $5.95 per
    pound in Wisconsin, a reduction of over 40 percent, and to $4.04 in
    Michigan, a reduction of over 80 percent.
    ---------------------------------------------------------------------------
        \11\ Paul Faeth, Fertile Ground: Nutrient Trading's Potential to
    Cost-effectively Improve Water Quality, Washington, DC: World Resources
    Institute, 2000.
    ---------------------------------------------------------------------------
        Clearly, if we use some or all of these facets of the watershed
    approach--prioritizing, permitting or trading--we can more efficiently
    address clean water and drinking water needs.

    Conclusion
        In conclusion, I've suggested four broad directions that will help
    us meet future infrastructure needs: better management, smart water
    use, full cost pricing, and the watershed approach. I invite your
    thoughts on each of four parallel questions:
      --How can we manage better?
      --How can we foster smarter water use?
      --How can we use the price mechanism?
      --How can we use the watershed approach?
        My list is, by no means, all-inclusive; I offer it merely as a
    rough outline for our discussion here today, focusing on the innovative
    aspects of these concepts. I look forward to hearing your thoughts on
    these and other matters. Moreover, I look forward to working with all
    of you to ensure clean and safe water for the 21st century. Again,
    thank you for your contribution of time and expertise to this concerted
    effort to close the gap in America's investment in our water
    infrastructure.

                               HOMELAND SECURITY

        Senator Mikulski. Second, we have looked at homeland
    security and we know that this is a work in progress. Could you
    share with us how we can support EPA, not only for dealing with
    those terrible things like anthrax, but to help EPA help local
    communities with homeland security issues, whether it is water
    and sewer, water protection, or others? We know that they are
    going to turn to you for science, they are going to turn to you
    for expertise on contamination and they are going to turn to
    you for infrastructure protection.
        How can we help you in this appropriation cycle help our
    communities with homeland security? And I thank you for what
    you have already done.
        Ms. Whitman. Well, thank you. I will be happy to give you
    more detail on that for the record, but I do want to thank you
    and thank the committee for the support that you have given the
    Agency in our needs in meeting homeland security.
        We believe that the President's request in the fiscal year
    2004 budget will help EPA and will provide the Agency with what
    we need to be able to continue the outreach that we are doing
    to local communities and to strengthen our response. We have
    established a response, an emergency response team, out west so
    that we have a better distribution of our technology and we
    have provided additional training for ourselves.
        But we are working very closely with the Department of
    Homeland Security as appropriate and coordinating all that
    through them. So we do have additional dollars in this budget
    requested for homeland security. Your support of that obviously
    would be very much appreciated.
        Much of it, as you say, though, comes on an ad hoc basis.
    As people get into a problem, they suddenly look to the Agency.
    Thus far we have been able to meet their needs. We are very
    active in picking up the shuttle disaster debris and we are
    being reimbursed for that through FEMA. That normal process is
    working to date. So our needs are in our budget.
        [The information follows:]

                               Homeland Security

        The Environmental Protection Agency's fiscal year 2004 Annual Plan
    and Budget requests $123 million and 142 FTE to support the Agency's
    Homeland Security responsibilities in accordance with the Public Health
    Security and Bioterrorism Preparedness and Response Act of 2002, the
    National Strategy for Homeland Security, and Presidential Directives
    (PDD) 39, 62, 63. This request allows the Agency to continue providing
    leadership for the protection of the Nation's critical water
    infrastructure while upgrading and improving our emergency response
    capabilities. In addition, EPA will conduct research and provide
    guidance and technical support for Federal, State, local governments,
    and other institutions in the areas of building decontamination, water
    security, and rapid risk assessment.

                  PROTECT AMBIENT AND INDOOR AIR ENVIRONMENTS

        Monitoring ambient air plays an important role in detecting and
    responding to threats from potential terrorist actions. In fiscal year
    2004 the Agency is requesting $4.4 million for ambient and indoor air
    monitoring activities. With these resources EPA will enhance its
    capability to collect ambient air monitoring data for all Federal and
    State agencies with threat detection responsibilities. EPA will ensure
    that the Agency's monitoring expertise, standards, capabilities, and
    data will help our partners to detect terrorist threats. EPA will also
    develop mobile air laboratories to provide rapid response support to
    EPA's air monitoring for general population exposures and for
    coordination with local and State monitoring agencies on public health
    protection.
        In addition, the fiscal year 2004 requested resources will provide
    system improvements to prepare and respond to terrorist threats and
    other incidents. The Environmental Radiation Ambient Monitoring System
    (ERAMS) will be expanded and upgraded to increase its reliability and
    population coverage. A telemetry database will be improved to provide
    radiation data to Agency decision-makers and the public if a terrorist
    or other type of radiological incident occurs.

                PROTECT DRINKING WATER AND WASTEWATER FACILITIES

        Protecting critical water infrastructure (drinking water and
    wastewater utilities) from terrorist and other intentional acts will
    continue to be a high priority in fiscal year 2004. As a result, the
    Agency is requesting $32.3 million for critical water infrastructure
    protection in fiscal year 2004. In accordance with the requirements of
    the Public Health Security and Bioterrorism Emergency and Response Act
    of 2002 (hereafter referred to as the Bioterrorism Act of 2002),
    drinking water systems that provide water to more than 3,300 people, 90
    percent of the community water systems, will assess their vulnerability
    to terrorist or other intentional attacks, certify the completion of
    such vulnerability assessments, and submit copies of final
    vulnerability assessments to EPA for secure and confidential storage.
    Based upon the findings of the assessments the systems must prepare or
    revise their emergency response plans and certify to EPA that they met
    the requirement.
        EPA will focus on the approximately 8,000 medium community water
    systems that serve more than 3,300 but less than 100,000 people. These
    systems will conduct vulnerability assessments over the course of the
    year and prepare/revise emergency response plans in fiscal year 2004.
    The vulnerability assessment models and self assessment tools already
    previously used by large and very large drinking will be adapted to
    accommodate the medium systems. Wastewater systems, especially the some
    6,000 systems that serve more than 10,000 but fewer than 150,000
    people, will also conduct vulnerability assessments and develop or
    revise emergency response plans. Medium and small systems may not have
    sufficient technical capacity on hand to carry out the many activities
    related to vulnerability assessments and emergency response plans.
    Consequently, EPA, in collaboration with the States and stakeholders,
    will support the full menu of technical assistance and training
    approaches to ensure that a comprehensive vulnerability assessment and
    a robust emergency response plan have been achieved by all of these
    systems.

              PROMOTE SAFER CHEMICALS AND STRENGTHEN LABORATORIES

        As part of our preparedness efforts, EPA is requesting $2.3 million
    in fiscal year 2004 to promote safer chemicals and strengthen the State
    laboratory network. EPA is working with USDA to identify critical
    pesticides that could be needed to control exotic pests or threat
    agents in livestock, crops, and other food supplies. In addition, EPA
    has increased its lab capability to perform the necessary efficacy
    testing of decontamination products to address bioterrorism agents
    (e.g., anthrax) and to assist in the analyses of samples after
    remediation.
        A critical element of ensuring security for communities is the
    State laboratory network. Along with Federal and local partners,
    adequate State lab capacity is essential to ensuring timely response
    and clean-up of threat agents in America's communities. EPA has been
    working with HHS and other agencies to identify support for this vital
    link.

                       ENHANCE PREPAREDNESS AND RESPONSE

        In preparation for potential multiple terrorist events, the Agency
    has requested $27.9 million in funding for our emergency response
    capabilities. In addition to increasing our overall capacity, the
    Agency plans to form a specialized decontamination team to prepare for
    potential events involving chemical, biological, or radiological
    agents.
        Through the Chemical Emergency Preparedness and Prevention Office,
    the Agency works to provide local communities with information and
    tools to advance local chemical release preparedness and prevention.
    The Agency accomplishes this work primarily through State Emergency
    Response Commissions and Local Emergency Committees. Much of the work
    that communities can do to prepare for and prevent accidental chemical
    releases is relevant to community efforts to prepare and prevent
    deliberate chemical releases. Support for the Agency's ongoing chemical
    accident preparedness and prevention community outreach work will have
    a positive impact on community security needs.

                   COMMIT TO STRONG ENVIRONMENTAL ENFORCEMENT

        The Agency's Criminal Enforcement program has lead responsibility
    within EPA for coordinating law enforcement activities and delivering
    environmental crimes expertise necessary to support Federal, State,
    local, and tribal law enforcement homeland security planning and
    operational activities. In fiscal year 2004 the Agency has requested
    $3.8 million for these activities.

                           HOMELAND SECURITY RESEARCH

        The Agency has also requested $29 million for continued Homeland
    Security research. EPA will provide guidance, technical expertise and
    support to Federal, State and local governments and other institutions
    on building contamination (chemical and biological) prevention,
    treatment and clean up activities, water security, and rapid risk
    assessment. The goal of this research is to rapidly develop tools,
    technologies and guidance for use by water system authorities, building
    owners, public officials and emergency responders to prepare for and
    respond to potential attacks.
        EPA will also inventory Agency, Federal Government, and private
    sector expertise to provide quick access to nationally recognized,
    highly specialized experts in areas relevant to Homeland Security for
    more efficient emergency response efforts.

                   SAFEGUARD EPA PERSONNEL AND INFRASTRUCTURE

        The fiscal year 2004 request includes $19.3 million to enhance
    security background checks and improve the background investigation
    process for employees, contractors, and grantees as well as activities
    to support increased efforts on strengthening the Agency's physical
    infrastructure security. Since September 11, 2001, many programs and
    offices are re-evaluating position sensitivity designations and
    security levels for staff to determine if a higher security clearance
    is needed to adequately support Homeland Security efforts and
    preparedness for emergency responses. The additional recruitment of
    emergency response personnel and the creation of additional emergency
    response command posts will also increase the number of employees that
    must be processed by the personnel security staff.
        In addition, EPA is currently conducting physical security
    vulnerability risk assessments to develop a baseline on the physical
    security conditions of EPA's facilities. This includes gathering,
    assimilating and evaluating physical security data; identifying and
    documenting the security vulnerabilities, assessing human threat; and
    determining and prioritizing the qualitative risks.

                 ADVANCE INFORMATION SECURITY AND COMMUNICATION

        In fiscal year 2004 the Agency has requested $3.8 million to
    strengthen and increase the security of its information infrastructure.
    Accurate information about EPA-regulated facilities and areas of
    environmental interest is critical to EPA's ability to support homeland
    security efforts. The ability to identify and report on regulated
    facilities, their location and spatial coordinates, their materials,
    and their corporate ownership is an important piece of the homeland
    security picture. Part of the Agency's homeland security role is to
    deliver secure, reliable, and timely data access and communications to
    on-scene coordinators, emergency response teams, and investigators in
    the field.

        Senator Mikulski. God bless.
        Senator Bond. Thank you very much, Senator Mikulski.
        Senator Leahy.

                                 ELIZABETH MINE

        Senator Leahy. Thank you, Mr. Chairman.
        I am always interested in what you find out on anthrax and
    such issues. When I mentioned Elizabeth Mine earlier, Governor,
    in Thetford, Vermont, the reason why I was concerned, if it did
    breach, I am told there would be a flood wave 8 to 9 feet high
    traveling at a velocity of 10 to 15 feet per second and would
    wipe out homes, property, and of course psychological damage as
    far as the Connecticut River.
        So once a decision has been made on that--and again, I want
    to compliment your EPA people--please let us know, because
    there are a lot of apprehensive Vermonters.
        Ms. Whitman. This has been on the national priority list
    since 2001, and we are very focused on it, Senator. We will
    continue to work closely with you. We appreciate your focus on
    this.

                               MERCURY EMISSIONS

        Senator Leahy. Thank you.
        Governor, we talked about in the past the issues of
    mercury. I look at the report the EPA released--it was delayed
    for I think 8 months, but ``America's Children and the
    Environment''--and I see a serious risk to pregnant women and
    children from mercury exposure.
        Senator Snowe, Olympia Snowe of Maine, and I introduced a
    bill, the Omnibus Mercury Emissions Reduction Act, to control
    mercury emissions from coal-fired power plants and other
    sources. This would provide a tougher standard than the
    administration's Clear Skies proposal.
        An EPA report has estimated 29 tons of mercury emissions
    released per year from coal and oil-fired commercial and
    industrial boiler units. A lot of them are grandfathered in
    under the Clean Air Act and were supposed to have cleaned up
    their boilers by now and have not. EPA is not regulating these
    emissions.
        Within the mercury omnibus bill that we have suggested, it
    would require the EPA to set a maximum achievable control
    technology standard to reduce these emissions by at least 90
    percent. Why didn't EPA just go ahead and regulate these
    emissions? The reason I ask, so many of them are out in the
    Midwest, but they come down along the Atlantic seaboard--your
    own State, my State, Senator Snowe's State, and others.
        Ms. Whitman. Well, certainly, Senator, I am happy to answer
    that. First, just so that you are comfortable, there was not a
    delay. We were not holding back on the children's report. In
    fact, the children's health report that was recently released.
    There were a number of departments and agencies that were
    involved and it went through the normal process.
        But this was the first children's health report that
    mentioned mercury. In the previous one, there had been no
    mention of mercury. So this was a whole new field that we were
    getting into, and it clearly showed an area of concern. We have
    8 percent of women of childbearing age showing elevated levels
    of mercury.
        Senator Leahy. I had the impression that the report came
    out after the New York Times basically reported on the report.
        Ms. Whitman. The report was not held up. I do not remember
    exactly the sequence, whether the Times had written first, but
    they would not have written unless the report was just about to
    go because they would not have had it.
        But anyway----
        Senator Leahy. It happens.
        Ms. Whitman. Oh, it does happen.
        Senator Leahy. We had one of your colleagues before our
    committee, the Attorney General, who was explaining how there
    was no Patriot Act No. 2 because he had not specifically signed
    off on it. Unfortunately, the press had already reported and
    actually reprinted about 80 pages of it. But go ahead. It is
    not your Department.
        Ms. Whitman. It was a different agency. But anyway, it does
    mention it. It is important to note that we have, over the
    years, done a great deal on mercury. In fact, the Agency,
    through regulatory actions, has reduced by 90 percent the
    mercury emissions from municipal waste incineration and medical
    waste incineration, which has reduced that a significant
    amount, leaving now the utilities as the biggest emitters.
        We are in the process of establishing a mercury MACT. That
    process has started and as part of the regulatory process there
    are requirements to get the data.
        There was never any 90 percent required reductions
    established at any time. There has never been any other
    scientific backup yet to establish that. I know it has been
    said in the papers and in fact it has been implied that there
    was a statutory requirement to say that there should be a 90
    percent reduction. We have not set that MACT level yet. We do
    not know where it will come out. But we are moving forward to
    do that.
        However, the best way to get the fastest reduction we
    believe is through Clear Skies, which would require a mandatory
    reduction. If the Congress sets those levels, there is not the
    same recourse to lawsuit that slows up the actual
    implementation.
        We are to put out a preliminary number in December on the
    mercury MACT. We are on track to do that. It then would go
    final in 2004 and it would not be enforceable until 2007, and
    that is without any lawsuits. You know that we will probably be
    sued by both sides on something as controversial as this.
        We believe reducing power plant mercury emissions is a very
    important issue. We believe it is an issue that we need to get
    at. That is why it is included as a major part of the Clear
    Skies legislation, as the best way to ensure that we get an
    immediate reduction. We are, however, continuing as we go
    forward on the mercury MACT to do additional studies on fish
    tissue. It will be the most comprehensive that the Agency has
    done, done in order to better understand pathways, both on how
    fish bioaccumulate mercury and how that may get into the
    bloodstream of people who eat the fish.
        So we are being very active on mercury and we will continue
    to be active on mercury. It is an issue that we think is of
    immense importance.
        Senator Leahy. Thank you, Mr. Chairman. I will submit--I am
    sure the Governor will expect this--follow-up questions on
    this, especially the subject that I want to share some of the
    answers on with Senator Snowe. Thank you, and thank you, Mr.
    Chairman.

                         SUPERFUND--PRESIDENT'S REQUEST

        Senator Bond. Thank you very much, Senator Leahy. We have
    got some questions on mercury as well, on a different problem.
        Let me just clean up a few questions here. Superfund: EPA
    requests a $125 million increase for Superfund while we are
    cutting the Clean Water SRF. What is happening in the Superfund
    account that makes it more important? What is happening with
    the expiration of the taxes? Are you collecting money from
    responsible parties? Please give us a quick update on the
    Superfund status.
        Ms. Whitman. Certainly. Well, Senator, as you know, the
    Superfund sites represent the most problematic and they
    represent those sites that pose the greatest and most imminent
    threat to public health and/or the environment. They really do
    require immediate attention. The additional dollars that we
    have asked for will enable us to begin another 10 to 15 sites
    in the coming year, to begin work on sites that we believe are
    in need of serious immediate attention.
        We continue to go for polluter pays. In fact, last year 71
    percent of the sites were paid for by the responsible parties.
    But as you know--and this has been traditional over the history
    of the Superfund--there are usually about 30 percent of the
    sites for which there is either no responsible party because
    they have gone out of business or we cannot identify them, and
    those have been paid for traditionally through the Superfund
    trust fund.
        That trust fund, because the tax has not been reauthorized
    in a number of years, is diminishing. We are assuring that we
    keep the program moving forward at a healthy rate by including
    additional dollars from general revenues.

                              TMDL--STATUS OF RULE

        Senator Bond. Thank you. I would say that some of our water
    needs also are critically important. Let me turn to TMDLs. We
    are hearing from the States a lack of ability to implement the
    TMDLs because of controversies on costs and burdens. EPA has
    delayed issuing the new TMDL rule until after May 2003.
        What are the primary issues that you are having trouble
    addressing and what is the status of the rule?
        Ms. Whitman. Right now we have repealed the 2000 rule that
    was promulgated under the previous administration because of
    extraordinary difficulties. Almost everyone agreed that the
    ability to----
        Senator Bond. I would agree with that. I would agree with
    that myself.
        Ms. Whitman. It was extremely difficult. We are continuing
    to move forward in establishing TMDLs. That is, they are
    continuing to happen. There has been no let-up on that. We are
    now looking at all the existing regulations that have been
    approved. We approved 6,000 TMDLs in the last 2 years.
        But we are trying now to make a decision. We are looking at
    whether or not we need to put out an additional regulation or
    not. We have told the regions to continue to work with the
    States under the current TMDL program, which, as I said, is
    continuing to work in an ongoing way to approve TMDLs.
        We issued guidance on approving the list and coordination
    of TMDLs. But we are working very closely with the States and
    with the local governments to improve those qualities and
    ensure that we can continue to achieve the water quality goals
    while at the same time determining whether or not we need to
    issue new regulations.

                            CAFO RULE IMPLEMENTATION

        Senator Bond. Thank you.
        Let me turn now to confined animal feeding operations, what
    we affectionately know as ``CAFO.'' The rules become effective
    April 14th. They require CAFOs have to develop nutrient
    management plans. It is going to affect some 15,500 livestock
    operations. I am concerned. The GAO report says neither EPA nor
    the States are equipped to implement the program. How are you
    responding to that?
        Ms. Whitman. Well, the CAFO rule is one that I think shows
    a model of cooperation. We worked very, very closely with the
    Department of Agriculture in establishing these CAFOs in a way
    that recognized the burden that they put on the farmer and the
    operator of these facilities, but at the same time recognized
    the enormous importance of protecting the water supplies and
    the water in those areas.
        We are continuing to work with the Department of
    Agriculture to identify dollars to help with the
    implementation, to work with the States to ensure that they can
    meet the needs, that they will be able to do this. Since we are
    being sued by both the Farm Bureau and the environmentalists,
    we feel we are probably right where we need to be, because we
    are getting it from both sides.
        Senator Bond. Well, as I understand they are both sullen
    but not rebellious, which is I guess the greatest achievement
    one can hope in dealing with something like this.
        I do want to ask that you look at the problems in Christian
    County, Missouri, basically that somebody would get back to us
    on that and see what we can do.
        Speaking of water----
        Ms. Whitman. Senator, I have one piece of information. I
    think the State attorney general is bringing suit against the
    responsible parties there now, but we will continue to look at
    it from an environmental point of view.

                             SRFS--STATE PRIORITIES

        Senator Bond. Suits are fine, but I have never seen a court
    clean up a stinkhole yet. It requires somebody doing the work.
    Lawsuits are great. I used to be a lawyer. But it does not get
    your hands dirty. I want to figure out who is going to get
    their hands dirty to clean it up.
        Does EPA review the State decisions on SRFs to ensure that
    communities with greatest needs are getting needed funds?
        Ms. Whitman. We do not review the States' priority lists.
    We do reviews to make sure that the dollars are reaching
    communities and that they are being spent as they were meant to
    be spent. But as far as prioritizing which community is the
    neediest within a State, that is the priority and prerogative
    of the State.

                          ST. LOUIS--ATTAINMENT STATUS

        Senator Bond. The 11-hour ozone containment date is of some
    concern for St. Louis. On July 26th of 2001, EPA granted St.
    Louis additional time to meet the 1-hour standard and EPA made
    the determination that regional transport was the only way you
    could solve it.
        On November 25 of last year, the U.S. Court of Appeals for
    the Seventh Circuit ruled, and of course all St. Louis is all
    in the Eighth Circuit, so we are a little concerned about why
    the Seventh Circuit was in there, even though it is downwind.
    They remanded the case to EPA to bump up the designation from
    moderate to serious.
        However, St. Louis I think can avoid the additional
    measures because St. Louis is now meeting the 1-hour standard.
    It has been improving since 1991. We will know for certain soon
    if they have met the standard for the 2000 to 2002 data. There
    are other options regarding area redesignations.
        What is the current status of St. Louis' CAA
    classification?
        Ms. Whitman. The current status is that we did have to
    issue that notification of the bump-up. But also, at the same
    time, we have moved forward with the new data that we had
    received that shows that in fact St. Louis is in attainment. We
    expect to take final action to redesignate 3 to 4 months from
    now unless we get some unusual comment back on it. It is out
    there for comment, which is what usually gets us the lawsuits
    that end up on this situation.
        But we are very comfortable with the actions that St. Louis
    has taken and that the data will support and show that it is in
    fact in attainment for this standard, and we are continuing to
    work with the State and we are working with all States on the
    new standards that will come into effect.
        Senator Bond. Thank you very much, Madam Administrator. We
    appreciate the fact that you are staying on to make sure that
    the air is clean and also once they do that they do not suffer
    inappropriate penalties. We want the air cleaned up and we do
    not want the economy killed, and if we can move forward on both
    of them. We appreciate your good work.

                         ADDITIONAL COMMITTEE QUESTIONS

        I will have a number of questions for the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Agency for response subsequent to the
    hearing:]
               Questions Submitted by Senator Christopher S. Bond

                           CLEAN WATER SRF: REDUCTION

        Question. How does the Environmental Protection Agency (EPA)
    justify this reduction in funding for the Clean Water SRF?
        Answer. In 1997, the Federal Government promised to help States
    establish a $2 billion projected long-term target annual revolving
    level for building new wastewater treatment plants and other
    infrastructure to keep our waters clean. With the funding appropriated
    by Congress to date, the $2 billion goal has been reached and, in fact,
    exceeded. The fiscal year 2004 budget request expands this commitment
    from $2 billion to $2.8 billion, an increase of 40 percent. This level
    of funding is achieved by an appropriation of $850 million a year from
    fiscal year 2004 through fiscal year 2011. Administration analyses
    using historical information indicate that, by extending Federal
    capitalization of the CWSRF program through 2011 at $850 million per
    year, the President's proposal is projected to increase SRF loan
    assistance by $21 billion in 20 years, equivalent to the 20-year
    additional need identified by the Clean Water and Drinking Water Gap
    Analysis Report. By also utilizing other Federal, State and local
    sources of funding and improved management practices, we believe the
    infrastructure gap can be eliminated.
        With the $800 million increase in the revolving level, States will
    be able to fund nearly 600 more projects each year on a long-term
    basis. In addition to funding more publicly financed projects, EPA will
    continue to focus on ways to utilize private funds to clean waterways
    by encouraging privatization and promoting technology innovation while
    maintaining affordability for consumers.

                           WATER INFRASTRUCTURE NEEDS

        Question. Is there some point in time where we can expect to meet
    our water infrastructure needs? What should be the State role? What
    should be the Federal role?
        Answer. The needs continue to change due to demographic pressures,
    aging infrastructure and new treatment requirements. Generally, it is
    the responsibility of local governments to pay for drinking water
    supply and wastewater disposal. However, Federal programs, including
    the Drinking Water SRF, established by the Safe Drinking Water Act
    (SDWA) and the Clean Water SRF established by the Clean Water Act (CWA)
    help local governments meet the costs of abiding by water quality
    standards and cleaning up waterways.
        The Federal Government and States work together through these
    programs to encourage investment in water and wastewater infrastructure
    that mitigates public health threats and creates sustainable water and
    wastewater treatment systems. Through Federal, State and local
    partnerships, EPA supports affordable, cost-based rate structures and
    encourages technology innovation, smart water use, and watershed-based
    decisionmaking. EPA is pursuing innovative ideas such as watershed-
    based trading and sustainable management systems. Together, these
    efforts will meet water and wastewater infrastructure needs and, more
    importantly, will help assure safe and clean water for the Nation.

                           CSO AND SSO INFRASTRUCTURE

        Question. A total of 772 municipalities have combined sewers where
    domestic sanitary sewage, industrial wastes, infiltration from
    groundwater and storm water are collected. These systems serve some 40
    million persons, mostly in older and coastal cities. However, many of
    these systems are becoming overloaded and need to be rebuilt or
    reconstructed.
        What is the cost to address these infrastructure needs and how
    should these needs be paid for?
        Answer. In its 1996 Clean Water Needs Survey Report, EPA reported
    that the estimated national costs to control combined sewer overflows
    was $44.7 billion ($49.6 billion in 2000 dollars). These costs are
    based on controlling CSOs to a level of 4 to 6 untreated overflows
    annually.
        Communities that need to control CSOs can apply for low-interest
    loans under the Clean Water State Revolving Fund. Other sources of
    funding are bonds, loans, grants and privatization. More information on
    the available sources of funding is presented in Combined Sewer
    Overflows: Guidance For Funding Options (EPA 832-B-95-007, August
    1995).

                    CSO AND SSO INFRASTRUCTURE: U.S. CITIES

        Question. What are the estimated needs for the U.S. Cities with the
    50 highest populations? Are there individual plans in place for each of
    these cities and what is the status of these plans?
        Answer. The attached table lists, in descending order, the 47 CSO
    municipalities with the largest populations. The table presents the
    status of the municipalities' efforts to develop and implement long-
    term control plans (LTCP) for controlling their CSOs. The last column
    of the table, ``Controls Outside LTCP?'', identifies those
    municipalities that developed control plans that predate EPA's 1994 CSO
    Control Policy or have included CSO control measures in other
    wastewater facility plans.
        To develop this table we cross-checked our list of the largest CSO
    municipalities developing LTCPs against the data and information
    collected for the 2000 Clean Watersheds Needs Survey. Forty-seven
    communities appeared in both databases. The estimated cost for these
    communities to control their CSOs is approximately $29 billion (2000
    dollars). These costs are based on controlling CSOs to a level of 4 to
    6 untreated overflows annually.

                       ARSENIC STANDARD: EPA FACILITATION

        Question. What steps is EPA taking to ensure that communities with
    water that exceeds the current standards for arsenic will be able to
    convert and rebuild their water systems to meet these requirements?
        Answer. Following the promulgation of the revised arsenic standard
    in January 2001, EPA has implemented a comprehensive strategy to ensure
    that communities can meet the new standard. This strategy is designed
    to: (1) enhance small systems' access to financial assistance; (2) fund
    the research, development, testing and implementation of effective,
    practical, and affordable treatment technologies to reduce compliance
    costs for drinking water systems affected by the revised standard; (3)
    provide Federal technical assistance and training on the new arsenic
    regulation to small community water systems; and, (4) use a variety of
    approaches to inform communities of their treatment options, and how
    and where to get help building their technical, managerial and
    financial capacity.
        A key component of the Agency's support for small systems is to
    work with our State partners to maximize the availability of financial
    assistance under the Drinking Water State Revolving Fund (DWSRF)
    program. Through the DWSRF program, States may offer principal
    forgiveness, reduced interest rates, or extended loan terms to systems
    identified by the State as serving disadvantaged communities. States
    also have the ability to set aside a portion of their Federal DWSRF
    allocation for technical assistance to small community water systems
    affected by the new arsenic rule. As of June 30, 2002, 74 percent of
    all DWSRF loan agreements, totaling just over $2 billion, have been
    allocated to small systems serving 10,000 or fewer consumers.
        In addition to maximizing the availability of DWSRF funds for
    infrastructure improvement loans and technical assistance, EPA and the
    U.S. Department of Agriculture (USDA) signed a 4-year Memorandum of
    Agreement (MOA) in 2002, under which USDA's Rural Utilities Service
    (RUS) will identify as high funding priorities projects that assist
    small communities in complying with the revised arsenic standard for
    drinking water. Likewise, EPA will strongly encourage State agencies
    administering the DWSRF to coordinate loan funding decisions with RUS
    through Rural Development State staff. Further, under this agreement
    both agencies will make providing technical assistance resources to
    small systems a top priority.
        Fiscal year 2003 is the second year of EPA's 2-year, $20 million
    research and development program to identify more cost effective
    technologies to help small systems comply with the new arsenic
    standard. Also in fiscal year 2003, Congress directed EPA to utilize $5
    million in additional funds to carry out demonstrations of low-cost
    arsenic removal technologies. With this overall funding, the Agency
    anticipates that some 26-32 demonstrations will be conducted at small
    water utilities with arsenic problems under the research program. EPA
    also is verifying the performance of arsenic treatment technologies
    under the Environmental Technology Verification Program to provide
    small utilities information to select technologies appropriate for
    their water quality problem.
        Further, the Agency will continue its ongoing work with States to
    take full advantage of the suite of tools that the Safe Drinking Water
    Act (SDWA) provides to help small systems achieve compliance with the
    new arsenic standard. For example, EPA is phasing in the arsenic rule
    over a longer time-period by encouraging States to use the exemption
    authority provided by the SDWA. Under this authority, States can give
    eligible small systems (those serving fewer than 3,300 people) up to an
    additional 9 years to come into compliance, and allow Point-of-Use
    devices as a treatment option for very small systems.
        Finally, EPA has provided arsenic implementation guidance to State
    regulators, and made fact sheets, plain language guidance documents,
    and technology assistance manuals available to the public. This
    guidance is available both in printed form and electronically at EPA's
    web site, at the National Drinking Water Clearinghouse, and through the
    Local Government Environmental Assistance Network.

                                  ARSENIC COST

        Question. What is the estimated cost per State to meet the
    infrastructure requirements of these new standards (i.e. Arsenic)?
        Answer. EPA did not develop a State-by-State cost analysis for the
    arsenic rule. Instead, the Agency developed national cost estimates
    based on arsenic occurrence data from 25 States. EPA used these
    occurrence data to make projections for the number of systems that
    exceed 10  g/L. To make those projections, EPA had to make estimates
    for the 25 States that did not provide occurrence data by using data
    from neighboring States. Because EPA did not have complete data for
    each State, it is not possible to provide an estimated cost per State
    to meet the infrastructure requirements of the new standard.
        Also, a key component of EPA's approach to developing a national
    cost estimate is the compliance forecast, which assigns treatment
    technologies to systems projected to exceed the revised MCL based on
    water quality considerations, system size, and other factors that vary
    significantly by State. There are significant differences in costs
    between ion exchange, activated alumina, and membrane (filtering)
    arsenic treatment technologies. For example, for all but the smallest
    of systems, the cost of disposable activated alumina technology is
    relatively inexpensive compared to other treatment technologies.
    Further, the 2001 arsenic rule allows small systems to comply with the
    standard using a centrally managed Point-of-Use (POU) technology,
    either reverse osmosis or activated alumina units.
        And since January 2001, a number of additional technologies have
    been identified that may be even more cost effective, such as iron-
    based adsorptive media, that have demonstrated superior performance in
    removing arsenic in water supplies over a range of water quality
    conditions. The State of Arizona has evaluated these technologies and
    has determined that iron-based media are the lowest cost alternatives
    for many of their systems that must comply with the new arsenic
    standard. These results suggest that the 2001 estimate of the
    infrastructure costs may be overstated, and that any estimate of costs
    per State must take into account improvements in arsenic removal
    technologies.

                        ARSENIC COST: RURAL COMMUNITIES

        Question. Please identify the cost for rural communities (those
    with populations of 20,000 or less)? What is the basis for the
    information requested in these questions?
        Answer. While EPA's capital cost estimates do not break out the
    costs for a category of community water systems serving 10,001-20,000,
    the Agency has estimated costs for those systems serving 10,000 or
    fewer, defined as ``small'' under the Safe Drinking Water Act (SDWA).
    The three small system size categories include those serving: (1) a
    population of 10,000 or fewer but more than 3,300; (2) a population of
    3,300 or fewer but more than 500; and (3) a population of 500 or fewer
    but more than 25. The following table lists the capital costs (cost to
    install treatment technology to comply with the revised arsenic
    standard) for each small system category:

    ------------------------------------------------------------------------
                                                               Capital cost
                          Size category                             ($)
    ------------------------------------------------------------------------
    25-500..................................................      53,000,000
    501-3,300...............................................     165,000,000
    3,301-10,000............................................     133,000,000
                                                             ---------------
          TOTAL.............................................     351,000,000
    ------------------------------------------------------------------------

        The source for these capital cost estimates is the December 2000
    ``Arsenic in Drinking Water Rule Economic Analysis.'' The validity of
    the Agency's approach to estimating these costs was supported by the
    independent National Drinking Water Advisory Council in the Fall of
    2001 as part of the Agency's comprehensive review of the science and
    cost data underlying the January 2001 rule.
        As noted above, there are a number of new technologies that have
    come into the marketplace since the arsenic rule was promulgated in
    January 2001. These technologies appear to be more cost-effective than
    some of the technologies identified in the rule, and thus would likely
    result in lower capital costs than those presented in the table.

                           AGING WATER INFRASTRUCTURE

        Question. How should we prioritize the funding needs in the Nation?
    For example, what do we do about the aging and obsolete water
    infrastructure, which is a concern of many cities and communities in
    the East and Midwest?
        Answer. The Agency believes that the touchstone of a long-term
    strategy to close the infrastructure gap should be fiscal
    sustainability. Several basic principles should guide our pursuit of
    fiscal sustainability, including:
      --Utilizing the private sector and existing programs.--Fostering
            greater private sector involvement and encouraging integrated
            use of all local, State, and Federal sources for infrastructure
            financing.
      --Promoting sustainable systems.--Ensuring the technical, financial,
            and managerial capacity of water and wastewater systems, and
            creating incentives for service providers to avoid future gaps
            by adopting best management practices to improve efficiency and
            economies of scale, and reducing the average cost of service
            for providers.
      --Encouraging cost-based and affordable rates.--Encouraging rate
            structures that cover costs and more fully reflect the cost of
            service, while fostering affordable water and wastewater
            service for low-income families.
      --Promoting technology innovation.--Creating incentives to support
            research, development, and the use of innovative technologies
            for improved services at lower life-cycle costs.
      --Promoting smart water use.--Encouraging States and service
            providers to adopt holistic strategies to manage water on a
            sustainable basis, including a greater emphasis on options for
            reuse and conservation, efficient nonstructural approaches, and
            coordination with State, regional, and local planning.
      --Promoting watershed-based decision-making.--Encouraging States and
            local communities to look at water quality problems and
            drinking water source water protection on a watershed scale and
            to direct funding to the highest priority projects needed to
            protect public health and the environment.
                 prioritizing water needs with arsenic standard
        Question. How do we prioritize these funding needs with new
    infrastructure requirements, which have been created by the new arsenic
    standards?
        Answer. State DWSRF programs prioritize infrastructure funding
    needs according to SDWA Section 1452 criteria and the amounts and types
    of contaminants occurring in their drinking water supplies. With
    respect to the January 2001 arsenic in drinking water standard, EPA has
    taken several steps to help the 4,100 community and non-transient, non-
    community systems that must install arsenic removal technologies comply
    with the revised standard. These steps include: (1) enhancing small
    systems' access to financial assistance; (2) funding the research,
    development, testing and implementation of effective, practical, and
    affordable treatment technologies to reduce compliance costs for
    drinking water systems affected by the revised standard; (3) providing
    Federal technical assistance and training on the new arsenic regulation
    to small community water systems; and, (4) using a variety of
    approaches to inform communities of their treatment options, and how
    and where to get help building their technical, managerial and
    financial capacity.

                    SUPERFUND FUNDING: VERSUS CWSRF FUNDING

        Question. What is the justification for this increase as opposed to
    including this additional funding in the Clean Water SRF?
        Answer. EPA has been cleaning up ``orphan'' sites for more than 20
    years. Now that well over half of the sites on the NPL are construction
    complete, many of the most difficult sites remain and these will be
    more challenging and expensive to cleanup. Recognizing this, the
    administration has proposed a $150 million increase for remedial
    action. The immediate benefit in fiscal year 2004 will be the ability
    to initiate an additional 10 to 15 new remedial action projects that
    would have to wait longer for cleanup otherwise. With the support of
    these additional resources, EPA will increase the number of sites where
    potential human exposures and the migration of contaminated groundwater
    are under control, which can help reduce the exposure of people living
    and working in the immediate vicinity of the sites to site
    contaminants.

                     SUPERFUND FUNDING: RESPONSIBLE PARTIES

        Question. While it is not clear that these taxes result in the cost
    of clean-up being paid for by the responsible parties, what is EPA
    doing to collect the cost of these clean-ups from the responsible
    parties and how much funding is collected each year?
        Answer. The administration remains strongly committed to the
    ``Polluter Pays'' principle. EPA has been very successful in getting
    responsible parties to clean up a majority of the Nation's worst
    hazardous waste sites (approximately 70 percent over the past several
    years), preserving fund monies for sites where there are no viable
    responsible parties. In instances where settlements cannot be reached,
    EPA prefers to issue unilateral administrative orders (UAOs) instead
    undertaking a fund-lead clean-up. Over the past 3 years, an average of
    24 percent of clean-up agreements reached with responsible parties have
    been the result of EPA issuing UAOs. The cumulative value of private
    party commitments for clean-up and cost recoveries is approximately
    $20.6 billion, $627 million during fiscal year 2002 alone. Since the
    inception of the Superfund program, EPA has achieved $8 in private
    party commitments for every $1 spent on Superfund enforcement.

                         SUPERFUND FUNDING: RECOVERIES

        Question. What has been the amount of recoveries over the last few
    years and what are the projected recoveries for the next few years?
        Answer. Over the past 3 years collections have averaged
    approximately $227,000,000. Recent rates indicate the fiscal year 2004
    budget estimates of $175,000,000 is a conservative estimate.
        Actual collections between fiscal year 1997 and fiscal year 2002
    and estimates for fiscal year 2003 and fiscal year 2004 are as follows:

    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Fiscal year 1997........................................    $313,300,000
    Fiscal year 1998........................................     319,600,000
    Fiscal year 1999........................................     319,700,000
    Fiscal year 2000........................................     230,500,000
    Fiscal year 2001........................................     202,100,000
    Fiscal year 2002........................................     248,300,000
    Fiscal year 2003 est....................................     175,000,000
    Fiscal year 2004 est....................................     175,000,000
    ------------------------------------------------------------------------

                            SUPERFUND: STATE CONTROL

        Question. I understand that some States are pushing for greater
    control over the Superfund program. To what extent [do you] to support
    this approach and what are the pluses and minuses to greater State
    control?
        Answer. EPA Superfund is not aware of any current activity by
    States pushing for greater control over the Superfund program. The
    inception of Governor's letters to support listing on the NPL by States
    and a multitude of work-sharing agreements between EPA Regions and
    States has led to cooperative and less adversarial relationships, which
    are generally beneficial to site-cleanup. EPA's impression is that, in
    general, the States consider their degree of involvement and control is
    appropriate, especially considering their resource constraints in
    dealing with contaminated waste sites.

                               NEW SOURCE REVIEW

        Question. While the New Source Review rules were only recently
    issued on December 31, 2002, what benchmarks will EPA use to measure
    the success of the program?
        Answer. The New Source Review Program is one part of a State's
    overall plan to achieve or maintain attainment. Accordingly, the
    overall measure of success for the program is whether it is working
    collectively with other Clean Air Act programs to assure that
    nonattainment areas reach attainment, and that attainment and
    unclassifiable areas see no significant degradation in ambient air
    quality. Other measures for the program include whether the program is
    creating barriers to environmental improvement or the right incentives
    for such improvements, the level of resource burden it imposes for
    implementation on all parties, and how the public is involved in the
    process of issuing permits. Congress recently directed the National
    Academy of Science to conduct a study regarding the effectiveness of
    the recent improvement made to the NSR program. We plan to use this
    study and other measures as a starting point for evaluating future
    approaches for measuring the long-term success of the program.

        NEW SOURCE REVIEW IMPROVEMENT RULES: PETITIONS FOR REVIEW FILED

        Question. I understand that on the day the new regulations were
    issued some 9 northeastern States filed a lawsuit to block
    implementation of the new changes. What is the status of the lawsuit
    and what is the basis of the lawsuit?
        Answer. On December 31, 2002, the day the final New Source Review
    Improvement rules were published in the Federal Register, 9
    northeastern States filed a petition for review of those rules in the
    United States Court of Appeals for the District of Columbia Circuit.
    Since then, a number of additional petitions for review have been filed
    by additional State and local governments, environmental groups, and
    industry groups, for a total of 19 petitions for review. In addition, 9
    States and a number of industry groups have intervened on EPA's behalf
    against the State and environmental petitioners, and most of the State
    and environmental petitioners have intervened on EPA's behalf against
    the industrial petitioners. The State petitioners filed a motion for a
    stay of the effectiveness of the final rules pending the outcome of the
    litigation. EPA opposed this motion, and the court denied it on March
    6, 2003, while at the same time ruling that the case met the criteria
    for expedited consideration.
        Until the briefs of the parties are filed, we will not know
    precisely which issues they intend to raise. However, the parties have
    filed non-binding statements of issues, and we are enclosing copies of
    all such statements that we have received to date.

                            MTBE CONTAMINATION ISSUE

        Question. As you know, under the Clean Air Act Amendments of 1990,
    numerous areas with poor air quality standards were required to add
    ``oxygenates'' to gasoline as a way to improve combustion and reduce
    emissions. The most commonly used oxygenate was MTBE. However, there
    has been significant controversy over the use of MTBE over the last few
    years, fueled by concerns that MTBE is contaminating groundwater,
    especially in California. What is the current status of this issue?
        Answer. Although MTBE is a high quality blending component of
    gasoline, significant concern persists about its contamination of
    drinking water in many areas of the country. Most MTBE contamination is
    the result of leaks from underground storage tanks (USTs), but some
    contamination has resulted from fuel spills. We now know that MTBE, if
    leaked or spilled, can contaminate water supplies more readily than
    other components of gasoline. Public concern has focused on the issues
    of taste and odor associated with MTBE contamination. Current data on
    MTBE in ground and surface waters indicate numerous detections of MTBE
    at low levels that may affect taste and odor of drinking water. Some
    contamination has resulted in closure of both public and private wells.
    EPA is conducting research to determine potential effects of MTBE
    exposure to susceptible populations as well as evaluation of treatment
    technologies.
        EPA and the States are working together to prevent future releases
    from USTs by identifying causes of releases and educating owners and
    operators about properly maintaining their UST systems to prevent
    future leaks.
        MTBE can be a major impediment to completing LUST cleanups because
    it is complex, costly, and time-consuming to remediate. A national
    survey of leaking underground storage tank (LUST) State programs found
    that 23 States report MTBE contamination at more than 60 percent of all
    LUST sites. This survey is undergoing an update to include data on
    other fuel oxygenates. EPA has provided over $5 million in assistance
    to States with significant MTBE contamination. Information from these
    State pilots will be shared with other regulators, responsible parties
    and communities faced with similar problems to promote efficient use of
    resources and to reduce duplication of effort.
        Additionally, EPA provides approximately 81 percent of its LUST
    Trust Fund annual appropriation to the States to address contamination
    from leaking USTs. Collectively, States use approximately $1 billion
    each year from their own revenues to address MTBE and other petroleum
    contamination. EPA will continue to assess the impact of MTBE
    contamination on the cost and duration of cleanup efforts. This
    assessment will enable the Agency to more effectively address the
    complex nature of groundwater and MTBE contamination cleanup efforts.
        As a result of existing MTBE contamination and the potential for
    future occurrences, 17 States have taken action to ban the use of MTBE
    as a gasoline additive in the future. Over the next year, MTBE bans go
    into effect in the States of California, Connecticut and New York. At
    least 6 additional States are considering similar bans. At the Federal
    level, EPA published an Advance Notice of Proposed Rulemaking in 2000
    requesting comments on a phase down or phase out of MTBE from gasoline
    under Section 6 of the Toxic Substances Control Act (TSCA). While the
    Clean Air Act allows for MTBE to be used as a fuel additive, TSCA is
    the only administrative mechanism available to EPA for limiting or
    eliminating the use of MTBE. TSCA gives EPA authority to ban, phase
    out, limit or control the manufacture of any chemical substance deemed
    to pose an unreasonable risk to public health or the environment. But
    the TSCA process is cumbersome and lengthy at best.

                                      TMDL

        Question. The Clean Water Act requires States to identify
    pollution-impaired water and develop ``total maximum daily loads'' that
    set the maximum amount of pollution that a water body can receive
    without violating water quality standards. Unfortunately, States lack
    the ability to effectively implement TMDLs and because of a number of
    controversies concerns costs and burdens, EPA has delayed issuing a new
    TMDL rule until after May 2003.
        What is the status of this rule and what are the primary issues
    that EPA is attempting to address?
        Answer. The Agency has prepared a draft proposal which is
    undergoing an informal review at OMB in order to determine what
    significant issues this proposal may pose for other Federal agencies.
    At the end of this process, the Agency will make a determination
    whether to go forward with the rulemaking or rely on additional
    guidance to continue shaping the TMDL program.
        The primary issues the Agency is attempting to address are:
      --How to improve monitoring and increase scientific rigor of water
            quality standards attainment determination;
      --How to facilitate trading and enhance locally driven watershed
            efforts; and
      --How to improve and streamline State water quality management
            planning processes to ensure that TMDLs are integrated with
            other all water program activities and result in water quality
            improvement.

                     CONCENTRATED ANIMAL FEEDING OPERATIONS

        Question. EPA issued final, revised CAFO rules on December 16,
    2002. The final rules, effective April 14, 2003, will require CAFOs to
    develop nutrient management plans that are intended to keep livestock
    waste from entering nearby waters. The new rule will apply to some
    15,500 livestock operations across the country. A recent GAO report
    concluded that neither the EPA nor the States are equipped to implement
    this program. What is the EPA doing to respond to the GAO concerns?
        Answer. The Agency is developing a comprehensive national
    implementation plan that ensures the new regulations are effectively
    implemented and enforced by EPA and the States. The plan is a
    comprehensive strategy that addresses key goals including communication
    and outreach, development of supplemental implementation guidance,
    revision of State programs, permit issuance, compliance assistance and
    enforcement. We are working in close partnership with our Regions and
    States as we develop this plan. We also expect that many elements of
    our implementation plan will be coordinated and integrated with efforts
    by United States Department of Agriculture (USDA), particularly with
    respect to tool development, technical support, and funding. A key part
    of this implementation plan will be the expectation that EPA Regions
    work closely with each of the States to develop a corresponding plan
    that includes activities and milestones to ensure that States revise
    their Concentrated Animal Feeding Operations programs and carry out the
    needed permitting, inspection and enforcement activities.

                             NEW CORN PEST CONTROL

        Question. On February 25, 2003, EPA approved the use of a new
    genetically engineered corn developed by Monsanto. This new corn
    includes a gene from a soil bacteria that allows the roots to secrete a
    protein that kills the corn rootworm, the crop's number one pest. This
    is an important initiative. What other genetically engineered crops are
    being considered for approval by EPA?
        Answer. The Environmental Protection Agency (EPA) regulates the
    pesticide produced by genetically engineered crops such as the
    insecticidal protein that controls the corn rootworm. Besides the
    product developed by Monsanto, other insecticidal proteins to control
    corn rootworm are being developed and tested by Dow AgroSciences
    (Mycogen Seeds) and Dupont (Pioneer Seeds). Monsanto also is testing a
    new variety of its corn rootworm product. Dow AgroSciences has a new
    variety of its corn borer control product being tested under an
    Experimental Use Permit which was just issued. Dow is also testing a
    new product to control tobacco budworm, bollworms, and other pests in
    cotton and Syngenta has applied for an Experimental Use Permit for a
    new type of insecticidal protein for use in cotton to control several
    important pests. There is also an Experimental Use Permit for an
    insecticidal protein in tomatoes. This protein is already registered
    and has a tolerance exemption for use in all crops.

               APPROVAL PROCESS FOR GENETICALLY ENGINEERED CROPS

        Question. What is the process for EPA to consider and approve a new
    genetically engineered crop?
        Answer. The Environmental Protection Agency (EPA), the U.S.
    Department of Agriculture (USDA), and the Food and Drug Administration
    (FDA) have shared responsibility for regulating agricultural
    biotechnology in the United States. EPA regulates the pesticidal
    component of genetically engineered crops, called plant-incorporated
    protectants or PIPs. These pesticides created through biotechnology are
    addressed through the agency's regulatory jurisdiction over all
    pesticides marketed and used in the United States. Statutory authority
    for this regulation comes under the Federal Insecticide, Fungicide and
    Rodenticide Act (FIFRA), the Federal Food, Drug, and Cosmetic Act, and
    the Food Quality Protection Act. All pesticides that pass EPA's
    evaluation under FIFRA are granted a license or ``registration'' that
    permits their sale and use according to the requirements set by EPA to
    protect human health and the environment. In making regulatory
    decisions, EPA evaluates the risks of pesticide use and balances these
    risks with the benefits derived from pesticide use. PIPs are handled
    this same way.
        EPA has tailored its basic regulatory framework to fit the
    distinctive characteristics of these genetically engineered biological
    pesticides. Data required for the review of PIPs include product
    characterization, mammalian toxicity and allergenicity, and potential
    impacts on non-target organisms including birds, fish, earthworms, and
    many invertebrates that are either beneficial or representative of
    species that might be exposed to the PIP. EPA has developed these data
    requirements through a public process and after considering
    recommendations from the FIFRA Scientific Advisory Panel (SAP). The SAP
    is often consulted before EPA completes its risk assessment and makes a
    regulatory decision.

                          HUDSON RIVER DREDGING DELAY

        Question. A recent article indicated that EPA was delaying the
    dredging of PCBs from the Hudson River until Spring 2006. What are the
    reasons for the delay?
        Answer. The main causes of delay are due to project complexity,
    particularly the time required for negotiations with General Electric,
    and the need for meaningful community involvement with residents whose
    communities will be affected by the dredging operation. This means an
    additional year will be needed for planning and designing beyond the 3
    years already allotted in the February 2002 Record of Decision.
        A detailed discussion of the dredging start date adjustment can be
    found on EPA's web-site: www.epa.gov/hudson. The current issues section
    contains a hot link to a recently released document titled, ``Hudson
    River Project Design Fact Sheet 2002-2006,'' which highlights the
    project schedule milestones, upcoming activities on the Hudson River,
    and opportunities for public involvement. The fact sheet includes a
    schematic for the sequence of key events from 2002-2006.

                    NEW CANCER RISK GUIDELINES FOR CHILDREN

        Question. As I understand it, EPA issued proposed new guidelines on
    March 3rd for evaluating cancer risks to children on the grounds that
    the very young may be some 10 times more vulnerable than adults to
    certain chemicals. I understand that the final guidelines are to be
    reviewed by the EPA science advisory board in May. How would these
    guidelines be expected to be implemented?
        Answer. EPA's draft final cancer guidelines set forth recommended
    principles and procedures to guide EPA scientists in assessing the
    cancer risks from chemicals or other agents in the environment. They
    are intended to promote high technical quality and Agency-wide
    consistency in the human health risk assessment process. EPA published
    final cancer guidelines in 1986 and is in the process of revising them
    to reflect advances in scientific understanding as well as experience
    in using the 1986 guidelines as well as the 1999 Interim Guidelines. As
    you noted, EPA's Draft Final ``Guidelines for Carcinogen Risk
    Assessment'' were released for public review and comment on March 3,
    2003. Because previous draft versions of the guidelines have been
    reviewed by EPA's Science Advisory Board (SAB), this draft final
    version has not been re-submitted to the SAB. After addressing public
    comments, EPA plans to release final revised Guidelines.
        On March 3, 2003, EPA also released an associated draft document
    for public review and comment entitled, ``Supplemental Guidance for
    Assessing Cancer Susceptibility from Early-Life Exposure to
    Carcinogens.'' The draft supplemental guidance describes possible
    approaches that EPA could use to address certain aspects of cancer risk
    assessment, specifically focusing on assessing cancer susceptibility
    that may arise from exposure to carcinogens early in life. The EPA SAB
    began reviewing the draft supplemental guidance in May 2003. EPA will
    carefully consider SAB recommendations and public comments in revising
    the draft supplemental guidance.
        The draft supplemental guidance proposes to adjust risk estimates
    that pertain to early-life exposure to certain kinds of carcinogens
    when specific data on risks from early life exposure are unavailable.
    The adjustment factors are meant to be applied only when data indicate
    that the carcinogens operate by a mutagenic mode of action (i.e., cause
    cancer by directly interacting with DNA). For carcinogens that act
    through other modes of action, or where the mode of action is unknown,
    no adjustment factors are recommended at this time due to insufficient
    information for such carcinogens.
        The proposed adjustment factors do not address childhood cancers,
    but rather address risks of cancers during adulthood due to early-life
    exposures. The analysis of animal data presented in the draft
    supplemental guidance indicates that higher risks typically result from
    a given exposure to mutagenic carcinogens occurring early in life when
    compared with the same amount of exposure during adulthood. Information
    derived from human radiation exposures supports this finding. The
    biological differences between children and adults are believed to be
    greatest during the first years of life. To account for these
    differences, the document proposes a 10-fold adjustment for exposures
    before 2 years of age and a three-fold adjustment for exposures between
    2 and 15 years of age. For exposures after 15 years of age, no
    adjustment factor is proposed. As noted previously, the proposed
    adjustment factors, as well as the entire guidance document, are being
    reviewed by the SAB.
        Question. Are there any other EPA special guidelines being examined
    for implementation just for children?
        Answer. No. There are no other Agency-wide risk assessment
    guidelines being examined for implementation just for children. The
    draft supplemental guidance document is designed to supplement the
    Guidelines for Carcinogen Risk Assessment. Issues involving pregnancy
    and the developing young are covered in EPA's 1991 Guidelines for
    Developmental Toxicity Risk Assessment and 1996 Guidelines for
    Reproductive Toxicity Risk Assessment; developmental neurotoxicity is
    addressed in the 1998 Guidelines for Neurotoxicity Risk Assessment. In
    terms of other documents that may assist in using the risk assessment
    guidelines, EPA is also in the process of preparing draft guidance on
    identifying the appropriate age groups for assessing childhood exposure
    to environmental contaminants.

                               HOMELAND SECURITY

        Question. Please explain the role of EPA in the President's
    National Strategy for Homeland Security?
        Answer. Under the President's National Homeland Security Plan, EPA
    has three primary areas of responsibility: Critical Infrastructure
    Protection; Preparedness, Response, and Recovery; and Communication and
    Information. EPA has developed specific tactics to accomplish each
    goal, which will be coordinated with the Department of Homeland
    Security, other Federal agencies, and EPA's partners at the State,
    local, and tribal levels. Additionally, as the responsibilities of the
    various agencies evolve, including the Department of Homeland Security,
    EPA will coordinate with those agencies to effectuate homeland
    security.

    Critical Infrastructure Protection
        EPA has unique programmatic responsibilities and expertise related
    to the water and wastewater industries; the use, handling, storage,
    release, and disposal of chemicals and chemical wastes at industrial
    facilities; and indoor air quality. In these areas, EPA is committed to
    assessing and reducing vulnerabilities and strengthening detection and
    response capabilities for critical infrastructures. In addition, EPA
    will contribute to similar efforts led by other Federal agencies
    addressing food, transportation, and energy industries, and will
    provide environmental expertise to support Federal law enforcement
    activities.

    Preparedness, Response, and Recovery
        EPA's role under the National Strategy for Homeland Security is to
    develop, disseminate, and exercise the use of new and improved tools
    and techniques to respond to chemical, biological and radiological
    releases that would protect public health and the environment through
    prevention and clean up of contamination. EPA is remaining vigilant in
    its readiness State and is training a larger cadre of personnel that
    will respond quickly in the event of multiple threats. EPA is also
    focusing its efforts on enhanced coordination within the Agency,
    regionally and with other Federal agencies.

    Communication and Information
        Comprehensive, accurate, well-organized, and timely information is
    critical to sound decision making. EPA possesses unique capabilities to
    collect, synthesize, interpret, manage, disseminate, and provide
    understanding to complex information about environmental and human-made
    contaminants and the condition of the environment. Effectively managing
    and sharing this information within the Agency and with our partners at
    all levels of government and industry will contribute to the Nation's
    capability to detect, prepare for, prevent, protect against, respond
    to, and recover from terrorist incidents.

                     HOMELAND SECURITY: CHEMICAL COMPANIES

        Question. What is EPA doing to address the risks posed by chemical
    companies?
        Answer. First, EPA monitors safety-related issues that are designed
    to prevent an accidental release of chemicals at facilities. EPA has
    worked in coordination with the Federal Bureau of Investigation's
    National Infrastructure Protection Center to provide the chemical
    industry with a number of site security advisories. In the months
    following September 11, 2001, EPA distributed advisories to the
    chemical industry primarily through the cooperation of chemical trade
    associations. More recently, the Agency has compiled an e-mail database
    for the purpose of rapidly sharing security advisory information with
    over 10,000 chemical facilities regulated under the Agency's Risk
    Management Program.
        Over the last year, EPA has also visited 31 high-risk chemical
    facilities to discuss their efforts and to share information on
    assessment and vulnerability reduction. EPA selected facilities based
    on their Risk Management Plan data, geographic location, and other
    factors. These visits were conducted with the voluntary consent and
    cooperation of the chemical facilities.
        Administrator Whitman has joined the Secretary of the Department of
    Homeland Security (DHS) in recognizing the need for new legislative
    authorities to address chemical site security concerns. Such concerns
    include employee training and background checks, protection of
    perimeters, intrusion detection of both physical plant and data
    systems, and securing and controlling chemical stores and potential
    release points. EPA is working with the Office of Homeland Security and
    DHS to produce draft legislation, which we anticipate will soon be
    transmitted in the Senate for its consideration.

                           GROUND ZERO AIR STATEMENTS

        Question. Recent articles have indicated that ground zero tests in
    the days immediately after the WTC terrorist attacks did not support
    the EPA's statements that the site was safe to breathe. What tests did
    the EPA conduct and what statements were made?
        Answer. EPA activities at or near the World Trade Center (WTC) site
    include air quality monitoring, air model development, meteorological
    measurements, laboratory analysis of WTC samples, analyses of the
    toxicological effects of fine particulate matter derived from the
    destruction of the WTC, and an assessment of the potential health risks
    associated with exposures to air pollutants released during the WTC
    disaster. Pages B-13 through B-22 of the attached report, A Preliminary
    Survey of Air Quality and Related Health Studies Conducted in the
    Vicinity of Ground Zero, describe these activities in detail.
    Information and results from these activities are available at the web
    sites included in the report.
        EPA conducted an inhalation risk assessment based on the data from
    the activities described above and on numerous other air measurement
    efforts conducted by other Federal agencies and New York State and
    local government agencies. This assessment was released as an external
    review draft in December of 2002 and will be finalized during 2003
    pending the completion of an external peer panel review.
        EPA has maintained that people living and working in lower
    Manhattan were not exposed to levels of contaminants in the outdoor air
    that would pose a significant long-term health threat. The Agency
    further advised people experiencing acute health problems to see their
    physician. In addition, EPA stressed that workers at the site faced a
    higher risk and must wear protective respiratory gear, which was
    supplied by EPA and other agencies. We also emphasized that people
    returning to dusty homes and workplaces should have these spaces
    professionally cleaned by asbestos contractors.

                              WATER INFRASTRUCTURE

        Question. I would like a breakdown on the amount of EPA funds,
    especially for infrastructure needs, are invested in rural areas as
    opposed to urban areas?
        Answer. For the Clean Water SRF, the information EPA receives from
    the States on number of projects is broken out only by population size.
    Communities under 10,000 population might serve as a proxy for rural,
    or at least suburban, but this is a rudimentary way to report rural
    versus urban funding for wastewater infrastructure. For our most recent
    national data set (fiscal year 2002), about $9 billion has been made
    available to finance over 7,000 wastewater treatment projects serving
    communities with populations under 10,000.
        Considering that rural communities often lack centralized
    wastewater treatment and rely on alternative technologies, such as
    septic systems and other on-lot decentralized treatment systems, it is
    reasonable to assume that a percentage of the projects funded to
    correct polluted sources of runoff also support rural wastewater
    treatment needs. While EPA lacks specific numbers of the various
    categories of nonpoint source projects, from surveys taken previously
    we know that about 54 percent of the projects comprising about 4
    percent of the funds are for correction of septage problems. Of the
    $1.6 billion of CWSRF funds, representing about 3,400 loans, that have
    been spent on correction of polluted runoff, EPA estimates that $64
    million in approximately 1,800 loans might be attributable to serving
    the needs of rural communities. Because the alternative technologies
    that many employ in service to rural areas are less expensive than
    traditional centralized wastewater treatment systems for urban areas,
    numbers of loans are a more sensitive indicator than dollars spent.
        Through June 30, 2002, $2 billion or 40 percent of DWSRF loan
    dollars were provided to drinking water projects serving communities
    with populations under 10,000, accounting for 74 percent of all DWSRF
    loans. The Safe Drinking Water Act also allows DWSRF funds to be used
    to help disadvantaged communities. Of the $5.1 billion in DWSRF
    assistance, $838 million has been provided to disadvantaged systems,
    however, the distribution between rural and urban communities is not
    known.
        In addition to the SRF programs, rural communities receive
    financial support through the Clean Water Indian Set-aside Program; the
    Alaskan Native Villages program; the Mexican Border program; and Rural
    Water Technical Assistance activities for both water and wastewater.

                           CWSRF AND DWSRF OVERSIGHT

        Question. What oversight is provided by EPA to ensure that the
    Clean Water SRF and the Drinking Water SRF are allocated within States
    based on need?
        Answer. The Clean Water SRF (CWSRF) has no statutory oversight
    responsibility for allotment of funds to the States based on need. That
    allotment formula was developed by the Congress and is contained in
    statute. However, EPA believes it is very important that funds used
    within the States for high priority water quality projects. We provide
    oversight and encouragement to States to develop and use integrated
    planning and priority setting systems to make CWSRF funding decisions.
    EPA regions review, as part of each State's annual capitalization grant
    application, the long and short-term goals for the program and how
    their intended use plans relate to those priorities. They also assess
    during their annual oversight process for each State program how well
    the State adhered to its intended uses of funds.
        The Safe Drinking Water Act requires EPA to assess the capital
    investment needs of water systems eligible to receive DWSRF assistance,
    which covers approximately 54,000 community water systems and 21,400
    not-for-profit non-community water systems. The survey includes all
    infrastructure needs for systems to provide an adequate quality and
    quantity of drinking water. By law, EPA conducts the survey every 4
    years and uses the latest results to allocate DWSRF funds to the
    States. Each State is allotted its proportional share of the total
    needs with the proviso that each State receives a minimum of 1 percent.
        To determine how best to allocate its allotment, every year each
    State DWSRF program establishes short- and long-term infrastructure
    funding goals and priorities through Intended Use Plans (IUPs), as
    required by statute. These IUPs specify how each State's funding
    priorities are consistent with section 1452(b)(3) of the SDWA, which
    requires that States give funding priority to infrastructure projects
    that: (1) address the most serious human health risks; (2) are
    necessary to ensure compliance with the SDWA; and (3) assist systems
    most in need, on a per household basis, according to State
    affordability criteria. EPA reviews the IUPs to ensure that they are
    consistent with SDWA requirements.

                                GLOBAL POLLUTION

        Question. Global and Cross-Border Environmental Risks. What is EPA
    doing to minimize pollution in the United States from pollution hazards
    originating outside the United States, such as from Mexico or Canada?
        Answer. EPA is actively engaged in a range of activities intended
    to prevent, reduce, or otherwise minimize the impacts on the U.S.
    environment and public health from sources of pollution originating
    outside of our borders. The broad responses address a wide range of the
    contaminants of concern, a diversity of pollution source types and
    media transport mechanisms. EPA's activities include working along our
    borders with Canada and Mexico and cooperation with a substantial
    number of other countries across a wide area of the globe, for example
    by participating in multi-lateral agreements to address identified
    regional and global transboundary pollution threats. Many of EPA's
    major program offices, regional offices and laboratories are involved
    in these efforts and, in many of its endeavors, the Agency cooperates
    with other Federal and State agencies, non-governmental organizations
    and multilateral bodies.
        EPA's international efforts include environmental protection
    capacity building, technical assistance, technical information
    exchange, international monitoring and assessment, cooperative research
    and development, and negotiation of international agreements. The
    specific efforts are a function of addressing a particular pollutant's
    chemical behavior, media transport mode, nature of the source types, or
    circumstances of the foreign involvement. The Agency also conducts
    research and assessments of new or unaddressed risks and improving the
    scientific basis of our general understanding of the known
    transboundary environmental threats, such as the global flows of
    mercury. EPA has both domestic and international cooperative efforts
    aimed at improving our understanding of the problems, including
    research into the chemical and physical processes involved in long-
    range transport and transformation of pollutants. The Agency also
    engages in technology development addressing international problems.
        EPA's major efforts in addressing transboundary pollution impacting
    the U.S. mainly fall into the following four broad categories: (1) the
    U.S. border areas with Mexico and Canada and cooperation with these
    immediate U.S. neighbors on transboundary contamination problems; (2)
    addressing regional Arctic contamination and potential threats to
    Alaska and indigenous populations, mostly from pollution sources in
    Russia; (3) international cooperation and agreements addressing global
    sources of persistent organic pollutants (POPs) and other toxic
    substances; and (4) very long-range air transport of a variety of
    pollutants and the problem of global cycling of mercury.
        Please refer to the Attachment for program specifics.

                          ATTACHMENT--GLOBAL POLLUTION

    U.S. Border Areas with Mexico and Canada and General Transboundary
            Contamination Cooperation with These Immediate U.S. Neighbors

                United States-Mexico
        The United States and Mexico cooperate on a number of programs to
    protect the United States from transboundary pollution. Formal
    cooperation dates back to 1983, when the United States and Mexico
    signed the La Paz Agreement to promote cooperation for the protection
    and improvement of the environment in the border region. This agreement
    serves as the basis for joint activities to protect public health and
    the environment in both the United States and Mexico. Two formal
    ``environmental plans'' have been completed by EPA and its Mexican
    counterpart, SEMARNAT, and a new plan that will cover the next 10
    years, called Border 2012, was announced on April 4, 2003. Detailed
    information on Border 2012 is available on the EPA website
    (www.epa.gov/usmexicoborder) and previous activities are described in
    the U.S.-Mexico Border XXI Program-Progress Report 1996-2000. Although
    not all activities under the new border program have yet been
    identified, examples of some are provided below:
      --Air.--Bi-national air quality planning and management activities
            have been conducted in the sister cities of San Diego-Tijuana;
            Imperial Valley-Mexicali; Nogales-Nogales; and Douglas-Agua
            Prieta. Recent efforts have concentrated on establishing and
            operating air quality monitoring networks in Tijuana and
            Mexicali, similar to those operating in San Diego and Imperial
            Valley. The Joint Advisory Council for the Improvement of Air
            Quality in the Ciudad Juarez/El Paso/Dona Ana County Air Basin
            (JAC) was created to provide locally-based recommendations to
            the Air Workgroup on how to manage air quality in the region.
      --Hazardous Wastes.--The EPA and Mexico's National Ecology Institute
            (Instituto Nacional de Ecologia, or INE) have operated the
            Hazardous Waste Tracking System (Haztraks) for several years.
            In 1998, Haztraks was replaced in Mexico with INE's version of
            a hazardous waste tracking system, known as SIRREP (Sistema de
            Rastreo de Residuos Peligrosos). The use of both systems has
            considerably improved the ability to monitor transboundary
            hazardous waste shipments in the U.S.-Mexico border region. It
            is worth noting that a 1999 study conducted by the Texas
            Natural Resources Conservation Commission (TNRCC) determined
            that the operation of SIRREP and the Haztraks systems is the
            most effective way of tracking the movement of hazardous wastes
            between the two countries.
          A Consultative Mechanism for the Exchange of Information on New
            and Existing Facilities for the Management of Hazardous and
            Radioactive Waste within 100 Kilometers of the U.S.-Mexico
            Border has been developed. This mechanism serves to address
            public concern on both sides of the border as it relates to the
            siting and operation of hazardous and radioactive waste
            facilities in the border region. The agreement will allow for
            both countries to exchange data and other information on new
            and existing treatment, storage, and disposal facilities for
            these types of waste in the border region.
        In addition to the activities under the border plan, two bi-
    national institutions were set up between the United States and Mexico
    under a supplemental agreement to the North American Free Trade
    Agreement (NAFTA). These institutions are the North American
    Development Bank (NADBank) and the Border Environment Cooperation
    Commission (BECC), which were established to develop and finance solid
    waste, waste water and drinking water infrastructure in the border area
    to reduce the possibility of cross border pollution. To date, 55
    projects have been certified and more than 30 are either operational or
    under construction. When all 55 projects are completed they will serve
    more than 9 million people. In Juarez, Mexico, a city of over 1
    million, the first wastewater treatment systems are now operational.
    Since 1994, EPA has spent over $770 million on water and wastewater
    infrastructure in the Mexico Border area.
        EPA also has a number of programs and activities concerned with the
    transport of agricultural products across the border. These actions
    have contributed to the reduction of pesticide residues on the imported
    agricultural products.

                United States-Canada
        The United States and Canada cooperate extensively on monitoring,
    assessment, reporting, and control of chemical, physical, and
    biological pollution, including increasing their focus and cooperation
    on biological pollution (e.g., invasive species of concern). A great
    deal of this cooperation includes overarching goals to better protect
    many diverse, shared ecosystems and the public health of populations
    (including indigenous peoples) particularly along the shared extensive
    border areas, but also in the inland areas of both countries. In
    addition, bi-national cooperation has been underway since the early
    1990s to better protect U.S.-Canada marine regions such as the Gulf of
    Maine.
        The United States and Canada have a long history of working
    together to control, reduce, and prevent cross border pollution. The
    Boundary Water Treaty of 1909, which applies along the entire 5,500-
    mile inland border area, was in part designed to protect transboundary
    waters and U.S.-Canada watersheds, including protecting the public
    health of populations in both countries from the adverse effects of
    water pollution. Many major projects and activities addressing actual
    or potential pollution of transboundary waters continue to be conducted
    under the water pollution control and prevention requirements of the
    1909 treaty.
        Specifically, cooperation is underway to fulfill the treaty
    requirements for bi-national surface waters: e.g., St. Croix River,
    Lake Champlain, Great Lakes Basin including the Upper St. Lawrence
    River, Rainy River, Red and Souris Rivers system, Poplar River,
    Flathead River, Columbia River, Puget Sound-Georgia Basin, Taku River,
    and the Yukon River. The U.S.-Canada International Joint Commission
    (IJC) assists both countries with boundary waters management and
    protection for a number of the listed watersheds. 1909 Treaty
    cooperative efforts protect the U.S. portions of many shared U.S.-
    Canada watersheds.
        From the 1970's to the present, the United States and Canada have
    steadily increased their bi-national cooperative frameworks and
    attendant activities along the common border area. These activities,
    concerned with improved management and prevention of transboundary
    pollution, have been conducted between Federal, provincial, State,
    tribal, and some local governments, and frequently include involvement
    of the NGO community, the private sector and the general public as
    well.
        Cooperation with Canada under the Great Lakes Water Quality
    Agreement, beginning in 1972, has resulted in substantial progress in
    restoring the quality of these important natural resources. Lake Erie,
    once considered an ecological wasteland, is now substantially restored,
    with fish eating birds, like eagles and ospreys, having made strong
    recoveries. DDT and PCB contamination has been reduced by 80 or 90
    percent. U.S.-Canada cooperation to protect and restore the Great Lakes
    Basin ecosystem includes many goals that serve to better protect U.S.
    public health and the U.S. parts of the shared aquatic ecosystems.
        Unfortunately, although a lot of progress has occurred, many large
    Great Lakes fish are still unsafe to eat due to their accumulating
    burden of toxic pollutants. The fiscal year 2004 President's Budget
    requests $15 million for the new Great Lakes Legacy program, which will
    help reduce toxic pollutant levels further through contaminated
    sediment remediation. Also, the Great Lakes basin ecosystem is
    subjected to harmful changes due to the effects of a substantial number
    of foreign alien invasive species, so that the two countries continue
    to address new challenges. During 2002 and 2003, the United States and
    Canada, in consultations at the IJC, started active consideration of
    measures to improve efforts addressing aquatic invasive species in the
    Great Lakes Basin.
        Under the 1991 U.S.-Canada Air Quality Agreement, emissions of
    sulphur dioxide and nitrogen oxides (key contributors to acid rain)
    have been substantially reduced, benefiting the Northeastern United
    States. An annex to the Agreement, signed in December 2000, will lead
    to reductions in ground level ozone pollution. Priority cooperation
    under the Agreement also covers particulate matter, ensuring certain
    existing or proposed point sources of air pollution along the common
    area do not cause significant transboundary air pollution which can
    harm one side or the other. Efforts are also underway to protect
    visibility in natural areas along the border.
        EPA also is furthering the existing bilateral agreements concerning
    mercury and other toxic substances, such as the 1997 Great Lakes Bi-
    national Strategy, with the goal of 50 percent reduction in use and
    emissions of mercury by 2006. The Northeast Mercury Study of the U.S.
    Northeast States and Eastern Canadian Provinces has focused on
    reduction of uses and emissions of mercury and safe management of the
    mercury life cycle. In 1997, Canada and the United States signed an
    agreement for the Virtual Elimination of Persistent Bioaccumulative
    Toxic Substances (PBTs) in the Great Lakes. The strategy sets long-term
    goals to promote emissions reductions of these toxic substances. EPA
    coordinates the U.S. activities by engaging all relevant stakeholders,
    developing action plans, coordinating reduction activities and
    reporting on progress.
        The two governments have established three bi-national agreements
    that cover preparedness and response to pollution release accidents/
    emergencies that could arise along the border. These agreements could
    also be used by one country, in certain emergency instances, to call
    upon the other country to assist with a response to an emergency that
    may occur inland away from the bi-national border. One of the three
    agreements covers the four U.S.-Canada marine water regions and Great
    Lakes waters for oil and hazardous materials. Another one covers the
    rest of the inland border for oil and hazardous materials. The more
    recent one covers radiological emergencies.

                North American Trilateral Cooperation Between the United
                        States, Mexico and Canada

        In the 1990s, the United States and Canada developed new trilateral
    cooperation with Mexico to increase multilateral cooperation on major
    issues such as PBTs, their sources, air transport, fate and deposition.
    Long-standing shared goals by the United States and Canada under their
    Great Lakes Water Quality Agreement on PBTs helped catalyze and focus
    larger trilateral efforts. The three countries are focusing together on
    PBTs and other pollutants, their environmental transport and other
    pathways. The United States, Canada and Mexico have increased their
    consultations and cooperation on the northward migration, or
    introduction, of animals, plants, and pathogens not native to North
    America (i.e., invasive species), with the shared goal of improving
    protection of the biological integrity of many North American
    ecosystems, and in the case of some invasive species, to protect the
    public health of populations of North America.
        In 1993, Canada, Mexico, and the United States established the
    Commission for Environmental Cooperation (CEC) under the North American
    Agreement on Environmental Cooperation (the NAAEC) to address regional
    environmental concerns. The NAAEC complements the environmental
    provisions of the North American Free Trade Agreement (NAFTA). The CEC
    is facilitating tri-national coordination and cooperation on matters of
    cross-border flows of air pollutants, as well as invasive biological
    species. Capacity building, public participation, and facilitation of
    risk management actions through pollution prevention, market-based
    incentives, and technological controls are priorities of the
    organization.
        In 2001, two meetings of air quality experts were sponsored by the
    CEC to address the exchange of emissions information for criteria air
    pollutants and greenhouse gases and to address air quality impacts of
    transboundary trade and transport corridors. To support environmental
    capacity building, a Mexican association of air quality experts has
    been established and a newsletter has been created to inform
    stakeholders in Mexico about the air quality program. The CEC is also
    providing funding for Mexican participation in the meetings of North
    American air quality experts addressing problems common to the three
    countries.
        Under the auspices of the CEC, in 1995, Mexico, Canada and the
    United States developed a regional initiative on the sound management
    of chemicals. Under this initiative, CEC established regional action
    plans for PCBs, DDT, and chlordane and is developing an action plan for
    dioxins, furans and hexachlorobenzene. EPA provides technical input to
    these plans and coordinates relevant capacity building activities, such
    as providing support for dioxin measurements, and assisting Mexico with
    obtaining international funding to address DDT stockpiles.
        In 2001, the CEC air program collaborated with the Sound Management
    of Chemicals (SMOC) program and developed a national mercury air
    emissions inventory in Mexico. It is being combined with the national
    inventories in Canada and the United States to give a continental
    perspective for the globally cycling pollutant. Data comparability and
    information access are key to its success.
        In addition to mercury, air quality experts in the three countries
    are developing inventories for sulfur dioxide, nitrogen oxides, carbon
    monoxide, volatile organic compounds, particulate aerosols, and
    greenhouse gases. They are also developing plans to obtain the needed
    information through monitoring and other implementation tools for any
    significant data gaps that may be identified.
        Workshops facilitate the progress in the assessments and capacity
    building, and a leveraging of funds supports the implementation for
    phase 2 of the mercury NARAP, and those for DDT and PCBs, dioxins,
    furans and hexachlorobenzene. This year the NARAP on chlordane was
    completed, stopping production and use of chlordane in North America.
    Also building on NARAP activities, the DDT Task Force solicited and
    received funding from the Global Environmental Facility (GEF) to
    support a regional project to phase out DDT in Mexico and throughout
    Central America in 2000.
        Consideration also is being given to how the CEC, and particularly
    SMOC, could facilitate the regional implementation by the Parties to
    the 2001 Stockholm Convention on Persistent Organic Pollutants. The
    effects of persistent toxics on wildlife are being monitored, as well
    as human health endpoints. A North American Pollutant Release and
    Transfer Register project addresses the sources, handling and
    stewardship of toxic chemicals from industrial activities in North
    America, and allows for better management of these transboundary
    pollutants.

    Regional Cooperation Addressing Contamination Threats to Alaska and the
            Arctic, Including Indigenous Populations
        The fragile Arctic environment and ecosystems, Alaska and
    indigenous populations are threatened by transboundary contamination
    mostly from sources in Russia. Transboundary transport mechanisms
    include atmospheric and ocean circulation and biological transmission
    through the Arctic food chain. The Russian contaminant sources are
    largely a legacy of the Soviet Union's armaments and military
    activities in the far North, the Cold War era industrial/agricultural
    infrastructure and practices, and related un-managed waste. The
    principal contaminant sources of concern include radioactive waste and
    spent nuclear fuel, PCBs mostly from the power grid system, dioxins/
    furans from incinerators and industrial sources, obsolete pesticides
    from huge collective farm era stockpiles, and heavy metals such as lead
    and mercury from industrial activities.
        In the 1990's Russia had the highest concentrations of unsecured
    Cold War legacy radioactive waste in the world, and very little waste
    management infrastructure to address the deteriorating situation. The
    problems mounted rapidly as the nuclear submarine dismantlement program
    obligatory under the START treaty continued to generate large amounts
    of radioactive waste and unsecured spent nuclear fuel. Russia dumped
    the low-level liquid radioactive waste produced in the submarine
    decommissioning and dismantlement process in the Arctic, while the
    spent nuclear fuel accumulated in unsecured circumstance at Arctic
    coastal sites in Northwest Russia.
        Under an EPA initiative responding to a Russian request for
    assistance, the United States (EPA, DOS/AID, DOD, and DOE) undertook in
    1994 a multilateral project with Russia and Norway to upgrade and
    expand Russia's only operational radioactive liquid waste processing
    facility (originally developed for the Russian nuclear icebreaker
    fleet) to process the low-level liquid waste from the nuclear submarine
    disarmament program. Russia has terminated all ocean dumping of
    radioactive liquid waste since the start of the project and continues
    to work toward formal acceptance of the global ban on ocean disposal or
    radioactive waste under the London Dumping Convention.
        Because unsecured spent nuclear fuel in the Russian Northwest
    constitutes 95 percent of the high level radioactive waste threat to
    the Arctic environment, EPA proposed the development of a prototype
    transportable spent nuclear fuel dry storage cask as a means of
    securing Russia's inventory of spent nuclear fuel arising from the
    decommissioning and dismantlement of large portions of their strategic
    submarine fleet under START. The U.S. nuclear power industry pioneered
    dry cask storage, and the EPA proposal was to develop a low-cost
    prototype transportable storage cask for use in Russia, based on a
    unique Russian concrete-metal cask concept.
        The Transportable Spent Nuclear Fuel Storage Cask Project was
    organized as a trilateral effort between the United States, Russia and
    Norway under a military environmental cooperation declaration involving
    the three countries and lead by their respective defense
    establishments. For the United States, the effort has involved
    cooperation among DOD, EPA, DOE and DOS. The successful testing of the
    prototype cask has resulted in serial production to start under
    separate programs within Russia and, bilaterally, as part of the
    cooperative threat reduction efforts between Russia and the United
    States. A prototype concrete storage pad was proposed by EPA to hold
    the loaded casks. This portion of the cooperative program is also
    nearing completion and a completion event is scheduled in Murmansk,
    Russia, in the last half of 2003.
        Since 1998, the EPA multilateral strategy on Arctic contamination
    has shifted emphasis to the problem of non-radioactive chemical threats
    to the Arctic environment and Alaska emanating from Russia's Cold war
    era legacy. The United States proposed a three phased project to the
    Arctic Council to assist Russia in addressing its PCB problems: (1)
    development of a PCB inventory for the Russian Federation, with
    emphasis on sources potentially impacting the Arctic; (2) assessment/
    feasibility of available technologies to address the particular major
    source problems identified by Russia; and (3) selection and
    demonstration of at least one technology addressing one or more major
    source categories.
        The Russian PCB Project was endorsed as an official project of the
    Council's new Arctic Council Action Plan (ACAP) and EPA was asked to
    provide the project technical lead. The project has received funding
    from EPA and DOS plus all other Arctic nations and the Netherlands. The
    first (inventory) phase was completed in October 2000, with the results
    openly available. The second phase technology assessment and
    feasibility study concerned with evaluating alternative dielectric
    fluids to replace PCBs, as well as PCB decontamination and destruction
    technologies for application to the specific PCB source problems
    identified in the first phase effort was completed in October 2002. In
    2003, work has started on the third and last phase of the project, to
    develop the first prototype demonstration for destruction of up to 200
    tonnes of PCB liquids from electrical transformers and 200 tonnes of
    PCBs contained in 12,000 capacitors in Russia.
        The project model is being applied to other Russian POPs problems
    under the Arctic Council: (1) ``Russian Sources of Dioxin/Furans''
    under Swedish project lead and U.S./EPA co-lead, and (2) ``Obsolete
    Pesticides in Russia'' under U.S./EPA project lead. The Obsolete
    Pesticides project in Russia will assist Russia with management of its
    extensive stockpiles of Soviet Era pesticides, many of which are
    migrating into the Arctic. This is a cooperative project with Canada,
    Finland, Norway, Russia, Sweden and UNEP Chemicals. The three phases
    involve: (1) developing the inventory of obsolete pesticide stockpiles
    in the 19 priority Russian regions impacting the Arctic; (2) developing
    a strategy for safe interim storage and stabilization of stockpiles--
    this will include performing risk assessments for highest contaminated
    areas, evaluating destruction technologies, and designing a prototype
    storage facility that can be used throughout Russia; and (3)
    implementing a prototype demonstration for environmentally safe
    destruction of those pesticides stocks of greatest risk to the Arctic,
    including Alaska, and construction of a prototype storage facility.
        The cooperative project, Reduction of Dioxins and Furans Releases
    in the Russian Federation, has as its primary objective the reduction
    of dioxins/furans releases to the Arctic from key industrial sectors,
    with particular focus on the pulp and paper industry and landfill
    incinerators. Initial activities completed include: translation into
    Russian of the UNEP Chemicals ``Standardized Toolkit for Identification
    and Quantification of Dioxins and Furans Releases''; development of a
    draft Dioxins/Furans Fact Sheet for use in Russia; and a Workshop on
    Harmonization of Laboratory Methods between Russia and Western
    countries. This project also consists of three phases: (1) identify and
    verify sources of dioxins and furans in Russia, verify emissions and
    refine emission factor estimates, and modernize and harmonize Russian
    sampling and analytical techniques; (2) feasibility studies for
    technological improvements in the pulp and paper industry and
    industrial incineration; and (3) pilot demonstration project.

    International Cooperation and Agreements Addressing Global Sources of
            Persistent Organic Pollutants (POPs) and Other Toxic Substances
        Many Persistent Organic Pollutants (POPs) are subject to long-range
    transport processes, and consequently pose a common threat to human
    health and the environment (particularly sensitive ecosystems), all
    over the world. The United States is working to reduce and/or eliminate
    POPs and their releases on a regional and global basis. In 2001, the
    United States signed the Stockholm Convention on POPs and is working to
    ratify the treaty. The Stockholm Convention requires parties to ban or
    restrict manufacture, use and release of 12 selected chemicals. The
    agreement also includes provisions on export and import restrictions,
    waste management, and the selection of additional substances for
    coverage.
        Since the early 1990's, EPA has been involved with activities
    concerned with identifying and quantifying sources of contamination
    impacting the Arctic environment, ecosystems and populations under the
    Arctic Environmental Protection Strategy (AEPS). Subsequently, the AEPS
    was subsumed under the Arctic Council, a consultative mechanism whereby
    the eight Arctic nations collaborate and, for example, provide
    assistance to Russia in meeting environmental goals.
        In 1998, the United States signed with other member nations of the
    United Nations Economic Commission for Europe (UNECE) a regional
    protocol on POPs under the Convention on Long-Range Transboundary Air
    Pollution and is working to ratify the Protocol. This regional
    agreement seeks to eliminate production and reduce emissions of POPs in
    the UNECE region and addresses 11 of the Stockholm Convention POPs and
    5 additional chemicals. EPA would be involved in ensuring the United
    States meets the obligations of the protocol and is actively engaged in
    the scientific assessment of potential additional chemicals. The EPA
    also continues activities under the Convention on Long-Range
    Transboundary Air Pollutants (LRTAP Convention) Heavy Metals Protocol,
    signed by the United States in June 1998 and ratified in January 2001,
    whereby nations of the UN Economic Commission for Europe agree to
    control emissions of mercury, lead and cadmium.
        EPA has initiated activities (previously described) under the
    Arctic Council/Arctic Council Action Plan (ACAP) intended to assist
    Russia in accepting and implementing the LRTAP protocols, as well as
    the Stockholm Convention. Russia has now signed the Stockholm
    Convention. The United States has also provided technical and financial
    assistance for POPs-related activities to a variety of countries
    besides Russia and regions other than the Arctic, including Mexico,
    Central and South America, Asia, and Africa. Examples of this
    assistance include projects led by the EPA on the development of dioxin
    and furan release inventories in Asia, the Chemicals Information
    Exchange and Networking Project for chemical managers in targeted
    countries in Africa and Central America, the destruction of pesticide
    stockpiles in Africa and Russia, and the reduction of PCB sources in
    the Philippines.

    Very Long-Range Air Transport of Pollutants and Global Cycling of
            Mercury
        Very long-range air transport of pollutants and the global cycling
    of mercury is a rapidly growing area of attention for the United States
    and other countries. At the present time these matters are heavily
    concerned with research, monitoring and development. EPA has taken many
    steps to better understand the sources and mechanisms of long-range
    transport of persistent bioaccumulative toxic (PBT) substances and
    other air pollutants, as well as undertaking some initial steps in
    developing co-benefit technologies for emissions control, promoting
    pollution prevention.
        In July 2000, EPA sponsored the First International Conference on
    Trans-Pacific Transport of Atmospheric Contaminants, involving
    scientists from both sides of the Pacific Basin, including China,
    Japan, Russia, South Korea, Canada, and the United States. The
    conference discussed the state of science on long-range atmospheric
    transport in the North Pacific region, identified uncertainties and
    gaps in our knowledge, and promoted a network of individuals and
    organizations interested in these issues to further international
    collaboration.
        In June 2001, EPA co-sponsored a workshop with Environment Canada
    entitled ``Photo-oxidants, Particles, and Haze Across the Arctic and
    North Atlantic: Transport Observations and Models.'' This conference
    was conducted as part of the U.S. participation in the Convention on
    Long Range Transboundary Air Pollution (LRTAP Convention) and the
    Arctic Monitoring and Assessment Program (AMAP) under the Arctic
    Council. The meeting focused on identifying the research needed to
    quantify the sources-receptor relationships for ozone and fine particle
    transport across the North Atlantic and Arctic.
        For mercury specifically, the Agency priority pollutant that cycles
    globally, EPA was instrumental in developing new methods for measuring
    the various species to assess long-range transport mechanisms. EPA is
    also developing state-of-the-art knowledge about transformation of
    mercury into various species in the atmosphere and the transport
    consequences. The species determines distance traveled and ultimate
    fate. Research utilizing these new analytical methods has been ongoing
    in South Florida, Cheeka Peak, Washington; Barrow, Alaska; and Mauna
    Loa, Hawaii to distinguish local sources of mercury from external
    sources. These studies have involved the first aerial measurements and
    studies at elevation as well as at ground level.
        In regard to pollution emissions minimization abroad, EPA is
    sponsoring a mercury-SO2 co-benefit demonstration project at
    a small coal-fired facility in Russia, in order to evaluate the
    effectiveness of emissions reduction using an electrostatic
    precipitator (ESP) add-on system. If the expected minimum of 50 percent
    reduction in mercury is achieved, it will be possible to utilize this
    low-technology approach in many countries where similar Russian ESP
    systems are in place. Additionally, a higher technology, although
    higher cost, approach has also been identified which is expected to
    reduce mercury by 99 percent in conjunction with SO2
    reduction, is being considered for application in China.
        In conjunction with the Department of State Cooperative Threat
    Reduction Program, EPA has initiated development of a proposal for
    mercury bioremediation at a former chloralkali facility in Kazakhstan,
    and in preparation for this project, sponsored a meeting in May 2002 of
    all scientists engaged in mercury research and pollution prevention in
    Kazakhstan and the neighboring countries of Kyrgystan, Azerbaijan, and
    Russia.
        EPA also played an instrumental role with Department of State
    during the UNEP Governing Council session in February 2002, at which
    UNEP launched a global mercury assessment, with a technical report and
    set of alternatives for decisions presented to the February 2003 UNEP
    Governing Council.

                          OVERSIGHT AND ACCOUNTABILITY

        Question. Most or all Federal agencies continue to have problems
    with ensuring that Federal funds are being used in a manner consistent
    with program requirements or grants requirements. What steps has the
    EPA taken in the last 2 years to improve accountability in the use of
    EPA funding?
        Answer. Obligating appropriated funds in accordance with
    Congressional intent is something we have always emphasized in Agency
    communications, training and guidance. We have not noted a problem in
    this area at EPA. Nonetheless, the following steps have been taken in
    the last 2 years or are currently being undertaken to further
    underscore the proper utilization of funds for program and grant
    requirements:

    Cost Accounting/Program Project
        EPA developed approaches to provide greater program and project
    detail in the Agency's accounting system. Utilizing the principles of
    Cost Accounting, this additional level of reporting enables program
    managers to monitor more closely programmatic spending against budget
    targets and further serve to integrate the Agency's planning, budgeting
    and accountability systems.
        To further integrate EPA's planning, budgeting and accountability
    systems, the Agency reached agreement on a plan to provide greater
    program and project detail in the Agency's accounting system. Critical
    elements of the approach have been agreed to by the Agency. As a
    result, Agency program managers will be better able to monitor
    programmatic spending against the goal/objective structure of the 2003
    Strategic Plan and to link their operating budget to performance
    results.

    Accountability
        Agency budget estimates emphasizes prior year progress and the use
    of performance information as a key element in resource decision
    making. The Office of the Chief Financial Officer has been working with
    Agency managers to more clearly show the links between day-to-day
    activities and outcomes, to improve accountability between Headquarters
    and Regions, to build capacity of managers to use performance-based
    processes, to improve performance measures, and to expand Regional
    strategic planning.
        EPA established a Managing for Improved Results Steering Group to
    come up with a comprehensive set of reforms on improving the Agency's
    use of performance and results information in all stages of the
    planning and budgeting process.
        EPA launched an Agency-wide competition to support the development
    of improved performance measures. Forty proposals were submitted from a
    wide range of programs and Regional offices.
        Program evaluations and performance measurement improvement
    projects that were competitively funded last summer yielded returns on
    the investment of extramural dollars and staff time.
        For example, the Office of Solid Waste completed a program
    evaluation in April 2003, which identifies inefficiencies in the
    biennial reporting of hazardous waste generation, storage, transport
    and disposal by industry. Results include options for reducing States'
    and industries' reporting burdens by, for example, standardization of
    data and reporting protocols.
        In another example, recommendations for Brownfields environmental
    indicators were developed for use by the Office of Brownfields Cleanup
    and Redevelopment as that program implements provisions of new
    legislation.

    Grants Competition
        With regard to grants requirements, EPA has aggressively promoted a
    new grants competition policy. The Agency also finalized and published
    guidance covering all areas of the EPA Order, published guidance
    clarifying the definition of Assistance programs, and continued to
    promote competition and provide technical support within the Agency.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                 ARSENIC STANDARD: EPA FUNDING FOR COMMUNITIES

        Question. Would you discuss what resources, if any, are being
    marshaled by EPA to assist communities faced with the extraordinary
    costs in meeting the new standards?
        Answer: After promulgating the revised arsenic standard in January
    2001, EPA has implemented a comprehensive strategy to assist
    communities that must install treatment technology to comply with the
    standard. This strategy is designed to: (1) enhance small systems'
    access to financial assistance; (2) fund the research, development,
    testing and implementation of effective, practical, and affordable
    treatment technologies to reduce compliance costs for drinking water
    systems affected by the revised standard; (3) provide Federal technical
    assistance and training on the new arsenic regulation to small
    community water systems; and, (4) use a variety of approaches to inform
    communities of their treatment options, and how and where to get help
    building their technical, managerial and financial capacity.
        A key component of the Agency's support for small systems is to
    work with our State partners to maximize the availability of financial
    assistance under the Drinking Water State Revolving Fund (DWSRF)
    program. Through the DWSRF program, State SRF programs may offer
    principal forgiveness, reduced interest rates, or extended loan terms
    to systems identified by each State as serving disadvantaged
    communities. States also have the ability to set aside a portion of
    their Federal DWSRF allocation for technical assistance to small
    community water systems affected by the new arsenic rule. As of June
    30, 2002, 74 percent of all DWSRF loan agreements, totaling just over
    $2 billion, have been completed with small systems serving 10,000 or
    fewer consumers.
        In addition to maximizing the availability of DWSRF funds for
    infrastructure improvement loans and technical assistance, EPA and the
    U.S. Department of Agriculture (USDA) signed a 4-year Memorandum of
    Agreement (MOA) in 2002. Under this agreement, USDA's Rural Utilities
    Service (RUS) will identify as high funding priorities projects that
    assist small communities in complying with the revised arsenic standard
    for drinking water. Likewise, EPA will strongly encourage State
    agencies administering the DWSRF to coordinate funding decisions with
    RUS through Rural Development State staff. Further, under this
    agreement both agencies will make providing technical assistance
    resources to small systems a top priority.
        Fiscal year 2003 is the second of EPA's 2-year, $20 million
    research and development and technical assistance program to identify
    more cost effective technologies to help small systems comply with the
    new arsenic standard. Also in fiscal year 2003, Congress directed EPA
    to utilize $5 million in additional funds to carry out demonstrations
    of low-cost arsenic removal technologies. With this overall funding,
    the Agency anticipates that some 26-32 demonstrations will be conducted
    at small water utilities with arsenic problems under the research
    program. EPA also is verifying the performance of arsenic treatment
    technologies under the Environmental Technology Verification Program to
    provide small utilities information to select technologies appropriate
    for their water quality problem. Four arsenic treatment technologies
    have been verified under the program.
        Further, the Agency will continue its ongoing work with States to
    take full advantage of the suite of tools that the Safe Drinking Water
    Act (SDWA) provides to help small systems achieve compliance with the
    new arsenic standard. For example, EPA is phasing in the arsenic rule
    over a longer time-period by encouraging States to use the compliance
    extension authority provided by the SDWA. Under this authority, States
    can give eligible small systems (those serving fewer than 3,300 people)
    up to an additional 9 years to come into compliance, and allow Point-
    of-Use devices as a treatment option for very small systems
        Finally, EPA has provided arsenic implementation guidance to State
    regulators, and made fact sheets, plain language guidance documents,
    and technology assistance manuals available to the public. This
    guidance is available both in printed form and electronically at EPA's
    web site, at the National Drinking Water Clearinghouse, and through the
    Local Government Environmental Assistance Network.

                    ARSENIC STANDARD: LEGISLATIVE ASSISTANCE

        Question. Would it be appropriate to try and assist those
    communities faced with debilitating costs in trying to meet the
    standard through some legislative means, perhaps in targeted assistance
    in treatment facility construction?
        Answer. EPA believes the SDWA already provides the Agency and its
    partners with the appropriate flexibility to target resources to
    systems in need of compliance assistance, especially to small and
    disadvantaged communities. Under EPA's Drinking Water State Revolving
    Fund (DWSRF) program, States provide federally funded low-interest
    loans to eligible public water systems for infrastructure improvements
    or replacements. Collectively, these efforts help all public water
    systems, but they are particularly aimed at helping small systems,
    those that struggle the hardest to meet the demands placed on them. Of
    all DWSRF loan agreements completed since 1997, 74 percent have been
    established with small water systems that serve 10,000 or fewer
    persons, totaling 40 percent ($2 billion) of funds, well above the SDWA
    requirement that States provide a minimum of 15 percent of available
    funds to small systems.
        Of the total DWSRF loans, 26 percent went to systems that States
    identified as serving disadvantaged communities. States provide
    disadvantaged assistance in the form of lower interest rates, principal
    forgiveness and extended loan terms of up to 30 years.
        The Agency also has implemented a $20 million research and
    development program over the past 2 fiscal years to identify more cost
    effective technologies to help small systems comply with the new
    arsenic standard. The preliminary results of this research are
    encouraging: Since January 2001, a number of highly cost effective
    arsenic removal technologies have been identified, such as iron-based
    adsorptive media that have demonstrated superior performance in
    removing arsenic in water supplies over a range of water quality
    conditions. The State of Arizona has evaluated these technologies and
    has determined that iron-based media are the lowest cost alternatives
    for many of their systems that must comply with the new arsenic
    standard.
        Further, the Agency will continue its ongoing work with States to
    take full advantage of the suite of tools that the Safe Drinking Water
    Act (SDWA) provides to help small systems achieve compliance with the
    new arsenic standard. For example, EPA is phasing in the arsenic rule
    over a longer time-period by encouraging States to use the exemption
    authority provided by the SDWA. Under this authority, States can give
    eligible small systems (those serving fewer than 3,300 people) up to an
    additional 9 years to come into compliance, and allow Point-of-Use
    devices as a treatment option for very small systems.
        In addition to maximizing the availability of DWSRF funds for
    infrastructure improvement loans and technical assistance, in 2002 EPA
    and the U.S. Department of Agriculture (USDA) signed a 4-year
    Memorandum of Agreement (MOA). Under the MOA, USDA's Rural Utilities
    Service (RUS) commits to assigning high funding priority to projects
    that assist small communities in complying with the new arsenic in
    drinking water standard. Likewise, EPA will strongly encourage State
    agencies administering the DWSRF to coordinate funding decisions with
    RUS through Rural Development State staff. Further, under this
    agreement both agencies will make providing technical assistance
    resources to small systems a top priority.

                CAFOS RULE: REGION 6 VERSUS NATIONAL RULE NO. 1

        Question. Would you please comment on why Region 6 would, through
    its general permit, overrule the final CAFO national rule representing
    5 years of work and millions of dollars in cost?
        Answer. EPA issued revised CAFO regulations, on February 12, 2003,
    to take effect as of April 14, 2003. The regulations were developed
    with significant public input and with substantial involvement by the
    United States Department of Agriculture (USDA). EPA is currently in the
    process of working at the State and EPA Regional levels to implement
    the revised regulations. A key element of this implementation includes
    the development and issuance of permits consistent with the revised
    regulations. EPA Region 6 is currently in the process of preparing to
    develop a general permit consistent with the revised regulations for
    New Mexico and Oklahoma, but has not yet actually drafted a CAFO permit
    for public notice and comment.
        In recent meetings, representatives of the livestock industry and
    Region 6 agreed that proper operation and maintenance of well-designed
    and constructed lagoons (the basis of the technology standard for CAFO
    production areas) could alleviate most concerns regarding violations of
    water quality standards resulting from lagoon overflows. Region 6 and
    the livestock associations committed to work together to develop best
    management practices to ensure that water quality standards are met.
    EPA believes that this collegial approach will be constructive and
    effective.

                CAFOS RULE: REGION 6 VERSUS NATIONAL RULE NO. 2

        Question. Would it make sense for Region 6 to require a General
    Permit for Concentrated Animal Feeding Operations (CAFOs) in New Mexico
    that is more stringent than the national rule to protect water quality?
        Answer. The revised regulations include technology standards for
    CAFOs, but do not specifically address water quality standards. In some
    cases, greater restrictions to ensure that water quality standards are
    met may be necessary and appropriate in permits to further control
    overflows that result in a discharge to surface waters. In order to do
    so, EPA would need to determine that the application of technology
    standards for specific facilities would not be adequate to protect
    water quality in surface waters where such facilities discharge.
        However, EPA believes that going beyond the technology-based
    requirements of the revised CAFO regulations would generally not be
    required where facilities are adequately designed, constructed,
    operated, and maintained in accordance with accepted practices and
    guidelines that implement the technology-based standards. This may be
    particularly true in New Mexico, and other arid areas of Region 6,
    where there is minimal rainfall.

                      CAFOS RULE: REGION 6 GENERAL PERMIT

        Question. Does it matter that the Region 6 rule is a general permit
    instead of one specifically tailored for watershed and riparian areas?
        Answer. National Pollutant Discharge Elimination System (NPDES)
    general permits are often issued for State-wide coverage of one or more
    classes of facilities. The permits may be written to include
    requirements and conditions that are specific to certain watersheds or
    certain types of circumstances, and which would not be applicable to
    other dischargers covered by the permit. Alternatively, the permit may
    exclude coverage for facilities located in particular watersheds or
    meeting certain types of conditions, and require such facilities to
    seek coverage under an individual permit or another general permit. In
    particular, water quality-based limitations included in a permit are
    often designed to fit the specific conditions of a particular watershed
    or particular set of conditions, and would not be generally applicable
    to all permit holders covered by a State-wide general permit unless
    those ambient water quality conditions were common to all such permit
    holders throughout the State.
        EPA strongly believes that the watershed approach, tailored within
    hydrologically defined boundaries, offers the most cost-effective
    opportunity to protect and restore our aquatic resources and
    ecosystems. Watershed-based permitting may be the preferred approach
    for the next Region 6 general permit. Region 6 will continue to work
    with diverse stakeholders to develop successful strategies to implement
    the Clean Water Act.

                        CAFOS RULE: NEW MEXICO PRODUCERS

        Question. Would enforcement of the Region 6 rule unnecessarily harm
    otherwise nationally compliant producers in New Mexico?
        Answer. The final CAFO rule establishes technology-based standards
    and permitting requirements in general. The technology standards are
    not designed to protect water quality. Rather, they are developed based
    on installing the ``best available technology'' that is economically
    achievable by the industry. In issuing permits, the permitting
    authority performs an analysis of the technology standards and then
    looks to see if any additional requirements based on a State's water
    quality standards are necessary. This process is the same for all
    States and Regions issuing permits and the requirements will vary
    depending on each State's water quality standards. Compliance is
    determined based upon the permit issued for the facility. Dischargers
    in New Mexico should not be at a competitive disadvantage, because all
    permit authorities evaluate water quality issues when developing permit
    requirements.
                                     ______

               Questions Submitted by Senator Barbara A. Mikulski

                              CORE WATER PROGRAMS

        Question. Your written testimony says that the budget increases
    funding for ``core water programs'' by $55 million. But the Clean Water
    SRF is cut by $500 million. Is the SRF a ``core water program''? If
    not, what are considered ``core'' programs? How are these priorities
    decided?
        Answer. States are currently struggling with budget pressures in
    their water quality and drinking water programs and are facing
    expanding workloads and challenges to their programs (e.g., permit
    backlogs, TMDL court challenges, and petitions to withdraw State
    program authorizations). In recognition of the impact of budget
    pressures on implementation of core water programs and resulting
    challenges States and tribes are facing, EPA is requesting a $55
    million increase focused on water quality standards, water quality
    monitoring and assessment, total maximum daily loads (TMDLs), national
    pollutant discharge elimination system permits (NPDES), drinking water
    implementation, and oceans and coastal protection. Most of this
    increase ($32 million) would be provided to States and Tribes through
    Clean Water Act Section 106 Grants and public water systems supervision
    (PWSS) Grants. The remaining increase ($23 million) will help EPA
    provide guidance and technical assistance to States and Tribes in each
    of the core program areas.
        In addition to the requested increase in the core water programs,
    the administration plans to provide an additional $4.4 billion to the
    Clean Water SRF by extending funding through 2011. This increase in
    commitment is expected to increase the long-term target revolving level
    of the Clean Water SRF from $2 billion per year to $2.8 billion per
    year, a 40 percent increase.

                     WATER INFRASTRUCTURE: GAP FUNDING CUT

        Question. In December, I joined 37 of my colleagues in writing to
    President Bush to request that the 2004 budget increase funding for
    water infrastructure to $5.2 billion--which is $3.5 billion more than
    the budget request. After the budget came out, Mitch Daniels wrote back
    to us and said that the President's budget request will be ``sufficient
    to close, over the next 20 years, the projected infrastructure gap.''
    Can you please explain to the subcommittee how cuts to water
    infrastructure will close the gap?
        Answer. Previous administrations had set a target for the CWSRF to
    provide average annual assistance of $2 billion per year, based on
    capitalization through fiscal year 2005. With the funding appropriated
    by Congress to date, the $2 billion goal has been reached and, in fact,
    exceeded. Nonetheless, the fiscal year 2004 budget request expands this
    commitment from $2 billion to $2.8 billion, an increase of 40 percent.
    This level of funding is achieved by an appropriation of $850 million a
    year from fiscal year 2004 through fiscal year 2011. Administration
    analyses using historical information indicate that, by extending
    Federal capitalization of the CWSRF program through 2011 at $850
    million per year, the President's proposal is projected to increase SRF
    loan assistance by $21 billion in 20 years, equivalent to the 20-year
    additional need identified by the Clean Water and Drinking Water Gap
    Analysis Report. By also utilizing other Federal, State and local
    sources of funding and improved management practices, we believe the
    infrastructure gap can be eliminated.
        With the $800 million increase in the revolving level, States will
    be able to fund nearly 600 more projects each year on a long-term
    basis. In addition to funding more publicly financed projects, EPA will
    continue to focus on ways to utilize private funds to clean waterways
    by encouraging privatization and promoting technology innovation while
    maintaining affordability for consumers.

                      WATER INFRASTRUCTURE: GAP CONFERENCE

        Question. In January, EPA convened a conference on how to ``close
    the gap.'' The conference included State and local officials, business,
    and other experts to exchange ideas about how to meet water and sewer
    challenges. What happened at this conference? What were the
    conclusions? What are the next steps?
        Answer. Attached is a copy of the summary from the January
    infrastructure forum ``Closing the Gap: Innovative Solutions for
    America's Water Infrastructure.'' This summary is also available at the
    following web address: http://www.epa.gov/water/infrastructure/
    forumXsummary.html

                 WATER INFRASTRUCTURE: WATER AND SEWER FUNDING

        Question. As the protector of the environment, how is EPA working
    to make water and sewer funding a national priority?
        Answer. EPA's new strategic plan features strong water quality and
    public health goals intended to assure linkage of our programmatic
    efforts to environmental gains. EPA, in partnership with the States,
    has set strong goals and objective to achieve these gains. Today's
    challenges demand a multi-faceted approach to managing and sustaining
    our infrastructure assets.
        In addition to managing better, using less, and adequately pricing
    services, water and wastewater utilities may use a watershed approach
    to address the challenges. The CWSRF is a powerful tool for fostering
    and funding watershed projects. States can also use their flexibilities
    to support sustainable infrastructure, drinking water source
    protection, and efficient water use.

                              WATER INFRASTRUCTURE

        Question. Communities like Baltimore are facing enormous costs to
    deal with crumbling water and sewer systems while meeting increased
    regulations. These are worthwhile challenges, but they are also
    unfunded mandates. We need new thinking on a national policy to help
    communities pay for water and sewer. What is EPA doing to develop new
    ideas?
        Answer. The provision of clean and safe water in the 21st century
    is sufficiently challenging as to demand the energy, talent and
    creativity of both the public and private sectors. EPA has offered to
    collaborate with the Congress and the water and wastewater
    infrastructure industry and utilities to address the challenges of
    infrastructure financing. Following release of our report on the gap
    between water and wastewater infrastructure investment needs and
    current levels of spending, EPA sponsored an Infrastructure Forum in
    January 2003 to seek ideas from a broad array of experts. This Forum
    addressed, not only the financial needs of the Nation's water and
    wastewater infrastructure, but also needed innovations and efficiencies
    to help manage costs and achieve better results. Information on the
    forum can be found on the EPA website at: http://www.epa.gov/water/
    infrastructure/forumXsummary.html. In response to the ideas and
    concerns expressed by these experts, EPA is continuing to challenge the
    Nation through articles, presentations and stakeholder discussions. In
    particular we are focusing on the ideas of sustainable management,
    efficiency, full cost pricing and watershed-based decision making. We
    are also examining approaches taken in other countries and seeking to
    find and publish best practices in use in U.S. communities.

                          CLEAR SKIES: BUDGET REQUEST

        Question. The budget proposes $7.7 million for a Clear Skies
    research program. How does this new program relate, if at all, to the
    Clear Skies legislation that EPA sent to Congress?
        Answer. Most of the $7.7 million increase EPA is requesting for the
    Clear Skies Initiative is not for a research program, but for
    development, enactment, and pre-implementation of the Clear Skies Act.
    The proposed 2004 budget requests $1.5 million in new funds for Clear
    Skies research that will support both implementation and assessment of
    market-based approaches such as those proposed in the Clear Skies
    legislation to reduce multiple air pollutants, with an emphasis on
    mercury, from utility boilers under the auspices of EPA's Office of
    Research and Development (ORD); $5.0 million in new funds for
    technical, analysis, and outreach activities in EPA's Office of Air and
    Radiation (OAR) to support enactment and/or pre-implementation of Clear
    Skies (depending on the progress of the legislation); and $1.2 million
    of reprogrammed funds for staff resources. The requested funds for OAR
    would be used for legislative support activities such as assessing
    monitoring and control technology options; analyzing costs and benefits
    of control levels and timing options; economic and technical analysis
    supporting the Regulatory Impact Analysis (RIA); emissions and air
    quality modeling; and establishing baseline indicators for tracking the
    environmental effects of reductions in sulfur, nitrogen, and mercury
    deposition.

                       CLEAR SKIES: LEGISLATION DEPENDENT

        Question. Does the Clear Skies research depend on the enactment of
    Clear Skies legislation?
        Answer. As noted above, much of the budget request is not for Clear
    Skies research. The proposed 2004 budget requests $1.5 million in new
    funds for Clear Skies research that will support both implementation
    and assessment of market-based approaches such as those proposed in the
    Clear Skies legislation.

                       CLEAR SKIES: LEGISLATION ENACTMENT

        Question. Is the purpose of the budget item to work toward
    enactment of Clear Skies legislation?
        Answer. The proposed 2004 budget requests $1.5 million in new funds
    for Clear Skies research that will support both implementation and
    assessment of market-based approaches such as those proposed in the
    Clear Skies legislation, with an emphasis on mercury, from utility
    boilers under the auspices of EPA's Office of Research and Development
    (ORD); $5.0 million in new funds for technical, analysis, and outreach
    activities in EPA's Office of Air and Radiation (OAR) to support
    enactment and/or pre-implementation of Clear Skies (depending on the
    progress of the legislation); and $1.2 million of reprogrammed funds
    for staff resources. The requested funds for OAR would be used for
    legislative support activities such as assessing monitoring and control
    technology options; analyzing costs and benefits of control levels and
    timing options; economic and technical analysis supporting the
    Regulatory Impact Analysis (RIA); emissions and air quality modeling;
    and establishing baseline indicators for tracking the environmental
    effects of reductions in sulfur, nitrogen, and mercury deposition.

                          CLEAR SKIES: FUNDING REQUEST

        Question. What will the $7.7 million in the budget buy?
        Answer. The proposed 2004 budget requests $1.5 million in new funds
    for Clear Skies research that will support both implementation and
    assessment of market-based approaches such as those proposed in the
    Clear Skies legislation to reduce multiple air pollutants, with an
    emphasis on mercury, from utility boilers under the auspices of EPA's
    Office of Research and Development (ORD); $5.0 million in new funds for
    technical, analysis, and outreach activities in EPA's Office of Air and
    Radiation (OAR) to support enactment and/or pre-implementation of Clear
    Skies (depending on the progress of the legislation); and $1.2 million
    of reprogrammed funds for staff resources. The requested funds for OAR
    would be used for legislative support activities such as assessing
    monitoring and control technology options; analyzing costs and benefits
    of control levels and timing options; economic and technical analysis
    supporting the Regulatory Impact Analysis (RIA); emissions and air
    quality modeling; and establishing baseline indicators for tracking the
    environmental effects of reductions in sulfur, nitrogen, and mercury
    deposition.

                                  CLEAR SKIES

        Question. Is this research that EPA is already doing? Or is it new
    research? How will the research be used?
        Answer. EPA's fiscal year 2004 Clear Skies Research Initiative
    proposes new research to support both assessment and implementation of
    market-based approaches (i.e. a ``cap and trade'' system) to reduce
    multiple air pollutants from utility boilers as proposed in the Clear
    Skies legislation. This will include field testing mercury continuous
    emission monitors (CEMs), which have proven to be an important element
    of cap and trade programs where they are demonstrated to be efficacious
    and can be deployed at a reasonable cost. Such long-term testing has
    not been done and is not part of EPA's existing research program. EPA
    will, where possible, characterize compliance application performance
    at Department of Energy (DOE) control technology performance evaluation
    sites, where DOE currently focuses on using CEMs to characterize
    control technology performance and not testing them as compliance
    tools.
        In addition, EPA will initiate new efforts to develop tools and
    approaches that can be used to determine the atmospheric fate of
    mercury. This will include development of an improved method to measure
    dry deposition of mercury deployment in routine monitoring networks and
    field studies to better define atmospheric processes impacting the
    forms of mercury present in the atmosphere. In addition to providing
    direct measurements, this research will also be used to evaluate and
    apply improved air quality models. Ultimately, the results of this
    research will lead to a better understanding of the atmospheric fate of
    mercury that will allow EPA to more accurately measure the
    environmental response to risk mitigation activities and to evaluate
    the effectiveness and progress of mercury programs with more certainty.
    The CEM and atmospheric fate research will be useful to individual
    States or regions of the country that decide to move forward with their
    own market-based programs that include mercury allowances under a cap
    and trade system.

                        CLEAR SKIES VERSUS CLEAN AIR ACT

        Question. As I understand it, the Clear Skies legislation would set
    up a phased system to cap emissions from power plants. How does this
    proposal differ from the existing Clean Air Act? Does the proposal
    repeal any parts of the Clean Air Act?
        Answer. The Clear Skies Act builds on the successes of the Clean
    Air Act and would significantly improve air quality across the Nation
    by requiring power plants to cap and reduce their emissions of
    SO2, NOX and mercury by 70 percent. Our analyses
    from last year project that power plants would emit 35 million fewer
    tons of SO2 and NOX over the next decade under
    Clear Skies than they would under the current Clean Air Act. As a
    result, we expect that the health and environmental benefits over the
    next decade from Clear Skies would be markedly greater than could be
    expected under the current Clean Air Act. These emissions reductions
    and health and environmental benefits would be achieved at a
    considerably lower cost, and with greater certainty, than would occur
    under the current Clean Air Act. This is due in large measure to the
    major innovation of Clear Skies--a multi-pollutant cap and trade
    strategy for power generation based on the proven successful Acid Rain
    Program.
        After the next decade, under the current Clean Air Act, it is clear
    that power plants would be required to reduce emissions as a result of
    EPA and States regulatory actions. However, there are great
    uncertainties (regulatory development, litigation, implementation time,
    etc.) regarding the exact timing and level of these reductions.
        Clear Skies would get greater reductions of SO2 and
    NOX than we expect from the current Clean Air Act power
    plant regulations that would be replaced or modified by Clear Skies
    (e.g., new source review (NSR), regional haze (or BART), the Acid Rain
    program, and the NOX SIP Call). The changes Clear Skies
    would make to the NSR, BART and NOX SIP call programs would
    only apply to sources covered by Clear Skies.
        As for mercury, we expect less mercury to be emitted by power
    plants over the next 5 years if Clear Skies is enacted, but cannot
    predict what mercury emissions would be under the current Clean Air Act
    after that. This is because we are currently engaged in a rulemaking
    process (utility MACT) to set a standard for mercury emissions from
    power plants which will go into effect for existing sources no sooner
    than the end of 2007. As with other regulations, this rule will likely
    be litigated, increasing uncertainty regarding implementation and the
    emissions reductions it would achieve.
        Clear Skies would not replace the fundamental protections afforded
    by the health-based air quality standards for ozone and fine
    particles--those standards will still have to be met. In setting the
    legal deadlines by which areas must attain the fine particle and ozone
    standards, the ``attainment dates,'' Clear Skies relies on the common-
    sense principle that we should not require local areas to adopt local
    measures if their air quality problem would be solved in a reasonable
    time frame by the reductions in power plant emissions required by Clear
    Skies. The same philosophy was reflected in a 1997 Presidential memo
    governing implementation of the ozone and fine particle NAAQS. It
    recognized that where cost-effective emission reductions were required
    through regional controls, additional controls should not be imposed on
    local businesses where they were not needed to meet the NAAQS in a
    reasonable timeframe.
        Under Clear Skies, areas that are projected to meet the ozone and
    fine particle standards by 2015 as a result of Clear Skies would have a
    legal deadline of 2015 for meeting these standards (i.e., will have an
    attainment date of 2015). These areas would be designated
    ``transitional'' areas. Clear Skies would provide two avenues for an
    area to become a transitional area: (1) EPA modeling completed after
    Clear Skies' enactment projects that Clear Skies would bring the area
    into attainment by 2015, or (2) the State adopts and EPA approves by
    December, 2004 additional measures sufficient to bring the area into
    attainment by 2015.
        EPA expects that many Clear Skies Act transitional areas would meet
    the standards prior to the attainment date of 2015 because Clear Skies
    would provide certain, early emission reductions. Areas that qualify as
    ``transitional'' areas would receive that designation instead of
    ``nonattainment'' or ``attainment.'' They would not have to adopt local
    measures (except as necessary to quality for transitional status) and
    would have reduced air quality planning obligations. These areas would
    not be subject to transportation conformity, nonattainment New Source
    Review, rate of progress, RACM or RACT requirements in most
    circumstances.

                           CLEAR SKIES: MERCURY MACT

        Question. Mercury is linked to developmental delays in children.
    Before the administration announced Clear Skies, EPA was on track to
    release a rule, under the existing Clean Air Act, that would have
    required mercury reductions to be in place by 2007. Clear Skies does
    not require the first phase of mercury reductions until 2010, and full
    reductions are not required until 2018. How is waiting 10 extra years
    to reduce mercury emissions more protective of public health?
        Answer. Due to the nature of the market-based trading and banking
    program, the mercury reductions under Clear Skies are expected to begin
    almost immediately upon enactment--as early as this year. By building
    on the existing acid rain trading program for SO2, Clear
    Skies provides a mechanism to reward companies for early SO2
    reductions. Thus, we expect additional SO2 reductions to
    begin immediately. SO2 controls also reduce mercury
    emissions, so mercury reductions will also begin immediately. Existing
    Clean Air Act provisions and current schedules relating to utility MACT
    rules only require some level of mercury reductions from existing
    sources beginning on December 15, 2007. The nature, extent, and timing
    of these reductions are subject to the uncertainties associated with
    this rulemaking and litigation, so it is difficult to compare relative
    emissions reductions between the current program and Clear Skies.
    Litigation in this instance is highly likely, as both industry and
    environmental groups have signaled their intention to litigate, and
    such litigation might push compliance dates further into the future. In
    any event, although the ultimate mercury reductions in Clear Skies
    occur over an extended time period, the program does not wait 10 years
    before effecting more protective emissions reductions.

                  NOX AND SO2 REDUCTIONS

        Question. Fine particulate matter, or soot, causes asthma, chronic
    bronchitis, and is linked to lung cancer. If Clear Skies is not
    enacted, can EPA require reductions of Sulfur and Nitrogen oxides under
    the existing Clean Air Act?
        Answer. Even if Clear Skies is not passed by Congress, power plants
    will be required to reduce their emissions of SO2,
    NOX and mercury. There is no more cost effective way than
    Clear Skies to meet the requirements of the current Clean Air Act or to
    achieve our public health and environmental goals. We know that, absent
    new legislation, EPA and the States will need to take a number of
    regulatory actions, although it is unclear now when the requirements
    will come into effect or what their control levels will be.
        Clear Skies has several benefits over the regulatory scheme that
    will otherwise confront power generators. Clear Skies is designed to go
    into effect immediately upon enactment. Power plants would immediately
    understand their obligations to reduce pollution and would be rewarded
    for early action. As a result, public health and environmental benefits
    would begin immediately. Given Clear Skies' design, it is unlikely that
    litigation could delay the program (particularly since Congress would
    decide the two most controversial issues--the magnitude and timing of
    reductions). In contrast, under the current Clean Air Act, power plants
    would not know what their obligations would be until after EPA and
    States started and completed numerous rulemakings.
        Past experience suggests that litigation delays on the regulatory
    path are likely. Our experience with two cap-and-trade programs--the
    legislatively-created Acid Rain Trading Program and the
    administratively-created NOX SIP Call--illustrates the
    benefits of achieving our public health and environmental goals with
    legislation rather than relying solely on existing regulatory
    authority.
        Though we project a great number of benefits will arise from
    implementation of the NOX SIP call, the journey has been
    difficult and is not yet over. The NOX SIP call was designed
    to reduce ozone-forming emissions by 1 million tons across the eastern
    United States. The rulemaking was based on consultations begun in 1995
    among States, industry, EPA, and nongovernmental organizations. A
    Federal rule was finalized in 1998. As a result of litigation, one
    State was dropped and the 2003 compliance deadline was moved back for
    most States. Most States are required to comply in 2004, although two
    States will have until 2005 or later. Meanwhile, sources in these
    States continue to contribute to Eastern smog problems. Although the
    courts have largely upheld the NOX SIP Call, the litigation
    is not completely over. Industry and State challenges to the rules have
    made planning for pollution control installations difficult, raised
    costs to industry and consumers, and delayed health and environmental
    benefits.
        In contrast, reductions from the Acid Rain Program began soon after
    it passed (even before EPA finalized implementing regulations). There
    were few legal challenges to the small number of rules EPA had to
    issue--and none of the challenges delayed implementation of the
    program.
        It is clear from this example that existing regulatory tools often
    take considerable time to achieve significant results, and can be
    subject to additional years of litigation that may further delay
    significant emissions reductions. Under this scenario, there are few
    incentives to reduce emissions until rules are final, posing
    potentially significant delays in achieving human health and
    environmental benefits. Even once EPA issues a final rule, sources'
    incentive to make plans for compliance may be reduced by litigation.
        The Clean Air Act contains several provisions under which EPA will
    be required to impose further emission controls on power plants in
    order to allow States to meet the new national ambient air quality
    standards (NAAQS) for PM2.5 and ozone. For example, Section
    126 of the Clean Air Act provides a petition process that States can
    use to force EPA to issue regulations to reduce emissions of
    SO2 and NOX from upwind sources, including power
    plants. A number of States have indicated that they intend to submit
    Section 126 petitions in the near future. However, compared to Clear
    Skies, this approach will almost certainly involve years of rulemaking
    and litigation, with resulting uncertainty about reduction targets and
    timetables.

                      CLEAN AIR: PROTECTING PUBLIC HEALTH

        Question. In the meantime, is EPA doing everything possible to use
    existing authority to reduce soot and smog in order to protect public
    health?
        Answer. EPA has made reducing particulate matter and ozone among
    its highest priorities. This includes reducing particulate matter (PM),
    sulfur dioxide (SO2), nitrogen oxides (NOX), and
    volatile organic compounds (VOCs), as well as taking steps to implement
    the new National Ambient Air Quality Standards (NAAQS) for these
    pollutants. Furthermore, reducing these pollutants as quickly as
    possible is a principal reason for expeditious passage of the Clear
    Skies Act.
        We recently promulgated new rules to reduce NOX, VOC,
    PM, and SO2 from cars, trucks, heavy-duty engines, and large
    industrial sources. We have just proposed rules on non-road engines
    which will provide significant reductions in ambient levels and risk
    from particulate matter and ozone.
        We are also moving forward to implement the revised standards for
    these pollutants. Implementation of the 1997 NAAQS for ozone has been
    slowed by litigation. Implementation of the 1997 PM2.5 NAAQS
    had to await deployment of new ambient monitors and the collection of 3
    years of data. With those hurdles largely behind us, EPA is now taking
    the steps required under existing authorities to implement the new
    standards.
        In moving forward on the fine particle standards, on April 1, 2003,
    we proposed Guidance for Determining Boundaries of PM2.5
    Attainment and Nonattainment Areas. States and tribes should submit
    their recommendations to EPA by February 15, 2004. EPA expects to
    designate areas as attaining or not attaining the PM2.5
    standard by December 31, 2004.
        We proposed a rule this spring to guide States in implementing the
    8-hour ozone standard. The public, including interested stakeholders,
    will have an opportunity to comment on the implementation strategies in
    the proposed rule before EPA finalizes the rule by early 2004. The
    process for designating areas for the 8-hour ozone standard has already
    begun. In late 2000, States provided recommendations for ozone
    designations and EPA has asked them to revise and update those
    recommendations by July 2003. The EPA will make final designations for
    the 8-hour ozone standard by April 15, 2004.

                     INTERSTATE TRANSPORT OF AIR POLLUTION

        Question. Under Clear Skies, if facilities in one State are harming
    air quality in a neighboring State, what recourse would the polluted
    State have?
        Answer. By requiring 70 percent reductions in power plant emissions
    of SO2 and NOX, Clear Skies would significantly
    reduce the amount of pollution transported from one State to another.
    Instead of requiring the States and EPA to go through the Clean Air Act
    section 126 process and/or the section 110 interstate transport
    rulemaking process before requiring reduced power plant emissions in
    neighboring States (reductions that could be delayed further by
    litigation), under Clear Skies, power plants would begin to power plant
    emission reductions immediately. Enacting Clear Skies effectively gives
    States even greater reductions than they could have obtained through
    the sections 110 or 126 processes over the next decade, without making
    States go through the uncertain and contentious procedures necessary to
    obtain that relief under the current Act. We do not believe the current
    Clean Air Act interstate transport procedures (sections 110 and 126)
    could provide greater emission reductions over the next decade than
    those under Clear Skies because our analysis indicates it would not be
    feasible to install more control technology over the next decade than
    what we expect under Clear Skies.
        If States needed additional upwind power plant reductions, under
    Clear Skies they could file a section 126 petition seeking additional
    reductions starting in 2012. Clear Skies revises the standard for
    granting petitions under section 126 of the Clean Air Act so that it
    incorporates cost-effectiveness and air quality considerations. EPA
    believes this revision is appropriate because the cost-effectiveness of
    reductions should be determined in accordance with effects on air
    quality. (A provision of the Act eliminates this requirement if it is
    not technically feasible to implement.)

                      WATER QUALITY TRADING PROGRAM: CAPS

        Question. I understand that this new policy is ``modeled'' after
    the Acid Rain trading program, which has been successful. Trading for
    acid rain has worked well because there is an overall cap on pollution
    levels, and trades must be under the cap. Will there be a cap on water
    pollution?
        Answer. The policy does call for trading under a cap. The form of
    the cap will vary depending on whether trading is occurring under a
    Total Maximum Daily Load (TMDL) or not and whether trading is being
    used on a watershed scale or to offset the impact of a single
    discharger:
      --Trading Under a TMDL.--For impaired waters for which a TMDL has
            been approved or established by EPA, the cap is set by the TMDL
            at a level necessary to meet water quality standards. The
            policy (Section III.E.3.) supports trading that is consistent
            with the assumptions and requirements upon which the TMDL is
            established. ``EPA does not support any trading activity that
            would delay implementation of a TMDL . . . or that would cause
            the combined point source and nonpoint source loadings to
            exceed the cap established by the TMDL.''
      --Trading in Impaired Waters Pre-TMDL.--The policy (Section III.E.2.)
            ``supports pre-TMDL trading in impaired waters to achieve
            progress towards or the attainment of water quality
            standards.'' This may be accomplished by individual trades that
            achieve a net reduction of the pollutant traded or by a
            watershed-scale trading program that ``reduces loadings to a
            specified cap supported by baseline information on pollutant
            sources and loadings.'' For individual trades that involve
            point sources, the cap in most cases would be the sum of the
            trading partners' original water quality based effluent
            limitations, which under CWA  301(b)(1)(C) must be established
            at a level necessary to achieve water quality standards. Where
            a point source trades with a nonpoint source, the cap would be
            the point source effluent limitation and the nonpoint source
            load that is either ``derived from'' or ``consistent with water
            quality standards.''
      --Trading in Unimpaired Waters.--The policy also supports trading to
            maintain levels of water quality higher than that necessary to
            protect and support designated uses consistent with Federal
            antidegradation policy (Section III.E.1.) In this way trading
            could be used to offset new or increased discharges through
            actual pollutant reductions obtained from other sources--so
            that no lowering of water quality occurs. In this case, the cap
            (under a State's antidegradation policy) would be the high
            level of water quality that was present in the receiving water
            before the introduction of the new or increased load.
        Question. How do you know that water trading will not increase
    pollution?
        Answer. First, trading will take place bounded by caps. Second,
    water quality standards established to protect designated uses are the
    baseline for generating pollution reduction credits. (See Section
    III.D). The policy contemplates that a pollution reduction credit may
    be created whenever a point source achieves reductions greater than
    those required to meet water quality based limitations. These
    ``surplus'' reductions could form the basis of a trade. For example,
    where a TMDL has been established, the point source waste load
    allocation and nonpoint source load allocation would establish the
    baseline for generating a credit. A source generating a credit not only
    would need to reduce to the level set by the TMDL but also surpass that
    level before a tradable credit could be created. A source buying a
    credit therefore would be able to exceed its original allocation only
    in the amount of the ``surplus'' originally generated, with the result
    that the post-trade sum of loadings from the two sources would be equal
    to (or, depending on cap and program design, less than) the total
    amount of loadings that would have been discharged by the two sources
    in the absence of a trade.
        The policy ``does not support any use of credits or trading
    activity that would cause an impairment of existing or designated uses,
    adversely affect water quality at an intake used for drinking water
    supply or that would exceed a cap established by a TMDL.'' (Section
    III.F.5.).
        In addition, EPA's policy includes other features important to the
    integrity and environmental outcomes of a trading program:
    incorporating provisions for trading into permits issued to point
    sources (Section III.F.1. & 2.), addressing antibacksliding (Section
    III.F.6.) and antidegradation (Section III.F.7.), establishing nonpoint
    source accountability (Section III.G.1.) addressing uncertainty in
    nonpoint source pollution reductions (Section III.G.4.), emphasizing
    the importance of compliance and enforcement (Section III.G.5.) and
    encouraging public participation and access to information (Section
    III.G.6.). The policy supports program evaluations, including ambient
    monitoring, to assess progress and make revisions as needed (Section
    III.G.7.). EPA's oversight role is set forth in Section III.H,
    including the veto of permits, review and approval of TMDLs, and
    approval of revisions to State and tribal water quality standards.

                  WATER QUALITY TRADING PROGRAM: PERMIT LEVELS

        Question. Wouldn't it be more protective of the environment to
    instead ensure that all facilities meet the levels in their permits?
        Answer. All point source dischargers must meet the limits specified
    in their NPDES permits. These limits must be established at levels as
    stringent as necessary to achieve water quality standards established
    under CWA Section 303. See CWA  301(b)(1)(C); 40 C.F.R.
    122.44(d)(1)(vii)(A). The policy supports trading as a means of
    complying with permit limits in a more cost effective manner, providing
    that no use of credits or trading activity would cause an impairment of
    designated uses, adversely affect a drinking water supply or exceed a
    TMDL cap. For point sources that trade, the policy calls for trading
    provisions to be incorporated into the permit (Section III.F.2.). In
    this way the public is given information and notice of a trade, the
    permit is written to allow limits to be met through trading, and
    compliance with the permit is enforceable.

                 WATER QUALITY TRADING PROGRAM: SENSITIVE AREAS

        Question. How will this new policy help sensitive areas like the
    Chesapeake Bay meet aggressive pollution reduction goals?
        Answer. EPA's Water Quality Trading Policy can help meet voluntary
    pollution reduction goals and facilitate implementation of TMDLs by
    providing economic incentives for voluntary reductions from unregulated
    sources, encouraging early reductions and reducing the cost of
    achieving water quality goals.
        For example, Connecticut's Nitrogen Credit Exchange Program is
    creating faster-than-expected reductions under a TMDL established for
    Long Island Sound. Discharges from 79 municipal facilities, in
    aggregate, must be reduced by approximately 64 percent. The Nitrogen
    Credit Exchange Program provides incentives for point sources to reduce
    loadings sooner than required. The program is expected to meet the TMDL
    years ahead of the 14-year compliance schedule at a projected savings
    of approximately $200 million.
        Trading can also help achieve pollution reduction goals by
    generating information on the cost and benefit of various control
    options. This information can be important in facilitating the
    development of TMDLs where voluntary efforts may not be sufficient to
    achieve water quality standards.

                WATER QUALITY TRADING PROGRAM: MONITORING TRADES

        Question. Who will be responsible for monitoring the trades?
        Answer. Monitoring is essential to the credibility of any water
    quality trading program. EPA believes that the responsibility for
    monitoring trades should be shared by the States and sources that
    engage in trading. EPA's Water Quality Trading Policy calls for
    periodic assessments to evaluate the effectiveness of trading and serve
    as a basis for making program revisions. EPA believes this adaptive
    management approach is important for successful implementation of
    trading and other watershed initiatives. The policy specifically
    recommends ambient monitoring to ensure that impairment of uses does
    not occur and to document water quality. The policy also supports
    monitoring (Section III.G.4) and studies (Section III.G.7.) to quantify
    nonpoint source load reductions, validate nonpoint source control
    efficiencies, and determine if water quality objectives have been
    achieved. The policy supports the results of these evaluations being
    made available to the public and an opportunity being provided for
    public input on program revisions.
        The policy calls for point source dischargers to conduct monitoring
    where required by regulations and specified in their permits. This is
    essential to provide clear and consistent measures for determining
    compliance and to ensure that appropriate enforcement action can be
    taken (see Section III.F.4. of the policy).

                  QUALITY TRADING PROGRAM: INCREASED POLLUTION

        Question. How will we be sure that trades will not end up
    increasing pollution?
        Answer. The Clean Water Act (CWA) and its implementing regulations
    establish the legal basis for controlling pollution and supply the
    framework for trading to occur.
        CWA Section 303(c) requires States and tribes to adopt water
    quality standards for waters within their boundaries. The level of
    water quality that must be attained and protected is established by
    water quality standards. (Emphasis added). Water quality standards are
    composed of three parts: (1) designated uses, e.g., protection of fish
    and wildlife, recreation and drinking water supply (40 C.F.R.
    Sec. 131.10); (2) water quality criteria to protect those uses (40
    C.F.R. Sec. 131.11); and (3) an antidegradation policy (40 C.F.R.
    Sec. 131.12). A State must submit to EPA for review and approval/
    disapproval any new or revised water quality standards it adopts (CWA
    section 303(c)(2)). If EPA approves the water quality standard, it
    takes effect and becomes a basis for establishing water quality based
    effluent limitations in National Pollutant Discharge Elimination System
    (NPDES) permits and establishing total maximum daily loads (TMDLs). (40
    C.F.R. Sec. 131.21.)
        The second critical concept and foundation for water quality
    trading is the requirement under the CWA that National Pollutant
    Discharge Elimination System (NPDES) permits contain water quality-
    based effluent limits as stringent as necessary to meet water quality
    standards (CWA Section 301(b)(1)(C)). These water quality-based
    effluent limitations provide the baselines for point sources to
    generate a credit. A baseline is the level below which a reduction is
    made to create a pollutant reduction credit. The Water Quality Trading
    Policy (Section III.D.) encourages sources to create pollutant
    reduction credits by making reductions greater than necessary to meet a
    regulatory requirement. A point source may do so by reducing its
    discharge below the level necessary to comply with a water quality-
    based effluent limit based on a TMDL or other analysis.
        All water quality-based effluent limitations, including alternate
    or variable limits that would apply where trading occurs, are subject
    to CWA section 301(b)(1)(C). EPA has promulgated regulations specifying
    when such water quality-based effluent limitations are necessary and
    how such limitations are to be derived. Among other things, EPA's
    regulations require the permitting authority to ensure that:
      --The level of water quality to be achieved by limits on point
            sources established under this paragraph is derived from, and
            complies with all applicable water quality standards; and
      --Effluent limitations developed to protect a narrative water quality
            criterion, a numeric water quality criterion, or both, are
            consistent with the assumptions and requirements of any
            available wasteload allocation for the discharge prepared by
            the State and approved by EPA pursuant to 40 CFR 130.7. (40
            C.F.R.  122.44(d)(1)(vii) (emphasis supplied).
        Taken together the foregoing provisions of the CWA and implementing
    regulations provide a basis for ensuring that trades are consistent
    with water quality standards established to protect all existing and
    designated uses.
        EPA's Water Quality Trading Policy includes provisions to be
    consistent with water quality standards (Section III. A., B. and D.).
    It also does not support trading that would cause an impairment of
    designated uses, adversely affect a drinking water supply or exceed a
    cap established by a TMDL (Section III. F.5.).

                       SHIP SCRAPPING: DISPOSING OF SHIPS

        Question. What is EPA's current role in helping the Navy and the
    Maritime Administration dispose of obsolete ships? Can ships be
    exported? What is the process for export, and what is EPA's role? How
    many ships must be dismantled?
        Answer. EPA has approved the export of 13 vessels owned by the
    Maritime Administration (MARAD) for dismantling and recycling at the
    AbleUK facility in Teesside, England. EPA and MARAD have visited and
    evaluated the AbleUK facility, and have also consulted with British
    government officials. We have determined that the work necessary to
    dismantle these vessels can be done in a manner that is protective of
    worker safety and health and the environment at this facility.
        The AbleUK facility has substantial experience in deconstruction
    and demolition of large off-shore structures and has a strong history
    of environmental compliance based on regular inspections over the past
    7 years. Provisions have been put in place to assure that AbleUK will
    manage all hazardous materials in an environmentally sound manner.
        There are currently approximately 130 vessels in MARAD's National
    Defense Reserve Fleet (NDRF) that are designated for disposal. MARAD
    has been evaluating several options for disposal, including domestic
    dismantling, foreign dismantling, and preparation of ships to be sunk
    as artificial reefs.
        The National Defense Authorization Act for fiscal year 2003 directs
    the Secretary of Transportation, Secretary of State, and Administrator
    of the Environmental Protection Agency to jointly carry out one or more
    pilot programs to explore the feasibility and advisability of
    alternatives for exporting these obsolete U.S. government vessels for
    scrapping. An important element of the legislation is that any pilot
    project involving export must be able to demonstrate that the work can
    be accomplished abroad in a manner that appropriately addresses
    concerns regarding worker health and safety and the environment.

                    SHIP SCRAPPING: INTERNATIONAL CONDITIONS

        Question. On March 12, 2003, the Washington Post recently reported
    that U.S. officials planned to China to check out possible yards for
    scrapping ships. Did EPA staff participate in this travel? If so, did
    EPA staff find that conditions have changed since 1997, when a Pulitzer
    prize-winning series of articles in the Baltimore Sun exposed dangerous
    working and environmental conditions in ship scrapping abroad?
        Answer. An EPA staff person accompanied the Maritime Administration
    (MARAD) officials on a visit to several sites in China in March. The
    visit was designed to screen potential scrapping facilities for further
    assessment of their capabilities to conduct ship scrapping in a safe
    and environmentally sound manner. The visit revealed a range of
    conditions at the various sites. Since EPA did not visit these yards in
    1997, we cannot comment on whether conditions have changed since then.

                                 SHIP SCRAPPING

        Question. The same Washington Post article (March 12, 2003)
    referenced a 1994 ruling by EPA that these ships are too toxic to
    export, and that this ruling would have to be amended or waived by EPA
    to make export an option. What is the 1994 ruling? What would be the
    process for changing this ruling? Is EPA considering this?
        Answer. EPA is not aware of the ``ruling'' cited in the Post
    article. EPA's stated position in 1994 (59 Federal Register 62817;
    December 6, 1994) was that it wanted to ``allow export for disposal of
    PCB waste . . . on a case-by-case basis unless EPA has reason to
    believe that the PCBs in question will not be properly managed'' in the
    receiving country. In allowing export, EPA also would look to whether
    other standard administrative procedures, similar to those required by
    the Basel Convention on transboundary shipment and disposal of
    hazardous wastes, were followed. While this proposal was not finalized,
    EPA has no plans at present to take any regulatory action related to
    the export of PCB waste for disposal.

                           ENFORCEMENT: PROPOSED CUTS

        Question. In 2002 and 2003, EPA proposed cuts in the budget for
    Federal enforcement. The subcommittee rejected these cuts, and restored
    funding for ``environmental cops on the beat.'' How many enforcement
    personnel did the Agency have in 2001, before the cuts were proposed?
    How many enforcement personnel does the Agency have now?
        Answer. In fiscal year 2001, the Agency's enforcement program
    included 1,661.3 FTE in the Environmental Programs and Management (EPM)
    appropriation. The Agency's proposed enacted operating plan for fiscal
    year 2003 includes 1,632.3 FTE in EPM.

                       ENFORCEMENT: PERSONNEL BY ACTIVITY

        Question. What is the breakout by activity (for example, civil
    enforcement, compliance monitoring, etc)?
        Answer. The Agency's fiscal year 2003 budget includes 1,482.4 FTE
    for the enforcement program in the EPM appropriation. The following
    table identifies the programs that make up the enforcement program.
    This information only reflects the EPM appropriation.

    ------------------------------------------------------------------------
                                                Fiscal year     Fiscal year
                     Program                   2003 request    2004 request
                                                   (FTE)           (FTE)
    ------------------------------------------------------------------------
    Compliance Monitoring...................           419.3           464.4
    Civil Enforcement.......................           848.2           915.1
    Criminal Enforcement....................           190.9           190.1
    Homeland Security.......................            24.0            24.0
                                             -------------------------------
          TOTAL.............................         1,482.4         1,593.6
    ------------------------------------------------------------------------

          ENFORCEMENT: PERSONNEL BY ACTIVITY--FISCAL YEAR 2004 BUDGET

        Question. How many will the agency have under the 2004 budget? What
    is the breakout by activity?
        Answer. The Agency's fiscal year 2004 Request includes 1,593.6 FTE
    for the enforcement program in the EPM appropriation. The fiscal year
    2004 Request includes an overall increase of 100 FTE over the fiscal
    year 2003 President's Budget Request.

    ------------------------------------------------------------------------
                                                Fiscal year     Fiscal year
                     Program                   2003 request    2004 request
                                                   (FTE)           (FTE)
    ------------------------------------------------------------------------
    Compliance Monitoring...................           419.3           464.4
    Civil Enforcement.......................           848.2           915.1
    Criminal Enforcement....................           190.9           190.1
    Homeland Security.......................            24.0            24.0
                                             -------------------------------
          TOTAL.............................         1,482.4         1,593.6
    ------------------------------------------------------------------------

                   ENFORCEMENT: EPA'S FISCAL YEAR 2004 PLANS

        Question. Federal enforcement activities include a number of
    important programs--including civil enforcement and compliance
    monitoring. Over the last 2 years, the subcommittee has worked with the
    Agency to ensure that resources were distributed consistently. Does the
    Agency propose to shift priorities or personnel in 2004? Or are the
    Agency's plans for 2004 consistent with past distribution?
        Answer. The Office of Enforcement and Compliance Assurance (OECA)
    is currently conducting an analysis of workforce-related issues. OECA's
    Assistant Administrator has appointed a Workforce Deployment Executive
    Steering Committee to examine and provide specific recommendations
    regarding the effective deployment of enforcement and compliance
    resources. OECA believes that a more holistic, collective and strategic
    approach to compliance and environmental problem solving is needed to
    respond to our workforce-related challenges. OECA expects to finish its
    analysis in August 2003, with possible implementation in fiscal year
    2004.

                             ENFORCEMENT: VACANCIES

        Question. Last year, EPA had over 100 unfilled enforcement jobs.
    How many vacancies in enforcement are there now? What is EPA doing to
    fill these vacancies?
        Answer. OECA is pursuing an aggressive hiring strategy in fiscal
    year 2003 and continues to hire staff in high priority program areas.
    In fiscal year 2003, OECA received an increase of 154 FTE for
    enforcement. Because the appropriations bill was enacted later in the
    year and OECA only received funding for the FTE increase in late March,
    the Agency estimates that based on current charging OECA may be 50 FTE
    below ceiling. OECA's headquarters and regional offices will
    aggressively hire to the maximum extent possible.

                  ENFORCEMENT: GAO'S EVALUATION RECOMMENDATION

        Question. Last year, GAO recommended that EPA do a comprehensive
    workforce study to evaluate whether enforcement resources are adequate
    to meet the need. Has EPA done this study?
        Answer. The Office of Enforcement and Compliance Assurance is
    currently conducting an analysis of workforce-related challenges as a
    result of GAO's recommendation. OECA's Assistant Administrator has
    appointed a Workforce Deployment Executive Steering Committee to
    examine and provide specific recommendations regarding the effective
    deployment of enforcement and compliance resources. The analysis will
    address GAO's concerns and other workforce deployment challenges.

                         ENFORCEMENT: EPA'S EVALUATION

        Question. Does EPA's evaluation include the needs of headquarters
    and regional offices?
        Answer. Yes. The evaluation does consider the needs of headquarters
    and regional offices.

                      ENFORCEMENT: FISCAL YEAR 2004 BUDGET

        Question. If the study has not been completed, how can the
    subcommittee be sure that EPA's 2004 budget request is adequate to
    ensure enforcement of our environmental laws?
        Answer. The Agency's fiscal year 2004 Request for the Enforcement
    and Compliance Assurance program represents the highest funding level
    in that program's history and reflects this administration's strong
    commitment to the vigorous enforcement of our Nation's environmental
    laws. The request includes an increase of 100 FTE over the fiscal year
    2003 Request to enhance inspection and enforcement coverage to better
    identify and address persistent noncompliance in an expanding regulated
    universe. Based on recommendations from OECA's workforce deployment
    Executive Steering Committee, OECA plans to target deployment of these
    resources to ensure a holistic and integrated approach to compliance,
    serving as a powerful deterrent to would-be violators.
                                     ______

                Questions Submitted by Senator Patrick J. Leahy

                                 ELIZABETH MINE

        Question. Last year, the administration dropped the Elizabeth Mine
    in Strafford, Vermont from the Superfund funding list. A recent mine
    safety inspection and analysis has shown that a potential failure of
    mine tailing piles could occur. This would result in a flood wave 8 to
    9 high, traveling at a velocity of 10-15 per second (7-10 miles per
    hour). This would result in serious environmental and property damage,
    causing public health and safety risks and long term ecological damage
    as far downstream as the Connecticut River.
        The New England Region has invoked their emergency response
    authority and recommended to EPA headquarters that their proposed
    Superfund remedy be implemented and funded. This is a very serious
    situation. Can you assure me that EPA will fully fund the remedy at the
    Elizabeth Mine?
        Answer. The Elizabeth Mine site is being addressed by both: (1) an
    on-going emergency removal action; and (2) a long-term remedial cleanup
    action.
        EPA authorized an emergency removal action in March, 2003, to
    address the potential failure of the tailings piles due to an unlikely
    sudden snow pack melt or unexpectedly large (4-6) rain event. As you
    noted, a recent report raised the possibility of a failure of a mining
    tailings pile.
        Emergency removal activities to address potential failure of the
    tailings pile:
      --EPA has taken and will continue to take emergency action at this
            site to minimize the immediate threat posed to downstream
            residents. EPA has installed stand-by pumps and a debris rack
            to prevent the accumulation of large amounts of standing water
            behind the tailings pile. EPA will continue to install graded
            filters to repair internal dam erosion. EPA has increased site
            monitoring.
      --We have met with residents and continue to work with experts from
            the Vermont Department of Environmental Conservation and the
            U.S. Army Corps of Engineers to address dam erosion issues and
            improve the stability of the site as part of the emergency
            response removal action.
      --Funding for emergency action and site monitoring are separate and
            distinct from the Superfund program's long-term remedial
            cleanup funding.

    Long-term Remedial Action
        For fiscal year 2003, the Agency continues to evaluate the
    Elizabeth Mine site, and other sites nationwide to determine how long-
    term remedial cleanup funds should be allocated in the coming year.
      --When considering Elizabeth Mine, please be assured that the Agency
            will consider all the new information gathered about the
            conditions at the site.
      --Each year EPA reviews funding requests for site cleanups and weighs
            funding decisions against needs for CERCLA sites across the
            country. This site will soon be re-evaluated through this
            process and ranked against other response actions for sites
            across the country to determine the relative priority for
            funding this project in whole or in part.
      --Funding decision criteria include relative risk, potential for
            human exposure to site contamination, potential for ecological
            impacts, and the status of overall site progress.

                               MERCURY EMISSIONS

        Question. Administrator Whitman, we have talked about the issue of
    mercury in the past, but I find it disconcerting when you consider the
    findings in the EPA long-overdue report, America's Children and the
    Environment, which outlines serious risks to pregnant women and
    children from mercury exposure. Last month, I along with Senator
    Olympia Snowe (R-Maine) introduced a comprehensive bill, ``The Omnibus
    Mercury Emissions Reduction Act'', to control mercury emissions from
    coal-fired power plants and other sources. This bill will provide
    tougher standards than the administration's Clear Skies proposal in
    reducing mercury pollution. In an EPA Report (2000) it was estimated
    that 29 tons of mercury emissions are released per year from coal- and
    oil-fired commercial and industrial boiler units. Yet, the EPA has not
    yet decided to regulate these emissions. Within the Mercury Omnibus
    bill it would require the EPA to set a maximum achievable control
    technology (MACT) standard that would reduce mercury emissions by at
    least 90 percent. Why did the EPA elect not to regulate these
    emissions?
        Answer. The Agency has regulated mercury emissions from a number of
    important source categories, including Municipal Waste Combustors,
    Medical Waste Incinerators, and Hazardous Waste Combustors. In
    addition, we have proposed mercury limits for both new and existing
    solid fuel-fired industrial/commercial/institutional boilers and
    process heaters in a MACT standard that was proposed on January 13,
    2003. The EPA expects the Clear Skies proposal to provide additional
    reductions from coal-fired utilities. We continue our work on the
    utility MACT, which is expected to be proposed in December 2003 and
    will include limits on mercury emissions from electric utility boilers.

                       CLEAR SKIES ACT VS. CLEAN AIR ACT

        Question. According to the EPA, approximately 200 counties with
    more than 80 million people would not be able to meet the fine
    particulate matter standard expected to take effect in 2010. Under the
    Clear Skies initiative, power companies would be able to continue to
    emit tens of thousands of tons of sulfur dioxide by buying pollution
    credits from cleaner plants and thus avoid having to control older and
    dirtier plants. The initiative would allow significantly more air
    pollution, including: a 68 percent increase in nitrogen oxide over
    current law and standards that would take effect 8 years later than the
    current Clean Air Act; a 125 percent increase in sulfur dioxide and
    standards that would take effect 6 years later; and a 420 percent
    increase in mercury and standards that would take effect 10 years
    later. The administration purports that this will improve the efforts
    under the current Clean Air Act, how will this be by pushing back
    already much needed reductions to protect the American public from
    continually breathing dirty air?
        Answer. Clear Skies would improve upon the Clean Air Act providing
    greater reductions from power plants over the next 10 years than would
    the current Clean Air Act. Our analysis indicates that the cumulative
    health and environmental benefits over the next decade from Clear Skies
    are markedly greater than could be expected under the current Clean Air
    Act. Last year's EPA estimates for Clear Skies project that, over the
    next decade, all the programs of the existing Clean Air Act would
    reduce power plant emissions of SO2 and NOX by
    approximately 23 million tons. Over the same time period, Clear Skies
    would reduce emissions of these same pollutants by 58 million tons--a
    reduction of 35 million tons of pollution beyond what can be achieved
    under current law.
        Beyond the next decade, we cannot really predict what will happen
    under the Clean Air Act. We know that EPA and States will need to issue
    regulations to reduce power plant emissions, but we do not know for
    sure what the levels will be or when the reductions will be achieved.
    There are great uncertainties regarding regulatory development,
    litigation, and implementation time that affect reductions. Under this
    scenario, there are few incentives to reduce emissions until rules are
    final, posing potentially significant delays in achieving human health
    and environmental benefits. Litigation may further delay these
    benefits.
        In contrast, the mandatory emissions caps at the heart of Clear
    Skies are a sure thing and guarantee that reductions will be achieved
    and sustained over time. The Clear Skies Act builds on the successes of
    the Clean Air Act and would significantly improve air quality across
    the Nation by requiring power plants to cap and reduce their emissions
    of SO2, NOX and mercury by 70 percent. Also,
    because cap and trade programs include economic incentives for early
    action, Clear Skies would begin improving public health immediately.
    The Clear Skies Act would not replace the fundamental protections
    afforded by the national air quality standards. Where the Clear Skies
    Act is not sufficient to achieve attainment of the standards, States
    will still be required to attain those standards.
        Our experience with the Acid Rain Program has demonstrated that the
    largest, highest emitting sources often achieve the greatest emissions
    reductions. Our analysis of the Clear Skies Act of 2002 projects that
    results under Clear Skies will be similar.
        [Note.--The results herein are based on analyses of the Clear Skies
    Act of 2002 conducted in 2002.]

                        FISCAL YEAR 2004 BUDGET PROPOSAL

        Question. Last year you proposed $7.621 billion, while Congress
    eventually appropriated $8.2 billion to assist you in addressing the
    numerous environmental issues this Nation faces. Now today you are
    requesting $7.63 billion for fiscal year 2004, a $570 million decrease
    over what was appropriated in fiscal year 2003. It is my understanding
    this will result in across the board cuts on water quality, reducing
    the enforcement branch by 100 employees (as compared to fiscal year
    2001), and while you propose an increase of $60 million for the
    Superfund toxic waste cleanup program, this comes from requiring the
    American taxpayer to pay for the increase, not the polluter. At a time
    when the Nation needs increased vigilance in protecting the
    environment, you elect to reduce numerous programs and increase the
    costs to the taxpayer; what is the rationale for such proposals?
        Answer. The President's fiscal year 2004 budget request of $7.6
    billion provides the funding necessary for the Agency to carry out its
    mission efficiently and effectively--to protect human health and
    safeguard and restore the natural environment. Given the competing
    priorities for Federal funding this year, namely the War on Terrorism
    and Homeland Security, the request reflects the Agency's commitment to
    cleaning, purifying, and protecting America's air, water, and land. The
    request promotes these goals in a manner consistent with fiscal
    responsibility by strengthening our base environmental programs,
    fostering stronger partnerships, and enhancing strong science.
        The increases requested in the Fiscal Year 2004 President's Budget
    Request will result in improvements to the Nation's water quality.
    Included in the fiscal year 2004 request is a $50 million increase for
    EPA's core water programs. The increased funding will support
    strengthening and integrating EPA's water programs and allow for
    increased technical assistance and direct resources for State drinking
    water and clean water programs. Specifically, the resources will target
    improving monitoring programs, setting water quality standards,
    establishing Total Maximum Daily Loads (TMDLs), drafting permits, and
    implementing State clean water and drinking water programs. There is
    also a $5 million increase to the wetlands program that will help
    States protect wetlands and isolated waters no longer under the
    jurisdiction of Section 404 of the CWA as a result of recent court
    decisions. In addition, for fiscal year 2004 the administration
    extended the Federal commitment to capitalizing the Clean Water State
    Revolving Fund through 2011 at $850 million per year. Extending the
    period of capitalization will significantly increase available
    resources to meet water infrastructure needs.
        The Agency's Fiscal Year 2004 Request for the Enforcement and
    Compliance Assurance program represents the highest funding level in
    that program's history and reflects this administration's strong
    commitment to the vigorous enforcement of our Nation's environmental
    laws. The fiscal year 2004 request includes an increase of 100 FTE
    above the fiscal year 2003 President's request to enhance inspection
    and enforcement coverage to better identify and address persistent
    noncompliance in an expanding regulated universe.
        The administration strongly supports Superfund's ``polluter pays''
    principle and continues to make parties responsible for the hazardous
    waste sites clean them up. Typically, 70 percent of Superfund site
    cleanups each year are financed and cleaned up by the polluters. The
    remaining sites are cleaned up by EPA, but EPA sues any financially
    viable private parties after the cleanup to recover costs. EPA
    collected nearly $250 million last year through these cost recoveries.
    EPA only pays for the ``orphan'' sites where no viable responsible
    party can be found. All viable polluters pay their share of cleanup,
    either through cost recovery or by cleaning up the sites themselves.
    The requested increase will allow EPA to cleanup 10 to 15 additional
    ``orphan'' sites that would have to wait for cleanup otherwise.

                     CHILDREN'S HEALTH REPORT & CLEAR SKIES

        Question. The EPA sat on the ``American Children and the
    Environment'' report for 8 months until an article by the New York
    Times forced it to come out to see the light of day. The report
    documents numerous threats of mercury to children and pregnant women.
    In particular the report notes that there is a ``growing concern about
    exposure by women of childbearing age,'' yet the agency is attempting
    to further slow the need for cleaner air through its Clear Sky
    Initiatives. Shouldn't the EPA have a goal of protecting the
    environment, rather than rolling back environmental laws?
        Answer. ``America's Children and the Environment: Measures of
    Contaminants, Body Burdens, and Illnesses'' is the U.S. Environmental
    Protection Agency's second report on trends in environmental factors
    related to the health and well-being of children in the United States.
    The report brings together, in one place, quantitative information from
    a variety of sources to show trends over time in levels of
    environmental contaminants in air, water, food, and soil;
    concentrations of contaminants measured in the bodies of children and
    women; and childhood illnesses that may be influenced by exposure to
    environmental contaminants.
        The report revealed that the potential for mercury exposure in the
    womb is of growing concern because prenatal exposure to methylmercury
    can cause adverse developmental and cognitive effects in children. The
    report states that in 1999-2000, 8 percent of women of childbearing age
    had mercury blood concentrations at or above EPA's reference dose, a
    level of exposure beyond which EPA has concern (5.8 parts per billion).
        ``America's Children and the Environment: Measures of Contaminants,
    Body Burdens, and Illnesses'' contains a large amount of technical
    information that relates to the scientific expertise and programs of
    numerous Federal agencies. Therefore, in order to ensure the quality of
    the report, it underwent an extensive interagency peer review process.
    The report was released upon completion of the interagency review.
        Last year the President announced a legislative plan, Clear Skies,
    to control mercury, NOX and SO2 from electric
    power plants. Clear Skies compliments existing Clear Air Act programs,
    such as the new national air quality standards, by specifically
    addressing the harmful pollutants released from power plants. If
    enacted, Clear Skies would reduce mercury emissions from coal fired
    power plants through a cap and trade program that would cut emissions
    of mercury by almost one-half by 2010 and would cap mercury emissions
    by nearly 70 percent in 2018. Based on an analysis completed in 2002,
    Clear Skies would remove 35 million more tons of pollution over the
    next decade than under current law. EPA is also currently regulating
    mercury emissions from municipal waste and medical waste incinerators.
    EPA regulations require that these two types of sources reduce their
    emissions by over 90 percent.

                                 LAKE CHAMPLAIN

        Question. In 2002, Vermont and New York completed the revision of
    the 1996 comprehensive pollution prevention, control and restoration
    plan for Lake Champlain, the original 1990 Lake Champlain legislation
    was reauthorized by Congress and signed into law and the 7-member
    Vermont and New York Congressional delegation wrote to you requesting
    additional appropriations for this important work. In fiscal 2004, we
    will again be seeking a significant increase in Lake Champlain funding.
    What are the agency's plans for Lake Champlain related efforts in 2004?
        Answer. The Lake Champlain Basin Program is a very successful
    interstate, interagency, and international partnership. We intend to
    continue our support and funding for the program--our 2004 request
    includes $955,000 for Lake Champlain, which is level funding from the
    2003 President's Budget.
        Activities will focus on several priorities identified in the draft
    revised management plan for Lake Champlain (``Opportunities for
    Action''), including: reducing phosphorus loadings through point and
    nonpoint source control measures and implementation of the recently
    approved TMDL for the lake; increased measuring and monitoring of
    ecological and environmental parameters in order to help gauge
    progress; controlling toxic substances by developing and implementing a
    comprehensive toxic substance management strategy which would emphasize
    pollution prevention opportunities; minimizing human health risks such
    as from blue-green algae; controlling the introduction, spread, and
    impact of nonnative nuisance species via revision and implementation of
    a comprehensive management plan in order to preserve the integrity of
    the Lake Champlain ecosystem, such as by reducing the introduction of
    non-native fish through angler education; and increasing the presence
    of the program in New York State.

                              SUBCOMMITTEE RECESS

        Senator Bond. Since my colleagues have gone on to their
    other responsibilities, I hereby declare this hearing recessed.
    Thank you.
        [Whereupon, at 11:02 a.m., Thursday, March 20, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

    DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                            THURSDAY, APRIL 3, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond and Mikulski.

                       EXECUTIVE OFFICE OF THE PRESIDENT

                    Office of Science and Technology Policy

    STATEMENT OF JOHN H. MARBURGER, III, DIRECTOR

                          NATIONAL SCIENCE FOUNDATION

    STATEMENT OF RITA R. COLWELL, DIRECTOR
    ACCOMPANIED BY:
            WARREN M. WASHINGTON, CHAIR, NATIONAL SCIENCE BOARD
            CHRISTINE C. BOESZ, INSPECTOR GENERAL
            MARY CLUTTER, ASSISTANT DIRECTOR FOR BIOLOGICAL SCIENCES

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Welcome. The Subcommittee on Veterans,
    Housing, and Independent Agencies will come to order. This
    hearing will be on the budget for fiscal year 2004 for the
    National Science Foundation, the National Science Board, and
    the Office of Science and Technology. We are pleased to welcome
    back Dr. John Marburger from OSTP, Dr. Rita Colwell from NSF,
    Dr. Warren Washington from the National Science Board, and we
    also welcome back Dr. Tina Boesz, Inspector General of the NSF,
    who has done an outstanding job of providing independent and
    objective information on the Foundation's management practices.
        Because of very busy schedules today I have asked my
    distinguished colleague, Senator Mikulski, to give her opening
    statement first because I know she has many commitments, and we
    will try to do our best carrying on without her.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Well, thank you very much, Mr. Chairman,
    and I want to thank you for your courtesy and, of course, to
    welcome Drs. Colwell, Marburger, Washington, and Boesz. I once
    again want to reiterate how glad I am that we are partners on
    the National Science Foundation appropriations, and in our
    continued national goal of doubling NSF's budget; we are now in
    our second year of our 5-year commitment.
        It looks like it is going to be a bit difficult to meet the
    doubling commitment, but the commitment is still there because
    not only do we think that science is bipartisan, but that
    science should be nonpartisan, and that we need to work
    together to fund the next generation of scientists and the next
    generation of ideas.
        When I look at the NSF budget for 2004, I note that it is
    just 3 percent over last year, and I am troubled that the
    research budget, the very core of NSF, is increased only by 1.2
    percent. This number does not even account for inflation.
        We were disappointed last year with the NSF budget, and we
    still are. We are wholeheartedly and enthusiastically behind
    the increase in the National Institutes of Health, but it is
    not that we should fund one and not the other. I believe this
    is not an NSF budget. I believe it is an OMB budget.
        In the omnibus, Senator Bond and I gave NSF a 10 percent
    increase over last year. Every major report on long-term U.S.
    economic competitiveness has cited the need for major increases
    in scientific research. This is where the ideas and the jobs
    will come for tomorrow.
        The paltry 1.2 percent increase in research stands in
    marked contrast, however, to the increase for major equipment.
    I think we should keep an eye on the major equipment. We do
    need the hardware and telescopes and we are very pleased at the
    modernization at the South Pole, which had not been done in a
    number of years, but we need to really be looking at research.
        The education budget fares only slightly better. It is
    increased by 4 percent, primarily in the President's Math and
    Science Partnership. We want to support the President, but we
    need to look at a more balanced approach.
        I am enthusiastic, though, about the increase of graduate
    stipends to $30,000. Last year, we increased it from $18,500 to
    $25,000, and I said to Senator Bond, this could turn out to be
    one of the most important things we do this year, and I am so
    pleased that you told us that applications have gone from 5,000
    to 8,000, and thanks to my Senator's calculations that is a 60
    percent increase.
        I believe that the President, his team, and you are very
    wise to say, let us increase it to $30,000, because I truly
    believe for many of our students their student loans are their
    first mortgage, and they cannot continue to layer on debt,
    particularly if they are looking for jobs in academia or in the
    nonprofit world.
        So we really look forward to this. However, we do hope that
    we can find a way to fund TechTalent, which goes to
    undergraduate education, which being an Oriole fan, I know how
    important a farm team is. It really starts K through 12, even
    really starts in Head Start, but all the way through, to make
    sure that our undergraduates are working on this.
        We want to continue to work on workforce readiness, focus
    particularly on women and minorities, and we cannot forget our
    community colleges. Perhaps it does not prepare people for
    Ph.D.s, but it prepares them for the science world we need, the
    community college graduate in nursing, radiology technology.
    Allied healths alone, as well as some of the other basic
    fields, would be very important.
        And again, we want to thank Dr. Marburger, an advisor to
    the President, and we look forward to working with him. Our
    homeland security does continue to be a top priority with both
    of us, and we look forward to hearing you.
        Mr. Chairman, thank you. Those are my remarks, and just
    because I might have to leave does not mean that you do not
    have my wholehearted support in an idea on how we can continue
    our doubling efforts in strategic areas.

                               PREPARED STATEMENT

        Senator Bond. Senator Johnson has submitted a statement
    that he wishes to be included for the record.
        [The statement follows:]

                   Prepared Statement of Senator Tim Johnson

        Thank you Chairman Bond and Senator Mikulski for holding this
    important hearing today. I look forward to the testimony of our
    distinguished witnesses this morning to discuss the exciting
    opportunities in science and technology.
        I strongly support efforts to enhance core sciences through
    investments in capacity, education, and basic research. Efforts to
    double the resources allocated to the National Science Foundation are
    essential to reinforce our understanding in multiple scientific
    disciplines. I applaud Senators Bond and Mikulski for their leadership
    on behalf of NSF and our scientific community.
        The work of the National Science Foundation is instrumental to
    support basic research. The discoveries we make in core sciences lay
    the groundwork for applications and breakthroughs that impact
    telecommunications, health care, environmental sciences, biotechnology,
    and numerous aspects of our lives. Many of these developments evolve
    into commercial adaptations and other products which contribute to our
    national security, economic growth and enhance our quality of life.
        I strongly support the important work accomplished by the EPSCoR
    program to help small States develop R&D infrastructure at colleges and
    universities. NSF's EPSCoR program has been instrumental in expanding
    scientific opportunities and building the capacity necessary to sustain
    research and development initiatives around the country. While the
    fiscal year 2004 budget proposal for EPSCoR is disappointingly low, I
    hope that we may work together to reinforce our commitment to develop
    scientific opportunities in all sectors of higher education.
        There remains a great deal of interest within the scientific
    community with regard to establishing a National Underground Science
    and Engineering Laboratory. The National Academies of Science have
    reviewed the potential merits of such an initiative and have reported
    favorable findings. As the National Science Foundation continues to
    prioritize the needs and opportunities for fundamental scientific
    exploration, we appreciate the consideration provided to the views of
    scientists and researchers regarding this proposed initiative.
        I congratulate NSF for undertaking exciting endeavors to better
    understand the composition, evolution, and interactive systems of our
    planet. The EarthScope initiative is employing new observational
    technologies to investigate the structure and dynamic processes of the
    North American continent. Among the many potential benefits of this
    program, the research may provide greater understanding of the
    evolution of the Rocky Mountains and the Northern Great Plains.
        The NEON concept is another promising effort being initiated at NSF
    to establish national sites for the ``National Ecological Monitoring
    Network.'' We look forward to the contributions of this important
    research.
        I applaud the National Science Foundation, the National Science
    Board, and the Office of Science and Technology Policy for their
    commitment and dedication to our Nation's science programs.

        Senator Bond. Well, thank you very much, Senator Mikulski,
    and before Senator Mikulski leaves I am going to take the
    chairman's prerogative to tell you a little parochial story.
        This past Friday, talking about getting young people
    interested, I went to the St. Louis Science Center, which I
    believe is partially funded through the informal science
    education program. I was announcing three-quarters of a million
    dollars to help them develop a program to explain biotechnology
    to the kids, but the greatest thing, it was a rainy day and the
    place was jam-packed. They expected 10,000 kids, and there were
    kids from kindergarten up through all the grades. They were
    coming into this wonderful area to get them enthused and
    interested and curious about science.
        And we are talking about the farm team. This is beginning
    to work at the little leagues, because if we can get them
    interested in and enthusiastic about science, we have got an
    opportunity to make mathematicians and scientists out of them.
    That is when I got really interested in it, and I was on that
    path until I ran into the theory of calculus, and that is when
    I decided to go into social sciences.
        Senator Mikulski. Senator, for me it was organic chemistry
    and Boyle's gas laws, and there I learned that gas takes the
    size and shape of its container. That is interesting to know
    when you join the Senate.
        Senator Bond. Senator, I do not believe we will follow that
    one any further. I believe we have gone far enough down that
    line. Now back to work.
        But I agree with you it is truly exciting to see young
    people who are getting interested in science, and we have got
    to have lots more of them. Senator Mikulski and I have long
    joined you as leaders in our science effort to say that the
    tremendous challenge that our Nation faces is our failure to
    educate enough mathematicians, scientists, and engineers to
    deal with the tremendous developments that are coming forward
    in the future, so that is a very strong personal interest that
    we have.
        But this hearing is a very important one today, because it
    gives us the opportunity to talk about the critical role the
    National Science Foundation plays in the economic and
    intellectual growth and the well-being of the Nation. Most
    policy experts believe that investment in the physical sciences
    and engineering not only benefits the high tech industries but
    all major research areas, including biomedical research.
        In the words of Dr. Harold Varmus, the former Director of
    the National Institutes of Health, scientists can wage
    effective war on disease only if we as a Nation and as a
    scientific community harness the energies of many disciplines,
    not just biology and medicine, close quotes, or in my words,
    supporting NSF supports NIH.
        Unfortunately, while Federal support in life sciences has
    increased significantly, the combined share of the funding for
    physical science and engineering has not kept pace. I am
    alarmed and troubled by this disparity, because a decline in
    funding for the physical sciences has put our Nation's
    capabilities for scientific innovation at risk and, equally
    important, at risk of falling behind other industrial nations.
        Even the President's Council of Advisors on Science and
    Technology, the PCAST, believes that if the Federal Government
    continues the present pattern of funding between life sciences
    and physical sciences, it will, quote, lead to an inability to
    sustain our Nation's technical and scientific leadership, end
    of quote. That is why my good friend, Senator Mikulski, and I
    have led a bipartisan, bicameral effort to double NSF's budget.
        I was very pleased that late last year PCAST recommended to
    the President that, beginning with the fiscal year 2004 budget
    and carrying through the next 4 fiscal years, funding for the
    physical sciences and engineering across all relevant agencies
    be adjusted upward to bring them collectively to parity with
    life sciences. Further, the President signed the NSF
    reauthorization bill last fall which authorizes $6.39 billion
    for NSF in fiscal year 2004, and called for a doubling of NSF's
    budget over 5 years.
        Therefore, I was deeply disappointed that the budget
    request only provided $5.48 billion for fiscal year 2004, a
    paltry $170 million or 3.2 percent increase over fiscal year
    2003. I have that feeling that Charlie Brown must have had when
    he asked Lucy to keep holding the football for him.
        To say that OMB's budget request for NSF is disappointing
    would be an understatement. Nevertheless, we intend to continue
    fighting for additional funds for NSF despite the challenges in
    meeting funding needs for VA medical care, affordable housing,
    environmental protection, and space shuttle safety.
        Let me just highlight a few areas in the budget. In the
    area of education, the cut to the TechTalent or STEP program
    again was disappointing. Senator Lieberman initiated this
    program along with Senator Mikulski, Senator Frist, Senator
    Domenici, and myself. At a time when the number of U.S.
    undergraduates in engineering and mathematics is declining, it
    is puzzling that the administration would propose a 70 percent
    reduction in a program designed to increase the number of
    undergraduates in these fields.
        My biggest disappointment, however, is the cut to the plant
    genome program. Now, you may know I am a big supporter of plant
    biotechnology because it has generated exciting possibilities
    for improving human health and nutrition that eventually can be
    a very powerful tool for addressing hunger in many third world
    developing countries such as those in Africa and Southeast
    Asia.
        The fiscal year 2004 budget request provides only $75
    million for the NSF plant genome program, a $10 million cut
    from the fiscal year 2003 enacted level. The request seems to
    contradict the National Science and Technology Council's
    January 2003 report, which recommends the Federal Government
    invest $1.3 billion over the next 5 years on plant genome
    research. The plant genome program deserves more funding, and I
    hope to be able to address that in the fiscal year 2004 bill.
        Let me now touch on a few other issues. First, I am
    interested in the National Science Board's operations and its
    implementation of a number of legislative directives enacted in
    the last Congress to ensure that the Board has tools to meet
    its statutory responsibilities. For fiscal year 2003, the
    Congress provided a separate budget of $3.5 million to fund the
    Board's operations but, contrary to law, the administration
    zeroed out the budget for 2004.
        I expect the administration to comply with the statute. For
    now, I will give the administration the benefit of the doubt
    that this was a simple oversight, and that the administration
    will submit a budget amendment to correct this obvious mistake.
        Providing the Board with its own budget and hiring
    authority are two important steps in supporting the Board's
    independence. In other words, Congress took steps to ensure
    that the Board not be a rubber stamp for the Director of NSF,
    or the NSF organization itself. It was to be an independent
    organization offering advice and guidance and counsel.
        But these are only the first steps. We also need to look at
    the structure of the Board's executive committee. The statute
    requires the Director to be the chair of the executive
    committee. It makes more sense to me that the NSB Chair leads
    the committee.
        Before closing, I want to raise a few points about the
    Foundation's management. Last year before this subcommittee the
    inspector general raised a number of significant problems with
    the Foundation's management. Based on my review of the
    inspector's written testimony submitted for today's hearing,
    she continues to raise the same concerns, most notably large
    facility project management.
        Over the past 3 years, the IG has conducted two significant
    audits of NSF's large research facility management, and
    recommended additional NSF oversight. However, I was
    disappointed to read in the IG's written testimony submitted
    today, she states, quote, the key recommendations from both
    these reports which relate to the development of new project
    and financial management policies and procedures remain
    unresolved by NSF management, close quotes.
        My view is that NSF must take the management issues more
    seriously and with greater urgency. I am very pleased the
    Foundation has finally hired a new deputy director for large
    facility projects. It is a positive step in the right
    direction, but clearly more needs to be done, and faster.
        Dr. Colwell, you have over a year left in your tenure.
    During your tenure, I know you have taken a great deal of pride
    that NSF has achieved a number of scientific policy and
    scientific goals, and we all benefit from those and we applaud
    those. All these goals can be overshadowed, however, by
    management problems if they are not resolved. It is my hope
    that you will use this year to solve these current management
    problems, and I think they can be resolved relatively quickly
    and easily, but the longer they persist, the harder they will
    be to fix. The long term viability and performance of the
    agency depends on a solid management and fiscal responsibility.
        With that, I conclude my statement, and I will call on
    first Dr. John Marburger, Director, Office of Science and
    Technology Policy. Unfortunately, much to your great relief, I
    had to cut my statement short. Senator Mikulski cut hers short.
    We are in a food fight on the floor over the supplemental
    appropriations, so we have regrettably had to impose a time
    limit on the witnesses today. We will take your entire written
    testimony and ask that you submit any further ideas or
    information in writing. We will have time, I hope, for a round
    or two of questions.
        Dr. Marburger.

                      STATEMENT OF JOHN H. MARBURGER, III

        Dr. Marburger. Thank you, Mr. Chairman. I will cut out all
    of the diplomatic thank yous at the beginning, but I do want to
    express my appreciation to this committee for your support of
    science during the past years and the excellent record that you
    have enabled us to achieve in the sciences in this country. I
    will summarize my longer written statement.
        This budget requests another record-high level of funding
    for R&D, $123 billion, or a 7 percent increase over the 2003
    request. The proposal does establish priorities. More than $5.9
    billion of the R&D increase is in the Department of Defense
    development activities, reflecting the President's commitment
    to bolster our national defense and to win the war against
    terrorism. In preparing this budget, the administration has
    taken advice from numerous planning and advisory bodies that
    exist to guide science priorities, including PCAST, as you
    mentioned, various committees under the National Science and
    Technology Council, and Members of Congress, including this
    committee.
        As we produced the fiscal year 2004 budget proposal we did
    not have final fiscal year 2003 numbers, so we related our
    budget figures to the President's fiscal year 2003 request. I
    will make comparisons to that base in my testimony, but I will
    also refer, where we have the numbers, to the recently passed
    fiscal year 2003 actual numbers.
        So first let me turn to the budget for my Office of Science
    and Technology Policy. We have primary responsibility in the
    White House to coordinate interagency research initiatives. The
    2004 request for OSTP is $7.027 million and it includes funding
    that is not reflected in previous OSTP budgets for rent and
    security costs associated with our relocation from the
    Eisenhower Executive Office Building. It also includes
    additional funding associated with responsibilities that our
    office has in the area of national security emergency
    preparedness, so the total new funding in these categories
    represents $1.542 million of our 2004 request.
        For purposes of comparison, if you take out that sum, our
    request would represent less than a 2.2 percent increase over
    the previous levels requested for our core OSTP mission. So I
    would be glad to answer more questions about the OSTP budget if
    you have them, but now I would like to turn to highlight the
    budgets for the agencies for which this Senate committee has
    oversight.
        I am pleased to be here today with the Director of the
    National Science Foundation, Rita Colwell, and the Chairman of
    the National Science Board, both of which are important to this
    committee and to this administration. The 2004 budget request
    increases the overall NSF budget by $453 million, or about 9
    percent relative to the 2003 request and, as you noted, 3
    percent over the enacted 2003 level.
        This committee has shown strong support for Federal
    research in physical sciences, including that conducted under
    the NSF umbrella. The fiscal year 2004 investment for physical
    science at NSF would increase by $100 million, or 13 percent
    over the 2003 request. In order to attract and retain more U.S.
    students into science and engineering, as you noted in your
    opening remarks, this budget proposal increases individual
    awards for graduated stipends from $25,000 to $30,000 annually.
    I think Senator Mikulski noted that.
        For NASA, the President's request represents a total
    funding increase of 9 percent, and nearly $9.2 billion for the
    Federal science and technology programs, a 5 percent increase
    over the 2003 request, and 2 percent over the enacted level.
    The President's commitment to space exploration is evident in
    this budget, which was conceived before the tragic loss of the
    Columbia astronauts. The total funding for NASA is proposed to
    increase 3.1 percent over the 2003 request, and the shuttle
    budget, after taking into account the transition to full-cost
    accounting, receives nearly a 5 percent increase over the
    request for 2003.
        We thank the committee for your support for funding in 2003
    for the important work of the Columbia Accident Investigation
    Board, which will produce a report to which we are looking
    forward very eagerly.
        The budget for the Environmental Protection Agency provides
    $776 million in the Federal science and technology category.
    The Agency has appointed a science advisor to improve science
    integration coordination across this Agency, and I am pleased
    at the progress that it is making in incorporating science in
    their recommendations.
        There is a small set of priority R&D areas that are
    targeted in the President's budget request. Let me just list
    these and the amounts. The first area is combating terrorism,
    where the President has proposed $3.2 billion in R&D funding
    for homeland security. That is across all agencies. More than
    $900 million of this funding is requested for the new
    Department of Homeland Security, including $803 million
    specifically in the Science and Technology Directorate in that
    new Department.
        On the computing initiative, the President's proposal
    includes $2.2 billion for networking and information technology
    R&D, a 6 percent increase over last year's request.
        The largest increase in this category, interestingly, is in
    the Department of Health and Human Services, which would
    increase by $67 million, or 18 percent above fiscal year 2003,
    which reflects the importance of bioinformatics in this era of
    genomics.
        The nanotechnology initiative--for that initiative the
    President's request provides $849 million. It is a 9 percent
    increase over the 2003 requested levels. Four new nanoscience
    research centers in DOE laboratories are included in this
    year's budget request, which would bring the total number of
    those nanocenters to five. The President's Council of Advisors
    for Science and Technology, PCAST, has recently begun a review
    of this important national program.
        Climate change research, another priority--last year the
    President created the climate change research initiative,
    designed to accelerate high priority research to support
    policymaking. The CCRI was combined with the existing U.S.
    global change research program to create the climate change
    science program, which is now an interagency effort involving
    12 Federal agencies. Funding for that combined program remains
    level, but within the program, funds identified for accelerated
    work for CCRI are increased to $182 million, as compared with
    $40 million in the previous year's request.

                               PREPARED STATEMENT

        Finally, math and science education, an important priority
    for this administration, is reflected in the budgets of the
    National Science Foundation, Department of Education, and the
    National Institute of Child Health and Human Development.
    Special emphasis is placed on the successful development and
    implementation of evidence-based educational programs and
    practices as called for in the No Child Left Behind Act of
    2002.
        I would like to thank you, Mr. Chairman and members of the
    committee, for your past and future support of my office, and
    for the Federal research and development enterprise in general.
    I look forward to answering any questions you may have.
        [The statement follows:]

                  Prepared Statement of John H. Marburger, III

                  FISCAL YEAR 2004 OSTP AND FEDERAL R&D BUDGET

        Mr. Chairman and members of the committee, it's a pleasure to meet
    with you today to discuss the President's fiscal year 2004 request for
    the Office of Science and Technology Policy (OSTP) and the Federal
    research and development budget.
        As I testified last year, I am committed to maintaining a close and
    productive relationship with this Committee. I applaud your bipartisan
    and enduring support of our country's research and engineering
    enterprise, and look forward to continuing our relationship as we make
    important choices together to optimize the Federal R&D investment.
        The President's budget focuses on winning the war on terrorism,
    securing the homeland, and strengthening the economy. Considering the
    context of an uncertain economic environment and growing Federal
    deficit, any increase in discretionary spending is difficult to justify
    to the American people. However, the President's budget requests
    another record high level of funding for R&D: $123 billion or a 7
    percent increase over the 2003 request. Over $5.9 billion of the
    increase is in Department of Defense development activities, reflecting
    the President's commitment to bolster our national defense and homeland
    capabilities.
        This increase in R&D spending is evidence of the great importance
    the Administration places on science and technology in addressing our
    country's present and future challenges. The President's budget also
    continues to emphasize improved management and performance to maintain
    excellence and sustain our national leadership in science and
    technology.
        In my statement I will review the broad goals of the President's
    budget and provide detail on OSTP's budget and the Federal research
    priorities that cut across multiple agencies and research disciplines.
    My testimony includes comparisons to the President's fiscal year 2003
    request, since those numbers were the ones used as a basis during
    formulation of the fiscal year 2004 budget. I will also attempt to
    include comparisons with some of the top-level fiscal year 2003 numbers
    that have more recently become available.

                  THE PRESIDENT'S FISCAL YEAR 2004 R&D BUDGET

        Our President has a strong commitment to research and discovery in
    the national interest. Earlier this year, when we endured the tragic
    loss of the space shuttle Columbia, the President was unequivocal in
    his promise that, despite setbacks, the journey of discovery would go
    on. He said:

        ``This cause of exploration and discovery is not an option we
    choose; it is a desire written in the human heart. We are that part of
    creation which seeks to understand all creation.''

        The programs in the Federal R&D budget represent some extraordinary
    new vistas of science with the potential to revolutionize our
    understanding and our capabilities. We cannot fund everything we'd
    like, but we will fund those exciting and high priority initiatives
    that keep this dream of discovery alive, and we will set the stage for
    the next generation scientists and engineers to take up new challenges
    that we cannot even imagine.
        In preparing this budget, the Administration has taken advice from
    the numerous planning and advisory bodies that exist to guide science
    priorities. For example, the budget begins to respond to
    recommendations by the President's Council of Advisors on Science and
    Technology (PCAST) and others about needs in physical science and
    engineering. The budget also reflects an extensive process of
    consultation between the Federal agencies, OMB, and OSTP, to thoroughly
    understand agency programs and priorities, interagency collaborations,
    and directions for the future. The National Science and Technology
    Council (NSTC), which I will discuss later in my testimony, provided a
    valuable mechanism to facilitate this interagency coordination. This
    process resulted in guidance to agencies issued by OSTP and OMB last
    May, concerning their program planning, evaluation, and budget
    preparation, and culminating in the budget you see before you today.
        The result is a budget that includes a strong emphasis on basic
    research across the agencies. Basic research is the source of
    tomorrow's discoveries and new capabilities, and this long-term
    research will fuel further gains in economic productivity, quality of
    life, and national security. Included in the budget, and emphasized in
    my comments today, is the budget category Federal Science & Technology
    (FS&T). This category, introduced in response to a recommendation of
    the National Academy of Sciences, excludes most of the development
    activities in the Federal R&D budget, including Department of Defense
    development, thereby only highlighting those activities devoted
    specifically to the creation of new knowledge and technologies.
        The budget includes an increase in emphasis on the physical
    sciences. The physical sciences not only spur understanding of the
    universe, they are the theoretical foundation for a host of new and
    promising technologies. Physical science research also offers education
    and training opportunities vital for a technologically advanced
    society.
        The budget also highlights investments in important research
    conducted by multiple Federal agencies in a coordinated fashion.
    Increasingly, the cutting edge of research is not cleanly confined to a
    specific science discipline, but spans a variety of disciplines or
    applications. Well-managed interagency collaboration takes advantage of
    the vast pool of capabilities represented across the Federal Government
    while minimizing new organizational structures. The high-priority
    multi-agency R&D initiatives for fiscal year 2004 are: combating
    terrorism R&D, network and information technology, nanotechnology,
    research on molecular life processes, climate change research and
    technology and education research.

    Office of Science and Technology Policy (OSTP)
        The Office of Science and Technology Policy has primary
    responsibility in the White House to coordinate interagency research
    initiatives. The fiscal year 2004 request for OSTP is $7,027,000. This
    figure includes funding not previously reflected in OSTP's budget for
    rent and security costs associated with our relocation from the
    Eisenhower Executive Office Building. It also includes increases
    associated with responsibilities this office has in the area of
    National Security Emergency Preparedness communications that have
    received new emphasis. Total new funding in these categories represents
    $1,542,000 of our fiscal year 2004 request. For purposes of comparison,
    if you back out the new funding not previously required, OSTP's fiscal
    year 2004 request would represent less than a 2.2 percent increase over
    fiscal year 2003 levels for the core OSTP mission.

                            AGENCY BUDGET HIGHLIGHTS

    National Science Foundation (NSF)
        The proposal would increase the overall NSF budget by $453 million,
    or about 9 percent relative to the fiscal year 2003 Presidential
    request, or 3 percent over the enacted fiscal year 2003 level.
      --The budget invests heavily in the physical sciences: NSF physical
            science investments would increase by $100 million, or 13
            percent, over the fiscal year 2003 request. Fundamental
            discoveries in the physical sciences are needed to spur
            progress in other areas, such as health research, energy,
            agriculture and the environment.
      --The 2004 budget continues a multi-year effort to improve attraction
            and retention of U.S. students into science and engineering
            careers by increasing annual graduate student fellowship and
            training stipends from $25,000 to $30,000 and increasing the
            number of awards. Reducing the financial burden graduate
            students face can have a significant impact on their choice of
            science or engineering as a career.
      --The Major Research Equipment and Facility Construction program will
            receive a 60 percent increase from the fiscal year 2003 request
            to a total of $202 million in 2004. Simultaneously, NSF is
            taking a close look at their investments and priorities in
            research infrastructure, and has, for the first time, provided
            the Congress with a rank ordering of its approved large
            facility construction projects and a discussion of how these
            projects were selected, approved and prioritized.
              national aeronautics and space administration (nasa)
        The President's request for NASA represents a total funding
    increase of 9 percent for R&D over the fiscal year 2003 request and
    nearly $9.2 billion for FS&T programs, a 5 percent increase over the
    fiscal year 2003 request and a 2 percent increase over the level
    enacted for fiscal year 2003.
      --The President's commitment to space exploration is evident in this
            budget, which was conceived before the tragic loss of the
            Columbia astronauts. Total funding for NASA is proposed to
            increase 3.1 percent overall. The Shuttle budget, after taking
            into account the transition to full cost accounting, receives
            nearly a 5 percent increase over the fiscal year 2003 request.
      --Included in the $4 billion in space science programs are several
            initiatives to increase the scientific and educational outcomes
            of future planetary missions, such as a new $31 million
            investment in optical communications technology and a $279
            million investment in Project Prometheus, to include the
            development of propulsion systems that will enable exploration
            of our solar system's most distant planets.

    Environmental Protection Agency (EPA)
        The budget provides $776 million in the FS&T budget for EPA,
    essentially maintaining funding at the level requested in the fiscal
    year 2003 Budget, a 3 percent decrease from the level enacted for
    fiscal year 2003.
      --The EPA budget supports significant efforts to continue to improve
            the scientific base in support of policy and regulations
            through: improvement in the use of science by the regional
            offices; ongoing efforts to attract and maintain a high-
            quality, diverse scientific workforce; and assessments to
            ensure the quality and consistency of science.
      --Responding to concerns about the adequacy of its science, EPA has
            appointed an agency Science Advisor to improve environmental
            science integration and coordination at EPA.
      --The President's Budget provides nearly a four-fold increase in
            funding to improve the Integrated Risk Information System
            (IRIS), a database which contains toxicity information of
            chemicals. IRIS is used by other Federal agencies, States, and
            international officials to help assess the potential health
            risks of chemicals and to develop regulations.

                            INTERAGENCY INITIATIVES

        Beyond the individual agency initiatives, the President's budget
    outlines priority areas of research involving multiple agency
    participation. Last May, OMB Director Mitch Daniels and I sent out an
    fiscal year 2004 budget-planning memo to agencies to provide guidance
    and focus for these budget priorities. National R&D priorities set
    forth in the guidance memo include: R&D for Combating Terrorism,
    Networking and Information Technology, Nanotechnology, Climate Change,
    Molecular Life Processes and Education.
        A mechanism for coordinating interagency initiatives lies within
    the President's National Science and Technology Council (NSTC), and my
    office has responsibility for the day-to-day operations of the NSTC.
    This Cabinet-level Council is the principal means for the President to
    coordinate science, space, and technology, bringing together the
    diverse parts of the Federal research and development enterprise. The
    Council prepares research and development strategies that are
    coordinated across Federal agencies to form an investment package aimed
    at accomplishing multiple national goals. The following describe high
    priority interagency initiatives the NSTC helps to coordinate:
        Combating Terrorism.--Last month the Department of Homeland
    Security opened its doors for business. Standing up the new Department
    is a massive undertaking and one of the highest priorities of this
    Administration. The President has proposed $3.2 billion in research and
    development funding for homeland security and combating terrorism
    across the Federal Government. Over $900 million is requested for
    combating terrorism research and development in the new department,
    including $803 million in the S&T directorate. This investment will be
    focused on robust research, development, testing, evaluation and
    systems procurement to ensure both evolutionary and revolutionary
    capabilities.
        The National Science and Technology Council's Committee on Homeland
    and National Security will work with the Homeland Security Council, the
    National Security Council, the Office of Management and Budget, the
    Department of Homeland Security and other relevant departments and
    agencies to identify priorities for and facilitate planning of homeland
    and national security R&D. The coordinated Federal effort will
    emphasize:
      --Strategies to combat weapons of mass destruction, including
            radiological and nuclear countermeasures and biological agent
            detection, diagnostics, therapeutics, and forensics;
      --Information analysis;
      --Social, behavioral, and educational aspects of combating terrorism;
      --Border entry/exit technologies; and
      --Developing standards relevant to both homeland and national
            security.
        Networking and Information Technology.--The President's 2004 budget
    provides $2.2 billion for the Networking and Information Technology R&D
    Program (NITRD). This is a 6 percent increase over the fiscal year 2003
    request. The largest increase above 2003 NITRD request level is
    proposed for the Department of Health and Human Services, which would
    increase by $67 million, or 18 percent. The increased life sciences
    budget reflects the growing importance of bioinformatics R&D--efforts
    at the intersection between biology and information technology--in
    furthering biomedical research. NSF maintains the largest share of
    NITRD program funding and the budget proposes a $45 million, or 7
    percent, increase over the fiscal year 2003 request.
        Agencies involved in developing or using high end computing are
    engaged in planning activities coordinated through the National Science
    and Technology Council's Committee on Technology. In 2004, NITRD
    research emphases include:
      --Network ``trust'' (security, reliability, and privacy);
      --High-assurance software and systems;
      --Micro- and embedded-sensor technologies;
      --Revolutionary architectures to reduce the cost, size, and power
            requirement of high end computing platforms; and
      --Social and economic impacts of information technology.
        National Nanotechnology Initiative.--The President's 2004 budget
    provides $849 million for the multi-agency National Nanotechnology
    Initiative (NNI). This is a 9.8 percent increase over levels requested
    for 2003. The Office of Science at the Department of Energy almost
    triples its investment in new nanoscale science research centers, with
    a proposed increase of $63 million to begin design and construction on
    four new nano-science research centers, bringing the total number of
    funded nano-centers to five. NSF continues to have the largest share of
    Federal nanotechnology funding, reflecting the broad mission of NSF in
    supporting fundamental research across disciplines, and the budget for
    NIH nanotechnology activities is increased by almost 8 percent relative
    to the fiscal year 2003 request. Altogether, 10 Federal agencies
    cooperate in the nanotechnology initiative with activities coordinated
    through the National Science and Technology Council's Committee on
    Technology. The NNI strategy for 2004 involves further investment in
    fundamental research across the range of scientific and engineering
    disciplines through investments in investigator-led activities at
    colleges and universities, centers of excellence, and supporting
    infrastructure.
        Responding to a recent National Research Council recommendation,
    next month the President's Council of Advisors for Science and
    Technology (PCAST) will begin conducting an ongoing, external review of
    the NNI aimed at strengthening the program and helping to identify and
    measure progress toward strategic goals.
        Climate Change.--Last year, to advance climate change science
    objectives, President Bush created the Climate Change Research
    Initiative (CCRI). The CCRI was combined with the existing US Global
    Change Research Program (USGCRP) to create the Climate Change Science
    Program (CCSP), an interagency research effort involving 12 Federal
    agencies. While funding for the combined CCSP remains level with the
    fiscal year 2003 request, the funds identified for CCRI is increased to
    $182 million as compared with $40 million requested for fiscal year
    2003. The CCRI investment will develop resources to support policy
    making, provide computer resources for climate modeling for decision
    support studies, and enhance observations and data management for a
    climate observing system. The increase for CCRI is the result of a
    process that has focused on managing GCRP funding more effectively and
    refocusing some research toward CCRI goals. A draft strategic plan for
    the CCSP has been produced and vetted through the science community
    using a multi-day public workshop held in December 2002 and in an open
    comment period. The response was overwhelmingly in support of the new
    management approach to the Federal program on climate change. A final
    strategic plan, relying on the extensive analysis and commentary
    resulting from the workshop, will be produced this spring and will
    guide the future activities of the program.
        $40 million is identified for the National Climate Change
    Technology Initiative (NCCTI) Competitive Solicitation program--an
    innovative approach for funding technology research and development to
    reduce, avoid or sequester greenhouse gases. In 2004, government-wide
    spending on climate change technologies will be reviewed, and priority
    programs for emphasis in the NCCTI will be identified.
        Math and Science Education--No Child Left Behind.--The improvement
    of pre-K-12 math and science education remains a major Administration
    priority, with special emphasis on the successful development and
    implementation of evidence-based educational programs and practices, as
    called for in the No Child Left Behind Act of 2002. The President's
    2004 budget request includes support for two such programs involving
    the Federal research agencies: the Math and Science Partnership (MSP)
    Program and the Interagency Education Research Initiative (IERI). The
    MSP request for NSF is $200 million, and for the Department of
    Education is $12.5 million. The program funds new and ongoing
    partnerships between institutions of higher education and local school
    districts. This program also will fund teacher training summer
    institutes for more intense immersion into mathematics and science
    content areas.
        The funding request for the IERI remains level with the President's
    2003 budget request. The goal of the IERI is to improve pre-K-12
    student learning and achievement in reading, math and science by
    conducting research on the scaling of educational practices that have
    already demonstrated their effectiveness in studies conducted with a
    limited number of students or classrooms. Currently the NSF, the
    Department of Education, and the National Institute of Child Health and
    Human Development (NICHD) participate in IERI.
        Additionally, the 2004 budget includes a $10 million increase in
    research, development, and dissemination funding for the Department of
    Education's new ``Institute of Education Sciences''--from $175 to $185
    million.
        Recognizing the need for better coordination of educational
    activities between the Federal research agencies, the National Science
    and Technology Council's Committee on Science has formed a Subcommittee
    on Education. This subcommittee will advise on best practices and will
    develop strategies to move agency programs away from fragmentation and
    duplication of effort towards a coordinated, complimentary set of
    individual agency and interagency programs.

                      MANAGING THE FEDERAL RESEARCH BUDGET

        Equal in importance to the spending on the Federal research budget
    is the management of this investment. In addition to providing funding
    coordination, the NSTC will also be reviewing management aspects of
    research including:
      --Analysis and recommendations concerning the requirements for
            Federal investment in major research facilities and
            infrastructure, and the best management practices to determine
            priorities and allocate funding; and
      --An investigation of the changing business model for research, and
            recommendations for modernizing the management and funding of
            Federal research programs in response to this changing research
            environment.
        The fiscal year 2004 budget emphasizes increased return on
    investment by improvements in management, performance and results of
    the research programs. Working together and with the Federal research
    agencies, OMB and OSTP are developing, implementing, and continuing to
    improve investment criteria for research programs across the
    government. Explicit R&D investment criteria have been developed to
    improve R&D program management, better inform R&D program funding
    decisions, and ultimately increase public understanding of the possible
    benefits and effectiveness of the Federal investment in R&D. In 2004,
    all R&D program managers must demonstrate the extent to which their
    programs meet the following three tests:
      --Relevance.--R&D programs must be able to articulate why the
            investment is important, relevant, and appropriate. This must
            include complete planning with clear goals and priorities,
            clearly articulated societal benefits, and the mechanisms used
            for reviewing and determining the relevance of proposed and
            existing programs.
      --Quality.--R&D programs must justify how funds will be allocated to
            ensure quality. Agencies must maximize quality through clearly
            stated, defensible methods for awarding a significant majority
            of their funding. Programs must assess and report on the
            quality of current and past R&D.
      --Performance.--R&D programs must be able to monitor and document how
            well the investments are performing. This includes tracking and
            reporting annually on objectives and milestones for relevant
            programs, and defining appropriate measures of performance,
            output, and outcome.
        As a result of implementing these criteria, and consistent with the
    Government Performance and Results Act, the Administration strives to
    ensure that every dollar is invested as effectively as possible. Based
    on lessons learned and other feedback, the Administration will continue
    to improve the R&D investment criteria and their implementation towards
    more effective management of the Federal R&D portfolio.

                                   CONCLUSION

        Mr. Chairman and members of the committee, I believe this is a good
    budget for science and technology. I hope I have conveyed to you the
    extent of this Administration's commitment to advancing science and
    technology in the Nation's interest. I look forward to our work
    together as we move towards implementing a national science and
    technology strategy that will draw from the best in industry, academia,
    the non-profit sector, and all levels of government. The programs that
    we discuss today will help us protect our citizens and our national
    interests, advance knowledge, promote education, and preserve the dream
    of exploration and discovery. I would be pleased to respond to
    questions about this budget.

        Senator Bond. Thank you very much, Dr. Marburger. That was
    excellent timing. You came out right on the money. Now we turn
    to Dr. Colwell. Welcome, Doctor.

                          STATEMENT OF RITA R. COLWELL

        Dr. Colwell. Chairman Bond, your consistent support and
    strong leadership has led to record increases for the
    Foundation's budget in the omnibus appropriations passed in
    February, and I speak for everyone at NSF when I say how
    grateful we are for your efforts. We thank you.
        Before I begin with a brief overview of this year's budget,
    I would like to first relate to you some actions we have taken
    in response to concerns that you raised last year. First, we
    provided a prioritized list of all major research, equipment,
    and facilities construction projects that have been approved by
    the National Science Board and it is included in our budget.
        Second, we've provided support to the National Academy of
    Sciences to assess setting priorities for major research
    equipment. We have hired a new deputy for our large facilities
    projects, Dr. Mark Coles. He will report to the chief financial
    officer, and will be a tremendous asset to NSF, and available
    for inquiry from you and your staff.
        We have an active facilities oversight and guidelines
    manual vetted with both the National Science Board and the
    community. New comments have been received and are being
    incorporated into the next version of the guide, scheduled for
    release May 31.
        We have a risk assessment guide for award oversight, vetted
    with the Science Board, drawn from other agencies' best
    practices, and we have taken the suggestions of the IG to
    heart, and we are incorporating more specific guidance to your
    staff.
        We began making site visits last year using this risk
    model, and we have begun training staff in its use and making
    continuous improvements as we go along.
        We have put in place procedures and guidelines to ensure
    the integrity of the taxpayer's money, attested to by the IG's
    clean audit opinion issued in January of this year, and my CFO
    has an active plan in place to close out the remaining audit
    recommendations for large facilities projects by September 30
    of this year, and I appreciate the effort that you and your
    staff have made on these issues, and I believe the results will
    be beneficial.
        The NSF budget proposal for 2004 leaves no doubt that the
    President embraces the conviction that the surest way to keep
    our Nation prosperous and secure is to keep it at the forefront
    of learning and discovery. Our highest priority is maintaining
    the quality of U.S. science and engineering, and the 2004
    budget includes $200 million for the Math and Science
    Partnership program, which is a centerpiece of the President's
    No Child Left Behind initiative.
        To attract more of the most promising U.S. students to
    science and engineering graduate programs we have proposed a
    stipend increase to $30,000, and we thank you for your support,
    because this builds on making available graduate study
    attractive and affordable to talented American students, and
    this year's budget also increases support for our STEP/
    TechTalent program to improve the Nation's production of
    science and engineering majors.
        We are also requesting $16.2 million for the CyberCorps
    program to train future Federal employees in information
    assurance and computer security. We have initiated a 21st
    century workforce focus to attract U.S. students to science and
    engineering fields and to broaden participation. We are going
    to fund three new Science of Learning Centers--again, I thank
    you for your support--to investigate how people learn,
    capitalizing on recent progress in cognitive science,
    neuroscience, and information technology.
        We are also proposing a substantial increase in funding for
    the physical sciences, providing over $1 billion to sustain the
    vigorous research that has helped power advances in medicine,
    energy, agriculture, and understanding the environment, and I
    know you are very supportive of that.
        One hundred million dollars has been requested for
    biocomplexity in the environment, including support for
    microbial genome sequencing and the ecology of infectious
    diseases, which are also areas of vital importance to
    antiterrorism efforts, and an $89 million investment in the
    mathematical sciences and statistics priority area will improve
    our ability to handle the massive data sets produced by today's
    sensors and observation systems and to model and manage
    uncertainty.
        Building on previous investments in the social, behavioral
    and economic sciences, we are requesting $24 million to launch
    a human and social dynamics priority area that will investigate
    the impacts of change on our lives and the stability of our
    institutions. The largest dollar increase in NSF's 2004 budget
    is in tools. Our request of $1.34 billion will help meet the
    growing needs for small and mid-sized equipment and
    instrumentation as well as major facilities, as was enunciated
    by Senator Mikulski just a minute ago.
        Our investment record is excellent. NSF puts its money
    where it will do the most good. Ninety-five percent of our
    budget goes directly to research and education to keep the
    knowledge base active, the economy humming, and benefits to
    society flowing. In addition, every dollar invested in academic
    institutions also contributes to recruiting and training the
    next generation of researchers and to ensure a well-informed
    citizenry.
        Nevertheless, I have to point out, as our budget has
    expanded in recent years, so have our oversight obligations,
    yet NSF staffing levels have not changed in over a decade. We
    remain concerned that the Foundation has the human and capital
    resources necessary for responsible stewardship of our growing
    portfolio.

                               PREPARED STATEMENT

        Mr. Chairman, I ask for your support for our fiscal year
    2004 budget request, and I really want you to know how much the
    Foundation appreciates you and the committee's longstanding
    bipartisan support. I ask that my written testimony and a
    summary of the National Science Foundation's budget request be
    included for the record, and I will be very happy to answer any
    questions that you may have.
        [The statement follows:]

                     Prepared Statement of Rita R. Colwell

        Chairman Bond, Senator Mikulski and Members of the Committee, I am
    pleased to appear before you today. For more than 50 years, the
    National Science Foundation (NSF) has been a strong steward of
    America's science and engineering enterprise. Although NSF represents
    less than 4 percent of the total Federal budget for research and
    development, it accounts for one-fifth of all Federal support for basic
    research and 40 percent of support for research at academic
    institutions, excluding the life sciences. Despite its small size, NSF
    has an extraordinary impact on scientific and engineering knowledge and
    capacity.
        During NSF's five decades of leadership, groundbreaking advances in
    knowledge have reshaped society and enabled the United States to become
    the most productive Nation in history. The returns on NSF's strategic
    investments in science, engineering, and mathematics research and
    education have been enormous. Much of the sustained economic prosperity
    America has enjoyed over the past decade is the result of technological
    innovation--innovation made possible, in large part, by NSF support.
        In our 21st century world, knowledge is the currency of everyday
    life, and at the National Science Foundation we are in the knowledge
    business. Our investments are aimed at the frontiers of science and
    engineering research and education, where advances in fundamental
    knowledge drive innovation and progress.
        Today, our Nation faces significant challenges--in security,
    health, the economy, and the workforce. The surest way to keep our
    Nation prosperous and secure is to keep it at the forefront of learning
    and discovery. The NSF budget proposal for fiscal year 2004 aims to do
    just that, and I am very pleased to present it to you today.
        I'll begin with the big picture. This year the National Science
    Foundation is requesting $5.48 billion. That's an additional $453
    million, or 9 percent more than last year's request.
        This budget leaves no doubt that the President embraces NSF's
    vision and value. NSF-funded research and education will help us meet
    the economic and national security challenges facing us at home and
    abroad, now and in the future.
        NSF has been growing--surely and steadily. Our investments this
    year put us on the right path, and with the leadership and vision of
    this Committee, the NSF Authorization Act, signed by the President in
    December, will keep us moving in the right direction in the years to
    come.
        To promote the progress of science, NSF invests in three strategic
    areas.
        People.--Facilitating the creation of a diverse, internationally
    competitive, and globally engaged workforce of scientists and engineers
    and well-prepared citizens is NSF's first priority. To achieve this
    goal, NSF supports improvement efforts in formal and informal science,
    mathematics, engineering, and technology education. Across its science,
    mathematics, engineering, and technology research and education
    programs, NSF works to enhance the diversity of our science and
    engineering workforce. The Foundation provides support for almost
    200,000 people, including students, teachers, researchers, post-
    doctorates, and trainees.
        Ideas.--Investments in ideas support cutting edge research and
    education that yield new and important discoveries and promote the
    development of new knowledge and techniques within and across
    traditional boundaries. These investments help maintain America's
    academic institutions at the forefront of science and engineering. The
    results of NSF-funded projects provide a rich foundation for broad and
    useful applications of knowledge and development of new technologies.
    Support for ideas also promotes the education and training of the next
    generation of scientists and engineers.
        Tools.--NSF investments provide state-of-the-art tools for research
    and education, including instrumentation and equipment, multi-user
    facilities, digital libraries, research resources, accelerators,
    telescopes, research vessels and aircraft, and earthquake simulators.
    These tools also include large surveys and databases as well as
    computation and computing infrastructure for all fields of science,
    engineering, and education. Support for these unique national
    facilities is essential to advancing U.S. research and education.
        Of course, People, Ideas and Tools work together to give us the
    best returns in discovery, learning and innovation.
        Before providing a few highlights of the budget, let me stress that
    the priority-setting process at NSF results from continual consultation
    with the research community. New programs are added or enhanced only
    after seeking the combined expertise and experience of the science and
    engineering community, the Director and Deputy, and the National
    Science Board.
        Programs are initiated or enlarged based on considerations of their
    intellectual merit, broader impacts of the research, the importance to
    science and engineering, balance across fields and disciplines, and
    synergy with research in other agencies and nations. NSF coordinates
    its research with our sister research agencies both informally--by
    program officers being actively informed of other agencies' programs--
    and formally, through interagency agreements that spell out the various
    agency roles in research activities. Moreover, through our Committee of
    Visitors process there is continuous evaluation and feedback of
    information about how NSF programs are performing.
        Producing the finest scientists and engineers in the world and
    encouraging new ideas to strengthen U.S. leadership across the
    frontiers of discovery are NSF's principal goals. NSF puts its money
    where it counts--95 percent of our budget goes directly to the research
    and education that keep our knowledge base fresh, our economy humming
    and the benefits to society flowing.
        Each year, NSF funds about 33,000 proposals at the leading edge of
    research. And we support more than 200,000 students, teachers, and
    researchers.
        Investing in People is key to developing the Nation's full talent
    and maintaining the quality of our workforce. There is no better place
    to begin than with our children. We must ensure that every child can
    participate in the Nation's prosperity and contribute to its progress.
        The budget includes $200 million for the Math and Science
    Partnership program, a key component of the President's No Child Left
    Behind initiative. This is the third installment of a $1 billion, 5-
    year investment to raise the performance of all U.S. students in
    mathematics and science. The program links local schools with colleges
    and universities to improve teacher performance and provide a
    challenging curriculum for every student. And it creates innovative
    ways to reach out to underserved students and schools.
        Our Nation's science and engineering workforce is the most
    productive in the world. To keep it that way, we have to attract more
    of the most promising students to graduate-level studies in science and
    engineering.
        We have been steadily increasing stipend levels from a low of
    $15,000 in 1999, and it's working. Applications for graduate
    fellowships increased by 19 percent between 2001 and 2002. This year,
    we are requesting an increase to $30,000. And, we will also increase
    the number of fellowships.
        Opportunities to advance knowledge have never been greater than
    they are today. NSF invests in emerging areas of research that hold
    exceptional potential to strengthen U.S. world leadership in areas of
    global economic and social importance. This year, we are requesting
    funding for six of these priority areas: biocomplexity, information
    technology, nanoscale science and engineering, mathematical sciences,
    human and social dynamics, and the 21st century workforce.
        The budget includes a $100 million request for research in
    Biocomplexity in the Environment. This investment will continue support
    for microbial genome sequencing and the ecology of infectious diseases,
    two areas that are of vital importance to the Nation's anti-terrorism
    efforts. Research that charts the interactions among physical, human,
    and other living systems, will improve our ability to understand and
    manage our environment. The development of new technologies and tools
    rounds out this investment.
        As the lead agency in two of the Administration's top interagency
    R&D efforts, NSF has provided an investment of $724 million in
    Networking and Information Technology Research and Development and $249
    million in the National Nanotechnology Initiative.
        Our priority area investment in Information Technology Research of
    $303 million will advance every field of science and add to our
    economic prospects. We propose to expand fundamental research in high-
    end computation and large-scale networking. Other investments address
    the need for safe and dependable information systems for national
    security and consumer protection. To reap the educational benefits of
    the information revolution, we plan to focus on the use of cutting-edge
    IT research in the classroom.
        The emerging field of nanoscale science and engineering promises a
    revolution at least as far-reaching as the one we've witnessed in
    information, computer and communications technologies. The ability to
    manipulate and control matter at the atomic and molecular levels will
    open new possibilities in materials and manufacturing, medicine,
    environment and energy, and national security. As the lead agency in
    the National Nanotechnology Initiative, NSF is requesting $249 million
    to expand basic research on new materials, biological systems at the
    nanoscale, and quantum computing. We will address the need to build
    capacity through investments in centers, training programs, and
    equipment. Research on the social and educational impacts of
    nanotechnology can prepare us to make the best use of new applications.
        Mathematics is the lingua franca, or as I like to say, the
    Esperanto of science and engineering. It leads us to new and deeper
    insights in every discipline. We propose to invest $90 million in the
    Mathematical Sciences priority area to pursue fundamental research in
    the mathematical sciences and statistics, and programs that will bring
    cutting-edge mathematical and statistical techniques to all fields.
        This investment will improve our ability to handle the massive data
    sets produced by today's sensors and observation systems, and to model
    and manage uncertainty. We also propose to strengthen connections
    between research and education in the mathematical sciences.
        Building on previous investments in the social, behavioral, and
    economic sciences, NSF proposes to launch a Human and Social Dynamics
    priority area. An investment of $24 million will fund research and new
    techniques to deepen our understanding of the impacts of change on our
    lives and on our institutions. The request will help us build the
    large-scale databases and refined research methods needed for major
    progress in the social sciences.
        Research will improve our understanding of how people make
    decisions, take risks, and deal with uncertainty. We will also support
    studies of large-scale change, such as globalization, the evolution of
    society and its interaction with the environment, and the implications
    of culture for conflict and assimilation.
        The Nation needs both world-class scientists and engineers, and a
    workforce that has the scientific and technical skills needed to thrive
    in today's changing workplace.
        NSF is requesting $8.5 million to begin the development of a
    Workforce for the 21st Century priority area to address three critical
    national science and engineering workforce needs: preparing scientists
    and engineers capable of meeting the challenges of the 21st century;
    attracting more U.S. students to science and engineering fields; and
    broadening participation in science and engineering. We will fund
    Integrative Institutional Collaborations that bring together and
    integrate NSF educational activities that work--the Louis Stokes
    Alliances for Minority Participation (LSAMP) program, Graduate Teaching
    Fellowships in K-12 Education (GK-12), the Integrative Graduate
    Education Research Traineeships (IGERT) program, Research Experiences
    for Undergraduates (REU), and Centers of Research Excellence in Science
    and Technology (CREST) program, for example.
        We will expand research opportunities for students and faculty from
    high schools and from 2-year and 4-year colleges. Our investments will
    emphasize efforts to build stronger links between research and
    education at historically black colleges and universities and minority-
    serving institutions.
        Every year it becomes more difficult to choose only a few NSF
    activities to highlight in the budget presentation. But they are all
    genuinely significant, and I want to make brief comments about each.
        Our Nation is facing new and difficult challenges in homeland
    security. The NSF budget includes investments that will help us meet
    growing security needs. I've already mentioned programs in microbial
    genome sequencing and the ecology of infectious diseases. The
    Scholarships for Service program will train students in information
    security and assurance, in exchange for service in Federal Government
    agencies. Vital research in the Critical Infrastructure Protection
    program is designed to pinpoint vulnerabilities and strengthen
    protection for the Nation's power grids, transportation networks, and
    water supply systems. A diverse portfolio of security-related
    information technology research rounds out the NSF contribution. Every
    one of these investments will have a big payoff.
        This year, the NSF budget places special emphasis on investments in
    the physical sciences. We propose a 12.7 percent increase that will
    bring total funding in areas such as physics, chemistry, mathematics,
    and materials research to over $1 billion. We need this investment to
    spur the fresh and vigorous research in these fields that has helped in
    the past to power advances in medicine, energy, agriculture, and the
    environment.
        As part of the President's multi-agency Climate Change Research
    Initiative, NSF will support focused research to reduce uncertainty in
    critical areas of climate change knowledge and provide timely
    information for policy decisions. We are requesting $4.5 million to
    establish 3 or more new centers to improve understanding of risk
    management, risk communication, and decision-making. These studies will
    complement NSF's ongoing programs in climate change science.
        We know that diversity gives strength to the fabric of our society.
    The NSF request places special emphasis on broadening participation in
    science and engineering. The Historically Black Colleges and
    Universities (HBCU) Undergraduate Program increases by 43 percent, the
    Louis Stokes Alliance for Minority Participation, which helps
    minorities toward undergraduate degrees in science and engineering, and
    the ADVANCE program, aimed at more diversity among successful
    scientists with family responsibilities, will both increase by 23
    percent, and finally, the Partnerships for Innovation program, which
    transfers knowledge from research and education into the creation of
    new wealth by strengthening local and regional economies, will double
    its budget to $10 million.
        We are requesting $105 million for the EPSCoR program to continue
    building the capacity of educational institutions so that they can
    participate more fully in NSF research activities.
        The Noyce Scholarships address the shortage of highly trained K-12
    teachers by providing scholarships to talented mathematics, science,
    and engineering students who wish to pursue teaching careers in
    elementary or secondary schools.
        This year, our budget provides $75 million to support ongoing
    research on the genomics of plants of major economic importance. This
    includes a program of Young Investigator Awards in Plant Genome
    Research.
        The Science, Technology, Engineering and Mathematics Talent
    Expansion Program, or STEP, provides grants to colleges and
    universities to establish programs to increase the number of
    undergraduate math and science majors. We are requesting $7 million for
    the program this year, an increase of $5 million, or 250 percent, over
    the request for fiscal year 2003.
        The National Science Foundation furthers its research efforts by
    entering into partnerships with other Federal agencies and regards
    these partnerships as a core strategy for enabling Foundation
    activities. As part of the Administration's multi-agency Climate Change
    Research Initiative, NSF will support research to reduce uncertainty in
    critical areas of climate change knowledge and provide timely
    information to facilitate policy decisions. The total fiscal year 2004
    investment for CCRI increases by $10.0 million to a total of $25.0
    million.
        Finally, the budget provides $20 million to fund three or more new
    Science of Learning Centers. These centers will build on advances in
    the social sciences, computer science, engineering, and neuroscience to
    investigate how people learn, how the brain stores information, and how
    best to use information technology to promote learning. The aim is to
    bring fresh knowledge to the design of learning environments.
        The most significant dollar increase in NSF's fiscal year 2004
    budget is in Tools, with a total investment of $1.34 billion, a $219
    million increase over last year's request. Rapidly changing technology
    and increasing demand for state-of-the-art tools have put tremendous
    strain on the Nation's laboratories and research facilities. We need to
    renew our science and engineering infrastructure across the board,
    large and small. For the first time, in order to help Congress better
    understand our future planning needs, our budget provides a
    prioritization of all ongoing and planned major facility construction
    approved by the National Science Board.
        NSF plans to invest in major research equipment and facilities
    construction projects over the next several years. One new start, ocean
    drilling, is planned for fiscal year 2005, with two new starts, Rare
    Symmetry Violating Processes (RSVP) and Ocean Observatories, for fiscal
    year 2006.
        I want to emphasize that the $220 million increase in Tools is
    distributed across all of NSF's programs. It includes a new $20 million
    CyberInfrastructure investment to bring next-generation computer and
    networking capabilities to researchers and educators nationwide. Other
    investments, in mid-sized and small equipment, for example, also
    receive a healthy portion of the increase.
        In making these critical investments, NSF continues to put a very
    strong emphasis on effective and efficient management. We are proud of
    our track record.
        Mr. Chairman and Members of the Committee, I hope that this brief
    overview conveys to you the extent of NSF's commitment to advancing
    science and technology in the national interest.
        I ask not only for your support for our fiscal year 2004 budget
    request, but also want you to know how much I appreciate the long-
    standing bipartisan support of the committee for NSF. Mr. Chairman, I
    would ask to include a copy of NSF's budget summary as part of my
    testimony, and would be happy to answer any questions that you have.

        Senator Bond. Thank you very much, Dr. Colwell. We are
    excited about the tremendous things that are going on, and
    appreciate very much your comments and your testimony.
        Now I would like to turn to Dr. Warren Washington, who is
    Chair of the National Science Board.

                       STATEMENT OF WARREN M. WASHINGTON

        Dr. Washington. Chairman Bond, I appreciate the opportunity
    to testify before you as the Chair of the National Science
    Board. Our National Science Board approved and supports the
    National Science Foundation's budget submission for fiscal year
    2004. We fully support the Foundation's investment in six
    priority areas. The Board believes it is crucial to maintain a
    strong portfolio of investment in the core disciplines, and it
    is also crucial that as the Foundation's research portfolio
    increases the funds for award administration should be
    sufficient to maintain efficient and effective NSF management
    of the portfolio.
        The Board and the Director continue to work effectively
    together and the Board is fully engaged in its policy and
    oversight responsibilities. The Board establishes policies for
    the Foundation, approves budgets, major new programs,
    agreements, and awards. It also includes the oversight for the
    Foundation's administrative processes and systems.
        In November 2002, the Board approved the resolution on
    guidelines for setting priorities for major research
    facilities. A copy of that resolution with revised guidelines
    is attached to my written statement. The Board establishes
    priority order for the facility construction projects based
    upon set guidelines.
        Let me comment on some other Board actions. We are
    currently in the process of selecting an executive officer. Our
    intent is to complete the selection soon after our May board
    meeting, and after the executive officer has been selected I
    plan to address the other staffing issues.
        Senator Bond, at the previous hearing a year ago, you asked
    about openness. I am pleased to report that all board meetings,
    subcommittee and task force meetings, as well as the full board
    meetings are now open to the public, except for a very few
    portions that fall under the exceptions in the Sunshine Act.
    The new openness has been embraced by the board members and
    well received by the press and members of the public.
        The Foundation's 2003 appropriations act provided a
    separate budget of $3.5 million for Board operations and
    activities in this fiscal year, and the accompanying conference
    report requested budget justification materials in support of
    the Board's 2004 budget. We are allocating the first time
    appropriation for fiscal year 2003.
        On the matter of the fiscal year 2004 budget, the Board's
    first meeting since the appropriations bill was signed took
    place in early March. There was limited opportunity for members
    to discuss the full range of options in this legislation.
    However, it is my intent to prepare the budget justification
    materials for fiscal year 2004 as requested in the conference
    report. At our May meeting, I have scheduled time for thorough
    discussion of the issues, and I will inform you of our plans as
    soon as possible after that meeting.
        The Board is nearing the completion of two policy reports.
    Our Task Force on Science and Engineering Infrastructure has
    assessed the status, changing needs and strategies to ensure
    that the Nation will have science and engineering
    infrastructure needed, and this report will be released April
    9. The Board's Task Force on National Workforce Policies for
    Science and Engineering has been studying U.S. science and
    engineering workforce needs and our national policy for
    ensuring a skilled workforce in the future, and we anticipate
    that this will be available in a couple of months. Any comments
    that you have on that will be especially valuable.

                               PREPARED STATEMENT

        At this point, I would like to end my formal remarks, and I
    want to thank you for the opportunity to testify on budget
    issues and the Board's policy activities. I ask that my
    complete statement be included in the record. I am pleased to
    answer any questions. Thank you.
        Senator Bond. Thank you very much, Dr. Washington. And of
    course, we will have your complete statement for the record.
        [The statement follows:]

                   Prepared Statement of Warren M. Washington

        Chairman Bond, Senator Mikulski, and Members of the Committee, I
    appreciate the opportunity to testify before you as Chair of the
    National Science Board. I am Warren Washington, Senior Scientist and
    Section Head of the Climate Change Research Section at the National
    Center for Atmospheric Research.
        On behalf of the National Science Board, I thank the Committee for
    its long-term commitment to a broad portfolio of investments in
    science, mathematics, engineering, and technology research and
    education. These investments are important components of our Nation's
    security and economic strength and the well being of all Americans.
        For more than 50 years, the National Science Foundation has been a
    major contributor to innovative science and engineering research and
    education. The Congress recognized these valuable contributions through
    the passage of the 5-year reauthorization bill last year, with steady
    and substantial increases in authorized budgets for the agency. This
    recognition is greatly appreciated.
        The National Science Board approved and supports the National
    Science Foundation's budget submission for fiscal year 2004. We assure
    you that the $5.48 billion will be well spent. We fully support the
    Foundation's investment in the six priority areas of biocomplexity,
    information technology, nanoscale science and engineering, mathematical
    sciences, human and social dynamics, and the 21st century workforce.
    These areas hold exceptional promise for new discoveries, educational
    opportunities, and practical applications.
        The Board also believes it is crucial to maintain a strong
    portfolio of investments in the core disciplines. The increased funds
    received for fiscal year 2003 will strengthen the core research and
    education programs. The Foundation's fiscal year 2004 budget request
    recognizes the need to increase funding to the physical sciences and
    includes a 12.7 percent increase for physics, chemistry, mathematics,
    and materials research.
        It is crucial that, as the Foundation's research portfolio
    increases, the funds for award administration increase sufficiently to
    maintain effective and efficient NSF management of the portfolio.
        Since 1950, the partnership explicitly spelled out in the founding
    documents between the National Science Board and the Foundation's
    Director has worked extremely well, and the Nation's science and
    engineering research and education have flourished. Although recent
    legislation has altered some administrative aspects of our partnership,
    I can assure you that we continue to work together effectively and that
    the Board remains fully engaged in its policy-making and oversight
    responsibilities for the agency. The full Board sets Foundation policy
    after detailed consideration of recommendations made by its committees.
    These standing bodies deliberate with great thoroughness and
    thoughtfulness about the numerous programmatic and managerial issues
    facing the agency.
      --Our Committee on Programs and Plans is responsible for program
            initiatives and major new projects and facilities, proposed
            awards, and major program implementation issues (in all fields
            except those pertaining to education and human resources).
      --Our Education and Human Resources Committee addresses matters
            dealing with education and training and the technical
            workforce.
      --Our Audit and Oversight Committee is responsible for administrative
            processes and systems and also serves as the supervisor of the
            Inspector General.
      --Our Committee on Strategy and Budget examines strategic budget
            matters and identifies long-term issues critical to the
            Foundation's future.
        This last committee, the Committee on Strategy and Budget, was
    established in May 2001 to strengthen the Board's role in the
    Foundation's strategic budget process. The Committee identifies long-
    term issues that are critical to the Foundation's future and analyzes
    strategic and operating budgets to ensure progress toward strategic
    directions set by the Board. The Committee has worked with other Board
    members and Foundation staff on strategic issues such as management of
    the Major Research Equipment and Facilities Construction (MREFC)
    Account, support for the core disciplines, and the size and duration of
    graduate student and postdoctoral stipends.
        When I appeared before this Committee a year ago, Committee members
    expressed concern about the Board's involvement in setting priorities
    for funding projects through the MREFC Account. I would like to bring
    you up to date on that issue while illustrating the effectiveness of
    the Committee on Strategy and Budget.
        First, let me state that the Board continues to approve each
    project to be funded from the MREFC Account before the funds are
    obligated. Our Committee on Programs and Plans thoroughly reviews any
    proposed MREFC funding and brings recommendations to the full Board.
    There is ample opportunity for Board members to raise concerns before a
    vote is taken.
        Throughout 2002, the Committee on Strategy and Budget discussed how
    best to accommodate within future budgets the initiation of new major
    research facilities that the community and Foundation identified as
    important to the advancement of science and engineering. In August the
    Committee, in collaboration with the Committee on Programs and Plans,
    set up a joint working group to determine whether changes to existing
    Board guidance on priority setting might be appropriate. Policy options
    developed by the group were discussed in October 2002 by the Board's
    Committee on Strategy and Budget and Committee on Programs and Plans.
        In November 2002, the two committees brought a proposed resolution
    to the Board, the Resolution on Guidelines for Setting Priority for
    Major Research Facilities (NSB-02-189), and it was approved by the full
    Board. (A copy of the resolution with revised guidelines is attached.)
    We are working closely with Foundation management as the Large Facility
    Projects Management and Oversight Plan is implemented. We are pleased
    to see that a Deputy Director for Large Facility Projects has been
    hired, and we expect that he will report to the Board on a regular
    basis.
        The Board's Major Research Facilities guidelines state that when
    considering a project for approval, the Board will review the need for
    such a facility, the research that will be enabled, readiness of plans
    for construction and operation, construction budget estimates, and
    operations budget estimates. The Board then establishes a priority
    order for facility construction projects, based on these guidelines:
      --Highest priority is given to projects already under construction,
            as long as progress is appropriate.
      --New candidate projects are considered from the point of view of
            broadly serving the many disciplines supported by the
            Foundation.
      --Multiple projects for a single discipline, or for closely related
            disciplines, are ordered based on a judgment of the
            contribution that they will make toward the advancement of
            research in those related fields. Community judgment is
            considered.
      --Projects are authorized close to the time that funding requests are
            expected to be made.
      --International and interagency commitments are considered in setting
            priorities among projects.
        Let me comment on some other Board actions. We are currently in the
    process of selecting an Executive Officer. After conducting a national
    search for candidates, a short list has been developed for further
    consideration. References are being checked in preparation for
    interviews. Our intent is to complete the selection process soon after
    our May Board meeting. Once an Executive Officer has been selected, I
    plan to address other staffing issues so that we may be fully
    responsive to the interests of Congress in exercising our policy-making
    responsibilities.
        The NSF Authorization Act expanded the Board's activities covered
    by the Government in the Sunshine Act. I know that the Committee has
    concerns in this area, and I am pleased to report that all Board
    committee, subcommittee, and task force meetings, as well as the full
    Board meetings, are now open to the public except for those very few
    portions that fall under the exceptions stated in the Sunshine Act.
    These procedures were in effect for our February and March meetings.
    While we continue to refine our processes, the new openness of our
    deliberations has been embraced by Board members and well received by
    the press and other members of the public.
        The Foundation's fiscal year 2003 Appropriations Act provided a
    separate budget of $3.5 million for Board operations and activities in
    this fiscal year, and the accompanying conference report requested
    budget justification materials in support of the National Science
    Board's fiscal year 2004 funding requirements. I want to take this
    opportunity to report our progress on these matters.
        We are working through the many details related to allocating this
    first-time appropriation for fiscal year 2003. We have prepared
    operating plans that enable the Board to allocate its expenses for the
    current fiscal year against that appropriation.
        On the matter of a fiscal year 2004 budget, the Board's first
    meeting since the appropriation bill was signed took place in early
    March, only a short time after the bill was signed. Therefore, there
    was limited opportunity for members to discuss the full range of
    options this legislation presents for fiscal year 2004. However, it is
    my intent to prepare budget justification materials for fiscal year
    2004 as requested in the conference report. Our next meeting is
    scheduled for May, and I have scheduled time for a thorough and
    thoughtful discussion of those issues with the full Board. On behalf of
    the Board, I appreciate your understanding our interest in taking the
    time necessary to properly address these important questions. I will
    inform you of our plans as soon as possible following the meeting.
        Consistent with our role as national policy adviser, the Board is
    nearing completion of two policy reports. Our Task Force on Science and
    Engineering Infrastructure has assessed the status, changing needs, and
    strategies to ensure that the Nation will have the science and
    engineering infrastructure to enable new discoveries in the future. The
    Board's final report with policy recommendations is being prepared for
    release on April 9. We made an extensive effort to seek public comment
    on the draft report, and we will conduct a broad-based outreach effort
    to engage a wide range of stakeholders in follow-up on those critical
    recommendations.
        Another Board task force, the Task Force on National Workforce
    Policies for Science and Engineering, has been working diligently on
    U.S. science and engineering workforce needs and national policy
    options for ensuring a skilled workforce in the future. We anticipate
    that the draft report will be available for public comment in a couple
    of months. Your views would be especially valuable to us.
        One final comment concerning Board policy reports: we want these
    documents to have the maximum possible impact on national science and
    engineering research and education issues. To that end, we are
    examining new and better ways to engage members of Congress,
    Administration officials, and the community in a continuing dialog on
    these critical topics. I will keep you fully informed as these efforts
    evolve.
        Mr. Chairman, at this point I would like to end my formal remarks.
    I thank the Committee for its strong and sustained support of the
    science and engineering enterprise, especially the National Science
    Foundation. I thank you for the opportunity to testify on Federal
    budget issues and recent administrative changes as well as the Board's
    national policy activities. I would be pleased to answer any questions
    you may have or to provide additional information for the record. Thank
    you, Mr. Chairman.
        Attachments: NSB-02-189 and NSB-02-191.

                                     ______

                                   NSB-02-189
                               NOVEMBER 21, 2002
                                   RESOLUTION
                             NATIONAL SCIENCE BOARD

    Guidelines for Setting Priority for Major Research Facilities
        The Committee on Strategy and Budget and the Committee on Programs
    and Plans recommend that the National Science Board approve revision to
    the Board's November 15, 2001 ``Guidelines for Setting Priority for
    Major Research Facilities'' in accordance with the following
    resolution:
        RESOLVED, that the National Science Board approves the attached
    revision to NSB-01-204, entitled ``Guidelines for Setting Priority for
    Major Research Facilities,'' and dated November 15, 2001, as
    recommended by the Committee on Strategy and Budget and the Committee
    on Programs and Plans.
                                           Maxine Savitz Chair,
                                      Committee on Strategy and Budget.
                                          Anita K. Jones Chair,
                                       Committee on Programs and Plans.

                                     ______

                                   NSB-02-191
                     REVISED AND ADOPTED NOVEMBER 21, 2002
                             NATIONAL SCIENCE BOARD

    Guidelines for Setting Priority for Major Research Facilities
        The advancement of research and education in all fields of science
    and engineering depends--at some times--on equipment that permits
    observation and experimentation. Therefore, the National Science
    Foundation (NSF) funds such equipment. It also funds the research
    necessary to advance the engineering of next generation instruments
    that may enable entirely new and improved modalities of observation and
    experimentation.
        Some of the equipment that enables the advancement of research is
    large, complex, and costly. The term facility is used to describe such
    equipment, because typically the equipment requires special sites or
    buildings to house it and a dedicated staff to effectively maintain and
    use the equipment. Multiple experimental researchers working in related
    disciplines share the use of such large facilities.
        From time to time, a consensus arises within a research community
    that a particular new facility is required to advance the state of
    knowledge in the field. Such a consensus matures through broad
    community discussion. Through that discussion, a consortium sometimes
    arises from the community to take the responsibility to build and
    operate the facility for the good of the entire community. In all cases
    there are clearly stated research questions that only the unique,
    envisioned facility could help answer.
        The National Science Board approves all large facility projects, as
    directed by the NSF Act of 1950 and based on the Board's revised
    delegation of authority to the Director (NSB-99-198, Appendix B,
    ``Delegation of Authority,'' 335 NSB Meeting, November 18, 1999). When
    considering a facility project for approval, the Board reviews the need
    for such a facility, the research that will be enabled, readiness of
    plans for construction and operation, construction budget estimates,
    and operations budget estimates. Construction of many facilities is
    funded through the NSF Major Research Equipment and Facilities
    Construction account.
        Due to cost, not all facilities can be built at the time that their
    need is determined and plans are in order for construction.
    Consequently, the Board will order facility construction projects with
    the intent that funding be made available to projects in this rank
    order. If it becomes necessary, the Board will reconsider both
    individual project approval and project priority.
        The guidelines observed by the Board in approving and prioritizing
    such major facility projects and in approving the NSF budget submission
    are:
      --Once construction for an approved and prioritized project
            commences, highest priority is given to moving that project
            forward through multiple years of construction in a cost-
            effective way, as determined by sound engineering and as long
            as progress is appropriate. It is most cost-effective to
            complete initiated projects in a timely way, rather than to
            commence new projects at the cost of stretching out in-progress
            construction.
      --New candidate projects will be considered from the point of view of
            broadly serving the many disciplines supported by NSF.
      --Multiple projects for a single discipline, or for closely related
            disciplines, will be ordered based on a judgment of the
            contribution that they will make toward the advancement of
            research in those related fields. Community judgment on this
            matter is considered.
      --Projects will be authorized close to the time that funding requests
            are expected to be made.
      --International and interagency commitments are considered in setting
            priorities among projects.
        The above are guidelines. Each facility consideration involves many
    complex issues. The Board will consider all relevant matters, and could
    deviate from these guidelines, given sound reasons to do so.

        Senator Bond. I do not mean to push you, but if you are
    going to be looking at the full recommendation some time in
    May, I certainly hope it is earlier May rather than later May,
    because we are going to be putting our bill together in May,
    and the sooner you can get it to us, the more likely we are to
    be able to take into account your views, so timeliness is key.
    We would very much appreciate having your views and your
    consideration at the earliest possible time.
        Now we turn to Dr. Boesz, the Inspector General for the
    National Science Foundation. Welcome, Dr. Boesz.

                        STATEMENT OF CHRISTINE C. BOESZ

        Dr. Boesz. Chairman Bond, thank you. I appreciate the
    opportunity once again to appear before you. NSF's work over
    the past 53 years has had an extraordinary impact on scientific
    and engineering knowledge. However, as the nature of the
    scientific enterprise constantly changes, NSF is continuously
    faced with new challenges for maintaining its leadership
    position.
        My office has and will continue to work closely with
    management to identify and address issues that are important to
    the success of the National Science Board and the NSF. Today, I
    would like to highlight four of the top management challenges
    facing the agency and tell you why I believe they are
    significant.
        The first area is the management of large infrastructure
    projects. Over the past decade, NSF has increased its
    investments in such tools. Overseeing the construction and
    management of large facility projects and programs requires
    disciplined project management, while working hand-in-hand with
    scientists and engineers. As you indicated, my office has
    conducted two audits focusing on projects funded through NSF's
    major research, equipment, and facilities construction
    appropriation account. As of today, approximately half of our
    recommendations have been implemented. However, key
    recommendations essential for successful oversight and
    management remain unresolved.
        First, a large component of NSF's corrective action plan is
    the development of a facilities management and oversight guide.
    While substantial effort has gone into this guide, it is still
    in draft form.
        Secondly, NSF has recently completed a lengthy search for a
    new deputy for large facility projects, and as Dr. Colwell has
    indicated, the new deputy will assume his duties in June. We
    are hopeful that NSF will now be able to complete the guide and
    resolve other outstanding issues in this area. Another of NSF's
    continuing management challenges relates to the operation and
    management of the United States Antarctic program.
        As you know, conditions in Antarctica are remote and harsh,
    so one of the challenges for NSF management is to ensure the
    safety and health of Antarctic personnel and researchers. Last
    month, my office issued a report on health and safety in
    Antarctic operations. We recommended that NSF address aging
    facilities and infrastructure. Specifically, we recommended
    that NSF initiate capital asset management planning and
    separate line-item budgeting processes.
        Although NSF prefers the current practice of using research
    funds in a flexible manner, I believe a long-term, line-item
    approach would better identify resources necessary to assure
    continued safe operations.
        The third area is award administration. NSF's challenge is
    in administering and monitoring its awards once they are made.
    For the past 2 years, NSF award management has led to a
    reportable condition in its financial statements audit report.
    Consequently, the auditors recommend that NSF implement a
    comprehensive risk-based post-award monitoring program. One of
    the biggest challenges that NSF faces in addressing this is the
    increased strain it places on resources, including human
    capital and support services.
        Like many Federal agencies, NSF is facing human capital
    needs and challenges. Large numbers of permanent staff are
    eligible for retirement, and staffing has remained relatively
    flat, despite healthy budget increases. The continued reliance
    on a growing number of temporary staff places additional
    burdens on NSF, particularly its Office of Human Resource
    Management. NSF has contracted with a consultant to perform a
    comprehensive $14.8 million business analysis of its
    operations. This does include a human capital component.
        The first draft of the plan is due from the contractor in
    early 2004. The final plan at the end of 2005, so the fourth
    challenge focuses on human capital issues that demand urgent
    attention in the interim. NSF should develop a short-term plan
    that identifies its immediate human capital needs and the
    specific resources needed to support them such as training,
    space and equipment.

                               PREPARED STATEMENT

        It is clear, however, that NSF needs resources to support
    its infrastructure as its budget expands and the workload
    increases.
        Chairman Bond, this concludes my oral statement. I ask that
    my complete written statement be included for the record. I
    would be happy to answer any questions that you have. Thank
    you.
        [The statement follows:]

                    Prepared Statement of Christine C. Boesz

        Chairman Bond, Senator Mikulski, and distinguished members of the
    Subcommittee, I am Dr. Christine Boesz, Inspector General at the
    National Science Foundation (NSF). I appreciate the opportunity, once
    again, to appear before you today as you consider NSF's fiscal year
    2004 budget request. NSF's work over the past 53 years has had an
    extraordinary impact on scientific and engineering knowledge, laying
    the groundwork for technological advances that have shaped our society
    and fostered the progress needed to secure the Nation's future.
    Throughout, NSF has maintained a high level of innovation and
    dedication to American leadership in the discovery and development of
    new technologies across the frontiers of science and engineering.
        As the nature of the scientific enterprise is constantly changing,
    however, NSF is continuously faced with new challenges to maintaining
    its leadership position. My office has and will continue to work
    closely with NSF management to identify and address issues that are
    important to the success of the National Science Board and NSF. Each
    year, my office focuses on those issues that pose the greatest
    challenge for NSF management. These management challenges are developed
    based on our ongoing work with and knowledge of NSF's operations and
    programs. Today I would like to highlight four of these challenges and
    tell you why we believe they are significant.

                  MANAGEMENT OF LARGE INFRASTRUCTURE PROJECTS

        For the past 3 years, we have considered management of large
    facility and infrastructure projects to be one of NSF's top management
    challenges.\1\ Over the past decade, NSF has increased its investments
    in large infrastructure projects such as accelerators, telescopes,
    research vessels and aircraft, supercomputers, digital libraries, and
    earthquake simulators. Many of these projects are large in scale,
    require complex instrumentation, and involve partnerships with other
    Federal agencies, international science organizations, and foreign
    governments. Some, such as the new South Pole Station, present
    additional challenges because they are located in harsh and remote
    environments.
    ---------------------------------------------------------------------------
        \1\ Memorandum from Christine C. Boesz, Inspector General, National
    Science Foundation, to Warren Washington, Chairman, National Science
    Board, and Rita R. Colwell, Director, National Science Foundation (Dec.
    23, 2002) [hereinafter 2002 Management Challenges]; Memorandum from
    Christine C. Boesz, Inspector General, National Science Foundation, to
    Eamon M. Kelly, Chairman, National Science Board, and Rita R. Colwell,
    Director, National Science Foundation (Jan. 30, 2002) [hereinafter 2001
    Management Challenges]; Letter from Christine C. Boesz, Inspector
    General, National Science Foundation, to Senator Fred Thompson,
    Chairman, Senate Committee on Governmental Affairs (Nov. 30, 2000)
    [hereinafter 2000 Management Challenges].
    ---------------------------------------------------------------------------
        The management of these awards is inherently different from the
    bulk of awards that NSF makes. The majority of NSF awards are made to
    single investigators for individual research projects. In undertaking
    these ``idea'' projects, NSF researchers need to be given the freedom
    and autonomy to allow their research to evolve and move in new
    directions. In large facility and infrastructure projects, however,
    that same degree of freedom may sometimes be at odds with cost and
    schedule requirements. While overseeing the construction and management
    of these large facility projects and programs must always be sensitive
    to the scientific endeavor, it also requires a different management
    approach. It requires disciplined project management including close
    attention to meeting deadlines and budgets, and working hand-in-hand
    with scientists, engineers, project managers, and financial analysts.
    Furthermore, although NSF does not directly operate or manage these
    facilities, it is NSF that is ultimately responsible and accountable
    for their success. Consequently, it is vital that NSF exercise proper
    stewardship over the public funds invested in these large projects.
        In December 2000, my office issued an audit of one of these large
    facilities, the Gemini Project, and made several recommendations to NSF
    management.\2\ Primarily, our recommendations were aimed at increasing
    NSF's level of oversight of these projects with particular attention on
    updating and developing policies and procedures to assist NSF managers
    in project administration. In response to our report, NSF developed,
    and my office approved, a corrective action plan designed to address
    our recommendations. The final milestone in the corrective action plan,
    by which time NSF expected to fully address the report's
    recommendations and implement new policies and procedures, was December
    2001.
    ---------------------------------------------------------------------------
        \2\ Office of Inspector General, National Science Foundation, Audit
    of the Financial Management of the Gemini Project, Report No. 01-2001
    (Dec. 15, 2000).
    ---------------------------------------------------------------------------
        Subsequent to issuing this audit report and at the request of this
    Subcommittee, my office conducted another audit focusing on all
    projects that NSF has funded through the recently renamed Major
    Research Equipment and Facilities Construction appropriation
    account.\3\ We reported that certain practices discovered during our
    first audit have also occurred in other large projects, reinforcing the
    need for increased oversight by NSF management. NSF responded to our
    report by stating its intent to combine management improvements
    recommended by this audit with its efforts to respond to our previous
    Gemini audit.
    ---------------------------------------------------------------------------
        \3\ Office of Inspector General, National Science Foundation, Audit
    of Funding for Major Research Equipment and Facilities, Report No. 02-
    2007 (May 1, 2002).
    ---------------------------------------------------------------------------
        As we will be reporting in our semiannual report to the Congress
    for the 6-month period ending March 31, 2003, NSF has taken steps to
    address approximately half of the report recommendations. However, key
    recommendations from both of these reports on developing new project
    and financial management policies and procedures remain unresolved by
    NSF management.
        The unifying feature of NSF's corrective action plan was the
    development of a Facilities Management and Oversight Plan.\4\ NSF staff
    has devoted substantial time and effort to develop this Plan. The Plan
    has four major goals: (1) to address organizational needs within NSF to
    effectively manage large facility projects; (2) to implement guidelines
    and procedures for all aspects of facilities planning, management, and
    oversight; (3) to improve the process for reviewing and approving large
    facility projects; and (4) to properly oversee facility projects to
    ensure their success. A large component of meeting these goals,
    especially the second and fourth, is the development of a Facilities
    Management and Oversight Guide, which is still in draft form.
    ---------------------------------------------------------------------------
        \4\ National Science Foundation, Large Facility Projects Management
    & Oversight Plan NSB-01-153 (Sept. 2001).
    ---------------------------------------------------------------------------
        We have been pleased to provide NSF with comments on various
    iterations of the Guide. Most recently, we reviewed and provided
    feedback on the November 8, 2002 draft. As we expressed to NSF, and
    will report in our upcoming semiannual report, our primary concerns
    with the Guide are (1) that its focus is too high level to provide NSF
    staff with the practical guidance necessary to effectively manage this
    complex portion of NSF's portfolio and (2) that it does not yet address
    recording and tracking the full cost of these facilities within NSF's
    financial system. Among the unresolved issues that we hope to see
    addressed in the final version of the Guide are the authority of the
    new Deputy for Large Facility Projects and his Project Advisory Teams,
    and the level of responsibility and autonomy of the individual program
    officers managing these projects. The Guide lays out general
    requirements that will need to be fleshed out in order to implement a
    successful management program. It also needs to address contingency
    issues, such as those arising with international partnerships, in more
    detail.
        It has been over 2 years since our first audit report recommending
    improvements in NSF's management of large facility and infrastructure
    projects. Because of increased funding in this area, this issue needs
    to become one of greater urgency for NSF management. Some of this delay
    may have been due to the lengthy search for the new Deputy for Large
    Facility Projects. NSF announced last month that it has filled this
    position and the new Deputy will assume his duties on June 9, 2003. We
    are hopeful, with the new Deputy in place, NSF will be able to focus on
    the corrective actions and provide the resources necessary to fully
    implement the Facilities Management and Oversight Plan in order to
    resolve the outstanding issues in these two audits.

                       ANTARCTIC INFRASTRUCTURE PLANNING

        Another of NSF's continuing management challenges relates to the
    operation and management of the United States Antarctic Program
    (USAP).\5\ The USAP is the United States' national program for
    scientific research and geopolitical presence in Antarctica, the
    world's seventh and southernmost continent. Conditions in the Antarctic
    are remote and harsh. Temperatures at the USAP's three year-round
    research stations range from an average high of 2 degrees Centigrade at
    Palmer Station to an average low of minus 28 degrees Centigrade at
    South Pole Station. These conditions require much more support
    resources from NSF management than is required with other NSF-funded
    programs. As stated in NSF's fiscal year 2004 budget request, ``[a]ll
    life support is provided by NSF, including facilities infrastructure,
    communications, utilities (water and power), logistics to, from, and
    within Antarctica and all related infrastructure--aircraft, runways,
    communications, passenger movement, baggage handling.''\6\
    Consequently, one of the critical challenges for NSF management is to
    ensure the safety and health of USAP personnel and researchers.
    ---------------------------------------------------------------------------
        \5\ 2002 Management Challenges, 2001 Management Challenges, and
    2000 Management Challenges, supra note 1.
        \6\ National Science Foundation Fiscal Year 2004 Budget Request to
    Congress.
    ---------------------------------------------------------------------------
        Last month, my office issued a report on health and safety in the
    USAP.\7\ We were pleased to report that the programs put in place and
    managed by NSF's USAP logistics contractor do protect the overall
    health and safety of the USAP participants. However, we did report on
    occupational health and safety issues related to aging facilities and
    infrastructure in Antarctica. They need to be addressed by NSF
    management through a capital asset management planning and budgeting
    process. This is an issue that has also been raised to NSF management
    by the Office of Polar Programs' Committee of Visitors.\8\
    ---------------------------------------------------------------------------
        \7\ Office of Inspector General, National Science Foundation, Audit
    of the Occupational Health & Safety and Medical Programs In the United
    States Antarctic Program, Report No. 03-2003 (Mar. 17, 2003).
        \8\ Committee of Visitors Report on the Polar Research Support
    Section for the review period 1998, 1999, and 2000.
    ---------------------------------------------------------------------------
        The Antarctic facilities are different from other large facilities
    funded by NSF in that they are critical to the safety and health of
    researchers and their support personnel. Ongoing maintenance and
    upgrading of these facilities are necessary to prevent health and
    safety crises and to protect the personnel stationed in this harsh
    environment. We are pleased to see that NSF, in its fiscal year 2004
    budget request, is recognizing the need to plan for these crucial
    infrastructure needs. We are still concerned, however, over the funding
    of and planning for these projects. We have recommended that NSF
    develop life cycle planning of these USAP assets to serve as a basis
    for a capital asset management plan. In addition, to provide dedicated
    funding for these projects that does not compete with day-to-day USAP
    operations or scientific research, we recommended that NSF establish a
    separate line item within its budget for funding this plan. NSF prefers
    the current practice of using research funds in a flexible manner. I
    believe a long-term, line-item approach would more clearly identify
    resources necessary to assure continued safe operations.

                              AWARD ADMINISTRATION

        A third ongoing management challenge to NSF is the administration
    of research and education grants and cooperative agreements.\9\ In a
    given year, NSF spends roughly ninety percent of its appropriated funds
    on awards for research and education activities. NSF recently reported
    that it received more than 35,000 proposals in fiscal year 2002 and
    made more than 10,400 awards to about 1,800 institutions.\10\ This was
    accomplished with a staffing level that has remained relatively flat
    during the past decade, even in the face of large budget increases.
    ---------------------------------------------------------------------------
        \9\ 2002 Management Challenges, 2001 Management Challenges, 2000
    Management Challenges, supra note 1.
        \10\ National Science Foundation, fiscal year 2002 Management and
    Performance Highlights 5 (Feb. 2003).
    ---------------------------------------------------------------------------
        NSF is under pressure to process increasing numbers of proposals
    and to make awards. Many of these proposals are also more complex. This
    increase is leading to a resource drain. Because NSF's proposal
    processing system is not yet entirely electronic, incoming proposals
    need to be printed for distribution during the proposal review process.
    During January and February alone of this year, NSF received over
    14,000 proposals, representing forty percent of the normal 12-month
    total. The enormous volume of proposals has led to a backlog in
    printing. Resources to develop and implement a fully electronic system
    are needed to meet the increasing number and complexity of proposals.
        An even more important challenge for NSF is the way in which it
    administers and monitors these awards. Administering the public funds
    that are entrusted to it is an inherent function of any government
    entity. Federal agencies are responsible for monitoring the awards that
    they fund to provide reasonable assurances that (1) adequate progress
    is being made toward achieving the project's goals, objectives, and
    targets; (2) Federal funds are being expended appropriately; and (3)
    Federal funds are being used responsibly. This is the essence of
    providing stewardship over Federal taxpayer dollars.
        To date, NSF has not had a comprehensive and cohesive program for
    monitoring its awards once they have been funded. Rather, NSF has
    devoted most of its resources to the pre-award and award phases. In
    each of the past 2 years, this gap in NSF's award management has led to
    a reportable condition in the annual audits of NSF's financial
    statements.\11\ The auditors have found that NSF's post-award
    monitoring system is not systematic, risk-based, documented in writing,
    or consistently applied. As a result, the auditors found that awardees'
    use of Federal funds may not be consistent with the objectives of the
    awards; programs and resources may not be protected from waste, fraud,
    and mismanagement; laws and regulations may not be followed; and
    reliable and timely information may not be obtained, maintained,
    reported, or used for decision-making. As a result of these findings,
    the auditors have recommended that NSF establish a comprehensive risk-
    based award monitoring program and develop the tools necessary to carry
    out this program.
    ---------------------------------------------------------------------------
        \11\ Auditor's Report, fiscal year 2002 National Science Foundation
    Financial Statement Audit (Jan. 29, 2003); Auditor's Report, fiscal
    year 2001 National Science Foundation Financial Statement Audit (Jan.
    18, 2002).
    ---------------------------------------------------------------------------
        NSF has recognized the need to create a risk-based award monitoring
    program and has begun to address this issue. The agency has developed a
    draft policy for conducting this level of award oversight, and we have
    been pleased to provide comments on that policy and anticipate that the
    final version will address our concerns. One of the biggest challenges
    that NSF will face in implementing this policy is the growing strain on
    its resources. The increased emphasis on award monitoring may require
    additional staffing and more resources for training, travel, and
    equipment. To meet all of its responsibilities, NSF management will
    have to show a greater commitment to this program. It may need to
    reevaluate its current business processes to ensure that its oversight
    responsibilities are fully integrated into them.

                     STRATEGIC MANAGEMENT OF HUMAN CAPITAL

        As in the case of most Federal agencies, NSF is facing human
    capital needs and challenges. Forty percent of NSF's permanent
    workforce is currently eligible for either voluntary retirement or
    early out, and that number will grow to nearly sixty percent by 2007.
    Additionally, despite an increasing workload and a budget that has
    grown from $1 billion to over $5 billion over the past 20 years, the
    number of full-time equivalent positions at NSF has remained relatively
    static.\12\ While NSF has been supplementing its permanent staff with
    temporary staff, or ``rotators,'' this increase has also placed a
    significantly greater burden on the agency, particularly its office of
    Human Resource Management, to continually recruit and train personnel.
    Finding them suitable office space has also become a challenge--space
    has become a rare and precious commodity at NSF. Because of these
    concerns, I have identified strategic management of human capital as a
    top management challenge for NSF over the past few years.
    ---------------------------------------------------------------------------
        \12\ Compare NSF's fiscal year 1983 Budget Request to Congress with
    NSF's fiscal year 2004 Budget Request to Congress.
    ---------------------------------------------------------------------------
        Two years ago, this Subcommittee requested that my office analyze
    the adequacy of the agency's staffing and management plans in light of
    the efforts to expand NSF's budget of the next 5 years.\13\ As I
    reported to you last year, NSF's workforce planning falls short of an
    actionable plan, which requires specific objectives, clearly assigned
    responsibilities, well-defined milestones for discrete actions, and
    practical measures of effectiveness for accountability. However, at
    that time, I also reported to you that NSF was in the process of
    contracting for a multi-year business analysis of its operations that
    will include a human capital management plan identifying its future
    workforce requirements.
    ---------------------------------------------------------------------------
        \13\ S. Rep. No. 107-43 (2001).
    ---------------------------------------------------------------------------
        Last June, NSF awarded a contract for a comprehensive, $14.8
    million, 3- to 4-year business analysis, including a component on
    future workforce requirements. The contractor appears to be focusing on
    the workforce portion of the business analysis during the early phases
    of the project. One of the contractor's teams has been conducting focus
    groups to develop core competencies at NSF and another team is
    gathering information on individual office staffing, workloads, and
    priorities. OIG management has met with both of these teams to discuss
    OIG core competencies and workloads.
        The first draft of the human capital management plan is due from
    the contractor in early 2004. However, the final plan is not due until
    the end of 2005. We are looking forward to seeing substantial and
    concrete results from this effort, but wonder how NSF will manage its
    valuable human capital assets in the meantime. Along with being a
    principal component of the President's Management Agenda, this is a
    management challenge that NSF has been facing for several years.
    Consequently, human capital issues demand urgent attention. NSF needs
    to develop a short-term plan that identifies its immediate human
    capital needs and the specific resources required to support them
    (e.g., training, space, and equipment). It is clear that NSF needs
    resources to support its infrastructure as its budget expands and the
    workload increases.
        Chairman Bond, this concludes my statement. I would be happy to
    answer any questions you or other members of the Subcommittee may have,
    or to elaborate on any of the issues that I have addressed today.

                     2004 NSF BUDGET: INCREMENT OF INCREASE

        Senator Bond. Thank you, Dr. Boesz, and thanks to all of
    you for very informative testimony. We will, of course, make
    all of the statements included in full in the record. My
    colleagues here are over on the floor, where I should be
    shortly, as I said, worrying about the supplemental
    appropriations bill. I can assure you that their absence from
    the hearing today does not reflect any lack of interest or
    enthusiasm for the scientific work that is covered by your
    testimony today.
        Let me begin by asking a question. I am going to ask first
    Dr. Marburger and then Drs. Colwell and Washington to comment
    on it. As we discussed yesterday, PCAST issued a report that
    recommended that beginning 2004, funding for physical sciences
    and engineering be substantially increased over the next four
    budget cycles. As co-chair of PCAST, you approved the
    recommendation the President sign the authorization bill
    authorizing a doubling of the budget in 5 years.
        The fiscal year 2004 request only provides a 3.2 percent
    increase. What happened? Can you explain why the budget request
    is inconsistent with both PCAST and the NSF reauthorization
    act?
        Dr. Marburger. Senator, probably the most important thing
    that happened was the absence of a passed 2003 budget at the
    time that the final budget was being put together.
        Senator Bond. You did have the reports from both the House
    and the Senate which showed that we were going to increase
    substantially over the requested level for 2003.
        Dr. Marburger. That is true, and I do believe the President
    put a lot of important signals in the budget narrative and in
    the priorities that are evident in the budget. His request for
    NSF was substantially greater than that for other science
    agencies and the evidence of his support for the doubling bill
    itself, for the authorization bill itself was, I think,
    significant, and bodes well for the future.

                          ADDITIONAL FUNDS INVESTMENTS

        Senator Bond. I would ask you to comment on that, Dr.
    Colwell and Dr. Washington, and also we are going to find
    additional funds somewhere, somehow. Where would you recommend
    we spend them?
        Dr. Colwell. One of the major efforts that we have
    underway, of course, is increasing the grant size and duration,
    but first let me just say that the overall conclusion I do draw
    from the budget we got was that the President placed his full
    support and confidence in NSF's mission, but we did not have a
    budget to work from until recently.
        In any case, one of the major initiatives for the National
    Science Foundation, and with the report that was requested, I
    believe, by OMB, we have found that the grant size and
    duration, which has gone from $89,000 in 1998 to, through the
    good graces of this committee and Congress and the President,
    we have been able to increase it this year to $128,000, but it
    is a long way to the $250,000 that we would like to see for a
    per-year budget, and a 5-year budget for each grant, instead of
    just 2 years, which is inefficient. That is a very, very
    important investment for the National Science Foundation, and
    we either do this incrementally--of course, if we were to do it
    in one fell swoop it would be $6 billion, so it is clear there
    are a lot of unmet needs, and we do appreciate the support that
    you and the committee have provided for the National Science
    Foundation.
        Senator Bond. Dr. Washington.
        Dr. Washington. Well, I was just going to add that the
    Foundation has the six priority areas, and we also have the
    need to increase funding in the core discipline areas.
        When I talk with the program managers and the directors,
    they have many proposals that are excellently rated, and yet
    they do not have enough funds to actually, to sort of make
    those awards, and so there is a need for increased funding.
        Senator Bond. Well, are there other particular program
    areas, like nanotechnology, plant genome, TechTalent, that you
    would see as meriting increases? Dr. Colwell.
        Dr. Colwell. Very clearly, the biggest crisis we face as a
    Nation, which was outlined in the Hart-Rudman report is that
    second, and I paraphrase, an attack on one of our cities, would
    be to lose leadership in science and engineering research and
    education, and it is very clear to me that the 21st century
    workforce is one of our major challenges, and we must address
    it, and again I would like to thank you for the increase in the
    stipends for graduate fellowships, because in this request we
    are requesting an additional 350 fellowships, and we know that
    these will go to American citizens, because that is the
    requirement that is there for the graduate fellowships, the
    IGERT and the GK-12.
        And I must say that if I could I would like to share with
    you just some of the wonderful things that are happening in the
    investment in plant genomes, a novel method for determining
    gene function, which is called targeted induced local lesions
    in genes, or TILLIG, was developed through NSF funding, and
    what this does is, it allows selection for natural variance of
    rice genes with useful properties, and this is being set up,
    the TILLIG facilities for looking at these gene variations, at
    places including the International Rice Research Center in the
    Philippines.
        Senator Bond. In the Philippines--where they have developed
    the golden rice, the beta carotene enriched rice.
        Dr. Colwell. Absolutely, so I think that is just one small
    example.

                    EXAMPLES OF ADDITIONAL FUNDS INVESTMENTS

        Senator Bond. If you would send me a small packet of
    information on that I would like to find out more about it.
        Dr. Colwell. I would be delighted, sir.
        [Clerk's Note.--The information referred to has been
    retained in subcommittee files.]
        Senator Bond. Thank you. Dr. Marburger, any thoughts you
    have on this?
        Dr. Marburger. Yes. My office has formed interagency
    working groups under the National Science and Technology
    Council which tries to each year identify priorities that come
    up from the agencies and the advisory committees of the
    agencies, including the National Science Board, PCAST, and the
    National Research Council reports. We have identified for
    fiscal year 2004 six priorities, including the ones that I
    mentioned in my oral report and are outlined more completely in
    my written testimony, but certainly nanotechnology, networking
    and information technology, research on climate change, the
    need for technology associated with homeland security,
    educational issues, and certain areas of biology that are not
    adequately funded under the NIH funds.
        All of these areas are strongly represented in the NSF
    portfolio, and I know that NSF's priorities in science are
    quite consistent, not by accident, with the national priorities
    that have been identified for all areas, so I am confident that
    the increases in the NSF budget will be applied to the national
    priorities. We work closely together to make sure that that
    happens.

                    HUMAN AND SOCIAL DYNAMICS PRIORITY AREA

        Senator Bond. Let me reflect upon a comment or
    recommendation made by the CBO, which suggested that when you
    look at the priorities, and certainly the priorities that you
    have outlined today are in hard physical science, math,
    engineering, but you are requesting increased funding in human
    and behavioral science. Well, that happens to be my area, but
    that does not happen to be what I thought the focus of the NSF
    was on.
        With the tremendous short-changing we have of engineering
    and the hard physical sciences, where does human and behavioral
    science, which is also under a wide range of agencies that have
    interest and do research there, why does that continue to be a
    priority in the National Science Foundation?
        Dr. Colwell.
        Dr. Colwell. Senator, it is very clear that the analysis of
    risk and understanding of risk and research on risk is very
    important, and it is funded through the social, behavioral, and
    economic sciences as part of the climate change initiative.
    Understanding risk is really critical.
        Secondly, through the Computer Science Directorate, the
    human-computer interface is really very, very important to
    understand, and in the Education Directorate the use of
    technology in enhancing education is again critical, and that
    interface between understanding, as I pointed out in our
    Science of Learning Centers, understanding the cognitive
    aspects of learning, understanding the physiological basis of
    it and the reinforcement, this is all part of fundamental
    research that is very appropriate to the National Science
    Foundation.

                         NATIONAL SCIENCE BOARD BUDGET

        Senator Bond. Let me move on with funding for the National
    Science Board, a question for Dr. Washington, then I might ask
    Dr. Marburger to comment on it.
        The 2003 appropriations act and NSF reauthorization act
    provided the Board with tools to ensure fully effective
    statutory responsibility, execution, and providing independent
    science policy advice and overseeing the budget. The
    administration zeroed out the Board's budget despite what I
    thought was rather clear in the law. I understand the Board
    intends to comply with the law. Dr. Washington, does that mean
    that you expect OMB and the administration to submit a budget
    amendment?
        Dr. Washington. I am still working that issue, but the
    feeling of the Board is that we would, of course, comply with
    the authorization act, so we will be preparing materials and
    presenting them to the Congress as requested.
        Senator Bond. Dr. Marburger, can you help on that?
        Dr. Marburger. The administration intends to comply with
    the law, sir.
        Senator Bond. Well, I have got a suggestion. I trust you
    will take that back. Where the Congress has provided the Board,
    Dr. Washington, with the authority to hire its staff, I
    understand the Board is about to hire an executive officer. I
    hope the Board will also hire its own legal counsel so that the
    Board understands the laws that we pass, confusing as they may
    be, but I would like to get an update from you on where you are
    going with that authority and what you are doing with that.
        Dr. Washington. Okay. Well, we are in the process of
    getting ready to interview on the final list in the search, and
    we expect to be carrying out the interviews somewhere at the
    time of the board meeting, and then it will be up to me to make
    the final selection for the new executive officer.
        I have assembled an interview team made up of several board
    members, and hopefully we can come up with a final decision on
    that.
        Now, in terms of legal counsel and all of that, I am going
    to talk to the Board about that at the May meeting, and working
    with the new executive officer, hopefully we can determine the
    sort of designated senior level staff members needed.

                   LARGE FACILITY MANAGEMENT ISSUES: PROGRESS

        Senator Bond. Well, as a lawyer myself, I hate to be
    wishing more lawyers on people, but there are some issues,
    obviously, where it may be helpful.
        Turning to Dr. Boesz, your testimony indicates that the
    Foundation's management has made little progress in responding
    to the large facility management problems identified. As we
    both have noted, the Foundation has just hired a deputy
    director. Do you believe that NSF can resolve these problems
    easily? Are they more complicated? Do you believe the NSF
    should have made more progress in addressing the management
    problems you identified, despite the delay in hiring a deputy
    director?
        Dr. Boesz. Mr. Chairman, there is a lot in that question. I
    believe that NSF has put a substantial effort into planning.
    From the perspective of my staff, this has been going on for
    about 2 years. Where we have become disappointed is, we were
    hopeful that the whole process would have been accelerated,
    because once all of these pieces are in place, the new deputy,
    the guidelines, they still require a tremendous amount of
    training both of NSF staff and the field.
        So the fear has been on our part that this delay in getting
    all of these pieces in place will delay the training and delay
    the ultimate implementation, so I think the next challenge is
    going to be the training, assuming we are successful now.
        Senator Bond. Two years does seem a bit long. Dr. Colwell.
        Dr. Colwell. Yes. I would like to state that we share the
    IG's sense of urgency in these issues, and we agree that NSF
    needs resources to support the infrastructure as our budget
    expands and the workload increases, but I want to tell you we
    are working very hard to live within our means and address the
    many opportunities that we have to choose from in this very
    dynamic environment, and in a sense it is sort of like changing
    the tires when the car is moving at 60 miles an hour. It looks
    like things are in slow motion when you are in the car, but
    things are really moving very fast on the ground.
        So over the past year we have accomplished a lot, as the
    NSF IG has recognized. There is more to be done, and we have an
    action plan in place, and many of our planning processes are
    iterative ones. We seek broad community input. We work to have
    consensus, expert opinions, and the result still may be a draft
    document, but we want to let the breezes in rather than carve
    things in stone. We developed living, breathing plans and
    guides that will evolve as the lessons are learned and as more
    best practices are identified. We want documents that work with
    us, not something written for the record and stuck on a shelf.
        So I would like to say, is there more to be done? No
    question, but there is a lot of hard work being done at NSF by
    the people there, and you have my personal commitment that we
    will finish these activities and we will do it the right way,
    preserving the flexibility of the research enterprise, the
    integrity and stewardship of the taxpayer's dollars, and the
    excellent reputation of NSF, and your help would be
    appreciated. We need your support for the 2004 budget.

                         PLANT BIOTECHNOLOGY EDUCATION

        Senator Bond. Let me assure you you have my support. If the
    car is going 60 miles an hour, pull off the interstate for a
    minute, hire the people you need. If you need more resources
    let us know, because we want to make sure that that 60-mile-an-
    hour car is going in the right direction. That worries me. If
    you are going 60 miles an hour and you do not know where you
    are headed that is not necessarily progress, so let us know if
    you need resources.
        And finally, I want to try to conclude this by 11 o'clock,
    but I cannot get out of here without talking about plant
    biotechnology, and I know you would be disappointed if I did
    not. I just had to bring this in.
        Dr. Marburger, yesterday you and I discussed, we are very
    interested in expanding plant biotechnology to the developing
    world countries in places like Africa. Unfortunately, Africa is
    being afflicted with and infected with the eurosclerosis, which
    has come from certain scientific know-nothings who think that
    plant biotechnology is going to create the tomato that eats
    Missouri.
        I would like to know what plans the administration has for
    trying to educate and lead and assist other countries in
    learning about regulating and implementing the benefits of
    plant biotechnology.
        Dr. Marburger. Plant biotechnology is an important area of
    research for us and for our agricultural industry and for other
    industries that may benefit from plant genomics and products
    that are made by plants. Our organization, OSTP, has an
    interagency working group that has just produced a report on
    plant genomics, a 5-year document that we have made available
    to your office, and we plan to encourage the agencies that are
    involved in that to take the necessary steps to implement the
    plan.
        Members of my office do travel to international conferences
    to learn about attitudes in other countries regarding plant
    genomics. We encourage people from other scientific agencies as
    well to participate in forums and discussions and brainstorming
    sessions regarding this very difficult issue.
        I meet twice annually with the Science Ministers from the
    other G-8 countries, and this issue of properly educating the
    public regarding the promise of plant genomics is always on the
    agenda. Someone always brings it up in those countries, and
    discusses how we can work together to identify and promulgate
    best practices.
        It is an international problem. It is not only in Europe.
    There are pockets of concern not always rational about these
    issues, and we are watching this very closely and trying to
    develop strategies where we can.
        Senator Bond. Yes, Dr. Colwell.
        Dr. Colwell. Senator, as you know, I am committed to
    expanding NSF's activities with the developing world. My own
    personal research on cholera has led to strong collaborations
    in Bangladesh and other countries in the third world. The
    National Science Board also produced an excellent report on
    international science and engineering, stressing the importance
    of developing collaborations with scientists in the developing
    world.
        We have a series of workshops that we are supporting, and
    collaborative efforts throughout the developing world focusing
    in many cases on plant biotechnology, and we have
    collaborations on the banana and plantain research in Africa,
    Central and South America. We have PIs working on various
    cereals involved with the AID-sponsored activities to develop
    the cereal genome initiative that links researchers in the
    United States and developing countries.
        Clearly, this is an important area, and I personally am
    very committed to it, as are the rest of the scientists at the
    National Science Foundation.

                            ENGINEERED VACCINATIONS

        Senator Bond. Talking about cholera, would you tell us, I
    keep hearing that perhaps we can genetically engineer a banana
    or some other vegetable or fruit to contain a vaccine to
    vaccinate children throughout the emerging world against
    cholera and other diseases. Do you see this as a potential?
    Where is this? To me it sounds like science fiction, but I am
    hoping it can be a reality.
        Dr. Colwell. Senator, this is one of the most exciting
    developments, the ability to insert vaccine genes into a banana
    or a potato, and then children being able to be vaccinated
    without having a cold chain.
        One of the problems with vaccine delivery is keeping it
    refrigerated and therefore potent, but if you have got the
    genes inserted and it is a benign immunological procedure that
    takes place by just eating the banana, this is a wonderful way
    for vaccination to work. Charlie Arntzen and his team are
    responsible for having achieved this. The field tests have been
    done, and it has proved effective, so yes, this is clearly one
    of the most exciting developments in plant genome sciences, and
    again, thank you for your support.

                            NSF/USAID COLLABORATION

        Senator Bond. This is truly exciting, and it is not only
    the cold chain, but for the small child that is going to get
    vaccinated, a banana is certainly a lot less threatening than a
    needle or a bunch of pinpricks.
        Dr. Clutter, could you come up just for a second and tell
    us what you have been doing in your area in the collaboration
    with USAID and other areas on this work?

                           STATEMENT OF MARY CLUTTER

        Dr. Clutter. Well, Senator Bond, before I say anything
    about what we are doing with AID, I would like to express our
    appreciation to you for having taken the lead in the plant
    genomics field, because whether you realize it or not, your
    support and the committee's support of plant genomics has
    transformed plant biology forever. I just wanted you to know
    that.
        Senator Bond. Thank you.
        Dr. Clutter. We have begun some discussions with AID. In
    the past, we had a very successful program with AID in which we
    supported, NSF supported research in this country, and the
    training of developing country scientists, students in our
    universities, and when they went back home to their developing
    world countries, AID provided support for them and their
    research, so this kind of capacity building is very, very
    important, and we are looking to the future for more
    interactions.
        Senator Bond. Thank you very much, Dr. Clutter.
        Dr. Colwell, we appreciate that. We intend to support it.
        Dr. Clutter, I sincerely appreciate your kind words,
    because when you and I and Dr. Colwell's predecessor were
    working on this, I do remember the scientific outcry that some
    politician would be messing around in the area of science, and
    I am going to frame some of those comments that were made at
    the time. I wear them as a badge of honor. Thank you very much.

                         ADDITIONAL COMMITTEE QUESTIONS

        As I said, I would love to spend the whole day here, but I
    think I have other duties calling. I know you have work to get
    on with. We have got a lot of kids that we need to get
    interested in science and engineering, and I wish you well.
    Carry on this work. This is the vital work for the future, and
    I thank all of you. We will submit questions for the record.
        [The following questions were not asked at the hearing, but
    were submitted to the agencies for response subsequent to the
    hearing:]
             Questions Submitted to the National Science Foundation
               Questions Submitted by Senator Christopher S. Bond

                             NSF FUNDING PRIORITIES

        Question. I will try to provide additional funds for the Foundation
    in the fiscal year 2004 bill. Drs. Colwell and Washington, what
    priority areas do you recommend for additional funds?
        Answer. Both NSF and the NSB are in agreement that increasing the
    average award size and duration are priorities of the Foundation. NSF
    grants to researchers currently average about $128,000/year for 3
    years, well below the optimum level of $250,000/year for 5 years as
    identified in the Principal Investigator (PI) survey conducted last
    year. PIs indicated that additional funds would most often be used to
    support more graduate students and post-docs in the research activity.

                  LEGAL COUNSEL FOR THE NATIONAL SCIENCE BOARD

        Question. The Congress provided the National Science Board with the
    authority to hire its own staff. I am a big proponent of this measure
    because it helps ensure the independence of the Board and helps the
    Board meet its oversight responsibilities.
        Dr. Boesz, do you have your own legal counsel?
        Answer. Yes; in carrying out audits, investigations, and other
    activities that are the responsibility of the Office of Inspector
    General (OIG), I periodically need legal advice and assistance. It is
    important that the OIG have its own counsel, to minimize conflicts of
    interest for the attorney serving in this position and to preserve the
    operational independence of the OIG. The OIG counsel reports directly
    to me.
        Question. Dr. Boesz, do you believe the Board should hire its own
    legal counsel?
        Answer. Yes; for the same essential reasons that the OIG has its
    own counsel, separate from the National Science Foundation Office of
    General Counsel, I believe it is important that the Board have its own
    counsel. The reasons are to minimize conflict of interest for the
    attorney serving the Board and to support Board independence.

     MAJOR RESEARCH EQUIPMENT AND FACILITIES CONSTRUCTION FOR FISCAL YEAR
                                      2004

        Question. Since the fiscal year 2004 budget request provides funds
    for the completion of HIAPER, which was already provided in the fiscal
    year 2003 Appropriations Act, would NSF support using these funds for
    other large facility projects? Which particular project(s) would NSF
    support?
        Answer. Funding was provided for both HIAPER and IceCube in fiscal
    year 2003 appropriations, though no funds were requested. Therefore,
    NSF would first allocate fiscal year 2004 funds requested to all
    ongoing projects to make up for the rescinded amounts from fiscal year
    2003, totaling $15.81 million. With the same attention to maintaining
    the planned funding streams for projects, EarthScope would receive $5.0
    million, and Terascale $10.0 million from remaining unallocated fiscal
    year 2004 funds. NSF would then use all the remaining funds ($40.725
    million) to support Scientific Ocean Drilling (SOD), the next project
    on the NSB-approved priority list as shown in the fiscal year 2004
    budget request. This would allow us to initiate RSVP in fiscal year
    2005, 1 year earlier than shown in the President's fiscal year 2004
    budget request.

                                                  (Dollars in Millions)
    ----------------------------------------------------------------------------------------------------------------
                                            Fiscal year             Adjusted
                                                2003       Fiscal    fiscal    Fiscal    Fiscal    Fiscal    Fiscal
                                           appropriation    year      year      year      year      year      year
                                                with        2004      2004      2005      2006      2007      2008
                                             rescission    request   request   request   request   request   request
    ----------------------------------------------------------------------------------------------------------------
    Project:
        ALMA.............................        29.81       50.84     51.04     49.67     48.84     47.89     46.49
        EarthScope.......................        29.81       45.00     43.73     47.35     49.75     26.80  ........
        HIAPER...........................        25.36       25.53      0.17  ........  ........  ........  ........
        IceCube..........................        24.54       60.00     35.46     33.40     34.30     35.30     36.30
        LHC..............................         9.66    ........      0.06  ........  ........  ........  ........
        NEES.............................        13.47        8.00      8.09  ........  ........  ........  ........
        NEON.............................         0.00       12.00     12.00     16.00     20.00     20.00     20.00
        SPSM.............................         6.96        0.96      1.00  ........  ........  ........  ........
        Polar Aricraft Upgrades..........  .............  ........  ........  ........  ........  ........  ........
        Terascale........................         9.94    ........     10.06  ........  ........  ........  ........
                                          --------------------------------------------------------------------------
          Subtotal, Current MREFC........       149.54      202.33    161.61    146.42    152.89    129.99    102.79
            New Starts...................  .............  ........     40.73  ........  ........  ........  ........
                                          --------------------------------------------------------------------------
              Total, MREFC...............       149.54      202.33    202.33    146.42    152.89    129.99    102.79
                                          ==========================================================================
    New Starts:
        Scientific Ocean Drilling........  .............  ........     40.73     36.12     23.00  ........  ........
        RSVP.............................  .............  ........  ........     30.00     42.66     44.00     20.25
        Ocean Observatories..............  .............  ........  ........  ........     24.73     40.33     72.46
                                          --------------------------------------------------------------------------
          New Total, MREFC...............  .............  ........    202.33    212.54    243.28    214.32    195.50
    ----------------------------------------------------------------------------------------------------------------

                  OPEN MEETINGS OF THE NATIONAL SCIENCE BOARD

        Question. The NSF reauthorization bill included a requirement to
    ensure that the Board opened up its meetings.
        Dr. Washington, can you describe what steps you have taken to
    comply with the law? You mentioned in your testimony that Board
    meetings are open for a few exceptions. Can you describe those
    exceptions?
        Answer. The National Science Board publicizes its meeting schedule
    and meeting agenda, including discussion topics and agenda for the
    various committees on the Board website well in advance of all
    meetings. The Board is working to ensure that our plans and activities
    are open and transparent to all interested parties and publics. The few
    instances where sessions were briefly closed, Board members were
    involved in discussion and approval of budget items, personnel matters
    such as vacancies, selection of candidates for major awards and
    recognition, and other similar matters of a sensitive nature.
        Question. Dr. Boesz, can you give us your assessment of the open
    meetings since you are required to audit the Board's compliance with
    this provision?
        Answer. In my opinion, the Board has embraced openness in all of
    its meetings. The norm is now for open committee meetings and they have
    been reasonably well attended. This appears to have been a smooth
    transition with a minimal amount of disruption to Board activities. We
    look forward to submitting our first audit report next February and are
    pleased with the changes we have already seen taking place.
          major research equipment and facilities construction program
        Question. The budget request contains a timeline and cost estimates
    for future construction projects through fiscal year 2008. Some of
    these future projects will receive a certain level of pre-development
    funding from the R&RA accounts even though its actual construction
    support will come from the Major Research Equipment and Facilities
    Construction account.
        Dr. Colwell, I have two questions: (1) Aside from the projects
    mentioned in the requested budget, how many other projects are in the
    pipeline, and how much is NSF spending on pre-development for these
    projects? (2) Does NSF have a centralized system to track any new
    potential large facility projects that receive pre-development funds?
        Answer. NSF often supports the early design and development of
    potential large facility projects. NSF has developed, and is in the
    process of implementing, a centralized system to track projects at all
    stages, including the early stages of design and development. While NSF
    may track such projects in their early stages, they are not identified
    and tracked as MREFC projects (or being in the pipeline) until they are
    approved by the National Science Board (NSB), which is usually after
    initial design and development is completed.
        Currently, there are three projects approved by the NSB but not yet
    funded. These projects--Scientific Ocean Drilling, Rare Symmetry
    Violating Processes, and Ocean Observatories--are identified and
    discussed in the MREFC chapter of the Fiscal Year 2004 Request.

                             BUSINESS ANALYSIS PLAN

        Question. Last June, NSF entered into a 3-year, $14.8 million
    contract with Booz-Allen-Hamilton to develop a business analysis plan
    for the agency's administration and management. Frankly, this is a
    large and expensive contract for an agency of the size of NSF. I am
    also concerned that your term, Dr. Colwell, is scheduled to end before
    the planned completion of the business analysis plan contract.
        What assurances can you provide the Committee that this contract
    will be implemented as planned and will provide the anticipated
    deliverables geared to supporting NSF's mission and making informed
    future investments in administration and management?
        Answer. NSF has developed an Administration and Management (A&M)
    strategy as part of its overall strategic planning process that is
    consistent with the President's Management Agenda priorities and other
    external requirements. A key element of NSF's A&M strategy is a
    comprehensive, multi-year business analysis. The outcomes of this
    business analysis will guide long-term integrated administration and
    management investments that promise important mission-focused results.
    The business analysis responds directly to issues raised in the
    President's Management Agenda, to government-wide issues identified by
    the General Accounting Office (GAO) and others, and to agency-specific
    challenges such as the effective management of an increasingly
    multidisciplinary science and engineering research and education
    portfolio, and the management and oversight of an increasing number of
    complex large facility projects.
        The business analysis involves the concurrent consideration of
    human capital and next-generation technology-enabled systems in an
    analysis framed around the Agency's core business processes:
      --Resource Allocation;
      --Merit Review;
      --Award Management and Oversight;
      --Knowledge Management; and
      --Performance Assessment and Accountability.
        The primary goals of the NSF Business Analysis effort are to:
      --Document each of the agency's core business processes and define
            its contribution to the NSF mission;
      --Define process effectiveness and efficiency improvements that
            capitalize on best practices;
      --Develop future-looking business process scenarios and criteria for
            success;
      --Design a human capital management plan to provide next-generation
            human capital capabilities; and
      --Develop an integrated technologies and enterprise architecture plan
            for future systems in support of the agency's business
            processes.
        NSF has also identified a series of indicators for success of the
    business analysis to help guide the project planning throughout the 3-
    year effort. Through the business analysis, NSF expects to achieve:
        Business Processes that . . .
      --Effectively address emerging trends in NSF's S&E portfolio;
      --Leverage NSF core strengths and are consistent with NSF's mission
            and vision;
      --Achieve NSF customer service goals; and
      --Incorporate best practices from the public and private sectors.
        A Human Capital Management Plan that . . .
      --Enables the hiring/retention of the right mix of people;
      --Addresses succession planning and Government-wide human capital
            requirements;
      --Identifies effective learning strategies that develop critical
            competencies and skills;
      --Manages projected workload and competency needs; and
      --Provides flexible workforce classifications.
        A Technology and Tools Plan that . . .
      --Provides an integrated Enterprise Architecture (EA) platform that
            supports and enables NSF's evolving business processes;
      --Defines a migration strategy to guide NSF's implementation of its
            new EA;
      --Provides the infrastructure capability to meet future workflow
            demands; and
      --Leverages technology to support forward-thinking business
            processes.
        The business analysis is structured to ensure maximum participation
    and ``buy-in'' on the part of NSF management and staff and the external
    communities that NSF serves. Nearly 300 members of the NSF staff have
    already participated in the business analysis effort through
    interviews, focus groups, and process teams. In addition, over 2,000
    NSF grant applicants responded to a survey developed as part of the
    business analysis to gauge community satisfaction with NSF's processes
    and services.
        The business analysis is also designed to produce fully researched
    and justified recommendations that can be implemented by NSF. Rather
    than submit to NSF a list of static recommendations at the end of the
    review period, the contractor, working in partnership with NSF, will
    develop scenarios for process improvement throughout the course of the
    study. These scenarios will include a business case, pros and cons, an
    implementation plan, and criteria for successful implementation.
        NSF is completely confident that the business analysis will produce
    a clear roadmap for significant improvements in NSF's business
    processes, human capital management, and technology and tools
    management; and will inform the agency's investments in Administration
    and Management for the foreseeable future.

                   MATH AND SCIENCE PARTNERSHIP (MSP) PROGRAM

        Question. Can you give us an update on the progress of the new Math
    and Science Partnership program. To what extent are you coordinating
    your program with the Department of Education?
        Answer. In fiscal year 2003, 271 proposals were received for the
    second solicitation (NSF 02-190) for MSP Comprehensive and Targeted
    Projects (84 Comprehensive projects and 187 Targeted projects). In
    February and March 2003, reviewers came to Arlington to provide their
    analyses of the proposals. These proposals are currently in the review
    process with awards expected by September 2003.
        The initial MSP Program Solicitation for Comprehensive and Targeted
    Projects, NSF 02-061, was developed by NSF staff in cooperation with
    staff from the Department of Education (ED). In addition to the
    formulation of guidelines and review criteria that met the MSP and
    other goals of the Foundation, NSF and ED staff also worked to
    purposefully insert language into the program solicitation that would
    encourage the field to submit MSP proposals of interest to ED.
        For the second MSP solicitation, NSF 02-190, ED provided the names
    of numerous potential reviewers, many of whom were invited and then
    joined on sub-panels that met in February and March 2003. As noted
    above, analysis of all the submissions and reviews are ongoing with
    awards expected by early Fall 2003.
        NSF and ED Program Officers also work together on the Research,
    Evaluation and Technical Assistance (RETA) portfolio. Both NSF and ED
    senior managers and staff contributed to an inaugural meeting of RETA
    Principal Investigators and other project leaders in November 2002. For
    the full RETA solicitation, NSF 03-541, ED Program Officers were
    invited to participate in the development of the new solicitation and
    were invited to review the names of the reviewers that will meet to
    review MSP RETA proposals in June 2003.
        In addition to collaboration on MSP at the staff level of the two
    agencies, further discussion and collaboration occurs at an interagency
    level through regular meetings co-chaired by Dr. Judith Ramaley (NSF)
    and Dr. Susan Sclafani (ED), thus bringing senior level insights and
    decision-making into the evolving MSP effort.
        NSF and ED staff also worked together on an initial MSP Learning
    Network meeting, held in January 2003, that brought together Principal
    Investigators and other personnel from the initial cohort of
    Comprehensive, Targeted and RETA projects.
        For fiscal year 2003, ED received an appropriation of roughly $101
    million to be reallocated to States for local Mathematics and Science
    Partnership efforts. NSF is collaborating with ED to arrange a workshop
    for staff from the Department of Education of each State and U.S.
    territory to learn about this new source of funding and to receive
    guidance on developing Requests for Proposals. The workshop is
    currently planned for June 13-14, 2003 in Washington, DC.

                  INTERGOVERNMENTAL PERSONNEL ACT APPOINTMENTS

        Question. NSF's budget request includes a 21 percent increase in
    rotators through the Intergovernmental Personnel Act (IPA). These
    people come from other agencies to work at NSF for up to 4 years, but
    typically 2 to 3 years, and then return to their former agencies.
        If there is a need for a larger workforce at NSF, why is NSF
    requesting to keep the number of FTEs for NSF staff at the current
    level? Why is NSF increasing its dependence on IPAs, which are
    temporary in nature?
        Answer. NSF aims to employ a mix of permanent staff, IPAs, and
    Visiting Scientists, Engineers, and Educators throughout the
    Foundation. NSF's permanent staff provides the stable base of knowledge
    and expertise needed to operate efficient and productive programs
    within the Federal structure. IPAs and other temporary staff give NSF a
    direct, ongoing connection to the research and education community that
    complements the work of our external advisory committees and Committees
    of Visitors.
        The plan for an increase of 30 IPAs in the fiscal year 2004 request
    should be viewed in context of the ongoing development and
    implementation of NSF's Administration & Management (A&M) Strategic
    Plan and the business analysis currently underway by Booz-Allen-
    Hamilton. NSF elected to request an increase in IPAs and defer
    requesting additional FTEs pending the outcome of the business
    analysis. We expect the fiscal year 2005 request will be informed by
    the results of the business analysis.

    THE SCIENCE, TECHNOLOGY, ENGINEERING, AND MATHEMATICS TALENT EXPANSION
                                 PROGRAM (STEP)

        Question. An ongoing concern of Congress is the need for making
    sure that we have enough college students with majors in science,
    engineering, and technology fields. Congress has shown support for this
    program by making significant increases to the tech talent or ``STEP''
    program in the last fiscal year. Why is NSF requesting only $7 million
    for Tech Talent?
        Answer. The NSF fiscal year 2004 budget was submitted to Congress
    before final action had been taken by Congress on the fiscal year 2003
    request. The $5 million (250 percent) increase requested by the
    Foundation for the STEP program in fiscal year 2004, from $2 million to
    $7 million, was approved by OMB many months earlier. The increase
    reflected our strong commitment to the importance of attracting more
    students to science and math and encouraging more students to major in
    science, technology, engineering and mathematics (STEM) fields. NSF
    agrees that our future as a Nation will be shaped in significant ways
    by the science and math competency of our citizens and by the quality
    and diversity of the science, technology, engineering and mathematics
    (STEM) workforce. Taken as a whole, NSF's commitment to workforce
    development is expressed in a cluster of related requests that together
    address key points of transition along the pathway to STEM careers.
    These include preparation for college and the transition to
    postsecondary study (MSP), the quality of the undergraduate experience
    (STEP), innovations in technological education (ATE) and support for
    advanced study (IGERT, GRF, GK-12). These investments are a package.
    They are supported and enhanced by the NSF request for the
    establishment of a new Workforce for the 21st Century priority area.
        In addition, there are other components of the EHR portfolio that
    specifically address the preparation and professional development of
    science and math teachers and faculty. As a whole, the portfolio has a
    strong emphasis on workforce development.
                                     ______

                   Questions Submitted by Senator Larry Craig

        EXPERIMENTAL PROGRAM TO STIMULATE COMPETITIVE RESEARCH (EPSCOR)

        Question. In fiscal year 2003, Congress appropriated $90 million
    for the core EPSCoR program, but NSF requested only $75 million in
    fiscal year 2004. This is below the fiscal year 2002 appropriation of
    $80 million and would take EPSCoR back to the fiscal year 2001 level. I
    am disappointed to see that the National Science Foundation, while
    seeking an increase in funding in fiscal year 2004, has so reduced the
    EPSCoR program. Please justify the requested funding level.
        Answer. Within the constraints of the overall EHR request, it was
    not possible to accommodate the priority increases such as the Math and
    Science Partnership while maintaining all programs in the existing
    portfolio at the Fiscal Year 2003 Current Plan levels. This required
    difficult decisions on where reductions could be taken while minimizing
    the adverse impact on program outcomes. In the case of EPSCoR, the
    requested fiscal year 2004 funding level of $75 million will allow the
    program to meet its current obligations, including approximately $41
    million for existing Research Infrastructure Improvement awards. This
    level of funding will also allow continuation of EPSCoR's highly
    successful outreach program to acquaint EPSCoR researchers with NSF
    programs and policies and a comprehensive program of technical
    assistance designed to increase the success ratio of EPSCoR
    institutions in the NSF's major grant programs (e.g., Engineering
    Research Centers). Finally, the EPSCoR program also participates in co-
    funding efforts within the Foundation's regular grant programs,
    providing for an additional $30 million for investigators in EPSCoR
    States to a total of $105 million.

                   RESEARCH INFRASTRUCTURE IMPROVEMENT AWARDS

        Question. I believe that the Research Infrastructure Improvement
    (RII) awards are the heart of the EPSCoR program. Without these awards,
    growth in science and research is virtually impossible in the
    participating States. States are now eligible for up to $3 million per
    year for infrastructure awards. Please provide a status report on the
    awards made and the amount per State.
        Answer. Over the past 3 years, the Research Infrastructure
    Improvement (RII) awards have provided support for infrastructure
    improvements in almost all EPSCoR States. To date, all States have had
    the opportunity to compete for these awards of up to $9 million for 36
    months, although not all States have been successful in securing
    funding. The NSF staff works closely with unsuccessful States to
    provide a level of assistance that will help ensure increased
    competitiveness in the future. Shown below is a chart summarizing the
    RII funding to date.

                  RESEARCH INFRASTRUCTURE IMPROVEMENT GRANT PROGRAM (FISCAL YEAR 2001-FISCAL YEAR 2003)
                                                  [Dollars in millions]
    ----------------------------------------------------------------------------------------------------------------
                                                        Fiscal year     Fiscal year     Fiscal year
                          State                            2001            2002            2003            Total
    ----------------------------------------------------------------------------------------------------------------
    Alabama.........................................             3.0             3.0             2.5             8.5
    Alaska..........................................             9.0             0.0             0.0             9.0
    Arkansas \1\....................................             0.0             0.0             0.0             0.0
    Delaware \2\....................................             0.0             0.0             0.0             0.0
    Hawaii..........................................             0.0             0.0             3.0             3.0
    Idaho...........................................             0.0             3.0             3.0             6.0
    Kansas..........................................             0.0             0.0             3.0             3.0
    Kentucky........................................             0.0             3.0             3.0             6.0
    Louisiana.......................................             3.0             3.0             3.0             9.0
    Maine...........................................             0.0             0.0             2.0             2.0
    Mississippi.....................................             0.0             2.0             2.0             4.0
    Montana.........................................             3.0             3.0             3.0             9.0
    Nebraska........................................             3.0             3.0             3.0             9.0
    Nevada..........................................             0.0             3.0             3.0             6.0
    New Mexico......................................             0.0             2.0             2.1             4.1
    North Dakota....................................             0.0             2.0             2.0             4.0
    Oklahoma........................................             0.0             3.0             3.0             6.0
    Puerto Rico.....................................             0.0             0.0             2.1             2.1
    South Carolina..................................             0.0             3.0             0.0             3.0
    South Dakota....................................             3.0             0.0             3.0             6.0
    Vermont.........................................             0.0             0.0             2.8             2.8
    Virgin Islands \2\..............................             0.0             0.0             0.0             0.0
    West Virginia...................................             0.0             3.0             3.0             6.0
    Wyoming \3\.....................................             0.0             0.0             0.0             0.0
                                                     ---------------------------------------------------------------
          TOTAL:....................................  ..............  ..............  ..............           108.5
    ----------------------------------------------------------------------------------------------------------------
    \1\ Pending RII Proposal in fiscal year 2003.
    \2\ Denotes New EPSCoR Jurisdictions with planning grants.
    \3\ Submission in fiscal year 2003.

              USE OF EPSCOR STATE FACULTY IN MERIT REVIEW PROCESS

        Question. There has been considerable discussion about the need to
    increase the number of scientists and researchers from EPSCoR States on
    peer review panels and advisory committees. Please describe your
    progress and efforts to place more faculty from EPSCoR States on these
    panels and committees.
        Answer. The National Science Foundation and the EPSCoR Office in
    particular have focused significant efforts in increasing the numbers
    of merit reviewers from the EPSCoR States. During the period 1996-1999,
    the EPSCoR Office monitored and reported the share of total NSF
    reviewers and panelists from EPSCoR States engaged in the Foundation's
    merit review process. The names of over 2,000 potential EPSCoR
    reviewers were also distributed among NSF's various Directorates. In
    addition, EPSCoR's outreach initiative has allowed NSF Program Officers
    to become more familiar with researchers and educators in EPSCoR States
    and encourage them to serve as merit reviewers and panelists for NSF
    grant competitions. The EPSCoR Office will analyze the reviewer data
    for fiscal year 2003 to determine if these activities have increased
    EPSCoR's share of total NSF reviewers and panelists engaged in the
    Foundation's merit review process from its previous level of
    approximately 7 percent (1996-99).
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                  RESEARCH INSTRUMENTATION AND INFRASTRUCTURE

        Question. The National Science Board has released a draft report
    recommending that the Foundation substantially increase that portion of
    its budget that goes to help institutions acquire state-of-the-art
    instrumentation and research infrastructure. We know from past
    experience fields like astronomy are very dependent on infrastructure.
    The National Radio Astronomy Observatory (NRAO) operations in New
    Mexico and elsewhere are just one example.
        Dr. Colwell, how does the Foundation intend to respond to the
    Board's report--particularly to the recommendation that calls for a
    program to address what is called ``mid-sized infrastructure''
    (equipment in the millions to tens of millions of dollars)? How will
    such an effort be structured to benefit both the universities and
    national user facilities supported by the NSF?
        Answer. Since the NSB report was released only 2 months ago, we are
    still examining its recommendations and how best to implement them. The
    Foundation's fiscal year 2004 budget request proposed increased funding
    for S&E infrastructure, including the MREFC Account and mid-size
    infrastructure projects, such as the Advanced Modular Incoherent
    Scatter Radar (AMISR). I have also encouraged Assistant Directors and
    Office Heads to continue to propose new mid-size infrastructure
    projects for funding in subsequent budget years.
        In addition, NSF has continued to request increases in the Major
    Research Instrumentation Program (MRI). For this program $90 million is
    requested in the fiscal year 2004 budget. In addition to support to
    research-intensive institutions for state-of-the-art research
    instrumentation, MRI provides substantial support to small schools,
    non-Ph.D.-granting institutions and minority serving institutions that
    are in need of cutting-edge instrumentation.

                  NATIONAL RADIO ASTRONOMY OBSERVATORY (NRAO)

        Question. Dr. Colwell, in the fiscal year 2003 appropriations bill,
    we provided NRAO with a budget of about $45.7 million. In the fiscal
    year 2004 request, NSF is proposing to fund NRAO at a level of $42.7
    million, which represents a reduction of about $3 million. The request
    level of $42.7 million would put NRAO below the fiscal year 2001 level.
    Given the new activities going on at NRAO--such as the construction of
    the new ALMA telescope and work to revitalize the VLA--what is the
    justification for such a budget cut?
        Answer. The National Radio Astronomy Observatory (NRAO) remains one
    of NSF's most respected and productive national facilities. Our recent
    decision to proceed with construction of the international Atacama
    Large Millimeter Array (ALMA), in which NRAO leads the North American
    participation, exhibits our confidence in their management and the
    exceptional scientific merit of the program that they are carrying out
    across a wide range of radio astronomy.
        The operating budget for NRAO in fiscal year 2001 was $45.43
    million, which included a $5 million one-time increment for improvement
    of infrastructure, particularly at the Green Bank site. The fiscal year
    2003 request level for NRAO was $39.63 million. This request
    represented an approximate 2 percent decrease from the fiscal year 2002
    level of $40.43 million (which reflected the reduction of the $5
    million one-time increment) even though the request for the Division of
    Astronomical Sciences was down by 2.8 percent from the fiscal year 2002
    level.
        The fiscal year 2004 request level for NRAO is $42.73 million,
    formulated before the fiscal year 2003 appropriation level was known.
    This is $3.1 million above the fiscal year 2001 level (when the one-
    time increment is taken into account) and would support operations,
    maintenance, and instrumentation for the Robert C. Byrd Green Bank
    Telescope, the Very Large Array, and the Very Long Baseline Array as
    well as continued progress on the Expanded Very Large Array.

                        FORMULA-DRIVEN FUNDING INCREASES

        Question. Dr. Colwell, you know that I am a major advocate for
    increasing research through the National Science Foundation and I am
    sure that Senator Bond and Senator Mikulski are going to do everything
    they can to support the Foundation even though the budget picture will
    be very constrained. Nevertheless, in recent days we have heard from
    those in the science community who are advocating something they call a
    ``3-2-1'' increase for NSF. For example, if the subcommittee could give
    NSF a $600 million increase (an amount not too different than last
    year's increase), they contend that $300 million would go to increase
    research; $200 million should go for education and training (at the
    collegiate and K-12 level); and $100 million be targeted for the
    Science Board's infrastructure recommendation. Do you think such a
    distribution makes sense and why?
        Answer. A formula-driven increase in funding is unlikely to
    appropriately reflect either opportunities or needs in the research
    community. The distribution of a hypothetical increase in NSF's
    appropriation should reflect the priorities stated in the original
    budget request, which in fiscal year 2004 emphasized the need for
    investments in research tools and infrastructure. Other priorities
    include the need to increase both the size and duration of awards, and
    the desirability of funding a greater proportion of existing quality
    proposals that go unfunded in every cycle. In that respect, additional
    funding for research activities could be used immediately to support
    proposals already reviewed, with a minimum of additional cost to the
    agency.

       PROPOSED REDUCTION FOR THE SCIENCE, TECHNOLOGY, ENGINEERING, AND
                  MATHEMATICS TALENT EXPANSION PROGRAM (STEP)

        Question. Dr. Colwell, last year I joined with Senator Mikulski and
    Senator Bond--and others--to establish a program at NSF we call ``tech
    talent''--a program designed to attract more U.S. citizens to pursue
    and acquire undergraduate degrees in science and engineering. Senator
    Mikulski, the chair of this subcommittee, provided $22 million for that
    program last year. The fiscal year 2004 budget request provides $7
    million. Do you really want us to reduce the program by some 66 percent
    in 1 year when clearly the United States must do more to encourage our
    citizens to pursue degrees in these fields? What is the
    Administration's rationale for this recommendation?
        Answer. The NSF fiscal year 2004 request was submitted to Congress
    before the fiscal year 2003 budget was approved by Congress. The $5
    million (250 percent) increase requested by the Foundation for the STEP
    program in fiscal year 2004, from $2 million to $7 million, was
    approved by OMB many months earlier. This reflected our strong
    commitment to the importance of attracting more students to science and
    math and encouraging more students to major in science, technology,
    engineering and mathematics (STEM) fields. NSF agrees that our future
    as a Nation will be shaped in significant ways by the science and math
    competency of our citizens and by the quality and diversity of the
    science, technology, engineering and mathematics (STEM) workforce.
    Taken as a whole, NSF's commitment to workforce development is
    expressed in a cluster of related requests that together address key
    points of transition along the pathway to STEM careers. These include
    preparation for college and the transition to postsecondary study
    (MSP), the quality of the undergraduate experience (STEP), innovations
    in technological education (ATE) and support for advanced study (IGERT,
    GRF, GK-12). These investments are a package. They are supported and
    enhanced by the NSF request for the establishment of a new Workforce
    for the 21st Century priority area.
        In addition, there are other components of the EHR portfolio that
    specifically address the preparation and professional development of
    science and math teachers and faculty. As a whole, the portfolio has a
    strong emphasis on workforce development.

                        NATIONAL SCIENCE DIGITAL LIBRARY

        Question. Dr. Colwell, NSF has been a leader in helping to close
    the so-called ``digital divide'' by its support for research and
    development related to digital libraries. However the fiscal year 2004
    budget seeks to cut NSF's support for the national science digital
    library (NSDL) from $23 million to $18 million--a $5 million reduction
    in 1 year is substantial. Can you explain the rationale behind such a
    proposal?
        Answer. The decrease in the request for the national science
    digital library was primarily due to the funding of the Core
    Integration project the previous year that allowed for centralized
    management of the library. Centralized management allows for
    operational efficiency and enabled a reduction in overall funding need
    for fiscal year 2004.
                                     ______

                   Question Submitted by Senator Tim Johnson

        EXPERIMENTAL PROGRAM TO STIMULATE COMPETITIVE RESEARCH (EPSCOR)

        Question. Despite increases provided by Congress for NSF EPSCoR,
    the budget request for NSF EPSCoR has remained flat. The fiscal year
    2004 budget request is $75 million. This is the same level of funding
    as the level of funding appropriated for NSF EPSCoR in fiscal year
    2001. Does NSF believe it would be beneficial to seeking greater levels
    of EPSCoR funding in the future?
        Answer. Funding levels proposed for specific NSF programs each
    fiscal year are based on a number of factors including Administration
    priorities, and a desire to balance funding among competing priorities.
    The requested fiscal year 2004 funding level of $75 million will allow
    the program to meet its current obligations, including approximately
    $41 million for existing Research Infrastructure Improvement awards.
    This level of funding will also allow continuation of EPSCoR's highly
    successful outreach program to acquaint EPSCoR researchers with NSF
    programs and policies and a comprehensive program of technical
    assistance designed to increase the success ratio of EPSCoR
    institutions in the NSF's major grant programs (e.g., Engineering
    Research Centers). Finally, the EPSCoR program also participates in co-
    funding efforts within the Foundation's regular grant programs,
    providing for an additional $30 million for investigators in EPSCoR
    States to a total of $105 million.
                                     ______

       Questions Submitted to the Office of Science and Technology Policy
               Questions Submitted by Senator Christopher S. Bond

              PLANT BIOTECHNOLOGY RESEARCH IN THE DEVELOPING WORLD

        Question. I am very interested in extending plant biotechnology to
    developing world countries in places such as Africa. I strongly believe
    that plant biotechnology can be a powerful tool in addressing the
    starvation that is occurring in Africa. However, like Europe, there are
    public misperceptions about the benefits of genetically modified crops.
        To what extent is the Administration trying to educate other
    countries about plant biotechnology?
        Answer. The State Department, USAID, USDA and other agencies have
    numerous activities designed to provide information to other countries
    on agricultural biotechnology. These include bilateral and multilateral
    (OECD, Codex, APEC, etc.) efforts to foster biotechnology research and
    the use of science-based regulatory systems. USAID has increased it
    spending in this area to $25 million in both fiscal year 2002 and
    fiscal year 2003. The USDA is sponsoring a major ministerial conference
    that will be held this summer in California on new agricultural
    technologies (including biotechnology).
        Question. The NSF Authorization Act expanded the plant genome
    program to develop partnerships between United States and developing
    world research institutions. What thoughts do you have in implementing
    this new authority?
        Answer. One of the most effective ways to develop long-lasting
    partnerships in plant biotechnology between United States and
    developing world research institutions would be to form close working
    relationships directly between scientists. Scientists from developing
    countries can articulate their needs and U.S. scientists can tailor
    their participation based on those needs. Within the United States,
    this sort of activity would be best managed by an interagency
    collaboration between the NSF, USAID and USDA. Each agency brings to
    the table unique strengths that can be combined into a coherent
    program.
        Question. To what extent have you discussed this matter with USAID?
    How can OSTP help us in coordinating these activities with other
    relevant agencies such as USDA?
        Answer. The majority of OSTP's effort in agricultural biotechnology
    has focused on domestic regulatory issues, risk assessment research,
    and genomics. OSTP coordinates these activities through: the NSTC
    Interagency Working Group (IWG) on Plant Genomes, which has provided
    oversight and overall guidance to the National Plant Genome Initiative
    since 1998; the NSTC Subcommittee on Biotechnology; and the NEC
    Agricultural Biotechnology Working Group. Using these mechanisms, OSTP
    will work with the agencies to assist in the coordination of their
    international agricultural biotechnology activities. For example, the
    IWG on Plant Genomes is exploring ways to link developing country
    scientists to U.S.-funded plant genome research programs.

                 PRIORITY SETTING FOR MAJOR RESEARCH FACILITIES

        Question. Due to the perceived subjectivity of NSF's priority-
    setting process for large research facilities, there has been an
    increased effort by various scientific interest groups to lobby the
    Congress on their specific project. This creates the perception that if
    you cannot get past the decisions of the Director, then going to
    Congress directly is an acceptable route. In response to this concern,
    we asked the National Academy of Sciences to develop criteria to rank
    and prioritize large research facilities.
        Dr. Marburger, what are your views about this issue? Do you support
    the NAS study and do you think that a rational, objective, and fair
    system can be created to prioritize NSF's large facilities?
        Answer. No longer the exclusive province of physics and astronomy,
    resource-intensive instrumentation has opened significant new
    opportunities for discovery and applications in every technical field.
    This has led to the emergence of demands for expensive facilities and
    instrumentation across a wider spectrum of fields than in the past. As
    a result, the fields traditionally associated with ``Big Science'' are
    experiencing increased competition for funds. I regard the interest
    shown among the science community and within Congress in NSF's
    facilities programs to be a symptom of this growth in the need for
    complex, expensive instrumentation in the post cold-war era. The issues
    Congress has asked the National Academy of Sciences to address are not
    confined to the National Science Foundation and probably cannot be
    fully resolved in isolation from other agencies, or indeed from other
    nations. I am supportive of the process that the National Academy has
    undertaken and am looking forward to learning of their recommendations.

                         MATH AND SCIENCE PARTNERSHIPS

        Question. Can you give us an update on the progress of the new Math
    and Science Partnerships program? To what extent are you coordinating
    your program with the Department of Education's math and science
    program?
        Answer. The Math and Science Partnership (MSP) program is
    administered by the Education and Human Resources Directorate (EHR) of
    the National Science Foundation (NSF). The guidelines for proposals
    under the initial MSP Program Solicitation (NSF 02-061) for
    Comprehensive and Targeted Projects were released on January 30, 2002.
    In response to this Solicitation, 286 MSP proposals were submitted from
    the field in April 2002. These were reviewed in June 2002 by 23 sub-
    panels. Reviewers were drawn from around the Nation and represented a
    diverse group of distinguished researchers, educators and practitioners
    from institutions of higher education, K-12 schools and school
    districts, not-for-profit and for-profit organizations, and other
    stakeholders representing the fields of mathematics, science,
    engineering, administration, evaluation, assessment, technology, and
    policy. Ultimately, 24 awards were made, 7 to Comprehensive projects
    (K-12, both mathematics and science) and 17 to Targeted projects (more
    focused in scope).
        In fiscal year 2003, a second solicitation (NSF 02-190) for MSP
    Comprehensive and Targeted Projects called for full proposals to be
    submitted by January 7, 2003. In response, 271 proposals were received
    for 84 Comprehensive projects and 187 Targeted projects. In February
    and March 2003, reviewers came to Arlington to provide their analyses
    of the proposals. These proposals are currently in the review process
    with awards expected by September 2003.
        In addition to the competition for MSP Comprehensive and Targeted
    Projects, the MSP program also makes awards for Research, Evaluation
    and Technical Assistance (RETA) projects to support the work of the
    partnership projects. A ``Dear Colleague'' Letter (NSF 02-103) calling
    for such RETA proposals was posted in March 2002, and 42 proposals were
    received in June 2002. Fifteen awards--many for design of potential
    larger scale efforts to be funded in the future--were made from the NSF
    fiscal year 2002 appropriation, and NSF program staff are currently
    managing these projects. A full solicitation (NSF 03-541) for RETA was
    posted in February 2003, with proposals due in May 2003 and to be
    reviewed in June 2003.
        Regarding coordination of NSF efforts with those of the Department
    of Education (ED), OSTP has worked with staff from both agencies since
    the initial conceptualization of the MSP to make sure that they
    coordinate their efforts. The initial MSP Program Solicitation for
    Comprehensive and Targeted Projects was developed by NSF staff in
    cooperation with staff from ED. In addition to the formulation of
    guidelines and review criteria that met the MSP and other goals of the
    NSF, NSF and ED staff also worked to purposefully insert language into
    the Program Solicitation that would encourage the field to submit MSP
    proposals of interest to ED. The Solicitation included the following
    wording:

        ``As a subset of the targeted awards, the U.S. Department of
    Education and NSF will consider co-funding partnerships that address
    the following strategies:
          a) engaging classroom teachers in mathematical or scientific
            research and development projects sponsored by institutions of
            higher education and/or other private and public sector
            research organizations;
          b) engaging practicing teachers as professional colleagues who
            work together with scientists, mathematicians and engineers to
            master advanced new content and teaching strategies;
          c) demonstrating how technology can be used in the classroom to
            deepen the scientific and mathematical understanding of
            teachers and to promote higher student achievement; or
          d) establishing and evaluating the effectiveness of differential
            salary scales used to make the mathematics and science teaching
            profession more comparable in pay to the private sector, both
            as a tool to attract beginning teachers with deep mathematical
            or scientific training and as a means to create a career ladder
            capable of retaining highly skilled and effective teachers.''

        Following the release of the initial solicitation, NSF Program
    Officers met weekly to discuss the MSP review process and post-award
    management, and were joined by the lead ED MSP Program Officer who
    regularly participated in our cooperative work. An important component
    of that work was the identification of potential reviewers for the MSP
    proposals that were submitted. The ED Program Officer involved in MSP
    was also assigned as a Federal officer to two of the sub-panels of
    reviewers that met in June 2002.
        Decisions about which proposals were most competitive for funding
    involved strong collaboration between NSF and ED. Twenty-two
    partnership projects were funded entirely through the NSF MSP
    appropriation. Two jointly funded projects continue to be cooperatively
    managed by program staff at both NSF and ED.
        For the second MSP solicitation, NSF 02-190, ED provided the names
    of numerous potential reviewers, many of whom were invited and then
    joined on sub-panels that met in February and March 2003. As noted
    above, analysis of all the submissions and reviews are ongoing with
    awards expected by early Fall 2003.
        NSF and ED Program Officers also work together on the RETA
    portfolio. In response to the initial ``Dear Colleague'' Letter, they
    (a) established the sub-panels that would review the proposals, and (b)
    guided the process of making decisions for awards. Both NSF and ED
    senior managers and staff contributed to an inaugural meeting of RETA
    Principal Investigators and other project leaders in November 2002. For
    the full RETA solicitation, ED Program Officers were invited to
    participate in the development of the new solicitation and were invited
    to review the names of the reviewers that will meet to review MSP RETA
    proposals in June 2003.
        As you can see, both NSF and ED have continued to work in
    partnership on this program, culminating in a Math Summit hosted by
    Secretary Paige in February of this year. Dr. Colwell, Representative
    Ehlers and I spoke at the event, which launched the new Math and
    Science Initiative (MSI). The MSI is a broad based, interagency effort
    that includes not only ED and NSF, but also other science agencies such
    as NASA, NIH and the Department of Energy. More recently,
    representatives from private foundations, professional associations and
    textbook publishers have joined the Initiative. The goals of the MSI
    are to increase public awareness of the importance of math and science
    education, to improve the quality of teacher knowledge in these
    subjects, and to build the scientific knowledge base to guide
    improvements in teacher professional development and classroom
    practices. I continue to work with all of these agencies to ensure that
    Federal investments in improving the quality and effectiveness of K-12
    math and science education are implemented in a manner that minimizes
    duplication and maximizes the difference these programs make for
    students and their teachers.

                                  TECH TALENT

        Question. An ongoing concern of Congress is the need for making
    sure that we have enough college students with majors in science,
    engineering, and technology fields. Congress has shown support for this
    program by making significant increases to the tech talent or ``STEP''
    program in the last fiscal year.
        Why is NSF requesting only $7 million for Tech Talent?
        Dr. Washington and Dr. Marburger, what are your views on the tech
    talent program? Do you believe there is a strong need for this program?
        Answer. While the NSF reauthorization included the STEP program at
    levels of $22 million in fiscal year 2003, $30 million in fiscal year
    2004, and $35 million in fiscal year 2005, the NSF fiscal year 2004
    budget was submitted to Congress before the fiscal year 2003 budget was
    approved by Congress. The increase requested for STEP in fiscal year
    2004 reflects a strong commitment to the importance of attracting more
    students to science and math and encouraging more students to major in
    science, technology, engineering and mathematics (STEM) fields. I agree
    that our future as a Nation will be shaped in significant ways by the
    science and math competency of our citizens and by the quality and
    diversity of the STEM workforce. Taken as a whole, the Administration's
    commitment to workforce development is expressed in a cluster of
    related NSF requests that together address key points of transition
    along the pathway to STEM careers. These include preparation for
    college and the transition to postsecondary study (MSP), the quality of
    the undergraduate experience (STEP), innovations in technology
    education (ATE) and support for advanced study (IGERT, GRF, GK-12).
    These investments are a package. They are supported and enhanced by the
    NSF request for the establishment of a new workforce for the 21st
    century priority area whose goals are as follows:
      --Prepare scientists, mathematicians, engineers, technologists and
            educators capable of meeting the challenges of the 21st
            century;
      --Attract more U.S. students to science and engineering fields; and
      --Broaden participation in science and engineering fields.
        In addition, there are other components of the EHR portfolio that
    specifically address the preparation and professional development of
    science and math teachers and faculty. Taken as a whole, I believe that
    the portfolio has a strong emphasis on workforce development.
                                     ______

                 Question Submitted by Senator Pete V. Domenici

        Question. Dr. Marburger--in January of this year the full Committee
    published in the Congressional Record a report to accompany what turned
    out to be the Senate's omnibus fiscal year 2003 appropriations bill. In
    that report, we called on OSTP to convene an interagency working group
    to look at the semiconductor design and manufacturing situation in this
    country relative to what was going on in other countries. Can you tell
    us where the Administration is on this matter? Is this Nation in danger
    of losing both its semiconductor design and manufacturing capabilities
    to other nations?
        Answer. The Administration recognizes the importance of
    manufacturing to the Nation's economy and security, and is following
    the issue of manufacturing competitiveness through parallel activities.
    First, the President's Council of Advisors on Science and Technology
    (PCAST) is undertaking a study of high technology manufacturing.
    Because manufacturing plays a significant role in several important
    industry sectors, this study will not be limited exclusively to
    semiconductor manufacturing. It will, however, have a specific emphasis
    on the information technology manufacturing sector--including
    semiconductor manufacturing--and will be investigating issues of
    international leadership and offshore manufacturing trends, and their
    impact on technical capability and economic competitiveness. Mr. George
    Scalise, President of the Semiconductor Industry Association, will
    chair the PCAST sub-panel leading this study.
        Second, Commerce Secretary Evans has asked his Undersecretary for
    Trade, Grant Aldonas, to work with others at the Department of Commerce
    and elsewhere in the government to undertake a comprehensive look at
    issues influencing the long-term competitiveness of U.S. manufacturing
    industries. This effort will include substantive outreach to the
    private sector. A report documenting the findings of this investigation
    and making recommendations for moving forward is expected later this
    year.
        We expect that the studies that are now underway will provide a
    more definitive view into the issue of our Nation's semiconductor
    design and manufacturing capabilities and its ramifications and we will
    keep you informed as they progress.

                              SUBCOMMITTEE RECESS

        Senator Bond. The hearing is recessed.
        [Whereupon, at 11:05 a.m., Thursday, April 3, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                            THURSDAY, APRIL 10, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:10 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond and Mikulski.

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

    STATEMENT OF LES LENKOWSKY, CEO
    ACCOMPANIED BY:
            MICHELLE GUILLERMIN, CHIEF FINANCIAL OFFICER
            J. RUSSELL GEORGE, INSPECTOR GENERAL

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Good morning. The VA-HUD and Independent
    Agencies Appropriations Subcommittee will come to order, and we
    will continue hearings on the fiscal 2004 budget. We will hear
    from two of the subcommittee's independent agencies, the
    Corporation for National and Community Service, and the
    Department of the Treasury's Community Development and
    Financial Institutions Fund. We will first hear from the
    Corporation's Chief Executive Officer, Dr. Les Lenkowsky, the
    Corporation's Chief Financial Officer, Ms. Michelle Guillermin,
    and the Corporation's Inspector General, Mr. J. Russell George.
        I welcome back Dr. Lenkowsky, who made his first appearance
    before this subcommittee last year, and a warm welcome, Ms.
    Guillermin and Mr. George, who are making their first
    appearances. Both Ms. Guillermin and Mr. George joined the
    Corporation last fall, and I am sure both feel like it has been
    a baptism by fire. After we hear from our witnesses from the
    Corporation, the subcommittee will turn to the CDFI.
        For fiscal 2004 the administration is requesting a total of
    $962,400,000 for CNCS, of which $957.7 million is for programs
    under the VA-HUD jurisdiction. The budget request is a $165.6
    million, or 38 percent increase over the fiscal year 2003
    enacted level. Further, the Corporation proposes to expand its
    AmeriCorps program participation from 50-75,000 members.
        This year the Corporation is celebrating its tenth
    anniversary. This is no small feat, given the political and
    ideological debate about the AmeriCorps program, the long-
    standing and numerous management problems, and the annual
    funding battles. Since its inception, the Corporation has been
    plagued by management problems due to poor financial management
    systems and lack of quality staff and managers.
        In light of the latest management fiasco over enrolling
    AmeriCorps members without the necessary budgetary resources,
    it is truly amazing that the Corporation has survived, but
    there have been, as I mentioned earlier, mismanagement problems
    since its inception one decade ago. One could say that it was
    built on a poor foundation, but despite its occupants' efforts
    to correct the problem, the foundation continues to crack and
    sag. I would even go so far as to say the doors are missing
    locks, the roof is leaking, and the windows are broken. That
    makes it an interesting challenge.
        Despite these problems, the previous and current
    administration embraced the Corporation and proposed an
    expansion of the AmeriCorps program. In my opinion, requesting
    an expansion of the AmeriCorps program right now is like
    proposing to build an addition to a broken house. While I am
    not a building engineer, I think most experts would agree that
    building an addition to a house with a questionable foundation
    is not a wise judgment. Frankly, it will be difficult for the
    Corporation to receive a loan to underwrite this Corporation
    due to its poor credit history, and as the primary funding
    source for the Corporation I can tell you that I am not yet
    ready to support additional funds to expand the AmeriCorps
    program.
        Nevertheless, all hope is not lost. The Corporation has
    hired a very capable and competent CFO. I am impressed with her
    fiscal management and financial aptitude and believe that her
    efforts can put the Corporation's management on the right
    track. I am also pleased with the work of the new IG, who has
    responded quickly to our requests to audit and investigate
    problems swirling around the National Service Trust Fund.
        Unfortunately, the Corporation needs more help. While Ms.
    Guillermin has my utmost confidence, it will be difficult for
    her alone to resolve the long-standing management problems. It
    is absolutely critical that she have the support not only
    through staff resources, but through a cultural shift that
    makes the entire Corporation more sensitive to fiscal
    responsibility. This is the job of everybody there, and it is
    not just one person's. For too long, the Corporation has been
    fixated on public relations and promotion at the expense of
    management responsibility. I think the time has come to say the
    Corporation needs a serious paradigm shift.
        It is disappointing and sad that problems continue to
    persist. I support and applaud the President's call to service,
    and believe that the Corporation can play an important role in
    improving the lives of many Americans in the communities in
    which they serve. Further, with increased insecurities and fear
    of terrorism, there is a huge cry to volunteer. People want to
    help. During my trips across my State of Missouri I have heard
    these cries. I have heard people say, what can I do to help?
        Well, I think if we harness this in the right fashion,
    volunteerism in this country can once again reach the heights
    that it achieved when this country was founded. However, the
    Corporation must make sure that it is responsive to the
    American taxpayer, who demands to know what sort of return it
    is receiving on the investment it is providing to the
    Corporation.
        To date, Congress has appropriated well over $4 billion to
    the National Service programs. However, 10 years later the
    Corporation still cannot tell us how the programs are
    performing and how much money the programs are costing, and in
    some instances cannot even accurately count the number of
    volunteers actually supported.
        When the Corporation discovered last fall that the National
    Trust Fund lacked adequate funds to meet its liabilities due to
    an over-enrollment of AmeriCorps members in the program, it
    then found out that this practice has been occurring for the
    past few years. More recently we learned that last year the
    Corporation approved more than 20,000 more slots than it had
    budgeted. Because of the Corporation's inability to count, it
    had to suspend enrollments last November since it did not have
    the funds to support the 20,000 it had approved.
        In response to the administration's revised request,
    Congress provided $100 million in the 2003 Appropriations Act
    to the Trust Fund to ``back-fill'' these slots and to cover the
    cost of its new members in 2003. While I appreciate the
    Corporation's efforts to address the problems with the Trust, I
    question the Corporation's response. I was troubled to learn
    from the IG's testimony that senior management was aware of
    overenrollments as early as last July. The Corporation did not
    notify Congress until it realized that the Trust Fund ``could
    be in a precarious position if the continuing resolutions did
    not end soon''. These findings raise a number of questions
    about the Corporation's response.
        Second, I remain puzzled by the Corporation's efforts in
    holding the appropriate individuals responsible for these
    programs. While I understand that one individual recently
    retired, other individuals remain employed. In fact, one
    particular employee was moved to a senior management position.
    If this is not rewarding bad behavior, I do not know what it
    is. I find it frustrating and mind-boggling that the
    individuals still employed at the Corporation have not had
    appropriate administrative penalties imposed.
        Because of my concerns about the problems with the Trust, I
    asked the General Accounting Office and the Corporation's
    Inspector General to conduct an audit and investigation into
    the Corporation's management and oversight of the Trust Fund.
    Based on their preliminary findings, both GAO and the IG found
    problems with the Corporation's internal control and
    coordination and communication between appropriate staff. In
    other words, enrollment decisions were done on an ad hoc basis
    with no oversight.
        In addition to the GAO and the IG audits, I asked the GAO
    to review the legal issues surrounding the over-enrollment of
    AmeriCorps members in the Trust. Yesterday, I received GAO's
    legal opinion on the obligation practices, and that opinion
    states that ``the Corporation incurs an obligation for
    education benefits when it enters into a grant agreement.''
        Now, this is a significant finding because it raises
    questions on whether the Corporation complied with the Anti-
    Deficiency Act. Under that act, an agency may not incur an
    obligation in excess of the amount available to it in any
    appropriation. In other words, the Corporation has to ensure
    that it has adequate funds to cover all of its obligations.
        We look forward to the Corporation's response to the GAO
    findings. I was disappointed that GAO's statement for the
    record states, ``the Corporation established new policies that
    may improve the overall management of AmeriCorps if the
    policies are fully implemented. The Corporation has not made
    policy changes to correct a key factor, how it obligates
    funds.''
        The GAO recommendation is critically important in
    preventing the stress and disappointment that occurred last
    November when the Corporation had to suspend enrollments of
    AmeriCorps members. As GAO states, ``had the Corporation
    properly tracked and recorded its obligations in the Trust at
    the time of the grant award when it approved new enrollments,
    it likely would not have needed to suspend enrollments.''
        I understand the Corporation disagrees with the GAO's
    finding and legal opinion, but let me help eliminate any
    further debate on the issue. I agree with the GAO, and I will
    assure that future appropriations bills require the Corporation
    to comply with GAO's recommendation.
        It is unfortunate that AmeriCorps is being hampered by
    these legal and management questions. I do not want to belabor
    the problems of the past, but I do expect the current
    leadership of the Corporation to take the necessary steps to
    avoid the mistakes.
        I now turn to my colleague and Ranking Member, Senator
    Mikulski, for her statement and comments.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman. I want
    to welcome Dr. Lenkowsky, Ms. Guillermin, Mr. George, and their
    respective teams, and to get right to the heart of the matter,
    as really the principal founder of National Service I fought
    long and hard to uphold the principles that our National
    Service program was founded on over 10 years ago.
        These principles were very much old-fashioned American
    values, to provide qualitative and quantifiable services to
    local communities while we created the habits of the heart in
    the next generation who were losing a sense of obligation to
    their country and a sense of citizenship, and at the same time
    were facing substantial student loan debts.
        The idea behind National Service was to link our values to
    public policy and to help young Americans with the opportunity
    to serve their community, help deal with the issues of going to
    college, and supported these principles when they were not
    popular, while being mindful of the need for responsible
    stewardship of the taxpayer's dollar. I also supported
    President Bush's call to service at this time when the passion
    for patriotism runs higher in this country than at any time in
    my adult lifetime, but I cannot support a bureaucracy that
    violates the law, mismanages taxpayers' dollars, and creates
    uncertainty for our communities and our volunteers.
        I am very proud of what goes on in National Service, all of
    those wonderful volunteers in AmeriCorps out there every day,
    helping build community in our country, the National Civilian
    Community Corps, which has actually responded to compelling
    needs, almost like SWAT teams around the country, have done an
    outstanding job.
        Learn and Serve America has been outstanding, because it
    starts at a very young age to create that sense of volunteerism
    whether you become an AmeriCorps volunteer or not, that you go
    on and you volunteer regardless of where life takes you. From
    that standpoint, in the grassroots I think National Service is
    alive and well, but at headquarters we are deeply troubled
    about its management and financial situation. Unless we get the
    house in order at the top, I do worry that we will be unable to
    take National Service into the new century to meet the new
    challenges and the new opportunities for our country.
        I am so pleased that President Bush has embraced the
    concept of National Service, and I do want to work with him in
    a bipartisan way, but again, we could only repeat the
    management issues that my chairman has stated. I want the
    Corporation to restore confidence in our communities and
    nonprofits and to the graduates of National Service programs
    that the money will be there if they want to be helping our
    community, that the VA-HUD Subcommittee is on their side.
    Second, I hope the Corporation can restore the subcommittee and
    the Congress' confidence that appropriate steps are taken to
    prevent mismanagement and uncertainty.
        I was really troubled when the Corporation revealed that it
    had enrolled more volunteers than the Corporation had funds to
    support. Last year, the Corporation budgeted 50,000 volunteers
    but enrolled 70,000. That was not just a mistake, that was a
    colossal mistake. This created a significant shortfall in the
    National Trust which pays the volunteer education awards.
        I am concerned that the Corporation actually violated the
    law. The law requires that for every volunteer enrolled there
    must be a deposit in the Trust to pay for the volunteer's
    education award. The concept was to be simple and
    straightforward and was spelled out in the Corporation's
    statute. The Corporation's mismanagement of AmeriCorps has
    jeopardized the principles of the program and concern about its
    impact on volunteers. We have had to freeze volunteer
    enrollments, and it creates uncertainty for volunteers waiting
    for assignment, for communities who need these volunteers, and
    for the graduates of the Corporation's program concerned about
    the status of their education award. That is a triple storm
    from my perspective.
        The consequences of the Corporation's mismanagement are
    grave. When the House and Senate met last year in conference,
    the House had zero funding for National Service, and the only
    reason National Service is still alive is because of my
    advocacy and the cooperation of the chairman. When Clinton was
    President, he was really outstanding on how we could keep it
    going. Now Bush is here, and we face the same problems. One of
    the historic characteristics of National Service is, great
    volunteers and a collapse at the top. This cannot continue. I
    could elaborate more on this. I think the chairman has stated
    it, but we are very concerned.
        Then we go to OMB, and they made it worse, by changing the
    rules on the Trust. The Corporation has always been able to
    count on both appropriations and interest when calculating the
    Trust. Now OMB says they can no longer count interest earning.
    Well, I know we want to eliminate the tax on dividends, but I
    do think we should be able to count interest earnings in future
    budgeting.
        So we had to again bail out the Corporation with $64
    million. We are foraging here. We forage for National Service
    to keep it going, so we have got a significant issue here. We
    need to hear your testimony, Doctor. We think you really
    understand National Service, but I think we are coming to the
    end of the line here. We are now truly at a train wreck, and it
    is going to be very difficult to keep this going, yet at the
    same time when we have the passion of the people who want to
    volunteer we want to make use of that. We have a President of
    the United States who is enthusiastic about it, and we now need
    to make sure that we get the organization in order to make use
    of our young people, the President's enthusiasm, and this great
    wave of patriotism, that it keeps going on for the rest of the
    century.
        Thank you.
        Senator Bond. Thank you very much, Senator Mikulski, and
    Senator Mikulski has long been recognized as the foremost
    champion, and I do not know whether godmother of AmeriCorps is
    the appropriate term, but certainly one of the earliest
    advocates.
        But what she said is correct, she and I have kept this
    alive, and there have been lots of people who want to kill it,
    and there are lots more who still want to kill it, and with
    that glum overhang, if you would care to enlighten us with your
    testimony, we are happy to have you, sir. Thank you.

                           STATEMENT OF LES LENKOWSKY

        Dr. Lenkowsky. Thank you very much, Chairman Bond, Senator
    Mikulski.
        I am pleased to be with you this morning to discuss the
    President's budget request for fiscal year 2004 for the
    activities of the Corporation for National and Community
    Service under the jurisdiction of this subcommittee. Joining
    me, as you have noted----
        Senator Bond. Excuse me, if I may interrupt, I think we
    have advised you we will accept your full statements for the
    record, and ask you to keep your testimony to about 7 minutes.
    Thank you.
        Dr. Lenkowsky. Joining me is our Chief Financial Officer,
    Michelle Guillermin. I have submitted written testimony that
    provides detail and justification for the President's request,
    but before answering your questions I would like to give you a
    brief report on the Corporation.
        For the past few months, as you have already noted, there
    has been a lot of bad news about us, but I want to tell you
    some good news. In the budget request before you, President
    Bush has reaffirmed his confidence in the Corporation's
    programs and our role in helping Americans respond to his call
    to service. The amount the President has requested, 38 percent
    above our current spending level for the programs under the
    National and Community Service Act, would enable the
    Corporation to enroll 75,000 AmeriCorps members and engage over
    1 million students in our Learn and Serve America program in
    2004.
        The President's commitment to the passage of the Citizens
    Service Act, which would reauthorize and put some vitally
    needed improvements in place in our programs, remains
    steadfast, as he indicated in his State of the Union message,
    and also steadfast is the President's commitment to sweeping
    management reforms.
        Already, we have made long strides toward developing a new
    culture of management at the Corporation with new leaders or,
    to use your analogy, chief contractors such as our CFO and our
    Inspector General, J. Russell George, who is here today as
    well, and there will be more to come, I can assure you of that,
    new units such as a completely revamped program evaluation
    team, and new procedures aimed at achieving the highest
    standards of public accountability and fiscal integrity.
        We are determined to make our organization a model of
    effective, innovative Government. We have a lot more to do, a
    lot more, but we are pleased to note that as a result of our
    efforts we have recently received our third consecutive
    unqualified opinion from our independent auditors.
        Last but not least, I am pleased to give you the good news.
    Thanks to you and your colleagues in the other chamber, the
    omnibus appropriation bill for 2003 has given the Corporation
    the funds it needs to resume enrollments in AmeriCorps. With
    the adoption of the additional measures President Bush last
    month submitted to Congress, I am confident that AmeriCorps can
    have a solid and fiscally responsible year of accomplishment
    working for our communities and contributing to the development
    of a new culture of citizenship, service, and responsibility in
    the United States.
        Between November and March, the Corporation did not enroll
    a single member of AmeriCorps, despite the fact that thousands
    of Americans were eager to start serving and hundreds of
    organizations were waiting to put them to work meeting the
    countless needs of our communities. I have explained in letters
    to you and in my written statement what caused the Corporation
    to institute an enrollment pause, and am ready to discuss that
    further this morning, but what I cannot adequately convey is
    the anguish all of us at the Corporation have felt at taking
    this drastic but necessary step, and the disappointment and
    hardship it has caused so many people.
        Our Board of Directors, our executive team, our entire
    staff and our grantees never again want to be in a position of
    having to say to Americans who wish only to serve their country
    that we cannot permit them to do so, and we have taken
    aggressive actions inside the Corporation to do all we possibly
    can to ensure that we will not have to say that ever again.
        The GAO opinion to which you referred, Mr. Chairman, we
    just received yesterday. We are studying it. As you know, we
    have a slightly different interpretation from OMB and our
    statute has some inconsistencies about it. As soon as we can
    determine the proper legal standard for our obligations in the
    Trust, I want to assure you that we will live by that and
    report completely and regularly to this committee.
        More than ever before, Americans want to serve in our
    programs and our Nation's charities want to use them, charities
    ranging from nationally known ones like Habitat for Humanity,
    Campfire, and the Sisters of Notre Dame to grassroots community
    groups known only to those whose lives they have changed.
        More than ever before, our fellow citizens need
    opportunities to serve, citizens like Jesus Santiago, II, who
    was by the age of 6, he says, an alcoholic, later moved on to
    using LSD, cocaine, and other drugs, dropped out of school by
    16, and by 17 was jailed for 11 months. Then he found his way
    to the Ohio Conservation Corps, an AmeriCorps grantee, where,
    by helping others, he helped himself to become a new person and
    is now in college studying to become a social worker.

                               PREPARED STATEMENT

        Amid all the evil we see in our world we must, as President
    Bush often reminds us, find ways to do some good, one heart,
    one soul at a time, as we did with Jesus Santiago. That is why,
    amid all the bad news you have heard about the Corporation
    recently, I am pleased to share with you some good news and ask
    for your continued backing in enabling more good to come.
        Thank you very much. That concludes my oral statement, and
    both Ms. Guillermin and I would be pleased to answer your
    questions.
        [The statement follows:]

                     Prepared Statement of Leslie Lenkowsky

        Mr. Chairman and Members of the committee, thank you for the
    opportunity to discuss President Bush's fiscal year 2004 budget for the
    Corporation for National and Community Service. It is my pleasure to be
    here on behalf of the President, and our Board of Directors under the
    chairmanship of Stephen Goldsmith.
         I would also like to take this opportunity to thank Chairman Bond,
    Senator Mikulski, and their staff for recommendations with regard to
    management improvements within the Corporation and their recent efforts
    in support of the National Service Trust.
        As you review this first budget for our second decade, it is
    altogether fitting that we collectively consider what the Corporation
    has accomplished, what we have learned, and where we are going. This
    2004 budget affirms that we have a great deal to be proud of. But as we
    have also recently seen, we have had to learn some substantial lessons
    about how to manage and support a decentralized system of national and
    community service, and we have a great deal more to do.
        The past performance of the Corporation, including recent problems
    with the National Service Trust, raises appropriate questions regarding
    the management of the Corporation's national service programs. I am
    here today to answer your questions about fiscal, programmatic, and
    management improvements underway at the Corporation, and to discuss the
    President's 2004 budget request for the Corporation. The work that
    AmeriCorps members do in communities across the country--along with the
    efforts of hundreds of thousands of volunteers supported by the
    Corporation's other programs--makes an important difference in the
    lives of countless individuals. With our Board of Directors, we are
    working to strengthen the management of the program so it can continue
    to support their work.
        I would like to highlight some of the management changes we are
    making, as well as some of the challenges we face in fiscal year 2003.
    In addition, I will discuss the resources we will need in 2004 to
    support President Bush's vision of national service programs that will
    strengthen the vitality of America's many nonprofit organizations,
    including the tens of thousands of non-profit and community and faith-
    based organizations that deliver vital services to Americans in need.

                               MANAGEMENT REFORMS

    Management and Personnel
        In the past year, the Corporation has made a number of management
    and personnel changes to improve the effectiveness and accountability
    of our programs. Senators Bond and Mikulski, and their staff, have
    generously lent their expertise to the process.
        Just over a year ago, we began to establish a new financial
    management team including Senate confirmed appointees for the posts of
    Chief Financial Officer and the Inspector General. Today I am pleased
    to be joined by our new CFO, Michelle Guillermin, and our new Inspector
    General, J. Russell George. In addition, we have hired new senior
    AmeriCorps officials, among other additions to our top management team.
        The aim of these changes is to strengthen the Corporation's ability
    to complete high-level programmatic and financial analysis; to ensure
    that we are able to exercise strong internal controls over our
    operations; and to be absolutely certain that the resources Congress
    and the taxpayers entrust to us are used effectively to help meet the
    Nation's most pressing needs through fostering citizen service.

    Tracking Procedures
        The recent challenges concerning the National Service Trust
    stemmed, in part, from inadequate tracking procedures. Most of the
    Corporation's grant awards were made with the expectation that the
    positions would be renewed for 2 additional years unless the grantee
    performed in an unsatisfactory manner. In the last 3 years, the
    Corporation planned for an AmeriCorps enrollment of 50,000 positions in
    the National Service Trust and exceeded targeted enrollments.
        By law, AmeriCorps cannot enroll new members unless funds are
    available in the National Service Trust to cover the costs of their
    education award. To comply with this requirement, and as a result of
    the increased enrollments, in November 2002 the Corporation instituted
    a pause in enrollments until new appropriations could be deposited in
    the Trust. The pause has since been lifted--an action made possible by
    your efforts and those of your staff, to pass the fiscal year 2003
    Omnibus Appropriations bill which secured funding for the Trust.
        As a response to this enrollment problem, the Corporation has
    instituted a number of reforms around Trust management and accounting
    procedures. From now on, prior to the Corporation approving AmeriCorps
    positions, the CFO will certify that sufficient funds are available in
    the Trust to support the Education Awards that will be earned by
    members serving in those positions. Moreover, we will insist on more
    timely reporting of commitments and enrollments by our grantees. The
    Grants Management Task Force of the Board of Directors, convened last
    fall by Chairman Goldsmith, is charged with examining the procedures we
    use to solicit, review, award, and monitor grants in AmeriCorps, Learn
    and Serve America, and Senior Corps. We look forward to the Task
    Force's final report, due in May.
        At our request and the request of Congress, the CNCS Inspector
    General is examining the circumstances that led to the enrollment
    problem and our corrective measures. We are awaiting this report, along
    with the report of the GAO on these matters that Congress asked for.
        Finally, the development of performance measures and measures of
    financial accountability for both Corporation offices and our grantees
    will continue to be important in the current and upcoming fiscal years.
    We will be providing enhanced professional development, training, and
    technical assistance to ensure that all staff members can fully utilize
    the programmatic and financial information that will increasingly be
    available to them.
        We are in the first year of implementing a new electronic grants
    management system, using funding provided specifically for this purpose
    by the Congress. With development and testing completed, we have begun
    implementation on a phased basis throughout fiscal year 2003,
    consistent with our established grant cycles. When fully operational,
    the Corporation will have an integrated grants management system
    providing comprehensive financial and program management information
    for all grants and cooperative agreements. Grantees in all our programs
    will apply for and receive assistance electronically, greatly reducing
    current paperwork burdens. The design meets the Grants Financial System
    Requirements of the Joint Financial Management Improvement Program, and
    the requirements of the Government Paperwork Elimination Act and the
    Federal Financial Assistance Management Improvement Act.

                        FISCAL YEAR 2003 APPROPRIATIONS

        As the subcommittee is aware, the administration submitted its 2004
    budget prior to Congress completing action on the 2003 appropriation.
    We look forward to continued discussion with you and the committee
    staff to ensure that Congressional intent is carried out in fiscal year
    2003 and to meet the President's objectives for growing and
    strengthening AmeriCorps in fiscal year 2004.
        On Tuesday, March 4, 2003, President Bush sent a letter to Speaker
    Hastert asking Congress to consider amendments to the 2003 Omnibus Bill
    concerning AmeriCorps and the National Service Trust. Specifically,
    this request would provide an additional $64 million to the National
    Service Trust to liquidate obligations incurred in previous years. This
    language was included in the 2003 supplemental appropriation approved
    by the Senate on April 3.
        One area of the 2003 appropriation that remains a concern to the
    Corporation is language surrounding Innovation, Assistance, and Other
    Activities. The current Conference Report language earmarks spending of
    all dollars appropriated. Our intent is to comply with the spirit of
    the specifications provided in the Conference Report. Further
    information on this topic is contained in the Operating Plan which has
    been transmitted to Congress. We have also complied with the Congress'
    request to provide quarterly enrollment reports and are working with
    staff to create an effective and regular reporting system.

                        FISCAL YEAR 2004 BUDGET REQUEST

        The budget request before this subcommittee for fiscal year 2004
    totals $592.7 million. This is an increase of $163.7 million above
    enacted amounts in 2003. The request funds AmeriCorps*State and
    National, AmeriCorps*NCCC, Learn and Serve America, the National
    Service Trust, program administration and State commissions, Innovation
    and Assistance programs, and three additional programs: America's
    Promise, the Points of Light Foundation, and Teach for America.
        The Corporation has identified these five budget priorities for
    fiscal 2004: providing opportunities for 2.5 million citizens to serve
    their communities and their country; meeting critical community needs
    in the areas of education, homeland security, public safety, public
    health, disaster preparedness, the environment and community
    development; promoting civic engagement and member development;
    strengthening accountability and effectiveness; and empowering faith-
    based and grassroots organizations. The Corporation will carry out
    these priorities through our AmeriCorps, Learn and Serve America and
    Senior Corps programs.

    AmeriCorps
        The President has requested program funding levels that will
    support as many as 75,000 AmeriCorps members in fiscal year 2004, a 50
    percent increase in the number of participating members. The request
    for transfer authority as referenced in the budget justification, which
    requires Congressional notification prior to carrying out any such
    transfer, would ensure that the mix between National Service Trust
    funding and program funding is adequate to support this level of
    participation. We anticipate and look forward to continued discussion
    with the committee on this proposal.
        AmeriCorps members provide countless hours of service in schools,
    health clinics, homeless shelters, wilderness areas, neighborhood
    centers, and other places where public work needs to be done. They
    recruit and manage tens of thousands of their fellow Americans to help
    build homes, tutor children, respond to disasters, enhance homeland
    security, clean up streets and vacant lots, and feed the hungry. They
    promote what is best about our country--individuals helping those in
    need.
        AmeriCorps is a collaboration of governor-appointed State
    commissions and national nonprofits that are largely responsible for
    determining where members can be most useful. After a sometimes
    challenging decade, commissions are now operating in all but one State,
    increasingly meeting financial and administrative standards and playing
    key roles in new initiatives, such as assisting community and faith-
    based organizations and enhancing homeland security. AmeriCorps
    partners include many of the Nation's preeminent nonprofit
    organizations.
        Members have the opportunity to earn an education award to help
    finance higher education or pay back student loans upon successful
    completion of service. At present, approximately $750 million in
    education awards have been earned by AmeriCorps members. Awards are
    taxable and are paid directly to the college, university, or lending
    institution for student loans.
        Members serve in full-time, part-time and reduced-part time
    positions. Slightly more than half of the members serve full-time and
    receive a very modest living allowance of about $9,000 per year for
    1,700 hours of service. At least 15 percent of the living allowance
    must be matched in dollars (not in-kind) by the grantee. Part-time
    members receive a reduced living allowance or none at all.
        There are three main components of the AmeriCorps program. Two are
    funded under the National and Community Service Act under the
    jurisdiction of this subcommittee: (1) AmeriCorps*State and National
    provides grants to States and to national nonprofit organizations to
    support members in local communities across the country, and (2)
    AmeriCorps*National Civilian Community Corps, or ``NCCC,'' a 10-month,
    full-time residential service program for men and women, ages 18 to 24
    years, that combines the best practices of civilian service with the
    best aspects of military service, including leadership and team
    building. The third component is funded under the Domestic Volunteer
    Services Act by the Labor-HHS Appropriations bill: AmeriCorps*VISTA
    focuses members' activities on supporting community and faith-based
    organizations in helping build the self-sufficiency of low-income
    communities. These members are also eligible for education awards
    funded through the National Service Trust.
        Focusing on performance measurement and evaluation, we will ensure
    that AmeriCorps programs are accomplishing their objectives and
    training a new generation of civic leaders. Further, AmeriCorps
    programs must show they are enabling national and community based
    programs to develop their own resources and become self-sustaining. The
    Corporation has changed its restrictions on AmeriCorps member
    participation in capacity-building and sustainability efforts of their
    host organizations. We now encourage members to engage in such
    activities as mobilizing resources and developing community
    partnerships intended to strengthen communities.
        Recruiting, supporting, and managing volunteers are among the most
    crucial ways AmeriCorps members have helped build the ``capacity'' of
    the organizations with which they have worked. Our program directions
    seek to foster more--and a broader range of--such activities and some
    of the programs we fund have already begun to meet these capacity
    building needs.
        AmeriCorps has a long tradition of assisting grassroots and faith-
    based groups. Often relatively small in size, but large in stature in
    their communities, these organizations are frequently among the most
    successful in reaching needy people. Their impact is sometimes limited
    by their organizational and financial capacity--an area in which
    AmeriCorps members can play a crucial role. Our FACES initiative, or
    Faith and Communities Engaged in Service, seeks to build on our past
    efforts in reaching out to faith-based groups, break down barriers
    small groups face in participating in our programs, and increase their
    administrative, management, and technological capacity.
        In addition to its role in assisting small community and faith
    based organizations, AmeriCorps*VISTA has been a leader in initiating
    asset development and wealth creation programs such as Individual
    Development Accounts (IDA). More recently, AmeriCorps*VISTA has
    dedicated members to entrepreneur education and micro-enterprise
    initiatives, which help low-income people become self-sufficient by
    developing their own businesses. In 2002, AmeriCorps*VISTA launched the
    Entrepreneur Corps to expand its efforts in this area by allocating an
    estimated 400 members to assist organizations in developing wealth-
    creation programs for families and individuals while also developing
    the assets of the organizations they are placed with through sound
    technology planning and financial management and development. In fiscal
    year 2004, AmeriCorps*VISTA will further develop the Entrepreneur Corps
    and continue to dedicate substantial resources toward this programming
    area.
        With regard to technology, AmeriCorps*VISTA will also continue to
    support an extensive network of sponsoring organizations that are
    tackling the problems of the digital divide. Members will continue to
    play a significant role in helping community organizations to assess
    their technology needs; develop and design technology plans; set up
    school-based or neighborhood-based computer learning centers; secure
    resources for hardware and software; and recruit volunteers for a
    variety of activities including hardware installation, instruction and
    mentoring, and staffing computer labs.
        The experience all AmeriCorps members have when they work with
    community program sponsors is one of the reasons participation in
    national and community service can help create a lifelong habit of
    civic responsibility. We have also learned that reflection and more
    formal instruction in the role civic activity plays in our system of
    government are necessary components of the service experience. To help
    meet this objective, the Corporation is in the process of completing
    guidance based on pilot efforts to increase members' knowledge, skills,
    and behaviors related to citizenship.

    AmeriCorps*State and National
        The President's 2004 budget for AmeriCorps pursues these new
    directions and creates additional opportunities for national and
    community service. Specifically, our fiscal year 2004 budget requests
    $313.2 million for AmeriCorps*State and National Programs. The intent
    is for these funds to be used by State commissions and to fund local
    community-based non-profit organizations to support AmeriCorps
    programs. The budget proposes an increase of $138 million above 2003
    levels in order to support, when combined with the other components of
    AmeriCorps and the allocation for the National Service Trust, as many
    as 75,000 members in 2004.

    AmeriCorps*NCCC
        The 2004 budget also requests $27 million for the
    AmeriCorps*National Civilian Community Corps. Under this request,
    AmeriCorps*National Civilian Community Corps would operate five
    campuses, including a new satellite campus and engage an estimated
    1,350 members. In last year's committee language, you requested a
    report regarding the proposed expansion AmeriCorps*NCCC. This report
    has been drafted and we will be sharing it with members and staff of
    this committee shortly. Members will complete about 650 projects and
    invest more than 2.3 million service hours in local communities.
    Homeland security and disaster response will continue to be a high
    priority for AmeriCorps*NCCC. Among their recent projects, NCCC members
    from the Denver campus are assisting the U.S. Forest Service in
    searching for debris from the explosion of the Space Shuttle Columbia.
    The team consists of Forest Service-trained members who normally spend
    the majority of their service at the Arapahoe National Forest in
    Colorado. And a team of AmeriCorps NCCC members were recently in the
    District of Columbia, helping the city recover from record snows.

    AmeriCorps Education Award Program
        The AmeriCorps Education Award Program, providing education awards
    without living allowances, is currently funded from demonstration
    authority under Subtitle H of the Act. Pending action by Congress, the
    President's Budget contemplates funding the program within Subtitle C,
    in order to expand the types of programs and organizations in which
    AmeriCorps members may serve, while minimizing the cost to the
    Corporation and the Federal Government. Under subtitle H, the level of
    support is set by the Corporation.

    National Service Trust
        The President's budget requests $120 million for the National
    Service Trust. This level of funding--along with transfer authority
    language referenced in the Corporation's budget justification--would
    permit the Corporation to enroll as many as 75,000 AmeriCorps members
    in 2004, cover forbearance costs associated with members holding loans
    during service, and provide 7,000 Presidential Freedom Scholarships
    through the Learn and Serve America program.

    Learn and Serve America
        Our budget request includes $43 million to support Learn and Serve
    America, which operates in our Nation's elementary and secondary
    schools and institutions of higher education. Over the last decade, the
    programs funded by the Corporation have committed themselves to
    developing America's tradition of volunteering by integrating service
    with school curricula. Among their accomplishments are improving
    elementary students' school achievement, promoting children's readiness
    for school, improving the English skills of immigrants, and improving
    adult literacy and job skills. In 2002, our grants supported 106
    elementary and secondary programs and 68 higher education programs with
    approximately 1.2 million participants including adult faculty and
    staff.
        This year, and in fiscal year 2004, the Learn and Serve America
    program will focus on helping schools fulfill their primary civic
    mission: to create informed and thoughtful citizens, able and eager to
    participate in America's democratic institutions through their
    lifetime. Studies show that young people's civic knowledge is weak.
    Though more and more of them participate in community service, fewer
    and fewer individuals understand the civic or political principles that
    lie beneath and give meaning to effective community service. Learn and
    Serve America will seek to address this by encouraging its grant
    applicants to design age-appropriate learning activities that foster
    civic knowledge, attitudes, and behavior.
        As with AmeriCorps, we will make the expenditure of Federal funds
    more accountable through the implementation of performance measures for
    all grantees. Learn and Serve America published guidance in January
    2003 to solicit new grant applications with detailed accountability
    expectations for all programs. Performance measures negotiated with
    each grantee will become part of the grant award agreement and programs
    will report on their progress against these measures for the 3-year
    grant period. Failure to make adequate progress will result in
    sanctions.
        In 2004, we propose to allocate the $43 million in funding for
    Learn and Serve America as follows: approximately $20 million by
    formula to State education agencies, which make subgrants to local
    programs; $6.5 million for school-based programs through a competitive
    process in which State education agencies, Indian tribes, and multi-
    State nonprofit organizations are eligible; up to 3 percent, or
    $800,000, within the school-based funds to be awarded competitively to
    Indian tribes and U.S. territories; $4.8 million for competitive grants
    to community-based programs serving school-age youth in settings
    outside of school, awarded competitively to the State Commissions on
    National and Community Service, as well as to national nonprofit
    organizations; and $10.75 million awarded competitively to individual
    institutions of higher education or consortia.

    Innovation, Demonstration, and Other Assistance
        In the area of innovations and demonstrations, the administration
    is requesting $26 million for various purposes, including: training and
    technical assistance, recruitment, Martin Luther King, Jr. Day grants,
    statutorily-mandated disability grants, unified State plans, and
    external communications. In addition to supporting these services, the
    Corporation will continue to work with the White House, through the
    invaluable umbrella established last year, the USA Freedom Corps, to
    support the President's Call to Service, his challenge to all Americans
    to give at least 2 years of service to their communities and country
    over their lifetimes. We also plan to convene a conference for the new
    AmeriCorps and Senior Corps homeland security grantees to ensure high
    quality implementation of homeland security activities across the
    country. Through our Faith and Communities Engaged in Service (FACES)
    initiative, we will continue to increase its involvement with faith-
    based and small community organizations and help to expand the capacity
    of these innovative groups to meet critical needs in their communities.
        With Congressional approval of our request to transfer the
    AmeriCorps Education Awards program from this category, we will have
    greater flexibility to carry out the original intent of this funding
    stream. Through these funds, the Corporation can provide leadership
    development and training and technical assistance support to grantees
    and service programs to make sure that we are supporting best practices
    and that we are training tomorrow's community leaders. The Corporation
    will also be better able to support research aimed at identifying steps
    necessary to renew the ethic of civic responsibility in the United
    States and improve the ability of service programs to address unmet
    community needs.

    Evaluation
        The Corporation conducts or contracts for evaluations of its
    programs, initiating several studies each year on a range of issues, as
    mandated by the National and Community Service Act. Other studies are
    an important part of the Corporation's compliance with the Government
    Performance and Results Act (GPRA), and in conjunction with our efforts
    to gauge program performance through the new Program Assessment Rating
    Tool (PART). In fiscal year 2004, we are requesting $7 million to
    support the studies identified in our budget justification and to
    facilitate the implementation of performance measures for our grantees.
    These efforts are critical to enhance program performance and are a
    high priority for both our authorizing and appropriations committees.
    We believe strongly in the centrality of research and evaluation to the
    future of national and community service.
        In addition, the Corporation's Office of Research and Policy
    Development is playing an increasingly central role as a resource for
    other governmental, nonprofit, and philanthropic groups on a wide range
    of research and evaluation issues related to volunteering and service.
    For example, it helped initiate a Census Bureau survey of volunteering,
    which will now be done regularly by the Bureau of Labor Statistics
    (BLS) and should provide information useful to organizations eager to
    enlist Americans in service. It is also in the final stages of
    developing a survey on volunteering among teenagers, a long-time focus
    of the Corporation's efforts. These activities not only enhance the
    impact of the resources available to the Corporation, but also
    contribute to the Corporation's ultimate mission of renewing ``the
    ethic of civic responsibility'' in the United States.

    Earmarks
        The Corporation's proposed fiscal year 2004 budget includes
    allocations for three organizations: Teach for America, the Points of
    Light Foundation, and America's Promise--The Alliance for Youth. The
    Corporation has had a long relationship with each of these and believes
    each merits such treatment because of its ability to meet performance
    goals and deliver effective services. However, as a general rule,
    consistent with administration policy, the Corporation seeks to limit
    the use of earmarking funds through the appropriations process.

    Program Administration
        Our budget request for fiscal year 2004 includes $36 million for
    program administration, of which 40 percent would support State Service
    Commissions. Our budget materials describe the use of these funds in
    detail.

    Office of the Inspector General
        As a separate request, the President's budget requests $5 million
    for the audit and investigative activities of the Office of the
    Inspector General.
        We all value the important work of that office to conduct
    independent and objective audits and investigations and to prevent and
    detect fraud, waste, and abuse. In addition to the number of important
    reviews of program operations conducted by this office in the past
    year, the Inspector General has also formed a new unit within his
    office to facilitate work related to program performance. One example
    of the kind of work this unit will do on a regular basis is the special
    examination undertaken earlier this year of the Corporation's
    innovative ``alternative personnel system'' The final report, which
    will be available later this month, will include a number of important
    recommendations for improvement.

                              LEGISLATIVE REFORMS

        In 2002, the administration and Congress began work on a bill to
    reform and improve the quality of national and community service
    programs. While we are pursuing many reforms administratively, some
    require your assistance through legislation. We appreciate, and are
    encouraged by, the progress this reauthorization bill made during the
    last session of Congress. We will continue to work with the members and
    staff of the authorizing committees to complete action this year on the
    Citizen Service Act of 2003, which the President called on the Congress
    to pass during his State of the Union Address earlier this year.
        Importantly, this legislation will allow us to strengthen our
    management practices and fulfill our commitment to investing in
    programs that produce results. The Corporation is already working to
    ensure that all grantees in our AmeriCorps, Senior Corps, and Learn and
    Serve America programs have specific objectives and accountability
    requirements linked to significant service outcomes and program
    impacts.
        In 2004, 2.5 million Americans of all ages will serve and volunteer
    through the support of the Corporation's programs. To ensure that these
    programs are effectively meeting the needs of our Nation's communities
    this year and in years to come, we encourage Congress to pass the
    Citizen Service Act of 2003.

                                   CONCLUSION

        Mr. Chairman, this concludes my statement concerning the
    Corporation's budget request for fiscal year 2004. In preparing this
    statement--and in all of our operations--we at the Corporation have
    kept constantly before us the vital importance of the commitment made
    by our members, their response of the heart to the needs of their
    Nation and their neighbors.
        At the public Board meeting of the Corporation, we had the
    opportunity to hear from some of those people. One of them was Jesus
    Santiago II, a young man from Ohio and a member of the Ohio Civilian
    Conservation Corps. Mr. Santiago is the product of a broken home. By
    the age of 6, he says, he was an alcoholic. He later moved on to using
    LSD, cocaine, and other drugs. At 16, he dropped out of school; by 17,
    he was jailed for 11 months.
        During his incarceration, Mr. Santiago learned about the Ohio CCC.
    He joined when he was released, and it made all the difference in his
    life. Here's what he told the Board of the Corporation: ``While I've
    been out making changes in communities it has given my life new
    meaning. I have helped people in two communities recover from tornado
    damage, worked in parks and forests and regularly participated in
    recycling drives. I've changed from being a bad kid to one who helps
    other young people get their lives back on track. I've been promoted
    twice and now serve as a Corps leader.'' Mr. Santiago is now attending
    college, thanks to his AmeriCorps education award. He's in recovery and
    on the road to a productive life as a social worker so that he can help
    others do the same.
        We hear these kinds of stories from members every day, and they
    help to inspire and motivate our work. I hope that his story will also
    inspire this committee to support our efforts to strengthen these
    national service programs. They are important, and they do make a
    difference--in communities, in the lives of those served and those who
    serve, and for our Nation as a whole. They deserve to be run as well as
    we possibly can. You have my commitment that we will work ever harder
    to do this, because the public expects us to--and because people like
    Jesus Santiago need us to.
        As challenging as the road ahead of us might look, we should be
    heartened by the fact that we start from a decade's worth of
    accomplishments and lessons learned. These should encourage us not only
    to aim higher, but also to be confident we can succeed. With the
    continued assistance and oversight of this subcommittee, I am certain
    that we can accomplish all that we are charged with and appreciate this
    committee's support and guidance. We are available to address any
    questions.

        Senator Bond. Thank you, Dr. Lenkowsky, and now we turn for
    comments and a summary of the full written statement from Mr.
    George.
        Welcome, Mr. George.

                         STATEMENT OF J. RUSSELL GEORGE

        Mr. George. Thank you, Mr. Chairman, Senator Mikulski.
    Thank you for inviting me to appear here today. As requested,
    my oral comments will focus on the issue of the National
    Service Trust.
        The Trust was created to fund education awards and to pay
    interest that accrues on qualified student loans while an
    individual is serving as an AmeriCorps member. If a member does
    not use the award within 7 years, the right to the award is
    forfeited.
        The Corporation's financial statements, which were being
    audited as part of my office's annual review, indicated that as
    of September 30, 2002, the Trust's assets exceeded its
    liabilities by $1,851,000. An unqualified opinion on the
    Corporation's financial statements report was issued on
    February 4, 2003.
        Following up on your request, Chairman Bond, my office
    initiated an investigation into whether the Anti-Deficiency Act
    was violated. As of today, no evidence of a violation of that
    Act was found. The audit confirmed, however, that the
    Corporation had not complied with the Trust Act when it
    approved, although not enrolled, more AmeriCorps positions and
    grant awards over the course of fiscal year 2002 than the Trust
    would have been able to financially support in the future. The
    Corporation concedes that it did not comply with this
    requirement.
        The number of approved National Service positions for
    program years 2000, 2001, and 2002 were approximately 59,000,
    61,000, and 67,000 respectively, yet we found that the
    Corporation based its budget estimates for the Trust on
    anticipated enrollments that ranged from 49,717 to 51,717. The
    Corporation approved more positions than it budgeted because
    historically many AmeriCorps members do not complete a term of
    service and, of those who do, some may not earn a full
    education award or do not use the education award at all.
        The yearly congressional appropriations and investment
    income combined to create Trust fund surpluses that grew at a
    rapid rate. By 2000, the surplus in the Trust was at such a
    level that Congress rescinded $81 million from amounts in the
    Trust. In 2001, the amount was still considered to be in excess
    of its needs, and Congress rescinded an additional $30 million
    from the Trust.
        During discussions with OMB and congressional staff,
    Corporation management was informed that the Corporation's
    budget was going to be reduced. Management decided they could
    meet the administration's budget reduction by not requesting
    appropriations for the Trust. Based on model forecasts, they
    believed that there were sufficient funds in the Trust to cover
    the estimated liabilities even with no appropriations. This
    belief led management to request no appropriations for the
    Trust in the Corporation's fiscal year 2002 budget request.
        My investigation found that Trust liability projections
    were not being made by Trust staff but instead by a senior-
    level official in the Corporation's executive office. The Trust
    Director's position description states that the person holding
    that job is solely responsible for all aspects of Trust
    operations, yet in practice the Trust Director managed only
    day-to-day operations. Although Trust staff were aware of the
    liability projections, they did not have ownership of this
    process.
        We also found that the computer programs used to monitor
    the system did not contain any automatic programming to alert
    the appropriate officials when AmeriCorps member enrollments
    reached a predetermined level. No safeguards were built in to
    prevent additional enrollments until reviewed and approved by
    Corporation staff. Although certain Corporation managers were
    aware that enrollments were increasing, the reporting and
    tracking of these enrollments were not timely. This lack of
    automated alerts and safeguards allowed AmeriCorps enrollees to
    exceed expectations, which resulted in a freeze on further
    enrollments.
        Some of the reasons for this included the fact that the
    Corporation did not have effective internal controls to assess
    the impact of enrollments on the Trust prior to authorizing new
    National Service positions. In addition, Corporation staff
    focused exclusively on appropriations made available for
    AmeriCorps grants, and did not adequately consider the impact
    of education awards when making grant decisions to support new
    National Service positions.
        And finally, there was a lack of coordination between
    senior Corporation officials, AmeriCorps, Office of Grants
    Management, and Trust staffs as to how many new National
    Service positions could be allocated annually to the programs.
        Senators, subsequent interviews with Corporation officials
    found that most failed to make the connection between increased
    enrollments and Trust funding levels. One official told my
    investigators that it did not become an issue until they
    realized that the fiscal year 2003 continuing resolutions
    prevented them from budgeting any funds for the Trust, since no
    appropriations had been requested in the prior year.
        The Office of Inspector General determined that the
    Corporation could generate reports showing numbers of
    AmeriCorps enrollments for any given time. Further, through
    interviews with the former Director of the National Service
    Trust and her staff, we discovered that the Corporation
    generated other reports showing the financial status of the
    Trust on a monthly basis. These reports were forwarded to
    senior Corporation management. However, there was no known
    reconciliation of the number of AmeriCorps enrollees to future
    Trust liabilities.
        Additionally, quarterly National Service Trust status
    reports were sent to Congress detailing the Trust's assets,
    model-calculated liabilities, revenues, expenses, and net
    position. The quarterly reports to Congress also contained
    AmeriCorps member enrollment data, but it appears that the
    Corporation member enrollment data was never reconciled with
    the Trust status reports.
        At this stage of our review, the Office of Inspector
    General is in a position to make some preliminary
    recommendations based upon our findings. We recommend that
    policies and procedures should be revised to ensure that the
    staffs of the AmeriCorps Program Office, the Office of Grants
    Management, and the Trust Office are involved in the budgeting
    process, National Service position approval and amendment
    process, too.
        The Trust Office staff should ensure that funds are
    available in the Trust to meet the estimated liability to be
    incurred prior to National Service position approval. And
    finally, reports should be generated on a monthly basis to
    compare the number of approved National Service positions to
    the actual members enrolled.

                              PREPARED STATEMENTS

        Senior management should review these reports on a timely
    basis to ensure that enrollments do not exceed the
    Corporation's estimates, and I would add that automated
    controls should be implemented to limit approval of additional
    enrollments to authorized officers in the Grants Management
    Office and to prevent grantees from enrolling members after the
    program year enrollment period ends.
        Mr. Chairman, Senator Mikulski, this concludes my prepared
    statement. I would be pleased to answer any questions you might
    have.
        [The statements follow:]

                    Prepared Statement of J. Russell George

        Mr. Chairman and members of the subcommittee, thank you for
    inviting me here today. As you know, President Bush nominated me for
    the position of Inspector General of the Corporation for National and
    Community Service in February of 2002, and the Senate honored me by
    voting to confirm my nomination last July. This is my first appearance
    before this subcommittee, and I appreciate the opportunity to discuss
    with you some of the major issues that have come to my attention since
    assuming my position.

                      ESTABLISHMENT OF EVALUATION SECTION

        Before addressing the issue of the National Service Trust, I would
    like to point out that I am altering the structure of the Office of
    Inspector General (OIG) to expand its scope and to better enable it to
    serve its purposes. In that regard, I am in the process of establishing
    an Evaluation Section, and hope to have it fully operational in the
    coming months with an assistant inspector general and three evaluators.
    The mission of the unit will be to review the various functions of the
    Corporation and to make recommendations for improvement, hopefully
    before problems occur. It will also assist grantees and other
    beneficiaries of the Corporation's programs avoid pitfalls through
    proactive educational initiatives.

            REVIEW OF THE CORPORATION'S ALTERNATIVE PERSONNEL SYSTEM

        When the Corporation was established in 1994, Congress permitted it
    to set up an ``Alternative Personnel System,'' one that is different
    from the traditional Title 5 or General Schedule that exists in most
    Federal agencies.
        Following complaints made by Corporation employees to their union,
    to Congress, the Corporation's Chief Executive Officer, and the
    Corporation's Chairman of the Board, the OIG engaged management
    specialists at Deloitte and Touche, LLP, to conduct a study of the
    system. DeLoitte and Touche was tasked to determine if the
    Corporation's personnel policies, procedures, and practices are able to
    accomplish and are achieving the Corporation's need to maintain
    adequate staffing and to administer in a fair and equitable manner the
    use of term appointments, performance bonuses, salary increases, and
    hiring actions under the policies created pursuant to the alternative
    personnel authority.
        Based on this review, a final report will be issued in the coming
    weeks and it will make recommendations for improvement to the system
    that I believe will benefit all employees of the Corporation. Some of
    the recommendations will concern clarifying the roles and the authority
    of Corporation managers in the system, making appointment and
    promotions procedures more clear, and ensuring that the budget process
    identifies the need for adequate funding for salary increases.

                          AUDITS OF STATE COMMISSIONS

        Approximately two-thirds of the Corporation's AmeriCorps grant
    funds go to State commissions, who are appointed by State Governors,
    who subgrant it to organizations in their States that perform
    AmeriCorps programs. We have been conducting audits of these
    commissions since 1999. In March we issued an audit report for the
    Indiana State Commission, and we plan to conduct audits of the State
    commissions in the States of Wisconsin, Ohio, Maine, Pennsylvania, and
    Connecticut in the coming year. As a result of past audits of State
    commissions, our auditors have made numerous questioned cost findings
    of the grantees. These costs were primarily due to inadequate record
    keeping on their part, and we have worked with commissions and
    Corporation management to resolve these findings.
        We have also completed the annual audit of the Corporation's
    Financial Statement. KPMG, who completed the work, gave an unqualified
    opinion on the statements, but noted a reportable condition with
    respect to the situation that arose concerning the Trust. As I will
    discuss in greater detail shortly, we intend to review the
    Corporation's grant management procedures in the coming year.
        Other audits that have been completed in the last 6 months include
    the Points of Light Foundation, Parents as Teachers, Navajo Nation
    Foster Grandparent Program, and RSVP of Bergen County, New Jersey. Work
    in progress includes the 2002 fiscal year Management Letter, and audits
    of congressionally earmarked funds to America's Promise--The Alliance
    for Youth, and Communities In Schools Inc.

                 NATIONAL SERVICE TRUST AUDIT AND INVESTIGATION

        On November 11, 2002, Dr. Les Lenkowsky, the Corporation's Chief
    Executive Officer (CEO) informed me it had recently come to his
    attention that in the preceding months the Corporation had approved
    more AmeriCorps member positions as part of their grant awards to
    national service programs than the National Service Trust (Trust) could
    support.
        The National and Community Service Trust Act of 1993 established
    the Trust to fund education awards and to pay interest that accrues on
    qualified student loans while an individual is serving as an AmeriCorps
    member. The Trust does not pay member benefits such as living
    allowances or health benefits, only education awards, interest
    forbearance, and Presidential scholarships. Education awards are for
    AmeriCorps members who successfully complete their term of service and
    request the award. After the award is approved it can be used to pay
    back the member's student loan, current education expenses or approved
    school-to-work programs through the member's qualified institution of
    higher learning defined under a Title IV Program Participation
    Agreement with the U.S. Department of Education. AmeriCorps members, in
    accordance with the National and Community Service Trust Act, have 7
    years to use their approved award. If a member does not use the award
    within 7 years, the right to the award is forfeited.
        In fiscal year 1994, the first year of the Corporation's
    operations, Congress appropriated $93,250,000 for the Trust. For all
    subsequent years, except fiscal year 2002, Congress has appropriated
    between $59,000,000 and $115,070,000 for the Trust. The Trust receives
    these funds under a ``no year'' appropriation, i.e., funds that are
    available until expended. The funds for the Trust are kept in an
    account in the U.S. Treasury and are invested in Treasury securities.
    The National and Community Service Trust Act requires that the
    Corporation ensure that there will be sufficient funds available in the
    National Service Trust to pay for education awards.
        The CEO informed me that to prevent excessive Trust liability from
    occurring he had directed that program grantees cease enrolling members
    for their coming program year until the fiscal situation was resolved.
    The CEO also informed me that he had earlier reported the situation to
    this subcommittee. On November 20, 2002, I received a letter from
    Chairman Bond requesting that my office investigate and audit the
    Corporation's management and oversight of the National Service Trust.
    Part of our review included the audit of the Corporation's financial
    statements being performed at the time by KPMG. I directed the OIG
    investigative staff to identify persons responsible for the situation,
    and to determine if the Anti-Deficiency Act had been violated.\1\
    ---------------------------------------------------------------------------
        \1\ One of the items requested in Chairman Bond's letter was to
    identify the Corporation staff responsible for managing, administering,
    and monitoring AmeriCorps member enrollment and Trust operations. I am
    not able to address this aspect of the request in my testimony, as this
    matter is still under review.
    ---------------------------------------------------------------------------
                               AUDIT OF THE TRUST

        We initially turned to the Corporation's financial statement for
    the year ending September 30, 2002, to determine whether the grant
    recipients had enrolled so many AmeriCorps volunteers that the Trust's
    liabilities had exceeded assets. The Corporation's financial statements
    indicated that the Trust was still solvent. As of September 30, 2002,
    the Trust's assets exceeded its liabilities by $1,851,000. The audit
    firm, KPMG, working under contract to conduct the financial statement
    audit, concurred in this judgment. An unqualified opinion on the
    Corporation's financial statements report was issued by the OIG on
    February 4, 2003, a copy of which is attached to my testimony.
        However, KPMG auditors confirmed that the Corporation had not
    complied with the National and Community Service Trust Act when it
    approved, although not enrolled, more AmeriCorps positions in grant
    awards over the course of fiscal year 2002, than the Trust would have
    been able to financially support in the future. KPMG characterized this
    as a reportable condition but did not consider the matter a material
    weakness.
        Section 129(f) of the National Service and Community Trust Act, 42
    U.S.C. Sec. 12581(f), requires that the Corporation approve National
    Service positions in its grants to AmeriCorps programs by ``taking into
    consideration funding needs for [education awards] based on completed
    service.'' The Corporation concedes that it did not comply with its own
    authorizing legislation.
        The reasons found by the auditors for the Corporation's approval of
    positions in excess of what the Trust could reasonably support were:
      --The Corporation did not have effective internal controls to assess
            the impact of enrollments on the Trust prior to authorizing new
            National Service positions.
      --Corporation staff focused exclusively on appropriations made
            available for AmeriCorps grants, and did not adequately
            consider the impact of education awards when making grant
            decisions to support new National Service positions.
      --There was a lack of coordination between senior Corporation
            officials, AmeriCorps staff, Office of Grants Management staff,
            and Trust staff as to how many new National Service positions
            could be allocated annually to the programs.
        KPMG noted that under the grant award process in place during
    fiscal year 2002, the Corporation published Notices of Funds
    Availability based on its approved priorities and guidelines and
    appropriations level. KPMG found that AmeriCorps staff, in consultation
    with other senior staff, decided the funding level and the numbers of
    positions to be awarded to each program. These awards were made with
    regard to funds available for member living allowances and the
    grantee's administrative costs, but not with regard to education awards
    that could be funded by the Trust when members completed service. The
    AmeriCorps staff prepared a certification form that specified the grant
    budget and the number of positions allocated to that grantee's program.
        Based on the certification prepared by the AmeriCorps staff, the
    staff of the Office of Grants Management issued a Notice of Grant award
    to the grantee. This document includes the grant number, and specifies
    the project period, award amount and number of approved National
    Service positions for the program. Grants management staff sent the
    number of approved National Service positions to the staff of the
    Trust. The information was entered into two distinct databases, the
    System for Programs, Agreements, and National Service Participants (now
    known as eSPAN),\2\ and the Web Based Reporting System (known as
    WBRS).\3\
    ---------------------------------------------------------------------------
        \2\ eSPAN is a database used principally by Trust personnel for the
    tracking and reporting of AmeriCorps members and their education award
    use. AmeriCorps member's ultimate approval and payment of their
    education award is initiated from this database.
        \3\ WBRS is a database established to facilitate program and member
    data input from the field. Grant recipients are responsible for
    inputting data for each new AmeriCorps member they enroll.
    ---------------------------------------------------------------------------
        The auditors noted that AmeriCorps program officers and grant
    officers had access to the WBRS database and could approve additional
    AmeriCorps member enrollments in excess of what had been originally
    approved in the Notice of Grant Award, contrary to the rule specified
    in the Program Director's Handbook, which allows approval only by a
    grants officer. In addition, there were no controls in WBRS to prevent
    grantees from enrolling members after their program year had officially
    ended.
        The number of approved National Service positions uploaded into
    eSPAN and WBRS for program years 2000, 2001, and 2002, were
    approximately 59,000, 61,000, and 67,000 respectively, yet an inquiry
    by the OIG's investigative staff found that the Corporation based its
    budget estimates for the Trust on anticipated enrollments in the Trust
    that ranged from 49,717 to 51,717 for these years. The Corporation, as
    a matter of practice, previously approved more positions than it
    budgeted because historically many AmeriCorps members do not complete a
    term of service, and of those that do complete their term of service,
    some may not earn a full education award or do not use the education
    award.
        Our investigation has determined that the Corporation successfully
    suspended enrollments of AmeriCorps volunteers into the National
    Service Trust before the liabilities created by new enrollees exceeded
    the Trust's assets.\4\ KPMG noted that the Corporation gives grants to
    AmeriCorps programs for specific budget periods, and for approved
    National Service positions documented on the Notice of Grant Award.
    Once a program receives an award it has 1 year to recruit AmeriCorps
    members for their particular projects and enroll them into the Trust.
    The beginning date for a program may start at anytime during the
    grantee's budget period. Even when the program's beginning date is the
    last month of the grantee's budget period, the program still has 1 year
    from that date to enroll all their approved members for that particular
    program year. This time lag allowed the Corporation to successfully
    pause enrollments of prospective AmeriCorps members before the Trust
    became insolvent.
    ---------------------------------------------------------------------------
        \4\ During the enrollment pause, the Chief Financial Officer's
    office performed an analysis of the Trust. This analysis assumed that
    if the Corporation ceased to exist and no new additional appropriations
    were received, the Trust's assets were sufficient to pay out awards for
    enrolled members.
    ---------------------------------------------------------------------------
                           INVESTIGATION OF THE TRUST

        Following up on Chairman Bond's November 20, 2002, request the OIG
    initiated an investigation into whether the Anti-Deficiency Act had
    been violated with regard to the funding of the number of AmeriCorps
    members enrolled in the Trust. No evidence of a violation of the Anti-
    Deficiency Act was found. The inquiry confirmed KPMG's findings that
    conditions existed that contributed to a breakdown in communication and
    coordination between the Corporation's budget development function, the
    AmeriCorps Program staff and the Trust staff.
        Our inquiry found that in the first years of the Corporation's
    existence, specifically 1994 and 1995, the Director of the National
    Service Trust at that time expected no more than 24,000 AmeriCorps
    members to enroll in the Trust, but this number was no more than a
    guess as there was no historical data to draw upon. During these first
    years, the Trust's liability was based on the number of enrollee's
    multiplied by the actual amount of the education awards.
        Toward the end of 1995, it became evident to Corporation officials
    that actual AmeriCorps enrollment never reached the expected enrollment
    number and it was clear that not all enrollees were successfully
    completing their service. The pattern became clearer over subsequent
    years. For example, from program year 1994 through program year 2000,
    the actual number of AmeriCorps enrollments ranged from 25,149 in
    program year 1994 to a high of 52,891 for program year 2000, but the
    number of AmeriCorps members who actually earned an award ranged from
    18,778 in program year 1994 to 36,353 for program year 2000.
        Moreover, it later became evident to Corporation officials that
    many AmeriCorps members, who successfully completed a term of service
    and earned an education award, never used the award. OIG staff
    calculates that had the Corporation continued to base the Trust's
    liability along a straight line computation of one award per one
    enrolled AmeriCorps member, the Corporation would have had to commit a
    cumulative amount in excess of over $1 billion dollars from fiscal year
    1994 through fiscal year 2002.
        In 1996, based on the experience of these early years, the then
    National Service Trust director developed a series of formulas to
    estimate the number of enrollees who would successfully complete their
    service, when during their enrollment they would complete their
    service, and when, after completing their service, they would claim
    their education award. In addition to estimating raw numbers of
    AmeriCorps members, the formulas also estimated dollar amounts
    associated with the estimated education awards. These early formulas
    were also used to forecast estimated future funding requirements for
    the Trust, and became known as the Service Award Liability Model. The
    goal of the model was to provide better management of the Trust funds
    and to provide more realistic liability data for the Corporation's
    financial statements versus a strict liability of one award per one
    AmeriCorps member.
        Despite the liability forecasts derived from the Service Award
    Liability Model, the yearly Congressional appropriations and Trust
    investment combined to create Trust fund surpluses that grew at a rapid
    rate. By 2000, the surplus in the Trust was at such a level that
    Congress rescinded $81 million from amounts in the Trust. In 2001, the
    surplus in the Trust was still considered to be in excess to the
    Trust's needs, and Congress rescinded an additional $30 million from
    amounts in the Trust.
        In 2001, PriceWaterhouseCoopers was engaged to assess the
    Corporation's model. PriceWaterhouseCoopers found that the model
    produced reliable estimates and made recommendations for enhancements
    to it. Some of these enhancements included a fiscal versus program year
    approach, weighted average outlays to reflect changes in program year
    award amounts, a standardized discount and Treasury rate assumption, a
    centralized input worksheet, and a quarterly-basis approach versus
    yearly. The Corporation adopted these changes.
        During discussions with the Office of Management and Budget and
    Congressional staff, in this same year (2001), Corporation management
    was informed that the Corporation's budget was going to be reduced. In
    an effort to prevent the perception that the Corporation's budget was
    going to be cut, Corporation management decided they could meet the
    administration's budget reduction by not requesting appropriations for
    the Trust. Corporation management, based on model forecasts, believed
    that there were sufficient funds in the Trust to cover the estimated
    liabilities, even with no appropriations. This belief led Corporation
    management to request no appropriations for the Trust in the
    Corporation's fiscal year 2002 budget request. In the Fiscal 2002
    Budget Estimate and Performance Plan, dated April 2001, page 17, the
    Corporation stated:

        ``We have calculated the requirements for the Trust and have
    determined that no new authority is required in fiscal 2002 for the
    Trust Fund costs associated with new AmeriCorps members. This
    determination reflects several changes to policies and estimating
    procedures when compared to prior year Trust Fund requests, including:
      --``The explicit recognition that future interest earnings in the
            Trust lower the requirements for new authority in the current
            year's budget request. We have made this change as a result of
            the review of the estimating model. In the past, the assumption
            was that future interest earnings would affect budget authority
            needs in the out years.
      --``A program budget that is based on no growth in the number of
            AmeriCorps members in 2002.
      --``An assumption that AmeriCorps will remain at 48,000 members
            beyond 2002.
        ``There are sufficient balances in the Trust to cover the estimated
    education award liability associated with the members supported in the
    fiscal year 2002 program budget.''

        In May 2001, Chairman Bond requested that the OIG review the
    methodology used by the Corporation to determine that no additional
    Trust appropriations were necessary for fiscal year 2002. The OIG
    contracted with KPMG to perform this review. KPMG found adequate
    support for the Corporation's decision to request no additional Trust
    funding for fiscal year 2002:

        ``The Corporation's decision not to request additional funding for
    the Trust Fund for fiscal year 2002 is supported by the documentation
    and analysis reviewed. It indicates that sufficient Trust Fund assets
    will be available to fund educational awards, Presidential
    scholarships, and interest forbearance earned and expected to be paid
    for all service performed by Members through program year 2002.''

        KPMG noted that it was likely that Congress would need to
    appropriate approximately $75 million in fiscal year 2003 to fund the
    additional awards for the 2003 program year, assuming Congress elected
    to continue the AmeriCorps member levels consistent with historical
    experience over the past several years.
        My investigation found that Trust liability projections were not
    being made by Trust staff, but by a senior-level official in the
    Corporation's Executive Office. The Trust Director's position
    description states that the person holding that position is solely
    responsible for all aspects of Trust operations, yet in actual
    practice, the Trust Director managed only day-to-day operations.
    Although Trust staff were aware of the liability projections, they did
    not have ownership of this process.
        We also found that neither the WBRS nor eSPAN systems contained any
    automatic programming to alert Grants officers, AmeriCorps Program
    officers or Trust Office staff when AmeriCorps member enrollments
    reached a predetermined level. No safeguards were built in to prevent
    additional enrollments until reviewed and approved by Corporation
    staff. Although certain Corporation managers were aware that
    enrollments were increasing, the reporting and tracking of these
    enrollments were not timely. This lack of automated alerts and
    safeguards allowed AmeriCorps enrollees to exceed expectations, which
    resulted in a freeze on further enrollments.
        In the summer of 2002, Corporation senior staff were aware that
    actual enrollments of AmeriCorps members in the Trust had exceeded the
    model forecasts, but it was not until late in the year that Corporation
    management realized that Trust liabilities could exceed assets.
    Congress passed a series of continuing resolutions to allow the
    Corporation and other Federal agencies to re-budget based on the prior
    year's authorizations. Since the Corporation had not requested or
    received fiscal year 2002 appropriations for the Trust, they were
    unable to budget any funds for the Trust from the continuing
    resolutions.
        On July 11, 2002, the senior Corporation manager who had been
    tracking Trust enrollments sent an e-mail message to the CEO, the CEO's
    senior aide, the Chief Operating Officer, and the Director of
    AmeriCorps. This message informed the recipients that AmeriCorps member
    enrollment had reached 56,500 for program year 2001, that the estimated
    enrollment could reach 58,000 by year end, and that ``down the line''
    the Corporation would have to be sure the Trust had sufficient funds to
    handle the increased enrollment.
        On August 28, 2002, this official sent another message to the same
    addressees as his July 11, 2002, e-mail and also included the Director
    of Research and Policy Development, the Director of the Office of
    Public Affairs, and the Deputy Chief Financial Officer who at the time
    was serving as the acting CFO. This message stated that AmeriCorps
    enrollments had hit 60,000, an all time high and that the Trust budget
    funding estimates need to be updated ``as we go forward.''
        Subsequent OIG interviews with the Corporation officials who
    received the messages found that most failed to make the connections
    between increased enrollments and Trust funding levels. One official
    stated he responded to the e-mail saying he would be careful about
    publicizing the good news because readers may question how the
    Corporation could exceed their target goal and still pay the additional
    amounts. Another official said that it did not become an issue until
    they realized that the fiscal year 2003 continuing resolutions
    prevented them from budgeting any funds for the Trust since no
    appropriations for the Trust had been requested in the prior year.
        We found that during early November the Chief Financial Officer's
    staff informed her that there might not be enough funds in the Trust to
    cover future education awards due to the continuing resolutions.
    Shortly after this, she and other Corporation senior staff reviewed the
    situation and determined that the Trust's funding could be in a
    precarious position if the continuing resolutions did not end soon. The
    next day the CFO notified the CEO of the potential problem.
        We determined that the Corporation could generate eSPAN reports
    showing numbers of AmeriCorps enrollments for any given time. Further,
    through interviews with the former Director of the National Service
    Trust and her staff, we discovered that the Corporation generated other
    reports showing the financial status of the Trust on a monthly basis.
    These reports were forwarded to senior Corporation management; however,
    there was no known reconciliation of the number of AmeriCorps enrollees
    to future Trust liabilities. Additionally, quarterly National Service
    Trust status/financial reports were sent to Congress detailing the
    Trust's assets, model calculated liabilities, revenues, expenses, and
    net position. The quarterly reports to Congress also contained
    AmeriCorps member enrollment data, but it appears that the AmeriCorps
    member enrollment data was never reconciled to the Trust status/
    financial reports.

                                RECOMMENDATIONS

        At this stage of our review, the OIG is in a position to make some
    preliminary recommendations based upon the findings from our
    investigation, as well as conclusions reached by our auditors:
      --Policies and procedures should be revised to ensure that the
            AmeriCorps Program Office staff, the Office of Grants
            Management staff and the Trust Office staff are involved in the
            budgeting process, National Service position approval and
            amendment process. The Trust Office staff should ensure that
            funds are available in the Trust to meet the estimated
            liability to be incurred prior to National Service position
            approval.
      --Reports should be generated on a monthly basis to compare the
            number of approved National Service positions to the actual
            members enrolled. Senior management should review these reports
            on a timely basis to ensure that enrollments do not exceed the
            Corporation's estimates.
      --Automated controls should be implemented in WBRS to limit approval
            of additional enrollments to authorized officers in the Grants
            Management Office, and to prevent grantees from enrolling
            members after the program year enrollment period ends.
        On January 7, 2003, the CEO directed that new procedures be
    implemented regarding AmeriCorps enrollment. My office has initiated
    work to assess these procedures and will issue a report on the matter.
    Initial meetings have been held with senior management. We are in the
    process of gathering and reviewing procedures that have been developed
    and are currently being implemented. Every 2 weeks, Trust enrollment
    Summary Reports are now being provided to senior management. These
    reports show the number of positions awarded and enrolled.
        Mr. Chairman, this concludes my prepared statement. I will be
    pleased to answer any questions you might have.
                                     ______

    Prepared Statement of Cornelia M. Ashby, Director, Education, Workforce
      and Income Security Issues, and Susan A. Poling, Associate General
                       Counsel, General Accounting Office

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE
     PRELIMINARY OBSERVATIONS ON THE NATIONAL SERVICE TRUST AND AMERICORPS

    Why the GAO Did This Study
        In November 2002, the Corporation for National and Community
    Service suspended enrollments in the AmeriCorps program due to concern
    that the National Service Trust may not contain enough funds to meet
    the education award obligations resulting from AmeriCorps enrollments.
    This testimony reflects GAO's preliminary review of the factors that
    contributed to the need to suspend enrollments and GAO's preliminary
    assessment of the Corporation's proposed changes.

    What GAO Found
        As shown in the figure below, the number of participants enrolled
    in AmeriCorps increased by about 20,000 from program year 1998 to
    program year 2001. However, the number of AmeriCorps participants was
    not reconciled with the number of education awards that the National
    Service Trust could support.
        GAO identified several factors that led the Corporation to suspend
    enrollments. The factors included inappropriate obligation practices,
    little or no communication among key Corporation executives, too much
    flexibility given to grantees regarding enrollments, and unreliable
    data on the number of AmeriCorps participants.
        The Corporation has established new policies that may improve the
    overall management of the National Service Trust if the policies are
    fully implemented. However, the Corporation has not made policy changes
    to correct a key factor--how it obligates funds for education awards.

        Source: 1998 through 2001 data from the National Service Trust
    database. 2002 data provided by the AmeriCorps program office.
        Note: Participants shown are for AmeriCorps*State and National
    programs only. Participants for AmeriCorps*National Civilian Community
    Corps and its VISTA programs are not included. Data for program years
    1998 through 2001 represents actual participants. Program year 2002
    data represent awarded positions. Program year varies by grantee.

        Mr. Chairman and Members of the subcommittee, we are pleased to
    have the opportunity to comment on the preliminary findings from our
    ongoing study of the Corporation for National and Community Service's
    (the Corporation) management and oversight of the National Service
    Trust (the Trust). The National Service Trust is a dedicated fund
    within the Corporation that is to maintain sufficient funds to pay
    National Service educational awards to participants in the
    Corporation's AmeriCorps program. In November 2002, AmeriCorps
    suspended enrollment of program participants. This statement will
    identify some of the factors that contributed to this suspension and
    related policy changes the Corporation has made since then.
        These comments are primarily based on our preliminary analysis of
    documents and information obtained through interviews with Corporation
    staff. In addition, this statement reflects the April 9, 2003, opinion
    we provided the committee concluding that the Corporation incurs an
    obligation for education benefits when it enters into a grant agreement
    for the approved number of new participants and therefore it must
    record the obligation against the budget authority available in the
    Trust. See Appendix I for the opinion. In summary, the factors we
    identified, to date, that led the Corporation to suspend enrollments
    include inappropriate practices for obligating funds, little or no
    communication among key Corporation executives, and too much
    flexibility given to grantees--they were allowed to adjust authorized
    positions and were not required to provide timely information about the
    number of participants. While the Corporation has established new
    policies that may improve the overall management of AmeriCorps if the
    policies are fully implemented, the Corporation has not made policy
    changes to correct a key factor--how it obligates funds.

                                   BACKGROUND

        The Corporation for National and Community Service was created to
    help meet community needs in education, the environment, and public
    safety and to expand educational opportunity by rewarding individuals
    who participate in National Service.\1\ The Corporation is part of USA
    Freedom Corps, a White House initiative to foster a culture of
    citizenship, service, and responsibility and help all Americans answer
    the President's call to service. The Corporation receives
    appropriations to fund program operations and the National Service
    Trust. The Corporation makes grants from its program appropriations to
    help grant recipients carry out National Service programs.
    ---------------------------------------------------------------------------
        \1\ The National and Community Service Act of 1990 created the
    Corporation.
    ---------------------------------------------------------------------------
        AmeriCorps is one of three National Service programs the
    Corporation oversees.\2\ Most of the grant funding from the Corporation
    for AmeriCorps programs goes to State service commissions, which award
    subgrants to nonprofit groups and agencies that enroll the AmeriCorps'
    participants. Participants in the AmeriCorps program can receive a
    stipend as well as health benefits and childcare coverage. For example,
    about one-half of AmeriCorps' participants received an annual living
    allowance of $9,300 and health benefits. Those participants who
    successfully complete a required term of service earn an education
    award that can be used to pay for undergraduate school, or graduate
    school, or to pay back qualified student loans. In exchange for a term
    of service, full-time AmeriCorps participants earned an education award
    of $4,725 in program year 2002. Participants have up to 7 years from
    the date of completion of service to use the education award.
    AmeriCorps also enrolls participants on a part-time basis and as
    ``education awards only'' participants. Part-time participants who
    serve 900 or fewer hours annually earn education awards proportional to
    those earned by full-time participants. Under the ``education awards
    only'' program, AmeriCorps does not pay the participant a living
    allowance or other benefits, but provides grant funding for
    administrative purposes only, about $400 per full-time participant
    annually. However, each participant receives an education award
    equivalent to that earned by a paid AmeriCorps participant. The number
    of AmeriCorps participants increased by nearly 20,000 from 1998 to
    2001. The program year 2002 data indicate the number of positions
    awarded will decrease by about 8,000. (See figure 1.)
    ---------------------------------------------------------------------------
        \2\ The Corporation oversees the Senior Corps, AmeriCorps, and
    Learn and Serve America. AmeriCorps consists of three programs:
    AmeriCorps*State and National, AmeriCorps*VISTA, and
    AmeriCorps*National Civilian Community Corps.

        Source: 1998 through 2001 data from the National Service Trust
    Database. 2002 data provided by the AmeriCorps program office.
        Note: Participants shown are for AmeriCorps*State and National
    programs only. Participants for AmeriCorps*National Civilian Community
    Corps and its VISTA programs are not included. Data for program years
    1998 through 2001 represents actual participants. Program year 2002
    data represent awarded positions. Program year varies by grantee.

        In November 2002, the Corporation suspended enrollments in
    AmeriCorps because total enrollments were potentially higher than the
    Corporation had expected. No new funds had been requested by and
    appropriated to the Trust for fiscal year 2002, and under the
    continuing resolution at the start of fiscal year 2003, no new funds
    would be deposited into the Trust until the Corporation's fiscal year
    2003 appropriations were enacted. The Corporation concluded that if its
    grantees and subgrantees were to fully enroll new participants up to
    the maximum number of enrollments the Corporation had approved in its
    grants, the Trust would not have a sufficient amount to provide the
    educational awards to those participants. Enrollments in AmeriCorps
    were frozen from November 2002 through March 2003.
    three factors contributed to the need to suspend americorps enrollments
        Three factors contributed to the Corporation's need to suspend
    enrollments in AmeriCorps. Although the Corporation specified the
    maximum number of new participants in the grants it awarded, the
    Corporation did not recognize its obligation to fund participant
    education awards until it actually paid the benefits. Had the
    Corporation properly tracked and recorded its obligations in the Trust
    at the time of grant award when it approved new enrollments, it likely
    would not have needed to suspend enrollments. In addition, there was
    little, if any, communication among the AmeriCorps program office, the
    grants management office, and the Trust about the number of positions
    that the Trust could support. Furthermore, by allowing grantees various
    flexibilities and not requiring them to provide timely enrollment
    information, the Corporation and AmeriCorps managers could not be
    certain about the number of participants.

    Inappropriate Obligation Practices
        The Corporation did not appropriately record or track its
    obligations for education awards to program participants. Generally, an
    agency incurs an obligation for the amount of the grant award with the
    execution of a grant agreement. The Corporation enters into grant
    agreements with State service commissions in which it specifies the
    budget and project period of the award, the total number of positions
    approved, the total amount awarded for program costs for the approved
    positions, and the terms of acceptance. The award for the program costs
    is used to pay participants' stipends and health and child care
    coverage. The Corporation incurs an obligation for these program costs
    at the time of grant award.\3\ While the costs of education awards for
    the new participants are not specified in the grants, in the grant
    agreements the Corporation commits to funding education awards for all
    of the qualified positions initially approved in a grant if the
    subgrantee enrolls all of the participants before the Corporation
    modifies the terms or conditions of the grant. In other words, upon
    award of the grant, the Corporation, at a minimum, has accepted ``[a]
    legal duty . . . which could mature into a legal liability by virtue of
    actions on the part of the other party beyond the control of the United
    States.'' However, the Corporation has concluded that it is not
    necessary to obligate funds until an individual actually enrolls in
    AmeriCorps. Therefore, the Corporation recorded education award
    obligations on an outlay basis. That is, obligations were recorded at
    the time of the quarterly drawdown of amounts for education awards from
    the Trust.
    ---------------------------------------------------------------------------
        \3\ We have not examined and accordingly express no opinion on
    whether the Corporation is appropriately obligating program costs in
    the applicable appropriation account.
    ---------------------------------------------------------------------------
        By failing to recognize and record its obligations at the time of
    grant award, the Corporation had no assurance that the number of
    positions approved in grant awards did not exceed the amount of
    educational awards the Trust could support. Proper recording of
    obligations serves to protect the government by ensuring that it has
    adequate budget authority to cover all of its commitments and prevent
    agencies from over-obligating its budget authority.

    Lack of Communication
        Corporation executives we interviewed said that there was little if
    any coordination between the AmeriCorps program office and officials
    responsible for the management of the Trust about the number of
    positions that the Trust could support. The AmeriCorps director said
    that she considered the grant budget independent from the Trust and she
    neither consulted with nor received direction from the Trust director
    when making decisions about the grants. In addition, in recent years,
    AmeriCorps has tried to increase the number of participants by
    enrolling them in the ``education awards only'' program. Under this
    program, which was an effort to lower the per participant program cost,
    AmeriCorps provides funding to grantees for administrative purposes
    only, currently about $400 per full-time participant annually.
    Increasing the number of participants in this way is at a low cost to
    the AmeriCorps program appropriation, but at full cost to the Trust,
    which funds the education awards, because each participant receives an
    education award equivalent to that earned by a paid AmeriCorps
    participant. Consequently, the number of positions funded by AmeriCorps
    grants was not reconciled with the number supportable by the Trust.
    According to Corporation officials we spoke with, the Trust's funding
    needs were based on an expected enrollment of 50,000, while the
    AmeriCorps program office approved grants for about 75,000
    participants.
        Corporation officials also said that prior to suspending
    enrollments in AmeriCorps, the Trust was so well funded it did not
    warrant their attention. They told us that early in the AmeriCorps
    program, a goal of 50,000 participants annually was used for Trust
    budgeting purposes. However, it was found that fewer than that number
    of participants enrolled, and not all of those who participated earned
    education awards. Additionally, a Corporation budget official said that
    in the past those who earned education awards were not using them as
    quickly as expected. Even as the number of AmeriCorps participants
    grew, the Trust's accounting records showed an unobligated balance that
    was high enough for Congress to rescind $111 million over fiscal years
    2000 and 2001, resulting in the deobligation of the Trust by this
    amount. Given this history, Corporation managers did not see the need
    to reconcile the number of positions created by grant funding with the
    number the Trust could support. The Trust balance was not viewed as a
    constraining factor. Because the number of positions approved in the
    grants was not reconciled with the Trust before grants were awarded,
    there was the potential for grantees to enroll more participants than
    the Trust could support.

    Grantees Allowed to Adjust Authorized Positions and Not Required to
            Provide Timely Participant Information
        Two program management policies affected the number and type of
    participants and, therefore, the use of Trust funds. One policy
    permitted grantees to over enroll participants under certain
    circumstances with approval from their AmeriCorps program officer.
    Specifically, the policy allowed grantees to over enroll up to 20
    percent. The program year 2002-2003 data indicate that while only a few
    of the grantees increased their enrollment, some increased theirs by
    more than 20 percent. Another policy allowed grantees to convert
    positions from full-time to part-time as long as the total number of
    full-time equivalents supported by the grant did not change. While this
    practice did not affect the program funds, it did affect the Trust.
    After the enrollments were suspended, Corporation officials determined
    that part-time participants used their education awards at a higher
    rate than full-time participants and therefore the number of part-time
    participants resulted in a relatively higher level of use for the
    education award.
        The Corporation did not have reliable data on the number of
    AmeriCorps participants during the period leading up to the suspension.
    Enrollments are recorded by grantees through the Corporation's Web-
    Based Reporting System (WBRS). While the enrollment information in WBRS
    was uploaded into the Corporation's database and used to track
    education award obligations on a weekly basis, Corporation officials
    said that discrepancies existed between the number of participants
    enrolled and the number the Corporation was aware of, because of the
    length of time between when a participant started to serve and when the
    grantee entered information into WBRS. A Corporation official said that
    it was not unheard of for some grantees to be 60 to 90 days late in
    entering an enrollment into WBRS.
        By allowing grantees the flexibility to change the number and type
    of participants coupled with delays in receiving information on
    enrollments, the Corporation and AmeriCorps managers could not be
    certain about the number of participants. Corporation officials said
    that this resulting lack of confidence in the data was a contributing
    factor to the decision to suspend enrollments.

         NEW POLICIES ESTABLISHED, BUT ADDITIONAL CHANGES MAY BE NEEDED

        In response to concerns that the AmeriCorps program may have
    enrolled participants without adequately providing for their education
    awards, the Corporation has developed several new policies. While the
    Corporation is modifying its practice of when it records obligations,
    the Corporation overlooks the legal duty it incurs at the time of grant
    award. Other policy changes are directed to improving communication
    among key executives, limiting grantees' flexibilities and requiring
    more timely information on participants. While these policies were only
    recently introduced, they could, if implemented, help the Corporation
    keep track of the day-to-day aspects of the AmeriCorps program and
    provide information needed to monitor the use of the Trust in order to
    determine whether the Corporation should make adjustments, such as
    deobligating excess funds. However, data integration problems between
    WBRS and the program the Corporation uses to track the education awards
    earned by AmeriCorps participants may hamper the effectiveness of the
    new procedures.

    New Policies for Obligating Funds
        The Corporation is in the process of modifying its practices
    regarding when it will record obligations. The Corporation's General
    Counsel explained that the Corporation will record obligations at the
    time of enrollment, instead of on a quarterly drawdown basis and that
    the obligations will be based on estimates of what these enrolled
    members will draw down in the future. The Corporation is of the opinion
    that it does not incur an obligation for an education award until the
    time of enrollment because it may modify the terms and conditions of a
    grant, including a reduction in the number of new participants the
    grantee may enroll, prior to the enrollment of all positions initially
    approved in a grant, to prevent a shortfall in the Trust. The General
    Counsel also said ``. . . binding agreement between the Government and
    an AmeriCorps member [participant] exists only upon the member's
    [participant's] authorized enrollment in the Trust.''
        While it may be true that the Corporation has no binding agreement
    with a participant until the participant enrolls in AmeriCorps, this is
    not the controlling consideration for fund control purposes. In our
    opinion, this view overlooks the legal duty the Corporation incurs at
    the time of grant award when it commits to funding a specified number
    of participants and the constraint imposed on the Corporation by the
    National and Community Service Act. Specifically, the act says ``. . .
    [t]he Corporation may not approve positions as national service
    positions . . . for a fiscal year in excess of the number of positions
    for which the Corporation has sufficient available funds in the
    National Service Trust for that fiscal year . . .''. The Corporation,
    by its own admission, may modify the number of approved participants
    only if it amends the grant agreement to reduce the number of enrolled
    positions prior to enrollment. When a grant is awarded, the number of
    new participants approved in the grant establishes a legal duty that
    can mature into a legal liability for education awards by virtue of
    actions of the grantee, unless the Corporation modifies the grant prior
    to participant enrollment. While the Corporation may unilaterally
    reduce the number of authorized positions awarded to a grantee prior to
    participant enrollment, from the time of grant award until the
    Corporation acts to reduce the approved number of positions, the
    grantee and its subgrantee, not the Corporation, will control the
    number of participants who may enroll, up to the maximum number of
    participants the Corporation has approved in the grant agreement.
        It is also significant to note that the grantee and subgrantee, by
    their actions in enrolling participants, not the Corporation, control
    the amount, ultimately, of the Corporation's liability. If the amount
    of liability to the government is under the control of the grantee, not
    the Corporation, the government should obligate funds to cover the
    maximum amount of the liability. As more information is known, the
    Corporation should adjust the obligation--deobligate funds or increase
    the obligation level--as needed.
        The Corporation also said that at the time a member enrolls it
    would record its ``. . . best estimate of the Government's ultimate
    liability of education awards provided to members [participants]
    enrolled in the National Service Trust.'' According to the
    Corporation's General Counsel, the Corporation's estimates of the
    amount that enrolled members [participants] will draw down is based on
    historical information, such as attrition rate and actual usage by
    participants who complete a term of service and earn an education
    award. It appears to us that the Corporation is confusing its
    accounting liability--projections booked in its accounting systems for
    financial statement purposes, with its legal liability--amounts to be
    recorded in its obligational accounting systems and tracked in order to
    ensure compliance with fiscal laws. One of the Federal financial
    accounting standards States that a liability for proprietary accounting
    purposes is a probable and measurable future outflow or other sacrifice
    of resources as a result of past transactions or events. Traditionally,
    projections of accounting liability consider the same factors, such as
    historical trends, that are considered in the Corporation's model. To
    track its obligations, the Corporation should be recording its
    unmatured legal liability for the education awards, which is the total
    cost associated with the enrollment of all approved positions. The
    Corporation's obligation should be recorded as it is incurred and
    should be calculated by multiplying the number of approved positions in
    a grant by the total cost of a National Service educational award.

    More Communication Planned Among Key Corporation Managers
        Policy changes at Corporation headquarters are designed to improve
    communication between several key offices and officials. A major change
    is that the Trust balance is to be a limiting factor on grant awards
    and, therefore, enrollment levels. In addition, beginning with the 2003
    grant cycle,\4\ one new policy calls for the AmeriCorps director to
    work with the grants director, the Chief Financial Officer (CFO), and
    the Trust director to compare projections of positions to be approved
    in grants with those supported by actual appropriations, and the Chief
    Executive Officer (CEO) will only approve the number of positions the
    Trust can support. Additionally, the CEO will approve all AmeriCorps
    grants after consultation with the CFO on the number of education
    awards that can be supported by the Trust. Also, the policy states that
    the CEO, CFO, the Trust director, and the AmeriCorps director will meet
    at least monthly to review and reconcile enrollment data and Trust
    data. Through bi-weekly reports, the AmeriCorps director and the Trust
    director are to keep the CEO and CFO informed of the number of approved
    and filled positions. The Trust director is to monitor factors relevant
    to forecasting Trust liabilities and report regularly to the CFO,
    highlighting deviations from assumptions in the model. Each month the
    CFO is to use actual enrollment data to re-evaluate the model for
    forecasting Trust liabilities. If the revision results in a need to
    change enrollment targets, the CFO will notify the CEO and AmeriCorps
    director immediately. The CEO will take appropriate action and report
    any such action to Congress, the Corporation's Board, and the Office of
    Management and Budget.
    ---------------------------------------------------------------------------
        \4\ The Corporation's 2003 grant review cycle began in the spring
    of 2003.
    ---------------------------------------------------------------------------
        Regular meetings and attention to the enrollment data should help
    the Corporation keep track of the day-to-day aspects of the AmeriCorps
    program. Such updated information is an important step in monitoring
    the use of the Trust in order to determine whether the Corporation
    should make adjustments. For example, if the Corporation obligated the
    full cost for each of the positions approved at the time of grant
    award, and later determined that many of the positions will not be
    filled, it could reduce the number of approved positions and deobligate
    some of the funds. The policy changes and new procedures were announced
    in January. We will continue to monitor the implementation of these
    policy changes.

    Grantees No Longer Permitted to Change Authorized Positions
        The Corporation has changed policies regarding its grantees ability
    to over enroll participants, replace participants who leave with new
    enrollees and change positions from full-time to part-time. In a
    January 22, 2003, memorandum, the director of AmeriCorps cancelled the
    policy that allowed grantees to over enroll members by up to 20 percent
    over the ceiling established in the grant award in order to take
    account of attrition. Furthermore, an official said AmeriCorps now
    considers a position to be filled for the term of the grant once the
    grantee enrolls a participant, even if the participant later drops out
    of the program, whether or not an education award was earned. The
    official said that in the past, grantees could enroll a new member to
    serve out the balance of the term if grant funds were available. A
    Corporation official also said that there is a new policy that
    restricts grantees from converting full-time positions to part-time
    positions. Grantees must now request and receive approval from the
    Corporation before such changes can be made.
        Since grantees will not be permitted to modify the number and type
    of authorized positions, the Corporation's ability to manage the
    AmeriCorps program should improve. Most 2003 grant positions have not
    yet been awarded; therefore, it is too early to tell whether these new
    policies will be effective. We will monitor these policies and assess
    the extent to which they have been implemented as we complete our work.

    Grantees Will Be Required to Report Participant Information Within 30
            Days, but Data Reconciliation Problems May Need To Be Addressed
        In January 2003 the Corporation informed all grantees that
    AmeriCorps will require timely reporting of participant information to
    ensure that the Trust database receives current information on the
    number of participants eligible for an education award. Grantees will
    be required to keep AmeriCorps informed of the number of participants
    offered positions and the number who accept and enroll and to document
    enrollment through WBRS no later than 30 days after participants start
    working. The memorandum warns grantees that failure to comply with this
    requirement could result in reductions in the number of positions or
    termination of the grant. Additionally, the memorandum directs State
    commissions and other AmeriCorps grantees--the organizations
    responsible for the oversight of subgrantees--to implement procedures
    to ensure that timely notification of participant commitments and
    enrollments is part of their review and oversight functions.
        Furthermore, the Corporation has made changes to WBRS, which is
    used to track participant, grant, and budget information. First,
    controls have been put in place to limit the number of positions listed
    in WBRS to no more than the number of approved positions. The
    Corporation's Biweekly Trust Enrollment Summary, as of March 2003,
    shows that award totals are being tracked and compared with the data
    estimates in the Trust. However, officials told us that there are some
    data reconciliation problems between WBRS and the program used by the
    Corporation to track the education awards earned by AmeriCorps
    participants. Corporation staff have had to make manual adjustments to
    reconcile the data.
        Accurate and timely information about enrollments should help the
    Corporation and AmeriCorps manage the program. As grants are awarded,
    we will be able to assess whether the policies have been fully
    implemented.

                                   CONCLUSION

        The Corporation's new policies, if fully implemented, should help
    the Corporation manage the AmeriCorps program by providing better
    information on day-to-day operations. However, without obligating the
    full amount associated with all of the positions authorized in the
    grants, the Corporation remains at risk of having the actual number of
    enrollments exceed the estimated number the Trust can support. We will
    monitor the implementation of the Corporation's new policies as we
    continue our review.

                        GAO CONTACT AND ACKNOWLEDGMENTS

        For further information regarding this statement, please call
    Cornelia M. Ashby or Susan A. Poling. Individuals making key
    contributions to this testimony included Carolyn M. Taylor, Tom
    Armstrong, Anthony DeFrank, Joel Marus, and Hannah Laufe.

    APPENDIX I: OBLIGATIONAL PRACTICES OF THE CORPORATION FOR NATIONAL AND
                               COMMUNITY SERVICE

                       United States General Accounting Office,
                                         Washington, DC, April 9, 2003.

    Subject: Obligational Practices of the Corporation for National and
            Community Service
    The Honorable Christopher Bond,
    Chairman,
    The Honorable Barbara Mikulski,
    Ranking Minority Member,
    Subcommittee on VA, HUD, and Independent Agencies, Committee on
            Appropriations, United States Senate.

        This responds to your letter dated February 25, 2003. You requested
    that we determine whether the Corporation for National and Community
    Service (Corporation) incurs a legal liability for the award of
    National Service educational benefits of AmeriCorps participants at the
    time it enters into a grant agreement authorizing a grantee to enroll a
    certain number of AmeriCorps participants, or at the time a participant
    enrolls in the AmeriCorps program. Subsequent to your letter, your
    staff explained to us that your question arises in the context of your
    efforts to ensure that the Corporation is properly recording
    obligations of the Corporation for National and Community Service
    National Service Trust (Trust).
        As we explain in further detail below, the Corporation incurs an
    obligation for education benefits when it enters into a grant
    agreement. At the time of grant award, the Corporation approves the
    grantee's enrollment of a specified number of new participants in the
    AmeriCorps program. By this action, the Corporation incurs a legal duty
    that once fully matured, by action of the grantee and participants
    outside the Corporation's control, will require the Corporation to pay
    education benefits to qualified participants from the National Service
    Trust. As the Corporation incurs an obligation for the education
    benefits, it must record the obligation against the budget authority
    available in the Trust.
        You also requested that we review the Corporation's request for a
    deficiency appropriation for the Trust. We will provide a subsequent
    response addressing this request.

    Background
        The Corporation for National and Community Service was created to
    help community needs in education, the environment, and public safety,
    to expand educational opportunity by rewarding individuals who
    participate in national service, and to encourage citizens to engage in
    national service. National and Community Service Trust Act of 1993,
    Pub. L. No. 103-82, 107 Stat. 785, 42 U.S.C. Sec. 12501. One of the
    three National Service programs the Corporation oversees is AmeriCorps.
    Participants in the AmeriCorps program who successfully complete a
    required term of service earn a National Service educational award of
    up to $4,725 that can be used to pay for college, graduate school, an
    approved school-to-work program, or qualified student loans. 42 U.S.C.
    Sec. 12604(a); 45 C.F.R. Sec. 2527.10. Participants who earn the award
    have up to 7 years in which to use it. 42 U.S.C. Sec. 12602(d)(1).
    While the Corporation pays the education benefits directly from the
    Trust, 42 U.S.C. Sec. 12601(c), the Corporation also is authorized to
    make grants for the purpose of assisting grant recipients in carrying
    out National Service programs. 42 U.S.C. Sec. 12571(a). The Corporation
    provides grant funds for program costs, including a stipend, and health
    and child care coverage. In its grants, the Corporation also approves
    enrollment of a specified number of new participants. See, e.g.,
    AmeriCorps Grant Award to City Year, Inc., Aug. 3, 2000.\1\ Most of the
    grant funding from the Corporation for AmeriCorps programs goes to
    governor-appointed State service commissions, which award subgrants to
    nonprofit groups, who then enroll the AmeriCorps participants.
    Corporation for National and Community Service website, http://
    www.national service.org.
    ---------------------------------------------------------------------------
        \1\ The Corporation provided us with a copy of this grant
    agreement.
    ---------------------------------------------------------------------------
        The AmeriCorps program is funded through the Departments of
    Veterans Affairs, Housing and Urban Development, and Independent
    Agencies Appropriations Act (VA-HUD Appropriations Act). Congress
    appropriates amounts in the VA-HUD Appropriations Act on a no-year
    basis to the National Service Trust. See, e.g., VA-HUD Appropriations
    Act, 2001, Pub. L. No. 106-377, 114 Stat. 1441 (``not more than
    $70,000,000, to remain available without fiscal year limitation, shall
    be transferred to the National Service Trust account for educational
    awards authorized under subtitle D of title I of the Act''). The
    National Service Trust is a dedicated fund within the Corporation used
    to pay National Service educational awards to eligible participants. 42
    U.S.C. Sec. 12601(c) (``[a]mounts in the Trust shall be available, to
    the extent provided for in advance by appropriation, for payments of
    National Service educational awards in accordance with section 12604 of
    this title''). The amount deposited into the Trust is to be equal to
    the product of the value of a National Service educational award and
    the total number of approved National Service positions. 41 U.S.C.
    Sec. 12571(c). Of significance is a provision that prohibits the
    Corporation from approving positions for a fiscal year unless
    sufficient funds are available in the National Service Trust. It states
    that ``[t]he Corporation may not approve positions as approved national
    service positions . . . for a fiscal year in excess of the number of
    positions for which the Corporation has sufficient available funds in
    the National Service Trust for that fiscal year . . .'' 42 U.S.C.
    Sec. 12581(f).
        Your question arises in the context of the Corporation's decision
    to suspend participant enrollment in the fall of 2002 because the
    Corporation feared that the Trust would not have sufficient funds to
    cover education awards for all approved enrollees. For fiscal year
    2002, the President did not request and the Congress did not
    appropriate funds for the Trust, based apparently on the
    administration's determination that sufficient funds were available to
    support fiscal year 2002 education benefit outlays. Letter from Phillip
    J. Perry, General Counsel, Office of Management and Budget, to Susan A.
    Poling, Associate General Counsel, General Accounting Office (GAO),
    Mar. 31, 2003. According to the Corporation's General Counsel, in the
    fall of 2002, internal controls alerted the Corporation to the fact
    that grantees were enrolling members at an unexpectedly high rate, and
    the Corporation determined that ``in all likelihood the obligations
    associated with those approved positions would exceed budgetary
    resources in the National Service Trust.'' Letter from Frank R.
    Trinity, General Counsel, Corporation for National and Community
    Service, to Susan A. Poling, Associate General Counsel, GAO, Mar. 21,
    2003. In response, the Corporation amended all AmeriCorps grants to
    suspend enrollments as of November 15, 2002, and did not permit any
    additional enrollments until Congress appropriated additional funds to
    the Trust. Id. Notwithstanding these actions, according to the audit of
    the Corporation's fiscal year 2002 financial statements, in fiscal year
    2002, the Corporation had approved AmeriCorps National Service
    positions in excess of the number of positions that the Trust could
    support and thus violated 42 U.S.C. Sec. 12581(f). Audit of the
    Corporation for National and Community Service's fiscal year 2002
    Financial Statements, Audit Report 03-01 at 24, KPMG, Feb. 4, 2003.

    Analysis
        The issues presented are (1) when does the Corporation incur an
    obligation for education benefits, and (2) in what amount does the
    Corporation incur an obligation for these benefits. Understanding the
    concept of an obligation and properly recording obligations are
    important because an obligation serves as the basis for the scheme of
    funds control that Congress envisioned when it enacted such fiscal laws
    as the Antideficiency Act. 31 U.S.C. Sec. 1341(a); B-237135, Dec. 21,
    1989. Under that act, an agency may not incur an obligation in excess
    of the amount available to it in an appropriation, 31 U.S.C.
    Sec. 1341(a); accordingly, proper recording of obligations permits
    compliance with the Antideficiency Act by ensuring that government
    agencies have adequate budget authority to cover all of their
    obligations. 42 Comp. Gen. 272, 275 (1962).

                Determining the Obligational Event
        A general definition of an obligation is ``a definite commitment
    that creates a legal liability of the government for the payment of
    goods and services ordered or received.'' B-116795, June 18, 1954. A
    legal liability is defined, generally, as any duty, obligation or
    responsibility established by a statute, regulation, or court decision,
    or where the agency has agreed to assume responsibility in an
    interagency agreement, settlement agreement, or similar legally binding
    document. See Black's Law Dictionary 925 (7th ed. 1999). While we
    ordinarily consider obligations as ``legal liabilities,'' for the
    concept to be meaningful for funds control purposes, we have not
    limited the definition solely to agency actions that create legal
    liabilities, but also have extended the definition to include ``[a]
    legal duty on the part of the United States which constitutes a legal
    liability or which could mature into a legal liability by virtue of
    actions on the part of the other party beyond the control of the United
    States . . .'' 42 Comp. Gen. 733, 734 (1963); see also McDonnell
    Douglas Corp. v. United States, 37 Fed. Cl. 295, 301 (1997).
        When the Corporation awards a grant, it enters into a binding
    agreement authorizing the grantee to enroll a specified number of new
    participants in the AmeriCorps program. In addition, when the
    Corporation enters into grant agreements with State service
    commissions, it specifies the budget and project period of the award,
    the total number of positions approved, the total amount awarded for
    related program costs for the approved positions, and the terms of
    acceptance. See, e.g., AmeriCorps Grant Award to City Year, Inc., Aug.
    3, 2000. The amounts awarded for related program costs are used by the
    grantee to pay participants' stipends and health and child care
    coverage. The Corporation incurs an obligation for these program costs
    at the time of grant award.\2\ See, e.g., B-289801, Dec. 30, 2002; B-
    167790, Jan. 15, 1973. The costs of education benefits for the new
    participants are not specified in the grants.
    ---------------------------------------------------------------------------
        \2\ We have not examined and accordingly express no opinion on
    whether the Corporation is appropriately obligating these costs in the
    applicable appropriation account.
    ---------------------------------------------------------------------------
        Nevertheless, at the time of grant agreement, the Corporation
    commits to fund education benefits for all of the positions approved in
    the grant if all of the positions are enrolled before the Corporation
    modifies the terms or conditions of the grant. Letter from Frank R.
    Trinity, General Counsel, Corporation for National and Community
    Service, to Susan A. Poling, Associate General Counsel, GAO, Mar. 21,
    2003. At the time of grant award, when the Corporation approves
    enrollment of a specified number of new participants, the Corporation
    has taken an action that can mature into a legal liability for the
    education benefits of the new participants by virtue of actions taken
    by the grantee and participants, not the Corporation. In other words,
    upon award of the grant, the Corporation, at a minimum, has accepted
    ``[a] legal duty . . . which could mature into a legal liability by
    virtue of actions on the part of the grantee beyond the control of the
    United States.'' 42 Comp. Gen. 733, 734 (1963). In our view, therefore,
    the Corporation incurs a recordable obligation at grant award for the
    education benefits of the approved number of new participants.
        We think our view of when the obligational event occurs is entirely
    consistent with applicable provisions of the National and Community
    Service Trust Act. As noted above, the Act requires the Trust to have
    adequate funds to cover the total number of approved positions. 42
    U.S.C. Sec. 12581(f). The language of section 12581(f) focuses on the
    Corporation's approval of positions as the obligational event for fund
    control purposes: ``[t]he Corporation may not approve positions as
    approved national service positions . . . for a fiscal year in excess
    of the number of such positions for which the Corporation has
    sufficient available funds in the National Service Trust for that
    fiscal year . . .''.
        The General Counsel of the Corporation has concluded, however, that
    the obligational event with respect to the education award occurs no
    earlier than the enrollment of an individual in the Trust. Letter from
    Frank R. Trinity, General Counsel, Corporation for National and
    Community Service, to Susan A. Poling, Associate General Counsel, GAO,
    Mar. 21, 2003. In the past, the Corporation recorded education award
    obligations on an outlay basis, i.e., it recorded an obligation at the
    time of the quarterly drawdown of education awards from the Trust. Id.
    The General Counsel explained, however, that the Corporation is in the
    process of modifying its procedures for recording obligations and now
    will record obligations at the time of enrollment based on estimates of
    what these enrolled members will draw down in the future. Id. The
    General Counsel stated that the Corporation does not incur an
    obligation for an education award until the time of enrollment because
    the Corporation may modify the terms and conditions of a grant,
    including suspension of enrollment into the Trust, prior to the
    enrollment of all positions initially approved in a grant. According to
    the General Counsel, this permits the Corporation, if necessary, to
    prevent a shortfall in the Trust. The General Counsel also stated that
    ``a binding agreement between the Government and an AmeriCorps member
    exists only upon the member's authorized enrollment in the Trust.'' Id.
    While it may well be true that the Corporation has no binding agreement
    with a participant until the participant enrolls, we do not view this
    as the controlling consideration for funds control purposes. In our
    opinion, this view overlooks the legal duty the Corporation incurs at
    time of grant award when it commits to funding a specified number of
    participants and ignores the constraint imposed on the Corporation by
    section 12581(f).
        The Corporation, by its own admission, may modify the number of
    approved participants only if it amends the grant agreement to reduce
    the number of enrolled positions prior to enrollment. While the
    Corporation may unilaterally reduce the number of authorized positions
    awarded to a grantee prior to participant enrollment, from the time of
    grant award until the Corporation acts to reduce the approved number of
    positions, the grantee and its subgrantee, not the Corporation,
    controls the number of participants who may enroll, up to the maximum
    number of participants the Corporation has approved in the grant
    agreement. The fact that the government may have the power to amend
    unilaterally a contract or agreement does not change the nature or
    scope of the obligation incurred at time of award. Were it otherwise,
    every government contract that permits the government to terminate the
    contract for the convenience of the government (48 C.F.R. Sec. 49.502),
    or to modify the terms of the contract at will (48 C.F.R.
    Sec. Sec. 52.243-1, 243-2, 243-3), would not be an obligation of the
    government at time of award. Long-standing practice and logic both of
    the Congress (31 U.S.C. Sec. 1501, 41 U.S.C. Sec. 5) and the accounting
    officers of the government (B-234957, July 10, 1989, B-112131, Feb. 1,
    1956) have rejected such a view. As we explained earlier, at the time
    of grant award, the Corporation's approval of a specified number of new
    participants establishes a legal duty that can mature into a legal
    liability for education benefits by virtue of actions of the grantee
    that are beyond the control of the Corporation unless the Corporation
    takes affirmative action to modify the grant.

                Amount of the Obligation
        For purposes of identifying the amount of the Corporation's
    obligation at grant award, it is also significant that the grantee and
    subgrantee, by their actions in enrolling participants, ultimately
    control the amount of the Corporation's liability. If the amount of
    liability of the government is under the control of the grantee, not
    the Corporation, the government should obligate funds to cover the
    maximum amount of the liability. See, e.g., B-238581, Oct. 31, 1990; B-
    197274, Sept. 23, 1983. As more information is known, the Corporation
    may adjust the obligation, i.e., deobligate funds or increase the
    obligational level, as needed.
        The General Counsel stated that at the time a member enrolls and
    the Corporation records an obligation for the member's education
    benefits, the Corporation will record its ``best estimate of the
    Government's ultimate liability for education awards provided to
    members enrolled in the National Service Trust.'' Letter from Frank R.
    Trinity, General Counsel, Corporation for National and Community
    Service, to Susan A. Poling, Associate General Counsel, GAO, Mar. 21,
    2003. According to the General Counsel, the model the Corporation will
    use to make estimates of what enrolled members will draw down in the
    future, i.e., the amount the Corporation will obligate, uses historical
    information, such as attrition rate and actual usage by members who
    complete a term of service and earn an education award.
        It appears to us that the Corporation is confusing its accounting
    liability, projections booked in its proprietary accounting systems for
    financial statement purposes, with its legal liability, amounts to be
    recorded in its obligational accounting systems and tracked in order to
    ensure compliance with fiscal laws. For proprietary accounting purposes
    a liability is a probable and measurable future outflow or other
    sacrifice of resources as a result of past transactions or events.
    FASAB Statement of Federal Financial Accounting Standards Number 1.
    Some types of projections of accounting liability consider the same
    factors, such as historical trends, that are considered in the
    Corporation's model. For purposes of tracking its obligations, the
    Corporation should be recording its unmatured legal liability for the
    education benefits, which is the value of an educational award
    multiplied by all approved positions. At the time of grant award, the
    Corporation should record an obligation incurred for the education
    benefits against the National Service Trust and the obligation incurred
    for the related program costs awarded for each of the approved
    positions against the appropriate account in the VA-HUD Appropriations
    Act. As the grantees' authority under the grant agreement to enroll
    participants in the AmeriCorps program expires or if the Corporation
    modifies the grantees' authority, under the grant agreement the
    Corporation should deobligate previously obligated amounts to reflect
    the change in the Corporation and the Trust's legal exposure.
        We trust this is responsive to your request. If you have any
    questions, please contact Susan A. Poling, Associate General Counsel.
                                             Anthony H. Gamboa,
                                                       General Counsel.

        [Clerk's Note.--The audit documents submitted as
    attachments to the statement from the Corporation for National
    and Community Service have been retained in Committee files.]

                          EDUCATION TRUST ENROLLMENTS

        Senator Bond. Dr. Lenkowsky, I have expressed my
    disappointment about the overenrollment problems. The IG found
    that the senior staff was aware of the problem as early as last
    July, but you did not inform the committee or take action until
    November.
        When these warnings were first disclosed, were they
    disclosed to you in July? What did you do? What specific steps
    did you take to address the problem and respond, and why did
    you not notify the committee or suspend enrollments sooner?
        Dr. Lenkowsky. Mr. Chairman, I was informed in late July
    that the enrollments were going above 50,000, and I think the
    full memo will be in the Inspector General's report that
    minimized the relevance of that for the Trust. It said, in
    effect, down the line we may have to look at the Trust. Most of
    the memo was devoted to explaining that the reason we were
    getting such high enrollments was because we were lowering the
    cost per member.
        I have been concerned from the day I walked into the
    Corporation about two things, and I have been making that point
    pretty clearly, including my testimony here last year. One was
    our inability to tell what was happening. We knew applications
    were going up, but we were unable to tell where the applicants
    were going, whether they were filling positions.
        And the second, which was the point I made at this
    committee last year, was that our program staff and grantees
    were not always connecting program expenditures to Trust
    expenditures. This was the first warning sign.
        The second came about 6 weeks later, in August. At that
    point I was advised that certain individuals in the Corporation
    were going to examine this in more detail and get back to me.
    At that point, I went over to our congressional people. The
    President had nominated Ms. Guillermin to be our new Chief
    Financial Officer. The nomination was pending before Congress
    at that point, and I asked our congressional people to make
    sure Congress understood the importance of getting a new Chief
    Financial Officer in place.
        In retrospect, I probably should have advised the
    committee, once we began to see these numbers going up, but I
    wanted to make sure I understood properly what was going on and
    what the implications were.
        Ms. Guillermin arrived in October, mid-October. She
    immediately went to work on this problem, notified me there
    might be a problem, spoke to me--I was actually on a brief
    vacation at the beginning of November--and upon receiving that
    information I made the decision first to pause and at the same
    time to brief this committee--as soon as I had a full
    understanding of the nature of the problem I believe we came up
    here.

                            MANAGEMENT OF THE TRUST

        Senator Bond. Mr. George, your testimony indicates that the
    Corporation did not respond until it realized that the CR
    prevented them from budgeting funds for the Trust. Are you
    implying that if the CR did not occur we may not have found out
    about the problem?
        Mr. George. That is a possibility, Senator, yes.
        Senator Bond. Mr. George, your testimony states that your
    investigation found that Trust liability projections were not
    being made by Trust staff but by a senior-level official in the
    Corporation's executive office. I understand this investigation
    is going on, so I will not ask you to name names, but can you
    tell me about the position of the senior-level official in the
    Corporation's executive office? In your opinion, was it
    appropriate for this official to be in charge of the Trust
    liability projections?
        Mr. George. The person held the position of the Coordinator
    of National Service Programs, and under the position
    description of the Trust's Director, it was not the
    Coordinator's responsibility to make that call, so the answer
    is, while input, of course, could have been provided, the final
    decision should have been with the Trust's Director.
        Senator Bond. Dr. Lenkowsky, how have you responded to the
    findings about the involvement of the senior-level official in
    those projections?
        Dr. Lenkowsky. As you know, Senator, I have reassigned two
    very senior officials in our organization, one of whom is, as
    noted in your remarks, planning to retire. Based on the
    evidence before me I felt those were the actions I could take
    at that time. I am awaiting the results of the Inspector
    General's report and the GAO report to determine whether, on
    the basis of their analysis, there is sufficient cause for
    further personnel action. I will be glad to discuss any of this
    with you, since it involves individuals, in executive session.
        Senator Bond. Let us know. Let me ask Ms. Guillermin if you
    could briefly describe the steps that have been implemented to
    correct the past problems of overenrolling AmeriCorps members.
        Ms. Guillermin. We have not had the opportunity to
    implement the full range of new procedures because we have not
    gone through the full grant cycle, so as the opportunity arises
    because of the cycle of the process we are implementing the new
    procedures.
        The procedures will span, going forward, the period that
    begins with our budget development, 2 years before our fiscal
    year begins, through to analysis, throughout that time frame.
    We will during the budget development process perform
    calculations to determine what the targeted enrollment levels
    are and the appropriate funding against those levels.
        What needs to change in addition to very simple review and
    oversight procedures is a change in culture, as you mentioned,
    which includes transparency, involvement of all appropriate
    areas, and analysis and reforecasting. The changes are very
    simple and easy to implement, but will require a company
    changing culture to make effective.
        Senator Bond. We wish all of you luck in making those
    changes.
        Senator Mikulski.

                             CNCS SENIOR LEADERSHIP

        Senator Mikulski. First of all, Mr. George, thank you very
    much for this report. I think it is excellent. It is like you
    are both a fiscal and management radiologist and I think we all
    see some very serious issues here.
        What is so troubling to me is, both your report, sir, and
    then the GAO report that we asked for, indicate that there have
    been inappropriate obligation practices, little or no
    communication among key Corporation executives, a whole culture
    of one group not talking to the other, and a lot of flexibility
    given to grantees regarding enrollments, but no reliability on
    the number of AmeriCorps participants.
        I think there has been a complete lack of leadership here.
    First, you have to know I am very disappointed in the
    Corporation's Board. I am very, very, very disappointed in the
    Corporation's Board.
        One of the reasons we established this as a Corporation is
    so that there could be the best practices from the private
    sector. That it had to exercise oversight and accountability so
    it would not run wild, that was number 1, and also to allow
    creativity and ingenuity. I think the Board has been a bust. I
    think it has been like Enron goes nonprofit. I think they have
    exercised no stewardship, no responsibility, no accountability,
    and if this does not get fixed in the next year I will most
    respectfully ask President Bush to terminate the Board
    membership.
        I am truly serious, because we cannot, as appropriators, be
    the kind of watchdogs and stewards that we would like to be, so
    that was the whole point of establishing the Board. There were
    so many questions about National Service when it started that
    we felt the Board would be the proper balance of good business
    practices, sound financial accounting and stewardship, and it
    has been a B-U-S-T, and I think there has been a lack of
    leadership on the Board.
        Second, I am not going to pinpoint here, but I think there
    is a lack of leadership in Headquarters culture. There is a
    huge lack of communication. The Trust Director's position
    states that the Trust Director was supposed to be in charge of
    the Trust, but the person in charge of the Trust was like a
    day-to-day accountant rather than a Trust manager, and I do not
    get a sense that everybody gets into the same room, or the same
    virtual room, because of data, to really be able to stand
    sentry to be sure we are getting taxpayer's value for
    taxpayer's dollar but we are not violating the law.
        So I again think if this leader, if there is not a change
    in culture and a change in leadership, we then have to look at
    where we are going, Mr. Chairman. I think this is the most
    serious we have come to, so I have a series of questions, but I
    feel very strongly.
        I would like, with your concurrence, Mr. Chairman, that we
    take the Inspector General's report, the GAO report and others
    that are appropriate that have been briefed to us, and we send
    it to the Board, and we ask the Board to get their act together
    and get the Corporation's act together, and if not, then we
    will have to take this to the White House.
        That is where the accountability needs to be, along with,
    quite frankly, Mr. Lenkowsky, you and your team, but I am going
    to say this to you and your team. I think you really know
    National Service cold, but we have got real issues here. What I
    do not understand is how the Corporation approved more
    positions, and we keep approving positions, but there seems to
    be no data on why volunteers do not earn an education award and
    do not use the education award at all. This should be the very
    first thing that every year you decide how much money you have
    got, how much is in the Trust, and therefore how many
    volunteers you can enroll. Why do you not know this?

                             EDUCATION TRUST MODEL

        Dr. Lenkowsky. We do have a model that forecasts
    obligations for the Trust that is based on estimates using
    historical data.
        Senator Mikulski. But you do not have good data.
        Dr. Lenkowsky. We are getting better. Remember, we have
    just gone through a first class----
        Senator Mikulski. But you do not have good data. The model
    is a bust.
        Dr. Lenkowsky. I think I would like to ask Ms. Guillermin
    to comment on that. She has been working on the model. My
    understanding of the situation is that we had one of those
    garbage-in, garbage-out problems.
        Senator Mikulski. That is exactly right.
        Dr. Lenkowsky. The garbage, though, was not the model. It
    was the numbers going into the model. I think the model was
    basically sound, but I would like Ms. Guillermin to comment on
    that because she has been looking at that very closely.
        Ms. Guillermin. The model has been reviewed, and it
    operates in accordance with the assumptions that it was built
    to operate around. What we are finding, given the OMB feedback
    and now this GAO feedback, is that the assumptions upon which
    the model were based were erroneous and the model should never
    have been built around those assumptions at all.
        Senator Mikulski. So what are you going to do about it?
        Ms. Guillermin. We need to modify the model. We need to----
        Senator Mikulski. We need to, but what are you going to do
    about it, when are you going to do it, and how will you know
    that the model is accurate? I need urgency, urgency, urgency
    here.
        Ms. Guillermin. Yes, ma'am.
        Senator Mikulski. I need passion. I need from you all such
    an outrage. Do you have the outrage?
        Ms. Guillermin. We have the outrage and we are exhausted
    from spending many, many hours on this issue over the past 6
    months. We have implemented new procedures. We have changed the
    culture. We are determining, because as you have noted there
    have been a number of different opinions as to what the right
    accounting is, when the obligation should go into effect, and
    how much that obligation should be, and we can implement
    immediately--we have the GAO report as of yesterday and can
    implement today the recommendations that they have made.
        Dr. Lenkowsky. May I just add to that? As I said in my
    opening statement I think there is deep and profound anguish
    over what has gone on and a determination to change it on the
    part of senior leadership and on the Board itself. I speak for
    my chairman in this, that he, too, realizes the Board has not
    been implementing effective oversight, and we are making steps
    to change that, including regular metrics for the Board's use
    at each Board meeting.
        Now that we have both the IG and the GAO, now that OMB has
    weighed in, what we intend to do is determine once and for all
    what the proper legal standard is for developing obligations.
    We actually spoke a little bit about this at last year's
    hearings, as you may remember, Mr. Chairman. Once we get that
    down, we will get that right in place immediately----
        Senator Mikulski. Well, when are you going to get it down?
        Dr. Lenkowsky. Now that we have those reports in we are
    going to move with all deliberate speed to get this down.
        Senator Mikulski. Can I have a due date?
        Dr. Lenkowsky. I think what we need to do is get OMB, GAO,
    our Appropriations Committee----
        Senator Mikulski. That is a process answer. I want a due
    date. I am done with process.
        Dr. Lenkowsky. Yes, I think I can give you a due date. I
    believe our first round of grants for 2003 is scheduled to be
    made at the beginning of June, and everything will be in place
    before then.
        Senator Mikulski. Well, we want the legal definition to
    this committee by Memorial Day.
        Dr. Lenkowsky. Fine.
        Senator Mikulski. Mr. Chairman, you have been generous, so
    I will wait for a second round.

                        RELATIONSHIP WITH FREEDOM CORPS

        Senator Bond. Thank you, Senator Mikulski. We will note the
    June 1 date. I would say that we will certainly forward this
    information, along with our opening statements, to the Board.
    We will also forward them to the White House.
        I would tell you I have been getting regular calls from the
    White House, because the President does support the concept
    very strongly, and I have told him, I have told the
    representatives of the White House the concerns we have. We
    will share this with them, and I expect we will all be hearing
    a lot more from them, but with all the respect I have for the
    White House and all of the wonderful members of the Board, they
    ain't going to get no more money until we get the thing cleaned
    up, so that just happens to be my opinion. Now, somebody may
    beat me on the floor, but I doubt it.
        Dr. Lenkowsky, the Corporation plays a significant role in
    supporting U.S.A. Freedom Corps. The budget justification for
    2004 indicates that collaboration will continue with U.S.A.
    Freedom Corps, but there are no details. Besides the mainstream
    AmeriCorps programs, what other activities, what amount of
    funding does the Corporation expect to provide in supporting
    U.S.A. Freedom Corps initiatives? Do you expect to fund the
    President's Council on Service and Civic Participation? What
    are you going to do? Where are you going to spend the money,
    please?
        Dr. Lenkowsky. Senator, we work very closely with the
    Freedom Corps, which as you know is a White House Coordinating
    Council aimed at implementing the President's call to service.
    Everything we do with the Freedom Corps is completely
    consistent and, indeed, adds to the value of the Corporation's
    own programs within that larger context.
        In our operating plan which we have submitted to this
    committee we have identified--I think it is a good thing to ask
    us to identify this and I am glad we have now established that
    procedure--the items that we expect to spend on Freedom Corps
    in 2003. They do include the Council. They will include support
    for the 800 number, the web site, things like that. They will
    include some collaborative research efforts aimed at gauging
    some of the motivations that may or may not affect the
    willingness of Americans to volunteer.
        As we go forward in 2004, we would expect to do exactly the
    same with you, which is to identify within an operating plan
    context what items within our budget will be part of our
    collaborations with Freedom Corps.
        Senator Bond. If you expect to get the money for this
    collaboration in 2004 we do not want to wait until sometime in
    2004, after we pass the budget, to get your operating plan. We
    need to know now what you plan to do, how you plan to support
    it, where you plan to spend the money. This should be part of
    your budget submission to us so we know what you plan to do.
    Just telling us you are going to collaborate does not get it.
        Dr. Lenkowsky. We will provide that information to you as
    we know it. As you can appreciate, Senator, in the course of
    the year, especially with the new effort like the President's
    call to service, there are things that are developing, but I
    think we have established the procedures so that as soon as we
    are aware of potential collaborations we will make sure this
    committee is.

                    FISCAL YEAR 2004 CHALLENGE GRANT REQUEST

        Senator Bond. Well, if you want us to fund them, you need
    to tell us about them in the process.
        My last question, Dr. Lenkowsky, on challenge grants. We
    provided in the 2003 budget $6 million for new challenge grants
    because we think that having you decide among all of the worthy
    recipients is the best way to do it. We provided funds in
    response to huge demands and earmarked requests from Teach for
    America, Girl Scouts, National Mentoring Partnership, to name a
    few.
        I am very disappointed the administration zeroed out this
    program and instead added a new earmark of $3 million for Teach
    for America. Why do you not want to be able to make the
    judgments on how the work of these many worthwhile groups will
    best complement the objectives of the Corporation for National
    Service, and does this mean now that OMB, which criticizes
    Congress for earmarking, now OMB believes that we should be
    earmarking? Do you know what is going on there?
        Dr. Lenkowsky. I do. I think this was a quirk of the
    unusual budgeting process we had in the past year. At the time
    we were putting in the 2004 request we did not have, as you
    know, the 2003 request in place. Consequently, as we discussed
    this with OMB we were advised that they did not want to put a
    number in, not knowing if Congress would have put the $6
    million in. Let me say to you that now that we have the $6
    million in there, we are prepared to work with this committee
    to put in the challenge grant provision with funding in the
    future.
        I should also add we did issue a request for proposals
    under the $6 million challenge grant. The response has been
    extraordinary. It exceeded our expectation in terms of letters
    of intent to apply, and we are hoping to make the first awards,
    and we will be notifying you well in advance of who those
    awardees will be. I believe our timetable might even be as
    early as next month, or perhaps early June, but it is very
    quick.
        Senator Bond. Well, number 1, you knew what the
    appropriations bill was going to be because you saw the bills.
    Essentially we did the bills last summer and then we finally
    got them passed, so you knew what was coming.
        Number 2, I have no doubt that the total requested is
    probably far beyond $6 million. I would like to know what you
    see the total is, what your estimate of the worthy ones is, and
    what you think we should set aside, because we have got to have
    a number in it. We have got to take money and put it in this
    Challenge Grant Program to the extent that it really performs a
    necessary service for the Corporation, and if you can do well
    through those, it seems to me to be a good idea.
        So what is the total, what do you estimate we need, and
    what do you request for 2004?
        Dr. Lenkowsky. I will be able to give you a better answer
    to that when we see the proposals. Right now, we do have
    letters of intent to apply. I do not have in front of me the
    data. I believe we have shared the RFP with the committee
    staff. If not, we will, and as soon as we get that information
    together I will be glad to supply it to you.
        Again, with respect to the budget process, I can assure you
    that in our discussions with OMB the Corporation did emphasize
    the value of the Challenge Grant Program. We are very excited
    by it.
        Senator Bond. I would like to know how much you can use. My
    staff did find it on the web, so it did not come from you.
        Senator Mikulski.

                            ADMINISTRATION EARMARKS

        Senator Mikulski. Thank you very much, Mr. Chairman. I
    would like to follow up on that, because first of all we like
    Teach for America, but we also note that there is more money in
    here earmarked by the White House for Points of Light, we
    understand its historic point of interest to this
    administration and the role that it has played.
        Then we earmarked something for America's Promise, which
    was started by General Powell, now Secretary Powell. There is
    very little anecdotal evidence that this has had very much
    traction. I am not a real enthusiast of America's Promise, only
    because I do not know what it has done. I am not going to argue
    with it. I would argue why should they get $7.5 million, but
    let's go to the challenge grants. How many proposals did you
    get?
        Dr. Lenkowsky. Right now we are at the stage of the process
    where we are soliciting letters of intent to submit proposals.

                           CHALLENGE GRANT PROPOSALS

        Senator Mikulski. But you said it was overwhelming.
        Dr. Lenkowsky. We have received 60 of them. At last count
    from the program officer responsible, she told me she had 60
    letters of intent to apply. I believe that is the stage we are
    at.
        Senator Mikulski. Okay, so that would be 60, and then
    roughly what were they applying for?
        Dr. Lenkowsky. I believe the minimum grant we are going to
    give is $500,000.
        Senator Mikulski. And what is the maximum?
        Dr. Lenkowsky. The maximum grant level is $3 million. I am
    also told, by the way, that many of these are organizations
    that are not otherwise engaged in working with the Corporation,
    so we are really reaching out.
        Senator Mikulski. Well, let us go back, then, to the
    intent. Well, so just using this sum already, Mr. Chairman, we
    are talking $20-30 million.
        Senator Bond. If you only gave half of them----
        Dr. Lenkowsky. If they only applied for half, it is
    probably $20-30 million.
        Senator Mikulski. That is exactly right, and if you recall
    last year, just in our subcommittee, we received $40 million in
    requests, and they were all bona fide requests. These were the
    Scouts, the Boys and Girls Clubs, bona fide track records, and
    they had a track record for criteria. First of all they were
    national organizations. They have national organizations with
    local delivery systems. They therefore came there with their
    own financial dowry. We were not their bankroll.
        The other thing is that they had an organized, systematic
    way of recruiting and training volunteers that we thought was
    great. Boys and Girls Clubs do background checks to make sure
    the kids are safe. We know what the Girl Scouts do. We know
    what Teach for America does, that they have to be fit for duty
    to be in the classroom.
        So I am glad that you are hearing, they are new, but the
    whole idea of the challenge grant was to do this. Number 1, get
    us out of the earmark business so that we did not all come with
    our teachers' pets. I have some of my own, so does Senator
    Bond, et cetera, so that earmarks were not based on, who is our
    teacher's pet.
        We all agreed Teach for America was a teacher's pet, but at
    the same time our criteria was that these were national in
    scope but local delivery, and yet we could count on them for
    the way they recruited, screened, and trained volunteers, that
    there would be a consistency, not necessarily uniformity,
    because we want responding to the local context, but there
    would be consistency in those volunteers so we could have
    confidence in them.
        So it was to get us out of the earmark business and it was
    putting us into helping these groups of national scope, coming
    with their own matching funds, and they had that
    infrastructure. I would hope we would stick to this and not
    think about breaking new ground. Was that your understanding?
        Dr. Lenkowsky. That is exactly our philosophy. We are very
    excited----
        Senator Mikulski. I am not talking about philosophy. I am
    talking about real criteria here.
        Dr. Lenkowsky. Yes. We are beginning the review process now
    and I think----
        Senator Mikulski. Is that your criteria?
        Dr. Lenkowsky. Those will be the criteria.
        Senator Mikulski. Is that currently your criteria?
        Dr. Lenkowsky. I think those criteria are stated in the
    RFP, and again we will make that available for you if you do
    not have it.
        Senator Mikulski. No, I want you to know what your own
    criteria is.
        Dr. Lenkowsky. Oh, they are certainly my criteria,
    absolutely.
        Senator Mikulski. So you see what the intent was, and I
    believe the criteria--I think as a National Service expert,
    would you agree that that is the sound criteria for challenge
    grants?
        Dr. Lenkowsky. Absolutely.

                   FINANCIAL MODEL: LARGE CAP, MID CAP, IPOS

        Senator Mikulski. Okay. Now, let us go to something else.
    They were meant to be for large caps.
        Dr. Lenkowsky. That is right.
        Senator Mikulski. Okay. These were--when we looked--to use
    a financial model, the large cap, the mid cap, and the IPOs,
    the large cap were these national groups to be dealt challenge
    grants. The money that goes to States that Governors would be
    mid cap. Then we had what we call the IPO. These were the small
    start-up groups that through, hopefully, a Board exercising due
    diligence in your professional capacity would identify small
    groups that were the Teach for America of a decade ago, the
    City Year of a decade ago. Now, where are we with that $4
    million? Where are you with that, and do you agree that that is
    the criteria that is meant to be identifying small groups that
    are emerging? Will you even want to test it to see, are these
    the groups of the future, so that they can then go to a
    Governor, go to a United Way, et cetera?
        Dr. Lenkowsky. I agree completely. We received a letter
    from you, Senator, and from the chairman a few days ago. I
    immediately convened a meeting of our program staff. We had
    that meeting yesterday and began to work on this. Obviously,
    there is going to be a lot of outreach involved, a lot of
    technical assistance. There are a number of questions we had
    which I believe our Congressional Affairs Office will be
    discussing with committee staff about such things as can we use
    some technical assistance money within that grant amount to
    help nurture some of these start-ups.
        Senator Mikulski. We want to know what you think, though.
        Dr. Lenkowsky. I agree completely with your philosophy.
        Senator Mikulski. Well, what do you think we need to do----
        Dr. Lenkowsky. I think we need to----
        Senator Mikulski [continuing]. And do you think, number 1,
    is it worth the $4 million public shot, and what do you think
    it ought to be?
        Dr. Lenkowsky. Well, as we discussed----
        Senator Mikulski. What does that Board think it ought to
    be?
        Dr. Lenkowsky. The Board has not had an opportunity to
    review this yet, again, because this came in the 2003
    appropriation. We have not had a Board meeting since then.
        Senator Mikulski. Well, what do you think about it?
        Dr. Lenkowsky. We will be reviewing it in May.
        Senator Mikulski. What do you think about it?

           OUTREACH TO ORGANIZATIONS THAT SERVE IMMIGRANT POPULATIONS

        Dr. Lenkowsky. I think that what we need to do is identify
    areas or kinds of organizations where we ought to be reaching
    out and seeing whether--for example, one I mentioned, we have
    got a lot of new immigrants in this country.
        Senator Mikulski. Right.
        Dr. Lenkowsky. And it is not obvious to me--I have met with
    a couple of groups--that the traditions of service, if you
    will, are as well-established in immigrants from countries
    where there was not that tradition, and so what I suggested, as
    our program staff begins to work on this, we identify a couple
    of specific areas, proactively go out, go talk to existing
    organizations, talk to experts in the field, see where the
    needs are, and then see what we can do to help nurture, if it
    needs to be nurtured, a new generation of service.
        Let me give you one example that we already did which is a
    little bit--it is not quite a new organization, but I think it
    is close in concept. Early in my tenure I visited a remarkable
    organization called ACCESS. It is the Arab Community Center for
    Economic and Social Services in Dearborn, Michigan. It is a
    settlement house for Arab Americans and, as you probably know,
    there are more Arab Americans living in the Detroit area than
    in any part of the world except the Middle East and France, and
    it was a wonderful operation.
        Senator Mikulski. What is it doing?
        Dr. Lenkowsky. It is a settlement house, so it does
    everything from teaching English to people seeking jobs, health
    services--one thing the settlement----
        Senator Mikulski. Could I interrupt? First of all, we
    certainly do want to reach out to Arab Americans and to the new
    immigrant populations, but is this, by going to this settlement
    house, the potential for a national movement here?
        Dr. Lenkowsky. Well, that is exactly what we have already
    done. In advance of this grant they came in and successfully
    received a grant to replicate in a few other communities what
    they were doing successfully in Dearborn, and that is precisely
    the philosophy that we will be----

                               BOARD OF DIRECTORS

        Senator Mikulski. Okay. I do not mean to be brusque, but my
    red light has been flashing for some time. I just want to say
    this. I am really frustrated, and what I feel is that Senator
    Bond and I have been the Board. We have come up, working with
    you, with the idea of the challenge grants, we have come up
    with the seed grants, we then have to give guidance and
    criteria--I feel like we have been the Board.
        Now, the people did elect us in many ways to function, but
    I am very frustrated. That is what a professional staff is
    supposed to be doing, that is what a Board of Directors is
    supposed to be doing, and if we are going to be the Board, then
    we will be the Board, and then you do not need a Board, and I
    am pretty hot about this.
        Senator Bond. Thank you very much, Senator Mikulski. I
    would just point out that there should be criteria in a sense
    for the national challenge grants, since it was requested in
    2003, the $6 million was in response, I guess, to a $10 million
    budget request, so it should not come as a surprise to anybody
    that there is a program that needs to have grants, and I would
    also second what Senator Mikulski had to say about what great
    performance we are seeing from Teach for America. We wonder why
    that had to be earmarked, why the Corporation was not taking
    care of it, and I will be quite honest, I have heard nothing
    but questions about America's Promise and what it is actually
    accomplishing, so we are going to be taking a look at those.

                         ADDITIONAL COMMITTEE QUESTIONS

        Well, we do have a number of more questions, obviously that
    we will have to submit for the record. We have another part of
    this hearing. We thank you very much, Dr. Lenkowsky, Ms.
    Guillermin, and Mr. George, and I guess we will be seeing lots
    of you in the weeks and months to come. Thank you.
        Dr. Lenkowsky. Thank you very much, Mr. Chairman.
        Mr. George. Thank you.
        [The following questions were not asked at the hearing, but
    were submitted to the Corporation for response subsequent to
    the hearing:]

               Questions Submitted by Senator Christopher S. Bond

                                 ACCOUNTABILITY

        Question. In Mr. George's testimony, he ``found that Trust
    liability projections were not being made by Trust staff, but by a
    senior-level official in the Corporation's Executive Office.''
        Dr. Lenkowsky, it is clear that this ``senior-level official''
    should not have been making Trust liability projections. How have you
    responded to this finding? Have you taken any disciplinary action? Will
    you take disciplinary action if the IG or GAO investigations identify
    more problems?
        Answer. The ``senior-level official'' held the position of
    Director, Office of Planning and Program Integration. A career
    government employee, he was reassigned in November 2002 to the staff of
    the Department of Research and Policy Development and retired at the
    beginning of May 2003. The Office he headed has been eliminated and
    Trust liability projections are now the responsibility of the Chief
    Financial Officer.
        I have already advised the IG that I intend to take additional
    personnel actions depending upon the outcome of that investigation. I
    will also act upon any findings or recommendations that emerge from the
    GAO investigation.

                               USA FREEDOM CORPS

        Question. The Corporation plays a significant role in supporting
    the USA Freedom Corps' activities. The Corporation's budget
    justifications for fiscal year 2004 indicate that ``collaboration will
    continue with USA Freedom Corps.'' However, there are no details.
        Besides the mainstream AmeriCorps programs, what other activities
    and what amount of funding does the Corporation expect to provide in
    supporting USA Freedom Corps initiatives? For example, do you expect to
    fund the President's Council on Service and Civic Participation? If so,
    how much money do you expect to provide to the Council in fiscal year
    2004?
        Answer. The Corporation participates in activities related to
    National Service jointly with other agencies, which are many times,
    coordinated through the USA Freedom Corps (USAFC). In 2002, the
    Corporation spent approximately $371,000 on such activities, which
    include co-sponsorship of a toll-free number which directs potential
    volunteers to the National Service Programs and publishing of the
    Record of Service Journal, which allows volunteers to record their
    lifetime service experiences. In 2003, the Corporation plans to
    participate in a number of activities coordinated through USAFC as well
    as a number of activities in which USAFC is nominally involved. These
    include continued sponsorship of the toll-free number and websites, the
    White House Task Force on Disadvantaged Youth, the White House Forum on
    Civics, History and Service, as well as the President's Council on
    Service and Civic Participation. While USAFC participates in the
    President's Council, it is important to note that the Council is housed
    at the Corporation pursuant to Executive Order 13285. The direct costs
    of these programs total approximately $740,000.
        In 2004, the Corporation will continue to participate in activities
    in which USAFC is involved. However, these items are included in the
    Innovation, Assistance and Other Activities funding stream (H Funds),
    the level of which has yet to be determined by the fiscal year 2004
    appropriations.

                              PERFORMANCE MEASURES

        Question. The fiscal year 2003 appropriations bill directed the
    Corporation to establish performance measures for each grantee, require
    each grantee to submit a correction plan should the grantee not meet
    the measures, and reduce or terminate any award where the grantee does
    not meet the performance plan.
        Please tell us how you have implemented these directives.
        Answer. In 2002, the Corporation launched a major initiative to
    work with applicants and programs to strengthen the accountability and
    performance of organizations receiving funds under the National Service
    laws. The Corporation restructured its evaluation office, creating a
    new Department of Research and Policy Development (RPD) reporting
    directly to the Chief Executive's Office. RPD is leading an intensive
    effort to measure the performance of federally funded community service
    programs. The performance measurement initiative will take several
    years to fully implement, and will provide an ongoing assessment of the
    short- and long-term effects of community service on volunteers, host
    organizations, individual beneficiaries and communities. This
    initiative is essential to enable the Corporation to fulfill its
    mission of achieving direct and demonstrable results. The Performance
    Measurement Initiative affects all programs under the Corporation's
    umbrella: AmeriCorps (AmeriCorps*State and National, AmeriCorps*VISTA
    and AmeriCorps*National Civilian Community Corps) and Senior Corps
    (Foster Grandparents Program, Senior Companions, and the Retired and
    Senior Volunteer Program); and Learn and Serve America (school- and
    community-based programs for young people).
        The Corporation's Performance Measurement Initiative has six major
    components:

        1. Department of Research and Development (RPD).--In 2002, the
    Corporation's CEO, Leslie Lenkowsky, created a Department of Research
    and Policy Development, which absorbed the old evaluation division and
    assumed a broader mandate to link program evaluation to policy design.
    At the heart of RPD's mission are (1) monitoring and evaluating program
    expansion and developing policy-relevant research to assure
    accountability, quality and continued innovation in policies and
    programs; and (2) documenting compliance with the Government
    Performance and Results Act to encourage a culture of outcome-based
    management.

        2. Comprehensive Review of the Corporation's Performance
    Measurement Systems.--To lay the foundations for this initiative, the
    Urban Institute, a leader in the field of performance measurement,
    completed a review of the Corporation's performance measurement systems
    and provided recommendations for improvement in July 2002. The report
    identified several weaknesses in the Corporation's performance
    measurement system including: few programs had performance indicators
    in their budget estimates or performance plans and many indicators that
    did exist were designed to measure outputs (statistics) rather than
    outcomes and results. The Urban Institute recommended that the
    Corporation revise this performance measurement system to make them
    more results oriented and require grantees to identify specific
    performance indicators to track their performance. The Corporation has
    adopted the report's recommendations and is revising the performance
    indicators and requiring grantees to identify specific indicators on
    which they will collect regular data to report on their performance
    beginning with applications filed in fiscal 2003.

        3. Development of Internal Performance Measures.--RPD is leading
    the effort to implement performance measures within the Corporation, as
    well. Each major program and department, from Congressional Affairs to
    RPD itself, has devised outcome indicators to help department heads
    manage for performance. In developing the Fiscal Year 2004 Budget, the
    Corporation completed the new Program Assessment Rating Tool (PART) for
    the AmeriCorps program, and currently is implementing reforms to
    address finding and recommendations to improve the program's
    effectiveness rating.

        4. Performance Measurement Requirement for Grantees.--Each grantee
    (and sub-grantee) is now required to identify 3-5 performance measures
    and then collect, in a regular and systematic way, the quantitative
    data for those measures. Under the new protocol, short- and long-term
    outcome measures are required. In addition, service programs are
    required to report the data to the Corporation. Under the new
    management system, each of the three principal actors in a service
    setting will assess the others. These three actors are the service-
    corps member/volunteer, the non-profit administrator overseeing the
    volunteer, and the beneficiary of the service. Their collective
    feedback will count in funding decisions.

        5. Creation of a Performance Measure Toolkit.--The Corporation
    contracted to develop a Performance Measurement Toolkit to help
    grantees understand performance measurement concepts, provide
    information on how performance measurement can be applied to National
    Service programs, and help potential applicants for funding respond to
    the performance measurement requirements of the application process.
    The toolkit was completed in late 2002 and disseminated to the field in
    early 2003. The toolkit also contains an explanation of how to use a
    logic model to structure National Service programs, identify the key
    program elements that must be tracked to assess the program's
    effectiveness, and improve program planning and performance by
    identifying the ways to measure program results and areas for
    improvement. The Corporation also provides training and technical
    assistance on performance measurement to all Corporation program staff,
    State commissions, organizations receiving funding, and organizations
    interested in submitting an application for funding.

        6. Introduction of Performance-based Grant Making.--Rather than
    spreading service funds around and hoping that the outcome will be
    good, the Corporation will tie future grants to documented performance.
    Low-performing grantees that are unable to improve will not have their
    grants renewed. First-time applicants will have to provide the
    Corporation with a solid, workable performance-measurement plan.
    Equally important, performance data will be shared with the public,
    including beneficiaries and prospective volunteers, to spur
    improvements by programs.
        This year we are devoting approximately $3.8 million in contract
    support to strengthen program measurement at the local level, to
    develop standard instruments that local organizations may use, to
    provide training to local organizations, and to collect certain basic
    data concerning the impact of these programs.
        In addition to these amounts, a significant percentage of staff
    time at the Corporation is devoted to monitoring and assessing the
    impact of local programs, as well as providing support in how to
    implement performance measures. This staff time does not represent
    additional costs, but is a shift in focus. We think this shift is
    justified and is critical to strengthening national and community
    service programs.

                                 SUSTAINABILITY

        Question. Last year, I raised the question about sustainability
    because of my concerns about the Corporation funding the same
    organizations every year.
        Dr. Lenkowsky, how have you addressed sustainability, especially in
    terms of reducing grantee reliance on Federal funds?
        Answer. The Senate Appropriations Committee, Subcommittee for VA/
    HUD-Independent Agencies, in action on the budget for fiscal year 2003,
    directed the Corporation for National and Community Service to provide
    a report that details its efforts to measure a grantee's reliance on
    Federal funding and to reduce grantee reliance on Federal funds both in
    terms of total Corporation resources provided to grantees, and as a
    percentage of grantee operating costs.
        This report was submitted to the subcommittee in May, 2003. In
    general, the Corporation is committed to supporting programs that are
    sustainable and has made a number of recent policy changes to achieve
    the objective of reducing reliance on funding (other than education
    awards) from the Corporation. These policy changes are described in
    detail in the attached report.

                              ``CHALLENGE'' GRANTS

        Question. The fiscal year 2003 appropriations bill provided $6
    million for a new challenge grants program. We provided funds for this
    new program in response to the huge demand of earmark requests from
    groups like Teach For America, Girl Scouts, and the National Mentoring
    Partnership, to name a few. I am disappointed that the administration
    zeroed out this program and added a new earmark of $3 million for Teach
    for America.
        Can you give me a status of this year's challenge grants program?
    How many applications have you received and how many do you expect to
    fund?
        Answer. The Challenge Grant Notice of Funds Availability (NOFA) was
    printed in the Federal Register on March 25, 2003 with an April 10,
    2003 deadline for applications. We received 53 applications. During the
    first stage of the review process, the compliance review, we determined
    that 38 applications were compliant and these were sent to the first
    round of review. Most of the non-compliant applicants had an
    insufficient match.
        Thirty-eight applications were reviewed in the first round of
    review. Twenty-one were sent to the next round of review which is
    currently in progress. With $6 million in the 2003 appropriation, and a
    minimum request of $500,000, we can make up to 12 grants. The CEO will
    receive the final recommendations of the review committee in early June
    and plans to notify the Senate and House Appropriations Subcommittees
    on VA/HUD and Independent Agencies by the third week of June, prior to
    the notifications going to awardees.
        Question. Regarding Teach for America, I understand that despite
    their great performance, they continue to receive the same level of
    funding year-in, year-out. If an organization like TFA is performing
    well and is experiencing a greater demand for its program, why is it
    not able to receive more funds?
        Answer. Teach for America has done an excellent job of leveraging
    its AmeriCorps funding with significant private and non-Federal
    support. In 2002, about 10 percent of its total operating budget comes
    from the Corporation ($1.6 million). In addition, every member of Teach
    for America is eligible to earn an education award. As demand for the
    program grows and it enrolls more members, the Corporation commits more
    funding for these awards. In fiscal year 2002, Teach for America
    received $19.7 million in private support from corporations,
    foundations and individual giving and events which represents 74
    percent of TFA's total revenue.
        With regard to Corporation support in previous years, Teach for
    America received the following Corporation grants between 1994-2002:

    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    1994-1998:
        National Direct Programs.........................         $8,433,000
    1999:
        National Direct Programs.........................          1,433,000
    2000:
        National Direct Programs.........................          1,632,970
                                                          ==================
    2001:
        State Competitive Programs.......................            269,230
        National Direct Programs.........................          1,725,400
                                                          ------------------
          Subtotal.......................................          1,994,630
                                                          ==================
    2002:
        State Competitive Programs.......................            268,921
        State Formula Programs...........................            100,000
        National Direct Programs.........................          2,798,201
                                                          ------------------
          Subtotal.......................................          3,167,122
                                                          ==================
          Total..........................................         16,660,722
    ------------------------------------------------------------------------

                             COST ACCOUNTING SYSTEM

        Question. For several years, I have asked the Corporation to
    develop a cost accounting system so that we can have actual cost data
    on its programs and grants. Last year, PriceWaterhouseCoopers (PWC)
    assessed the Corporation's implementation of its new cost accounting
    system and it recommended that the new system is refined to calculate
    cost per grant or cost per grant dollar.
        What is the status of your new cost accounting system? When do you
    expect to be able to provide us with actual cost data on your programs?
        Answer. During fiscal 2001, the Corporation implemented a cost
    accounting application that enables the Corporation to track and report
    expenses by major program. The Statement of Operations and Changes in
    Net Position contains comparative expense information by program. This
    application is the mechanism by which the Corporation determines the
    total cost to operate each of its three major programs: AmeriCorps,
    Learn & Serve, and National Senior Service Corps. Support and
    administrative costs are allocated to each of the programs based on a
    systematic and rational cost driver. During fiscal 2002, an independent
    contractor, PriceWaterhouseCoopers, determined that the Corporation's
    cost accounting application is in compliance with the Federal
    Accounting Standards Advisory Board's Statement of Federal Financial
    Accounting Standards Number 4, Managerial Cost Accounting Concepts and
    Standards for the Federal Government. This accomplishment places the
    Corporation ahead of many Federal entities in achieving compliance with
    the cost accounting standard.
        In 2002, we implemented recommendations from PWC to add
    functionality to the model to calculate the administrative cost per
    grant or administrative cost per grant dollar so that we can monitor
    and measure improvements in administrative cost management over time.
    These changes, coupled with full implementation of the eGrants system
    (expected in late 2003) will allow the Corporation the first
    opportunity to fully apply the new model to reliable data and perform
    cost accounting on our actual experience.

                           LEVERAGING MORE VOLUNTEERS

        Question. The Corporation added a new criterion in its AmeriCorps
    application process that takes into account the leveraging of
    additional volunteers. I am a big supporter of this because I believe
    the AmeriCorps program can be more effective by focusing more on
    ``wholesale'' activities instead of ``retail'' activities.
        Please provide an update on how you have addressed this matter.
        Answer. A fundamental purpose of AmeriCorps is to help recruit,
    support, and manage the networks of volunteers assisting nonprofit
    organizations in meeting community needs. By creating volunteer
    opportunities and helping organizations to effectively engage
    volunteers, AmeriCorps programs multiply their impact, build
    organizational capacity, and support the development of sustainable
    programs. Volunteering also provides an ideal opportunity to bring
    together people of many racial, ethnic, and religious backgrounds
    around a common goal and to foster the active citizenship upon which
    the health of our democratic system depends.
        We have increased our emphasis on supporting programs that engage
    volunteers in their activities. Accordingly, our guidelines for the
    2003 award competition state that successful applicants will be those
    that address how their AmeriCorps program will effectively engage and
    support volunteers in meeting community needs and staff reviewing
    applications have been asked to report on proposed uses of volunteers.
        The Corporation is also developing a process to standardize
    reporting procedures for volunteer leveraging and create uniform
    definitions for counting community volunteers and across programs. We
    will develop these measures in consultation with grantees. For example,
    the Corporation is interested in creating standard definitions or
    categories of community volunteers based on the level of service they
    contribute. We are also exploring a standard approach to assessing
    AmeriCorps members' involvement in or contribution to the recruitment
    of volunteers.
        Although programs will have the flexibility to determine the best
    approach to volunteer recruitment and management based on their program
    design and local characteristics, all programs are expected to include
    volunteer recruitment as one of their 3-5 performance measures. We
    understand that not every program may be able to meet this requirement,
    particularly in the first year. If a program is unable to include
    volunteer recruitment and management, they are required to include an
    explanation in their application. We will consider volunteer
    recruitment (and/or the explanation for not including this element)
    during the grant application review process.

                                REAUTHORIZATION

        Question. Both Senator Mikulski and I sit in a unique position to
    address the policy and programmatic issues of the Corporation since we
    both sit on its authorizing and appropriations committees.
        Do you expect to submit a reauthorization bill this year? Do you
    have any specific legislative proposals that would help strengthen the
    Corporation's management practices?
        Answer. We have had indications of intent, from the House and
    Senate authorizing committees, to introduce reauthorization bills
    during this Congress. We anticipate that both bills would use HR 4854,
    passed by the House Education and the Workforce, Subcommittee on Select
    Education in the 107th Congress, as the basis for their bills this
    year. Among the management-strengthening measures included in HR 4854
    are:
      --Emphasis on establishment of grantee performance measures including
            corrective action or termination for noncompliance.
      --Requirements to contain costs by capping grant costs per member.
      --Transfer of the Education Award Program from Subtitle H to C to
            make it an ongoing program of AmeriCorps. Including it in the
            grants program would provide additional flexibility managing
            all aspects of the program.
        HR 4854 also included two provisions that would strengthen the
    oversight of the Board of Directors of the Corporation. The first
    provision would allow Board members to serve until a successor is
    appointed and the second would establish a standard 5-year term for
    Board members. The Board has also expressed an interest in having
    authority to direct some staff at the Corporation; however, such direct
    authority would require a change in statute.

                                    LITERACY

        Question. I am a big supporter of child literacy mentoring and
    tutoring programs.
        How much funding support currently goes to the Corporation's
    literacy initiatives and what kind of results are we seeing?
        Answer. The Senate Appropriations Committee Report, in action on
    the budget for fiscal year 2003, directed the Corporation to ``continue
    at least the current level of support ($100,000,000) for programs
    designed to help teach children to read by the third grade.'' In fiscal
    year 2002, the Corporation awarded $113,987,656 in grants under its
    AmeriCorps State/National program to programs for which children's
    literacy is a major focus.
        As reflected in the Fiscal Year 2003 Guidelines, programs are
    required to conduct performance evaluations and report to the
    Corporation to ensure that Corporation-funded tutoring programs operate
    in the spirit of the No Child Left Behind Act. These policies are
    described below in ``Guidelines for 2003 Grants'' and ``Training and
    Technical Assistance for Tutoring Programs''.
        These policy changes will significantly enhance the standards by
    which our programs operate. Additionally, as with all grantees, the
    Corporation proposes to track the performance of programs whose
    participants engage in tutoring with the new system of performance
    measurement, which will be initiated for programs starting in fiscal
    year 2003. By doing so, the Corporation will establish not only that
    grantees are operating programs that are consistent with Federal
    guidelines, but also that the children being tutored actually increase
    their reading ability.
        In issuing 2003 guidelines for funding, the Corporation set forth
    new policies related to programs that teach and promote reading skills.
    Beginning with the 2003 grant award process, successful applicants must
    demonstrate that their tutoring programs address the following
    criteria:
      --Curricula;
      --Tutor training;
      --Outcomes; and
      --Standards for tutors.
        After grants are awarded, the Corporation will work with grantees
    to ensure that all funded tutoring programs make suitable progress
    toward the goal of increased child literacy. The following provides the
    sections related to tutoring and child literacy as set forth in the
    2003 grant guidelines (entire guidelines are attached): \1\
    ---------------------------------------------------------------------------
        \1\ [Clerk's Note.--This document has been retained in Committee
    files.]
    ---------------------------------------------------------------------------
    Overall Statement of Policy
        ``A significant percentage of programs supported by the Corporation
    provide tutoring and other support to assist children in learning to
    read. The No Child Left Behind Act, enacted by the Congress in 2001,
    sets new scientifically-based standards for programs in schools across
    the country. This year with Corporation funding, successful applicants
    will have to demonstrate that their activities incorporate
    scientifically-based approaches to reading. Specifically, programs
    proposing tutoring and other literacy activities should address
    curricula, tutor training, outcomes, and standards for tutors.''
        ``The Corporation recognizes that there are a wide variety of
    literacy activities being conducted by AmeriCorps programs, ranging
    from book drives to one-to-one tutoring programs. The above
    expectations apply only to those applicants engaged in tutoring or
    reading instruction in schools and related institutions such as
    nonprofit organizations running after-school programs.''

    Curricula
        ``Your application should describe curricula and tutoring
    strategies that are scientifically-based and include the five
    components of reading and reading instruction identified by the
    National Reading Panel OR demonstrate that the activities you conduct
    are part of a program in a school under the No Child Left Behind Act
    that provides individuals with systematic instruction and practice in
    the five basic reading components.''

    Tutor Training
        ``Tutor training should take place both before and during service
    and give tutors the skills and knowledge to support students' learning
    of the specific components of reading addressed in the report of the
    National Reading Panel  .  .  .  Programs may also, where appropriate,
    demonstrate school site participation in training design and
    implementation and/or evidence of linkages between the instructional
    program of the tutee's school district and content of tutoring sessions
    conducted after school.''

    Outcomes
        ``Your application should identify student achievement goals and
    show links between program objectives, tutoring activities, tutor
    training, and proposed strategies for achieving these goals. Applicants
    should address the approach they will use to measure outcomes.''

    Standards for Tutors
        ``Your program should identify any standards that you propose to
    use to qualify individuals as tutors. For example, some programs may
    screen individuals through a qualifications test; others may require
    enrollment in, or completion of, a reading course. Still others may
    require demonstration of certain academic skills, such as completing at
    least 2 years of college. During the coming year, the Corporation plans
    to work with organizations and programs to set standards for tutors.''

    Continued Training and Technical Assistance
        ``The Corporation will work with successful applicants to provide
    training and support to achieve effective tutoring programs and to
    maximize their impact on the individuals being served.''
        In addition to these guidelines, the Corporation commissioned a
    study by Abt Associates in 2001 to determine the impact of AmeriCorps
    literacy program, which is summarized below.
        Well-designed AmeriCorps programs impact early grade reading
    performance in school and in school readiness. A study of children in
    grades 1-3, completed in 2001, found that ``students participating in
    AmeriCorps tutoring programs improved their reading performance from
    pre-test to post-test more than the gain expected for the typical child
    at their grade level.'' \2\ In an assessment report from the Evaluation
    of the Jumpstart Program (2000-2001 National Composite), Shelby Miller,
    Ph.D. stated that the findings from the evaluation show significant
    program effects on the participating preschool-age children's language,
    social, and adaptive skills based on their teachers' assessments. While
    the program participants began the program year behind their non-
    participant peers in all areas, their teachers reported that they made
    significantly more substantial gains during the year than their
    counterparts.
    ---------------------------------------------------------------------------
        \2\ Abt Associates. 2001b. AmeriCorps Tutoring and Student Reading
    Achievement. Final Report. Cambridge, MA.

                               AMERICA'S PROMISE

        Question. I understand that your [IG] office is auditing America's
    Promise.
        Please tell me about the scope of the audit, audit completion date
    and report issuance date, and any preliminary findings. Lastly, please
    tell me how often the Federal Government audits the programs of
    America's Promise and how the Corporation monitors the performance of
    its programs.
        Answer. The Office of Inspector General had originally planned to
    perform a financial-related audit of Corporation funds awarded to
    America's Promise. However, the Office of Management and Budget (OMB)
    requires all Federal grant recipients that qualify as ``major
    programs'' to be independently audited on an annual basis. America's
    Promise qualifies as a ``major program'' under OMB criteria and,
    consequently, must perform an annual A-133 audit. In fiscal year 2001,
    the audit firm Grant Thorton conducted the A-133 audit of America's
    Promise and noted no matters involving noncompliance or internal
    control over financial reporting. Furthermore, no matters were noted
    involving noncompliance or internal control over the major programs
    that were considered to be material weaknesses.
        The Office of Inspector General reviewed the work performed by the
    Grant Thorton auditors and relied on their conclusions to avoid a
    duplication of effort. Therefore, our audit focused on determining
    whether America's Promise appropriately reclassified general costs as
    grant costs for fiscal year 2001. In addition, our audit examined
    fiscal year 2002 grant costs to ensure that they were allowable. Our
    audit was completed on March 17, 2003, and it questioned $23,432 of
    salaries, benefits, and travel costs. This amount is approximately .3
    percent of the $7,483,000 of costs claimed under the grant. The
    questioned costs were incurred prior to the effective date of the
    award. We also questioned $911 of interest earned on Federal funds. A
    copy of our audit of America's Promise is enclosed.
        On March 31, 2002, the Corporation issued its Proposed Management
    Decision and Notice of Final Action on the America's Promise audit. The
    $23,432 of costs incurred outside the grant period were allowed by the
    Corporation because the costs were allowable, related to the project,
    and incurred in accordance with the proposed budget program. The
    Corporation also determined that if America's Promise had requested the
    Corporation's permission prior to incurring these costs, the request
    would have been approved. America's Promise was informed that it must
    receive the Corporation's written consent before incurring costs
    outside the grant period. The $911 of interest earned on Federal funds
    was disallowed and repaid.
        With respect to your question of how often the Federal Government
    audits America's Promise, this organization, as noted above, qualifies
    as a ``major program'' according to OMB criteria and must perform an A-
    133 audit on an annual basis. The A-133 audit tests the grantee's
    system of internal controls to ensure that they are adequate to account
    for Federal funds. The A-133 audit also tests compliance with grant
    provisions and the allowability of grant costs.
        With respect to your question of how the Corporation monitors the
    performance of its programs, a Corporation staff member monitors the
    America's Promise grant as well as other earmark grants. This staff
    member receives progress reports from America's Promise and performs
    fiscal and programmatic monitoring.
        If I can be of further assistance, please do not hesitate to
    contact me. I look forward to working with you to achieve our mutual
    goal of making the Corporation a more efficient and effective
    organization.

                        PERFORMANCE OF AMERICA'S PROMISE

        Question. Our committee has appropriated well over $25 million to
    America's Promise to support their efforts in meeting the needs of at-
    risk youth.
        To what degree has America's Promise been able to meet its goals?
    What activities does America's Promise support with the appropriated
    funds (administrative expenses, grants to other nonprofit
    organizations, etc.)? What is the difference between America's
    Promise's activities and the Points of Light Foundation? Is there any
    duplication of efforts between these two organizations?
        Answer. The Corporation's grant to America's Promise supports
    operational costs of the organization, including personnel salaries and
    benefits, contracts to develop technical assistance materials, research
    and evaluation, travel, and supplies. It does not include any ``sub-
    grants'' to other nonprofit groups and all administrative expenses are
    in areas permissible for Federal grant funds.
        America's Promise recently provided Congress, including the
    subcommittee, with a report that had been requested concerning its
    activities and accomplishments. This provides a comprehensive picture
    of the current status of the effort to achieve the ``Five Goals'' to
    youth. The Corporation for National and Community Service has not
    conducted an evaluation of the effectiveness and accomplishments of
    America's Promise. However, America's Promise has begun to take a more
    focused approach to its work, focusing on a limited number of specific
    communities and building on successful ``Communities of Promise.'' This
    seems realistic and avoids the diffuse approach that may have
    characterized early efforts of the organization.
        A major difference between America's Promise and the Points of
    Light Foundation is that America's Promise focuses, as stated in the
    subcommittee's question, on meeting the needs of children and youth.
    Citizen volunteer service is one important strategy in meeting these
    needs through reaching the ``Five Promises'' to youth identified by
    America's Promise. The Points of Light Foundation promotes and supports
    citizen volunteering directed at the entire spectrum of national and
    community needs including but not limited to those of children and
    youth. The Foundation supports volunteering by youth, and in support of
    youth, but the efforts of the two groups complement rather than
    duplicate one another.

                        MULTIPLE FEDERAL FUNDING SOURCES

        Question. The Corporation funds a number of organizations that also
    receive funds from other Federal agencies. For example, Habitat for
    Humanity and YouthBuild receive funding from both CNCS and the
    Department of Housing and Urban Development.
        How many CNCS grant recipients currently receive funds from other
    Federal agencies? Please provide me a top ten list of organizations
    that receive funds from multiple Federal funding sources. Please rank
    the organizations based on the amount of dollars they receive from the
    Federal Government.
        Answer. The Corporation is committed to supporting programs that
    are sustainable and has made a number of recent policy changes to
    achieve the objective of reducing the reliance on funding from the
    Corporation. Funds from Federal sources other than the Corporation may
    be used as matching funds for the operating costs of AmeriCorps State
    and National programs. Pursuant to OMB Administrative Requirements, the
    Corporation requires that verifiable records on match be retained by
    grantees for audit purposes.
        The 2003 application guidelines include a new requirement that
    nonprofit organizations make available to the Corporation more detailed
    information about the finances of the organization, including their
    sources of funding, either through copies of annual financial
    statements or IRS information returns. However, other than funds
    claimed as match for its grants, the Corporation does not keep records
    on the funds that its grantees receive from other Federal agencies.
        Should the committee instruct the Corporation to report such
    information, the Corporation would be required to seek direction from
    the Office of Management and Budget. However, the Corporation is
    currently examining alternative data sources for gathering this
    information. Options include using IRS Form 990 data (Return of
    Organization Exempt from Income Tax), instituting special surveys, or
    imposing additional reporting requirements upon Corporation grantees.
        We would be glad to discuss this issue further with the committee.
                           DEPARTMENT OF THE TREASURY

               Community Development Financial Institutions Fund

    STATEMENT OF TONY T. BROWN, DIRECTOR
    ACCOMPANIED BY:
            LINDA DAVENPORT, ACTING DEPUTY DIRECTOR FOR POLICIES AND
                PROGRAMS
            OWEN JONES, DEPUTY DIRECTOR FOR MANAGEMENT AND CHIEF FINANCIAL
                OFFICER

        Senator Bond. Mr. Brown, if you will go ahead and take your
    seat, Senator Mikulski will be back in just a few minutes--she
    had to make a call--so we will save the important part, like
    your testimony, for her return. I will get my comments out of
    the way so we can get on with that.
        We welcome Mr. Tony Brown for the second panel. He is the
    Director of the Community Development Financial Institutions
    Fund, who has joined us this morning to testify on the
    President's fiscal year 2004 budget request.
        While the CDFI Fund is one of our smallest agencies within
    VA-HUD, it is responsible for a number of very important
    programs which are designed to make credit and capital
    available in distressed rural and urban neighborhoods through
    financial institutions. In addition, the CDFI Fund is now
    responsible for the New Markets Tax Credit program, which makes
    tax credits available for leveraging private dollars and
    investments in low-income communities.
        I am disappointed in the President's budget that only
    requests $51 million for the CDFI Fund in 2004. This is a
    reduction of some $17 million from the $68 million requested
    for 2003 and a reduction of some $23.5 million from the fiscal
    year 2003 enacted level of $74.5 million, and while I
    understand CDFI's position that this is essentially level
    funding for the CDFI program, as to the amount of funds that
    can actually be used in 2004 by CDFIs, I am not convinced that
    the fund cannot implement reforms that will ensure a more
    effective use of funds by CDFIs.
        I know we have many low-income communities without adequate
    access to credit and capital, especially communities in rural
    America and in Native American areas, and without these CDFI
    resources many of these communities will continue to be
    economically distressed and stagnant.
        I am also concerned about the budget request of only $8
    million for the Bank Enterprise Award Program for 2004. I
    understand that this reduced funding is consistent with
    perceived BEA funding needs as new regulations for the program
    are being implemented. Nevertheless, this has been a very
    successful program. For example, the Central Bank of Kansas
    City has used some $2.4 million in BEA grants over the last 7
    years to leverage $15.3 million for lending activities, and
    that lending has translated into 282 units of affordable
    housing, created or saved 525 jobs, and created or assisted
    some 148 small businesses in the most distressed communities of
    Kansas City.
        The Central Bank has made a tremendous difference in the
    lives of many low-income families. Nevertheless, I understand
    that the 2004 funding request of $8 million for 2004 may mean
    that the Central Bank will get significantly reduced or no
    funding, and that any funding provided will not be consistent
    with its level of commitment to the BEA Program. I do not like
    to think that we may be turning our backs on successful CDFIs
    like the Central Bank, and I need to understand why we should
    underfund these important financial institutions.
        I also have some questions about the New Markets Tax Credit
    program. I know we are asked to appropriate $13 million just
    for administrative costs for the New Markets program, and the
    program itself is responsible for allocating $15 billion worth
    of tax credit investments which will be used to leverage
    private capital to invest in low-income communities.
        I am unhappy, however, that the CDFI Fund is beginning to
    turn its back on funding CDFIs with their mission of making
    capital and credit available in distressed communities. This is
    a vital need that the New Markets program will not meet.
    Instead, the New Markets program is so broadly defined that the
    eligible communities include 32 percent of the U.S. population
    and nearly 40 percent of the land area. I am not sure how the
    CDFI Fund will be able to ensure accountability, exercise
    oversight, or measure success. We are going to need answers for
    all those concerns.
        Finally, I am especially concerned about the fund's effort
    in addressing distressed communities in rural areas. Many
    members of this subcommittee share my concern, and I do have
    many of those communities I have visited throughout Missouri.
    They are economically distressed, and we work hard to help
    distressed areas of large cities, but the economic distress in
    some of the rural areas is even more pronounced and even more
    hopeless than we find in some of the cities. I would like to
    hear how the fund plans to continue to address this issue.
        I look forward to your testimony, and then I will call on
    my distinguished Ranking Member for her comments.
        Senator Mikulski. Mr. Brown, we want to welcome you once
    again to the committee, but Mr. Chairman, in the interests of
    time I am going to submit my written statement into the record,
    but first let me make a few quick points. I am very concerned
    about the fact that the budget request for CDFI is $51 million
    and it is 30 percent below what we funded it at. I am concerned
    that this is an appropriations request from OMB and not CDFI.

                               PREPARED STATEMENT

        Second, we need to make sure we stay focused on the core
    mission of CDFI to provide capital and credit in underserved
    markets and low-income communities. I know we have 16, but the
    New Markets Tax Credit, in implementing it, is not what a CDFI
    Fund is, so we do not want the discouragement of the new
    markets, but I agree--there are a lot of flashing yellow lights
    around here--I would like us to have enough money to do the
    CDFI core mission, which is a pretty good one, and then in an
    accountable, transparent way measure how we are doing in
    implementing the new markets.
        I am looking forward to hearing you, Mr. Brown, but I feel
    like we are getting off the mark and we are getting
    underfunded, so I am happy to hear what you have got to say.
        [The statement follows:]

                Prepared Statment of Senator Barbara A. Mikulski

        Welcome Director Brown. This is the second time Mr. Brown has
    testified before this subcommittee. Unfortunately, each time we see
    you, the CDFI Fund request gets lower.
        For fiscal year 2004, the administration requests $51 million for
    the CDFI Fund. This is a 30 percent cut from the fiscal year 2003
    enacted level. And it would put the CDFI Fund back at its 1997 level.
    When I look at the CDFI budget request, I do not see a CDFI Fund
    request or a Tony Brown request; I see an OMB request. The CDFI Fund
    has a very important mission. It invests in organizations that are
    dedicated to improving low-income neighborhoods, and the lives of low-
    income people.
        When I look at the budget for the CDFI Fund, I do not evaluate
    numbers. It is not about numbers; the CDFI budget has to be about
    people. There is one increase in the 2004 budget request for CDFI--and
    it is for administration. I believe that oversight and management is
    important. But, Federal resources should support people, not
    bureaucracy. There are 16 CDFIs in Maryland. They are very important to
    community development in my State. They provide loans for small
    business development, they fix up storefronts, and they build community
    centers. They also provide homeownership loans that are not predatory
    and fraudulent.
        On March 6, I asked the HUD IG to investigate a mortgage service
    agency called Fairbanks. I heard about Fairbanks sending fraudulent
    foreclosure letters to homeowners in Baltimore. I asked Sec. Martinez
    and the IG to conduct thorough criminal investigation, share
    information with other Federal agencies and to act as clearinghouse for
    victims' calls.
        We are waiting for a preliminary report from the HUD IG. What we
    know for sure is that people who are subprime borrowers are targets for
    predatory scams. CDFIs provide a safe haven for low-income borrowers. I
    am very concerned that cuts to the CDFI fund mean cuts to non-predatory
    loans. I have been involved in the issue of predatory lending and
    flipping for a long time now. And we have made some good progress in
    Baltimore, where flipping has gone down by 40 percent. In Baltimore one
    of our partners in the fight against flipping is the Baltimore
    Community Development Financing Corporation--they are a CDFI. The
    Baltimore Community Development Financing Corporation administers the
    Baltimore HELP program. One of the things I did in Baltimore was to get
    $1 million of HUD money for the Baltimore HELP program. That program
    provides counseling on loans, and refinances predatory mortgages so
    that people don't go into default. We need more programs like the
    Baltimore HELP program, not fewer.
        The CDFI fund is shifting its focus away from the Fund to
    administering the New Markets Tax Credit. The Fund recently announced
    the first round of tax credits totaling $2.5 billion. Four Maryland
    groups received awards totaling $161 million. I believe that the New
    Markets Tax credits are an important tool in community development. And
    I am pleased that Maryland will benefit from them. But I do not believe
    that New Markets Tax Credits are a substitute for the CDFI Fund.
    Administration of the tax credit program is very important--now is the
    time to start the data collection, and institute proper program
    oversight.
        I want to hear from the CDFI Fund today about program oversight.
    And about how this proposed budget reduction will affect communities
    and people. I want to hear about people, not programs, about advocacy,
    not accounting. We look forward to your testimony.

        Senator Bond. Thank you, Senator Mikulski. I think you
    summed it up pretty well.
        Mr. Brown, as I said, we will make the entire statement
    part of the record and ask you to summarize your remarks in 7
    minutes, and then my colleague and I will have some questions.

                           STATEMENT OF TONY T. BROWN

        Mr. Brown. Thank you, Chairman Bond, and also thank you,
    Ranking Member Mikulski. I appreciate the opportunity to
    testify before you today on behalf of the Department of the
    Treasury's Community Development Financial Institutions Fund
    and in support of the President's budget for the 2004 program.
    Your remarks were quite direct, and I hope that my opening
    statement as well as my response to your questions will address
    many of your concerns.
        Joining me today are Linda Davenport, the Acting Deputy
    Director for Policies and Programs, and Owen Jones, who is the
    Deputy Director for Management and our Chief Financial Officer.
        The President's budget requests a $51 million appropriation
    for the CDFI Fund. The proposed budget supports the CDFI
    program, our Native American CDFI Development Program, the Bank
    Enterprise Award Program, which are all important facets of the
    CDFI Fund's community development financing continuum that also
    now includes the $15 billion 7-year New Markets Tax Credit
    program. The administration of the New Markets Tax Credit
    program is also supported by the proposed appropriation.
        The administration's approach for investing in CDFIs
    revolves around three major and very important strategies. We
    are focusing our program awards on the Nation's most
    economically distressed areas. We have established a growth
    continuum to address our mission of building the capacity of
    CDFIs. We believe that the strategy of our award decisions will
    allow awards to be provided to support CDFIs to the point where
    they can be self-sustaining, thus permitting the CDFI Fund to
    provide assistance to candidates with unmet needs in other
    distressed communities.
        And third, we are taking actions to obtain the information
    necessary to measure and report on the impact of the fund's
    investments. As we talked last year, it is not about the fund's
    output, but about the CDFI's impact in the communities that
    they serve. I characterize my visit before you today as filled
    with a great sense of accomplishment and enthusiasm for the
    potential of the CDFI Fund. This potential is shared by the
    administration.
        Last year, I shared with you the administration's vision
    for the fund and stated that fiscal year 2003 would serve as a
    transition year for the fund where our agency would shift
    primarily from being seen as a grants-making organization to
    one that stimulates the economy of low-income communities
    through target investments for community development finance.
    The $51 million appropriation is expected to leverage $442
    million in other private and public resources, which is a
    leverage ratio of about 12 to 1. The leverage ratio excludes
    funds appropriated for administrative purposes and does not
    include data associated with the New Markets Tax Credit
    program.
        Senator Bond, as you indicated, we feel that this
    appropriation will help support the creation or maintenance of
    24,000 jobs and the rehabilitation of over 26,000 affordable
    housing units. I am pleased to report to you substantial gains
    in the achievement of our goals for the fund. First, we have
    made a significant change to the performance indicators
    included in our budget submission. During fiscal year 2002, the
    fund completely revamped its performance plan by more clearly
    identifying our objectives and by identifying outcomes and
    impacts related to those objectives. It is about people and not
    about accounting.
        The objectives of the CDFI Fund have been simplified to
    three key statements. The fund invests in institutions whose
    loans in equity will increase financing to businesses and
    individuals that we feel have low wealth, have limited
    collateral, and are located in our Nation's underserved
    communities.
        We invest in institutions which expand the supply and
    quality of affordable housing units in underserved communities
    and increase home ownership rates in those markets and among
    targeted populations. The fund invests in institutions that
    expand access to affordable financial services for the
    unbanked, low-income people and others in underserved
    communities.
        Also, in fiscal year 2003 we simplified and substantially
    revised the fund's investment program offerings. The financial
    assistance components you have formally known as Core and SECA
    have been simplified, and it is our primary program of
    investments that allow CDFIs to apply for financial assistance
    and technical assistance awards. The technical assistance
    component of the CDFI Fund Program also includes our Native
    American technical assistance component, and allows CDFIs to
    apply for technical assistance awards where a match is not a
    requirement, and the BEA Program, through which insured
    depository institutions may apply to receive grants, enables
    the fund to provide incentives to regulate institutions to
    support community development lending and investment
    activities.
        As my written testimony notes, in fiscal year 2002 the
    administration initiated extensive and substantive regulatory
    changes to the BEA Program that takes effect this fiscal year.
    We began implementation of these regulatory changes prior to
    OMB's evaluation of the BEA Program. We feel these changes
    address the critical evaluation of the BEA Program by OMB,
    which requested and required that we seek clear program
    objectives that distinguish the BEA activities from the
    mandates of the Community Reinvestment Act. The administration
    fully supports the continuation of the BEA Program.
        Quickly, the major successes this year. The fund, through
    new systems improvements, was able to significantly improve the
    rate at which we approve and disburse funds to our awardees.
    Fiscal year 2002 also marked the fifth consecutive year in
    which we were able to maintain our unqualified audit opinion
    with no material weaknesses, nor reportable conditions, nor
    instances of noncompliance with laws and regulations.
        The CDFI Fund is making great strides in its efforts to
    increase the capacity of CDFIs to respond to credit,
    investment, and financial service needs within our Native
    American, Alaska Native, and Native Hawaiian communities. As
    you requested last year, the CDFI Fund is preparing a Native
    American strategic plan that will address the issues of CDFI
    reach and service to Native American, Alaska Native, and Native
    Hawaiian communities.
        And finally, in fiscal year 2002 and 2003 the CDFI Fund
    evaluated 345 applications to the New Markets Tax Credit
    program. These applications together requested the authority to
    issue nearly $26 billion in equity for which new markets tax
    credits may be claimed. Last month, Secretary Snow announced
    the allocation of new markets tax credit authority to 66
    community development entities at a special event in Ohio.
        The allocatees received a total of $2.5 billion, and they
    represent a broad cross-section of community development
    entities. They are both large and small community development
    entities. They are affiliates of nonprofits, as well as for-
    profit entities, and these community development entities will
    focus locally as well as nationally, and they will focus on
    both rural as well as urban locations.
        The majority of allocatees will focus on either business
    investments and loans in real estate, or they will do--I am
    sorry, let me clarify that.
        The majority of allocatees will focus on either business
    investments and loans, or real estate investments and loans,
    and a smaller number will make investments in other community
    development entities as well as purchase loans from other
    community development entities.

                               PREPARED STATEMENT

        The CDFI Fund is now poised to use the Nation's extensive
    network of community development financiers and developers to
    help develop sustaining economies in our underserved
    communities. Our reporting will let you know that this network
    serves people and communities.
        Again, I thank you for the opportunity to present my
    testimony in support of the President's 2004 budget request,
    and look forward to answering any questions.
        [The statement follows:]

                      Prepared Statement of Tony T. Brown

                                  INTRODUCTION

        Chairman Bond, Ranking Member Mikulski and Members of the
    subcommittee, I appreciate the opportunity to testify before you today
    on behalf of the Department of Treasury's Community Development
    Financial Institutions (CDFI) Fund and in support of the President's
    fiscal year 2004 budget. Last year was my first visit before this
    honorable body.
        I am Tony Brown, Director of the CDFI Fund. The Secretary of the
    Treasury selected me to serve in this post in August 2001. I bring a
    20-year prior experience in banking and a personal passion for
    community development finance. Joining me today are my Acting Deputy
    Director for Policy and Programs (Linda Davenport) and Deputy Director
    for Management/Chief Financial Officer (Owen Jones).
        I characterize my visit before you today as filled with a great
    sense of accomplishment and enthusiasm for the potential of the CDFI
    Fund. Our goal is to help make America a place where all of its people,
    including those in economically distressed communities, can realize the
    American dream through better access to credit, capital and financial
    services. Fiscal year 2003 has been a transition year where the Fund
    has shifted from primarily a grants-making organization to one aimed at
    measurably improving the economic conditions of the residents of low-
    income communities by spurring economic growth and jobs through
    community development finance.
        The CDFI Fund aims to do this primarily through the New Markets Tax
    Credit (NMTC) Program, the Community Development Financial Institutions
    (CDFI) Program, the Bank Enterprise Award (BEA) Program, and the Native
    American CDFI Development (NACD) Program.
        My testimony today will focus on three key areas: the President's
    fiscal year 2004 budget proposal; the CDFI Fund's management and
    operations in fiscal year 2003; and some background on the CDFI Fund
    programs.

                      PRESIDENT'S FISCAL YEAR 2004 BUDGET

        The President's fiscal year 2004 budget requests a $51 million
    appropriation for the CDFI Fund. The proposed budget supports the
    administration of the NMTC Program, the CDFI Program, the NACD Program,
    and the BEA Program. Because the NMTC Program involves an allocation of
    tax credits rather than program funds, all costs associated with the
    development, implementation and monitoring of the NMTC Program are
    administrative. The $51 million appropriation is expected to leverage
    $442 million in other private and public resources, a leverage ratio of
    12:1. The leverage ratio excludes funds appropriated for administrative
    purposes and does not include leverage data associated with the NMTC
    Program. This appropriation will help support the creation or
    maintenance of 24,000 jobs and the rehabilitation of 26,000 affordable
    housing units. The administration's request reflects the following
    factors:
        First, the NMTC Program is aimed at achieving similar economic
    development objectives as the CDFI and BEA Programs.
        Second, the NMTC Program is vastly larger in scope than the other
    CDFI Fund programs. The first year NMTC Program allocation authority of
    $2.5 billion is some 50 times larger than the entire CDFI Fund request.
        Third, the administration currently is considering possible
    legislative changes to the BEA Program. In the near future, I expect
    that we will consult with Congress regarding legislative options that
    would clearly distinguish the program from the mandates of the
    Community Reinvestment Act and ensure that awardees use BEA Program
    awards for community development activities. In fiscal year 2002-2003,
    the CDFI Fund's own internal evaluation of the BEA Program concluded
    that the program needed to be re-formed so that awards would be better
    targeted to wealth-building activities and outcome-based performance
    goals to better track the program's impact would be adopted. The Fund's
    adopted these regulatory modifications for the fiscal year 2003 funding
    round.
        Fourth, this proposed fiscal year 2004 funding level, reflecting a
    division of resources, is adequate to continue an effective baseline
    funding level in each program, particularly in light of the reforms put
    in place in recent months. The recent reforms reflect the
    organizational maturity of the CDFI Fund and the CDFI industry so that
    a better, more targeted effort is now possible, focusing on
    opportunities where real needs can be addressed through sustainable
    economic development.
        The proposed fiscal year 2004 budget includes increased funding for
    administrative expenses to $13 million to support staffing requirements
    of the NMTC Program and technology requirements to enhance our support
    for E-grants and E-government. The E-grant and E-government activities
    support a ``green rating'' received from The Department of the Treasury
    on the Presidential Management Agenda Scorecard.

                           MANAGEMENT AND OPERATIONS

        Internal Financial and Management Controls.--The CDFI Fund has
    implemented effective financial and management controls, as verified by
    its independent auditors (KPMG, LLP). These controls have allowed the
    CDFI Fund to receive an unqualified (clean) audit opinion.
    Additionally, this marks the fifth consecutive year that the
    independent auditors have identified no material weaknesses or
    reportable conditions. KPMG's opinion affirms that the CDFI Fund's
    Statements of Financial Position, Operations, and Changes in Net
    Position and Cash Flow are fairly presented. These findings reflect the
    commitment of the CDFI Fund to sustain and improve its internal
    controls, operating policy and procedures, and awards management.
        The CDFI Fund continues to comply with the Federal Managers'
    Financial Integrity Act (FMFIA) and the Federal Financial Management
    Improvement Act (FFMIA). The CDFI Fund's internal management systems,
    accounting and administrative controls are operating effectively.
        Administrative Processes.--During my tenure as Director, I have
    spent a significant amount of time reviewing the CDFI Fund's internal
    operations. We have made successful changes that have streamlined our
    awards process. In fiscal year 2002, we successfully reduced the amount
    of time required for our award processes. In a September 2002 Treasury
    Office of Inspector General audit report titled ``CDFI Fund Post-Award
    Administration Process,'' the OIG concluded ``that the CDFI Fund's
    post-award administration process is effective in ensuring that CDFI
    award recipients are carrying out their activities in accordance with
    their assistance agreements.'' The report further states, ``[T]he Fund
    has taken steps to reduce the length of time that it takes to disburse
    funds. These steps include Program and Compliance staff performing a
    compliance and matching funds analysis, implementation of the Reports
    Monitoring Database, and revising how it processes assistance
    agreements.''
        Integration of New Programs.--We successfully integrated the NMTC
    Program within our existing operations without increasing the number of
    new employees above fiscal year 2001 levels. One of the most
    significant E-government initiatives undertaken by the CDFI Fund in
    fiscal year 2002-03 was the implementation of electronic applications
    for the NMTC Program, facilitating ease of the application scoring
    process and metrics for various management reports by having captured
    data readily available for analysis and reporting. This was an
    overwhelming success and the CDFI Fund is moving forward to introduce
    electronic applications for each of its financial assistance programs
    in fiscal year 2003.
        Compliance and Portfolio Monitoring.--In fiscal year 2004 and
    beyond, we will continue to enhance the CDFI Fund's research capacity,
    implementing market and portfolio analyses to measure the availability
    of financial services in underserved markets and to critique the
    financial and program performance of existing CDFIs. The CDFI Fund has
    an investment portfolio of over 600 awards, totaling over $500 million
    currently under compliance review.
        Measuring Investment Impact.--The CDFI Fund places a high priority
    on measuring impact and is in the forefront of improving performance
    reporting within the CDFI industry. The CDFI Fund is building on its
    experience with the CDFI Data Project, an initiative undertaken by the
    CDFI Fund and CDFI industry representatives, to develop a more
    sophisticated data collection system for CDFIs and CDEs that will allow
    for the collection of transaction-level data to provide the specific
    location and characteristics of each loan in a CDFI/CDE's portfolio,
    thus allowing the CDFI Fund to measure impact at the census tract
    level. The CDFI Fund plans to use this data to compare CDFI/CDEs'
    lending behavior and community development impact to that of
    traditional financial institutions and thus demonstrate that CDFI/CDEs
    lend in areas where traditional banks have less of a presence.
        You will notice a significant difference in the format of the
    fiscal year 2004 budget submission. In the past, the CDFI Fund reported
    nearly 20 measures, mostly measuring activity outputs. The introduction
    of our fiscal year 2004 budget complies with the President's mandate
    for integrated budget performance measures. The CDFI Fund received a
    ``green rating'' from the Department of the Treasury in its latest
    scorecard reporting for this Presidential Management Agenda initiative.
        The stated objectives of the CDFI Fund have been simplified to
    three key statements: (i) increase financing to businesses (including
    non-profit businesses) and individuals that have low wealth, have
    limited collateral, are located in underserved communities, or have
    other characteristics that inhibit them from obtaining financing from
    traditional financial sources, but who present good opportunities for
    assistance promoting sustainable economic development in the community;
    (ii) expand the supply and quality of housing units in underserved
    communities and increase homeownership in these markets by increasing
    the availability of housing financing that leverages conforming
    mortgages or non-traditional sources of housing finance; and (iii)
    expand access to affordable financial services for the ``unbanked,''
    low-income people and others in underserved communities.
        New baseline performance measures have been established and set
    into motion this year, through the CDFI Fund's fiscal year 2003
    programs, and include better tools for tracking investment results and
    the use of the CDFI Fund's awards. We will continue the process of
    improving the CDFI Fund's programs by evaluating for measurable
    results, targeting resources through sustainable financial
    institutions, with an emphasis on supporting financial services that
    impact our Nation's most distressed areas.
        Interagency Cooperation.--The CDFI Fund has worked very closely
    with the Internal Revenue Service to develop the guidance and
    regulations necessary to implement the NMTC Program; engaged in
    extensive discussions with the Small Business Administration on how to
    best match the NMTC Program requirements with the SBA's New Markets
    Venture Capital Program; and conducted numerous meetings with the
    General Accounting Office to determine appropriate compliance and
    performance measurement requirements for NMTC Program allocatees.
        Investment Underwriting.--The CDFI Fund will use the new data
    collection system to implement PLUM, a new CDFI performance rating
    system. PLUM stands for Performance/community development impact;
    Liquidity and overall financial condition; Underwriting/portfolio
    quality; and Management capacity. Based on these four broad components,
    the CDFI Fund will use PLUM to rate each certified CDFI's financial
    strength and level of community development impact. The CDFI Fund's
    plan is to use this rating system to better manage its investment
    portfolio by creating a compliance ``watch list'' of under-performing
    entities, and to identify and promote best practices in the industry.
    Eventually, we plan to incorporate PLUM in the Fund's award
    underwriting process.
        E-Gov Enhancements.--The CDFI Fund will soon announce a new
    electronic web-based customer relationship tool called ``myCDFI.'' This
    new tool will assist interested parties with a variety of services from
    a single location. The initial services to be offered through myCDFI
    include: access to all program electronic applications; access to
    historical electronic applications (read-only mode); self service
    address and organizational information updates; ability to create and
    maintain additional user accounts with various access levels; ability
    to access target service area information created while using the CDFI
    Fund Help Desk (including Hot Zones); and access to a message box for
    communication with CDFI Fund staff. Additional features will be added
    in the near future, including the ability to submit electronically
    reports required by the CDFI Fund per award agreement terms.

                          CDFI FUND PROGRAMS OVERVIEW

        The strategic goal of the CDFI Fund is to improve the conditions of
    economically distressed communities by enhancing greater access to
    capital and other financial services through CDFIs (which generally are
    small business and housing loan funds, as well as regulated, community-
    oriented depository institutions), CDEs (which include for-profit and
    nonprofit corporations and partnerships), and insured depository
    institutions (banks, thrifts and credit unions).
        The approach for investing in CDFIs includes three major
    strategies: (1) focusing CDFI Program awards on the Nation's most
    economically distressed areas; (2) establishing a ``growth continuum''
    strategy in award decisions, through which awards are provided to
    support CDFIs to the point where they can be self-sustaining, thus
    permitting the CDFI Fund to provide assistance to CDFIs with unmet
    capital needs in other distressed communities; and (3) taking actions
    to obtain the information necessary to measure and report on the impact
    of the CDFI Fund's programs.
        Targeting CDFI Fund Resources.--The authorizing statute allows the
    CDFI Fund to provide incentives for the purposes of facilitating
    increased lending and provision of financial and other services in
    economically distressed communities. The economic distress definitions
    vary among the CDFI Fund's programs.
        The CDFI Fund views its partnership with CDFIs, CDEs, and insured
    depository institutions as a catalyst for vigorous community and
    economic development financing activity. In fiscal year 2003, the CDFI
    Fund introduced ``Hot Zones'' to the CDFI Program to help prioritize
    and direct the CDFI Fund's limited investments. By managing CDFI Fund
    resources to entities that serve Hot Zones, our dollars will be
    prioritized for investments into areas with the greatest needs and
    among CDFIs that can produce strong measurable impact.

                                           TARGETING RESOURCES GEOGRAPHICALLY
    ----------------------------------------------------------------------------------------------------------------
                                                               CDFI Program
    ---------------------------------------------------------------------------------   BEA Program    NMTC Program
                                                         Eligible                        Eligible     Eligible  Low-
                                      National Total    Investment       Hot Zones      Distressed        Income
                                                           Areas                        Communities     Communities
    ----------------------------------------------------------------------------------------------------------------
    Total Metro Census Tracts.......          52,241          20,093          10,851           1,670          19,732
    Percent of National Metro Tracts             100              38              21               3              38
    Non-Metro Census Tracts.........          14,063           4,966         ( \1\ )             656           6,605
    Percent of Non-Metro............             100              35         ( \1\ )               5              47
    Total Tracts....................          66,304          25,059         ( \1\ )           2,326          26,337
    Percent of National.............             100              38         ( \1\ )               4              40
    Non-Metro Counties..............           2,319             743             285         ( \1\ )         ( \1\ )
    Percent of National.............             100              32              12         ( \1\ )         ( \1\ )
    ----------------------------------------------------------------------------------------------------------------
    \1\ Not Applicable.

    Sources: 2000 Census data, U.S. Dept. of Housing and Urban Development 2002 Difficult Development Areas.

    Figures do not include outlying territories other than Puerto Rico.

        Hot Zones are a subset of CDFI Program Investment Areas designated
    by the CDFI Fund as having greater economic distress and community
    development needs. They are the ``most distressed'' of the Nation's
    distressed markets. Hot Zones have been identified based on census data
    and include, among other factors, areas with a poverty rate of at least
    20 percent, income levels at or below 80 percent of the area median
    income, unemployment rates that are at least 1.5 times the national
    average, and housing costs that exceed 30 percent of the gross monthly
    income of a low-income household.
        States that have the highest percentage of non-metropolitan Hot
    Zones--such as Mississippi, Kentucky, Montana, and Arizona--also have
    significant non-metropolitan persistent poverty populations (see
    Figures 1 and 2, below).

        In the fiscal year 2003 round of the Financial Assistance Component
    of the CDFI Program, the CDFI Fund will target its resources to CDFIs
    that will use the award proceeds to serve Hot Zones and/or achieve the
    programmatic priorities of increased homeownership opportunities that
    are affordable to low-income households and homeownership opportunities
    for other targeted populations lacking access to loans, investments and
    financial services.
        In its evaluation of applications, the CDFI Fund will give the most
    points to those applicants that show that at least 75 percent of their
    activities will be directed toward Hot Zones. Applicants that are not
    principally serving Hot Zones may be scored to receive the most
    evaluation points if they demonstrate an effective track record and
    plan for promoting homeownership opportunities among low-income, very-
    low income and other targeted populations.
        Eligible geographic areas under the BEA Program are called
    Distressed Communities and include communities that meet certain
    criteria of economic distress, including Indian Reservations.
    Specifically, a Distressed Community must have (1) a poverty rate of at
    least 30 percent, provided no individual census tracts has a poverty
    rate of less than 20 percent (according to the most recent census); and
    (2) an unemployment rate that is at least 1.5 times the national
    average (according to the most recent Bureau of Labor Statistics
    data).\1\
    ---------------------------------------------------------------------------
        \1\ Census tracts meeting these distress criteria are some of the
    most distressed in the Nation. Using 2000 Census and BLS data, there
    are some 2,326 census tracts that qualify for the BEA Program. These
    tracts represent 4 percent of all U.S. census tracts and less than 12
    percent of the 20,433 tracts that are considered ``Low and Moderate
    Income.''
    ---------------------------------------------------------------------------
        The NMTC Program requires that substantially all of the investments
    made by a CDE using NMTC-related investment proceeds be invested in
    low-income communities, geographic areas meeting certain economic
    distress criteria. Investments must be made in census tracts where the
    area median income is 80 percent or less than the statewide area median
    income (or, in the case of metropolitan areas, metropolitan area median
    family income, if greater), or where the poverty rate is 20 percent or
    greater. Applicants to the first round of the NMTC Program were
    reviewed on a competitive basis. Applicants that indicated that they
    intend to target their activities to communities with higher levels of
    economic distress than required by statute generally scored more
    favorably.
        Certified CDFIs and CDEs.--CDFIs are building a financial services
    network that is focused on our most economically deprived communities
    and citizenry. CDFI Fund estimates show that certified CDFIs' Target
    Markets cover 100 percent of non-metropolitan Hot Zones and 77 percent
    of metropolitan Hot Zones.\2\ There is at least one CDFI headquartered
    in each State, the District of Columbia, Puerto Rico and the U.S.
    Virgin Islands.
    ---------------------------------------------------------------------------
        \2\ Please note that CDFI Target Markets were originally geocoded
    using 1990 Census tracts and county boundaries and that CDFI Target
    Markets are subject to change due to post-award amendments.
    Consequently, the total estimates are subject to adjustment, due both
    to changes in tract and county boundaries between the 1990 and 2000
    Census (which the CDFI Fund's Hot Zones are based on) and to amendments
    to individual CDFI Target Markets.
    ---------------------------------------------------------------------------
        CDFIs are specialized financial institutions that operate in
    markets, increasingly in partnership with traditional lenders. The
    organizations we support are often able to lend in ways that are more
    flexible or not available to traditionally regulated financial
    institutions. As of February 1, 2003, we have certified 633 financial
    institutions as CDFIs:

                                                     CERTIFIED CDFIs
    ----------------------------------------------------------------------------------------------------------------
                                            Fiscal Year 2002  (As    Fiscal Year 2003  (As       Fiscal Year 2004
                                                  of 2/1/02)            of Date 2/1/03)            (Projected)
    ----------------------------------------------------------------------------------------------------------------
    Total CDFIs..........................  513....................  633....................  706.
    Banks, Thrifts, Holding Cos..........  58 (11 percent)........  72 (11 percent)........  85 (12 percent).
    Credit Unions........................  94 (18 percent)........  117 (18 percent).......  120 (17 percent).
    Loan Funds...........................  344 (67 percent).......  424 (67 percent).......  475 (67 percent).
    Venture Funds........................  17 (3 percent).........  20 (4 percent).........  26 (4 percent).
    ----------------------------------------------------------------------------------------------------------------

        Through the NMTC Program, the CDFI Fund designates entities as
    community development entities (CDEs). To qualify for CDE designation
    by the CDFI Fund, an entity must be a domestic corporation or
    partnership that: (1) has the primary mission of serving, or providing
    investment capital for low-income communities or low-income persons;
    and (2) maintains accountability to residents of low-income communities
    through representation on a governing or an advisory board. Entities
    may apply to become CDEs even if they do not plan to seek a NMTC
    allocation. Such entities presumably have a strategy of selling loans
    to a CDE with an allocation, or seeking an investment or loan from a
    CDE with an allocation. As of February 11, 2003, the CDFI Fund has
    certified 821 organizations as CDEs.

                                 CERTIFIED CDEs
    ------------------------------------------------------------------------
                                       Fiscal Year 2003    Fiscal Year 2004
                                        (As of 2/11/03)       (Projected)
    ------------------------------------------------------------------------
    Total CDEs......................  821...............  1,200.
    CDFIs...........................  335 (41 percent)..  400 (33 percent).
    SBA Designated SSBICs...........  9 (1 percent).....  15 (1 percent).
    Other Entities..................  477 (58 percent)..  785 (66 percent).
    ------------------------------------------------------------------------

        New Markets Tax Credit (NMTC) Program Overview.--The intent of the
    Community Renewal Tax Relief Act of 2000 is to attract private sector
    investment in businesses located in low-income communities. Through the
    NMTC Program, taxpayers will be provided a credit against Federal
    income taxes for qualified equity investments made to acquire stock or
    other equity interests in designated CDEs. In turn, substantially all
    of the proceeds of qualified equity investments must be used by the CDE
    to make qualified investments in low-income communities. These
    qualified low-income community investments include loans to or equity
    investments in, businesses or CDEs operating in low-income communities.
        The NMTC Program creates a capitalization mechanism that many of
    the larger, more established CDFIs could advantage. In addition, other
    non-CDFIs may participate as well--thereby widening the pool of
    entities and capital sources involved in building the economies of our
    low-income communities. In this regard, the NMTC Program helps to
    supplement the CDFI Program; however, the NMTC Program is limited to
    areas that qualify as low-income communities and, to attract investors,
    the underlying business activity of the CDE must be able to deliver a
    return on investor's capital at risk. Those CDFI activities that are
    outside of the NMTC Program's eligible low-income communities and are
    of such risk that investment motivated capital is inappropriate will
    not be able to generally benefit from the NMTC Program.
        By offering a tax credit, the NMTC Program encourages private
    investment in low-income communities. If investors embrace the program,
    it will be a significant source of new capital that could help to
    stimulate new industries and entrepreneurs, diversify the local
    economy, and generate new jobs in low-income communities.
        The tax credit provided to the investor will cover a 7-year period.
    In each of the first 3 years, the investor will receive a credit
    totaling 5 percent of the total value of the stock or equity interest
    at the time of purchase. For the final 4 years, the value of the credit
    is 6 percent annually.
        The $15 billion of equity investments for which tax credits can be
    claimed through the NMTC Program may be allocated between 2001-2007.
    Because the CDFI Fund was launching the program in 2001, the first 2
    years' allocations were combined, and $2.5 billion was available for
    allocation in the just completed first round.
        In fiscal year 2003, the CDFI Fund evaluated 345 applications to
    the NMTC Program; these applications together requested the authority
    to issue $25.8 billion in equity for which NMTCs may be claimed.
        On March 14, 2003, the Treasury Department, through the CDFI Fund,
    announced the allocation of NMTC authority to certain community
    development entities (CDEs), thus supporting $2.5 billion in private
    sector equity investments that will result in economic stimulus in low-
    income communities throughout the country.
        The allocatees represent a broad cross section of community
    development entities. There are both large and small CDEs, affiliates
    of nonprofits as well as for-profit entities, CDEs that will focus
    locally as well as nationally, and CDEs that will focus on both rural
    and urban locations. The majority of allocatees will focus on business
    investments and loans and real estate investments and loans, with a
    lesser number making investments in other CDEs or purchasing loans from
    CDEs.
        The allocatees in the first round of the NMTC Program show a broad
    geographical mix and focus for investment activity:
      --Twenty-nine (43 percent) of the allocatees report a local focus
            within 15 States and will be allocated the authority to issue
            an aggregate of $732 million in equity for which NMTCs may be
            claimed.
      --Twelve (18 percent) of the allocatees will focus investment
            activities within an entire State. These CDEs will be allocated
            the authority to issue an aggregate of $311 million in equity
            for which NMTCs may be claimed.
      --Twenty-five allocatees (39 percent) will invest nationally or
            target multiple States. These CDEs will be allocated the
            authority to issue an aggregate of $1.5 billion in equity for
            which NMTCs may be claimed.
      --The allocatees in the calendar year 2002 round anticipate investing
            $1.7 billion in urban areas, over $508 million in rural
            communities, and $231 million in suburban areas.
      --The primary service areas of the 2002 allocatees (and the national
            market allocatees who were required to list seven States they
            intend to serve) will encompass 40 States and the District of
            Columbia. There are only ten States and all U.S. territories
            not served primarily by the inaugural round of the 2002 NMTCs
            (Iowa, Idaho, Kansas, Montana, North Dakota, Nebraska, New
            Mexico, Rhode Island, South Dakota and Wyoming).
        To achieve the administration's goals of demonstrably improving the
    life of residents in impacted low-income communities, Treasury
    attempted to set a high bar for applicants and strove to make the
    selections based on a rigorous merit-based selection process. This
    review was conducted in the following manner:

    Step One
      --All policy decisions regarding the selection process were made by
            officials separate and apart from those who reviewed and rated
            applications. No identifying information for any application
            was provided to policy officials until after the selection
            process was concluded.
      --In scoring each application, the reviewers rated each of four
            evaluation sections: Business Strategy, Capitalization
            Strategy, Management Capacity and Community Impact, awarding up
            to 25 points per section. In addition, reviewers rated
            applicants with respect to two statutory priorities: (i) up to
            five points for a track record of serving disadvantaged
            businesses or communities, and (ii) five points for committing
            to invest substantially all of the proceeds from its qualified
            equity investments in unrelated entities.
      --For consistency, the process required three reviewers to
            independently review and evaluate each application. The
            reviewers included CDFI Fund staff, other Federal agency staff
            working in other community development finance programs, and
            independent private sector members of the community development
            finance community.
      --In addition to evaluating and scoring each application, reviewers
            recommended an allocation amount that was supported by the
            information in the application.

    Step Two
      --Advancing applications were deemed to be those with an aggregate
            base score (without including priority points) that was in the
            ``good'' range based on a scoring scale of weak, limited,
            average, good and excellent. In addition, each advancing
            application had to achieve an aggregate base score in the
            ``good'' range in each of the four application evaluation
            criteria.
      --For each application, panelists reviewed the scores, comments and
            recommended allocation amounts provided by each of the first
            phase reviewers. A statistical review was conducted to identify
            anomalous scores. In cases where there was an anomalous first
            phase reviewer score, the comments and recommendations of a
            fourth independent reviewer were used to determine whether the
            anomalous score should be replaced.
      --The review panel also reviewed a variety of compliance,
            eligibility, due diligence and regulatory matters. Included in
            this review were (i) checks to determine whether any applicants
            that have been awarded funds through other Fund programs were
            compliant with the award requirements, (ii) verification that
            the applicants' investor letters were consistent with the
            capitalization information provided in their applications, and
            (iii) consultation with the IRS regarding whether proposed
            business strategies of applicants comply with the NMTC Program
            regulations.

    Step Three
      --After the second stage of the review process, the rank order list
            of applicants and the recommended allocation amounts were
            forwarded to the Selecting Official (the NMTC Program Manager).
            The Selecting Official reviewed the rank order list and the
            recommendations, and decided whether to accept or modify the
            panel's recommendations. In the event the Selecting Official's
            decision varied from the panel's recommendation by more than a
            prescribed amount, then concurrence is required by the
            Reviewing Official (Deputy Director). This process ensures that
            adequate documentation and oversight is maintained to protect
            the integrity of the allocation decisions.
      --Per the Fund's allocation application evaluation policies and
            procedures, the Selecting Official's (and, as the case may be,
            the Reviewing Official's) allocation decisions are final.
        The CDFI Fund's objectives for 2003 and 2004 are to evaluate the
    first round of the NMTC Program, make changes as necessary to enhance
    the program, publish the NMTC allocation application for the next round
    of allocations, and complete the awards allocation process for a
    combined 2003/2004 allocation round of up to $3.5 billion in NMTC
    allocation authority. The CDFI Fund will review applications from CDEs
    under a competitive review process, with the goal of finalizing award
    decisions in early 2004. In this manner, investors making equity
    investments into eligible CDEs will be able to claim tax credits early
    in calendar year 2004.
        The CDFI Fund is developing, with the Internal Revenue Service, a
    compliance system for the NMTC Program to ensure that each entity that
    receives a NMTC allocation will continue to fulfill its CDE
    certification requirements and the terms of its allocation agreements
    with the CDFI Fund, and that the IRS has appropriate information to
    determine that allocatees are operating within the legislation and
    regulations promulgated by the IRS. The compliance system will be based
    in part on input provided at a meeting co-sponsored by the CDFI Fund
    and the General Accounting Office in March of 2002. At that meeting,
    academics and other community development financing experts discussed
    the advantages and disadvantages to various approaches to both
    compliance issues as well as approaches to evaluating the impact of the
    investments made under the NMTC Program on low-income communities.
        CDFI Program Overview.--Through the CDFI Program, the CDFI Fund
    promotes access to capital and local economic growth in distressed
    communities by directly investing in and supporting CDFIs. The CDFI
    Program provides financial assistance in the form of grants, loans,
    equity investments or deposits to CDFIs. Since its inception, the CDFI
    Fund has made over 900 CDFI Program awards, totaling $405 million.
        For fiscal year 2003, the CDFI Fund has refocused the CDFI Program
    to meet more effectively the Fund's objectives in three key ways:
    promoting a ``continuum of growth'' that encourages the largest and
    most established CDFIs to leverage non-governmental sources of capital;
    giving highest priority on investments that serve the most distressed
    geographic areas; and giving priority to initiatives that promote
    homeownership among low-income and other underserved populations.
        The Financial Assistance Component.--Replaces the Core,
    Intermediary, and part of the Small and Emerging CDFI Assistance
    Components offered in past years. The Financial Assistance Component
    consolidates the CDFI Program's components that provide financial
    assistance (requiring matching funds) into one competitive funding
    round. The following table depicts asset-size of CDFI Program awardees
    and illustrates the continuum of growth strategies:

    ----------------------------------------------------------------------------------------------------------------
                                                   Financial Assistance Awards        Technical Assistance Awards
                                     All CDFI         (Formerly Core & SECA)      ----------------------------------
                                      Program  -----------------------------------
                                    Applicants                 2003        2004       2002        2003        2004
                                     2000-2002     2002    (Projected)   (Budget)             (Projected)   (Budget)
    ----------------------------------------------------------------------------------------------------------------
    Total CDFIs/Awardees..........         842         91          40          30         61          40          30
    Asset-Size CDFIs/Awardees: \1\
        :$5 million...............          71         65          63          60         82          85          85
        >$5-:25 million...........          19         18          27          30         14          15          15
        >$25-:50 million..........           6         14           8           9          0           0           0
        >$50-:500 million.........           4          3           2           1          4           0           0
        >$500 million.............           0          0           0           0          0           0           0
    ----------------------------------------------------------------------------------------------------------------
    \1\ Amounts in percent.

        The CDFI Fund recognizes that there are two broad categories of
    CDFIs: larger CDFIs that have greater ability to leverage private-
    sector resources, have greater self-sufficiency and generate higher
    volume of activity and corresponding community development impact, and
    smaller CDFIs that serve smaller, more underserved markets, are less
    efficient and produce lower volumes of activity, but serve critical
    market needs.
        The Technical Assistance/Native American Technical Assistance (TA/
    NATA) Component.--Allows applicants to apply for limited technical
    assistance funds on a rolling first-in, first-reviewed basis. This
    program replaces the Small and Emerging CDFI Assistance (SECA)
    Component and part of the Native American CDFI Technical Assistance
    (NACTA) Program offered in fiscal year 2002. The main purpose of the
    new TA/NATA Component is to allow new and growing CDFIs to access
    needed technical assistance when they need it, in order to help them
    enhance their capacity to serve their target markets.
        Entities applying to this program are on the beginning end of the
    ``growth continuum,'' either as start-up or small entities. The purpose
    of the technical assistance provided (including staff training,
    technology, and outside expertise), is to push entities more quickly
    and effectively up the growth continuum than they would without the
    technical assistance. Some typical uses of TA grants include: computer
    system upgrades and software acquisition; developing loan underwriting
    policies and procedures; evaluating current loan products and
    developing new ones; and training staff.
        Native American Strategic Plan; the NACD Program; the Native
    American CDFI Training Program.--The CDFI Fund is preparing a Native
    American Strategic Plan. It will address the issues of CDFI reach and
    service to Native American, Alaska Native and Native Hawaiian
    communities; increasing capacity within these communities to respond to
    credit, investment and financial services needs; and attracting other
    existing resources to these underserved communities.
        The CDFI Fund is making great strides in its efforts to increase
    the capacity of CDFIs to respond to credit, investment and financial
    services needs within Native American, Alaska Native and Native
    Hawaiian communities.
        In fiscal year 2002, the CDFI Fund made its first set of awards
    under the NACTA Program. A total of 38 organizations were selected to
    receive a total of $2.7 million in technical assistance grants. Eleven
    awards were made to CDFIs or entities planning to become CDFIs, and 27
    awards were made to entities, such as Tribes and Tribal housing
    authorities, proposing to create separate CDFIs. NACTA-funded
    organizations are based in 18 States. The successful outcome of the
    launch of the NACTA Program has greatly increased the CDFI Fund's reach
    in support of Native American, Alaska Native, and Native Hawaiian
    communities, and is building an emerging network of CDFIs focused on
    these communities. The CDFI Fund also has presented information on its
    programs to existing CDFIs and those interested in starting CDFIs at
    several premier Native American, Alaska Native, or Native Hawaiian
    conferences. Senior staff also has met with Federal agencies and other
    key organizations to explore partnership possibilities.
        Already in fiscal year 2003, the CDFI Fund:
      --Modified the fiscal year 2002 NACTA Program by separating it into
            two parts: (i) the NATA Component (of the CDFI Program's
            Technical Assistance Component) and (ii) the NACD Program.
            Entities such as Tribes or non-profit organizations serving
            Native American, Alaska Native, and Native Hawaiian communities
            that want to create CDFIs can apply for technical assistance
            funds to develop plans to create CDFIs over a 3-year period.
            Applications for both programs are currently available. The
            CDFI Fund anticipates making funding decisions by the end of
            July 2003; and
      --Awarded a contract to the National Community Capital Association
            and its sub-contractor, First Nations Oweesta Corporation, to
            provide technical support services to design, develop, conduct,
            and administer an action-oriented training curriculum to
            facilitate the development of CDFIs for the purpose of
            providing access to debt or equity capital in Native American,
            Alaska Native, or Native Hawaiian communities.
        Through the end of fiscal year 2003, the Fund will solicit
    contractors to:
      --Conduct financial literacy training in Native American, Alaska
            Native, or Native Hawaiian communities through out the country;
            and
      --Provide direct, on-site technical assistance to Tribes or non-
            profit organizations serving Native American, Alaska Native,
            and Native Hawaiian communities. Such technical assistance
            would include help in creating or strengthening a CDFI or
            addressing specific barriers to small business or home
            financing (including those identified in the CDFI Fund's 2002
            Native American Lending Study), on reservations.
        In fiscal year 2004, the CDFI Fund will:
      --Using fiscal year 2003 appropriated dollars, the CDFI Fund will
            implement a program targeted to Native American, Alaska Native,
            and Native Hawaiian organizations that will provide financial
            assistance for use as loans or investment capital. Recognizing
            that not all Tribes will have the capacity to create a CDFI,
            eligibility for this program would include partnerships between
            Native American, Alaska Native, or Native Hawaiian
            organizations partnered with traditional depository
            institutions as well as Native-focused CDFIs.
      --Design a demonstration program to support the development of
            partnerships, innovative products, and delivery mechanisms to
            meet the financing needs of Native American, Alaska Native, and
            Native Hawaiian communities. The CDFI Fund will work with other
            Federal agencies to develop and implement this pilot to enhance
            rather than duplicate their activities.
        Training Program.--The Training Program is aimed at supporting the
    CDFI Fund's strategic goal of strengthening the organizational capacity
    and expertise of CDFIs and other Financial Service Organizations. The
    Training Program, which was started in fiscal year 1999, provides funds
    that support the development and delivery of training products to CDFIs
    and other entities engaged in community development finance. Training
    is addressed via classroom instruction, web-based distance learning,
    and other electronic formats. The CDFI Fund is particularly excited
    about providing the support to help build the electronic teaching
    capacity of the CDFI industry. Through distance learning, the cost of
    accessing training is reduced for the CDFIs (elimination of the time
    and cost of travel) and the ability of CDFIs that are either of limited
    resources or of remote locations to access training is enhanced.
        By the end of calendar 2002, two of the training providers
    completed their efforts under the training contract with the CDFI Fund.
    The remaining two will continue to provide training through this fiscal
    year. Training provided in fiscal year 2003 is largely through distance
    learning technology.
        Bank Enterprise Award (BEA) Program Overview.--The BEA Program is
    aimed at expanding financial service organizations' community
    development lending and investments through regulated institutions.
        The BEA Program provides monetary incentives for banks and thrifts
    to expand investments in CDFIs and/or to increase lending, investment
    and service activities in distressed communities. BEA Program awards
    have varied in size from less than $1,000 to almost $3 million,
    depending upon the type and amount of assistance provided by the bank
    and the activities being funded through the bank's investments. In
    general, banks that provide equity investments to CDFIs are likely to
    receive the largest awards relative to the size of their investments.
        The administration recently completed a comprehensive evaluation of
    the BEA Program to ensure that it is as effective and efficient as
    possible.
        The CDFI Fund concluded that the BEA Program regulations should be
    revised to target awards to ``personal wealth'' and ``community asset''
    building activities, and to those CDFIs with a greater need for the
    incentive provided by the award to facilitate their bank partnerships.
    Thus, the CDFI Fund initiated regulatory changes to the BEA Program to
    take effect with the fiscal year 2003 funding round.
        The CDFI Fund is currently considering how to better distinguish
    the BEA Program from the mandates of the Community Reinvestment Act,
    and to ensure that awardees use BEA Program awards for community
    development activities.
        The administration supports continuation of a reconstituted BEA
    Program. An effective BEA Program provides the Treasury Department with
    an effective strategy to engage traditional banks and thrifts in
    helping us achieve our goal of improving the economic conditions of
    underserved areas through insured depository institutions. The role
    that banks and thrifts play is critical to capital access. We need to
    encourage them to target these underserved communities in ways that do
    not impede safe and sound banking practices in a sustainable manner.
        Rural Community Assistance.--The fiscal year 2002 appropriations
    for the CDFI Fund contained report language requesting an update on
    rural lending practices as part of the fiscal year 2003 budget
    submission. CDFI Program and BEA Program awardees are indeed reaching
    rural areas. In 2002, 60 percent of awardees receiving financial
    assistance, and 50 percent of technical assistance awardees, indicated
    that they served rural areas as all or part of their markets.
        Of 156 surveyed awardee CDFIs, 20 (13 percent) estimated that 100
    percent of their activities served rural areas and an additional 23 (15
    percent) estimated that 51 to 99 percent of their activities served
    rural areas. Considering that 20 percent of U.S. households reside in
    non-metropolitan areas (Census 2000), the percentage of CDFI Fund
    awardees that target more than half their activities to rural areas (28
    percent) compares favorably.
        Secondary Market Study.--The CDFI Fund is conducting a study to
    explore the possibility of expanding the secondary market for CDFI
    loans. Selling loans on the secondary market while common among
    traditional lenders is not a general practice among CDFIs. In fact,
    very few CDFIs have engaged in loan sales to date. If CDFI loans can be
    made attractive to potential investors and investors are willing to pay
    a reasonable price, the CDFI industry will gain a major source of
    private sector capital that is likely to grow with the industry's needs
    and will limit the CDFIs need for additional capitalization.
        The CDFI Fund's study will examine the current and future capital
    needs of CDFIs, and will make recommendations. The study will involve
    consultations with CDFIs, potential loan purchasers and others with an
    interest in the secondary market. A draft report is expected in the
    summer of 2003.
        As you can see, the CDFI Fund has made substantial progress over
    the last year. The CDFI Fund's programs represent a continuum of
    capital, investment and incentive opportunities aimed at developing
    affordable housing, promoting homeownership, starting and expanding
    businesses, meeting unmet market needs, and stimulating economic growth
    in our Nation's low-income and distressed areas. In short, the goal of
    the CDFI Fund is to help bring mainstream capital to those people and
    communities that have been overlooked. The CDFI Fund has made
    significant strides in the integration of its performance measures in
    the budget process.
        Again, I thank you for the opportunity to present my testimony in
    support of the President's fiscal year 2004 budget request and look
    forward to answering any questions you may have for me.

        Senator Bond. Thank you very much, Mr. Brown.
        You know, back when I was Governor I used to give two
    messages to the General Assembly. I would give the State of the
    State, and I would have all these great, lofty concepts. That
    was my first one, and everybody said, well, what do you really
    want to get done? I said, forget the State of the State
    message. Look at my budget message. That is coming a week
    later.
        You find out what you want to do in government by where you
    put the money, and as I look at this it appears that the
    administration is saying that the New Markets is really going
    to replace CDFI, and the emphasis seems to be going away from
    CDFI with the cuts. Are you saying that New Markets can do the
    job that CDFI is doing? Are we seeing through the budget
    numbers a change in the administration's view with respect to
    CDFI versus New Markets?
        Mr. Brown. No, sir. We are saying that the New Markets Tax
    Credit program is an important complement to the CDFI Fund
    Program. It will allow us to attract billions of dollars into
    low-income communities through private sector funding. It is an
    important new program to the fund, and the administration
    supports the BEA Program as well as the traditional programs of
    the CDFI Fund.
        As we shared when we submitted our budget to you in 2002,
    the concern of the administration regarding the CDFI Fund was
    not what community development financial institutions do, it
    was how the fund reported its impact, its performance measures
    related to its support of CDFIs.
        The administration supported a baseline budget until we
    were able to work out the operational efficiencies for the CDFI
    Fund as well as to integrate our program regulations and
    reforms to meet the President's expectation for how we managed
    the taxpayers' money.
        Senator Bond. It would seem to me that the skills for the
    New Market program might be different from the skills needed
    for the staff of the CDFI program. Are there different skills,
    and what kind of skills are needed, and what are the
    differences between staffing the two programs?
        Mr. Brown. Again, for the New Markets Tax Credit program,
    and the skill set that the fund has developed over the years of
    managing the CDFI Fund Program are essentially the same and
    complementary. The CDFI Fund staff did a marvelous job in
    introducing and administering the New Markets Tax Credit
    program. We were able to introduce this year's program with no
    addition to staff to the 2001 levels.
        Many of the regulatory changes we made to our CDFI program
    allowed us to work through the programmatic efficiencies so
    that we could effectively administer the New Markets Tax Credit
    program, so sir, I would share with you that we have a very
    talented staff, a committed staff, and one that is very capable
    of administering----
        Senator Bond. So you are saying they are essentially doing
    the same things. Are you using the same measures of success?
    Will you be able to give us a comparison of how effective the
    two programs are in achieving their goals based on the amount
    of Federal resources available?
        Mr. Brown. Yes, sir.
        Senator Bond. Will you have measurements that show that?
        Mr. Brown. The measurements are essentially the same, as I
    mentioned, loans and investments to businesses, loans and
    investments in real estate, and the measures that we have put
    forth for the CDFI Fund Program are essentially the same for
    the New Markets Tax Credit program.
        Senator Bond. Okay. How do you think that the CDFI needs
    will be funded under this budget? Is there carryover funding?
    Have you got a problem with the lag, that previously
    appropriated funds are not being used? I am concerned that
    there is going to be a tremendous shortfall in the ability to
    fund the CDFI program. Can you justify the cuts?
        Mr. Brown. Yes, sir, I can. As I said, the enhancements
    that we have made to the CDFI Fund Program dealt with the whole
    continuum of financing activities. The fund in its years has
    done a wonderful job of building the program and obligating
    previous years' appropriations.
        What the OIG noted in its post-award administration is that
    the disbursement of those dollars took nearly 30 months.
    Largely a reason for that, a big reason for that is that as we
    were building the program we obligated funds contingent upon
    the CDFI and the local market getting matched. We have made
    program changes because the statute does require that before we
    disburse, that the organization must match dollar for dollar,
    so many--so a number of the changes we have made will more
    efficiently allow us to operate and obligate and disburse our
    funding within the same year's appropriation and allow us to be
    better stewards of taxpayers' dollars.
        The other significant change that you see in the budget
    does affect the BEA Program and, as I said in my opening
    remarks and the concern that was shared there was that as a
    result of the OMB's evaluation through their PART was a timing
    difference. They looked at the previous program and not the
    significant changes we made in the 2003 round, and the
    administration feels very strongly that the BEA Program that we
    are putting forth for 2003 focuses on community and personal
    wealth-building activities in a way that provides the right and
    proper incentives for financial institutions to be engaged in
    community development lending.
        Senator Bond. Thank you, Mr. Brown. I will have more
    questions on BEA after Senator Mikulski.
        Senator Mikulski. Well, Mr. Chairman, I just want to
    validate and echo your questions related to management and the
    utility of the program, so I am not going to repeat them. Just
    know Mr. Brown, that the chairman's questions are my questions.
        I would like to go, though, to the issue of predatory
    lending, and this chairman has been a great friend and a
    wonderful ally in dealing with the scurrilous practice of
    predatory lending. What appears is that a lot of the predatory
    lending, the gouging of the poor, has occurred at the so-called
    subprimes. As I understand it, the CDFI has been a welcome and
    refreshing alternative for poor people who wanted to get that
    first rung on the American Dream, home ownership, without being
    gouged.
        Could you tell me how many CDFIs that you fund for home
    ownership loans, and of that, what is your percentage that end
    up in default?
        Mr. Brown. Okay. Those are very good questions, and that
    represents many of the new performance measures that we have
    put in place for 2003. We do share your optimism and your
    enthusiasm for the role that CDFIs play in providing mortgage
    loans to low-income people and in low-income communities.
        Many of our CDFIs provide credit repair loans. Several of
    our CDFIs provide loans that specifically refinance borrowers
    out of predatory credits. Self-Help Credit Union we consider to
    be one of the leading CDFIs in the Nation in providing
    alternatives to high-cost mortgage lending, and its founder led
    the charge in North Carolina to having caps on both rates and
    fees in subprime lending.
        Senator Mikulski. But you have data in addition to
    anecdotal stories----
        Mr. Brown. We have retooled our application and coding
    process so that in coming years I will be able to
    specifically----
        Senator Mikulski. But you cannot tell me that now?
        Mr. Brown. I cannot tell you that now.
        Senator Mikulski. I appreciate that.
        Mr. Brown. Okay.
        Senator Mikulski. But I appreciate your at least putting in
    the data and tracking and monitoring mechanisms for that,
    because we want to be able to show that it can be done. When
    there is such a high rate of default in subprime the poor are
    blamed, but sometimes the scurrilous hidden fees and balloon
    payments and all of that are of scurrilous subprimes.
        Now, let us go to the issue of education on predatory
    lending. We know that one of the major agendas in the
    communities of color is about wealth, wealth-building, asset
    accumulation, et cetera, but often there, for a variety of
    reasons, has been not a lot of education, and they are
    therefore vulnerable to scum and scheme.
        What does CDFI do in working with your local--I will call
    them affiliates, but your local institutions, to make sure that
    people know what they are getting into, or also know how to get
    out of what they are in without getting into it worse? You
    know, the whole thing about buy a blouse and lose a house
    through the home equity schemes and so on. What are you doing
    in the area of vigor in education?
        Mr. Brown. Senator, my response to that is really a very
    short one and a very important one. You cannot be certified by
    the fund as a CDFI without providing community development
    services. One of the unique elements of being a certified
    community development financial institution is that you must
    provide to your borrowers development services.
        That comes in the way of technical assistance, homebuyer
    counseling, et cetera, so depending on the unique product
    offering that a CDFI provides, it must provide--it must
    provide--development services, so CDFIs play a very important
    role. They are able to offer credit in a flexible and
    innovative way largely because they are committed to homebuyer
    education, technical assistance providers. They either do it
    directly, or they work with local universities and other third
    party providers to make sure that our borrowers are properly
    educated on the role and the responsibility of credit.
        Senator Mikulski. You know, that is a really big job, and
    first of all I think it is very laudatory. It is exactly what
    we hoped would go on through CDFIs. This is why I am puzzled by
    the big cut that you have, because this is big, and what you
    are asking your local affiliates to do is very labor-intensive,
    and it is a lot of handholding and reviewing, and it should be.
    This is prevention for future financial problems, and it is
    like being immunized against being taken advantage of.
        If I could, Mr. Chairman, let us go to this New Market Tax
    Credit. Again, I share the same concerns. Have you established
    a system for data collection on this, and how will you monitor
    the results of these tax credits?
        Mr. Brown. Yes. We will establish and have established some
    very extensive data collection, and just by way of background
    and to bring you current, last year we had a joint conference
    with GAO that talked about the performance measures for the New
    Markets Tax Credit program, and we are going to take a couple
    of approaches, that the primary purpose of the New Markets Tax
    Credit program is to see an increased flow of capital into low-
    income communities.
        So one of the first performance measures that we think we
    will be able to report at least next year is how effectively
    were community development entities able to take the tax
    credits and use that to attract private capital investments
    into their community development entities.
        The other measures, probably beginning in 2004 or 2005,
    will allow us to look at how the proceeds from those
    investments were used in a community, to what extent were jobs
    created, what types of services, commercial real estate
    services, were provided in low-income communities, things like
    charter schools, medical centers, loans to small businesses.
        The New Markets Tax Credit program allows for a variety of
    activities. The only activity that is excluded under the New
    Markets Tax Credit program is rental housing and, as you know,
    we have a separate tax credit for that, the low-income tax
    credit.
        Senator Mikulski. Well, thank you very much, Mr. Brown, and
    we look forward to working with you.
        Thank you, Mr. Chairman.
        Senator Bond. Thank you, Senator Mikulski.
        I am going to go back to the BEA and the unfunded awards.
    In 2002, the Bank Enterprise Award Program received 35 funding
    applications totaling $24 million from banks who had
    successfully carried out $167 million in increased lending and
    financial services activities in very distressed neighborhoods,
    yet the CDFI Fund only funded five applicants before it ran out
    of money. As a result, 30 banks that successfully completed
    nearly $140 million in increased activities received nothing
    for their hard work and effort.
        Now, one of these banks was the Central Bank of Kansas
    City, as I have mentioned, serving the needy areas in Kansas
    City. The BEA appears to be working as an incentive to get
    banks to do more in very low-income communities, and demand is
    higher than resources available, as last year's $20.9 million
    funding fell short, so would you please explain to us why the
    administration proposes to cut this successful program until
    Congress makes statutory changes to it?
        Mr. Brown. Sir, as I said in my opening remarks, the
    changes that we made to the BEA Program, which were quite
    substantial, occurred after OMB did its evaluation of the BEA
    Program, and we concurred with OMB's evaluation that the
    previous administration of the BEA Program did not effectively
    allow us to target our awards for distressed community
    activities. The popularity of the BEA Program for--let me also
    give you a little bit more background.
        The statutory requirements of the BEA Program requires that
    the first two priorities, or the primary priority, allow us to
    provide an incentive to financial institutions for its support
    and investments in other CDFIs. The third priority allowed us
    to provide an incentive to banks for increasing their lending
    in targeted low-income areas.
        In the past year, we exhausted our budget as we provided
    incentive awards in response to the first two priorities in the
    statute. In looking at the program formula, in looking at the
    types of awards that banks were receiving under the first two
    programs, we felt that there needed to be substantial
    revisions.
        The revisions we have made to the BEA Program now allow us
    to achieve more increased targeted funding. We have put caps on
    the amount of a BEA award to our largest CDFI partners. For
    instance, we had provided an award to a major financial
    institution that provided a $10 million credit facility to one
    of our largest CDFIs. That credit facility was typically priced
    at prime, and that $10 million credit facility required us to
    pay that bank a $1 million BEA award.
        When we looked at that, we felt that the program was
    successful, that we had grown that CDFI to a size and scale
    that that strategic partnership was in place, and that we did
    not necessarily need the BEA award to incent that type of
    activity, so the changes we have made allow us to target awards
    to CDFI partners that are small and emerging and allow us to
    target BEA awards not for all lending that a bank does, but for
    lending, for mortgage lending, small business lending, not
    automobile lending and credit card lending, which was part of
    the previous award.
        The other problem we had is that when we looked at the
    network of regulated institutions that were receiving a BEA
    award, it was possible that a regulated institution could make
    a million dollar deposit or ten $100,000 deposits in the
    network of other regulated CDFI banks and for that receive a
    $330,000 BEA award. We felt that was not the intent of the
    program, and so in the 2003 round we have prohibited that
    activity.
        I share those with you to say that in fixing what we think
    is the proper incentive for providing support and investments
    into other CDFIs, that it now gives us greater budget latitude
    to provide a financial award to our network of CDFI banks who
    are committed to providing loans, mortgage loans, small
    business loans in low-income communities so that now, with the
    appropriate budget appropriation, we will have sufficient
    dollars to not leave meritorious applications on the table as a
    result of a lack of funding.
        Senator Bond. The bottom line is, will the 30 banks that
    came up sucking wind last time be able to be funded?
        Mr. Brown. That will depend on the level of applications
    and the demand we get in the first two priorities.
        Senator Bond. Native American technical assistance. We
    clearly saw a need for capital access and financial lending on
    Native American lands. The Treasury Department's 2001 study
    recommends creating more financial institutions, including
    CDFIs, on Indian lands and opening branches there. One of the
    greatest needs, of course, is access to credit and capital and,
    as you know, we included some $5 million for financial and
    technical assistance for Native Americans in 2003, whereas the
    fiscal year 2004 budget calls for $3 million. Why the reduction
    in funding?
        Mr. Brown. We see that as an integral part of our technical
    assistance program, in that we feel that if we are successful
    in the appropriations that you have given us in the 2002 and
    2003 round of taking nearly $10 million to help create and
    support the capacity of CDFIs in Native American communities,
    that we think that we will have positioned them to more
    effectively--to more effectively--compete for other financial
    assistance funding.
        We are extremely committed to our Native American program.
    Our strategic plan offers a great deal of innovation. We have
    talked with members of the Fund's, other Government agencies
    that serve on the Fund's Community Development Advisory Board,
    and we feel that our Native American strategic plan will not
    only include the resources of the Fund but we will work in
    close partnership with HUD, USDA, and others to put forth what
    we think will be a very quality demonstration program to help
    overcome the perception that lending in reservations is risky,
    so we are quite excited about the potential of our Native
    American program.
        Senator Bond. The New Markets Tax Credit program, as I
    said, covers 32 percent of the U.S. population. It is supposed
    to help economically distressed communities. What is to keep a
    community development entity from deciding a particular project
    in a very risky area was not as good an investment as one in an
    eligible but substantially less risky neighborhood, and what
    oversight and accountability protections does the Fund have to
    ensure that the CDE meets the requirements of the approved
    application?
        Mr. Brown. A very good question, Senator. Our allocation
    agreement is our enforcement tool that will hold a community
    development entity accountable to its application.
        Our review of the application and the highly rigorous
    process that we establish in the application will help us to
    ensure that the allocatees that receive a new markets tax
    credit allocation are committed to providing business
    strategies that we consider to be unique, flexible, and
    innovative, and that the other sections of the application
    review process will look at the impact that the organization
    has committed to make, and the market areas that they are
    committed to serve, that those elements are key components and
    conditions in the allocation agreement.
        So we are extremely committed to ensure that what the
    organization said in its application will be measured in its
    actual results and performance, and our allocation agreement is
    the tool that we will have to ensure enforcement.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Bond. Well, Mr. Brown, thank you. You may find it
    hard to believe, but I still have a number of questions that I
    will submit for the record, things about accountability, and
    one of the things that continues to come up is how we know the
    programs are effective, and again, I am very much concerned
    about making sure that needy rural areas are served, because I
    see the action going in the needy areas of our larger
    metropolitan areas, but there are a lot of the small, very
    small isolated rural communities with disadvantaged minority
    populations who just seem to be out there by themselves, so I
    will submit those questions for the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                    Question Submitted by Senator Tom Harkin
        Question. In the fiscal year 2002 appropriations, the committee
    urged CDFI to increase its activities in rural areas, especially in
    light of the abundance of Federal programs already dedicated to urban
    areas. I was pleased to see a number of awards made to rural entities
    since then. Unfortunately, it has come to my attention that a housing
    agency in Iowa was supposed to receive a grant and a zero-interest loan
    from CDFI but has been having considerable difficulty getting those
    funds released due to what I see as excessive administrative
    difficulties. A meeting occurred in my office on March 12 with your
    staff on this matter and still, little movement has occurred. I am told
    that this is not an isolated case for smaller entities trying to
    participate in CDFI programs.
        What are you doing to assure that rural and smaller community
    entities that have been certified are receiving reasonable treatment
    that will allow the purposes of CDFI to be fulfilled?
        Answer. The CDFI Fund's programs are equally accessible to
    organizations operating in both rural and urban settings. Community
    Development Financial Institutions Program and Bank Enterprise Award
    Program awardees are indeed reaching rural areas. In 2002, 60 percent
    of awardees receiving financial assistance and 50 percent of technical
    assistance awardees indicated that they served rural areas as all or
    part of their markets. On March 14, 2003, the Department of Treasury,
    through the CDFI Fund, announced the allocation of New Markets Tax
    Credit (NMTC) authority to 66 ``community development entities'', thus
    supporting $2.5 billion in private sector equity investments that will
    result in economic stimulus in low-income communities throughout the
    country. More than 30 percent of the NMTC allocation recipients will
    target investments predominantly to rural communities.
        The CDFI Fund had been working with Homeward, Inc. of Iowa to
    resolve a number of issues related to receiving its funding. At the
    March 2003 meeting with the Senator's office, Homeward, Inc. requested
    a ``severe constraints waiver'' to reduce its matching funds
    requirement. Because the CDFI Fund had never received such a request
    subsequent to an award decision, it is in the process of developing a
    policy regarding what information will be needed in order to evaluate
    such a request. The CDFI Fund will promulgate this policy as soon as it
    is finalized.

                                     ______

                   Questions Submitted by Senator Tim Johnson

        Question. What specific initiatives are being pursued at CDFI to
    enhance the Fund's effectiveness in Rural Areas?
        Answer. The CDFI Fund has focused its outreach resources in fiscal
    year 2003 on those organizations that have small and rural entities as
    their memberships, including credit unions and microloan funds. The
    CDFI Fund is exploring a partnership with the Department of Agriculture
    so that we can better communicate information about the CDFI Fund's
    programs more broadly, using that agency's network of offices around
    the country. This will enable the CDFI Fund to reach a much larger
    audience. The CDFI Fund seeks similar partnerships with other agencies
    and with foundations serving rural communities, so that information
    about the CDFI Fund's programs can be better disseminated to rural
    communities.
        Further, for fiscal year 2004, the CDFI Fund expects to modify its
    highly distressed market criteria called Hot Zones to increase the
    number of rural areas that can qualify. CDFIs serving Hot Zones are
    given highest priority for funding.
        In addition, the CDFI Fund's Native American Lending Study (the
    ``Lending Study'') released in November 2001, noted that the often-
    rural nature of Indian Lands presented barriers to economic development
    and access to credit, capital, and affordable financial services. In
    response, the CDFI Fund is implementing a comprehensive Native American
    strategy that will: (1) increase the capacity of CDFIs to respond to
    credit, investment and financial services needs within often rural and
    remote Native American, Alaska Native, and Native Hawaiian communities;
    (2) attract other existing resources to these underserved communities;
    and (3) address market barriers to effective demand for credit,
    capital, and financial services.
        Question. The CDFI Fund was established to provide flexible capital
    that strengthened CDFIs. By setting strategic goals that state that the
    Fund will achieve outcomes not related to assisting CDFIs, the Fund is
    seeking to diminish CDFIs to mere pass-through instruments for current
    Federal Government priorities. Specifically Congress intended the Fund
    to provide hard-to-raise equity capital that would allow CDFIs to
    leverage additional capital, reach deeper into communities and make
    capital available in areas not served by traditional lenders.
        How does the CDFI Fund factor in data regarding out-migration and
    population loss when evaluating CDFI applications?
        Answer. For Financial Assistance funding through the CDFI Program,
    the CDFI Fund considers five primary criteria (each of which have a
    number of sub-criteria). These are:
      --Demonstrated need for capital for particular financial products;
      --Market Need and Community Development Performance;
      --Management and Underwriting Quality;
      --Financial Health; and
      --Financial Sustainability and Matching Funds.
        Among these criteria, the Market Need and Community Development
    Performance criterion accounts for 40 percent of an applicant's total
    score. Thus, an applicant serving a highly distressed market that
    effectively describes the demand of that market for financial products
    and services and shows that it provides the services needed by that
    market, would receive the highest score.
        The CDFI Fund's strategy of targeting Hot Zones--meaning,
    investment areas that are the most economically distressed based on
    several quantifiable measures--has been further refined by identifying
    particular types of Hot Zones. ``Housing Hot Zones'' are areas that
    have low median family incomes, high homeowner or rental cost burdens
    for low-income families, and high poverty, and are the areas that are
    the hardest hit by out-migration and population loss. In the fiscal
    year 2003 funding round, CDFIs serving Hot Zones, including these
    Housing Hot Zones, will be given funding priority for awards.
        Question. What efforts have been undertaken to ensure that outcome-
    based measurements do not constrain CDFIs from pursing their intended
    mission?
        Answer. The CDFI Fund's outcome-based measures (jobs, affordable
    housing units, commercial real estate, and financial service provision)
    should not constrain CDFIs from pursuing their intended mission because
    the outcomes were designed to capture the vast majority of activities
    CDFIs engage in.
        The CDFI Fund does not specify the types of activities that CDFIs
    must engage in; rather, the CDFI Fund's rigorous underwriting criteria
    place heavy emphasis on leverage, targeting, and market need, all of
    which are consistent with CDFIs' missions of reaching underserved
    markets and achieving long-term sustainability. CDFIs that score well
    must be able to leverage the CDFI Fund's award dollars, target the most
    economically distressed areas of the country (Hot Zones), and provide
    products and services that meet the needs of those not served by
    traditional lenders.
        Finally, the CDFI Fund's strategic goal is to ``improve the
    economic conditions of underserved communities by providing capital and
    technical assistance to community development financial institutions
    (CDFIs), capital to insured depository institutions, and tax credit
    allocations to community development entities (CDEs), which provide
    credit, capital, financial services, and development services to these
    markets [emphasis added].'' One of the CDFI Fund's four objectives is
    to ``Build the self-sufficiency and capacity of CDFI Fund awardees and
    certified CDFIs.'' The performance measures for this objective include
    dollars leveraged and number of CDFIs receiving technical assistance
    awards and CDFI Fund-sponsored training. These outcomes measure the
    institutional growth of CDFIs and directly relate to the statutory
    purpose of the CDFI Fund.

                              SUBCOMMITTEE RECESS

        Senator Bond. Thank you for the testimony, and the
    subcommittee stands in recess.
        Mr. Brown. Thank you.
        [Whereupon, at 11:55 a.m., Thursday, April 10, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

                             THURSDAY, MAY 1, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:03 a.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Stevens, Shelby, Craig, DeWine,
    Hutchison, and Mikulski.

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    STATEMENT OF SEAN O'KEEFE, ADMINISTRATOR

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Welcome. The Senate VA-HUD Appropriations
    Subcommittee will come to order. Today we welcome NASA
    Administrator Sean O'Keefe and our other guests from NASA
    joining us today to testify on the President's fiscal year 2004
    budget request for the National Aeronautics and Space
    Administration, NASA.
        At the beginning of the year, I expected the NASA budget
    hearing to be a hearing of hope and optimism, of a renewed
    commitment to the International Space Station, as well as a
    continued emphasis on the importance of space and earth
    sciences. In some ways, I have not been disappointed. Mr.
    Administrator, since you took the helm of NASA, I have been
    impressed consistently with your efforts and commitment to
    ensuring the fiscal integrity of NASA's programs and activities
    while also refocusing the priorities on the International Space
    Station to ensure the station can meet its goal of its primary
    application as a working on-orbit science lab.
        Unfortunately, with the tragic loss of the Columbia orbiter
    on February 1, NASA is again at a crossroads where the Nation's
    manned space flight program must be re-examined so that we
    understand fully the risk of life that is part of every
    mission. We also must acknowledge the bravery and heroism of
    every astronaut in the space shuttle program since manned space
    fight is inherently risky and will remain inherently risky for
    the foreseeable future.
        I have been very much impressed with the Columbia Accident
    Investigation Board (CAIB) with Admiral Gehman at its helm.
    Because of the Board's fine work, I believe that we are
    beginning to gain the needed insight that will allow us to move
    past the Columbia tragedy and take the necessary steps to
    minimize the risk of a recurrent tragedy. It's only been 3
    months since the Columbia tragedy and I applaud the Board for
    its substantial progress made already on the very complex and
    serious issues that underlie this disaster.
        Without regard to the Columbia tragedy, NASA is requesting
    some $15.5 billion for fiscal year 2004, an increase of some
    $130 million over the 2003 funding level. The proposed 2004
    budget for NASA was submitted prior to the Columbia tragedy and
    the ripple effect of this tragedy inevitably will impact the
    future funding of manned space programs as well as other
    missions in the space and earth sciences programs. For example,
    we provided a down payment of $50 million for NASA to respond
    to the Columbia tragedy and we expect these costs to rise. We
    also have a very tight allocation this year for fiscal year
    2004, which regrettably could result in some significant
    reductions to a number of VA-HUD funded programs, including
    NASA programs, especially new starts. Unless we can get some
    relief, we are in for a very difficult time. However, I assure
    you that we will continue to explore avenues of getting some
    relief.
        The future of the space shuttle is a key issue for NASA as
    well as this subcommittee. I support the shuttle program and
    manned space flight, but NASA and the Columbia Accident
    Investigation Board will need to identify the key safety issues
    that must be addressed to support continued manned space
    flight. In particular, what are the key causes of the Columbia
    tragedy? What's the useful life of the remaining orbiters? And
    what alternative or successor programs to the shuttle program
    are under review by NASA? And of course, what's the timeline
    and as we must address here, the estimated cost to meet all
    these concerns?
        In addition, what's the impact of the Columbia tragedy on
    the International Space Station? I'm gratified that our
    partners in the international community have responded to the
    immediate needs of the International Space Station since the
    Columbia tragedy. This commitment by our international partners
    was most evident this past Monday when a Russian Progress
    delivered a new crew of two to the International Space Station
    with the intent of relieving the current crew of three who have
    been on station since November 25 of last year. This
    international cooperation bodes well for the future of the
    station and for our relationship with our partners to the
    International Space Station. Nevertheless, the subcommittee
    needs to understand the future expectations and potential cost
    issues facing the Space Station under this international
    partnership.
        Finally, what's the impact of the shuttle program on other
    missions, including those which are part of the earth and space
    science program? What missions have been delayed and what
    additional costs can be expected will be incurred?
        We have a number of questions on these issues and other
    concerns that I will either raise today or issue as questions
    for the record.
        We are supposed to have a vote beginning at 10:15, which is
    going to cause us an interruption. Hopefully we will see how
    far we can get and then we will recess the hearing, and whoever
    gets back here first will restart the hearing.
        But now I turn to Senator Mikulski for her comments.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman and
    welcome back. We're glad to see you on your feet again. Senator
    Bond had hip replacement surgery.
        I think we're all clear that on February 1 our Nation
    suffered this tragic loss when the Space Shuttle Columbia
    exploded and seven astronauts lost their lives, and Israel also
    shared in our grief. We all agree that the best way to honor
    those astronauts is to get back in flight again.
        But Senator Hutchison, before I talk about Columbia, I also
    would like to thank and acknowledge the wonderful work that the
    people of Texas did, working so faithfully, assiduously, and
    swiftly to recover the debris that is such an important part of
    the investigation. So for all those people in Texas and
    Louisiana, and the people coming forth with their video film, I
    think it has been a heroic and extraordinary effort, and a
    special salute to the people of Texas. It was a hard job but
    again, Texas, the Lone Star State is going to help us get back
    to the stars.
        But when we look at where we are now, I think we're all in
    agreement that there needs to be a thorough and rigorous and
    candid investigation of what went wrong. The Columbia Accident
    Investigation Board is conducting their analysis and they
    report to the Congress and the American people, and from what
    we can see, it has been with candor.
        But what I'm concerned about is as we get that report, will
    we have a direction and will we have the resources to proceed?
    My No. 1 priority, both as when I chaired this subcommittee and
    then as the ranking member, has been shuttle safety. It has
    been a shared bipartisan commitment that we would have shuttle
    safety, and this is what we need to be sure that we have
    focused on, that safety must come first no matter who is the
    chair and who is the ranking member.
        For the last 2 years we've included report language stating
    that the safety of the shuttle and its astronauts must be a
    priority and we, I think, included funds to do this. And so, my
    questions today will focus on shuttle safety.
        Also, though, there are the long-range issues at NASA that
    must be addressed. The future of the shuttle, whether the
    shuttle is whither thou goest, will it be able to go. It also
    points out an aging workforce and an aging infrastructure, and
    I am deeply concerned about these challenges.
        And then of course, the work that we continue to need to do
    in the area of space science and aeronautics that is so
    important to us. The President's budget is $15.5 billion. This
    is just a little above the 2003 level. It is a status quo
    budget. So I'm not sure, where is the money to make sure that
    the shuttle can fly again, where are we going to go in space
    science, and also, how will we pursue some very interesting new
    initiatives?
        For 2004, the budget proposes close to $4 billion for the
    shuttle. That's one-third of NASA's entire budget. This
    includes $281 million to upgrade the shuttle and its
    infrastructure. We have to see what this means and we have to
    know what your plans are.
        We have a big question mark about the Space Station budget.
    What's going to be the impact of the Columbia on the station,
    what are our international partners doing, and the whole issue
    of the astronauts currently there. Is the Soyuz or Progress
    reliable enough to get us through this difficult phase?
        There are of course the science issues. Where are we on the
    Hubble, how would we be able to service the Hubble, what will
    be able to service the Hubble? The Hubble is very special to
    those of us in Maryland because so much of the analysis is done
    over on the Johns Hopkins campus, and Goddard is its catcher's
    mitt. Hubble needs to be addressed, what we do about that, and
    where are we in the next generation.
        Then of course there is this issue of an aging workforce
    and aging systems. I understand 20 percent of NASA's scientists
    and engineers are eligible to retire within 5 years. The Apollo
    generation is retiring and again, most of the NASA centers are
    40 years old. What are we doing to get ready for the future,
    what are we going to do about those issues?
        Those are a quick thumbnail of what we want to talk about,
    the broad policy issues, and then focusing on the
    appropriations necessary to do that. And Mr. Chairman, I will
    pursue other amplified remarks as we go to the questions.
        Senator Bond. Thank you very much, Senator Mikulski. I
    share, as well, in your congratulations and thanks to the
    people of Texas, New Mexico, Louisiana and others. Your
    comments about shuttle safety are right on. We have pursued
    that. And we have been discussing the problem of the aging
    personnel at NASA, and this is a huge bow wave question coming
    down the pike that we need to review.
        I'm going to turn now to the others for their introductory
    comments. If the buzzer rings for the vote, I will turn the
    gavel over to Senator Mikulski or to anybody else who will stay
    here so we can continue with the opening statements. It takes
    me a long time to get there and to get back, so I'm going to
    start whenever it does ring.
        But with that, I believe the first one to join us was
    Senator Hutchison.

                   STATEMENT OF SENATOR KAY BAILEY HUTCHISON

        Senator Hutchison. Thank you, Mr. Chairman, and I do
    appreciate the comments of both the Chairman and the Ranking
    Member regarding the people of Texas. I have been to the area
    since the Columbia tragedy and they just were so happy to be
    able to be helpful, not happy about the situation, but they
    felt such a part of finding the answer, and the people there
    felt that it was a very important mission they had, they took
    it that way and wanted to make the contribution that I do
    believe they have made.
        I want to talk just for a minute about certainly the future
    of the shuttle, because I think it is just absolutely essential
    that we renew our commitment to the shuttle and to the manned
    shuttle, because NASA has done so much space exploration, they
    have done in the field of research and technology growth. It is
    one of the reasons that the United States has maintained its
    superiority in economic growth in the world.
        And all of the jobs that have been created from this, even
    the Columbia, have made huge contributions in scientific
    research because they were able to feed back every day, every
    hour, every minute the results of their tests. They actually
    did do some research that might one day lead to advances in the
    elimination of prostate cancer, and there were many other
    scientific experiments that we were able to retrieve even from
    the Columbia.
        I think there is no substitute for having people involved
    in the research that we are conducting. So the idea of sending
    up unmanned shuttles, which can be effective in some ways and
    for some purposes, but not as a substitute for having people
    there to do the experiments and to correct things and to
    adjust.
        Secondly, I do want to say in the budget request that I'm
    pleased to see the support for the base budget for the National
    Space Biomedical Research Institute for $30 million. I think
    this is one of the great success stories of our ongoing efforts
    with space exploration, and I think there is so much more that
    we can do in this area and we need to make sure that we have
    the capability to bring back the data that we have, and also
    have a place then to dissect and use the information. So, I am
    very pleased about that.
        In fact, I have to say that I believe NASA is getting its
    budget priorities straight. I was one of the harshest
    questioners of you, Mr. O'Keefe, because I was worried very
    much that NASA was drifting from their core experimental and
    technological advance mission. And when you came on board, you
    wanted to take a look and see what the priorities should be,
    you had your scientific mission and you said yes, in fact we
    should continue with scientific research, and you are taking
    that ball now and I think running with it as this budget shows.
    So I want to say, I am pleased with that.
        The other thing I just want to mention regarding manned
    spacecraft and shuttles is that I believe the investigation has
    been open and candid, which is very important, and certainly
    something that we learned was not the case for the Challenger,
    and it took a longer time.
        But I do hope that as things are beginning to come out, as
    this is beginning to come to closure, that you are going to
    come back to us with a system of communications from the bottom
    to the top, so that we will know that even maybe some
    irrelevant observations will be brought forward, because it's
    worth it to separate the wheat from the chaff in this instance.
    I don't know and I assume you don't know if something could
    have been done after the takeoff that would have made a
    difference, but there clearly were concerns at the bottom, and
    I think that having a communication system to assess those
    concerns and determine if in fact there is something that could
    be done is essential for manned spacecraft.

                               PREPARED STATEMENT

        So, I will say with that, that I do think we're getting on
    track, you have taken the time and I just, I have never seen a
    sadder face on any person than I saw on you following the
    Columbia accident, and I know you have taken to heart all of
    the issues that have been brought forward, and I think you are
    doing the right thing by keeping it open. And I want you to
    continue to do the right thing by keeping our priorities,
    keeping our focus, and making sure we have communications
    systems in place to implement that vision. Thank you.
        [The statement follows:]
               Prepared Statement of Senator Kay Bailey Hutchison
        Mr. Chairman, I am pleased to return to the VA-HUD/NASA
    Subcommittee, and I am more encouraged by this year's NASA budget than
    I have been in years past.
        I want to start by commending the thousands of people who have been
    involved in the recovery efforts for the Space Shuttle Columbia since
    the tragic accident on February 1, 2003. I appreciate NASA
    Administrator O'Keefe being here today to update us on the Columbia
    recovery and NASA's overall mission.
        With recovery efforts headquartered in Lufkin, Texas, significant
    progress has been made as over 5,000 workers and dozens of aircraft
    have been searching for Columbia pieces every day. The main search
    areas in Texas span along the Columbia's flight path which is 10 miles
    wide and 240 miles long. Altogether over 80,000 pieces of debris have
    been found--this amount of debris represents 38 percent of the Space
    Shuttle Columbia.
        The Space Shuttle Columbia was an important mission for scientific
    research, with more than 80 experiments aboard. With a satellite
    downlink between the Columbia and Johnson Space Center in Houston,
    scientists were able to retrieve a tremendous amount of data in real-
    time. On the Columbia, a large amount of the science was aimed at
    saving lives. With the astronauts working in 12-hour shifts so that
    experiments could continue around the clock, the crew was able to
    provide a large body of knowledge. One study involved the growth of
    prostate cancer tissue, which may potentially lead to advances in
    treatment.
        Altogether the Columbia carried four tons of scientific gear, and
    many of the experiments were designed to keep scientific studies
    underway until the International Space Station is complete. We can be
    proud of the Columbia crew for their efforts, and their ultimate
    sacrifice, to save lives here on Earth.
        On a related scientific research point, I want to say I am pleased
    to see support in the NASA Fiscal Year 2004 Budget request setting a
    base budget for the National Space Biomedical Research Institute
    (NSBRI) of $30 million. The NSBRI is one of the great success stories
    that has drawn many outstanding biomedical scientists into space life
    sciences research to solve problems and risks associated with long
    duration human space flight.
        In my view, NASA is getting its budget priorities back on track. As
    we discover the cause of the Space Shuttle Columbia tragedy, we must
    next ensure that we continue to develop a vision for the future of
    human space flight.
        Thank you.

        Senator Mikulski [presiding]. Senator Shelby.

                     STATEMENT OF SENATOR RICHARD C. SHELBY

        Senator Shelby. Thank you. Mr. O'Keefe, I want to welcome
    you here. I have a number of questions for later on. We
    appreciate what you're doing, the leadership that you brought
    in difficult times with NASA. All of us who sit on this
    committee and have funded NASA for many years, most of us, if
    not all, believe that NASA is still vastly underfunded,
    considering the potential there, the missions and so forth, and
    I want to work with you and the administration to try to get
    more funding for vital programs that come under your
    jurisdiction at NASA.
        I am just pleased that we have profited so much from the
    basic research and the technology that has been brought forth
    from your NASA's endeavors. So with that, I'm going to try to
    vote and I will be back later to get your questions. Thank you.
        Mr. O'Keefe. Thank you, sir.
        Senator Mikulski. Thank you, Senator Shelby. Senator
    DeWine.

                        STATEMENT OF SENATOR MIKE DEWINE

        Senator DeWine. Mr. O'Keefe, thank you for joining us, and
    I just want to congratulate you for the excellent job that you
    have done as administrator and really the great job that you
    have done in light of this horrible tragedy that has hit NASA.
    I think everyone is very proud of the job that you have done
    and we appreciate that very much.
        I want to join my colleague from Alabama and also say that
    I believe that NASA is underfunded and we're going to try to
    over time to work on that issue as well. I look forward to
    hearing your testimony and I appreciate you being here. Thank
    you, sir.
        Mr. O'Keefe. Thank you, sir.
        Senator Mikulski. The committee will now stand in recess
    subject to the return of the chair, and at that time we will
    take the testimony of Sean O'Keefe, the Administrator.
        Senator Bond [presiding]. All right, we will reconvene the
    hearing and now we are ready for the testimony of Administrator
    O'Keefe. Sean, please go ahead.

                           STATEMENT OF SEAN O'KEEFE

        Mr. O'Keefe. Thank you, Mr. Chairman. I appreciate the
    opportunity to be here. With your permission, I will summarize
    the statement and ask that the full statement be inserted in
    the record.
        Senator Bond. Without objection.

                        FISCAL YEAR 2004 BUDGET REQUEST

        Mr. O'Keefe. This is an opportunity to appear before the
    committee to discuss the President's Fiscal Year 2004 Budget
    proposal for $15.5 billion for NASA. This is a $500 million
    increase over last year's proposal in the 2 or 3 months after
    the submission of this one, for 2003.
        That request demonstrates the administration's continued
    confidence in NASA's ability to advance the Nation's science
    and technology agenda. It's also an opportunity, I must say
    from a personal standpoint, with the committee staff along, to
    appear here before the committee. You always treat me, Mr.
    Chairman and Senator Mikulski, as the equivalent of an amicus
    brief or friend of the court in that regard, and I thank you
    for that courtesy.
        The budget, we believe, is responsive and funds our highest
    priorities. It's credible. It builds and reserves for
    technically challenging programs, fully accounts for program
    costs, and we hope and like to think that it's a compelling
    effort which enables new initiatives tied to our strategic
    objectives. It advances our mission goals through a stepping
    stone approach for exploration objectives, and provides
    transformation of technology and capabilities for all programs
    we have open.
        The proposals embody a new strategic direction for NASA and
    how we plan to shift resources towards longer-term goals
    outlined by our mission, and it's summarized in the 2003
    strategic plan which is on the website, and there are a couple
    remarkable features to it.
        The first one is, it's short, it's readable, it's written
    in English, and it's on a website in time for submission of the
    President's budget proposal submitted in September, as it
    typically is in most Federal agencies and departments, so
    hopefully that would get some currency across the board.
        Before describing some of the objectives, sir, I would
    appreciate during my opening statement to describe a brief
    update on the Shuttle Columbia recovery efforts.

                        COLUMBIA RECOVERY EFFORT UPDATE

        The ground, air and water search for Columbia is complete.
    The base camps at Nacogdoches, Palestine, Corsicana and
    Hemphill are either closed or in the process in the next few
    days of closing. The main consolidation and operations point at
    Lufkin will close by the 9th of May, and all the effort has
    been timed not around a calendar, but based on completion of
    the recovery itself.
        The charts that we've brought along here, which I got when
    I was out there a few weeks ago reviewing the current progress,
    each of those were an attempt to give you sort of a sample of
    it, because it goes on forever. But each of these grids that
    they approach here, they would designate in a green color once
    they have completed that, that is, the U.S. Forest Service, EPA
    and NASA, and other folks that are actually searching the area.
    At this point, they are all covered. They have covered every
    single acre of the 550,000 acres that stretch along that blue
    strip there from south of Dallas-Fort Worth to the Texas-
    Louisiana border across Toledo Bend, which represents about a
    250-mile range, about 10 miles wide, and every acre of that,
    which accounts roughly to the equivalent size of the State of
    Rhode Island.
        Senator Bond. Sean, let me interrupt. Is there any pattern
    where there was significant debris, is there some kind of
    submission you can give us to show where it was found and does
    the location have importance in the assessment of the causes?
        Mr. O'Keefe. It did indeed. As a matter of fact, the
    pattern is, you can see the blue line intensifying there in
    that area. If you saw it up close, it would just be an area
    south of Dallas-Forth Worth to the far left, and the Texas-
    Louisiana border is right there at the point where it's light
    green shifting to the kind of brownish. That blue line is the
    intensity, the primary areas where it was picked up. The
    wreckage field, again, is about 10 miles wide, but that's where
    it was intensely focused.
        You're exactly right, there were certain parts and certain
    pieces which were picked in certain areas, that did after time
    start to unfold a pattern of exactly how this occurred. The
    left wing, which much has been written about, the wreckage is
    much further downstream and closer towards the Corsicana-
    Nacogdoches area which is on the left side of the debris field.
    The right wing, which stands to reason, stayed in place for a
    longer period of time and was among the last things to break
    up, as well as the crew compartment, et cetera, and these were
    closer towards the Hemphill area, which is right near the
    Louisiana border.
        So from that, we piece together a much more comprehensive
    understanding of precisely how this happened, and the Columbia
    Accident Investigation Board is coming to a conclusion on
    hypotheses and theories based on exactly that sequence, not
    only what you find but also where you find it and exactly what
    condition it's in as we move along.
        During the course of this last 90 days, all these teams
    have collected 85,000 pounds of debris, and that represents
    about 40 percent of the Columbia's weight. Of more than 80,000
    specific items that were picked up, approximately 76,000 have
    actually been tagged and identified. I was just down at Kennedy
    Space Center Monday evening, and they have identified the
    better part of them, and of the 76,000 they have actually
    arrayed out about 10 percent of it. That demonstrates exactly
    what the pattern of the wreckage will tell us occurred on that
    terrible morning.
        Of that grouping, about a thousand pieces came from the
    left wing. They have now been able to piece that together and
    to reassemble significant portions of the left wing. It will be
    nice to examine the intensity of the heat, as well as the heat
    flow demonstrated on that particular event.
        On the 29th, I met with the search teams in Lufkin, Texas.
    Again, we have essentially closed all of the four primary base
    camps, and NASA has formally acknowledged and appreciates very
    much the efforts that the folks in East Texas and West
    Louisiana have contributed in this particular effort. It is
    indescribable, the activities that all of the 120 agencies from
    the Federal, State and local activities have contributed, as
    well as that of the communities, which has been just
    overwhelming, inviting volunteers as well as Federal public
    servants into their homes during the course of this very, very
    arduous effort.
        The initial prediction was that we might find and recover
    on the order of 10 percent, maybe. We have exceeded that by a
    factor of 4, and that is largely due to the extraordinary
    efforts on the part of an awful lot of folks who live in the
    east Texas area who have been just incredible partners and
    assistance in all this.
        So Senator Mikulski, you are exactly right. I believe the
    folks in the Lone Star State have helped us return this
    particular case.
        The independent Columbia Accident Investigation Board, as
    you mentioned, Mr. Chairman, under the leadership of Hal
    Gehman, has made significant progress in organizing the work
    and again, looking at not only the facts and evidence that came
    back from the mission control information, but also a lot of
    the OEX recorder that was recovered a few weeks back. To your
    question again, Mr. Chairman, that was located in the area very
    much towards the southeast portion of this stream, right near
    the Louisiana border.
        It was found on the second pass over that same acreage.
    There has really been an incredible case of not only a lot of
    human effort of literally walking over every single acre, of
    examining the debris field itself, but also using that analysis
    to inform where other parts may be.
        To your observation, Mr. Chairman, the OEX recorder was in
    a specific compartment that we found several different pieces
    of in a very specified grid near Hemphill. Having returned
    after covering it the first time and not having found the
    recorder, and having seen the analysis that indicated here were
    all the other parts we did find, a lot of our folks asked the
    U.S. Forest Service, the EPA and our people, to go back and
    look over that acreage one more time, it covered about 5 acres,
    because if it was going to be found, it was going to be found
    in that one spot.
        On that second pass, they found it. It was really using the
    technology and analysis of what we found, where we found it,
    how it was recovered, what condition it was in that really led
    us to a lot of the efforts that have gone on here. So it has
    been an enormous effort to inform the nature of the
    investigation, and this board has really valued that
    contribution.
        We have kept the pledge, and I appreciate your comments,
    all the opening comments from members of the committee, that we
    have indeed handled this is an open manner. We are candid with
    the Accident Investigation Board even if that means that some
    of the earlier findings or theories prove to be opposite of
    that, that's fine. We're hoping that the findings and facts
    will speak for what occurred here and we continue to work with
    them to determine the nature of how this event occurred.
        I concur with you, sir, that Admiral Gehman has been
    incredibly diligent in working through this effort, and they
    have been very forthcoming in all the public hearings and press
    conferences describing exactly the direction they are moving.
    They are narrowing in on a set of theories that will be
    released in the weeks ahead.

                       HUBBLE SPACE TELESCOPE ANNIVERSARY

        I would also like to point out that the past week, on April
    24 we celebrated the 13th anniversary of the launching of the
    Hubble Space Telescope. In honor of that anniversary we
    released the Hubble image that was passed around before you,
    which we have characterized as the perfect storm of turbulent
    gases shot. It has a more formal title, the Omega Nebula, but
    it was one that was just released this past week. The image
    captures a small region within a very specific area known as
    the Omega or Swan Nebula, located about 5,500 light years away
    from the constellation Sagittarius.
        There is another one we're going to release next week, and
    as a preview of coming attractions, we have passed that around
    as well, which is the Helix Nebula. It is also just a stunning
    piece. It will be released early next week from the Hubble
    Institute as well.

                        FISCAL YEAR 2004 BUDGET REQUEST

        The Fiscal Year 2004 Budget contains 9 specific
    initiatives, 5 initial goals that again, are built on a plan
    that I like to think is very short, easily readable and
    specific.

                               PROJECT PROMETHEUS

        They include first and foremost, an effort to really
    address the power generation or power limitations and
    propulsion limitations that we currently wrestle with on every
    mission we are engaged with. We are looking for a new power
    generation and propulsion capability in the time ahead to
    accomplish not only speed, but on orbit kind of examination of
    any of the outer planetary missions we may engage in.
        Project Prometheus is our effort to do that, an ambitious
    effort to develop and to build nuclear reactors for the purpose
    of providing propulsion and power generation capabilities. We
    tend to enlist the experience of better than 40 years of our
    friends in the naval reactors community to design reactors that
    are significantly smaller than that but generate about a factor
    of 100 greater power than we currently deal with today on every
    single space probe mission.

                           HUMAN RESEARCH INITIATIVE

        The second major area I think is of particular focus as
    well, and it's also a limitation that we have dealt with for a
    long time and need to wrestle and understand better how to
    conquer. We developed a human research measure, the expanded
    biomedical research and technology development to enable long-
    duration missions on the International Space Station or any
    other vehicle as potential means of missions beyond low orbit.
        Benefits that come from this are again, just this past
    June, less than a year ago we set the longest duration U.S.
    space flight record of 196 days, Dan Bursch and Carl Walz
    accomplished that task. That was about the time it takes to get
    from here to Mars, and that's it. That's the longest we've ever
    had anyone.
        So the idea of experiencing that particular effort is a
    real challenge, because the physiological consequence of that
    is just downright profound. During the course of any stay on
    the International Space Station, every astronaut and cosmonaut
    receives the equivalent radiation of 8 chest x-rays a day.
        During the course of the missions, as we see in the case of
    Expedition 4, that Dan Bursch and Carl Walz worked through, as
    well as those who returned, Ken Bowersox, Don Pettit and
    Nikolai Budarin, they are coming back this weekend after 5\1/2\
    months up there. They will likely experience what we typically
    find of about a 30 percent muscle mass and about a 10 percent
    bone mass degeneration.
        If we can figure out ways to arrest this in this human
    research initiative that we have budgeted for and specifically
    provided a very aggressive effort to understand, better arrest
    that degeneration as well as provide for the appropriate
    shielding from exposure, that will have applications not only
    for long duration space flight and the opportunities for future
    space exploration, but it has direct applications for all of us
    here on earth.
        If we can determine how to arrest that, just the bone mass
    deterioration issue, that in turn may make you one of the few
    folks who will have to go through hip replacement in the
    future, Mr. Chairman, and hopefully accomplish that so that
    those who follow won't have to suffer the challenges that
    you're wrestling with right now.
        Senator Bond. It might be simpler if they didn't play
    rugby, but go ahead.
        Mr. O'Keefe. We'll have to look at some life habit kind of
    changes as well, I guess, but it nonetheless is an opportunity
    to apply all kinds of different applications and approaches to
    these sets of challenges here on Earth.

                       OPTICAL COMMUNICATIONS INITIATIVES

        The third area that we emphasize, the optical
    communications initiative is an investment in revolutionary
    laser communications technology that we intend to demonstrate
    on a mission to Mars later this decade, by transmitting large
    volumes of information that right now take us a ferocious
    amount of time.
        The effort that currently is underway takes us the better
    of about 2 years, these last 2, to map about 20 percent roughly
    of the planet Mars. With this particular initiative, you can do
    that in about 4 months for the entire planet. That's the
    difference in speed of communications as well as capabilities.

                           BEYOND EINSTEIN INITIATIVE

        The fourth area that you will see emphasized here is a
    beyond Einstein effort, to look at a couple of specific
    observation observatories: A deep-space gravity wave detector,
    LISA; as well as Constellation-X, a mission probing to look at
    the edge of black holes, both of which are to look at those
    theories and specifically capitalize on those efforts and
    understand what's involved.

                       CLIMATE CHANGE RESEARCH INITIATIVE

        The fifth is the climate change research initiative. The
    President has directed all of us within 11 different agencies
    to engage in and be involved with, to collect the information,
    to accelerate the research, and to key scientific uncertainties
    that inform the kind of changes that are occurring within our
    own climate here and the environment that is affected by the
    way we conduct our habits as human beings, and to collect that
    data and then inform what the appropriate protocols would be to
    alter that set of habits.

                          AVIATION SECURITY INITIATIVE

        The sixth is the aviation security initiative to expand
    research to develop technologies that will in turn, we believe,
    reduce vulnerabilities of aviation to terrorist and criminal
    attacks. The proposition that anyone could use a commercial
    airliner for the purpose of terrorizing us again ought to be
    eliminated by simply the use of technology, which would
    eliminate their capability to take over aircraft in those
    circumstances.

              NATIONAL AIRSPACE SYSTEM TRANSFORMATION AUGMENTATION

        Seventh is the national aerospace system transformation
    augmentation, which translates as trying to do better airspace
    management. It's one thing to encounter as we do nowadays,
    since September 11, a very real change in the way we conduct
    our activities for commercial transportation, and the amount of
    time we wait to go through security efforts. But it's another
    thing to have to have aircraft stacked up waiting for departure
    and landing opportunities. There's a way, I think, of improving
    that efficiency through airspace management.

                     QUIET AIRCRAFT TECHNOLOGY ACCELERATION

        Quiet aircraft technology certainly is a persistent issue
    of trying to deal with urban noise pollution and this is one of
    the things we specifically could improve.

                              EDUCATION INITIATIVE

        Finally and maybe most important in terms of our effort to
    inspire the next generation of explorers as part of our mission
    objective, we have pursued the Educator Astronaut Program which
    was announced in late January and since that time, there have
    been over 1,600 applications from educators around the country
    who seek to be astronauts as part of that effort. Better than
    8,600 people were nominated during the course of that time. The
    applications do close tomorrow, and in the course of that
    effort of that 1,600 applications, we will review in order to
    select 3 to 6.
        So the interest in the wide range of activities in the
    astronaut corps certainly is unabated as a consequence of the
    tragedy of February 1. Indeed, it may have even heightened
    since that time.
        Within the next few weeks, NASA will make 50 awards for
    NASA Explorer Schools, involving unique partnerships within
    NASA and the school teams at the middle school grade levels
    across the country to join educators, administrators, students
    and families, to sustain involvement with NASA research
    discoveries and missions.
        The budget also builds on the work of this committee and
    the Congress in the February omnibus appropriations bill
    containing many needed elements to help address key power,
    propulsion, transportation and human capability restraints.
        The budget specifically funds the International Space
    Station as you said, Mr. Chairman, in your opening statement.
    There is no difference to speak of between three different
    estimates of what it will cost, we know what that's going to
    be, and we can now develop a plan which will complete the
    International Space Station as soon as we can return to safe
    flight. It accommodates our international partner elements,
    maintains progress on research priorities, as Senator Hutchison
    alluded to in her opening statement, and continues to build out
    the International Space Station in order to then organize all
    research through a nongovernmental organization like the Hubble
    Institute to specifically organize up with the International
    Space Station the research we will do in the years ahead.

                      INTEGRATED SPACE TRANSPORTATION PLAN

        The Integrated Space Transportation Plan, which again, we
    appreciate the endorsement and support of this committee as you
    did in the Fiscal Year 2003 Budget, to specifically make
    investments in not only the service operational life efforts
    for upgrades and modernization, but the Orbital Space Plane, to
    get that started as a crew transfer vehicle between here and
    the International Space Station. And the next generation launch
    technology efforts in propulsion, structures and operations, to
    provide that future replacement for shuttle in time.

                              BUDGET RESTRUCTURING

        Along with the strategic plan that I mentioned, we're also
    submitting an integrated budget performance document and
    performance accountability report, all earlier than is
    typically required by law, in order to give some meaning to the
    context of the budget that we had planned, developed and
    released on February 3.
        The documents reflect agency improvement in specific areas
    dealing with budget restructuring in accordance with the
    committee's instruction in that regard; full-cost accounting
    and management, in order to reflect the total cost of what it
    takes to do something as opposed to having it spread throughout
    the budget and trying to find what the pieces or parts are. You
    can now look at the Fiscal Year 2004 Budget and see what the
    total expense is in order to actually carry out some task.

                         INTEGRATED BUDGET PERFORMANCE

        The third area is an integrated budget performance effort
    to try to demonstrate the linkages between performance and what
    the budget request is that we have pending before you, to
    inform the Congress of promised cost, of the schedule, of
    technical parameters to improve projects, merging the budget
    with performance plans specifically.

                     INTEGRATED FINANCIAL MANAGEMENT SYSTEM

        Then the integrated financial management system, which
    again, the endorsement of this committee has been invaluable to
    proceed with. It is our third attempt doing this and I want to
    advise you now, this one is successful, it's being implemented
    now. The last three centers, Goddard, Dryden Flight Center out
    in California, and the final one is--I'm sorry, the third one
    escapes my memory for the moment, but the other three, they
    will be implemented by June. The rest are already on this
    system and that core financial system is operating today. So by
    July, there will be one financial system at the National
    Aeronautics and Space Administration.

                          AUDITED FINANCIAL STATEMENTS

        Finally, on this vein, we have completed and have extended
    dialogue last year, if you recall before this committee, on the
    audited financial statements. We have received a clean opinion
    this year, unqualified, our books are in order. We have a lot
    of work to do to maintain that, and a lot of what's been
    involved in implementing the Integrated Financial Management
    Program into that one core financial system is going to help us
    achieve that year after year. I don't anticipate a repeat of
    last year's disqualified opinion.

                           HUMAN RESOURCE CHALLENGES

        And in conclusion, let me just offer a thought that Senator
    Mikulski introduced in her opening statement as it pertains to
    the human resource challenges we have. Indeed, that is a matter
    that we are really deeply concerned about, but can get ahead of
    now if we do some things today and in the future, very near
    future, in order to look to recruit, retain, as well as
    professional development of those who are within the Agency
    today.

                               PREPARED STATEMENT

        The President submitted legislation back in June of last
    year that would provide those specific tools. There are two
    pieces of legislation introduced, with Senator Voinovich here
    in the Senate, as well as over in the House, have introduced
    legislation that specifically moves those initiatives forward,
    and we seek enactment of those as soon as is possible in order
    to develop those tools, use them, and get ahead of this
    particular bow wave of retirements that we see looming here in
    the very, very near future. So it's an opportunity today to
    deal with that, as opposed to dealing with it in a crisis
    condition just a couple years from now.
        Mr. Chairman, again, thank you very much for your
    indulgence. I appreciate the opportunity to be here.
        [The statement follows:]

                       Prepared Statement of Sean O'Keefe

        Mr. Chairman and Members of the Subcommittee, I appreciate the
    opportunity to appear before the Subcommittee today to discuss the
    President's fiscal year 2004 budget proposal of $15.47 billion for
    NASA. The President's request demonstrates the Administration's
    continued confidence in NASA's ability to advance the Nation's science
    and technology agenda.
        We come together to discuss NASA's space research and exploration
    agenda, and our efforts to advance aviation safety and efficiency in
    this Centennial of Flight year, still mourning the tragic loss of the
    courageous crew of the Space Shuttle Columbia. Before I discuss the
    details of the budget, I would like to provide the Subcommittee an
    update about the on-going investigation.
        Since the tragic loss of Columbia, our work continues to honor the
    solemn pledge we've made to the families of the astronauts and to the
    American people that we will determine what caused the loss of Columbia
    and its crew, correct what problems we find, and safely continue with
    the important work in space that motivated the Columbia astronauts and
    inspires millions throughout the world. A grateful Nation has laid to
    rest with full honors, six American heroes: Rick Husband, William
    McCool, Mike Anderson, Dave Brown, Kalpana Chawla and Laurel Clark. The
    people of the state of Israel also paid their final respects to
    Israel's first astronaut, Ilan Ramon. At all these ceremonies, NASA was
    represented by myself and/or other appropriate Agency officials. We
    continue to be sensitive to, and supportive of, the needs of the
    astronauts' families and will be at their side as long as our support
    is desired by them.
        I am pleased to note that the Columbia Orbiter Memorial Act was
    part of the ``Emergency Wartime Supplemental Appropriations Act,
    2003,'' signed by the President on April 16, 2003. I want to personally
    thank Senator Stevens for introducing the legislation on March 18, and
    Senators Bond and Mikulski for co-sponsoring this legislation that
    honors the fallen heroes of STS 107. NASA is grateful for your
    leadership and support. The legislation authorizes construction of a
    memorial at Arlington National Cemetery near the memorial to the crew
    of the Space Shuttle Challenger. The legislation also authorizes NASA
    to collect gifts and donations, over the next five years, for the
    Columbia Memorial. It also permits NASA to erect other appropriate
    memorials or monuments with private donations. The law allows NASA to
    transfer collected money or property for the fund to the Secretary of
    the Army to defray expenses. Memorial fund procedures will be
    established and announced in the near future.
        Columbia Recovery operations, which began as soon as it became
    clear that Columbia was lost, have continued on the ground, in places
    along the Shuttle's reentry path, stretching from San Francisco,
    California to Lafayette, Louisiana. We continue to send everything we
    find to the Kennedy Space Center in Florida for assembly and analysis
    as part of the Columbia Accident Investigation Board's comprehensive
    accident investigation. In addition, we are appreciative of the fact
    that the fiscal year 2003 Omnibus Appropriations Act included $50
    million in funding to help pay for the costs of the recovery operation
    and accident investigation by the Columbia Accident Investigation
    Board. We have established a new accounting code in the NASA financial
    system to capture the agency's costs associated with Columbia recovery
    and investigation, titled Columbia Recovery and Investigations. We are
    monitoring very closely the costs associated with this effort and we
    will ensure that the Congress is kept apprised of this effort. The
    Federal Emergency Management Agency is shouldering the resources
    required by other public agencies at the Federal, state, and local
    levels.
        The ground, air, and water search for Columbia debris is
    essentially complete. This search has been extremely helpful to the
    investigation. NASA is deeply grateful for the support we have received
    during recovery operations from the more than 6,000 men and women from
    the Department of Homeland Security, Federal Emergency Management
    Agency, Environmental Protection Agency, Federal Bureau of
    Investigation, Department of Defense, Department of Transportation,
    U.S. Forest Service, U.S. Park Service, Texas and Louisiana National
    Guard, state and local authorities, and private citizen volunteers who
    have helped us locate, document, and collect debris.
        I am saddened to note that one of the helicopters searching for
    debris from the Space Shuttle Columbia crashed in the Angelina National
    Forest in east Texas on March 27. The pilot and a Forest Service Ranger
    were killed in the crash, and three other crewmembers were injured. Our
    thoughts and prayers go out to the families of the helicopter crew
    members killed in the accident. We deeply empathize with their loss at
    such a trying time. We also pray for the speedy recovery of the injured
    crew members.
        I returned to Palestine, Lufkin and Hemphill, Texas on April 16,
    where I met with many of the volunteers in the surrounding area who are
    involved in the Columbia recovery effort. I saw firsthand their
    dedication and I can report to the Subcommittee that morale is high and
    the continued commitment is strong to recover as much of Columbia as we
    can. The NASA family is grateful for their assistance. On April 29, I
    met again with the search teams as NASA formally celebrated and
    acknowledged all of their outstanding contributions since February 1.
    As of that time, all ground, air and water search operations were on
    track for completion in early May and the search base camps will be
    closed by May 10.
        At the peak of the Columbia debris recovery efforts nearly 6,000
    personnel working in Texas and Louisiana were involved in Shuttle
    recovery operations. The field operations involve three main
    components--ground, air, and water search efforts--to search an area of
    250 miles long by 10 miles wide. In each of these operations the
    searchers, NASA engineers, and EPA technicians are working side-by-
    side.
        The ground search depends on fire crews from 42 States, operating
    out of four base camps, supported by two local logistics centers. So
    far, they have searched over 525,000 acres. The air search depended on
    35 helicopters operating out of two air bases, each staffed by forest
    service pilots and NASA engineers. They have searched nearly 2 million
    acres.
        The search of Lake Nacogdoches and the Toledo Bend Reservoir
    depended on the collaborative efforts of 66 United States Navy and
    state Police divers and a team of side-scan and multi-beam sonar
    analysts. In total, 3,100 targets were cleared in Toledo Bend, 365 in
    Lake Nacogdoches and many targets in a dozen small ponds throughout
    East Texas. The total water area searched was nearly 18 square nautical
    miles. No Columbia debris was recovered.
        The meticulous search for evidence is resulting in important clues
    that will assist the work of the Columbia Accident Investigation Board.
    As of April 28, nearly 85,000 pounds of debris have been recovered,
    representing approximately 38 percent of Columbia's dry weight. Of the
    more than 80,000 specific items recovered from the accident, more than
    nearly 76,000 have been identified, with 702 of these coming from the
    left wing of the Orbiter.
        Through the assistance of research institutions and helpful
    citizens, we have received video tapes that document Columbia's final
    moments as it streaked across the southwestern United States. The
    videos pick up Columbia as it approached the coast of California and
    cover most of its flight path toward the skies over East Texas, with
    the exception of some gaps in video coverage of Columbia's flight path
    over sparsely populated areas of eastern New Mexico and northwestern
    Texas. The video imagery is being used along with radar and telemetry
    data to help engineers determine the potential location of debris that
    was shed from Columbia.
        The Independent Columbia Accident Investigation Board under Admiral
    Gehman has made significant progress in organizing its work to
    determine the cause of the accident. NASA has kept its pledge to fully
    cooperate with the work of the Board, and has taken the necessary steps
    to ensure the Board's complete independence.

                 IMPLICATIONS OF SUSPENSION OF SHUTTLE FLIGHTS

        The ISS Expedition 6 crew--Commander Ken Bowersox, Science Officer
    Donald Pettit and Cosmonaut Flight Engineer Nikolai Budarin--have been
    performing science while performing routine ISS maintenance on orbit.
    The Expedition 7 crew--Edward Lu and Yuri Malenchenko--arrived at the
    ISS early Monday, April 28, and received turnover briefings from the
    Expedition 6 crew who returned to Earth on Saturday, May 3 in Soyuz 5S.
    There are no threats to the ISS or its crew in the near-term, and we
    are working options to be able to sustain both over the long-term. All
    remaining U.S. manufactured ISS hardware for the Core Complete
    configuration has been delivered to KSC and element ground processing
    is on schedule. Delivery of Node 2, built for NASA by the European
    Space Agency, is on schedule for shipment to the Kennedy Space Center
    later this month. Ground processing will continue until ready for
    Shuttle integration. Only one ISS mission, STS-118, in the critical
    path to U.S. Core Complete was manifested on Columbia. The primary
    mission objective of STS-118 is the transfer and installation of the S5
    Integrated Truss assembly to the S4 Truss. While the manifest for the
    remaining three Orbiters will need to be adjusted to accommodate this
    flight, all other previously scheduled ISS assembly missions will be
    flown in their original order. A revised U.S. Core Complete assembly
    schedule will be confirmed when the Shuttle is ready to return to
    flight status.
        In the absence of Space Shuttle support, NASA is addressing
    contingency requirements for the ISS for the near- and long-term. As I
    said earlier, there is no immediate danger to the Expedition 6 or 7
    crew. In order to keep the crew safe, however, we must ensure that they
    have sufficient consumables, that the ISS can support the crew, and
    that there is a method for crew return available. Working closely with
    our international partners, we have confirmed that there is sufficient
    propellant on-board the ISS to maintain nominal operations through the
    end of this year. With the docking of the Progress re-supply spacecraft
    on February 4 (ISS Flight 10P), the crew has sufficient supplies to
    remain on the ISS through June without additional re-supply. As we move
    beyond June, however, potable water availability becomes the
    constraining commodity. We are currently working closely with our
    Russian partner, Rosaviakosmos, to explore how best to address this
    issue on future near-term ISS re-supply missions. A Soyuz spacecraft
    (ISS Flight 6S) that brought the Expedition 7 crew to the ISS will
    remain docked and serves as a rescue vehicle for crew return in the
    event of a contingency. These Soyuz spacecraft have an on-orbit
    lifetime limitation of approximately 200-210 days, and must be replaced
    periodically.
        The ISS, now in its third year of human occupancy, represents an
    important milestone in history. Due to this capability, humans are now
    able to permanently occupy the realm outside of Earth and are actively
    conducting ambitious research spanning such scientific disciplines as
    human physiology, genetics, materials science, Earth observation,
    physics, and biotechnology.
        Columbia was the orbiter that was to have been used for the 4th
    servicing mission of the Hubble Space Telescope (HST) planned for
    November 2004. NASA can continue to service the HST, and any Orbiter is
    capable of supporting HST servicing missions. Furthermore, the HST is
    performing well, and is a robust observatory in no immediate need of
    servicing. Should a delay in the planned servicing mission occur that
    impacts the Telescope's ability to perform its science mission, HST can
    be placed in safe mode until a servicing mission can be arranged.

                        ANTICIPATING A RETURN TO FLIGHT

        We have begun prudent and preliminary planning efforts to prepare
    for ``return to flight'' in order to be ready to implement the findings
    of the Columbia Accident Investigation Board. NASA's ``Return to
    Flight'' analysis will look across the entire Space Shuttle Program and
    evaluate possible improvements for safety and flight operations that we
    were considering prior to the Columbia accident. I have selected Dr.
    Michael A. Greenfield, Associate Deputy Administrator for Technical
    Programs, to lead our Return to Flight team along with William Readdy,
    Associate Administrator for Space Flight. This team will be composed of
    a number of key officials and safety professionals from within the
    space flight community. Their experience in shuttle operations and the
    investigation to date will provide a sound foundation for this critical
    activity.

                        FISCAL YEAR 2004 BUDGET REQUEST

        On that sunny Saturday morning, February 1st, as I awaited the
    landing of the Columbia, I was contemplating my return to Washington,
    D.C., to prepare for the release of NASA's fiscal year 2004 budget. We
    had worked aggressively over the past year to develop a new Strategic
    Plan and fashion a budget to make it a reality. I was excited about
    announcing these plans with the release of the President's fiscal year
    2004 Budget in two days. I had no idea how that tragic morning would
    change my focus over these ensuing weeks. During the days that
    followed, I was asked whether the Columbia accident would force us to
    toss aside our budget and long-range plans. Mr. Chairman, I will tell
    you as I told them, I think not. A test of any long-term plan is
    whether it can accept the inevitable setbacks and still achieve its
    goals. That is my hope for our plan.
        Mr. Chairman, in light of the recent tragic loss of Columbia, we
    must recognize that all exploration entails risks. In this, the
    Centennial Year of Flight, I am reminded of an accident that occurred
    just across the river at Ft. Myer in 1908 onboard the Wright flyer. The
    Wright brothers were demonstrating their flying machine to the U.S.
    Army, and a young lieutenant was riding as an observer. The flyer
    crashed, and Lt. Thomas Selfridge died of head injuries, thus becoming
    the first fatality of powered flight. From that accident in 1908 came
    the use of the crash helmet. So too from Columbia we will learn and
    make human space flight safer.
        Although the budget proposal was prepared prior to the loss of
    Columbia and its crew, I am convinced that NASA's fiscal year 2004
    budget proposal is responsible, credible, and compelling. It is
    responsible by making sure that our highest priorities are funded; it
    is credible by ensuring that adequate budget is built into the most
    technically challenging programs, and that we will fully account for
    the costs of all our programs; and, it is compelling by allowing NASA
    to pursue exciting new initiatives that are aligned with our strategic
    objectives. As I mentioned previously, the President's fiscal year 2004
    budget request for NASA is $15.47 billion. While I will not rule out
    potential adjustments to this proposal that may be appropriate upon
    completion of the independent Gehman Board investigation, I look
    forward to discussing the fiscal year 2004 budget request and how it
    advances our mission goals of understanding and protecting the home
    planet, exploring the Universe and searching for life, and inspiring
    the next generation of explorers, and, in so doing, honoring the legacy
    of the Columbia astronauts.

                           ESTABLISHING OUR BLUEPRINT

        Today's discussion is about more than changes in the budget--which
    is usually just a discussion over how one might change a few percent of
    one's budget from the year to year--but instead it is about a new
    strategic direction for NASA and how we are planning to shift our
    resources toward our longer-term goals. In April 2002, I gave a speech
    at the Syracuse University that espoused a new Vision and Mission for
    NASA. There are only 13 words in NASA's Vision and 26 words in NASA's
    Mission, but every word is the product of extensive senior leadership
    debate within NASA. And what you see in our new Strategic Plan is the
    product of those discussions, and the product that the entire NASA team
    is committed to delivering for the American people. Indeed, we did not
    need to release this Strategic Plan with our budget--after all, the law
    stipulates September 2003--but we felt that if we are serious about our
    Vision and Mission, we must have it during our budget deliberations and
    release it simultaneous with our budget.
        NASA's strategy for the future represents a new paradigm. In the
    past, we achieved the marvel of the moon landing, an incredible
    achievement that has shaped much of NASA today, driven by a great
    external event--the Cold War--that allowed our Nation's treasury to be
    aggressively spent on such a goal. Today, and in the decades since
    Apollo, NASA has had no comparable great external imperative. This,
    however, does not mean that we cannot lift our eyes toward lofty goals
    and move up the ladder--using the stepping stones we have identified.
    We believe that we can make great strides in our exploration goals--not
    on some fixed timescale and fixed location--but throughout our solar
    system with ever more capable robotic spacecraft and humans to enable
    scientific discovery. Hence, we will not be driven by timeline, but by
    science, exploration, and discovery. We will pursue building blocks
    that provide the transformational technologies and capabilities that
    will open new pathways. We can do this within our means. And if someday
    there is an imperative or new discovery that pushes us further, we will
    be ready and well along the way.
        To be successful, we will transform ourselves as follows:
      --All investments will contribute to our goals and traceable to the
            Vision and Mission. Every NASA program and project must be
            relevant to one or more of the goals, and perform successfully
            against measures.
      --Human space flight capabilities will be enhanced to enable research
            and discovery. We will continue to expand human presence in
            space--not as an end in itself, but as a means to further the
            goals of exploration, research, and discovery.
      --Technology developments will be crosscutting. We will emphasize
            technologies with broad applications, such as propulsion,
            power, computation, communications, and information
            technologies.
      --Education and inspiration will be an integral part of all our
            programs. We will track performance of our education programs
            like that of any other NASA activity.
      --We will operate as One NASA in pursuit of our Vision and Mission.
            We will reinforce the shared commitment of all NASA employees
            to our common goals.
      --As Only NASA Can: We will pursue activities unique to our Mission--
            if NASA does not do them, they will not get done--if others are
            doing them, we should question why NASA is involved.

                          STRENGTHENING OUR FOUNDATION

        This building block and stepping stone approach already has one
    important brick in place: the fiscal year 2003 Omnibus Appropriations
    Act, signed by the President on February 20. The fiscal year 2003
    appropriation contains many of the needed elements that will help NASA
    address important constraints in power, transportation, and human
    capabilities. The fiscal year 2003 budget contains funding for NASA's:
      --Nuclear Systems Initiative to develop new power and propulsion
            technologies that will enable solar system exploration missions
            that are inconceivable with current conventional chemical
            propulsion systems. This initiative has been incorporated in
            Project Prometheus as part of our fiscal year 2004 Budget
            request.
      --International Space Station (ISS), including full funding to assure
            we can successfully reach the milestone of U.S. Core Complete--
            which will enable accommodation of International Partner
            elements--maintain progress on long-lead items for enhanced
            research, and continue to build out this research laboratory
            platform for overcoming human limitations in space. It also
            includes authority to proceed with establishment of a Non-
            Governmental Organization (NGO) for ISS research. This funding
            and authority builds on our major achievements over the past
            year. We have received endorsements by two independent cost
            teams that deemed the program's cost estimates as ``credible''
            and the ISS Management and Cost Evaluation (IMCE) independent
            task force, chaired by Tom Young, that commended our progress
            against their recommended management reforms. We have revamped
            our science program towards the highest priority research as
            identified by the Research Maximization and Prioritization
            (ReMAP) independent task force. We have put in place a new
            management team to control program content, ensure science
            requirements are met, and refocus program from development to
            operations. Finally, we are implementing new financial
            management tools to better manage our resources.
      --Integrated Space Transportation Plan (ISTP) that will address our
            Nation's near and mid-term requirements in human space flight
            by making investments to extend the Shuttle's operational life
            for continued safe operations; developing a new Orbital Space
            Plane to provide a crew transfer capability as early as
            possible to assure access to and from the International Space
            Station; and, funding next-generation launch vehicle technology
            in such areas as propulsion, structures, and operations. Since
            providing our ISTP as part of the fiscal year 2003 budget
            amendment in November 2002, we have moved out aggressively on
            this roadmap. We are refining the Shuttle's Service Life
            Extension Program to better identify priorities and long-term
            investments. We also have completed top-level requirements for
            the Orbital Space Plane Program and awarded contracts to
            address priority technologies and areas of risk. Finally, we
            are refining our investments in long-term launch technologies
            as part of our recently initiated space architecture
            activities. We believe the ISTP is a good plan, but we are
            committed to re-examining it if necessary in light of future
            investigation findings on Columbia.
        We must ensure that we have a sound foundation--our people,
    processes, and tools--from which to build our programs. It is only from
    such a sound foundation that we can go forward to more ambitious plans.
    We have placed the highest priority on achieving the goals of the
    President's Management Agenda, which contain five Government-wide
    initiatives that promise to significantly improve our management
    foundation:
      --Human Capital.--We have begun to implement our strategic human
            capital plan, including a tracking system to identify workforce
            deficiencies across the Agency. I will address this very
            important issue at the conclusion of my remarks.
      --Competitive Sourcing.--We have achieved the government-wide, 15
            percent competitive sourcing goal, and are pursuing, wherever
            feasible, new opportunities for competition, including the
            renewal of contracts.
      --Financial Performance.--We have addressed all issues contained in
            the disclaimer opinion on NASA's 2001 audit and been given a
            clean opinion for 2002.
      --E-Government.--We are addressing information technology security
            issues and reviewing and enhancing other IT capabilities.
      --Budget & Performance Integration.--We are budgeting for the full
            cost of NASA's programs and have integrated our budget and
            performance plan starting with fiscal year 2004 Budget.
        Mr. Chairman, I would like to specifically highlight NASA's newest
    Enterprise, Education. The Education Enterprise was established in
    2002, to inspire more students to pursue the study of science,
    technology, engineering and mathematics, and ultimately to choose
    careers in those disciplines or other aeronautics and space-related
    fields. The new Enterprise will unify the educational programs in
    NASA's other five enterprises and at NASA's 10 field Centers under a
    One NASA Education vision. NASA's Education vision will permeate and be
    embedded within all the Agency's activities.

                     LINKING INVESTMENTS TO STRATEGIC PLAN

        Simultaneously with the submission of the President's fiscal year
    2004 budget request, we submitted to the Congress the Agency's new
    Strategic Plan, our Integrated Budget and Performance Document, and our
    Performance and Accountability Report. I believe the sweeping changes
    we are proposing in our fiscal year 2004 Budget represent the most
    ambitious in our history and will enable us to vastly improve our
    ability to align our investments with our goals, assess progress, and
    make sound economic and technical decisions based on accurate and
    timely information. These improvements include:
      --Budget Restructure.--In response to our new Strategic Plan, we have
            restructured our budget. NASA's new Strategic Plan recognizes
            that we are organized by those Mission-driven activities that
            deliver our end products--Space Science, Earth Science,
            Biological and Physical Research, Aeronautics, and Education--
            and by those activities--International Space Station, Space
            Shuttle, Space Flight Support, and Crosscutting Technology--
            that enable our Mission-driven activities to succeed. To mirror
            the organization of activities in our Strategic Plan into
            mission-driven efforts and supporting capabilities, and to
            recognize the reality that there is no arbitrary separation
            between human and science activities, the fiscal year 2004
            budget replaces the previous structure with two new
            appropriation accounts: Science, Aeronautics and Exploration;
            and, Space Flight Capabilities. For fiscal year 2004, the
            request includes $7.661 billion for Science, Aeronautics and
            Exploration and $7.782 billion for Space Flight Capabilities.
              Furthermore, the budget is structured in 18 goal-oriented
            Themes, which aggregate programs to be managed as a business
            portfolio in pursuit of common goals and performance measures.
      --Full Cost Accounting and Management.--In a landmark event, we have
            allocated all our costs by program areas. Throughout our
            history, NASA has treated the cost of institutional activities
            (personnel, facilities, and support) separate from the programs
            they benefit. This has made economic trades difficult to
            analyze. In this budget, we have placed all costs against
            programs so that, for the first time, we can readily determine
            the true total costs of programs and allow managers to make
            more efficient and effective choices.
      --Integrated Budget and Performance Document.--We have revamped our
            Congressional justification with a new document that merges our
            restructured budget with our performance plan. The document
            highlights the 18 themes and associated performance measures.
            Moreover, it clearly identifies projects approved for full
            scale development, including promised cost, schedule, and
            technical parameters.
      --Integrated Financial Management System.--After a decade of trying,
            we are successfully bringing online a new integrated financial
            management system. For the first time in the agency's history,
            we will have one financial system for all our Field Centers, a
            major step in our One NASA goal. The core financial module will
            replace the legacy systems at all our Centers by this summer.
            This new system implementation is critical for enabling
            successful management of the budget, cost, performance, and the
            accounting changes mentioned above. Moreover, this new system
            will significantly enhance our ability to maintain a clean
            financial audit opinion.

                      PURSUING CRITICAL NEW OPPORTUNITIES

        At NASA, we are developing building blocks that open new pathways
    of exploration and discovery. Today, our telescopes peer billions of
    years into the past to witness the beauty and unlock the mysteries of
    the early universe. Our satellites view the entire planet from space,
    allowing us to study global change and its consequences for life on
    Earth. Our spacecraft travel throughout the solar system and into the
    uncharted territories beyond, exploring the processes that have led to
    the incredible diversity of the planets and the emergence of life. Our
    aeronautics research has given people the routine ability to travel
    safely and reliably all around the world. Our astronauts are living and
    working in space, and from them, we are learning how to expand our
    sphere of exploration far beyond the bounds of Earth.
        But, our ability to fully achieve our Mission is constrained by the
    need for new technologies that can overcome our current limitations. We
    must provide ample power for our spacecraft as well as reliable and
    affordable transportation into space and throughout the solar system.
    We must deploy innovative sensors to probe Earth, other planets, and
    other solar systems. We must be able to communicate large volumes of
    data across vast distances, so that we can get the most from our
    robotic explorers. And we must learn to mitigate the physiological and
    psychological limitations of humans to withstand the harsh environment
    of space.
        To address these and other challenges, we must build upon the
    strategic investments we are making in the fiscal year 2003 Budget and
    pursue critical new opportunities. Consequently, our fiscal year 2004
    Budget request includes nine new initiatives:
      --Project Prometheus will use breakthrough nuclear propulsion and
            power systems to fuel an ambitious mission to Jupiter's icy
            moons, which astrobiologists believe could harbor organic
            material, and lay the groundwork for even more ambitious
            exploration missions in the coming decades. The fiscal year
            2004 budget request includes $93 million for this initiative,
            and $2.07 billion over five years.
      --Human Research Initiative will conduct biomedical research and
            develop technologies to enable safe and efficient long-duration
            space missions, including potential future missions beyond low-
            Earth orbit. This initiative will provide knowledge and
            technology for efficient life support on the ISS, and has
            potential medical benefits for millions here on Earth. The
            fiscal year 2004 budget request includes $39 million for this
            initiative, and $347 million over five years.
      --Optical Communications Initiative will invest in revolutionary
            laser communications technologies that will allow planetary
            spacecraft to transmit large volumes of scientific information,
            and will be demonstrated on a Mars mission in 2009. The fiscal
            year 2004 budget request includes $31 million for this
            initiative, and $233 million over five years.
      --Beyond Einstein Initiative will launch two Einstein Observatories:
            LISA (Laser Interferometer Space Antenna), a deep-space-based
            gravity wave detector that will open our eyes to the as-yet-
            unseen cosmic gravitational radiations; and Constellation-X, a
            mission that will tell us what happens to matter at the edge of
            a black hole. In addition, the fiscal year 2004 budget request
            provides funding to initiate Einstein Probes, three spacecraft
            that will answer: ``What powered the Big Bang?'' (the Inflation
            Probe); ``How did black holes form and grow?'' (the Black Hole
            Finder Probe); and, ``What is the mysterious energy pulling the
            Universe apart?'' (the Dark Energy Probe). The fiscal year 2004
            budget request includes $59 million for this initiative, and
            $765 million over five years.
      --Climate Change Research Initiative is an interagency effort to
            accelerate research targeted at reducing key scientific
            uncertainties to help the Nation chart the best course forward
            on climate change issues. The fiscal year 2004 budget request
            includes $26 million for this initiative, and $72 million over
            five years.
      --Aviation Security Initiative will develop technologies to help
            reduce the vulnerability of aviation to terrorist and criminal
            attacks. The fiscal year 2004 budget request includes $21
            million for this initiative, and $225 million over five years.
      --National Airspace System Transformation Augmentation will
            accelerate the development of technology to help address
            efficiency, capacity and security needs. The fiscal year 2004
            budget request includes $27 million for this initiative, and
            $100 million over five years.
      --Quiet Aircraft Technology Acceleration will develop technology to
            help significantly reduce community noise impact and achieve
            significant savings in amelioration programs. The fiscal year
            2004 budget request includes $15 million for this initiative,
            and $100 million over five years.
      --Education Initiative includes funding for NASA's Educator Astronaut
            Program (EAP), NASA Explorer Schools, NASA Explorer Institutes,
            and Scholarship for Service. As NASA's EAP approaches the April
            30, application deadline, NASA has received more than 1245 EAP
            applications. The fiscal year 2004 budget request includes $26
            million for this initiative, and $130 million over five years.
        While there has been additional funding provided to NASA's previous
    five-year budget runout to provide for these new initiatives, the
    balance of the funds for the initiatives has resulted from
    reprioritization of future funding to more appropriately pursue the
    Agency's Vision/Mission and goals. These initiatives will plant the
    seeds to enable future achievements. From them, we will continually
    advance the boundaries of exploration and our knowledge of our home
    planet and our place in the universe. We seek answers along many paths,
    multiplying the possibilities for major discoveries. The capabilities
    we develop may eventually enable humans to construct and service
    science platforms at waypoints in space between Earth and the Sun.
    Someday, we may use those same waypoints to begin our own journeys into
    the solar system to search for evidence of life on Mars and beyond.
        Mr. Chairman, as I indicated above, there is one additional point
    that I wish to make. I would like to briefly discuss the state of our
    workforce, the lifeblood of this Agency. Last year, NASA submitted to
    the Congress a series of legislative proposals to help the Agency
    reconstitute and reconfigure our workforce. These provisions, for the
    most part, mirrored tools contained in the President's proposed
    Managerial Flexibility Act, and three of them have since been enacted
    on a Government-wide basis in the Homeland Security Act. NASA's
    workforce is an aging workforce. At the time of Apollo 17, the average
    age of the young men and women in Mission Control was 26 years; today,
    we have three times as many personnel over 60 years of age as under 30
    years of age. Within five years, nearly 25 percent of NASA's current
    workforce will be eligible to retire. Since 1999, there have been at
    least 18 studies and reports concerning the workforce challenges facing
    NASA. The potential loss of this intellectual capital is particularly
    significant for this cutting-edge Agency that has skills imbalances.
        Chairman Boehlert introduced H.R. 1085, the NASA Flexibility Act,
    which provides many of the human capital provisions that we feel are
    critical in our ability to reconstitute and reconfigure the NASA
    workforce. We support those provisions that are identical to the NASA
    human capital legislation submitted by the Administration in the last
    Congress; I am hopeful that these provisions will be enacted
    expeditiously this year, and ask for the Subcommittee's support of
    these important proposals.
        In addition, the Senate Subcommittee on Oversight of Government,
    Management, Restructuring and the District of Columbia of the Committee
    on Government Affairs held a hearing on March 6 on NASA's workforce
    challenges, and the Committee is moving forward with S. 610, which is
    critical to NASA's ability to reconstitute and reconfigure our
    workforce. We support those provisions that are identical to the NASA
    human capital legislation submitted by the Administration in the last
    Congress; I am hopeful that these provisions will be enacted
    expeditiously this year, and ask for the Subcommittee's support for
    these important proposals.
        Mr. Chairman, appended to my testimony, as Enclosure 1, is a chart
    displaying NASA's fiscal year 2004 five-year budget request. Also
    appended, as Enclosure 2, is a summary of the significant progress that
    NASA has made in the past year on a number of important research and
    exploration objectives, and a detailed summary of NASA's fiscal year
    2004 budget request.
        The Columbia accident has reminded me that we cannot stop dreaming.
    We cannot stop pursuing our ambitious goals. We cannot disappoint
    future generations when we stand at the threshold of great advances.
    Mr. Chairman, I believe that NASA's fiscal year 2004 budget request is
    well conceived and worthy of the favorable consideration by the
    Subcommittee. I am prepared to respond to your questions.

                             ENCLOSURE 1.--NATIONAL AERONAUTICS AND SPACE ADMINISTRATION PRESIDENT'S FISCAL YEAR 2004 BUDGET REQUEST
                                                             (Budget authority, dollars in millions)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Full Cost
                                                   Business ------------------------------------------------------------------
                                                   as Usual     Est.
      By Appropriation Account/By Enterprise/By     Pres.      Pres.                                                                   Chapter Number
                        Theme                        Bud.       Bud.      Fiscal     Fiscal     Fiscal     Fiscal     Fiscal
                                                    Fiscal     Fiscal   Year 2004  Year 2005  Year 2006  Year 2007  Year 2008
                                                  Year 2003  Year 2003
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Science, Aeronautics & Exploration..........      7,015      7,101      7,661      8,269      8,746      9,201      9,527  SAE SUM 1
        Space Science...........................      3,414      3,468      4,007      4,601      4,952      5,279      5,573  SAE 1
            Solar System Exploration............        976      1,046      1,359      1,648      1,843      1,952      2,054  SAE 2
            Mars Exploration....................        496        551        570        607        550        662        685  SAE 3
            Astronomical Search for Origins.....        698        799        877        968      1,020      1,022      1,061  SAE 4
            Structure & Evolution of the Univ...        331        398        432        418        428        475        557  SAE 5
            Sun-Earth Connections...............        544        674        770        959      1,111      1,169      1,216  SAE 6
            Institutional.......................        370  .........  .........  .........  .........  .........  .........

        Earth Science...........................      1,628      1,610      1,552      1,525      1,598      1,700      1,725  SAE 7
            Earth System Science................      1,249      1,529      1,477      1,440      1,511      1,606      1,629  SAE 8
            Earth Science Applications..........         62         81         75         85         87         94         96  SAE 9
            Institutional.......................        318  .........  .........  .........  .........  .........  .........

        Biological & Physical Research..........        842        913        973      1,042      1,087      1,118      1,143  SAE 10
            Biological Sciences Research........        245        304        359        399        453        456        481  SAE 11
            Physical Sciences Research..........        247        351        353        392        380        409        401  SAE 12
            Commercial Research & Support.......        170        254        261        251        254        253        262  SAE 13
            Institutional + AM + SAGE...........        181          3  .........  .........  .........  .........  .........

        Aeronautics \1\.........................        986        949        959        932        939        934        916  SAE 14
            Aeronautics Technology..............        541        949        959        932        939        934        916  SAE 15
            Institutional.......................        445  .........  .........  .........  .........  .........  .........

        Education...............................        144        160        170        169        169        170        170  SAE 16
            Education...........................        144        160        170        169        169        170        170  SAE 17

    Space Flight Capabilities...................      7,960      7,875      7,782      7,746      7,881      8,066      8,247  SFC SUM 1
        Space Flight............................      6,131      6,107      6,110      6,027      6,053      6,198      6,401  SFC 1
            Space Station.......................      1,492      1,851      1,707      1,587      1,586      1,606      1,603  SFC 2
            Space Shuttle.......................      3,208      3,786      3,968      4,020      4,065      4,186      4,369  SFC 3
            Space Flight Support................        239        471        434        419        402        407        429  SFC 4
            Institutional.......................      1,192  .........  .........  .........  .........  .........  .........

        Crosscutting Technologies \1\...........      1,829      1,768      1,673      1,720      1,828      1,868      1,846  SFC 5
            Space Launch Initiative.............        879      1,150      1,065      1,124      1,221      1,257      1,224  SFC 6
            Mission & Sci. Measurement Tech.....        275        434        438        435        439        439        444  SFC 7
            Innovative Tech Trans. Partnerships.        147        183        169        161        168        172        179  SFC 8
            Institutional.......................        528  .........  .........  .........  .........  .........  .........

        Inspector General.......................         25         25         26         28         29         30         31  IG

                                                 -----------------------------------------------------------------------------------------------------------
                TOTAL...........................     15,000     15,000     15,469     16,043     16,656     17,297     17,806
    Year to Year Increase (in percent)..........  .........  .........        3.1        3.7        3.8        3.8        2.9
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Aerospace Technology Enterprise includes both Aeronautics and Crosscutting Technologies.

    NOTE: May not add due to rounding.

                                     ______

                                  Enclosure 2

     Summary--NASA Accomplishments During 2002 and Fiscal Year 2004 Budget
                                    Request

        NASA has made significant progress during 2002 on a number of
    important research and exploration objectives. During the past year,
    NASA:
      --Captured a dramatic new portrait of the infant universe in sharp
            focus. NASA's Wilkinson Microwave Anistropy Probe revealed the
            first generation of stars that began shining only 200 million
            years after the big bang and forecasted the age of the universe
            at 13.7 billion years old. Most striking though was the probe's
            discovery that the universe will probably expand forever.
      --Upgraded the Hubble Space Telescope on Columbia's mission (STS-109)
            in March 2002. Columbia's astronauts installed new solar
            panels, a better central power unit and a new camera that
            increased Hubble's ``vision'' tenfold, and revived a disabled
            infrared camera using an experimental cooling system.
      --Celebrated Riccardo Giacconi's 2002 Nobel Prize in Physics for his
            pioneering NASA sponsored work in the field of X-Ray astronomy.
            This work has led to important discoveries about the nature of
            black holes, the formation of galaxies, and the life cycles of
            stars.
      --Demonstrated a prototype device that automatically and continuously
            monitors the air for the presence of bacterial spores that may
            be used to detect biohazards, such as anthrax.
      --Made progress on the development of a radar system for aircraft
            that detects atmospheric turbulence, thus improving prospects
            for commercial airliners to avoid the kind of bumpy weather
            most airline passengers find uncomfortable.
      --Advanced technology to reduce airliner fuel tank fires or
            explosions, in our effort to make air travel safer and more
            secure.
      --Began tests on a technology effort to develop lighter-weight
            flexible-wing aircraft.
      --Measured through the Mars Odyssey spacecraft enough water ice
            buried deep under the poles of the red planet, that if thawed,
            could fill Lake Michigan twice over.
      --Discovered for the first time, a planetary system, circling the
            nearby star 55 Cancri, with a Jupiter-sized planet at about the
            same distance for its parent star as our own Jupiter is from
            our sun. This discovery enhances the possibility that Earth-
            like planets could exist in such systems throughout the galaxy.
      --Conducted Earth Science research that may one day allow public
            health officials to better track and predict the spread of West
            Nile Virus or similar diseases.
      --Worked to develop cutting-edge technologies that will increase our
            weather forecasting capability from the current three-to-five-
            day accuracy level up to a seven-to-ten-day level within this
            decade.
      --Observed the disintegration of the Antarctic Larsen Ice Shelf and
            the seasonal acceleration of the Greenland ice sheet.
      --Encouraged thousands of students to learn more about space
            exploration through a nationwide contest to ``Name the Rovers''
            that will launch toward Mars this year.
      --Published, ``Touch the Universe: A NASA Braille Book of
            Astronomy,'' a book that for the first time presents for
            visually impaired readers color images of planets, nebulae,
            stars, and galaxies. Each image is embossed with lines, bumps,
            and other textures. The raised patterns translate colors,
            shapes, and other intricate details of the cosmic objects,
            allowing visually impaired people to feel what they cannot see.
      --Celebrated a second year of continuous human habitation on the
            International Space Station, the largest and most sophisticated
            spacecraft ever built, and continued assembly with four Space
            Shuttle missions.
      --Reflecting the Agency's increased ISS research tempo, conducted
            approximately 48 research and technology development
            experiments aboard Station, including the first materials
            science research aboard Station, testing medical procedures for
            controlling the negative effects of space flight and increasing
            understanding of changes to bone and the central nervous system
            that occur in space. Astronauts conducted advanced cell
            culturing research, broke new ground in the study of dynamic
            systems, made up of tiny particles mixed in a liquid
            (colloids), and installed three new Station experiment
            equipment racks.

                         FISCAL YEAR 2004 BUDGET DETAIL

    Space Science Enterprise
        The Space Science Enterprise seeks to answer fundamental questions
    about life in the universe, including how it arose, its mechanisms,
    where in the solar system it may have originated or exist today, and
    whether there are similar planetary environments around other stars
    where the signature of life can be found. The Enterprise also seeks to
    understand how the universe began and evolved, how stars and galaxies
    formed, and how matter and energy are entwined on the grandest scale.
    The proposed fiscal year 2004 budget for the Space Science is $4.007
    billion. The five theme areas in the Space Science Enterprise are:

                Solar System Exploration
        We are blessed to live in a fascinating neighborhood, one that we
    are getting to know better every day. This theme seeks to understand
    how our own Solar System formed and evolved and to determine if life
    exists beyond Earth.
        The Administration's fiscal year 2004 budget request is $1,359
    million. The budget request will support: the launch of the Deep Impact
    mission to probe below the surface of comet Temple-1 in January 2004;
    the Stardust spacecraft's January 2004 encounter with the comet Wild-2,
    and Stardust's return to Earth with dust samples from the comet in
    2006; the March 2004 launch of the MESSENGER mission to explore
    Mercury, our least explored terrestrial planet; the arrival at Saturn
    of the Cassini spacecraft in July 2004, following a seven-year journey;
    and the return to Earth in September 2004 of the Genesis spacecraft
    with its samples of the solar wind following its two-year ``sunbath''.
    The budget also contains funding for the New Frontiers program to
    explore the outer planets in the Solar System and for Astrobiology
    research to improve our ability to find and identify potential life
    harboring planets.
        We are very excited about two new Solar System Exploration
    initiatives that the budget will support. Building on the work of our
    Nuclear Systems Initiative, Project Prometheus is a new start to
    develop breakthrough power and propulsion technology that will lead to
    nuclear-powered spacecraft that will search early in the next decade
    for evidence of global subsurface oceans and possible organic material
    on Jupiter's three icy Galilean moons: Europa, Ganymede, and Callisto.
    Such advances in nuclear power and propulsion have set the stage for
    the next phase of outer solar system exploration.
        Following in the same progress that led from Pony Express to
    Telegraph to Telephone, our Optical Communications initiative will use
    laser light instead of radio waves to revolutionize the way our
    spacecraft gather and report back information as they continue to scout
    the Solar System. Today, using conventional radio frequency
    communications, the Mars Reconnaissance Orbiter will take 21 months to
    map 20 percent of the red planet's surface. By contrast, optical
    communications would allow the entire surface to be mapped in four
    months. The budget will support a demonstration of the technology in
    2009 using a Mars orbiting satellite that will relay data to high-
    altitude Earth balloons. If successful, this technology promises to
    achieve dramatic reductions in the cost per byte of data returned and
    could ultimately replace the Deep Space Network.

                Mars Exploration
        The Mars Odyssey spacecraft's discovery of large quantities of
    water frozen beneath the Mars' polar areas provides additional
    tantalizing evidence that our neighboring planet had a wet and warmer
    past. This water and hints of relatively recent liquid water flows make
    Mars the most likely place to seek evidence of ancient or present
    extraterrestrial life. Mars is also worth studying because much can be
    learned comparatively between the current and past geology,
    atmospheres, and magnetic fields of Earth with Mars. We also hope to
    advance our understanding of Mars because some day in the not so
    distant future, human explorers may take humanity's next giant leap to
    the Red Planet.
        The proposed Mars exploration budget is $570 million. This request
    will support our goal of 90 days of surface operations of the twin Mars
    Exploration Rovers, set to begin in January and February of 2004 at
    sites where ancient water once flowed.
        The budget also supports the continued development of: the Mars
    Reconnaissance Orbiter, a spacecraft that will map Martian surface
    features as small as a basketball in 2005; the Mars Science Laboratory,
    a rover that will traverse tens of kilometers over Mars in 2009 and
    last over a year, digging and drilling for unique samples to study in
    its onboard laboratory; and the telecommunications satellite that will
    demonstrate our laser light optical communications technology in 2009.

                Astronomical Search for Origins
        The astounding portrait of the infant universe captured by NASA's
    Wilkinson Microwave Anistropy Probe provides one more demonstration of
    the human capacity to probe more deeply into the mysteries of creation.
    This theme strives to answer two profound questions: Where did we come
    from? Are we alone? It does so by observing the birth of the earliest
    galaxies and the formation of stars, by finding planetary systems in
    our galactic neighborhood, including those capable of harboring life,
    and by learning whether life exists beyond our Solar System. One year
    may seem inconsequential in a Universe that is 13.7 billion years old,
    but as we learned during the last year, a great deal of knowledge and
    understanding can be obtained in the period it takes the Earth to orbit
    the Sun.
        The Administration's proposed fiscal year 2004 budget request for
    the Astronomical Search for Origins is $877 million. The budget will
    provide funding for: continued operations of the Hubble Space
    Telescope; the development of the next-generation James Webb Space
    Telescope and the Space Interferometry Mission, a device scheduled for
    launch in 2009 that will increase our ability to detect planets around
    nearby stars; and initial science operations of the Space Infrared
    Telescope Facility, the final mission of NASA's Great Observatory
    Program. The budget was also designed to support the final Space
    Shuttle servicing mission to the Hubble Space Telescope, a mission that
    is now on hold pending the report of the Columbia Accident
    Investigation Board.

                Structure and Evolution of the Universe
        This theme seeks to understand the nature and phenomena of the
    Universe. It seeks to understand the fundamental laws of space, time
    and energy and to trace the cycles that have created the conditions for
    our own existence. This is accomplished in part by observing signals
    from the Big Bang, mapping the extreme distortions of space-time about
    black holes, investigating galaxies, and understanding the most
    energetic events in the universe. The theme also attempts to understand
    the mysterious dark energy that pervades the Universe and determines
    its ultimate destiny.
        The proposed budget for this theme is $432 million, which will
    support development of the Gamma-ray Large Area Space Telescope, a
    mission to study high-energy objects like black holes.
        The budget will also support a new initiative that will honor the
    continuing legacy of Albert Einstein, some 99 years after Einstein
    developed his theory of Special Relativity. The Beyond Einstein
    initiative will attempt to answer three questions left unanswered by
    Einstein's theories: What powered the Big Bang? What happens to space,
    time, and matter at the edge of a black hole? What is the mysterious
    dark energy expanding the Universe? Under the initiative, a Laser
    Interferometer Space Antenna will use three spacecraft ``formation
    flying'' five million kilometers apart in a triangle to observe the
    distortion of space due to gravity waves. Also, Constellation-X, an X-
    ray telescope 100 times more powerful than all existing X-ray
    telescopes, will use a team of powerful X-ray telescopes working in
    unison to observe black holes, investigate ``recycled'' stellar
    material, and search for the ``missing matter'' in the universe.
    Finally, the initiative will support Einstein Probes, a program that
    will begin later this decade, consisting of fully and openly competed
    missions (in the manner of the Discovery, Explorers, and New Frontiers
    programs) to conduct investigations that benefit science objectives
    within the theme.

                Sun-Earth Connections
        We should never take our life-sustaining Sun for granted. NASA's
    Sun-Earth Connections theme investigates our Sun and how its structure
    and behavior affect Earth. NASA seeks to understand how the variability
    of solar radiation affects Earth's climate, and how we can better
    predict solar flares that affect the upper atmosphere and can damage
    satellites and disable the power distribution grid on the ground. NASA
    also uses the Sun as an ideal laboratory for researching basic physics
    and learning how other stars function.
        The proposed budget for NASA's Sun-Earth Connections theme is $770
    million. The budget will support the development of the STEREO, the
    Solar Dynamics Observatory and future flight missions. Scheduled for a
    2005 launch, STEREO will use two identically equipped spacecraft to
    provide revolutionary 3-D imaging of coronal mass ejections. The Solar
    Dynamics Observatory, which will study the Sun's magnetic field and the
    dynamic processes that influence space weather, will enter
    implementation of development in January 2004.

    Earth Science Enterprise
        In the near-half century that we have lived in the ``space age''
    the most interesting planet that NASA spacecraft have explored is our
    own home in the universe. Spacecraft observations combined with
    atmospheric, ground-based and oceanic measurements have enabled a
    systematic study of Earth processes, leading to important scientific
    advances and tangible benefits to the American public. NASA's vision of
    ``improving life here'' starts with the Earth Science Enterprise's
    study of planet Earth from space. The Enterprise seeks to understand
    and protect our home planet by advancing Earth system science and
    applying the results to improve prediction of climate, weather, and
    natural hazards. The proposed fiscal year 2004 budget for Earth Science
    is $1,552 million. The two theme areas for Earth Science are:

                Earth System Science
        Within this theme, NASA is deploying and operating the first
    comprehensive constellation of Earth-observing research satellites
    designed to reveal interactions among Earth's continents, atmosphere,
    oceans, ice, and life. These interactions produce the conditions that
    sustain life on Earth. Data and information from NASA satellites enable
    researchers to understand the causes and consequences of global change
    and inform the decisions made by governments, businesses, and citizens
    to improve our quality of life.
        The $1.477 million fiscal year 2004 budget request for Earth System
    Science will support the launches in 2004 of three complementary
    formation-flying polar orbiting satellites, which in effect will become
    a super-satellite. They are: AURA, which will study Earth's ozone, air
    quality and climate; Cloudsat, which will measure the structure of
    clouds to better quantify their key role in the Earth's water cycle and
    climate system; and CALIPSO, the NASA-French project to determine how
    the climate, aerosols and clouds interact. Calipso, coupled with Aura
    and an advanced polarimeter slated for launch in 2007 under an
    initiative to accelerate evaluation of non-carbon dioxide
    (CO2) impacts on climate change as part of the
    Administration's Global Climate Change Research Initiative, will help
    determine the role of aerosols in climate, reducing one of the largest
    uncertainties in climate models.
        Significantly, the Earth System Science budget will also provide
    $524 million, in conjunction with the administration's Global Climate
    Change Research Initiative, for research and modeling that will help
    answer critical scientific questions on climate change to aid policy
    and economic decision makers.
        Other major Earth Science work in 2004 that the budget will support
    include: Using satellite observations to provide daily and seasonal
    global atmospheric water vapor, rainfall, snowfall, sea-ice and ice-
    sheet maps to improve the scientific understanding and modeling of
    water cycles throughout the Earth system; Improving the predictive
    capabilities of regional weather models through satellite-derived
    localized temperature and moisture profiles; and assimilating satellite
    and in situ observations into a variety of ocean, atmospheric, and ice
    models for the purpose of estimating the state of Earth's seasonal and
    decadal climate.
        The budget will also support the National Polar-orbiting
    Operational Environmental Satellite System (NPOESS) Preparatory Project
    under development in partnership with the National Oceanic and
    Atmospheric Administration and the Department of Defense. This project,
    slated for launch in 2006, will maintain the continuity of certain
    environmental data sets that were initiated with NASA's Terra and Aqua
    satellites, prior to the launch of the operational NPOESS system in
    2009. Also supported with be the Landsat data continuity mission, an
    innovative program to seek partnerships with industry that use critical
    land remote sensing data.

                Earth Science Applications
        NASA recognizes that by working in partnership with other Federal
    agencies, we can leverage our research results and Earth observation
    information products to provide significant benefits to the American
    public. Within our Earth Science Applications theme we have identified
    applications where we can improve decision support systems, such as
    weather prediction models and near-airport terrain databases operated
    by our partner agencies. For each application, joint research and
    demonstration projects are under way or being developed. We are also
    developing crosscutting solutions that advance the use of NASA
    information and technology across a range of potential new
    applications.
        The $75 million fiscal year 2004 budget request for Earth Science
    Applications will support a focus on 12 specific applications of
    national priority where other agencies' decision support systems can be
    markedly improved based on NASA-provided data and information. In 2004,
    NASA intends to benchmark improvements to air quality and agricultural
    productivity and competitively select projects for the Research,
    Education, Applications Solutions Network (REASON) program to serve
    national priorities.

    Biological and Physical Research Enterprise
        On their 16-day mission of exploration and discovery the seven
    Columbia astronauts conducted medical investigations related to cancer,
    osteoporosis and kidney stones, all with the goal of advancing our
    understanding of nature and the world we live in. The research
    operations were smooth and productive, with new phenomena being
    observed in combustion science and in cell science. As Commander Rick
    Husband said, ``I think one of the legacies of NASA is that you always
    push forward. And STS-107 is doing that on the science side--pushing
    human science knowledge forward.''
        Our Biological and Physical Research Enterprise exists to push the
    frontiers of science forward. The Enterprise uses the rich
    opportunities provided by space flight to pursue answers to a broad set
    of scientific questions, including those about the human health risks
    of space flight. The space environment offers a laboratory, unique in
    the history of science, that allows the study of biological and
    physical processes. Experiments that take advantage of this environment
    extend from basic biology to quantum mechanics and from fundamental
    research to research with near-term applications in medicine and
    industry.
        The proposed fiscal year 2004 budget for Biological and Physical
    Research is $973 million. The three theme areas in Biological and
    Physical Research are:

                Biological Sciences Research
        Within this theme, NASA determines ways to support a safe human
    presence in space. We are conducting research to define and control the
    physiological and psychological risks posed to human health by exposure
    in space to radiation, reduced gravity, and isolation. This theme also
    conducts research and development to improve the performance of life
    support systems. It includes a basic biology research component that
    seeks both to pursue fundamental biological research questions from
    cell to tissues to whole organisms which produce results that can
    support advanced methods for enabling the continued human exploration
    of space.
        The proposed $359 million fiscal year 2004 budget for Biological
    Sciences Research will fund expanded ground research into how humans
    can adapt to the hazards of space flight for unprecedented periods of
    time under a new Human Research Initiative. A flight program in high
    priority areas of advanced human support technology to reduce mass to
    orbit and beyond for life support equipment by a factor of three is
    also funded by this Initiative.

                Physical Sciences Research
        This theme supports research that takes advantage of the unique
    environment of Space to expand our understanding of the fundamental
    laws of nature. We also support applied physical science research to
    improve safety and performance for human exploration and research that
    has applications for American industry.
        Activities in this theme are structured to respond to the Research
    Maximization and Prioritization Task Force process, undertaken last
    year to prioritize BPR research activities. The budget request of $353
    million will support major space flight hardware development for
    physical sciences research on the International Space Station, while
    reducing funding for lower priority areas such as biomolecular
    technology, and structural biology future facility class space flight
    hardware, and level II program management support. The budget will
    increase funding for research of strategic importance to NASA's long
    range-goals, including radiation protection and basic research enabling
    knowledge for power and propulsion technologies. The budget also
    contains funding for our new Human Research Initiative, with funds
    targeted for spacecraft system innovations such as less massive fluid
    and thermal control methods and fire safety improvements.
        In 2004, the budget supports the preparation of the first major
    Physical Sciences Research facility rack to the International Space
    Station, and the beginning of prime research facility operations on the
    Space Station.

                Research Partnerships and Flight Support
        The Research Partnership element of this theme establishes policies
    and allocates space resources to encourage and develop research
    partnerships in the pursuit of NASA missions and Enterprise scientific
    objectives. This research supports product development on Earth and
    leverages industry resources to accelerate progress in our strategic
    research areas. Ultimately, Research Partnerships may support
    development of an infrastructure that can be applied to human
    exploration.
        A majority of the proposed $261 million budget in fiscal year 2004
    for Research Partnerships and Flight Support will apply to the Flight
    Support element of this theme. The Flight Support element will be
    augmented by two activities: (1) the transfer of the Alpha Magnetic
    spectrometer program management and budget from Physical Sciences
    Research; and, (2) the consolidation of the Enterprise Support program
    content and budget, previously diffused across various programmatic
    components. The Flight Support activity includes multi-user hardware
    development, payload integration and training, and payload operations
    support.
        The budget also provides for the restructuring of NASA's Space
    Product Development program by aligning industrial partnerships with
    NASA mission needs and Enterprise scientific objectives. We intend to
    review our existing Research Partnership Centers to determine which of
    these will be retained.

    Aerospace Technology Enterprise
        The Aerospace Technology Enterprise contributes to the NASA Vision
    by pioneering and developing advanced technologies. These technologies,
    in turn, improve the air transportation system, access to space, and
    science missions. This Enterprise also develops technology partnerships
    with industry and academia outside traditional aerospace fields. The
    Aerospace Technology Enterprise is comprised of four themes:

                Aeronautics Technology
        NASA's Aeronautics Program develops technologies that can help
    create a safer, more secure, environmentally friendly and efficient air
    transportation system, increase performance of military aircraft, and
    develop new uses for science or commercial missions. This theme also
    enhances the Nation's security through its partnerships with the
    Department of Defense (DOD) and Federal Aviation Administration (FAA)
    and the Department of Homeland Security. Research areas include
    advanced propulsion technologies, lightweight high-strength adaptable
    structures, adaptive controls, advanced vehicle designed, and new
    collaborative design and development tools. In collaboration with the
    FAA, research is conducted in air traffic management technologies for
    new automation tools and concepts of operations. Major funding
    allocation includes three technology initiatives in aviation security,
    airspace systems, and quiet aircraft.
        The fiscal year 2004 budget request for Aeronautics is $959
    million. It includes $169 million for Aviation Safety and Security
    projects, $217 million for Airspace Systems, and $574 for Vehicle
    Systems. The budget request includes funding for three new initiatives:
      --Aviation Security.--The budget includes $21 million for this new
            initiative ($225 million over five years); it will develop
            technology for commercial aircraft and airspace protection,
            including development of damage-tolerant structures and
            autonomous and reconfigurable flight controls technology to
            prevent aircraft from being used as weapons and to protect
            against catastrophic loss of the aircraft in the event of
            damage from sabotage or explosives.
      --National Airspace System Transition.--The budget includes $27
            million for this new initiative ($100 million over five years);
            it will enable technology, in cooperation with the FAA, to
            transition to a next-generation National Airspace System that
            would increase the capacity, efficiency, and security of the
            system to meet the mobility and economic-growth needs of the
            Nation, reducing delays and increasing air transportation
            efficiency.
      --Quiet Aircraft Technology.--The budget includes $15 million for
            this new initiative ($100 million over five years); it will
            accelerate development and transfer of technologies that will
            reduce perceived noise in half by 2007 compared to the 1997
            state-of-the-art.
                Space Launch Initiative
        The objective of the Space Launch Initiative is to ensure safe,
    affordable, and reliable access to space. Funding is focused on a new
    Orbital Space Plane for crew rescue and transfer capability, and on the
    Next Generation Launch Technology program for advanced kerosene engine
    development and hypersonic propulsion research and testing. The fiscal
    year 2004 budget request is fully consistent with the fiscal year 2003
    Budget Amendment submitted to Congress in November 2002.
        The fiscal year 2004 budget request includes $1.065 billion for
    SLI, including $550 million for the OSP to develop a crew return
    capability from Space Station by 2010 and crew transfer capability atop
    an expendable launch vehicle by 2012. Funding will support technology
    demonstrators such as X-37 and advanced design studies. The budget
    request also includes $515 million for the Next Generation Launch
    Technology Program to meet NASA's future space launch needs. Funding
    includes advanced kerosene engine development and hypersonic propulsion
    research and testing.
        The budget envisions several key events in 2004:
      --Test flight of DART vehicle to demonstrate autonomous rendezvous
            technology between a chase vehicle and an on-orbit satellite;
      --Drop test of X-37 vehicle from carrier aircraft to demonstrate
            autonomous landing capability as a precursor to a possible
            orbital demonstration; and,
      --Preliminary design review of OSP to support a full-scale
            development decision.
                Mission and Scientific Measurement Technologies
        This Theme develops crosscutting technology for a variety of
    aviation and space applications. Funding is focused on communications,
    power and propulsion systems, micro-devices and instruments,
    information technology, nanotechnology, and biotechnology. These
    technology advances will have the potential to open a new era in
    aviation and allow space missions to expand our knowledge of Earth and
    the universe.
        The fiscal year 2004 budget request is $438 million, which includes
    $233 million for Computing, Information, and Communications
    Technologies, $44 million for Engineering for Complex Systems, and $161
    million for Enabling Concepts and Technologies.

                Innovative Technology Transfer Partnerships
        This theme develops partnerships with industry and academia to
    develop new technology that supports NASA programs and transfers NASA
    technology to U.S. industry. The fiscal year 2004 budget request
    introduces a creative partnership program to sponsor dual use
    technologies, called Enterprise Engine, and is discontinuing the
    existing centralized commercial technology promotion efforts and,
    instead, recompeting and refocusing our technology transfer programs
    across the Enterprises to maximize benefits to NASA and the taxpayer.
        The fiscal year 2004 budget request is $169 million, which includes
    $5 million for the Enterprise Engine, $33 million for recompeting and
    refocusing technology transfer efforts to maximize benefits, and $131
    million for the SBIR/STTR programs.

    Education Enterprise
        Education is NASA's newest Enterprise, established in 2002, to
    inspire more students to pursue the study of science, technology,
    engineering and mathematics, and ultimately to choose careers in those
    disciplines or other aeronautics and space-related fields. The new
    Enterprise will unify the educational programs in NASA's other five
    enterprises and at NASA's 10 field Centers under a One NASA Education
    vision. NASA's Education will permeate and be embedded within all the
    Agency's activities.
        NASA's Education Program will provide unique teaching and learning
    experiences, as only NASA can, through the Agency's research and flight
    capabilities. Students and educators will be able to work with NASA and
    university scientists to use real data to study the Earth, explore
    Mars, and conduct other scientific investigations. They will work with
    NASA's engineers to learn what it takes to develop the new technology
    required to reach the farthest regions of the solar system and to live
    and work in space. It is important that the next generation of
    explorers represents the full spectrum of the U.S. population,
    including minority students and those from low-income families. To
    ensure the diversity of NASA's workforce, our educational programs pay
    particular attention to under-represented groups. NASA Education will
    support our Nation's universities to educate more students in science
    and engineering by providing meaningful research and internship
    opportunities for qualified students, plus a roadmap for students to
    seek NASA careers.
        The fiscal year 2004 budget request of $170 million includes $78
    million for education programs including the continuation of pipeline
    development programs for students at all educational levels with the
    continuation of Space Grant/EPSCOR programs and $92 million for
    Minority University Research and Education. It also includes $26
    million for an Education Initiative that encompasses the Educator
    Astronaut Program, NASA Explorer Schools Program, Scholarship for
    Service, and Explorer Institutes.

    Space Flight Enterprise
                International Space Station
        This theme supports activities for continuing a permanent human
    presence in Earth orbit--the International Space Station. The Space
    Station provides a long-duration habitable laboratory for science and
    research activities to investigate the limits of human performance,
    expand human experience in living and working in space, better
    understand fundamental biological and physical processes using the
    unique environment of space, and enable private sector research in
    space. The Space Station allows unique, long-duration, space-based
    research in cell and development biology, plant biology, human
    physiology, fluid physics, combustion science, materials science, and
    fundamental physics. It also provides a unique platform for observing
    the Earth's surface and atmosphere, the Sun, and other astronomical
    objects.
        The Space Station program is well on its way to completing work on
    the U.S. Core Complete configuration, which will enable accommodation
    of International Partner elements. Flight elements undergoing ground
    integration and test are proceeding on schedule, and the last U.S.
    flight element is scheduled for delivery to NASA by the spring of 2003.
    Fiscal year 2004 funding drops as planned, as development activities
    near an end, and on-orbit operations and research becomes the focus of
    the program. The budget maintains proposals reflected in the fiscal
    year 2003 Budget Amendment, including additional funds for reserves and
    funding for Node 3 and the Regenerative Environmental Control and Life
    Support System (ECLSS). The budget continues significant progress
    toward resolving the Space Station management and cost control issues
    that confronted the program at the end of 2001. Many changes based on
    recommendations of the ISS Management and Cost Evaluation (IMCE) task
    force have increased NASA's confidence in achieving success with the
    U.S. Core Complete station. Management changes have been made to ensure
    that ISS capabilities are driven by science requirements, and to make
    appropriate decisions as the program moves from development into
    operations.

                Space Shuttle
        The Shuttle, first launched in 1981, provides the only capability
    in the United States for human access to space. In addition to
    transporting people, materials, and equipment, the Space Shuttle allows
    astronauts to service and repair satellites and build the Space
    Station. The Space Shuttle can be configured to carry different types
    of equipment, spacecraft, and scientific experiments that help
    scientists understand and protect our home planet, explore the
    universe, and inspire the imagination of the American people.
        Fiscal year 2004 budget request of $3.968 billion supports the
    planned steady state flight rate of 5 launches per year beginning in
    fiscal year 2006. It provides $379 million (and $1.7 billion over five
    years) for the Space Shuttle Service Life Extension Program, which will
    improve safety and infrastructure needs to allow flying of the Space
    Shuttle well into the next decade.

                Space and Flight Support
        The fiscal year 2004 budget request of $434 million supports space
    communications, launch services, rocket propulsion testing, and
    advanced systems. Funding is provided for cleanup of the Plumbrook
    facility and tracking and data relay satellite follow-on studies. The
    overall funding level reflects the planned transfer of certain space
    operations responsibilities to other Enterprises.

        Senator Bond. Thank you very much, Mr. Administrator. I'm
    going to yield my time to the Chairman of the full committee,
    Senator Stevens.

                        STATEMENT OF SENATOR TED STEVENS

        Senator Stevens. Thank you very much, Mr. Chairman. I'm
    delighted to have an opportunity to be here with the
    Administrator. I do have a couple of comments and we look
    forward to working with you, my good friend.
        I note the reduction in aeronautics allocation and the
    reduction in the educational allocation as compared to 2003.
    This is the 100th anniversary of manned flight. We are, I
    think, in a position where we ought to demonstrate to the world
    that we recognize the great impact of that flight, and I hope
    that we're not going to be eliminating some of the research
    that from my point of view is extremely vital to the future of
    aeronautics.
        For instance, there was a research project going on trying
    to find out a way to deal with the sonic boom. I haven't heard
    about that for several years. Currently we cannot fly across
    the land mass with commercial aviation beyond the speed of
    sound because of the impact of the sonic booms.
        We also have in terms of the education program a series of
    initiatives that have inspired young people to consider a
    career in space, and your agency. I'm one that firmly believes
    that the dreams and desires that you form as a child, even at
    the 5th, 6th or 7th year, are the ones you want to pursue for
    the rest of your life, and I think it's highly important that
    we continue that stimulus through the education programs. I
    will be interested to see how you are going to allocate the
    decrease within your department, because I do hope that we
    maintain the concepts that we need for that.
        My only question to you, though, if I may ask a question
    right now is, what are you going to do about the Wright
    brothers celebration in December?
        Mr. O'Keefe. Thank you, Mr. Chairman, I appreciate it. We
    are always guided by your superior wisdom in these respects, no
    doubt about it.
        Senator Stevens. Not wisdom, inquiry.
        Mr. O'Keefe. As it pertains to aeronautics, again, in the
    coming year there is a 5 percent increase. What is really the
    question is the out-year projections. In working with Marion
    Blakey at the FAA, I think we will see some change in that. So
    our out-year projections will be fine here when we go back and
    take a look at it. But we really kind of held that as a
    baseline in order to develop this effort in concert with the
    FAA to specifically look at aeronautics improvements on a
    variety of different issues. For 2004 it's an increase up and
    we will continue on.

                            DOD/FAA/NASA TASK FORCE

        Senator Stevens. Some time ago I suggested that there be
    sort of a task force between DOD, FAA and NASA, to insure that
    there would not be a redundancy, that there would be a sharing
    of effort in the future aspects of aeronautics research. I hope
    that continues.
        Mr. O'Keefe. Yes, sir, absolutely. As a matter of fact,
    that's precisely where we're going. Marion Blakey will be
    leading that, I will be participating, along with Dr. Ron Sega
    from Defense, and the three agencies and departments involved
    in this are hitting the ground exactly the way you talked about
    it. That's why I think the out-year numbers at best are a place
    holder baseline that I anticipate we will adjust as a
    consequence of the efforts that come out of this effort that
    Marion is putting together now.
        On the education front, I need to get some numbers for the
    record, because our intent was to increase and increase
    dramatically in terms of the education focus, and the
    activities we're involved in. We have a lot of outreach
    programs as well as support for a range of the other eight
    nonprofit or nongovernment organizations that are really
    dedicated to a research and education focus. The educator
    astronaut issue, so forth, have all been designed to
    specifically stimulate that kind of interest for precisely the
    age group you're talking about. If you don't catch folks in
    that middle school, junior high kind of focus area, they are
    likely not to want to pursue math, science, engineering,
    technology-related activities. So we spend a lot of time really
    focusing our energies on that age group more than any other,
    because in many respects that's where the formulative kind of
    ages are really based in terms of a pursuit of those kind of
    professional opportunities in the time ahead. So, we're
    concentrating on that an awful lot, and we will provide some
    better information for you. I think we will have an opportunity
    later this afternoon to get together on this issue, and I will
    make sure I bring that with me.
        Senator Stevens. Good. I would like to see something in the
    record on that.
        Mr. O'Keefe. Yes, sir, absolutely.
        [The information follows:]

                               Academic Programs

        NASA requested $153.7 million in fiscal year 2002 for Academic
    programs. However, during the appropriations process, Congress added a
    one-time increase of $73.6 million for 20 separate Congressional
    interest projects for that year. The fiscal year 2004 request of $169.8
    million is in full cost, and includes a $10 million increase in
    education funding for the new initiatives described in the agency
    request.

        Senator Stevens. Thank you, Mr. Chairman.
        Senator Bond. Thank you, Senator Stevens.
        Senator Mikulski. Senator Stevens, before you go, one thing
    you should know that Senator Bond and I did last year to
    increase graduate students going into the science field.
    Working with Senator Bond through the National Science
    Foundation, we provided graduate student stipends in the basic
    science, physics, chemistry, for $18,000 a year. This year we
    raised it to $22,000 and Dr. Colwell said there was a 30
    percent increase in the number of American graduate students
    interested in going to graduate school in these fields. So
    we're working on this and we want to talk with you about it.
        Senator Stevens. Good, thank you.
        Senator Bond. We need a bigger allocation.
        Senator Mikulski. We need a bigger allocation, right.
        Senator Bond. Senator Mikulski.
        Senator Mikulski. Senator Bond, why don't you go right
    ahead? We afforded the courtesy to the chair of the committee,
    but why don't you lead it off?
        Senator Bond. Thank you, Senator. Shuttle costs.
        Senator Mikulski. Senator Stevens is emeritus. I mean, he
    goes first no matter what. He is A and you're A-1.
        Senator Bond. No, we're all equal but he's just a little
    more equal.

                                 SHUTTLE COSTS

        Potential shuttle costs, what funding requirements do you
    anticipate in 2003 and 2004 to respond to the Columbia accident
    for repairing the space shuttle, slips in the space station,
    shuttle, changes in the research? I know we don't have a final,
    but do you have a ballpark guess or an estimate of what that
    might be?
        Mr. O'Keefe. As it stands right now, the recovery effort
    has largely been covered by the Federal Emergency Management
    Agency as a consequence of their disaster relief allotment or
    allocation that the Congress provides each year. That's going
    to total something on the order of about $235 million is the
    current estimate, that FEMA is using to reimburse the U.S.
    Forest Service, the EPA, other Federal agencies, and the State
    and local government activities. Our costs at NASA are well
    within the $50 million incremental cost differences that the
    Congress provided funding for in the fiscal year 2003
    appropriation made in February.
        Our efforts primarily are in support of, again, the
    Columbia Accident Investigation Board, and within that
    allocation, that will cover the incremental differences as we
    move to current. In total cost for all activities, if we added
    everything we did in this, it would probably----
        Senator Bond. Just NASA.
        Mr. O'Keefe. Yes, sir. Again, within that $50 million you
    provided, I think we're going to cover that as an incremental
    cost difference and that's going to work. To the extent there
    is any incremental costs above that, we will be back to testify
    on what that will take, but it's really not, at this juncture
    we think it's going to be well within it on an incremental
    marginal cost basis.
        The differences in shuttle and Station, right now we're not
    incurring any costs, because the fleet is grounded. So the
    expense to continue in a ready status, the ability to return to
    flight as expeditiously as we can, is well within the
    allocations that have been made for shuttle launches, as well
    as International Space Station, where we are processing the
    modules as we have been in order to ready for that return
    flight as soon as we can get there.

                            ISS'S RESUPPLY MISSIONS

        Senator Bond. The International Space Station's resupply
    missions, I understand the partners have yet to come up with a
    final agreement on how to provide $100 million for additional
    Russian vehicles. I would like to know what the status is of
    discussion with the other partners regarding how to fund the
    Russian production and will they be able to provide the needed
    funding or are we going to have to ask for a waiver from or
    amendment to the Iran Nonproliferation Act so that NASA can
    provide some of the funding?
        Mr. O'Keefe. Well, as you mentioned in your opening
    statement, sir, the actions are speaking louder than anything
    else. The Russians launched the Soyuz rocket, and Ed Lu and
    Yuri Malenchenko not only launched successfully, they are there
    on International Space Station today. Ken Bowersox, Don Pettit,
    Nikolai Budarin will come back on the Soyuz. The Progress
    flights that were planned, the unmanned logistics resupply
    flights that are planned, there's one going up in June, there
    is another we're seeking to accelerate into November. All those
    are going exactly according to the plan and the Russians have
    stepped up in a very substantial way.
        I'm leaving tomorrow to go welcome home Don, Ken and
    Nikolai, and I will spend a little time with Yuri Koptev, who
    is the head of the Russian Space Agency. I do not anticipate
    any requirements to waive or consider the Iran Nonproliferation
    Act. The partners are acting like partners.

                              ORBITAL SPACE PLANE

        Senator Bond. Good. Well, given the fact that we are so
    dependent on the Russians, the orbital space plane would
    provide an alternate mode to the Russian vehicle and to the
    shuttle for taking crews and a limited amount of cargo to the
    Space Station. To what extent can development of the orbital
    space plane be accelerated so the capability is available as
    soon as possible, and what's your current estimate for the cost
    of the orbital space plane?
        Mr. O'Keefe. Currently, I just went through an exercise
    here in the last couple of weeks to try to look at all the
    acceleration options that may be possible. It turns on two
    things. The first one is, there are competing designs, there
    are at least three major contractors who have different
    approaches on how to deal with what is a very short list of
    requirements. We have kept this very minimal. You can list all
    the requirements for the orbital space plane on a single page.
    There isn't any ambiguity about what it is we're looking for in
    terms of its requirements and capabilities we seek it to
    perform at.
        Now depending on what kind of approach those various
    contract proposals may come back with here in the next 9
    months, that will tell us a lot more about how fast or how slow
    it's going to be in terms of delivery. In terms of overall
    cost, I wouldn't want to compromise their ingenuity,
    imagination or creativity one dime until we see what they come
    up with.
        Senator Bond. Okay, I got that answer. Senator Mikulski.

                                RETURN TO FLIGHT

        Senator Mikulski. Thank you, Mr. Chairman.
        Mr. O'Keefe, when do you think the shuttle will fly again?
    I understand that NASA announced it was taking interim steps to
    prepare a return to flight before the Gehman Commission had
    finished its final report.
        Mr. O'Keefe. What we announced is we are making
    preparations now to return to flight as early as the end of
    this calendar year, so we can be in a position if all the
    findings and recommendations come forward, and do not impede
    that opportunity, we will not be in a position when the report
    comes out to say well, I guess now we ought to start thinking
    about returning to flight. We are trying to do all the
    preparation work in order to do that, and we are implementing
    their findings and recommendations.
        Senator Mikulski. Well, here's my question, because I don't
    think the Gehman report is going to be done until July, and I
    don't want to go rushing back into flight. I think when we go,
    we have to be sure in the most meticulous, arduous way that we
    are ready to go and therefore, turn to the lessons learned from
    the Gehman Commission not only to what went wrong, but the
    other issues addressed.
        But to go back to the question now with respect to
    preparing for launching, first, how are you preparing, and
    second, not only from the technical and engineering and safety
    aspects, but are you preparing in terms of money? In this
    President's budget request, NASA only gets $55 million more.
    That's just slightly above 2003.
        Here is my worst fear from a financial standpoint. We have
    the Gehman report in July and we've already marked up and we're
    already meeting down on our flight plan. There is a substantial
    price tag to being ready to return to flight. How do we get it
    in the appropriations bill and if we don't, then we cannot have
    that whole issue of NASA going to other important programs to
    get the money like they did when the station was running such
    horrific cost overruns. And congratulations to you for bringing
    about that discipline there.
        So you see what I'm worried about, one, that we really know
    how to go back to flight and that we are able to correct the
    mistakes. And at the same time, where is the money going to
    come from and when will it come? Because we have to be talking
    about it now. Do you have estimates, could you elaborate?
        Mr. O'Keefe. Thank you, Senator. Well, first and foremost,
    110 percent, we will not fly again until we can satisfy
    ourselves that we can do so safely. We are not rushing to that
    objective. What we are doing is preparing ourselves to assure
    that we implement the findings and recommendations which are
    starting to come out now from the Gehman board, as
    expeditiously and as thoroughly as we possibly can, to make
    absolutely certain we tack down every prospect of what's
    necessary and what they're observing as changes necessary to
    return to safe flight.
        So, if we're diligent about that and if there are no
    hardware process showstoppers in this, we anticipate we could
    be looking at the early part of next fiscal year of flying
    again. Between now and then, we'd planned six flights for this
    fiscal year. We only conducted two, STS-113 and STS-107.
        Senator Mikulski. So you have money in the pipeline?
        Mr. O'Keefe. Yes, ma'am.
        Senator Mikulski. Because I have other questions.
        Mr. O'Keefe. Absolutely. So that is there, we're not
    expending the cost of launch services as a result of that.
        Senator Mikulski. So you anticipate that you are not going
    to need additional funds?
        Mr. O'Keefe. No, I didn't suggest that. But you will find
    right now, in order to prepare for flight as soon as we get the
    full report and understand all the finding of what's going on,
    and we will be receiving those over the course of the next 2
    months, we may be in a position to better estimate what that
    will take, and advise the Congress.
        Senator Mikulski. Do you have any concept now, or are you
    reluctant to say?
        Mr. O'Keefe. I have not even a parameter of what the cost
    difference will be relative to how much we have in the budget
    today. Until we really get the findings and recommendations
    from the board, it really does not lend itself to that. The
    only things we have right now are an estimate, for example, on
    differing options and----

                           PRESIDENT'S BUDGET REQUEST

        Senator Mikulski. I understand. Let me just say this. I am
    very troubled by the President's budget request. I think it is
    status quo, and I think we needed another $500 million more,
    one, to catch up with a tattered infrastructure, the things
    that got worn well before you came, and two, a banking of what
    we might need for the shuttle based on the recommendations.
        So to only have $55 million and not in the President's
    budget request, we are really going to be shackled in terms of
    how to proceed here. And we don't want you to short change
    these other items that you listed, very worthwhile projects,
    some exciting, some crucial to saving lives of not only
    astronauts but here on Earth. We like where you're heading, but
    I'm afraid we are going to be heading for a real fiscal issue
    on the appropriations process.
        And then also, thanks to the Russians, having their Soyuz
    that's worked as a lifeboat in space, but Russia is a
    financially-strapped country. That's why Senator Bond asked how
    we can reimburse them so that the money goes to the space
    agency and is not scattered through the other Russian financial
    problems.
        So I'm very concerned that we support what you need to do,
    and have the wherewithal, that we help the Russians meet their
    responsibilities and the spirit in which they pay for it. And I
    know my time is up, but you see where I'm going.
        I also have a lot of questions about Hubble, staffing, and
    the infrastructure.
        Mr. O'Keefe. If I could, Mr. Chairman, just kind of real
    quick, the budget we submitted on February 3 is empirically
    about $460 million more than what the President requested the
    year before. Congress acted on that request weeks later. So
    what you have observed here is absolutely accurate, relative to
    the appropriation that the Congress enacted weeks after this
    budget was submitted to you at the time, it was again, $450-odd
    million difference, versus the difference of $100 million now,
    as a consequence of what the Congress did enact during the
    course of the subsequent enactment as part of the omnibus
    appropriations bill. We will continue to look at this. I assure
    you, our intent is not to rob other programs in order to pay
    for shuttle costs. That will not be in the mix. Not the intent,
    won't do it.
        Senator Bond. Thank you very much, Sean. Senator Craig.

                      STATEMENT OF SENATOR LARRY E. CRAIG

        Senator Craig. Mr. Chairman, thank you. I will be brief, I
    have to run to another committee, but I did want to stop by and
    say hello to Mr. O'Keefe. Again, thank you, I appreciate the
    visit we had at NASA earlier this year.
        I know you have all been tragically busy since that time,
    and of course I think all of us are very anxious for the report
    to be completed and to get our shuttles flying again under all
    of the conditions that are safe and appropriate. Because
    clearly, I think the combination of the advancement in the
    space agenda and our science agenda, it plays such a key role
    and is critical.
        And slowly but surely, this Congress is shifting a little
    bit toward the physical sciences again, and I'm very pleased
    about that. We have expended a great deal in the biological
    sciences and we're proud of that, but we also recognize that we
    need to push the other envelope a bit more than we have.
        I would suggest you take a look at a bill that just came
    out of the Energy Committee, Director O'Keefe, as it relates to
    your nuclear systems initiative. We hope this Congress and
    certainly this administration, is moving in a new direction
    again as it relates to nuclear reactors and new passive safe
    reactors, and of course coupling with the Navy is appropriate
    for where you want to go and I think most appropriate, the
    efficiencies that we have achieved there are exciting. But GEN-
    4 reactors and new advance fuel cell technology may well couple
    with what we want to do, what you want to do out there in space
    with that kind of power plant that should be able to be done
    effectively and in a miniature or small way that we're looking
    at.
        So hopefully we can move this agenda with the cooperation
    of our colleagues. It is a bold one and this administration
    appears to want to be bold in that area, and I am confident
    that a good many of us now do.
        Recognizing the importance of that, we're going to couple
    that particular project with hydrogen electrolysis creation,
    and so we hope to get this Congress looking forward to new
    energy instead of standing still.
        Of course, your mention of radiation as I was coming in is
    important to all of us. As you know, the University of Idaho
    has played a great role and our colleagues there and their
    association with you in radiation, hardening electronics. So
    I'm excited that we advance that. We learned something about
    the ability to protect our tools, now we ought to be able to
    learn something about the ability to protect our people a
    little more in the appropriate way.
        And lastly when we get the shuttle flying again, your
    educator in space program flies with it, and that is exciting.
    Our friend Barbara Morgan from Idaho plays a key role in that,
    and thank you again for allowing her what she does so well.
    Those are all important to us.
        But I'm hoping this committee and this administration will
    stay high on what we're doing because it is important to the
    future of our country. And if we don't think what we do has
    application across the board for the pushing of the sciences
    and technology, it just got demonstrated so effectively in
    another part of the world that sets us apart as a unique
    country. But our willingness to use those technologies for
    mankind's betterment is also demonstrated largely. So, thank
    you for your work and I will be here encouraging and working
    with our Chairman and our Ranking Member to make sure the
    resources are available. Thank you.
        Mr. O'Keefe. Thank you, Senator. I appreciate your support.
        Senator Bond. Thank you very much, Senator Craig. Senator
    Shelby.

                    INTEGRATED SPACE TRANSPORTATION PROGRAM

        Senator Shelby. Thank you, Mr. Chairman.
        I believe NASA's integrated space transportation plan
    contains three important and critical elements for our Nation's
    future in space, the shuttle life extension, the orbital space
    plane, and the Next Generation Launch Technology Program.
        Given that the Next Generation Launch Technology Program,
    NGLT, is largely a technology development program, is it at
    risk for becoming a real player for any cost overruns
    associated with the shuttle life extension program or the
    orbital space plane?
        Mr. O'Keefe. I don't believe so.
        Senator Shelby. You don't?
        Mr. O'Keefe. I think in the time not too far ahead, we will
    be seeing greater definition for the next generation launch
    technology. We're working very, very closely with the Defense
    Department in order to get a partnered and joint program kind
    of effort that's compatible to assure access to space and
    launch access, which is their concern as well, that I think we
    will really put some definition on that. Our intent will
    certainly be to have that be a program that stands on its own.
    We're looking at that to be the mantra that we intend to live
    by.

                         LAUNCH TECHNOLOGIES--NASA/DOD

        Senator Shelby. What about NASA's unique needs and DOD's
    requirements? What kind of challenges do you have there and how
    do you address those challenges?
        Mr. O'Keefe. The efforts that really are very common
    between Defense and NASA are for launch technologies. The
    various approaches, whether they be horizontal or vertical in
    terms of the efforts that can be carried out, one of the ways
    is we're working to identify where those common technologies
    really have greatest application is through the national
    aerospace initiative that Dr. Ron Sega is championing, to
    really emphasize our partnering arrangements with them on
    hypersonics, and a range of very specific structures and
    propulsion initiatives they have pursued that we're doing
    jointly with them. That becomes the areas where I think our
    greatest leverage of each other's capability can really be
    expanded in order to see some specific yield for both NASA and
    DOD.

                                EXPLORER PROGRAM

        Senator Shelby. On February 3 of this year, NASA released
    an announcement of opportunity for the explorer program focused
    on small explorers and missions of opportunity. I have been
    told that despite Marshall's experience in development and
    management of science spacecraft, that this announcement of
    opportunity prevents Marshall from having a project management
    or end-to-end systems engineering role. If that's true, this
    announcement of opportunity doesn't track with what I
    understand to be NASA's philosophy and your philosophy of one
    NASA.
        Mr. O'Keefe. Yes, sir.
        Senator Shelby. Are you familiar with that announcement?
        Mr. O'Keefe. No, sir, I'm not. Let me look into it and get
    back to you.
        Senator Shelby. Will you check on that and get back to us?
        Mr. O'Keefe. Yes, sir.
        [The information follows:]
              Small Explorer Mission (SMEX)/Mission of Opportunity
        NASA's Announcement of Opportunity (AO) released on February 3,
    2003, for a Small Explorers Mission (SMEX)/Mission of Opportunity
    included the following language:

        ``For free-flyer SMEX missions, if project management and end-to-
    end systems engineering are to be implemented from a NASA center, then
    these functions must be performed by one of the centers designated by
    the Office of Space Science: either the Jet Propulsion Laboratory (JPL)
    or the Goddard Space Flight Center (GSFC) . . .''.

        The language included in this Announcement of Opportunity was
    consistent with a July 2002 Agency policy decision to limit project
    management and end-to-end systems engineering implementation for Space
    Science and Earth Science missions by a NASA Center to the Goddard
    Space Flight Center (GSFC) and the Jet Propulsion Laboratory (JPL). The
    July 2002 policy decision was based on a 1996 Zero Base Review
    recommendation to consolidate aerospace operations to fewer Centers,
    with the objective of consolidating engineering and test facilities,
    consolidating and aligning functional management expertise, and
    strengthening science programs, consistent with the NASA Procedure and
    Guideline (NPG) 1000.3 concerning the NASA Organization.
        GSFC and JPL are recognized by both the Space Science and Earth
    Science Enterprises as mission-implementing Centers for management and
    system design and implementation of space missions. GSFC and JPL have
    strong foundations in this area, and have made substantial and distinct
    investments to provide such expertise and services in the future. The
    Marshall Space Flight Center (MSFC) is the Agency's Center for space
    transportation systems development, microgravity research, and optics
    manufacturing technology. MSFC provides leadership in the areas of
    management and implementation of research, technology maturation,
    design, development, and integration of space transportation and
    propulsion systems, including Space Shuttle propulsion element
    improvements, reusable launch vehicles, vehicles for orbital transfer
    and deep space missions, and qualification verification of new
    expendable launch vehicles.
        The July 2002 Agency policy decision was not intended to prevent
    Centers other than GSFC and JPL from proposing as Principal
    Investigators, or proposing hardware, software, etc., in response to
    NASA Announcement of Opportunities; in fact, those Centers are
    encouraged to do so.
        Nevertheless, the Agency is currently in the process of re-
    examining and re-validating the policy. We will apprise the Committee
    of the results of this effort upon its conclusion.

                              PROPULSION RESEARCH

        Senator Shelby. We appreciate that very much.
        We know that you're developing a portfolio of propulsion
    research in both earth-to-orbit applications and in space
    applications. Can you describe the balance that you're trying
    to strike between the two investments here and what challenges
    you see on the horizon for each one of these activities?
        Mr. O'Keefe. Yes, sir. The first, I think, as we discussed
    a moment ago in terms of launch technologies, primarily the
    next generation launch technologies is a focused part of the
    space integration plan, so much of what you see there is not
    commingled or in competition with the in-space propulsion
    effort which is almost, well, largely focused on the Project
    Prometheus effort. It is both power generation and propulsion
    capabilities. There's an awful lot of effort and energy on both
    fronts, but they are not again, they're being looked at as
    separate propositions. One is, how do you accomplish the rate
    of 8\1/2\ minutes into low-earth orbit, which is our launch
    technology, as well as then once there, how do you find any in-
    space propulsion capability, of which we have none right now?
        The only capability we have, however limited, I shouldn't
    say none, is we use gravity assist, we really hope to get into
    the right orbit pattern in order to head anywhere in this solar
    system is about the best we can do, that uses a very, very
    limited kind of solar electric generated power source.
        The capabilities, just to give you a context of that, that
    must be utilized on any mission for a spacecraft, unmanned
    particularly, has to have a maximum power generation yield of
    no more than two 60-watt light bulbs. So this room would be max
    energy they have never had anywhere. With the nuclear systems
    effort and the power Project Prometheus would provide, is about
    100 times this kind of power generation capability in order to,
    incidentally, provide for propulsion of any variety----
        Senator Shelby. That's a big leap, isn't it?
        Mr. O'Keefe [continuing]. Of power generation, but also the
    ability to sustain the science and research force. These are
    two very distinct approaches that we're taking to this. They
    are not in competition with each other at all.
        Senator Shelby. Mr. Chairman, I have some other questions
    but I will wait my next turn.

                               PROJECT PROMETHEUS

        Senator Bond. Thank you, Senator Shelby.
        Mr. Administrator, speaking of Prometheus, I have some
    questions about it. You have shown in your request about $3
    billion needed for the first 5 years, 2004 to 2008. But I
    understand the head of NASA's Space Science Office, Dr. Wyler
    was quoted in Science Magazine recently as saying the cost of
    Prometheus through 2012 would be $8 to $9 billion. And of
    course unfortunately, we know the preliminary cost increases
    are never overblown.
        I am concerned about whether this project is going to
    consume such a large amount of the space science funding that
    other initiatives are funded, or are not going to be funded.
    What percentage of the funding is for building spacecraft and
    what for building nuclear power and propulsion systems, and
    could the costs be lowered by building less ambitious
    spacecraft since you know, since this is the first shot and if
    something goes awry, we don't want to lose it. Give me a little
    idea of your cost containment on this.
        Mr. O'Keefe. Yes, sir. The budget before you are the
    numbers I stand by and they are through the next, at that 5-
    year span, a little over $3 billion for the development effort
    for nuclear propulsion and power generation capabilities. It
    also begins the first demonstrator, if you will, of that
    capability, which will provide around Jupiter's moons a mission
    in the early part of the next decade, a multiple on-orbit pass.
        For example, if you look at the number of on-orbit passes
    we can go, it would probably take you the better end of 10 to
    20 missions. If each one of them costs some number of hundreds
    of million dollars, multiply it by that number and that's how
    much it would take in order to pursue this. So this is going to
    be significantly less expensive to pursue as multiple on-orbit
    efforts at various planetary objects than anything we could do
    elsewhere. We get one fly-by on every other spacecraft, one,
    and if the cameras don't work, the instrumentation isn't right,
    whatever, it's a lost mission entirely.
        So this is an approach to really enhance the capability to
    do many, many fly-bys, get there a lot faster, do it in a more
    expeditious period of time, and the development cost in this
    next 5 years is that much. Then from there on, each of the
    individual missions are going to be stand-alone costs. In the
    case of the Jupiter moons project which will be the first demo
    of that capability, which is due to launch towards the end of
    the decade, beginning of next, that will be an estimate we will
    refine over the course of the next year or so, when we will be
    able to provide a much more authoritative number of what that's
    going to cost. In terms of development expenses, it's $3.5
    billion.

                              ORBITAL SPACE PLANE

        Senator Bond. And then you've got the orbital space plane,
    that could be another $3 billion, so you have some big ticket
    items. Are you sure you aren't going to be squeezing something?
    OMB is going to have to start smiling on you and us a lot more
    kindly if you're going to get all these done.
        Mr. O'Keefe. Well, the 5-year plan that's projected as part
    of this request has the Agency submission rising to nearly $18
    billion by the end of fiscal year 2008, I believe it is. This
    is fully funded, that's the total estimate we believe it's
    going to take to do everything in there. This is the
    President's budget request, so everybody is in agreement with
    what those numbers say. So as a consequence, if he stands by
    them, I sure can stand by them because he's put his imprimatur
    on it.

                            RECRUITING AND RETENTION

        Senator Bond. I have been very much concerned, as Senator
    Mikulski is, about the staffing of NASA and making sure that we
    have the right people. I know we are facing a significant
    shortage. We need a home-grown new generation of engineers and
    scientists. There's a retirement crisis coming, and there is
    not an adequate pool now in the United States to meet the
    needs. So we are, as the Senator has said, working with NSF.
        But I question whether NASA needs incentives to retain
    staff. To NASA's credit, the employees see themselves as part
    of the family and they don't seem to be leaving. But I am
    particularly concerned about buy-outs. Do we need additional
    buy-out authority if 25 percent of the current NASA work force
    is eligible for retirement within 5 years and there are not
    enough scientists and engineers to replace them? And so I ask,
    why do we need to hire them?
        And I'm also concerned about buy-out authority because I
    understand that sometimes we buy out these employees, they
    leave and then go to work for a contractor at a higher salary,
    and we get to pay that salary after we've bought them out, we
    get to pay for a very wonderful high class scientist at a
    significantly increased rate. How are you going to protect
    against that problem? I kind of have a different view of
    solutions for solving your staffing needs.
        Mr. O'Keefe. Thank you, Mr. Chairman. Indeed, the personnel
    management approaches that can be taken, the full range of
    those tools was requested in the President's legislation he
    submitted last June to follow through with that. It is
    recruitment, it's retention, and it's also professional
    development. All the authority we need on buy-outs and so
    forth, I concur with you. I think we need to be very targeted
    on how we do that, and use it under very limited circumstances.
    Right now, retention is a better approach. The catch is, we're
    faced with an actuarial reality which is, I represent the
    average age of the agency. I am 47. There are three times as
    many scientists and engineers who are over 60 as we have under
    30. So no matter how long I try to retain folks under any set
    of circumstances, an actuarial reality is going to set in here
    and in some specific core competence fields like again, nuclear
    engineers for example, we know we're going to need more of them
    in the time ahead.
        We have a current retirement rate that is hovering around
    the 50 percent range that will be eligible in the next 3 years.
    So not only do you need more folks in certain competencies, you
    also need folks who are going to replace the seasoned veterans
    that are there before they actually depart. So the approach
    we're really looking to is heavy on the recruitment side, heavy
    on the professional development end of the folks that are there
    now, mid-level entry of some of the people who have a decade of
    experience with an engineering firm of comparable nature to
    come in and be part of that pool, and then some selected
    targeted kind of retention efforts in order to keep that talent
    base around.
        But again, as an actuary, there are a lot of folks who
    simply aren't going to stay beyond a certain level. We're not
    really as anxious to look at moving people out as bringing
    folks in in a timely enough manner to make that effective. So
    any combination of the President's proposal, the Voinovich
    bill, the House bill, whichever ones you like, please vote
    early and often for any of those. We could use any of those
    tools. We are right now strapped to the position we are limited
    to at present.
        Senator Bond. Thank you very much, Mr. Administrator. I
    have reached the end of my useful life cycle today and I am
    going to turn the hearing over to Senator Mikulski and then to
    Senator Shelby to continue as long as they wish. I look forward
    to reading at some later date the rest of your testimony and I
    thank you for your testimony today.
        Senator Mikulski.
        Mr. O'Keefe. Thank you, Mr. Chairman. I appreciate your
    courtesy, as always.

                             HUBBLE SPACE TELESCOPE

        Senator Mikulski [presiding]. Mr. Administrator, my
    questions are going to be specific because the time is moving
    along.
        I want to go to the Hubble and the consequences of what's
    happened because of Columbia to the Hubble. Columbia was
    supposed to service the Hubble telescope in 2004. The question
    is will it be able to do that? Will we be able to accommodate
    Hubble servicing missions; will we be able to extend the life
    of Hubble because it needs servicing? Can you describe to me
    the consequences to the Hubble because of the Columbia
    accident?
        And second, what then would be the consequences to the
    appropriations request?
        Mr. O'Keefe. Thank you, Senator. The budget for fiscal year
    2005 will cover the November 2004 launch of the servicing
    mission that was planned. As soon as we get back to safe flight
    operations, we will assess that timing to determine if that
    date or other, we won't just shift it to the right, but we will
    continue that servicing mission as soon as we need to in order
    to make sure Hubble stays viable.
        You're exactly right. It's an unbelievable instrument. Here
    it is 13 years later, considered to be something 13 years ago
    that would be just a big pile of space junk has turned into the
    miracle that it is today in the astronomy community. So, there
    is no question we want to sustain that, and we will look at a
    servicing mission as soon as we return to safe flight.
        The pacing item is, there are four gyros that are aboard
    Hubble right now, they're all operational. We need at least
    three to operate in the pattern that it's in. So if we see a
    failure at any point in the near future, we may have to look at
    how fast that servicing mission has to be conducted. The next
    mission in November 2004 had been planned to take six gyros up,
    replace them all out, and so that becomes the big pacing item,
    in addition to a number of other things we do on Hubble as
    well, but we will do that as soon as possible, independent of
    the International Space Station flight schedule.
        Senator Mikulski. We need to be kept posted on that.
        Mr. O'Keefe. Yes, Senator.

               ASSOCIATED UNIVERSITIES RESEARCH ASSOCIATES (AURA)

        Senator Mikulski. My other question is, the Hubble, in
    terms of the information captured by Hubble to Goddard, to a
    group called AURA, the Associated Universities Research
    Associates, which is an NGO operating on the Hopkins campus in
    very modest circumstances. I understand that they had a
    contract to run this work for about 10 years, but NASA has told
    them that they might want to recompute the last 2 years of the
    contract. I'm puzzled by that.
        I'm not against competition and certainly you know that,
    from our other conversations, but could you tell me why NASA
    would want to do that, because it places uncertainty for their
    ability to retain really brilliant astrophysicists, et cetera,
    and also even to negotiate proper leases, and so on.
        Mr. O'Keefe. Let me look at the very specific case here as
    soon as I get back to the shop to figure out what the focus on
    this one, or the AURA competition effort is all about.
        But as a general matter, I think exactly as you mentioned,
    it is very much part of our persistent view of saying let's
    always look at competitive alternatives, just if for no other
    reason than to satisfy ourselves that the way we're doing it
    today is a good way of doing it, let's retain that, but let's
    look at alternative sources.
        Senator Mikulski. Well, I understand that, and I know that
    you're also looking at an NGO for the International Space
    Station methodology. I think the genius of what has kept NASA
    so fresh and spectacular has been we have a core group of civil
    servants, we've discussed that in terms of the aging workforce,
    but it's combined with private contractors, again, who
    delivered, they brought freshness and best practices, and what
    a private sector brings. Then they work with universities, but
    also these groups.
        Now AURA is not part of Hopkins, though it's on the campus,
    but again, you have the retention of 300 people at stake. If
    you don't pick them up, they're cosmologists, astrophysicists,
    so many separate fields of physics that I couldn't even
    describe. And at the same time, they provide a very robust
    education program because Hubble, other than our human side, is
    the attraction to young people in space, what it provides to
    science centers and the like. So what they do in education with
    what the Genius Club finds, is stunning.
        So therefore, you could bust that wide open and at least
    300 people that know what to do with Hubble information and
    also what to do about education, the magnet that we want it to
    be, and then how they can also get best value in terms of what
    they need to procure. So, could you get back to me on that?
        Mr. O'Keefe. Yes, ma'am, absolutely.
        Senator Mikulski. Again, I don't want to take a position
    because I don't know all the facts, but do think you ought to
    look at it, because we don't want to create uncertainty just
    for saying we want to compete, because there is importance to
    competition.
        Mr. O'Keefe. Very good. I will take a look at it.
        Senator Mikulski. Senator Shelby.

                         MICROGRAVITY RESEARCH PROGRAM

        Senator Shelby. Thank you. I will try to be brief, Mr.
    O'Keefe, and I appreciate your patience.
        Would you describe the state of the microgravity research
    program within NASA? In particular, how would you describe the
    state of materials and biotech programs?
        Mr. O'Keefe. Yes, sir. The human research initiative that
    is part of our budget request is an effort to, again,
    aggressively look at what consequences microgravity poses, in
    both physiological as well as physical sciences kinds of
    applications. The two areas that are really pretty staggering,
    and I'm not a scientist so I'm easily staggered on these kinds
    of things, and then maybe I'm not easily surprised, is you see
    growth in acceleration as well as dramatic deceleration or
    degradation of physiological conditions. You can grow certain
    cells in microgravity conditions faster, yet at the same time
    it degrades other aspects of physiologic condition.
        We don't understand that. I haven't found a scientist yet
    who really can say gee, we can tell you exactly why this
    phenomenon occurs in both directions, some acceleration in one
    area and the degradation in others.
        Senator Shelby. It has great potential in one area and
    negative aspects in others, is that what you're saying?
        Mr. O'Keefe. Big time.
        Senator Shelby. But there has to be an answer.
        Mr. O'Keefe. Exactly. And so trying to crack that code is a
    big piece of what, you know, as a plebeian in this one by
    comparison, understanding exactly that is a long pole in a tent
    for any human space flight objective. We've got to understand
    what it takes in order to endure and persist in those kinds of
    conditions.
        From a physical sciences side, we've made some remarkable
    efforts, even to include on STS-107, on the Columbia flight, on
    physical sciences and exactly how materials research can be
    conducted better in microgravity conditions.
        But the focus as previously alluded, I think Senator Craig
    mentioned, is on International Space Station more dominant on
    the biological and physiology side of the equation, but there's
    an awful lot of physical materials research efforts that we are
    now looking to enhance once we get back to completing that
    laboratory condition that is really quite illuminating, it
    opens a whole range of doors if we can figure out just alone
    what that phenomenon is of both degradation as well as
    acceleration of cell growth, that would open up a lot of things
    that would have tremendous application.
        Senator Shelby. Microgravity research overall has great
    promise for some unanswered questions too, is that what you're
    saying?
        Mr. O'Keefe. Indeed. The other side of it too, I think is
    really critical to understand, microgravity research conducted
    in an earth-bound laboratory, the best we have been able to do
    is sustain a microgravity condition that even vaguely
    assimilates to what you see on orbit for about a month, and
    that's it, can't sustain anything longer than that. Whereas of
    course, it's a permanent condition on International Space
    Station as well as on shuttles. It has a phenomenon and a
    physiological consequence that is very different than any
    laboratory simulation we've created, bioreactors or something
    else.
        Senator Shelby. It's unique.
        Mr. O'Keefe. Very.

                       SPACE STATION RESEARCH PRIORITIES

        Senator Shelby. Recent language that was included in the
    2003 omnibus appropriations bill directed NASA, and we know
    this is just a few months ago, to re-examine the space station
    research priorities on a regular basis instead of using the re-
    map recommendations as a one-time fix. Do you agree with the
    committee's direction there? Have you had time to evaluate
    that?
        Mr. O'Keefe. No, sir. We agree and concur entirely. There's
    no question. The efforts last summer was a start. It was the
    first time, I am very pleased to say, that we got all the
    scientists from all these different communities to sit down and
    agree to a priority. Until they met, everything was number one,
    everything was a top priority, and so as a consequence, nothing
    was a priority. We now have at least a baseline from which to
    make that determination. That means there are some elements of
    the scientific community that aren't as happy with their
    placement in that priority rank as others, but at least it's a
    beginning. So it needs to be reassessed and we fully,
    wholeheartedly agree with the committee's recommendations and
    instructions on a regular effort to constantly update that and
    make it contemporary for what we see in the development of
    International Space Station.
        Senator Shelby. Plus you have flexibility that way.
        Mr. O'Keefe. Yes, sir, absolutely.

                            NUCLEAR POWER PROPULSION

        Senator Shelby. You talked a minute ago regarding the
    development of nuclear-powered propulsion capability. I
    understand that the Jet Propulsion Lab, Glenn Research Center,
    and the Marshall Space Flight Center will play key roles in
    this program.
        Mr. O'Keefe. Indeed.
        Senator Shelby. And the field centers would contribute to
    the overall program?
        Mr. O'Keefe. Yes, sir. The start-off focus here is, the Jet
    Propulsion Laboratory (JPL), will primarily be a design house
    because of the nature of--they have handled all of the,
    essentially the batteries that are nuclear powered, the RTGs
    that we have used with the Department of Energy over the last
    20-odd years, so they have done a lot of design work on that
    side. The Glenn Research Center will look at a lot of power
    generation capacities that we will need in order to harness
    that ability that nuclear reactors can produce to then generate
    power for the science and research activities. And Marshall is
    going to have a very strong lead in looking at a lot of the
    propulsion systems, as will Glenn, so the combination of both
    of them to perform the power generation and propulsion
    capabilities will be very closely interrelated, so that you
    have something that generates power and uses it for different
    purposes. So the prowess of both of those centers is going to
    be essential, an understanding and cooperation effort between
    the two in order to ensure we have a power generation
    capability that's going to be at least a factor of 3 better
    than what it is today.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Shelby [presiding]. Mr. Administrator, I think
    they've all abandoned us now, so I'm through with my questions.
    There might be some questions for the record by other members.
    We appreciate your appearance today, we appreciate your candor,
    and we apologize for the interruptions, but you know about
    interruptions since you worked here.
        [The following questions were not asked at the hearing, but
    were submitted to the Agency for response subsequent to the
    hearing:]

                   Questions Submitted by Senator Larry Craig

                     ULTRA-LOW POWER ELECTRONICS TECHNOLOGY

        Question. In order to perform greater science as projected in the
    next generation programs planned by NASA, more computation, high data
    rates, and high data volumes are required which must be processed on-
    board a spacecraft, especially those in near-earth orbits. In deep
    space programs, including the Nuclear Initiative, mass is an important
    concern.
        NASA has developed a Radiation Tolerant Ultra Low Power electronic
    technology, currently at a relatively low Technology Readiness Level
    (TRL), that appears to have significant promise in terms of performance
    and cost, according to engineers at the Goddard Space Flight Center and
    the NASA Institute of Advanced Microelectronics at the University of
    Idaho.
        What plans does NASA have to bring this technology to maturity
    where it can be deployed into NASA programs?
        Answer. NASA is continuing to fund a grant with the University of
    Idaho (valued at $0.6 million) in fiscal year 2003 for development of
    ultra-low power electronics technology. In July 2003, the Office of
    Aerospace Technology plans to issue an openly-competed $3 million NASA
    Research Announcement (NRA) to solicit proposals for development of
    radiation tolerant ultra-low power electronics. This NRA will fund
    approximately 10-15 research activities for 3 years. The technology
    development activities funded through the NRA are intended to advance
    the maturity of ultra-low power electronics to Technology Readiness
    Level (TRL) 5, which is laboratory demonstration of device operation in
    simulated space radiation environments. A variety of radiation-
    tolerant, ultra-low power components will be developed, including
    microprocessors, analog-to-digital converters, and application specific
    integrated circuits.
        Many times NASA, and other Government agencies, create a program
    where a number of related technology developments are funded, but in
    the end they fail to meet the final objective to create technology that
    can be deployed into flight programs. In other words, a set of
    technology developments is created that is not integrated to produce a
    useful product.
        Question. What steps is NASA taking to insure the development of
    the Radiation Tolerant Ultra Low Power electronics program is
    integrated to produce viable high TRL level technology for deployment
    within a few years?
        Answer. Ultra-low power electronics components that have been
    matured in research activities funded by the NRA will be transitioned
    to the NASA Science and Space Flight Enterprises for integration into
    prototype flight systems and insertion into future missions. The
    strategy for accomplishing this transition is to identify potential
    mission applications, and to obtain agreements from the Enterprises to
    co-fund further development and system integration. A portion of
    Aerospace Technology program funding will be allocated for co-funding
    the transition of ultra-low power electronics technology to the
    Enterprises. The strategy of requiring co-funding from the Enterprise
    customers in combination with Aerospace Technology co-funding insures
    that the Enterprises are committed to using the technology in their
    missions. In addition, the investigators selected via the NRA will be
    teamed with a NASA field Center (Goddard Space Flight Center or Jet
    Propulsion Laboratory) to insure that the development of electronic
    devices is focused on practical and near-term mission applications. The
    NASA Center will act as the bridge between the investigator and the
    Enterprise customer by integrating the electronic devices into
    prototype instruments and data systems. Validation of ultra-low power
    electronics technology in flight experiments such as those sponsored by
    the New Millennium Program will also be activity pursued.

                                     ______

                   Questions Submitted by Senator Mike DeWine

                        NEXT GENERATION TURBINE ENGINES

        Question. NASA's plan is to reduce funding for aeronautics nearly 5
    percent over the next 5 years. This is of significant concern to me.
    Further, there are key advancements in technology, such as intelligent
    propulsion systems, which are critical to fuel efficient and
    environmentally benign turbine engines. This engine technology needs to
    be demonstrated at an appropriate level so that industry can
    incorporate the technology into future engines. What are NASA's plans
    for advancement and demonstration of intelligent propulsion systems for
    next generation turbine engines?
        Answer. The Vehicle Systems Program, and in particular, the Ultra
    Efficient Engine Technology (UEET) and Quiet Aircraft Technology (QAT)
    projects are developing the enabling turbine engine technologies that
    will allow U.S. industry to design and bring to market next generation
    commercial engines which will have unsurpassed levels of performance
    with significantly reduced levels of environmental impact (emissions
    and noise). In order to adequately reduce the risk of U.S. industry
    incorporating these technologies in future designs, plans are being
    developed to partner with industry and the Department of Defense (DOD)
    to conduct ground demonstrations of the highest priority (i.e. highest
    pay off) technologies. These tests will be conducted under cost sharing
    arrangements between NASA and the industrial/DOD partners. In addition,
    the UEET project is currently developing a limited portfolio of
    technologies, which will contribute to future intelligent propulsion
    systems. As these intelligent engine technologies are matured they will
    also be demonstrated in appropriate ground test demonstrations
    utilizing cost sharing arrangements. These intelligent engine
    technologies are being developed through partnerships with
    universities, industry, and DOD working with NASA research personnel.

                               PROJECT PROMETHEUS

        Question. I strongly support NASA's Nuclear Systems Program to
    enable new science discoveries by using advanced power and electric
    propulsion systems. This includes the initiative started in fiscal year
    2003 as well as the proposed acceleration called Project Prometheus.
        Answer. The objectives of the Nuclear Systems Initiative proposed
    and approved in the fiscal year 2003 budget remain essentially the
    same, but the initiative has been renamed Project Prometheus. The only
    significant proposed programmatic change to the initiative for fiscal
    year 2004 is the commencement of the first mission to use Project
    Prometheus technology: the Jupiter Icy Moons Orbiter (JIMO).
        Question. What are NASA's plans to insure that these critical power
    and electric propulsion technologies continue to be advanced and
    demonstrated?
        Answer. Recognizing the enormous potential of this initiative, NASA
    has placed a high priority on advancing and demonstrating Project
    Prometheus power and propulsion technologies. We are committed to
    advancing these technologies by competitively tapping the talents,
    experience, and innovative minds within industry, academia, and other
    agencies of the U.S. government, such as the Department of Energy
    (DOE). We will also fully utilize the expertise and technical
    capabilities of several NASA centers in the areas of: electric
    thrusters; power conversion and power management; mission design,
    development and operations; large spacecraft structures and systems;
    engine and propulsion system design; and systems engineering and
    integration for complex programs.
        Last year's budget included only a nuclear technology research
    program, with the first demonstration mission deferred until additional
    analysis indicated that such a mission was both highly desirable and
    likely to be technically feasible. That analysis has been undertaken
    and suggests that a revolutionary new science mission may well be
    feasible. The end result, JIMO, will allow NASA to demonstrate the
    technologies formulated within Project Prometheus. Future mission
    concepts will depend on developments in the years to come.
        Question. What will be the role of NASA's Glenn Research Center in
    advancing, demonstrating and developing these systems?
        Answer. NASA's Glenn Research Center will be involved in several
    aspects of management and technology development in Project Prometheus.
    The exact role over time will be based on the technologies identified
    as the most promising propulsion and power candidates as well as
    Glenn's focus within Project Prometheus, which is in the areas of power
    generation, power conversion, and electric propulsion technologies.
        Glenn is already playing a key role in the research and development
    of advanced radioisotope power conversion. A major activity is the
    development of the Stirling Radioisotope Generator (SRG), a candidate
    power source for a 2009 Mars mission. Drawing on the expertise at
    Glenn, DOE, and the industry development team, the SRG will likely
    achieve a four-fold improvement in the power conversion efficiency over
    current radioisotope power sources. The SRG and other power conversion
    and propulsion technologies being developed will have application
    across a broad range of potential missions.

                   BIOLOGICAL AND PHYSICAL RESEARCH PROGRAMS

        Question. NASA's programs in biological and physical research are
    crucial not only to accomplishing NASA's mission, but also to the
    health and well being of our citizens here on earth. Interdisciplinary
    research between the biological and physical sciences is particularly
    beneficial. Further, key collaborations between NASA, universities and
    research hospitals, such as the John Glenn Biomedical Engineering
    Consortium, can contribute immeasurably to NASA and the Nation. What
    are NASA's plans for continuing and enhancing these consortia?
        Answer. The John Glenn Biomedical Engineering Consortium (BEC) was
    established in 2002, and currently carries out 10 research projects--
    each funded for 3 years--to address medical risk issues associated with
    human space flight that have been identified in the NASA
    Bioastronautics Critical Path Roadmap. The BEC is part of the Glenn
    Research Center's (GRC) new interdisciplinary program in Bioscience and
    Engineering that has been created to effectively leverage recent
    scientific and technological advances in the physical sciences and
    microgravity engineering disciplines. The consortium was designed to
    enhance NASA's progress in overcoming challenges in space biomedical
    research and to optimize the productivity of the space biotechnology
    program. Other components of the Bioscience and Engineering activity
    include interagency collaborations (National Eye Institute, National
    Cancer Institute, National Institute of Child Health and Development),
    Space Act agreements with the private sector in biomedical and
    biotechnology research, peer-reviewed research carried out by academic,
    private, and government institutions, and the NASA Bioscience and
    Engineering Institute (NBEI), which was recently selected through
    independent peer-review.
        NASA's long range plan for the John Glenn BEC is to enable it to
    significantly contribute to the NASA's goals in Biomedical and
    Biotechnology research by establishing strong links to the extramural
    and intramural NASA research programs; by collaborations with other
    Federal agencies; and by partnering with the private sector. John Glenn
    BEC has pledged to achieve a self-sustaining status through funding
    from the above three sources.
        It is the intention of NASA to continue supporting consortia such
    as the John Glenn BEC in the future. The agreements governing our
    relationships with such consortia contain sunset clauses that allow for
    competitive selection that motivate these entities to become self-
    supporting. NASA will continue to aggressively pursue commercial and
    academic entities as participants in technological collaborations that
    are compatible with NASA's Mission and Vision.

               INNOVATIVE TECHNOLOGY TRANSFER PARTNERSHIPS (ITTP)

        Question. Economic development is a national and regional priority.
    NASA's technology has been a strong contributor to the Nation's
    economic growth, and I believe will continue to be in the future. While
    the President's proposal changes NASA's Commercial Technology Program
    into Innovative Technology Transfer Partnerships, I am still concerned
    as to how the goal of getting NASA's technology into the marketplace
    will occur.
        Answer. As described in the President's Fiscal Year 2004 Budget
    proposal for NASA, our primary emphasis would shift toward partnerships
    that engage the development of technologies directly beneficial to NASA
    missions. Under the proposed plan for Innovative Technology Transfer
    Partnerships (ITTP), NASA would continue to support the necessary
    efforts to document and license NASA technologies and make them
    available for use by the private sector. While the Agency would reduce
    the amount of active outreach activities to industry, we would conduct
    a reformulated technology transfer program that relies on the use of
    the eCommerce and web-based systems to present information on
    technology that might be applicable for use by the private sector. The
    National Technology Transfer Center will continue to be one of the
    resources we use to transfer technology to the private sector.

            COMMUNICATIONS, NAVIGATION AND SURVEILLANCE (CNS) SYSTEM

        Question. A key concern is the National Airspace System and the
    need to incorporate advanced technology into that system through a
    cooperative effort between NASA and the FAA. In particular a
    transformed Communications, Navigation and Surveillance (CNS) system
    using advanced space communications technology is critical. What are
    NASA's plans for support of this CNS technology?
        Answer. NASA has developed a research plan in communication,
    navigation, and surveillance (CNS) technologies, which focuses on
    space-based solutions to support the transformation of the National
    Airspace System (NAS) to meet future demands. The objective of this
    effort is to develop and evaluate critical CNS technologies, which will
    allow an integrated space-based digital airspace. In its fiscal year
    2004 budget request, NASA has proposed to initiate this effort with the
    first objective being definition of CNS requirements and associated
    technologies for the future NAS.

                   NEXT GENERATION LAUNCH TECHNOLOGY PROGRAM

        Question. I believe it is imperative for its future that NASA
    continue to develop advanced technology for future reusable launch
    vehicles to make them safer, more reliable and more cost effective. The
    Next Generation Launch Technology program is making significant
    progress in advancing critical technologies for NASA and other national
    needs in collaboration with the DOD. What are NASA's plans for this
    program?
        Answer. The NGLT Program is a critical element of NASA's Integrated
    Space Transportation Plan (ISTP), which is comprised of the Shuttle
    Life Extension Program, the OSP Program and the NGLT Program. As NASA's
    advanced launch technology development program, NGLT will advance the
    state-of-the-art in critical and high-payoff technologies to enable
    low-cost, reliable, and safe future generations of fully and partially
    reusable launch vehicle systems. NGLT is oriented to support an Agency
    decision in 2004 on whether to proceed with a risk-reduction phase for
    a future NASA launch system that would be operational in the 2014-15
    timeframe. All elements within NGLT seek to advance technologies that
    enable missions that are currently not technically or economically
    feasible. These missions include the exploration and development of
    space, enabling new commercial space markets, and enhancing the
    Nation's security. NGLT investments are not only enabling future launch
    systems, but also support potential upgrades to existing systems such
    as EELV and the Space Shuttle.
        In cooperation with DOD, the NGLT program is a major contributor to
    two of three ``pillars.'' The three pillars, High-Speed/Hypersonics,
    Space Access, and Space Technology, represent the building blocks in
    the integrated effort between NASA and DOD, the National Aerospace
    Initiative (NAI). In leading the Space Access pillar of the NAI, the
    NGLT will co-execute an integrated long-term national technology plan
    for Space Access Technology with the DOD. It is a priority to integrate
    the objectives of NASA and the USAF. The NLG's participation in this
    effort will serve to strengthen cross-agency relationships by
    addressing common needs and showing interdependencies with the High-
    speed Hypersonics Pillar, and identifying and mapping technologies to
    potential development programs.

                                     ______

                    Question Submitted by Senator Herb Kohl

    COMMERCIAL TECHNOLOGY AND COMMERCIAL SPACE PRODUCT DEVELOPMENT PROGRAMS

        Question. I am concerned about NASA's decision to terminate funding
    for Commercial Technology and Commercial Space Product Development
    programs. The Commercial Technology Program has led to the creation of
    vital technology partnerships between government, industry, and the
    academic world and has promoted the commercialization of NASA research
    and development. The Commercial Space Centers (CSCs) have played a
    critical role in NASA's biotechnology research. The Wisconsin Center
    for Space Automation and Robotics, located at the University of
    Wisconsin-Madison, has spun-off three commercial companies and set up
    partnerships with many established businesses. Thanks to these
    programs, the first seed-to-seed plant growth experiment was
    successfully conducted during a recent International Space Station
    mission with funding from a company located in Green Bay, Wisconsin.
        If the American public is to reap the benefits of NASA innovation
    and expertise, successful technology transfer programs must continue.
    Given the clear benefits of CSCs, why have you decided to eliminate
    Commercial Technology and Commercial Space Product Development
    programs? How do you plan to maintain the exchange of biotechnology
    innovation among universities, private businesses, and government?
        Answer. The fiscal year 2004 budget request for the Office of
    Biological and Physical Research (BPR) responds to the recommendations
    for research areas identified as high priority in the report by the
    Research Maximization and Prioritization (ReMAP) task force in 2002. As
    the ISS evolves from construction to continuous on-orbit research
    capability, the task force recommended that NASA prioritize the use of
    its unique, space-based research capability. To fully support the NASA
    vision, and in-line with these recommendations, BPR's new research
    strategy focuses on undertaking activities necessary to extend the
    human exploration of space. The NASA Advisory Council (NAC) and the
    Biological and Physical Research Advisory Committee (BPRAC) endorse
    this general strategy, as do the Research Partnership Center (RPC)
    Directors. In a limited budget environment, to accommodate funding
    increases in these programmatic areas, funding must be reduced
    elsewhere.
        Just as the BPR fundamental and applied research programs are
    realigning with the BPR research strategy and the Agency's mission, the
    SPD program and the associated RPCs will also strategically reorient
    their goals to maximize the benefits of ISS research. Again, the RPC
    Directors support this realignment.
        The current 15 RPCs are engaged in areas such as biotechnology,
    biomedicine, advanced materials processing, agribusiness, spacecraft
    technology and communications development. Where these also support the
    priority research in our Enterprise (and other Enterprises), the RPCs
    will continue to be supported. Some of the ongoing work is not aligned,
    so the fiscal year 2004 budget request proposes a reduction in the
    annual budget in RPCs from fiscal year 2003 levels, with the full
    reduction to be realized by fiscal year 2006. The proposed budget
    reductions will be completed only after a comprehensive and objective
    assessment of the present commercial research program, including
    feedback from an ongoing independent review of the RPC program, to be
    completed in fiscal year 2004. The RPC Center Directors are fully
    engaged in this process and will actively participate in the program
    restructuring. A recommendation regarding the refocused program,
    including updated budget projections, will be submitted with NASA's
    fiscal year 2005 budget proposal.
        NASA will continue to facilitate the commercialization of space,
    and will focus on ensuring that commercial researchers have efficient
    access to space. NASA is seeking to provide more efficient means of
    access to the International Space Station (ISS) for all users. NASA's
    Integrated Space Transportation Plan (ISTP) is also being updated to
    address, among other things, assured cargo access.

                             CONCLUSION OF HEARINGS

        Mr. O'Keefe. Yes, sir, thank you, Senator.
        Senator Shelby. Thank you. The subcommittee is recessed.
        [Whereupon, at 12:03 p.m., Thursday, May 1, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

    DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                                  ----------

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

        MATERIAL SUBMITTED BY AGENCIES NOT APPEARING FOR FORMAL HEARINGS

        [Clerk's Note.--The following agencies of the Subcommittee
    on VA, HUD and Independent Agencies did not appear before the
    subcommittee this year. Chairman Bond requested these agencies
    to submit testimony in support of their fiscal year 2004 budget
    request. Those statements submitted by the chairman follow:]

                      NATIONAL CREDIT UNION ADMINISTRATION

          Prepared Statement of the Honorable Dennis Dollar, Chairman
        Mr. Chairman, Ranking Member Mikulski, and Members of the
    Subcommittee. As Chairman of the National Credit Union Administration
    (NCUA), I am pleased to submit testimony that presents NCUA's request
    for fiscal year 2004 funding of the Community Development Revolving
    Loan Fund and to request $1.5 billion in fiscal year 2004 borrowing
    authority for our Central Liquidity Facility (CLF), and slightly
    increased CLF operational expenses for the year.
        I will begin by discussing the Central Liquidity Facility.

        NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY FACILITY

    Introduction
        The National Credit Union Administration Central Liquidity Facility
    (CLF) was created by the National Credit Union Administration Central
    Liquidity Facility Act (Public Law 95-630, Title XVIII, 12 U.S.C. 1795,
    et seq.). The CLF is a mixed ownership Government corporation managed
    by the National Credit Union Administration Board. It is owned by its
    member credit unions who contribute all of the capital by the purchase
    of stock. The CLF became operational on October 1, 1979.
        The purpose of the CLF is to improve general financial stability by
    meeting the liquidity needs of credit unions and thereby encourage
    savings, support consumer and mortgage lending, and provide basic
    financial resources to all segments of the economy. To accomplish this
    purpose, member credit unions invest in the CLF through the purchase of
    stock, which is used for investment purposes and the funding of some
    lending activity. The proceeds of borrowed funds from the Federal
    Financing Bank are used to match fund significant loan requests from
    member credit unions.
        In addition to serving its direct members, the CLF complements the
    organizational structure of the U.S. credit union financial system by
    working with its agent members that are corporate credit unions acting
    as agents of the CLF on behalf of their natural person credit union
    membership. This agent framework consists of a private financial
    network of 33 state and federally chartered corporate credit unions
    with approximately $67.1 billion in assets. The corporate credit union
    network provides operational and correspondent services, investment
    products and advice, and short-term loans to approximately 9,782
    natural person credit unions members. The CLF provides this network
    with assurance that if temporary liquidity shortages or public
    confidence issues arise due to external events or internal problems,
    funds are available to meet abnormal savings outflow. By being a
    specialized lender housed within the NCUA, the CLF has the ability to
    draw upon the supervisory and insurance resources of the Agency.
    However, CLF assistance is generally a secondary source of funds after
    the corporate system or other sources of credit have been utilized.
    Often the CLF is used when other credit sources have been unable to
    provide the appropriate terms and conditions required in a specific
    situation.
        The borrowings of the CLF have the ``full faith and credit'' of the
    United States government. The Federal Financing Bank of the U.S.
    Treasury is available as a source for the CLF to fund its lending
    programs. The CLF is financially self-supporting and does not use
    government funds to support any of its administrative and operational
    expenses.

    Lending Activities
        Loans are available to credit unions directly from the CLF or
    through its agent (corporate credit union) members. Credit unions rely
    on market sources to meet their demands for funds. The CLF normally is
    not an active participant in the on-going daily operations of this
    system. Rather its role is to be available when unexpected, unusual, or
    extreme events cause temporary shortages of funds. If not handled
    immediately, these shortages could lead to a larger confidence crisis
    in individual credit unions or even the system as a whole. Because of
    its knowledge of credit unions and its immediate access to the
    supervisory information of NCUA, the CLF exercises a vital role in
    maintaining member and public confidence in the health of the U.S.
    credit union financial system.

    Factors Influencing Credit Union Borrowing Demand
        Under the Federal Credit Union Act, the Central Liquidity Facility
    is intended to address unusual or unpredictable events that may impact
    the liquidity needs of credit unions. Since these events are not
    generally foreseen, it is extremely difficult to forecast potential
    loan demand. Throughout the history of the Central Liquidity Facility,
    loan demand has widely fluctuated in both volume and dollar amount.
        The CLF is authorized by statute to borrow from any source up to
    twelve times its subscribed capital stock and surplus. Prior to fiscal
    year 2001, with the exception of the Y2K-transition period, Congress
    restricted the CLF's borrowing limit to $600 million through the annual
    appropriations process. For fiscal year 2001, the traditional $600
    million cap was increased to $1.5 billion. The $1.5 billion borrowing
    limit was again approved for fiscal years 2002 and 2003. The
    continuation of the $1.5 cap for fiscal year 2004 will further assure
    that the CLF continues as a reliable, efficient backup liquidity source
    in times of need.
        It is important to note that Central Liquidity Facility loans are
    not used to increase loan or investment volumes, because by statute,
    the proceeds from Central Liquidity Facility loans cannot be used to
    expand credit union portfolios. Rather, the funds are advanced strictly
    to support the purpose stated in the Federal Credit Union Act--credit
    union liquidity needs--and in response to circumstances dictated by
    market events.

    Administrative Expenses
        Total operating expenses for fiscal year 2002 were $208,000, below
    the budget limitation of $309,000. Expenses were under budget in 2002
    due to two factors; (1) a brief vacancy in the NCUA Board in the first
    quarter (2) travel expenses were not incurred as anticipated.
        Total operating expenses for fiscal year 2003 are projected to be
    within our budget limitation of $309,000. In fiscal year 2003, pay and
    related benefits are higher than 2002 due to pay comparability and
    unknown contingencies.
        For fiscal year 2004, the Central Liquidity Facility is requesting
    an administrative expense limitation of $310,000. This figure is
    slightly higher than the previous year due to a change in pay and
    benefits and unknown contingencies. Expenses for fiscal year 2003 are
    not formulated or approved by the NCUA Board until November 2003.
    Accordingly, fiscal year 2004 expenses are estimated with inflationary
    pressures, known pay adjustments, and unknown contingencies.

    Additional Background
        Credit unions manage liquidity through a dynamic asset and
    liability management process. When on-hand liquidity is low, credit
    unions must increasingly utilize borrowed funds from third-party
    providers to maintain an appropriate balance between liquidity and
    sound asset/liability positions. The CLF provides a measure of
    stability in times of limited liquidity by ensuring a back-up source of
    funds for institutions that experience a sudden or unexpected shortage
    that cannot adequately be met by advances from primary funding sources.
    Two ratios that provide information about relative liquidity are the
    loan to share ratio and the liquid asset ratio. Liquid assets are
    defined as all investments less than one year plus all cash on hand.
    Managing liquidity risk is a major priority for credit unions and has
    become an increasingly important risk issue in the past decade as the
    charts below indicate.

        Chart 1 shows the ratio of loans to shares in all federally insured
    credit unions. As the ratio of loans to shares increases, the amount of
    funds maintained in short-term liquid investments declines. Liquidity
    risk has increased on average in the past decade as on-hand liquidity
    in federally insured credit unions gradually declined due to increased
    lending. A substantial inflow of shares during 2002 reduced the ratio
    from the Yearend 2001 high of 73.8 percent down to a Yearend 2002 level
    of 70.8 percent. Liquidity risk management remains a significant
    obligation for credit unions.

        Chart 2 shows the ratio of liquid assets to total assets in all
    federally insured credit unions. As this ratio decreases, liquidity
    risk and the potential need for borrowed funds conversely increases.
    Credit unions utilize various market sources for funding needs
    including the repurchase market, correspondent relationships with
    corporate credit unions and other financial institutions, and, to a
    growing extent, membership in the Federal Home Loan Bank system. CLF
    serves as a back-up source of liquidity when an unexpected need for
    funds arises and primary sources are not available.

    Explanation of Obligations by Object Class
      --Personnel Compensation represents the estimated salary cost of 1.5
            permanent full-time employees on duty during fiscal year 2004.
      --Employees Benefits includes health benefits, government life
            insurance, miscellaneous cash awards, and change of station
            real estate differential.
      --Travel and Transportation represents travel expenses for CLF staff.
      --Communications, Utilities, and Other Rent represents estimated rent
            paid to the agency for office space, as well as telephone and
            postage expenses.
      --Printing and Reproduction represents costs primarily associated
            with the Annual Report. This expense category will also include
            minor costs associated with basic forms, statements, and
            notices sent to members.
      --Other Services represents payroll processing fees, training, and
            reimbursement to the agency for Board and staff payroll.
      --Supplies and Materials represents computer paper, visual aids,
            educational supplies, and miscellaneous supplies for the CLF,
            its Agents, and sponsors of training seminars.
      --Investments are purchases of new investments during the fiscal
            year.
      --Dividends are the cost of dividends paid to members of the
            Facility.
        The CLF continues to experience infrequent demand for liquidity
    loans from its member credit unions. This is due, in no small part, to
    the strong financial position of credit unions and the ample levels of
    on-hand liquidity maintained during the 1990s. This is not to say,
    however, that credit unions are not in need of a special purpose
    liquidity lender. The CLF is a very important resource for credit
    unions that experience an unexpected need for liquidity, especially
    when primary funding sources are inadequate or unavailable.
        We cannot foresee the exact circumstances that might necessitate a
    broad-based need for CLF lending but we are dedicated to the principle
    that we must be ready and able to fulfill that purpose; a purpose
    established by Congress when it created the Facility. Liquidity remains
    an important priority. Like all depository institutions, credit unions
    are forced to borrow if their on-hand supply of liquidity is depleted
    beyond the level of current funding obligations. Credit unions do plan
    for such borrowing but there are times when contingency funding
    arrangements are potentially inadequate. Such times call for a
    responsive CLF.
        Whether it lends on an isolated basis or whether it is called upon
    to address a more widespread or even systemic demand for loans, the CLF
    is an efficient, effective, and low cost facility that is well adapted
    to meet the unique needs of its member credit unions.

     NATIONAL CREDIT UNION ADMINISTRATION COMMUNITY DEVELOPMENT REVOLVING
                                   LOAN FUND

        Turning to another subject, I would like to thank the Subcommittee
    for continuing its support of NCUA's Community Development Revolving
    Loan Fund (CDRLF).
        Congress established the CDRLF in 1979, through an initial $6
    million appropriation to assist officially designated ``low-income''
    credit unions in their efforts to provide basic financial service and
    products to underserved communities. The credit unions participating in
    the CDRLF programs provide underserved communities with access to a
    variety of financial services and products which include basic savings
    and share draft accounts, home and car loans, and start-up
    entrepreneurial capital for small businesses.
        Over the years, Congress has increased the number of dollars
    available for CDRLF loans to $13 million. For more than 13 years, NCUA
    has successfully administered the revolving loan program, providing
    more than 217 loans totaling $32.8 million. And, in 1992, the NCUA
    Board began funding technical assistance grants by using the interest
    generated from the CDRLF loans. In fiscal year 2001, Congress
    recognized the success of the grants by reserving certain funds
    specifically for this part of the CDRLF program. To date, the CDRLF
    technical assistance grant program has provided more than 1,000 grants
    totaling $2.4 million.
        NCUA remains committed in our efforts to promote and facilitate the
    extension of affordable financial services to individuals and
    communities throughout America as demonstrated by the implementation of
    the agency's successful Access Across America initiative. The CDRLF
    plays a vital role in the success of Access Across America, which is
    designed to reach out to underserved communities and create economic
    empowerment for people from all walks of life. Low-income designated
    credit unions use the loans to further community development by
    providing funding for member loan demand, additional member services,
    and increased credit union capacity to serve members that has resulted
    in the overall improvement of the financial condition of low-income
    credit union members. The grants are used for verifiable and need-based
    technical assistance purposes by low-income designated credit unions.
        In 2002, Access Across America proved to be a very successful
    initiative with over 23.5 million Americans living in CDFI designated
    underserved areas becoming eligible for credit union service. In many
    instances, residents of these underserved areas often find themselves
    at the mercy of higher-cost outlets such as pawnshops, check-cashing
    stores, and rent-to-own companies in the absence of an affordable
    financial alternative.
        In 2002, NCUA received requests for loans in the amount of
    $7,007,000 and were able to approve $2,329,000. In addition, NCUA
    distributed $664,314 in technical assistance grants after receiving
    requests for $1,618,843. Unfortunately, due to limited resources, NCUA
    was forced to decline requests for more than $950,000 in technical
    assistance grants that could have been used to further the availability
    of much needed services and products through enhanced technology by
    these low-income designated credit unions, the overwhelming majority of
    which are smaller and challenged by the costs of advancing technology
    in the delivery of financial services.
        As stated earlier, the technical assistance grant program had been
    funded primarily through its history by the earnings generated from the
    interest charged for the CDRLF loans. Because CDRLF loans are low
    interest--the current interest rate is 1 percent--the earnings
    generated are insufficient to meet all the technical assistance
    requests. NCUA accepts applications for loans and grants continuously
    through the year, and we expect a steady pace for requests for the
    remainder of 2003.
        The NCUA Board constantly struggles with the need to keep loan
    interest rates low and the need to generate interest income in order to
    be able to provide additional technical assistance. The funds allocated
    specifically for technical assistance grants over the past two years
    have greatly enhanced our efforts to provide technical assistance to
    low-income credit unions. A survey completed in May 2001 found that
    low-income designated credit unions that receive CDRLF assistance
    demonstrated the following results:
      --Used the program to make additional funds available to meet
            community loan demands and improve financial services to
            members,
      --Experienced significant growth,
      --Stimulated economic activities in their communities, and
      --Increased funding for these institutions from other sources.
        NCUA firmly believes that, based upon the amount of loan and
    technical assistance grant applications where the needs were unable to
    be met last year, an increase of an additional $1 million over last
    year's funding level could provide the CDRLF program even greater
    ability to further the growth and long-term viability of credit unions
    in low-income and underserved areas. Access to affordable financial
    services and products can provide these communities with a much needed
    and viable alternative to check cashers, pawn shops, and title loan
    companies which often charge exorbitant rates and fees for credit in
    many low-income areas. By providing an alternative to higher-cost
    lenders, credit unions play a significant and meaningful role in
    helping residents keep more of their money in their communities and
    households. The CDRLF program furthers this worthwhile public policy
    goal, and NCUA values the strong support this Subcommittee has provided
    to this program over the years. We look forward to working with you
    again this year to continue the CDRLF program and further enhance its
    effectiveness.
        Finally, I would like to briefly summarize the current condition of
    credit unions and the National Credit Union Share Insurance Fund
    (NCUSIF). The U.S. credit union system continues to be in excellent
    health. Credit union share growth in 2002 was a significant 15.1
    percent and assets increased 11.1 percent to $557 billion. Net-worth in
    federally insured credit unions at the end of 2002 stood at 10.7
    percent and the number of problem credit unions remains at historical
    lows. These figures demonstrate the continued overall safety and
    soundness of the credit union system.
        In summary, the credit union industry remains in excellent
    condition. NCUA greatly appreciates the Subcommittee's continued
    support of our efforts to keep credit unions safe and sound, enhance
    credit union liquidity, and provide needed assistance through loans and
    grants to low-income credit unions with verifiable needs.

                                     ______

              U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD

    Prepared Statement of Carolyn W. Merritt, Chairman and Chief Executive
                                    Officer

        Mr. Chairman, Senator Mikulski, and members of the Subcommittee,
    thank you for the opportunity to present the U.S. Chemical Safety
    Board's budget proposal for 2004.
        In the last six months, the Board has completed four major
    investigations and we plan to finish five more by the end of the fiscal
    year. We have more staff deployed than ever before and now have ten
    investigations underway, from Houston to New York City, from North
    Carolina to St. Louis.
        Next year, with your continued support, we plan to complete 12
    investigations--that's three to four times what the agency could do
    only a couple of years ago.
        The CSB is a small agency just 37 people, mostly scientists,
    engineers, and other investigators. But we do what no other
    organization does: when a major chemical accident occurs, we
    immediately send a team of experts to conduct an independent,
    scientific investigation of the root causes of that accident. We don't
    just determine what happened, we determine why.
        Our purpose is to prevent future accidents, not to issue fines or
    citations. Once we have established the root causes of accidents, we
    report our findings directly to the communities affected and the
    nation, and we issue recommendations to industry and government to
    improve safety. We then press for full implementation of these
    recommended safety actions.
        No other organization has our unique mission to inform the public
    and industry about chemical accident hazards. Tragically, at no time in
    recent years has there been a greater need for an agency like ours.
    This winter has seen a rash of serious chemical accidents. Among our
    ten active cases, the Board is investigating major plant explosions in
    Kinston, North Carolina; Corbin, Kentucky; and Rosharon, Texas. These
    explosions have inflicted many deaths and injuries, imperiled hundreds
    of American jobs, and disrupted regional economies.
        By bringing to light all the causes of chemical accidents--
    including hazards that are unknown, forgotten, or underestimated--CSB
    is in the forefront of building a safer industry. Let me add that
    chemical accidents are not just a problem of the chemical industry--
    many companies that simply use or handle chemicals experience these
    accidents as well. For example, we are currently investigating
    accidents at a medical device company, an acoustic insulation
    manufacturer, and an architectural sign company--just to name a few.
        We are here asking for a modest increase of $1 million over our
    2003 base budget. The Committee gave us adequate resources last year to
    hire seven new accident investigators, and I thank you for it. We now
    need additional funds to fully utilize our staff and maintain our
    increased productivity into next year.

                 UNPRECEDENTED LEVEL OF MISSION ACCOMPLISHMENT

        Since last year, the Board has completed five major accident
    investigations. We have ten more investigations currently underway. A
    summary of the recently completed investigations follows.

                            COMPLETED INVESTIGATIONS

    BP Amoco (Augusta, GA)
        On March 13, 2001, three workers were killed as they opened a
    process vessel containing hot plastic at the BP Amoco (now Solvay
    Advanced Polymers LLC) plant in Augusta, Georgia. The workers were
    killed when the partially unbolted cover blew off the vessel, expelling
    molten plastic. The Board report, issued in May 2002, found that the
    accident could have been avoided if the firm had instituted a program
    to better understand the chemical reaction that caused pressure
    accumulation within the process vessel. The Board issued eight specific
    recommendations to the company to prevent a similar incident in the
    future.

    Motiva Enterprises (Delaware City, DE)
        On July 17, 2001, one worker was killed and eight others were
    injured when a sulfuric acid storage tank exploded and collapsed at the
    Motiva Enterprises LLC Delaware City Refinery. The explosion caused a
    massive release of sulfuric acid to the environment. The Board found
    that a spark from welding equipment had ignited flammable vapors from
    the storage tank, which was inadequately maintained and had holes
    rusted through its roof.
        The Board identified significant deficiencies in Motiva's
    mechanical integrity program--the program responsible for monitoring
    and preventing corrosion of the storage tank. Among the recommendations
    from this accident, the Board urged OSHA to regulate the safety of
    atmospheric storage tanks when they are connected to hazardous
    manufacturing processes.
        The Board got strong support for its investigation and its
    recommendations from the entire Delaware Congressional delegation. Rep.
    Michael Castle and Sen. Joseph Biden both spoke forcefully at our
    public meeting in Wilmington on August 28, 2002, and they joined with
    Sen. Tom Carper in requesting action ``as swiftly as possible'' from
    OSHA Assistant Secretary John Henshaw. ``Expanding coverage to include
    aboveground storage tanks will go a long way in reaching our common
    goal of reducing catastrophic events,'' they wrote in a letter to
    Secretary Henshaw dated February 25, 2003.

    Reactive Hazards (NJ, TX, and nationwide)
        Following the final CSB report in August 2000 on an incident at the
    Morton International plant in Paterson, New Jersey, the Board began an
    intensive study of 167 serious reactive chemical incidents from 1980 to
    2001. On May 30, 2002, the Board held a hearing in Paterson to review
    the findings of the nationwide study. The Board found serious gaps in
    both industry practice and government regulations to control reactive
    hazards. Senator Corzine and Senator Lautenberg both spoke at the
    meeting and supported our investigative findings on this subject.
        On September 17, 2002, in Houston, Texas, the Board issued its
    final report from the reactive hazards investigation. The Board
    recommended that OSHA amend its Process Safety Management standard to
    achieve more comprehensive control of reactive hazards. The Board also
    called on EPA to revise its chemical accident prevention program for
    the same purpose. A further recommendation requested the National
    Institute of Standards and Technology to develop a publicly available
    database of reactive hazard test information. There were also
    recommendations directed to several trade associations, unions, and
    other organizations.
        Meanwhile, serious reactive incidents continue to occur around the
    country. CSB is conducting full investigations of two such incidents,
    in Pascagoula, MS, and Cranston, RI, and preparing a case study of a
    third recent incident in Ohio. All three processes where these
    accidents occurred were exempt from coverage under the OSHA and EPA
    process safety rules.

    Georgia Pacific (Pennington, AL)
        On January 11, 2002, a hydrogen sulfide gas leak at the Georgia
    Pacific Naheola paper mill killed two workers and injured a dozen
    others. On November 20, 2002, the Board held a public meeting and
    issued its final report. The Board completed this investigation and
    issued its recommendations in less than a year.
        The Board concluded that plant management had not followed good
    engineering and process safety practices when they earlier connected a
    drain from a truck unloading area into an acidic process sewer. On the
    day of the incident, sodium hydrosulfide, a process chemical that had
    spilled in the unloading area, reacted to release deadly hydrogen
    sulfide gas when it contacted acidic material in the sewer. The toxic
    gas vented from the sewer through a nearby fiberglass manhole cover and
    engulfed the workers. The Board recommended that Georgia-Pacific
    Corporation review sewer system safety to prevent the inadvertent
    mixing of potentially reactive chemicals and also identify plant areas
    that may be at risk for hydrogen sulfide release.

    Third Coast Industries (Pearland, TX)
        A massive fire, which broke out in the early morning hours of May
    1, 2002, destroyed the Third Coast Industries blending facility south
    of Houston, in a blaze that consumed 1.2 million gallons of combustible
    and flammable liquids and lasted for more than 24 hours. Approximately
    100 nearby residents were evacuated from their homes while the fire was
    allowed to burn itself out. The plant had no supply of fire water to
    aid emergency responders. On March 6, 2003, the Board issued its final
    report on the accident at a public meeting in Houston. The Board found
    that better fire control systems could have spared the plant from total
    destruction and minimized the impact on nearby residents and
    businesses. Most widely used fire codes have provisions that could have
    greatly mitigated the spread of the fire at Third Coast, but where the
    plant is located in unincorporated Brazoria County there is no
    mandatory fire code. The Board recommended that the County adopt such a
    fire code, and the County did so a week after of the Board's
    recommendation.

                             CURRENT INVESTIGATIONS

    Kaltech Industries (New York, NY)
        The CSB is investigating a building explosion that injured dozens
    on April 26, 2002, in the Chelsea neighborhood of downtown New York.
    The explosion occurred at a company, Kaltech Industries, that
    manufactures architectural signs. A number of members of the public
    were among the injured. Preliminary findings indicate that the
    explosion occurred as a result of an uncontrolled chemical reaction
    during waste mixing operations. A public hearing on the issue was held
    April 16, 2003, in New York City, and a final report is expected in
    June 2003.

    DPC Enterprises (Festus, MO)
        On August 14, 2002, approximately 48,000 pounds of toxic chlorine
    gas were released from a stationary rail car being unloaded at the DPC
    Enterprises plant in Festus, south of St. Louis. The leak resulted from
    the rupture of an improperly constructed transfer hose and subsequent
    failure of several emergency shutdown devices. On December 4, the Board
    issued a safety advisory to chlorine users nationwide to verify the
    materials of construction of chlorine transfer hoses to prevent future
    gas leaks. The Board's final report on the DPC incident is expected in
    May 2003.

    First Chemical (Pascagoula, MS)
        A violent explosion blew apart a large distillation tower at the
    chemical producer on the morning of October 13, 2002. CSB staff noted
    that the incident was a ``close call'' in that falling metal from the
    explosion could have caused the release of deadly gases had it struck
    certain nearby storage tanks. Shrapnel did penetrate one nitrotoluene
    storage tank at the site, igniting a fire that burned for several
    hours. The CSB conducted a well-attended community meeting on the
    significance of this case at Pascagoula City Hall on January 15. A
    final report is expected later this year.

    Catalyst Systems (Gnadenhutten, OH)
        On January 2, 2003, a violent explosion destroyed part of Catalyst
    Systems, a manufacturer of curing agents for automotive body fillers,
    located south of Cleveland. The explosion originated in a dryer used to
    concentrate benzoyl peroxide, a reactive chemical of the organic
    peroxide family. The blast caused one injury but could have been far
    worse had not most workers been at lunch when it occurred. CSB
    investigators are preparing a case study on this serious reactive
    chemical incident.

    BLSR Operating (Rosharon, TX)
        This facility, located south of Houston, processes oil and gas
    field wastes, recovering petroleum and disposing of waste water. On
    January 13, 2003, two trucks were unloading gas field wastes into an
    open trench, when suddenly their diesel engines began to race (a sign
    of a flammable atmosphere). Moments later a flash fire occurred,
    engulfing the trucks, fatally burning three workers, and injuring
    several others. The Board is investigating this incident, looking at
    how potentially flammable gas field wastes are managed for safety. A
    final report will be issued this summer.

    West Pharmaceuticals (Kinston, NC)
        On January 29, 2003, a massive explosion destroyed much of the West
    Pharmaceuticals plant that produced molded rubber medical products. A
    total of six people have died as the result of the blast, including
    several who initially survived only to die later from critical burn
    injuries. Others remain hospitalized. The shockwave from the explosion
    shattered windows hundreds of feet away and hurled debris up to two
    miles from the blast site. Damage to the plant was estimated at $150
    million, and hundreds of jobs were put in jeopardy. A large team of CSB
    investigators deployed immediately to the site, arriving the evening of
    the explosion. CSB investigators rapidly identified the likelihood of a
    chemical dust explosion and began a comprehensive investigation of the
    root causes. The Board is planning to hold a community briefing in
    Kinston this spring.

    Technic Inc. (Cranston, RI)
        A February 7 explosion at Technic Inc., a manufacturer of metal
    plating chemicals, sent a number of workers to the hospital.
    Fortunately, only one worker was seriously injured, but his injuries
    were life-threatening. A CSB investigative team was dispatched and
    identified the possibility of an uncontrolled chemical reaction within
    the waste vent piping system attached to several chemical reactors. The
    team continues to investigate the root causes of this accident, which
    is another example of a serious reactive chemical accident that
    originated within a waste disposal system.

    CTA Acoustics (Corbin, KY)
        During a brief process shutdown on the morning of February 20, a
    powerful explosion ripped through the CTA Acoustics plant in
    southeastern Kentucky. Seven people have died from burns received
    during the explosion, which CSB investigators believe likely involved
    combustible chemical dust from the process used to make fiberglass
    automotive insulation. Two workers remain in critical condition. The
    blast badly damaged the plant, halting production at several North
    American Ford manufacturing sites, idling more than 10,000 workers. CSB
    staff are continuing to investigate at the CTA plant, conducting
    interviews, gathering samples, and mapping blast damage. The CSB will
    hold a community meeting in the Corbin area within the next several
    months.

    Hazard Study--Toxic Gas Emissions (Cincinnati, OH, and nationwide)
        Following its investigation of the fatal Georgia Pacific hydrogen
    sulfide incident, the CSB initiated a follow-up study to look more
    broadly at the problem of toxic gases evolving from waste disposal
    systems. On December 11, 2002, a few weeks after this study was
    announced, a serious incident occurred at Environmental Enterprises in
    Cincinnati, OH, where a worker was overcome by the same gas, hydrogen
    sulfide, from a waste water treatment system. CSB staff are now
    reviewing records from around the country to determine how prevalent
    these incidents are, and their report is expected later in 2003.

    Hazard Study--Sodium Hydrosulfide Handling (nationwide)
        As another outgrowth of its Georgia Pacific investigation, CSB
    staff are conducting a review of other incidents involving sodium
    hydrosulfide, the chemical which reacted in the Georgia Pacific sewer
    to produce the toxic hydrogen sulfide. Evidence indicates that other
    fatalities have occurred from the interaction of sodium hydrosulfide
    with acid; this study is examining the sufficiency of current safe
    handling practices for this substance.

                        RECOMMENDATIONS PROGRAM LAUNCHED

        Recommendations are CSB's principal tool for promoting chemical
    safety. Each recommendation has one or more specific recipients, who
    are the parties best able to carry out the recommended action to
    improve safety. Once CSB has issued a recommendation, the CSB
    recommendations staff encourages implementation and tracks compliance.
    In fiscal year 2002, the CSB issued a total of 67 recommendations and
    successfully closed 38 recommendations from prior year investigations.
    The CSB also began posting status information on all recommendations on
    our website.
        The Board aims for 80 percent acceptance of our recommendations
    over a period of time. In the fifth year of our existence, we are well
    on the way to achieving that goal. We have received excellent
    cooperation in virtually every case, and have received only two
    negative responses to the 141 recommendations that have been issued. On
    the other hand, we have received numerous responses indicating positive
    actions underway or planned.
        Here are some recent examples of safety accomplishments made as a
    specific result of CSB recommendations:
      --OSHA issued a Technical Information Bulletin on the hazards
            associated with temporary work enclosures (CSB Union Carbide
            investigation);
      --The Institute of Makers of Explosives (IME) developed guidelines
            for the safe reclamation of explosive materials and the proper
            training of explosives workers (CSB Sierra Chemical
            investigation);
      --The American Petroleum Institute developed its first recommended
            practices for the safe operation of onshore oil and gas
            production facilities, including worker training, process
            design, and work practices (CSB Sonat investigation);
      --The Morton International Chemical Company has taken actions to
            improve reactive chemical safety at its plants, including re-
            evaluating hazards, adding safety alarms, revising operating
            procedures, and investigating near-miss events (CSB Morton
            investigation);
      --The National Propane Gas Association and the Fire Service Institute
            of Iowa revised their fire fighting training materials to
            include appropriate precautionary measures for flammable gas
            explosions (CSB Herrig investigation);
      --Brazoria County, Texas, adopted a county-wide fire code for the
            first time following the Board's Third Coast Packaging
            investigation.

                      OUTREACH AND DATA EFFORTS REFOCUSED

        Responding to recommendations from the Committee and the Inspector
    General, the Board restructured the agency's outreach efforts to ensure
    they are cost-effective and help to advance the agency's statutory
    mission to prevent accidents. Plans for a freestanding outreach office
    with up to five FTEs were cancelled, with most positions reassigned to
    investigations. Instead the agency has focused on making sure that key
    safety information from its own investigations becomes widely known. In
    lieu of a freestanding outreach office, the agency has established a
    small coordinating committee of existing staff who ensure that outreach
    activities are directly related to getting CSB safety recommendations
    adopted.
        The Board also withdrew a strategic goal to develop its own
    accident data system and instead convened a data roundtable discussion
    in November 2002, jointly with EPA and OSHA. The roundtable resulted in
    broad agreement on measures to improve EPA's data collection program--
    measures that will benefit CSB and other government agencies that need
    to look at accident rates. In addition, CSB continues to work with
    other agencies, such as the Agency for Toxic Substances and Disease
    Registry, to better utilize other federal incident data systems.
        The agency has also begun a highly successful program of public and
    community meetings in connection with our accident investigations. We
    have held public meetings in Paterson, NJ; Wilmington, DE; Festus, MO;
    Houston, TX (twice); and Pascagoula, MS. These meetings are held in
    communities where accidents have occurred, and most are also broadcast
    over the Internet. The meetings have been well attended and have drawn
    sizeable audiences of Internet viewers, including safety professionals
    who work in similar industries. We use these public meetings to discuss
    and release our investigative findings and recommendations and also to
    hear specific community concerns about chemical accident hazards.

                            MANAGEMENT IMPROVEMENTS

        We made a number of management improvements during the past year,
    in part as an outgrowth of work by the CSB Inspector General (IG). Ten
    recommendations from a March 2002 IG report were all successfully
    implemented by the agency by the end of the September. Among the
    changes, CSB developed new legal procedures for handling vacancies in
    the Chair; expanded delegation to the COO and the career staff;
    improved tracking of staff time and resources; and streamlined its
    strategic goals and office structure. CSB also successfully petitioned
    OPM for special hiring authority to fill numerous vacancies in its
    investigations and recommendations programs. Armed with this temporary
    authority we hired seven new investigators and specialists by the end
    of the fiscal year.
        In June 2002, the agency recruited its first full-time COO in more
    than two years. This action relieved the General Counsel of collateral
    responsibilities and provided a single, full-time manager for day-to-
    day operations. CSB also accepted six additional IG recommendations
    related to personnel management and has recently hired a full-time
    human resources manager to oversee this important function.
        With the swearing in of a new Chairman, a fifth Board member, and a
    full-time Chief Operating Officer, the agency's management has reached
    full operating strength for the first time in its history. As one
    senior industry safety official wrote the Board recently, ``I think the
    CSB has made truly exceptional progress . . . to a group publishing
    excellent investigation reports, facilitating discussions on issues
    facing the chemical industry, etc. . . . You have arrived . . .
    [emphasis in original]''

                        FISCAL YEAR 2004 BUDGET REQUEST

        This Committee has urged the Board to undertake more investigations
    and hazard studies, and we want to produce more work. We are requesting
    a budget increase of $1 million to provide adequate resources for our
    expanded investigative staff to do the work that Congress wants.
        With almost 40 personnel--mostly engineers, scientists, and
    technical specialists--the CSB is poised to achieve its statutory
    mission of protecting lives and property by investigating and
    preventing chemical accidents, and we are already producing significant
    results. The agency has pledged to produce up to 12 investigation
    reports in fiscal year 2004, up from a rate of just three a year in
    fiscal year 2002.
        The expansion of the investigations program and the hiring of
    additional investigators have had a significant budgetary impact. In
    addition, we now have major investigations underway in North Carolina
    and Kentucky, on a scale that is unprecedented for our agency. The
    public expects CSB to conduct prompt, thorough, authoritative
    investigations of both accidents. We have significant, unavoidable
    expenses for contracting with outside experts to assist those
    investigations--such as dust explosion experts--expenses that could not
    possibly have been anticipated in our fiscal year 2003 budget.
        During both fiscal year 2001 and 2002, CSB spent less than its full
    annual appropriation, resulting in unspent ``carryover'' balances at
    the end of each fiscal year. For example, at the end of fiscal year
    2002, CSB had $1.4 million in unspent two-year funds, out of an
    appropriation of $7.85 million.
        However, our expenses for fiscal year 2003 will total an estimated
    $8.6 million, including current year appropriations, carryover funds,
    and prepaid contract items. By comparison, the agency's fiscal year
    2003 appropriation is only $7.85 million, of which $1.4 million must be
    drawn from previous carryover funds. Because we pre-funded certain
    fiscal year 2003 expenses during last year, we can currently function
    despite the apparent imbalance between our current expenses and our
    fiscal year 2003 appropriation.
        Because of the agency's financial condition in fiscal year 2003,
    however, the CSB will have no available carryover moneys entering
    fiscal year 2004. In addition, we lack the financial means to prefund
    fiscal year 2004 expenses to any significant extent. Thus at the
    beginning of fiscal year 2004, CSB will need to be funded entirely from
    new appropriations.
        The Board plans to increase output to 12 investigations and studies
    per year, which will impose additional travel and contract costs next
    year. Likewise we also intend to continue our highly successful program
    of briefings and Board meetings conducted outside of Washington, in the
    field. Information included with the agency's budget request shows that
    if the CSB is funded at the $8 million level in fiscal year 2004, we
    will face an immediate shortfall on October 1, 2003, of almost $1
    million per annum, which will have a serious adverse effect on our
    operations and our ability to retain needed staff.
        In fiscal year 2004 the Board will have a full complement of Board
    members and an adequate staff to meet our objectives. We ask the
    Committee's support to let us continue to accomplish the mission
    Congress gave us--to protect workers, the public, and the environment
    from chemical accidents.
                                     ______

                   U.S. COURT OF APPEALS FOR VETERANS CLAIMS

         Prepared Statement of Honorable Kenneth B. Kramer, Chief Judge

        Mr. Chairman and Distinguished Members of the Committee: On behalf
    of the Court, I appreciate the opportunity to present for your
    consideration the fiscal year 2004 budget request of $16,220,000 for
    the United States Court of Appeals for Veterans Claims. With our nation
    at war, the Court is even more committed to ensuring that our veterans
    and dependents have a justice system that affords effective and timely
    review of the denial by the Department of Veterans Affairs (VA) of
    their claims for benefits based on and provided by a grateful nation
    because of their service and sacrifices.
        The Court's fiscal year 2004 budget request includes $1,175,000
    requested by the Veterans Consortium Pro Bono Program (Representation
    Program). In accordance with practice since fiscal year 1997, the
    Representation Program has provided its own budget request, which the
    Court has forwarded (without comment) along with the Court's budget
    request.
        The appropriation to the Court for fiscal year 2003 was $14,326,000
    (before the .65 percent rescission reduced it to $14,232,881), of which
    $1,045,000 was the amount requested by the Representation Program. Our
    fiscal year 2004 budget request reflects an increase over the budget
    authority for Court operations for fiscal year 2003. Three factors
    account for virtually the entire increase in addition to the $130,000
    increase sought by the Representation Program. The first reflects a
    budgeted pay raise for all nonjudicial Court personnel consistent with
    that generally anticipated for all Washington, D.C., area government
    employees. The second factor is the statutory authorization for a
    temporary increase in the number of judges. The third is a request for
    earmarked funding for security measures, which the Court is now
    withdrawing. I will discuss each of these matters further.
        The first significant increase in the Court's budget request for
    fiscal year 2004 is in personnel compensation and benefits. As in the
    past, in conformance with OMB economic assumptions, we have requested
    funding for a pay adjustment for staff (2.0 percent), with no
    differentiation between the Economic Cost Indicator and locality pay,
    including necessary funding for benefits.
        The second important factor is the result of the enactment of
    Public Law No. 107-103 (Dec. 27, 2001), calling for the temporary
    addition of two judges. Since its inception, the Court has been
    composed of seven judges, one of whom serves as chief judge; however,
    Public Law No. 107-103, temporarily increased the number of judicial
    positions from seven to nine. This law was designed to smooth the
    transition period when the then five, now four, remaining original
    judges would be eligible to retire in a very short span of time; at the
    end of that period, in August 2005, the size of the Court will return
    to seven judges. We have attempted to budget as prudently as possible
    for this temporary judicial increase. Given the uncertainty of the
    timing associated with the nominations process, in our fiscal year 2003
    budget request we requested funding for one additional chambers; we
    have included, as part of the fiscal year 2004 budget request, funding
    for a second additional chambers, that is, for $590,000 to provide for
    personnel and benefits, office buildout, furnishings, equipment, and
    supplies, as well as continuing costs for the operation of the first
    additional chambers. Nominations for the two additional judicial
    positions are now pending before the Senate Committee on Veterans'
    Affairs, along with two nominations to fill the vacancies created by
    former Chief Judge Nebeker's retirement in October 2000 and Judge
    Holdaway's retirement in November 2002. If both additional judgeships
    are filled during fiscal year 2003, we would request reprogramming of
    fiscal year 2003 funds to provide immediately for establishing the
    second additional chambers, and if necessary seek supplemental funding.
    We would then withdraw from our fiscal year 2004 budget request our
    funding request for comparable costs associated with establishing an
    additional chambers. In addition, the benefits portion continues to
    include a Court contribution to the Judicial Retirement System (JRS)
    Trust Fund that reflects all participating judges' opting into the JRS
    survivor annuity program and the statutory provision anticipating that
    all judges--including any appointed as part of the temporary judicial
    increase--will ultimately join the Court's JRS.
        Not taking into account the new judgeships, the Court's request
    proposes no increase in staffing. The Court, as always, will monitor
    staffing to ensure that it is kept at the minimum level necessary to
    review in a timely fashion the cases brought before the Court. To
    provide further background on the workload before the Court, the
    Court's caseload history over the past twelve years is summarized in
    the following table, which also appears on page 4 of the Court's fiscal
    year 2004 Budget Request:

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Fiscal   Fiscal   Fiscal   Fiscal   Fiscal   Fiscal   Fiscal   Fiscal   Fiscal   Fiscal   Fiscal   Fiscal
                                                    Year     Year     Year     Year     Year     Year     Year     Year     Year     Year     Year     Year
                                                    1991     1992     1993     1994     1995     1996     1997     1998     1999     2000     2001     2002
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    BVA Total Denials...........................   25,082   10,946    9,734    6,194    6,407   10,444   15,865   15,360   14,881   14,080    8,514    8,606
    New Cases to USCAVC.........................    2,223    1,742    1,265    1,142    1,279    1,620    2,229    2,371    2,397    2,442    2,296    2,150
    New Cases as a Percent of BVA Denials.......      8.9     15.9     13.0     18.4     20.0     15.0     14.0     15.4     16.1     17.3     27.0     25.0
    --------------------------------------------------------------------------------------------------------------------------------------------------------

        Appeals to the Court come from the pool of cases in which the Board
    of Veterans' Appeals (BVA or Board) has denied some or all benefits
    sought by claimants. The Court is also empowered to entertain petitions
    for extraordinary relief where the Court action sought would be in aid
    of its jurisdiction. As this table shows, the number of appeals and
    petitions filed with the Court has held relatively steady, even though
    the number of total denials by the Board (the BVA does not publish
    statistics on cases with partial denials) has dropped significantly
    since passage in November 2000 of the Veterans Claims Assistance Act of
    2000 (Public Law No. 106-475) requiring VA to provide more
    comprehensive notice and development assistance to VA benefits
    claimants. There has been a substantial increase in new case filings
    over the last six months. Since September 2002, new case filings have
    averaged 242 per month. If this trend continues throughout fiscal year
    2003, the Court will have the highest number of new cases in its
    history for a 12-month period.
        Furthermore, since Congress extended the Equal Access to Justice
    Act (EAJA) to the Court in 1992, there has been a substantial number of
    EAJA applications. The case-filing figures provided in the table,
    above, however, do not reflect the number of EAJA applications filed
    and EAJA cases pending, even though these applications initiate a
    separate proceeding requiring Court action. In fiscal year 2002, the
    Court acted on 1,104 applications, up from 801 applications in 2001 and
    776 applications in 2000. The potential availability of EAJA fees has
    encouraged a greater number of attorneys to develop expertise in
    veterans benefits law, and the professional assistance of the growing
    appellants' (benefits claimants) bar has proven very valuable in
    litigation before the Court. However, there is a tradeoff: Some EAJA
    applications can demand considerable time because they present very
    complex issues, and resolving these issues continues to require
    substantial judicial and staff resources. Consequently, processing and
    disposing of EAJA applications has become an important workload factor.
        In addition to the factors addressed above, a third matter has
    contributed to the Court's fiscal year 2004 budget request. Included in
    the ``communications, utilities, and miscellaneous charges'' object
    category is $281,700 that the Court requested be earmarked for security
    enhancement. The Court is mindful, however, of the disfavor expressed,
    in H.R. Report No. 107-40 and the Statement of the Managers in the
    Conference Report accompanying H.J. Res. 2 (subsequently enacted as
    Public Law No. 108-7, hereinafter ``the fiscal year 2003 Appropriations
    Act''), for our fiscal year 2003 request for earmarked funds for
    security enhancements. Accordingly, we withdraw the request for
    earmarked funds for use for security enhancement in fiscal year 2004.
    As instructed by the Committee, the Court is working through the
    General Services Administration (GSA) in an effort to make arrangements
    with the building's owner, from which GSA leases the Court's offices,
    for enhanced security to the building. Guards under contract to the
    Federal Protective Service (now part of the Department of Homeland
    Security) have, since March 5, 2003, been conducting magnetometer and
    x-ray screening at the lobby and loading dock and screening vehicles
    entering the public parking garage during regular business hours (with
    limited guard service in the lobby for extended hours). GSA and the
    Court continue to work toward additional security enhancements for the
    building. The Court is mindful of the Committee's view that costs for
    the garage be shared by those who use the facility.
        The Court asks, however, that the Committee consider appropriating
    and earmarking $100,000 of these funds for use during fiscal year 2004
    for the costs of working through GSA to locate a suitable site and
    examine design requirements and other specifications needed for a
    veterans justice center (feasibility study). VA, the veterans service
    organizations (VSOs), the Representation Program, and a number of other
    agencies and organizations involved in legal representation before the
    Court have expressed interest in relocating their appellate
    practitioners to a veterans justice center. The bar association
    continues to support an initiative to house the Court in a veterans
    justice center, rather than a commercial office building with
    nonfederal tenants and without adequate federal control over security.
    The costs of establishing such a center could be comparable to current
    annual rental payments by the Court and other federal entities housed
    in it. In H.R. Report No. 107-740, incorporated by reference into the
    legislative history of the fiscal year 2003 Appropriations Act, the
    Committee ``strongly urge[d] the Court'' to continue to work through
    GSA to ``come to an agreeable solution'' concerning the security issues
    affecting the building where the Court is located. In the event that
    there could not be agreement among the GSA, the Court, the building's
    owners, and the other tenants, the Committee recommended that ``the
    Court look for alternative Federal office space to meet its needs.''
    The GSA Public Building Services has expressed a willingness to work
    with the Court on this matter, and the earmarked $100,000 would be used
    to pay GSA for expenses incurred and passed through to the Court.
    According to GSA, that is the estimated cost for a feasibility study
    that would include seven major components: (1) Client-requirements
    assessment; (2) asset-needs assessment; (3) conceptual development of
    alternatives; (4) technical and financial analysis of alternatives; (5)
    selection and justification of the preferred alternative; (6)
    construction cost estimates of the preferred alternative, separated
    into shell and tenant improvement components per the GSA pricing guide;
    and (7) delivery schedule and procurement strategy. The GSA feasibility
    study would provide the narratives, charts, plans, sketches, diagrams,
    and other information needed for an informed decision.
        Although not a major factor, a $39,000 increase is reflected in the
    request for funding for other services. These services include cross-
    servicing for payroll and finance and accounting support from the
    Bureau of Public Debt (BPD) and the Department of Agriculture's
    National Finance Center, and for court security officers provided
    through a contract with the U.S. Marshals Service. In addition, a
    $10,000 increase for travel reflects an increase in the cost of travel,
    additional judges, and programmed travel by judges to law schools to
    conduct oral argument and thereby promote education in veterans' law
    (as discussed further in the next paragraph), and for training
    associated with the new judicial appointments. Finally, there is an
    increase of $12,000 reflecting increased subscription costs and
    supplies associated with the anticipated new judges and their staff.
        Last year, in my statement in support of the Court's budget request
    for fiscal year 2003, I updated you on two new Court initiatives: To
    promote study of veterans benefits law in the nation's law schools and
    to support practitioners in their effort to organize a voluntary bar
    association. The Court has now held oral argument at two area law
    schools (Catholic University and Georgetown University), and one of the
    schools offered an evening course in veterans benefits law during the
    Fall 2002 semester. Later this Spring, the Court will hold oral
    argument at another local law school (the University of Baltimore). The
    voluntary bar association continues to operate successfully and now has
    almost 250 dues-paying members drawn from the appellants' bar, VA,
    veterans service organizations, and the Court. As one of its
    activities, the bar association has established a law school education
    committee, with members from among the Court's practitioners, including
    members outside the Washington, D.C., geographic area. These
    practitioners are working with law professors and law schools
    throughout the country in exploring various means to expose future
    attorneys to veterans benefits law.
        In conclusion, I appreciate this opportunity to submit this
    testimony on the Court's budget request for fiscal year 2004. On behalf
    of the judges and staff, I thank you for your past support and
    continued assistance. I will be happy to answer any questions that you
    might have.
                                     ______

                    DEPARTMENT OF HEALTH AND HUMAN SERVICES

                Agency for Toxic Substances and Disease Registry
    Prepared Statement of Henry Falk, M.D., M.P.H., Assistant Administrator

        It is a special pleasure to discuss ATSDR's accomplishments and
    plans, as this month marks the 20th anniversary of ATSDR's creation. I
    am very proud of ATSDR's progress over the past 20 years in advancing
    our understanding of the public health impacts of exposure to hazardous
    substances and in undertaking activities to prevent and mitigate
    disease and other harmful impacts of toxic exposure.
        Among the profound changes that have occurred in our country during
    those 20 years, I would like to note two in particular that have played
    a significant role in shaping ATSDR's development and activities.
        First, it has been widely recognized that the problems posed by
    hazardous waste sites are more extensive than was understood in the
    early years of the Superfund program. The number of hazardous waste
    sites in this country is much larger than was once thought. Sites that
    present major public health consequences continue to be identified,
    most notably asbestos contamination from W.R. Grace's vermiculite mine
    in Libby, Montana, a site that was first addressed under Superfund in
    1999.
        Second, terrorist events and the threat of future terrorist events
    have resulted in growing demand for ATSDR's unique experience and
    expertise developed over the past 20 years in carrying out mandated
    Superfund programs.
        Our experience and expertise in chemical toxicology, in emergency
    response, and in fostering coordination among public health,
    environmental, and emergency response agencies, as well as
    organizations at the local, state, and federal levels, is extensive. In
    addition, ATSDR has an important role in disseminating critical
    information to agencies and organizations with a role in terrorism
    preparedness and response.
        The President's fiscal year 2004 Budget includes $73 million for
    ATSDR. This funding will support the agency's ongoing activities.
        Through ever-expanding partnerships with other federal, state,
    tribal and local agencies and with private and public interest
    organizations, we continue to provide the highest quality services to
    the public in both our traditional Superfund programs and in terrorism-
    related activities. Innovative partnerships with organizations whose
    programs complement those of ATSDR have enabled us to achieve our
    public health mission more efficiently and effectively, both through
    disseminating critical information and through drawing on the expertise
    of others.
        During the past year, in addition to ongoing work with the
    Environmental Protection Agency (EPA), we have collaborated with a
    broad range of agencies and organizations, including the Centers for
    Disease Control and Prevention (CDC), the National Institute of
    Environmental Health Sciences (NIEHS), the Federal Bureau of
    Investigation, the Federal Emergency Management Agency (FEMA), the
    Chemical Safety and Hazard Investigation Board, the American Chemistry
    Council, colleges and universities, and dozens of state and local
    public health organizations.
        We have cooperative agreements with 31 state health departments,
    under which they conduct health assessments and undertake other
    environmental health activities. In addition, we continue to benefit
    from ATSDR's longstanding partnerships and programs, such as with the
    Minority Health Professions Foundation and its research program, as
    well as with a number of universities and state health departments
    through ATSDR's Great Lakes Human Health Effects Research Program.
    These programs help ATSDR fill the gaps in knowledge about the effects
    of hazardous substances on human health.
        We continue to leverage technology, including the use of
    sophisticated toxicologic, epidemiologic, and environmental data sets
    and analytic approaches, to enable us to carry out our mission most
    effectively. Geographic information system technology allows us to
    layer health, demographic, environmental, and other traditional data
    sources to be analyzed. Improved scientific capacity enables us to
    track the spread of environmental contamination throughout a community,
    to identify geographic areas and facilities of particular concern, and
    to identify susceptible populations and potential health effects.
        In addition to meeting our mandated Superfund-related obligations,
    we also help communities address emergency preparedness and response to
    acts of terrorism, while at the same time strengthening preparedness
    within ATSDR. Finally, we are pursuing a closer and more collaborative
    relationship with CDC as a mechanism for achieving the kind of synergy
    that will make us even more responsive and capable as a public health
    agency.
        This testimony addresses some of the activities that will be
    supported under the fiscal year 2004 budget. These activities are
    critical to fulfilling our mandates under Superfund and to enhancing
    terrorism preparedness.

                     TRADITIONAL ATSDR SUPERFUND ACTIVITIES

        The critical core function of our Agency is to assess the public
    health implications of hazardous waste sites and events involving the
    emergency release of chemicals. Our public health assessments and
    health consultations, as well as many of our health studies and
    surveillance programs, are directed to determining whether a site poses
    a threat to the public's health and to taking needed actions to protect
    public health, working with EPA and states.
        A good example of the wide range of site-specific activities
    undertaken by ATSDR is our ongoing work in addressing tremolite
    asbestos contamination in Libby, Montana.
        ATSDR has been working with EPA and with other federal, state, and
    local public health agencies to address the health threats posed by
    asbestos contamination in Libby. We conducted a medical screening
    program that involved testing of over 7,300 residents who were exposed
    to asbestos in that community. That program revealed that 18 percent of
    those tested have asbestos-related lung abnormalities as shown on chest
    x-rays--a much greater rate than exists in the United States as a
    whole.
        ATSDR is now providing funding and technical assistance to help the
    State of Montana implement a follow-up testing program for former
    workers, residents, household contacts, and other eligible persons. We
    expect the facility for this testing to be operational by the first of
    June of this year. A study to determine the rate of abnormalities by
    use of computed tomography (CT) scans is ongoing. We worked with the
    Health Resources and Services Administration and the Substance Abuse
    and Mental Health Services Administration, both agencies of the
    Department of Health and Human Services, to establish a community
    health clinic in Libby and to provide mental health services to the
    Libby community. Such a clinic is especially critical for addressing
    the health care needs of the medically uninsured, the underinsured, and
    other persons who lack the resources for primary medical care.
        We are creating a registry of former workers and their families,
    approximately 10,000-15,000 people, to help track health conditions of
    these exposed persons and to enable us to provide them any new
    information that becomes available as part of an effort to assist in
    obtaining optimum medical care and taking preventive actions.
        Our work to assess and address the health problems associated with
    exposure to asbestos from Libby has expanded to include 244 sites in
    the United States that received vermiculite ore from the W.R. Grace
    mine in Libby. A map included with this testimony indicates the
    distribution of these sites within the United States. We are
    coordinating with EPA and other federal, state, and local environmental
    and public health agencies to evaluate potential public health impacts
    at these sites. At this point, we have focused our efforts on
    developing health consultations at 28 priority sites and on working
    with 11 state health agencies that are assisting in this effort. We
    will begin releasing the reports of these health consultations in the
    next couple of months. These 28 sites, which are indicated on a second
    map provided with this testimony, were chosen because the exposure of
    former workers, their household contacts, and other individuals was
    deemed significant enough to warrant further evaluation. The priority
    sites include facilities in Beltsville, Maryland; St. Louis, Missouri;
    Marysville, Ohio; and Dallas, Texas. As reports on these sites become
    available, we will address the need for further ATSDR health
    evaluations of former workers or other potentially exposed individuals
    at these sites. Additional health work at these sites may well be
    required in the future.
        ATSDR has also provided funding to nine states to conduct health
    statistics reviews, which offer a way of identifying any heightened
    incidence of disease associated with asbestos exposure at vermiculite
    sites around the country, and we continue to recruit states to join
    this effort. ATSDR expects to release an interim report of results of
    the health statistics reviews by June 30, 2003.
        Our Superfund-related work encompasses environmental problems and
    health threats that extend well beyond those posed by asbestos
    contamination. We have a mandate to produce toxicological profiles on
    the 275 substances thought to pose the greatest hazards and to ensure
    that needed research is done on those chemicals to fill key gaps in
    information.
        Two key programs that contribute to that effort are the Great Lakes
    Human Health Effects Research Program and the Minority Health
    Professions Foundation programs.
      --We support the Great Lakes Human Health Effects Research Program in
            its efforts to build on and amplify the results of past and
            ongoing fish-consumption research in the Great Lakes basin. One
            of the significant findings under this program is that serum
            polychlorinated biphenyl (PCB) levels and consumption of Great
            Lakes fish are significantly associated with lower levels of
            thyroxine, a hormone secreted by the thyroid, in both women and
            men. Researchers also found that consumption of fish meals was
            highest among African Americans, but awareness of the fish
            advisories was lowest in that group.
      --Our cooperative agreement with the Minority Health Professions
            Foundation and its Environmental Health and Toxicology Research
            Program continues to help us close the information gap in
            available scientific data on the health impacts of exposure to
            hazardous wastes, particularly on the health of poor and
            minority populations. The agreement, which includes as
            participants such historically black educational institutions
            as the Morehouse School of Medicine, Charles R. Drew
            University, Texas Southern University, Florida A & M
            University, Meharry Medical College, Tuskegee University, and
            Xavier University of Louisiana, helps underwrite the training
            of students who will make a major contribution to public health
            practice. Moreover, the agreement results in filling some of
            ATSDR's major research areas.
        To further assist communities and apply the benefits from
    increasing knowledge about the relationship between exposure to toxic
    substances and resulting disease, in the past year ATSDR has begun
    implementing an applied public health environmental research agenda. In
    developing this program ATSDR has been working closely with other
    federal agencies, including the National Institute of Environmental
    Health Sciences, to best leverage resources and develop collaborative
    approaches to address common research needs. As part of this extramural
    research initiative ATSDR will pursue new partnerships with state-based
    and academic institutions. This research agenda will enable us to
    answer with greater certainty the questions and concerns raised by
    communities exposed to toxic substances and hazardous wastes, and to
    improve our ability to provide the best service to communities in the
    vicinity of Superfund sites.
        Site specific health studies are another important tool in
    advancing our knowledge about the relationship between exposure to
    hazardous substances and any resulting disease. Recent examples of some
    of our ongoing work in this area include:
      --In Anniston, Alabama, ATSDR has been working in collaboration with
            local, state, and federal agencies, as well as with community
            representatives, to address community concerns regarding the
            potential for exposure to PCBs. We have been working with the
            Alabama Department of Public Health to gather, analyze, and
            interpret vital statistics and existing data describing the
            incidence of cancer for residents of Anniston, and we will be
            funding multi-year epidemiologic investigations to study the
            health effects of exposure to PCBs in this community. We will
            work closely with the institution(s) selected to do that study,
            providing both technical and administrative support to the
            researchers. We will also work closely with EPA in further
            evaluating exposures.
      --In Herculaneum, Missouri, we have invited a panel of experts to
            assist us in developing an appropriate health study design to
            address the lead exposures experienced in this community. We
            are particularly interested in studying the effects of exposure
            to lead among children, adolescents, and young adults. In a
            blood lead screening effort conducted in 2001, 30 of 67
            children six years old or younger living closest to the Doe Run
            lead smelter had blood lead levels at or above the CDC action
            level for lead of 10 ug/dL. A preliminary review of available
            blood lead data from testing in 2002 of 58 children under 6
            years old indicate elevated blood lead levels in 17 percent of
            those children. Further study is warranted in view of the fact
            that these levels are more than double the national prevalence
            rate of 7.6 percent and the Missouri rate of 8 percent. Factors
            contributing to the reduction may include community education
            regarding possible pathways of exposure, health effects of
            exposure and measures to reduce exposure.
      --In Fallon, Nevada, ATSDR worked closely with CDC's National Center
            for Environmental Health (NCEH), the Nevada State Health
            Division (NSHD), and other agencies to investigate a broad
            range of possible environmental causes of an unusually high
            number of childhood leukemia cases there. ATSDR conducted a
            comprehensive public health assessment process, consulting with
            community members to identify their health and environmental
            concerns and then examining a variety of possible environmental
            pathways through which people might have been exposed to
            hazardous substances. Earlier this year, ATSDR, CDC/NCEH and
            NSHD issued reports on the findings of this investigation and
            held a number of public meetings with the Fallon community.
            Despite extensive investigation, the agencies have not found a
            relationship between environmental exposures to contaminants
            and the leukemia cases.
      --In San Antonio, Texas, we evaluated potential releases of hazardous
            substances from Kelly Air Force Base, on-base drinking water,
            and current and past air emissions for associations with health
            concerns of communities surrounding the base. We are now
            assisting the Air Force in evaluating a case series of
            amyotrophic lateral sclerosis, a motor neuron disease, in this
            community.
      --In Dakota City, Nebraska, we examined the association between
            hydrogen sulfide, total reduced sulfur levels, and neuro-
            behavioral activity, on the one hand, and the incidence of
            hospital visits by children for treatment of asthma and other
            respiratory illnesses, on the other. We are now involved in a
            follow-up study in Dakota City and South Sioux City.
      --In Warren Township, Ohio, we have been involved in investigating
            hydrogen sulfide exposure in the surrounding air, creating a
            multi-agency committee to form and carry out a Public Health
            Action Plan to address recommendations made in a rapid response
            health consultation.
      --In Elmore, Ohio, we investigated whether beryllium air emissions
            and possible worker take-home contamination from the Brush
            Wellman Elmore plant present a health hazard to the community.
            Working with the Ohio Environmental Protection Agency, Ohio
            Citizen Action, and Brush Wellman, we issued a health
            consultation and conducted several public meetings to address
            community concerns.
      --In El Paso, Texas, we worked with the Texas Department of Health to
            address that city's concerns about heavy metal contamination
            near Sun Bowl stadium. The health department, which receives
            funding from ATSDR, conducted a series of health consultations
            looking at lead and arsenic levels in soil. Several residential
            yards and a daycare facility were found to have amounts of lead
            and arsenic that exceeded health based screening values.
            Exposure to lead and arsenic at some of these areas could pose
            an unacceptable public health hazard to children.
      --In Tarpon Springs, Florida, we recently issued for public comment a
            public health assessment for the Stauffer Chemical Company
            site, where contaminants are present in the groundwater and the
            air. We have entered into an agreement with the University of
            South Florida to identify and locate former employees as well
            as students who attended the school nearby, and we are working
            with the Florida Department of Health to review information
            from the Florida cancer registry.
      --In northeast Denver, Colorado, we have been working with the
            Colorado Department of Public Health & Environment and the
            University of Colorado to conduct a study of children
            potentially exposed to arsenic, also focusing specifically on
            soil pica behavior, a habit of ingesting soil, in children six
            months to six years of age. We have also provided comments to
            EPA on its proposed plan for cleaning up the so-called VB I-70
            site.
        Another key function of ATSDR's Superfund program is to educate
    both the health community and the general public about the hazards of
    specific chemicals and waste sites. Recent work in this area includes:
      --In Marion, Illinois, we have worked with the Illinois Department of
            Health to educate teachers about and improve storage and
            handling of potentially dangerous chemicals, including mercury,
            in schools. Many of these stored chemicals were removed as a
            result of the project.
      --In Jasper County, Missouri, we funded a study by the Missouri
            Department of Health to assess whether public health
            intervention efforts had been effective in reducing blood lead
            levels of the community's children. The intervention efforts
            were found to have reduced blood lead levels significantly.
        Targeted efforts to improve the diagnosis and treatment of children
    exposed to toxic substances have been another priority for ATSDR. We
    have recently succeeded in helping establish Pediatric Environmental
    Health Specialty Units (PEHSUs) in all ten of the federal regions. In
    fiscal year 2002, pediatricians at these clinics who are especially
    cross-trained in environmental medicine evaluated more than 1,500
    children and provided an additional 1,500 phone consultations to other
    pediatricians in their regions.
        In July of 2002, the PEHSU clinic in Chicago was contacted by the
    Chicago Housing Authority, which was concerned about arsenic
    contamination in the soil of a local playground. The PEHSU, working
    with the Chicago Department of Public Health, helped screen local
    children and identified 14 with elevated levels of arsenic in their
    urine. The PEHSU provided follow-up medical care for affected children,
    and the Chicago Housing Authority began immediate clean-up of the
    playground. This is an excellent example of how a new-and much needed-
    resource can help us partner to protect children from the effects of
    toxic exposure.

     POST 9/11 CHALLENGES IN PREPARING TO ADDRESS TERRORISM AND EMERGENCY
                                  PREPAREDNESS

        During the past year, ATSDR has continued to help communities
    improve emergency preparedness and develop a capacity for rapid
    response to acts of terrorism. ATSDR's role in countering health
    impacts of terrorism, particularly in the areas of chemicals and the
    environment, is essential to national safety. We continue to
    participate actively with CDC, EPA, the Department of Homeland Security
    (DHS), and state and local health agencies in undertaking planning and
    preparedness in areas that focus on the unique capabilities of ATSDR.
        For example, we have used partnerships to address emergency
    response capacity in our work with the FEMA/DHS Comprehensive HAZMAT
    Emergency Response-Capability Assessment Program, or CHER-CAP. ATSDR
    has worked with FEMA/DHS on two local emergency planning exercises (the
    so-called ``Tri-town'' exercise in Connecticut, and one in Boston,
    Massachusetts) to assist those communities in improving their response
    to a release of hazardous materials. ATSDR's contributions included
    bringing the medical community into the local planning process and
    assessing hospital emergency preparedness and response through:
      --on-site evaluation, walk-through, and disaster plan review;
      --applying lessons learned from the scientific literature to enhance
            emergency response;
      --encouraging communication and collaboration among public health and
            medical officials and community-wide disaster planners
            regarding preparation for mass-casualty events;
      --providing assistance and training to community responders as well
            as supporting preparation for use of technology such as
            geographic information systems and toxicologic data bases; and
      --conducting exercises to assess the state of readiness to respond to
            mass-casualty events.
        In addition, in June of this year ATSDR will participate in a
    large-scale regional emergency preparedness exercise in Louisville,
    Kentucky with EPA, FEMA/DHS, CDC, and state and local public health
    agencies as well as hospitals, physicians, and fire departments. In
    this simulation, we will provide answers to toxicological and medical
    questions and help maintain a ``victim's registry''.
        We also partner with the private sector to expand the utilization
    of our products. In conjunction with the American Chemistry Council, we
    distributed the document Managing Hazardous Materials Incidents
    (including the medical management guidelines) on CD-ROMs to states and
    communities to educate first-responders to the adverse health effects
    of specific chemicals.
        We provide communities with access to geographic information
    systems to map localities and to model the dispersion of chemicals in
    the event of an uncontrolled release.
        Our Hazardous Substances Emergency Events Surveillance system
    (HSEES) is a major resource in our efforts to reduce and even prevent
    the injury and death that result from hazardous substances events. The
    system captures incident and facility data as well as data on health
    outcomes from hazardous material (HazMat) accidents and other
    uncontrolled releases. To date, fifteen states have cooperative
    agreements with ATSDR to participate in HSEES. State health departments
    enter data into a Web-based application to enable ATSDR to access data
    instantly for analysis. We are working to use HSEES as a key source of
    health information to enable us to respond to emergency events,
    including incidents of terrorism. The recent fire at a plastics factory
    in Kinston, North Carolina, for example, provided us with an
    opportunity to evaluate the use of HSEES as a means of assessing past
    experience and trends in fires in similar types of facilities. Data
    from HSEES has also provided us with information that has been used to
    help ensure that first responders know the appropriate personal
    protective gear to use in dealing with the clean-up of clandestine
    methamphetamine labs.
        Since the events of 9/11/2001, ATSDR has initiated several
    activities designed to apply existing tools to aid preparedness in the
    event of a chemical attack. For example, ATSDR distributed a CD-ROM
    version of our toxicological profiles and medical management guidelines
    to state and local agencies and to first-responders. In addition, ATSDR
    toxicologists, in conjunction with scientists at CDC, have evaluated
    chemicals that are the most likely to be used in a terrorist attack.
    Although we have information on how to diagnose and treat people
    exposed to some of these chemicals, we are working to fill the gaps in
    information that still exist so that we can be even better prepared. At
    the same time, we are sharing the information that we do currently have
    with all relevant parties, including first-responders, hospital
    emergency rooms, poison control centers, clinicians, and the general
    public.
        Other activities that demonstrate ATSDR's commitment to improving
    community emergency preparedness and to developing a rapid response
    capacity to terrorism include the following:
      --Staff members worked with the Federal Bureau of Investigation to
            collect anthrax spore samples as evidence in the American Media
            Inc. office building in Boca Raton, Florida, where the index
            case of inhalation anthrax occurred in an employee. ATSDR
            scientists and FBI investigators worked together as members of
            building entry and medical monitoring teams throughout the
            field investigation. The field investigation team successfully
            applied a new combination of scientific techniques to locate,
            quantify, and collect concentrations of anthrax spores within
            the building.
      --Working with funding from FEMA/DHS, we are helping the New York
            City Department of Health and Mental Hygiene develop a registry
            of 150,000-200,000 workers and residents to track the health of
            people exposed to contaminants from the World Trade Center
            site.
      --ATSDR rapidly assembled toxicologic guidance for NASA, EPA, and
            local first responders on the potential for exposures to toxic
            substances in connection with the Columbia shuttle disaster.
      --ATSDR has linked our emergency response staff with the new CDC
            Emergency Operations Center so that we have a rapid and
            seamless public health response to emergency events involving
            chemicals, including any terrorist attack.
        ATSDR will continue to work closely with:
      --EPA, to develop data and distribute information on chemicals and
            other hazards;
      --our sister agency CDC, other agencies within the Department of
            Health and Human Services, and state and local agencies to help
            train health responders, to deal with chemical, radiologic, and
            environmental terrorist threats; and
      --DHS, to assure that public health responders are integrated into
            local emergency planning.
        Mr. Chairman and members of the Subcommittee, our 20th year of
    service to the American public has been the most productive of all, and
    I expect that productivity to continue. We have been good stewards of
    the public funds that Congress has entrusted to us. We continue to look
    for ways to maximize our contribution to the public's health through
    leveraging partnerships and technology. And, ATSDR has undertaken a
    major internal initiative in strategic planning for the next five
    years. We are tying our budget and staffing levels to specific
    performance planning goals and objectives, and striving to improve our
    program performance measures with more outcome and impact data, in an
    effort to provide Congress and the public a full accounting of our
    programs in terms of the difference we have made and the unique
    expertise and services we offer.
        Thank you for the opportunity to provide this testimony.

                                     ______

                         DEPARTMENT OF THE ARMY--CIVIL

     Prepared Statement of Honorable Les Brownlee, Under Secretary of the
         Army and Acting Assistant Secretary of the Army (Civil Works)

                                  INTRODUCTION

        Thank you for the opportunity to provide this statement in support
    of the President's budget for the Department of the Army's Cemeterial
    Expenses program for fiscal year 2004.
        I am providing this statement on behalf of the Secretary of the
    Army, who is responsible for operating and maintaining Arlington and
    Soldiers' and Airmen's Home National Cemeteries, as well as making
    necessary capital improvements to ensure their long-term viability.
        Arlington National Cemetery is the Nation's premier military
    cemetery. It is an honor to represent this cemetery and the Soldiers'
    and Airmen's Home National Cemetery. On behalf of these two cemeteries
    and the Department of the Army, I would like to express our
    appreciation for the support this subcommittee has provided over the
    years.

                        FISCAL YEAR 2004 BUDGET OVERVIEW

        The fiscal year 2004 budget is $25,961,000, which is $6,484,000
    less than the fiscal year 2003 appropriation of $32,445,000. The fiscal
    year 2004 budget will support Arlington National Cemetery's efforts to
    improve its infrastructure and continue working toward implementation
    of its Ten-year Capital Investment Plan. The funds requested are
    sufficient to support the work force, assure adequate maintenance of
    buildings and grounds, acquire necessary supplies and equipment, and
    provide the high standards of service expected at Arlington and
    Soldiers' and Airmen's Home National Cemeteries.
        The budget also includes funds to pursue expansion efforts needed
    to ensure that Arlington National Cemetery remains an active burial
    place for service men and women well into the twenty-first century. The
    following table displays how long gravesites will remain available in
    both developed and undeveloped areas that are currently part of the
    Cemetery. It is presented to illustrate the importance of proceeding
    with expansion projects in a timely manner so that there will be no
    disruption in services for deceased veterans and to relieve significant
    crowding of funeral services.
        Note that the gravesite capacity shown in the table for the
    undeveloped area is for currently owned land (i.e., Project 90 and
    utility relocations), but does not include the Millennium Project,
    which requires both land within the Cemetery's boundaries (i.e., the
    old warehouse area and Section 29 land) and land to be transferred to
    the Cemetery (i.e., Fort Myer picnic area). Nor does the table reflect
    future land expansion projects programmed in the Ten-year Capital
    Investment Plan beyond the Millennium Project, such as the Navy Annex
    and Fort Myer parking lot, all of which are currently authorized and
    are addressed in the Concept Land Utilization Plan.

                           ARLINGTON NATIONAL CEMETERY
                  [Gravesite Capacity as of September 30, 2002]
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Gravesite capacity--developed areas.....................         242,850
    Total gravesites used...................................         212,281
    Gravesites currently available..........................          30,569
    Year available capacity exhausted.......................            2012
    Gravesite capacity--undeveloped area....................          36,000
    Total gravesite capacity................................         278,850
    Year total capacity exhausted...........................            2025
    ------------------------------------------------------------------------

        I will elaborate further on the significance of the declining
    gravesite capacity later on in this statement.

                                 BUDGET DETAILS

        The budget is made up of three programs--Operation and Maintenance,
    Administration, and Construction. The principal items contained in each
    program are described below.

    Operation and Maintenance Program
        The budget for the Operation and Maintenance program is
    $15,793,000. It provides for the cost of operations necessary to
    conduct an average of 25 funeral services per day, accommodate four
    million visitors each year, and maintain 652 acres of land and
    associated infrastructure. This program supports 95 of the cemeteries'
    total of 101 full time equivalent (FTE) work-years. Contractual
    services comprise just over one-half of the Operation and Maintenance
    program at $8,560,000, as follows:
      --$3,000,000 for tree and shrub maintenance.
      --$2,300,000 for grounds maintenance.
      --$1,400,000 for information guard services.
      --$530,000 to develop an automated system for burial records,
            gravesite locations, financial management, supplies and
            equipment.
      --$325,000 for custodial services.
      --$1,005,000 for recurring maintenance of equipment, buildings,
            headstones, and other facility maintenance contracts.
        The remaining funds in the Operation and Maintenance program
    support the Government workforce, which is primarily responsible for
    all activities associated with preparing gravesites and conducting
    burial services, as well as the cost of utilities, supplies and
    equipment.

    Administration Program
        The budget includes $1,299,000 for the Administration program,
    which provides for essential management and administrative functions,
    including staff supervision of Arlington and Soldiers' and Airmen's
    Home National Cemeteries. Budgeted funds will provide for personnel
    compensation, benefits, and reimbursable administrative support
    services provided by other government agencies. This program supports
    the balance of the cemeteries' workforce of six FTE work-years.

    Construction Program
        The Construction program's budget is $8,869,000, consisting of the
    following projects:
      --$3,300,000 to design development of 36 acres of land known as the
            Millennium Project.
      --$53,000 to update and refine the Ten-year Capital Investment Plan.
      --$200,000 to continue developing property in and adjacent to
            Arlington National Cemetery, in accordance with the Concept
            Land Utilization Plan.
      --$1,850,000 to repair roads and walkways.
      --$400,000 to continue the grave liner program.
      --$350,000 to demolish the remaining old warehouse buildings.
      --$720,000 to repair storm and sanitary sewer lines.
      --$520,000 to study, design and repair stone boundary walls.
      --$535,000 to study and design Facility Maintenance Complex storage
            facilities.
      --$205,000 to conduct utility surveys.
      --$185,000 to install an irrigation system at the Kennedy gravesites.
      --$140,000 to repair the fountain at Columbarium Court 2.
      --$125,000 to study appearance standards for cemetery operations.
      --$286,000 to perform a variety of minor projects such as painting
            and cleaning facilities.
        Three of the above projects are particularly important to increase
    the capacity of Arlington National Cemetery, so that space is available
    for burials into the next century. They are described further in the
    following paragraphs.
        Millennium Project.--As the table displayed earlier in this
    statement illustrates, capacity in the currently developed area of
    Arlington National Cemetery will be exhausted by 2025. In order to
    extend the Cemetery's useful life, the budget includes $3.3 million to
    design the Millennium Project, so that development can begin in fiscal
    year 2007. The Millennium Project involves the development of 36 acres
    of land into gravesite areas, roads, utilities, columbarium walls, and
    a boundary wall with niches for the placement of cremated remains.
    Approximately 26,000 additional gravesites and 15,000 niches will be
    provided when the development is complete. Actual yields could change
    significantly, depending upon final design. The Millennium Project
    would extend the useful life of the Cemetery beyond 2025 to somewhere
    between 2038 and 2047, depending upon final implementation.
        The Millennium Project consists of three parcels of land. The first
    parcel (7 acres) is land already within the boundaries of Arlington
    National Cemetery made available by demolition of the old warehouse
    buildings. The second parcel (12 acres) was transferred to the Cemetery
    from the National Park Service on January 28, 2002, pursuant to the
    authority contained in Section 2863 of Public Law 107-107, the National
    Defense Authorization Act for Fiscal Year 2002. The final piece of the
    Millennium Project is a 17-acre parcel of adjacent land currently owned
    by Fort Myer (picnic area), which is to be transferred to the Cemetery
    in accordance with Section 2882 of the fiscal year 2000 Defense
    Authorization Act (Public Law 106-65). We are working with Fort Myer to
    implement this land transfer in the near future.
        Ten-year Capital Investment Plan.--By our letter of February 5,
    2002, we provided this subcommittee with a ten-year plan that
    identifies the Cemetery's new construction, major rehabilitation, major
    maintenance and study proposals for the next ten years. It addresses
    projects identified in the 1998 Master Plan and other projects needed
    to ensure that the cemetery remains open for burials into the twenty-
    second century. It also serves as a guide for annually recurring
    maintenance needs of the Cemetery.
        The fiscal year 2004 budget includes $53,000 to continue developing
    and refining this multi-year plan for funding projects in a technically
    sound and financially efficient manner. This is a living document that
    will be periodically updated to reflect the latest information,
    identify new requirements and improve the quality of cost estimates. It
    is an essential tool in developing a credible long-term investment
    strategy and the budget recommendations that emanate from it.
        Concept Land Utilization Plan.--By our letter of October 27, 2000,
    we provided this subcommittee with a plan that identifies the
    requirements for developing adjacent land for future expansion. The
    first site to be developed is the Millennium Project, as described
    above. The Concept Land Utilization Plan also includes the Navy Annex
    and Fort Myer parking lot, which would extend the Cemetery's life to
    somewhere between 2054 and 2068, again depending upon how these sites
    are ultimately developed. Increasing capacity beyond this time frame
    will require additional land expansion for gravesites or more
    columbarium niches.
        The other items listed in the Construction program are needed to
    address aging and deteriorating infrastructure. These are primarily
    repairs and replacements that should be accomplished to avoid further
    cost increases and potentially disruptive emergency repairs.

                                    FUNERALS

        In fiscal year 2002, there were 4,022 interments and 2,283
    inurnments. In fiscal year 2003, we estimate there will be 3,925
    interments and 2,700 inurnments. Looking ahead to fiscal year 2004, we
    estimate there will be 3,925 interments and 2,775 inurnments.

                           CEREMONIES AND VISITATION

        Millions of visitors, both foreign and American, come to Arlington
    to view the Cemetery and participate in ceremonial events. During
    fiscal year 2002, about 3,100 ceremonies were conducted, with the
    President of the United States attending the ceremonies on Veterans Day
    and Memorial Day.
        During fiscal year 2002, Arlington National Cemetery accommodated
    approximately 4 million visitors, making it one of the most visited
    historic sites in the National Capital Region. A recent study confirmed
    this estimate. A customer survey system will be designed and
    implemented in conjunction with the Cemetery's overall automation plan
    and will be used to collect, enter and analyze the survey data.

                         FISCAL YEAR 2003 APPROPRIATION

        The additional $8,000,000 provided in the fiscal year 2003
    appropriation will be used to repair the Memorial Amphitheater
    ($6,000,000), accelerate Phase II of Project 90 land development
    ($1,200,000), and replace the visitor center roof ($800,000). The roof
    replacement will be accomplished with reprogrammed funds as explained
    in my letter to this subcommittee dated October 30, 2002. The 0.65
    percent rescission included in the fiscal year 2003 appropriation act
    (Public Law 108-7), amounts to $210,893 for Arlington National
    Cemetery, which has been applied to Project 90.

                                   CONCLUSION

        The funds included in the fiscal year 2004 budget are necessary to
    maintain the existing infrastructure at Arlington National Cemetery,
    provide quality services for its many visitors, make the capital
    investments needed to accommodate burials, and preserve the dignity,
    serenity and traditions of the cemetery. I respectfully ask the
    Subcommittee's favorable consideration of our budget.
                                     ______

                     FEDERAL DEPOSIT INSURANCE CORPORATION

    Prepared Statement of Gaston L. Gianni, Jr., Inspector General, Office
                              of Inspector General

                   FISCAL YEAR 2004 BUDGET SUMMARY STATEMENT

        The Office of Inspector General (OIG) at the Federal Deposit
    Insurance Corporation (FDIC) requests $30.1 million for fiscal year
    2004 to fund 168 staff who conduct independent audits, investigations,
    and other reviews to assist and augment the FDIC's mission. OIG efforts
    promote the economy, efficiency, and effectiveness of the FDIC's
    programs and operations and protect against fraud, waste, and abuse.
        The OIG's fiscal year 2002 achievements are impressive and include:
      --$1.360 billion in actual and potential monetary benefits--a
            potential return of $42 for each $1 invested in the OIG.
      --141 non-monetary recommendations to FDIC management
      --29 referrals to the Department of Justice
      --35 indictments
      --28 convictions
      --2 employee/disciplinary actions
        The OIG recently assessed the most significant management and
    performance challenges facing the FDIC. The OIG's annual and strategic
    plans for fiscal years 2003 and 2004 are and will be focused on issues
    within these challenges:
      --Adequacy of Corporate Governance in Insured Depository Institutions
      --Protection of Consumer Interests
      --Security of Critical Infrastructure
      --Management and Analysis of Risks to the Insurance Funds
      --Effectiveness of Resolution and Receivership Activities
      --Management and Security of Information Technology Resources
      --Assessment of Corporate Performance
      --Transition to a New Financial Environment
      --Organizational Leadership and Management of Human Capital
      --Cost Containment and Procurement Integrity
        The OIG's budget is about $1.3 million less than the fiscal year
    2003 appropriation. After adjusting for inflation, fiscal year 2004
    will be the eighth consecutive year that the OIG's budget decreased.
    The OIG has significantly downsized its staff from an authorized level
    of 215 for fiscal year 2002 to 168 for fiscal year 2004. The budget and
    staffing reductions have been possible due to the shrinking size of the
    FDIC, completion of work related to the banking and thrift crises of
    the 1990s, prospects for continuing health of the banking industry, and
    buyout and early retirement initiatives of the FDIC.
        Most of the OIG's budget would pay for salaries, benefits, travel,
    and training for its staff. The OIG is also budgeting for certain
    potential litigation expenses which, under Public Law 107-174, must now
    be paid with appropriated funds. Also, the OIG is budgeting to replace
    computers and continue efforts to establish an electronic crimes unit.
    The OIG's appropriation would be derived from the Bank Insurance Fund,
    the Savings Association Insurance Fund, and the FSLIC Resolution Fund.
    These funds are the ones used to pay for other FDIC operating expenses.
        Mr. Chairman and Members of the Subcommittee, I am pleased to
    present the fiscal year 2004 budget request totaling $30.1 million for
    the Office of Inspector General (OIG) at the Federal Deposit Insurance
    Corporation (FDIC). As Inspector General, I am proud of the OIG's
    fiscal year 2002 performance and results and look forward to current
    and future challenges to support the Congress, the FDIC Chairman, and
    corporate management.
        The FDIC was created by the Congress in 1933 to maintain stability
    and public confidence in the nation's banking system. The federal
    deposit insurance offered by the FDIC is designed to protect depositors
    from losses due to failures of insured commercial banks and thrifts.
    Individual deposits of up to $100,000 are covered for 9,354
    institutions totaling $3.386 trillion in deposits as of December 31,
    2002. The FDIC also promotes the safety and soundness of these
    institutions by identifying, monitoring, and addressing risks to which
    they are exposed.
        The FDIC OIG was established in 1989 when the Congress amended the
    Inspector General Act to include the FDIC under the Act's provisions.
    The OIG's program of independent audits, investigations, and other
    reviews assists and augments the FDIC's mission. OIG efforts promote
    the economy, efficiency, and effectiveness of FDIC programs and
    operations and protect against fraud, waste, and abuse.
        The past year has experienced great change in the composition of
    the OIG workforce through a major downsizing and reshaping initiative.
    Along with others in the Corporation, the OIG has worked to complete a
    downsizing effort that has been on-going for several years following
    the FDIC staff buildup to handle the bank and thrift crisis in the
    early 1990s. For the OIG, the recent downsizing has meant decreasing
    from an authorized level of 215 staff for fiscal 2002 to 168 for fiscal
    2004--about a 22 percent reduction. Since I became the FDIC Inspector
    General in 1996, our staff has decreased from 370 to the current level,
    or a total decrease of about 56 percent. This decrease is comparable to
    overall staff decreases throughout the FDIC.
        Even with our downsizing, the OIG has continued to provide
    significant value to the management of the FDIC. In addition, we have
    carried out initiatives to work more strategically in areas of greatest
    challenge to the FDIC, improve our efficiency, enhance our
    communications with both the Corporation and the Congress, add to our
    staff expertise, and align our human capital with our strategic
    planning.
        The funds we are requesting are essential to helping us remain
    prepared to meet the complex and multidimensional issues and challenges
    confronting the FDIC now and in the future. These funds will permit us
    to continue employing the highly capable staff who can meet our future
    challenges, invest in the technology needed to advance our
    capabilities, and cover other mandates. After adjusting for inflation,
    fiscal year 2004 will be the eighth consecutive year that the OIG's
    budget has decreased.
        Before detailing our budget needs for fiscal year 2004, I would
    like to highlight some of the OIG's accomplishments in fiscal year 2002
    and the major challenges confronting the FDIC and OIG.
          a review of the fdic oig's fiscal year 2002 accomplishments
        The OIG's fiscal year 2002 achievements are impressive, and the
    results include:
      --$1.360 billion in actual and potential monetary benefits--a
            potential return of $42 for each $1 invested in the OIG.
      --141 non-monetary recommendations to FDIC management
      --29 referrals to the Department of Justice
      --35 indictments
      --28 convictions
      --2 employee/disciplinary actions
        More specifically, our accomplishments included 48 completed
    investigations that led to the above indictments and convictions as
    well as fines, court-ordered restitution, and recoveries that
    constitute the bulk of the monetary benefits from our work. Also, we
    issued 36 audit reports, 5 evaluations, and 1 memorandum, which
    included about $607,000 in questioned costs and $3.1 million in
    recommendations that funds be put to better use. The recommendations in
    these reports aim to improve the internal controls and operational
    effectiveness in diverse aspects of the Corporation's operations,
    including automated systems, contracting, bank supervision, financial
    management, and asset disposition.
        Further, the OIG accomplished many of its organizational goals
    during the fiscal year as outlined in our annual performance plan. Our
    2002 Performance Report shows that we met or substantially met 23 of
    our 26 goals, or 88 percent. In a measurable way, these achieved goals
    show the progress we continue to make to add value to the Corporation
    with our audits, investigations, and evaluations in terms of impact,
    quality, productivity, timeliness, and client satisfaction. We also met
    or substantially met goals for providing professional advice to the
    Corporation and for communicating with clients and the public.

    Audits, Investigations, and Evaluations
        Examples of the OIG's audits, investigations, and evaluations work
    that contributed to these accomplishments follow.
        Audits of Superior Bank Failure.--The OIG issued the results of
    four reviews, several based on a congressional request, related to the
    failure of Superior Bank, FSB, Hinsdale, Illinois. Loss estimates
    resulting from the failure total about $440 million, making this one of
    the costliest of all recent failures of FDIC-insured institutions. I
    testified about our work before the Committee on Banking, Housing, and
    Urban Affairs, U.S. Senate, commenting on areas where regulatory
    oversight could be strengthened; the regulatory capital treatment of
    residual assets; and the FDIC Board of Directors' authorization of an
    expanded delegation of authority for examiners to conduct examinations,
    visitations, or other activities of insured depository institutions.
        Review of FDIC Special Examination Authority.--The OIG issued the
    results of its review of the FDIC's special examination authority and
    the Division of Supervision's effectiveness in monitoring risks posed
    by the nation's largest banks. Additionally, the OIG commented in
    advance on the draft interagency agreement signed on January 29, 2002
    authorizing an expanded delegation of authority to grant the FDIC more
    autonomy in examining banks that pose a heightened risk to the
    insurance funds.
        Investigation of Former Chairman of Bank of Honolulu.--In March
    2002, the former chairman and owner of 76 percent of shares of the now-
    defunct Bank of Honolulu (Hawaii) was sentenced in the U.S. District
    Court in Honolulu to 36 months' incarceration to be followed by 5
    years' supervised release. However, he will be subject to immediate
    deportation upon release from confinement. As a part of the sentencing,
    he was also ordered to pay restitution totaling $3,115,523. The
    defendant had previously pled guilty in October 2001 to violating the
    federal wire fraud statute as a part of a scheme whereby he and his
    brother fraudulently obtained the proceeds of two loans totaling $3
    million made by the Bank of Honolulu. He also pled guilty to knowingly
    and fraudulently concealing property as a part of the bankruptcy
    proceeding he filed in 1998. The bankruptcy fraud violations involve
    two tax refund checks from the State of Hawaii totaling $757,249, which
    he received and failed to turn over to the Bankruptcy Trustee.
        The defendant was initially indicted in August 2000 and was charged
    with additional violations in superseding indictments in October 2000
    and May 2001. The latter superseding indictment also included charges
    against five other individuals who were alleged to have helped him hide
    money from the bankruptcy court and creditors. The additional
    defendants included two of his brothers, two of his business
    associates, and his girlfriend.
        This case was jointly investigated by the FDIC OIG and the FBI and
    was prosecuted by the United States Attorney's Office for the District
    of Hawaii.
        Investigation of the First National Bank of Keystone (West
    Virginia).--During the past year the investigations and prosecutions of
    the principal subjects in the case involving the failure of the First
    National Bank of Keystone (West Virginia) were completed. The
    investigation and prosecutions involving Keystone were conducted by a
    multi-agency task force comprised of special agents of the FDIC OIG,
    FBI, and IRS and prosecutors from the United States Attorney's Office
    for the Southern District of West Virginia and the U.S. Department of
    Justice. The FDIC Division of Resolutions and Receiverships also
    provided valuable assistance in support of the task force
    investigations. The investigation began after the Office of the
    Comptroller of the Currency conducted an examination in 1999 that
    uncovered information that ultimately resulted in the closure of the
    First National Bank of Keystone (Keystone) on September 1, 1999. Based
    on the estimated losses to the insurance fund attributable to the
    Keystone failure, it is one of the ten costliest bank failures since
    1933.
        Since inception, this investigation and corresponding prosecutions
    have resulted in the conviction and sentencings of four of the former
    officers of the bank on charges of obstructing the examination of the
    bank. Two of those same officers along with three other officers were
    convicted on various other charges relating to illegal activity at the
    bank including bank fraud, money laundering, embezzlement, mail fraud,
    insider trading, and filing false income tax returns. Sentencings have
    totaled over 88 years' confinement, over 32 years' probation, fines of
    $124,500, and over $1.3 billion in restitution.
        I am especially proud of the recognition given to four OIG Special
    Agents who received the Attorney General's Award for Distinguished
    Service on July 17, 2002 for their exemplary work in the investigation
    and prosecutions related to this case.
        Review of Information Security Issues.--The OIG issued its mandated
    report on the FDIC's compliance with the Government Information
    Security Reform Act, concluding that the Corporation had established
    and implemented management controls that provided limited assurance of
    adequate assurance over its information resources. While progress had
    been made in addressing previously identified weaknesses, in 3 of 10
    key management control areas evaluated (Contractor and Outside Agency
    Security, Capital Planning and Investment Control, and Performance
    Measurement), the FDIC had no assurance that adequate security had been
    achieved. Our report also highlighted opportunities for the Corporation
    to strengthen the accountability and authority for information security
    by (a) appointing a permanent Chief Information Officer (CIO), (b)
    ensuring that the individual serving as the CIO reports directly and
    solely to the Chairman, and (c) filling key vacancies within the
    Division of Information Resources Management that support information
    security initiatives and operations.
        Investigations of Outstanding Restitution Orders and Other Debt.--
    Working with the Corporation's Division of Resolutions and
    Receiverships, the U.S. Attorneys' offices, and other federal agencies,
    the OIG continued to identify and pursue investigations of FDIC debtors
    who have concealed assets or committed other fraud in attempting to
    avoid repayment of their obligations to the FDIC. Our caseload includes
    a total of over $1 billion of estimated fraud related to court-ordered
    restitution and other types of debt.
        Evaluation of Physical Security for FDIC Facilities.--Following the
    tragic events of September 11, 2001, the OIG focused its attention on
    the security of FDIC facilities. We reported that the FDIC generally
    addresses Department of Justice minimum security standards, but we saw
    a need to assign a risk level to each FDIC facility and develop
    appropriate plans based upon the risks. The Corporation has been
    responsive to our concerns.
        Our semiannual reports to the Congress provide many other examples
    of OIG accomplishments. These reports can be found on our Web page at
    www.fdic.gov/oig/semi.html or by contacting our office.

    Assistance to FDIC Management
        In addition to 2002 audits, investigations, and evaluations, the
    OIG made valuable contributions to the FDIC in several other ways. We
    strive to work in partnership with Corporation management to share our
    expertise and perspective in certain areas where they are seeking to
    make improvements. Among these contributions were the following
    activities:
      --Reviewed 40 proposed corporate policies and 2 draft regulations and
            offered comments and suggestions when appropriate.
      --Commented on the FDIC's annual performance report.
      --Provided advisory comments on the FDIC's 2002 Annual Performance
            Plan.
      --Provided the Corporation with a risk analysis that identified an
            emerging risk, the quality of bank financial reporting and
            auditing.
      --Participated in several division level conferences to communicate
            about our audit and investigation work and processes.
      --Provided comments to the Chief Operating Officer on the
            Corporation's draft Emergency Response Plan.
      --Provided technical assistance and advice to several FDIC groups
            working on information technology issues, business process
            redesign, information security reviews, and contracting
            policies.
      --Conducted an annual review of the Corporation's internal control
            and risk management program.

    OIG Management and Operational Initiatives
        An important part of our stewardship over the funding we receive
    includes our continuous efforts to improve OIG operations. During the
    past year, we took several initiatives that have great significance on
    our work and operations.
        As I mentioned in the beginning of our statement, the OIG
    participated in a significant downsizing and restructuring initiative
    with the Corporation. FDIC Chairman Donald Powell envisions a smaller
    FDIC and developed a program of voluntary employee separation
    incentives, including an employee buyout program and early retirements.
    I thoroughly reviewed all OIG functions and determined that we needed
    to downsize our staff significantly and, in some cases, hire staff with
    more relevant skills. Over 50 OIG staff accepted buyouts and/or early
    retirements. We closed our San Francisco office and are in the process
    of completing a small reduction-in-force involving remaining surplus
    staff.
        The new organization, though smaller, is now more closely aligned
    with key FDIC mission areas. For example, our Office of Audits
    underwent a major reorganization around five operational directorates:
    Resolution, Receivership, and Legal Affairs; Insurance, Supervision,
    and Consumer Affairs; Information Assurance; and Resources Management.
    A fifth directorate, Corporate Evaluations, performs corporate-wide and
    other evaluations. Our audit function underwent a peer review by the
    U.S. Agency for International Development. The review concluded that
    the OIG's quality control system was designed in accordance with the
    standards of the President's Council on Integrity and Efficiency (PCIE)
    and provided reasonable assurance of conformance to professional
    standards in the conduct of audits.
        Our Office of Investigations has also realigned its staff and field
    operations in response to the OIG's downsizing effort. In addition, I
    established the Office of Management and Congressional Relations by
    merging two offices.
        While restructuring to a smaller workforce, the OIG continues to
    look to increasing the value of our people and the performance capacity
    of the OIG. During fiscal year 2002, we issued a Human Capital
    Strategic Plan, which will align and integrate our human resource
    policies and procedures with the OIG mission. The alignment of our
    human resources with our mission is a new strategic goal in revisions
    we have made to our Strategic Plan. The Human Capital Strategic Plan
    outlines four objectives to maximize the return on our human capital
    investments. The objectives relate to workforce analysis; competency
    investments; leadership development; and a result-oriented, high
    performance culture. We are in the process of implementing several key
    efforts in this multi-year plan, including identification of key staff
    competencies needed to perform our work and development of a business
    knowledge inventory system.
        Our revised strategic goals are interrelated, as follows:
        Value and Impact.--OIG products will add value by achieving
    significant impact related to addressing issues of importance to the
    Chairman, the Congress, and the public.
        Communication and Outreach.--Communication between the OIG and the
    Chairman, the Congress, employees, and other stakeholders will be
    effective.
        Human Capital.--The OIG will align its human resources to support
    the OIG mission.
        Productivity.--The OIG will effectively manage its resources.
        Other internal initiatives include our joint sponsorship of a 2-day
    Symposium on Emerging Issues with Offices of Inspector General of the
    Department of the Treasury and the Board of Governors of the Federal
    Reserve System, which provided approximately 95 auditors from bank
    regulatory agencies and other government organizations insight into
    emerging issues as identified by agency and congressional leadership.
    We also conducted our fourth external customer survey regarding
    satisfaction with OIG operations and processes. We also continued to
    incorporate new technology into our office with the use of an automated
    working paper software package designed to enhance the efficiency and
    effectiveness of our audits and evaluations. In addition, we
    implemented a software application that our office developed to approve
    training requests and keep accurate records on our staff's compliance
    with continuing professional education requirements in Government
    Auditing Standards. We also established an internal Information
    Technology Security Program.

    Other Activities
        I continued my role as Vice Chair of the President's Council on
    Integrity and Efficiency (PCIE) and have held this position since April
    1999. The Council maintains six standing committees to initiate and
    manage audit, investigation, evaluation, legislation, professional
    development, and integrity issues and projects in the Inspector General
    community. The PCIE has been very active in helping the government
    achieve better results and has concentrated many of its activities on
    areas that would facilitate agency efforts related to the President's
    Management Agenda. To enhance the community's ability to continue
    fulfilling its mission, the PCIE co-hosted its annual conference to
    highlight challenges and explore ways to address them. Further, the
    PCIE issued several documents during the fiscal year that contributed
    to good government. These documents addressed our nation's critical
    infrastructure protection, critical security, and government-wide
    management challenges. Several of these documents were requested by
    congressional oversight committees to augment their oversight
    abilities.
        In addition to my leadership role with the PCIE, the FDIC OIG
    continued its participation in a Results Act interest group sponsored
    by the PCIE and the U.S. Office of Personnel Management to share ideas
    and best practices on the Results Act implementation. We also
    participated in a PCIE working group looking into the use of Social
    Security Numbers in the federal government and concerns related to
    identity theft. I also led a PCIE committee to update Quality Standards
    for Federal Offices of Inspector General (Brown Book).

             MANAGEMENT AND PERFORMANCE CHALLENGES FACING THE FDIC

        The OIG recently assessed the most significant management and
    performance challenges facing the FDIC. We provided a description of
    these challenges to the Chief Financial Officer of the FDIC in the
    spirit of the Reports Consolidation Act of 2000. For our part, we will
    continue to pursue audits, evaluations, investigations, and other
    reviews that address the challenges, and we look forward to continuing
    to work with the Congress and corporate officials to address the
    challenges successfully. Our annual and strategic plans for fiscal
    years 2003 and 2004 are and will be focused on issues within these
    challenges. I will discuss each of the challenges listed below in
    detail.
      --Adequacy of Corporate Governance in Insured Depository Institutions
      --Protection of Consumer Interests
      --Security of Critical Infrastructure
      --Management and Analysis of Risks to the Insurance Funds
      --Effectiveness of Resolution and Receivership Activities
      --Management and Security of Information Technology Resources
      --Assessment of Corporate Performance
      --Transition to a New Financial Environment
      --Organizational Leadership and Management of Human Capital
      --Cost Containment and Procurement Integrity

    Adequacy of Corporate Governance in Insured Depository Institutions
        A number of well-publicized announcements of business failures,
    including financial institution failures, have raised questions about
    the credibility of accounting practices and oversight in the United
    States. These recent events have increased public concern regarding the
    adequacy of corporate governance and, in part, prompted passage of the
    Sarbanes-Oxley Act of 2002. The public's confidence in the nation's
    financial system can be shaken by deficiencies in the adequacy of
    corporate governance in insured depository institutions. For instance,
    the failure of senior management, boards of directors, and auditors to
    effectively conduct their duties has contributed to some recent
    financial institution failures. In certain instances, Board members and
    senior management engaged in high-risk activities without proper risk
    management processes, did not maintain adequate loan policies and
    procedures, and circumvented or disregarded various laws and banking
    regulations. In other instances, independent public accounting firms
    rendered unqualified opinions on the institutions' financial statements
    when, in fact, the statements were materially misstated. To the extent
    that financial reporting is not reliable, the regulatory processes and
    FDIC mission achievement, that is ensuring the safety and soundness of
    the nation's financial system, can be adversely affected. For example,
    essential research and analysis used to achieve the supervision and
    insurance missions of the Corporation can be complicated and
    potentially compromised by poor quality financial reports and audits.
    Potentially the insurance funds can be affected by financial
    institution and other business failures involving financial reporting
    problems. In the worst case, illegal and otherwise improper activity by
    management of financial institutions or their boards of directors can
    be concealed, resulting in significant potential losses to the FDIC
    insurance funds.
        The Corporation has initiated various measures designed to mitigate
    the risk posed by these concerns, such as reviewing the bank's board
    activities and ethics policies and practices and reviewing auditor
    independence requirements. In addition, the FDIC reviews the financial
    disclosure and reporting obligations of publicly traded state nonmember
    institutions as well as their compliance with other Securities and
    Exchange Commission regulations and the Federal Financial Institutions
    Examination Council-approved and recommended policies to help ensure
    accurate and reliable financial reporting through an effective external
    auditing program. Nevertheless, the adequacy of corporate governance
    will continue to require the FDIC's vigilant attention.

    Protection of Consumer Interests
        The FDIC is legislatively mandated to enforce various statutes and
    regulations regarding consumer protection and civil rights with respect
    to state-chartered, non-member banks and to encourage community
    investment initiatives by these institutions. Some of the more
    prominent laws and regulations in this area include the Truth in
    Lending Act, Fair Credit Reporting Act, Real Estate Settlement
    Procedures Act, Fair Housing Act, Home Mortgage Disclosure Act, Equal
    Credit Opportunity Act, Community Reinvestment Act of 1977, and Gramm-
    Leach-Bliley Act.
        The Corporation accomplishes its mission related to fair lending
    and other consumer protection laws and regulations by conducting
    compliance examinations, taking enforcement actions to address unsafe
    or unsound banking practices and compliance violations, encouraging
    public involvement in the compliance process, assisting financial
    institutions with fair lending and consumer compliance through
    education and guidance, and providing assistance to various parties
    within and outside of the FDIC.
        The FDIC's examination and evaluation programs must assess how well
    the institutions under its supervision manage compliance with consumer
    protection laws and regulations and meet the credit needs of their
    communities, including low- and moderate-income neighborhoods. The FDIC
    must also work to issue regulations that implement federal consumer
    protection statutes--both on its own initiative and together with the
    other federal financial institution regulatory agencies. One important
    focus will be the Gramm-Leach-Bliley Act, as the Corporation must
    ensure it has a quality program to examine institution compliance with
    the privacy and other provisions of the Act.
        The Corporation's community affairs program provides technical
    assistance to help banks meet their responsibilities under the
    Community Reinvestment Act. The current emphasis is on financial
    literacy, aimed specifically at low- and moderate-income people who may
    not have had banking relationships. The Corporation's ``Money Smart''
    initiative is a key outreach effort. The FDIC must also continue
    efforts to maintain a Consumer Affairs program by investigating
    consumer complaints about FDIC-supervised institutions and answering
    consumer inquiries regarding consumer protection laws and banking
    practices.

    Security of Critical Infrastructure
        The adequate security of our nation's critical infrastructures has
    been at the forefront of the Federal government's agenda for many
    years. Specifically, the President's Commission on Critical
    Infrastructure Protection (established in July 1996) was tasked to
    formulate a comprehensive national strategy for protecting the nation's
    critical infrastructure from physical and ``cyber'' threats. Included
    among the limited number of systems whose incapacity or destruction
    were deemed to have a debilitating impact on the defense or economic
    security of the nation was the banking and finance system. With the
    increased consolidation and connectivity of the banking industry in the
    years since 1996, and with the new awareness of the nation's
    vulnerabilities to terrorist attacks since September 11, 2001, the
    security of the critical infrastructure in the banking industry is even
    more important.
        On May 22, 1998, the Presidential Decision Directive (PDD) 63 was
    signed, calling for a national effort to ensure the security of the
    nation's critical infrastructures. PDD 63 defined the critical
    infrastructure as the ``physical and cyber-based systems essential to
    the minimum operations of the economy and government.'' President Bush
    declared that securing our critical infrastructure is essential to our
    economic and national security and issued two Executive Orders (EO
    13228, The Office of Homeland Security and the Homeland Security
    Council and EO 23231, Critical Infrastructure Protection in the
    Information Age) to improve the federal government's critical
    infrastructure protection program in the context of PDD 63.
        The intent of PDD 63 is to ensure that the federal government
    maintains the capability to deliver services essential to the nation's
    security, economy, and the health and safety of its citizens, in the
    event of a cyber or physical-based disruption. Much of the nation's
    critical infrastructure historically has been physically and logically
    separate systems that had little interdependence. However, as a result
    of technology, the infrastructure has increasingly become automated and
    interconnected. These same advances have created new vulnerabilities to
    equipment failures, human error, and natural disasters as well as
    terrorism and cyber attacks.
        To effectively protect critical infrastructure, the FDIC's
    challenge in this area is to implement measures to mitigate risks, plan
    for and manage emergencies through effective contingency and continuity
    planning, coordinate protective measures with other agencies, determine
    resource and organization requirements, and engage in education and
    awareness activities. The FDIC will need to continue to work with the
    Department of Homeland Security and the Finance and Banking Information
    Infrastructure Committee created by Executive Order 23231 and chaired
    by the Department of the Treasury, on efforts to improve the security
    critical infrastructure of the nation's financial system.

    Management and Analysis of Risks to the Insurance Funds
        A primary goal of the FDIC under its insurance program is to ensure
    that its deposit insurance funds do not require resuscitation by the
    U.S. Treasury. Achieving this goal is a considerable challenge, given
    that the FDIC supervises only a portion of the insured depository
    institutions. The identification of risks to non-FDIC supervised
    institutions requires effective communication and coordination with the
    other federal banking agencies. The FDIC engages in an ongoing process
    of proactively identifying risks to the deposit insurance funds and
    adjusting the risk-based deposit insurance premiums charged to the
    institutions.
        Recent trends and events continue to pose risks to the funds. Over
    the past year, 11 banks have failed and the potential exists for
    additional failures. While some failures may be attributable primarily
    or in part to economic factors, bank mismanagement and fraud have also
    been factors in most recent failures. The environment in which
    financial institutions operate is evolving rapidly, particularly with
    the acceleration of interstate banking; new banking products and
    complex asset structures; and electronic banking. The industry's
    growing reliance on technologies, particularly the Internet, has
    changed the risk profile of banking. The consolidations that may occur
    among banks and securities firms, insurance companies, and other
    financial services providers resulting from the Gramm-Leach-Bliley Act
    pose additional risks to the FDIC's insurance funds. The Corporation's
    risk-focused examination process must operate to identify and mitigate
    these risks and their real or potential impact on financial
    institutions to preclude adverse consequences to the insurance funds.
        Another risk to the insurance funds results from bank mergers that
    have created ``megabanks,'' or ``large banks'' (defined as institutions
    with assets of over $25 billion). For many of these institutions, the
    FDIC is the insurer but is not the primary federal regulator. Megabanks
    offering new or expanded services also present challenges to the FDIC.
    The failure of a megabank, for example, along with the potential
    closing of closely affiliated smaller institutions, could result in
    such losses to the deposit insurance funds as to require significant
    increases in premium assessments from an institution.
        Further, because of bank mergers and acquisitions, many
    institutions hold both Bank Insurance Fund (BIF) and Savings
    Association Insurance Fund (SAIF) insured deposits, obscuring the
    difference between the funds. There is ongoing consideration of merging
    the two insurance funds, with the thought being that the merged fund
    would not only be stronger and better diversified but would also
    eliminate the concern about a premium disparity between the BIF and the
    SAIF. Assessments in the merged fund would be based on the risk that
    institutions pose to the single fund. The prospect of different prices
    for identical deposit insurance coverage would be eliminated. Also,
    insured institutions would no longer have to track their BIF and SAIF
    deposits separately, resulting in cost savings for the industry. The
    Corporation has worked hard to bring about deposit insurance reform and
    needs to continue to work with the banking community and the Congress
    in the interest of eventual passage of reform legislation.
        Another risk to the insurance funds relates to the designated
    reserve ratio. As of March 31, 2002, the Bank Insurance Fund (BIF)
    reserve ratio was at 1.23 percent, the first time it had fallen below
    1.25 percent since 1995. By December 31, 2002, the BIF reserve ratio
    was at 1.27, two basis points above the statutorily mandated designed
    reserve ratio for the deposit insurance funds. If the BIF ratio is
    below 1.25 percent, in accordance with the Federal Deposit Insurance
    Act, the FDIC Board of Directors must charge premiums to banks that are
    sufficient to restore the ratio to the designated reserve ratio within
    1 year. The Corporation's challenge is to maintain or exceed the
    designated reserve ratio, as required by statute.
        The process for setting deposit insurance premiums, which is
    closely related to the above discussion of the designated reserve
    ratio, represents yet another significant risk to the insurance funds.
    Insurance premiums are not generally assessed based on risk but rather
    the funding requirements of the insurance funds. This approach has the
    impact of assessing premiums during economic downturns when banks are
    failing and likely not in the best position to afford the premiums.
    Also, numerous ``free rider'' institutions have benefited from being
    able to sharply increase insured deposits without contributions to the
    insurance funds commensurate with this increased risk. This can occur
    because the designated reserve ratio has not been breached thereby
    triggering across-the-board premiums. Current deposit insurance reform
    proposals include provisions for risk-based premiums to be assessed on
    a more regularly scheduled basis than would occur using the existing
    approach. Risk-based premiums can provide the ability to better match
    premiums charged to institutions with related risk to the insurance
    funds.

    Effectiveness of Resolution and Receivership Activities
        One of the FDIC's most important corporate responsibilities is
    planning and efficiently handling the franchise marketing of failing
    FDIC-insured institutions and providing prompt, responsive, and
    efficient resolution of failed financial institutions. These activities
    maintain confidence and stability in our financial system. The Division
    of Resolutions and Receiverships (DRR) has outlined primary goals for
    the following four business lines and each is accompanied by
    significant challenges.
        (1) Deposit Insurance.--DRR must provide customers of failed
    financial institutions with timely access to their insured funds and
    financial services. A significant challenge in this area is to ensure
    that FDIC deposit insurance claims and payment processes are prepared
    to handle large institution failures.
        (2) Resolutions.--As DRR seeks to resolve failed institutions in
    the least costly manner, its challenges include improving the
    efficiency of contingency planning for institution failures and
    improving internal FDIC communication and coordination as well as
    communication with the other primary federal regulators to ensure
    timely access to records and optimal resolution strategies.
        (3) Receivership Management, Accounting, Internal Review, and
    Customer Service.--DRR's goal is to manage receiverships to maximize
    net return towards an orderly and timely termination and provide
    customers of failed institutions and the public with timely and
    responsive information. Related challenges include improving the
    efficiency of the receivership termination process, improving claims
    processing, continual assessment of recovery strategies, improving
    investigative activities, and charging receiverships for services
    performed under the Receivership Management Program (i.e., service
    costing).
        (4) Employees.--DRR employees need to possess the resources,
    skills, and tools to perform the mission of the Division. One related
    challenge is to ensure that Division personnel have sufficient legal
    support for decision-making.

    Management and Security of Information Technology Resources
        Information technology (IT) continues to play an increasingly
    greater role in every aspect of the FDIC mission. As corporate
    employees carry out the FDIC's principal business lines of insuring
    deposits, examining and supervising financial institutions, and
    managing receiverships, they rely on information and corresponding
    technology as an essential resource. Information and analysis on
    banking, financial services, and the economy form the basis for the
    development of public policies and promote public understanding and
    confidence in the nation's financial system. IT is a critical resource
    that must be safeguarded.
        Accomplishing IT goals efficiently and effectively requires sound
    IT planning and investment control processes. The Corporation's 2003
    information management budget is approximately $171.9 million. The
    Corporation must constantly evaluate technological advances to ensure
    that its operations continue to be efficient and cost-effective and
    that it is properly positioned to carry out its mission. While doing
    so, the Corporation must continue to respond to the impact of laws and
    regulations on its operations. Management of IT resources and IT
    security have been the focus of several laws, such as the Paperwork
    Reduction Act, the Government Information Security Reform Act (GISRA),
    and most recently, the Federal Information Security Management Act of
    2002 (FISMA). Similar to the requirements of GISRA, under FISMA, each
    agency is required to report on the adequacy and effectiveness of
    information security policies, procedures, and practices and compliance
    with information security requirements of FISMA.
        The Corporation has worked to implement many sound information
    system security controls, but has not yet fully integrated these into
    an entity-wide program. Additionally, efforts to identify sensitive
    data, plan for and fund essential security measures, incorporate
    security requirements in FDIC contracts, enhance software configuration
    management, and measure the overall performance of the information
    security program need continued attention. Frequently, security
    improvements at the FDIC were the result of a reaction to specific
    audit and review findings, rather than the result of a comprehensive
    program that provided continuous and proactive identification,
    correction, and prevention of security problems. There is also a need
    to appoint a permanent CIO (vacant since September 2001) to strengthen
    accountability and authority in the FDIC's information security
    program.
        The FDIC's progress in addressing the security weaknesses
    identified in our 2001 Security Act evaluation report were offset by
    the emergence of new information security weaknesses identified during
    our 2002 evaluation, as well as the FDIC's internal evaluation
    completed on January 10, 2003. Thus, management and security of
    information technology resources continues to warrant management
    attention.

    Assessment of Corporate Performance
        The Government Performance and Results Act (Results Act) of 1993
    was enacted to improve the efficiency, effectiveness, and
    accountability of federal programs by establishing a system for setting
    goals, measuring performance, and reporting on accomplishments. The
    Results Act requires most federal agencies, including the FDIC, to
    prepare a strategic plan that broadly defines each agency's mission,
    vision, and strategic goals and objectives; an annual performance plan
    that translates the vision and goals of the strategic plan into
    measurable annual goals; and an annual performance report that compares
    actual results against planned goals.
        The Corporation's strategic plan and annual performance plan lay
    out the agency's mission and vision and articulate goals and objectives
    for the FDIC's three major program areas of Insurance, Supervision, and
    Receivership Management. The plans focus on four strategic goals that
    define desired outcomes identified for each program area: (1) Insured
    Depositors Are Protected from Loss Without Recourse to Taxpayer
    Funding, (2) FDIC-Supervised Institutions Are Safe and Sound, (3)
    Consumers' Rights Are Protected and FDIC-Supervised Institutions Invest
    in Their Communities, and (4) Recovery to Creditors of Receiverships Is
    Achieved. Through its annual performance report, the FDIC is
    accountable for reporting actual performance and achieving these
    strategic goals.
        The Corporation has made significant progress in implementing the
    Results Act and needs to continue to address the challenges of
    developing more outcome-oriented performance measures, linking
    performance goals and budgetary resources, implementing processes to
    verify and validate reported performance data, and addressing
    crosscutting issues and programs that affect other federal financial
    institution regulatory agencies.

    Transition to a New Financial Environment
        On September 30, 2002, the FDIC executed a multi-year contract to
    replace its core financial systems and applications with a commercial-
    off-the-shelf software package. The FDIC Board had previously approved
    contract expenditure authority for the New Financial Environment (NFE)
    project totaling approximately $28.8 million. At the time the Board
    case was approved, the FDIC estimated the total life cycle cost of NFE,
    including FDIC staff time, to be approximately $62.5 million over 8
    years. NFE is a major corporate initiative to enhance the FDIC's
    ability to meet current and future financial management and information
    needs.
        Although NFE offers the FDIC significant benefits, it also presents
    significant challenges. These challenges will test the Corporation's
    ability to (1) maintain unqualified opinions on the FDIC's annual
    financial statements through the system implementation and associated
    business process reengineering; (2) manage contractor resources,
    schedules, and costs; and (3) coordinate with planned and ongoing
    system development projects related to NFE. Preliminary results of an
    ongoing audit found that the FDIC had established key management
    controls for the NFE project, but that opportunities for improvement
    existed in the areas of project integration, communications, and risk
    response planning.
        Overall, the FDIC needs to ensure that the NFE Project team
    successfully implements modern and reliable systems to improve
    financial business processes and support current and future financial
    management and information needs, while controlling costs for the new
    environment to the maximum extent possible.

    Organizational Leadership and Management of Human Capital
        The FDIC has been in a downsizing mode for the past 10 years as the
    workload from the banking and thrift crises of the late l980s and 1990s
    has been accomplished. Over the past months, a number of division
    mergers and reorganizations took place and the Corporation concluded
    its 2002 buyout/retirement incentive programs. These most recent
    incentive programs achieved a reduction of 699 staff and $80 million
    projected savings in future operating costs. In total, over the past
    10+ years, the workforce (combined from the FDIC and the Resolution
    Trust Corporation) has fallen from approximately 23,000 in 1992 to
    5,500 as of September 30, 2002.
        By June 2003, the Corporation hopes to substantially complete
    required downsizing, identify an appropriate skills mix, and correct
    any existing skills imbalances. To do so, the Corporation continues to
    carry out other features of its comprehensive program such as
    solicitations of interest, reassignments, retraining, outplacement
    assistance, and possible reductions-in-force. The Corporation has also
    predicted that almost 20 percent of FDIC employees will be eligible to
    retire within the next 5 years. As the Corporation adjusts to a smaller
    workforce, it must continue to ensure the readiness of its staff to
    carry out the corporate mission.
        The Corporation must also work to fill key vacancies in a timely
    manner, engage in careful succession planning, and continue to conserve
    and replenish the institutional knowledge and expertise that has guided
    the organization over the past years. A need for additional outsourcing
    may arise and hiring and retaining new talent will be important. Hiring
    and retention policies that are fair and inclusive must remain a
    significant component of the corporate diversity plan. Designing,
    implementing, and maintaining effective human capital strategies are
    critical priorities and must be the focus of centralized, sustained
    corporate attention.
        A significant element of this performance and management challenge
    relates to organizational leadership at the FDIC Board of Directors
    level, specifically with respect to the current make-up of the Board.
    The Board is a body whose strong leadership is vital to the success of
    the agency and to the banking and financial services industry. The
    Board is comprised of five directors, including the FDIC Chairman, two
    other FDIC directors, the Comptroller of the Currency, and the Director
    of the Office of Thrift Supervision. In order to ensure that the
    balance between various interests implicit in the Board's structure is
    preserved, the Board should operate at full strength. However, the
    Board has been operating with an FDIC Director vacancy since September
    1998. Accordingly, we have urged that vacancies on the Board be filled
    as promptly as practicable in order to afford the FDIC the balanced
    governance and sustained leadership essential to the agency's continued
    success.

    Cost Containment and Procurement Integrity
        As steward for the Bank Insurance Fund and Savings Association
    Insurance Fund, the FDIC seeks ways to limit the use of those funds. As
    such, the Corporation must continue to identify and implement measures
    to contain and reduce costs, either through more careful spending or
    assessing and making changes in business processes to increase
    efficiency. Many of the efforts described above as part of other
    management and performance challenges (e.g., New Financial Environment,
    Service Costing, corporate downsizing) attest to the Corporation's
    ongoing efforts to do so.
        A key challenge to containing costs relates to the contracting
    area. To assist the Corporation in accomplishing its mission,
    contractors provide services in such areas as information technology,
    legal matters, loan servicing, and asset management. To achieve success
    in this area, the FDIC must ensure that its acquisition framework--that
    is, its policies, procedures, and internal controls--is marked by sound
    planning; consistent use of competition; fairness; well-structured
    contracts designed to produce cost-effective, quality performance from
    contractors; and vigilant contract management and oversight.
        The Corporation has taken a number of steps to strengthen internal
    control and effective oversight. However, our work in this area
    continues to show that further improvements are necessary to reduce
    risks such as the consideration of contractor security in acquisition
    planning, incorporation of information security requirements in FDIC
    contracts, and oversight of contractor security practices. Other risks
    include corporate receipt of billings for such items as unauthorized
    subcontractors, unallowable subcontractor markups, incorrect
    timesheets, unreasonable project management hours billed, conflicts of
    interest, and unauthorized labor categories. The combination of
    increased reliance on contractor support and continuing reductions in
    the FDIC workforce presents a considerable risk to the effectiveness of
    contractor oversight activities. Additionally, large-scale
    procurements, such as Virginia Square II (a $111 million construction
    project to house FDIC staff for the most part now working in leased
    space in the District of Columbia) and the New Financial Environment,
    necessitate continued emphasis on contractor oversight activities.

                   THE OIG'S FISCAL YEAR 2004 BUDGET REQUEST

        The OIG is requesting a fiscal year 2004 appropriation of
    $30,125,000 and will fund 168 full-time equivalent staff. The OIG's
    operating budget for fiscal year 2004 totals about $27.8 million,
    exclusive of new capital expenditures for computers and a new
    government-wide funding mandate. This operating budget, which includes
    the salaries, benefit costs, travel, and training expenses for our
    employees, is 9 percent less than the fiscal year 2003 operating
    budget. We are budgeting for capital expenditures of about $1.3 million
    for replacing OIG docking station computers in accordance with the
    FDIC's computer replacement schedule and for our electronic crimes unit
    requirements. In addition, we are budgeting for certain potential
    litigation expenses which, under Public Law 107-174, must now be paid
    for with appropriated funds.
        Our electronic crimes unit enables the OIG to conduct computer
    forensic examinations where possible illegal activities have occurred
    involving information technology. We have already employed the
    capability in several investigations of suspected fraud that may have
    occurred in banks prior to their closings due to insolvency. Additional
    hardware and software will enhance this capability and keep it current
    with changing technology.
        The chart below shows the distribution of the OIG's budget by major
    object classification. Mostly, the OIG budget is comprised of salaries,
    benefits, and the necessary funding for travel and training expenses.

        The FDIC OIG has been operating under an appropriated budget since
    fiscal year 1998 in accordance with Section 1105(a) of Title 31, United
    States Code, which provides for ``a separate appropriation account for
    appropriations for each Office of Inspector General of an establishment
    defined under Section 11(2) of the Inspector General Act of 1978.''
    This funding approach is part of the statutory protection of the OIG's
    independence. The FDIC OIG is the only appropriated entity in the FDIC.
    The OIG's appropriation would be derived from the Bank Insurance Fund,
    the Savings Association Insurance Fund, and the FSLIC Resolution Fund.
    These funds are the ones used to pay for other FDIC operating expenses.
        The fiscal year 2004 budget is about $1.3 million less than the
    fiscal year 2003 appropriation. After adjusting for inflation, fiscal
    year 2004 will be the eighth consecutive year that the OIG's budget
    decreased. \1\ The graph below shows the OIG's budget history since I
    became the Inspector General in 1996.
    ---------------------------------------------------------------------------
        \1\ Prior to fiscal year 1998, the OIG budget was part of the FDIC
    annual operating budget approved by the Board of Directors from deposit
    insurance funds and other funds under the Board's stewardship.

        As I discussed earlier, the OIG has significantly downsized not
    only in the past year, but also since 1996. By statute, the FDIC and
    the Resolution Trust Corporation (RTC) and their Offices of Inspector
    General merged on January 1, 1996 and at that time, the combined OIG
    employed 370. The proposed staffing for fiscal year 2004 will be less
    than half of the 1996 staffing level. The OIG's budget and staffing
    reductions have been possible due to the shrinking size of the FDIC,
    completion of the carryover work from the RTC, prospects for continuing
    health of the banking industry, and the Corporation's own staff
    downsizing initiatives. Total FDIC employment has declined from a
    combined FDIC-RTC peak of about 23,000 staff in early 1992 to 5,457 as
    of December 31, 2002. The graph below shows the OIG authorized staffing
    since the merger of RTC in 1996.

                               CONCLUDING REMARKS

        Mr. Chairman and Members of the Subcommittee, I appreciate the
    support and resources we have received from this subcommittee, the
    Congress, and the FDIC over the past several years. As a result, the
    OIG has been able to make a real difference in FDIC operations in terms
    of financial benefits and improvements, and in strengthening our own
    operations and efficiency. Our budget request for fiscal year 2004 is
    modest in view of the value we add. We seek your continued support so
    that we will be able to effectively and efficiently conduct our work on
    behalf of the FDIC Chairman, the Congress, and the American public.
        In this 25th year since passage of the Inspector General Act, I
    take pride in my organization and the entire federal Inspector General
    community and its collective achievements. Building on this legacy, we
    inthe FDIC OIG look forward to new challenges and assisting the
    Congress and corporate officials in meeting them.

                                     ______

                      AMERICAN BATTLE MONUMENTS COMMISSION

       Prepared Statement of Major General John P. Herrling, USA (Ret),
                                   Secretary

        Mr. Chairman and Members of the Committee: Thank you for the
    opportunity to testify on the American Battle Monuments Commission's
    fiscal year 2004 Appropriation Request. The special nature of the
    American Battle Monuments Commission places it in a unique and highly
    responsible position with the American people. The manner in which we
    care for our country's Honored War Dead is, and should remain, a
    reflection of the high regard in which we, as a nation, respect their
    service and sacrifice.
        The American Battle Monuments Commission is responsible for
    commemorating the services of American Armed Forces where they have
    served since April 6, 1917 (the date of U.S. entry into World War I)
    through the establishment of suitable memorial shrines; and for
    designing, constructing, operating, and maintaining permanent American
    burial grounds in foreign countries. In performing these functions, we
    administer, operate, and maintain twenty-four permanent memorial
    cemeteries and twenty-five monuments, memorials, and markers in the
    United States and fifteen countries around the world.
        We have eight World War I and 14 World War II cemeteries located in
    Europe, the Mediterranean, North Africa and the Philippines. All of
    these cemeteries are closed to burials except for the remains of the
    War Dead who may occasionally be discovered in World War I or World War
    II battlefield areas. In addition, we are responsible for the American
    cemeteries in Mexico City, established after the Mexican War, and in
    Panama.
        Presently, 124,917 U.S. War Dead are interred in these cemeteries--
    30,922 of World War I, 93,245 of World War II and 750 of the Mexican
    War. Additionally, 6,010 American veterans and others are interred in
    the Mexico City and Corozal (Panama) American Cemeteries. Commemorated
    individually by name on stone tablets at the World War I and II
    cemeteries and three memorials on U.S. soil are the 94,132 U.S.
    servicemen and women who were Missing in Action, or lost or buried at
    sea during the World Wars and the Korean and Vietnam Wars.
        We provide services and information to the public, friends, and
    relatives who visit our cemeteries and memorials. This includes
    information about grave and memorialization sites as well as location,
    suggested routes and modes of travel to the cemeteries or memorials.
    Immediate family members are provided letters authorizing fee-free
    passports for overseas travel to specifically visit a loved one's grave
    or memorial site. During fiscal year 2002, over 8 million people
    visited our cemeteries and monuments worldwide, half of whom were
    American. Photographs of individual headstones and sections of the
    Tablets of the Missing on which the service person's name is engraved
    are also available. These photographs are mounted on large color
    lithographs of the cemeteries or memorials. In addition, we assist
    those who wish to purchase floral decorations for placement at a grave
    or memorial site in our cemeteries. A photograph of the in-place floral
    arrangement is provided to the donor.
        The care of these shrines to our War Dead requires a sizeable
    annual program of maintenance and repair of facilities, equipment, and
    grounds. This care includes upkeep of 131,000 graves and headstones; 73
    memorial structures; 41 quarters, utilities, and maintenance
    facilities; 67 miles of roadways and walkways; 911 acres of flowering
    plants, fine lawns and meadows; nearly 69 acres of shrubs and hedges
    and over 11,000 ornamental trees. Care and maintenance of these
    resources are exceptionally labor intensive, therefore, personnel costs
    account for over 53 percent of our budget for fiscal year 2004. Some of
    this maintenance is performed by casual labor, in peak seasons, since
    permanent cemetery staffs are not sized to provide all the required
    maintenance during the peak-growing season. The remaining 47 percent of
    our budget funds our engineering, maintenance, utilities, equipment,
    and administrative costs.
        As an organization responsible for permanent burial facilities, we
    do not have the option of closing or consolidating cemeteries. Within
    the context of the President's Management Agenda, we have continued our
    efforts to achieve greater efficiency and effectiveness in the areas
    where we do have alternatives.

                     STRATEGIC MANAGEMENT OF HUMAN CAPITAL

        Such efforts demand the strategic management of human capital. We
    analyze our work force to maximize the efforts of employees who deliver
    our services.
        In fiscal year 2000, ABMC and OMB conducted a joint productivity
    study to determine if equipment modernization, leasing, outsourcing,
    and automation improvements could increase the efficiency of our
    cemetery workers. Industry experts from two major turf and grounds-
    keeping equipment manufacturers participated in the study. They
    concluded that opportunities existed to reduce work-hours associated
    with labor-intensive operations, potentially offsetting the requirement
    for additional personnel. During fiscal year 2001, we continued our
    study and began procurement of modern, labor-efficient and safety-
    related equipment identified in fiscal year 2000. During fiscal year
    2002 and 2003, we continue to replace outdated equipment, enhance our
    automation systems, and make improvements in our operations. In order
    to continue productivity program enhancements, we are requesting $3.0
    million for fiscal year 2004.
        Managing our human capital demands that we have the right person
    with the right skills in every position. In fiscal years 1998 and 1999,
    we undertook the first comprehensive survey of our overseas personnel,
    their position descriptions, and workloads since the early 1980's. This
    survey identified a variety of discrepancies in how we staffed our
    cemeteries. We took corrective action, and with the concurrence of OMB,
    ensured consistency in staffing. In fiscal year 2002, we began a
    worldwide manpower study which will further identify and
    comprehensively outline our manpower requirements, position
    descriptions, workloads and manpower distribution to ensure our work
    force is properly deployed.
        A key element of recruiting and retaining a talented work force is
    fair compensation. To ensure equal pay for equal work we converted the
    European Region from our legacy Cemetery System for classifying and
    paying most of our foreign employees to the standard Foreign Service
    National (FSN) pay system. This FSN system is used by State Department
    and other federal departments employing foreign nationals overseas.
    This will ensure that we have a pool of well qualified personnel to
    fill our critical positions. Making this change resulted in an
    additional requirement of $900 thousand a year in personnel
    compensation. The investment will ensure our ability to recruit and
    retain a quality work force.
        I would like to thank the Congress for their support of our
    personnel program by the inclusion of 20 FTE to compensate for the
    reduction of the French workweek to 35 hours. This increase will allow
    us to continue to maintain the finest Memorial Cemeteries in the world.

                              COMPETITIVE SOURCING

        We have continued efforts to avoid using our work force to perform
    tasks that are not inherently governmental and are readily available in
    the commercial market place. In this area we are well advanced. When
    Congress directed us to establish a World War II Memorial, we
    outsourced the fund raising, design, construction, data management,
    fulfillment processing, customer servicing, and public relations.
        The success of this effort has been astonishing. It will soon
    result in the first national memorial dedicated to the 16 million who
    served in uniform during the war, the more than 400,000 who gave their
    lives, and the millions who supported the war effort from the home
    front.
        Our competitive sourcing initiatives did not stop there.
    Contributing to our efforts to improve financial management, in April
    2000, we contracted with a software implementation consultant to assist
    in the selection and development of an automated, integrated accounting
    system that conforms to regulatory requirements. Our new commercial-
    off-the-shelf system became operational in October 2001. The use of a
    competitive source contractor allowed our government employees to focus
    on our daily mission while the contractor ironed out the normal
    wrinkles associated with implementing a new system. We are pleased with
    the overall results and will continue to upgrade our capabilities so
    that we will be among the leaders in financial management in the
    Federal Government.
        In addition, our Infrastructure Modernization Program (IMP) has
    made extensive use of outsourcing to ensure that highly qualified firms
    and individuals were contracted to perform engineering analysis and
    reviews. Most construction and engineering projects at ABMC facilities
    are contracted out, since these projects are usually unique and beyond
    the capability of our limited staff.
        Our cemeteries and their infrastructure range from 45 to 80 years
    old. We began IMP in fiscal year 2001 in order to examine in detail the
    infrastructure of our facilities and bring them up to today's
    standards. With this we can avoid future uncertainty, work in a
    programmed and efficient manner, and protect our investments in
    facilities. The first phase of the IMP consisted of studies to identify
    deficiencies in the various aspects of our infrastructure. In the
    second phase, corrective actions are performed. So far studies of
    electrical systems, the structural integrity (safety) aspect of our
    facilities, and our water systems were completed by an Architectural &
    Engineering firm. Corrective actions on electrical systems and
    structural integrity began during late fiscal year 2001 and are
    continued in fiscal year 2002 and fiscal year 2003. Considerable
    electrical work was identified; fortunately, requirements for
    structural work were of a limited nature. With the study on water
    systems completed in fiscal year 2002, we are moving forward on
    corrective actions. During fiscal year 2003, we are dedicating $2
    million to IMP, and are requesting $2 million for fiscal year 2004 to
    continue these essential projects in addition to the $2.1 million to
    continue normal engineering and maintenance operations.

                         IMPROVED FINANCIAL PERFORMANCE

        Since 1998, ABMC has been required to produce full financial
    statements. In addition, these CFO Act financial statements are
    independently audited by the Comptroller General. Each year, ABMC has
    earned an unqualified opinion from GAO on our annual financial audits.
        We recognize that improved financial performance is more than
    achieving an unqualified audit opinion. It is about putting useful and
    timely information in the hands of leaders with which they can make
    decisions. Our new accounting system moves us toward that goal. Looking
    to the future, we have included $552 thousand dollars in our fiscal
    year 2004 budget to move to a web-based system that will enhance our
    ability to make such information more readily available to our
    decision-makers.
        Closely related to efforts to expand e-government, in partnership
    with the Department of the Treasury, we converted to full electronic
    funds transfer banking for all foreign currency disbursements. Prior to
    this, we maintained U.S. funds in separate overseas foreign currency
    bank accounts under delegated disbursing authority from the Treasury.
    Now disbursements flow electronically from our accounting system
    through the Treasury's Kansas City Financial Center to the overseas
    bank account of our vendors and employees. The initial conversion to
    this electronic capability was not as seamless as expected. However,
    the process is now stabilized and is allowing quicker payments for
    customers, elimination of funds held outside the Treasury in foreign
    bank accounts, and real automation of worldwide funds transfers.
        Our new integrated accounting system and our successes on
    international electronic funds payment and full financial audits are
    moving ABMC toward new levels of financial excellence. We look forward
    to the challenges of fiscal year 2004.

                             EXPANDED E-GOVERNMENT

        Our efforts in expanding e-government go beyond the use of
    electronic funds transfers overseas. They include how we deliver our
    services to our citizens--the very heart of what we do.
        Over the last several years, ABMC has expanded access to valuable
    information through the use of on-line tools. We have a Web site which
    allows visitors to gather information on our organization, cemeteries,
    memorials, and their locations. Our European Region has an intranet web
    site which provides details on their operations. In addition, we have
    placed an interactive video system at the Korean War Veteran's Memorial
    which allows visitors to view or print biographies of those lost in
    that conflict.
        We are also supporting the Administration's efforts to reduce the
    number of payroll providers within the federal government. We are
    working with OPM and GSA to transfer our internal, manual payroll
    operations to a web-based system provided by a service provider, in our
    case GSA. We fully support this effort as a way of saving money
    throughout the government. However, that conversion may bring
    additional conversion costs to us in fiscal year 2004. We are in the
    process of solidifying our cost estimates.

                       BUDGET AND PERFORMANCE INTEGRATION

        We are pressing forward in the budget process to ensure that our
    funding requests support the objectives of the agency and the
    President's Management Agenda. Our budget clearly ties to our Strategic
    and Annual Performance Plans. In addition, these plans directly link to
    the Commission's Management Discussion and Analysis (MD&A) statements
    which are required as an integral part of the annual audit conducted by
    the Comptroller General.

                            OTHER IMPORTANT PROJECTS

    Normandy Interpretive Center
        Congress, through Public Law 107-73, provided $5.0 million to ABMC
    for fiscal year 2002, specifically for the partial cost of design and
    construction of a new interpretive and visitor center at the Normandy
    American Cemetery in France. In fiscal year 2003, Congress provided an
    additional $4.0 million to continue this project. We have developed a
    contract proposal and have begun the initial pre-design phase. Our
    intent is to achieve an appropriate and comprehensive design, determine
    and obtain total project funding, and begin construction during fiscal
    year 2004.

    Vietnam Veterans Plaque
        Public Law 106-214 directed ABMC to oversee the placement of a
    plaque ``within the Vietnam Veterans Memorial containing an inscription
    intended to honor those Vietnam veterans who died after their service
    in the Vietnam War, but as a direct result of that service, and whose
    names are not otherwise eligible for placement on the Memorial Wall.''
    The law clearly stated that federal funds may not be used to design,
    procure, or install the plaque. We are in the process of working this
    important project through the requirements of the Commemorative Works
    Act and anticipate completion within the next year.

    WWII Memorial
        Beyond our primary mission of operating and maintaining and
    improving the management of twenty-four memorial cemeteries and twenty-
    five monuments, memorials, and markers, our attention has also been
    focused on the design and construction of the World War II Memorial.
        Congress provided legislative authority for siting the memorial in
    the prime area of the capital, which includes the National Mall. The
    total estimated cost of the memorial project is $170.5 million, which
    includes site selection and design, construction, a National Park
    Service maintenance fee required by the Commemorative Works Act,
    groundbreaking and dedication ceremonies, fund raising and
    administration of the project from its inception in 1993 through
    projected completion in 2004.
        The Commission of Fine Arts (CFA), the National Capital Planning
    Commission (NCPC) and the Department of Interior approved selection of
    the Rainbow Poolsite, a 7.4-acre area at the east end of the Reflecting
    Pool between the Lincoln Memorial and the Washington Monument.
        The public fund raising began in earnest in March 1997 when the
    ABMC announced that former Senator Bob Dole would serve as the National
    Chairman of the World War II Memorial Campaign. He was joined in this
    endeavor by National Co-Chairman Frederick W. Smith, founder and CEO of
    FedEx Corporation. The fund-raising efforts continued to be positive
    during fiscal year 2002, building on the groundwork and success of
    previous fiscal years. The campaign received $11.6 million in
    contributions during the fiscal year 2002, bringing the total funds
    received from all sources, including the federal government, to $186
    million. This total increased to about $189 million as of January 2003.
        Congress also approved several legislative items that continue to
    support the memorial project. Public Law 106-117, signed November 30,
    1999, granted ABMC permanent authority to solicit and receive funds and
    preserves any such funds in ABMC controlled interest bearing Treasury
    Accounts, including any funds remaining after completion of the
    memorial and increased ABMC's authority to accept volunteer services
    and to use intellectual property interests. In addition, Public Law
    106-398, signed October 30, 2000, designated $6 million of the proceeds
    from the sale of titanium from the National Defense Stockpile for
    completion of the design, groundbreaking, construction, maintenance,
    and dedication of the memorial.
        Our greatest challenge has been to ensure that construction is
    completed so that as many of the World War II generation as possible
    will live to see and be honored by the memorial. A construction permit
    was issued by the National Park Service in January 2001, but a small
    coalition of groups opposed to the site and design had filed a federal
    lawsuit to block the project. Construction, which could have begun in
    March 2001, was delayed by this legal action. Public Law 107-11, signed
    by President Bush on Memorial Day 2001, directed that the memorial be
    constructed expeditiously at the dedicated Rainbow Pool site. On the
    basis of this legislation, the federal lawsuit was dismissed, clearing
    the way for award of a construction contract in June 2001. Actual
    construction began in September 2001 and the memorial is expected to be
    completed in the spring of 2004 and will be dedicated on May 29, 2004.
        Since 1923 the American Battle Monuments Commission's memorials and
    cemeteries have been held to a high standard in order to reflect
    America's continuing commitment to its Honored War Dead, their
    families, and the U.S. national image. The Commission intends to
    continue to fulfill this sacred trust while ensuring the prudent
    expenditure of appropriated funds.
        The American Battle Monuments Commission appropriation request for
    fiscal year 2004 is $32,400,000.
                                     ______

                     NEIGHBORHOOD REINVESTMENT CORPORATION

             Prepared Statement of Ellen Lazar, Executive Director

        Neighborhood Reinvestment Corporation is pleased to submit its
    testimony for the record. This testimony is based on the experience and
    considerable successes of 226 community development organizations
    serving more than 2,300 urban, suburban, and rural communities. These
    nonprofit partnerships are collectively known as the NeighborWorks
    network and operate in 49 states, the District of Columbia, and Puerto
    Rico.
        The Neighborhood Reinvestment Corporation was created by Congress
    in 1978. Since that time, Neighborhood Reinvestment and its affiliated
    NeighborWorks network have responded to communities in need,
    championed homeownership for Americans of modest means, and created a
    network of excellence in the housing and community development field.
    This could not have been accomplished without this Subcommittee's
    commitment of federal funds. In fiscal year 2002, the NeighborWorks
    system generated nearly $1.7 billion in direct investment, helping
    nearly 70,000 families obtain and maintain safe and affordable rental
    and homeownership housing.
        We thank the Subcommittee for supporting Neighborhood Reinvestment
    through the fiscal year 2003 budget appropriation of $105 million, and
    we look forward to briefing you on our outcomes next year. Neighborhood
    Reinvestment's fiscal year 2004 budget justification outlines proposed
    activities at a $115 million budget level, an increase of $10 million
    over the fiscal year 2003 budget justification. With this additional
    $10 million, the NeighborWorks system will continue to increase our
    homeownership efforts, and meet rising personnel costs and health care
    expenditures to maintain the Corporation's committed professional
    staff.
        This year Neighborhood Reinvestment celebrates its 25th
    anniversary. As the environment in which we work has changed
    dramatically, our mission has become even more relevant and our
    services are in high demand. Neighborhood Reinvestment is well
    respected in the housing and community development field, and the
    NeighborWorks brand is seen as a sign of the highest quality. Since
    our founding, Congress and a long succession of administrations have
    consistently remained supportive of our activities. As we celebrate our
    past with immense pride, we want to look to the future and position the
    NeighborWorks system to respond to the critical needs that our
    nation's communities face.

                     OVERVIEW OF THE NEIGHBORWORKS SYSTEM

        Created by an act of Congress in 1978 (Public Law 95-557),
    Neighborhood Reinvestment Corporation works with 226 local community
    development nonprofits, and Neighborhood Housing Services of America
    (NHSA) to accomplish its mission, as outlined by its authorizing
    statute. This coordinated effort is known as the NeighborWorks system.

                   THE NEIGHBORHOOD REINVESTMENT CORPORATION

        Neighborhood Reinvestment's partnership with local housing and
    community development organizations supports residents, businesses and
    local governments in their efforts to revitalize their communities.
    Neighborhood Reinvestment has five core activities:
      --We assist existing NeighborWorks organizations to expand their
            geographic and programmatic scope and help other organizations
            to become chartered members of the NeighborWorks network.
            Currently, we work with 226 NeighborWorks organizations
            nationwide in over 2,300 communities, and we expect to invite
            12 additional organizations to join the network in fiscal year
            2003.
      --We fund NeighborWorks organizations by supporting their capital
            projects and operations to enable them to create and develop
            their own community-revitalization initiatives from a solid
            asset base. In fiscal year 2002, this resulted in $1.7 billion
            of direct investment in America's communities, creating a
            powerful engine for revitalization.
      --We provide sophisticated and specialized technical assistance to
            NeighborWorks members to more effectively and efficiently
            reach underserved communities. In 2002, more than 35,000 lower
            income families and individuals were able to purchase, maintain
            or rehabilitate their home, over 72,000 families received pre-
            or post-purchase homebuyer education services, and more than
            34,000 rental units for lower income households were owned or
            managed as a result of the work of the NeighborWorks network.
      --We conduct extensive review and oversight of NeighborWorks
            organizations and NHSA, providing them with an objective
            appraisal of their strengths and weaknesses, which allows them
            to successfully manage their resources and programmatic risks.
            Using a rigorous and formalized organizational assessment
            process, each community development organization in our network
            is evaluated annually and given a report card covering
            performance in such areas as financial management, board
            governance, contract compliance, productivity, and resource
            development.
      --We operate national Training Institutes open to anyone involved in
            affordable housing and community revitalization, particularly
            private- and public-sector practitioners and community leaders.
            In 2002, more than 11,000 housing and community development
            practitioners from every state received substantive training in
            key aspects of community and economic development activity,
            including real estate development, portfolio management,
            leadership development and financial management.
        These activities individually and collectively build the
    productivity and strength of the NeighborWorks network and the broader
    community development field.

                           THE NEIGHBORWORKS NETWORK

        Neighborhood Reinvestment is the founder of the NeighborWorks
    network, a collaborative group of community-based nonprofits that has
    evolved to include 226 members active in more than 2,300 communities
    across the country today. Regardless of their target communities,
    NeighborWorks organizations function as partnerships of local
    residents, lenders and other business leaders, and representatives from
    local government. To achieve the locally-identified goals, members of
    the NeighborWorks network utilize the laboratory environment Congress
    intended to achieve creative strategies, collaborate on best practices,
    and develop flexible financing mechanisms.
        Each organization is responsible for setting its own strategies,
    raising funds, and delivering services. Most NeighborWorks
    organizations provide homebuyer counseling, rehabilitation monitoring,
    and targeted lending services that complement conventional lending
    activity. Most NeighborWorks organizations also operate a revolving
    loan fund to meet community credit needs such as gap financing for home
    purchase loans, second mortgages for rehabilitation, small-business
    loans, and acquisition and development of residential and commercial
    real estate. The NeighborWorks network is the only national community
    development nonprofit network with extensive expertise in designing,
    originating, and servicing small non-conventional loans to lower-income
    families. Clients often require individual counseling and personalized
    assistance; however, this concentrated effort pays off by creating new
    opportunities for first-time homebuyers and by permitting existing
    homeowners to make affordable improvements, all of which works to
    revitalize communities.

                    NEIGHBORHOOD HOUSING SERVICES OF AMERICA

        NHSA works in partnership with the Neighborhood Reinvestment
    Corporation to meet special secondary market needs of NeighborWorks
    organizations and their clients. The primary mission of NHSA is to
    operate a specialized secondary market created to replenish the
    revolving loan funds and capital pools of local NeighborWorks
    organizations.
        With administrative and capital support provided by Neighborhood
    Reinvestment, NHSA purchases community development loans at face value,
    thereby allowing NeighborWorks organizations to originate loans with
    interest rates and terms based on the borrowers' ability to repay.
    NHSA's loan purchases provide a stream of capital into NeighborWorks
    organizations' revolving loan funds, to meet additional needs within
    their target neighborhoods.

                          OUTCOMES OF FISCAL YEAR 2002

        With your backing and confidence, fiscal year 2002 proved to be a
    groundbreaking year on many fronts. Congress provided Neighborhood
    Reinvestment with an appropriation of $105 million; of which, $10
    million was set-aside to encourage partnerships and training in
    furtherance of the U.S. Department of Housing and Urban Development's
    Section 8 homeownership option, and $5 million was set-aside to promote
    the development of mixed-income rental properties that included
    families with incomes below 30 percent of area median income.
        In fiscal year 2002, the NeighborWorks network achieved new levels
    of production, including:
      --Generated nearly $1.7 billion in direct investment to targeted
            communities;
      --Made available affordable housing opportunities for nearly 70,000
            families;
      --Provided pre- and post-purchase homebuyer education and counseling
            services to over 68,000 families; and
      --Leveraged $15.80 in other investments for each dollar Congress
            appropriated to Neighborhood Reinvestment.
        Furthermore, the two set-asides allowed Neighborhood Reinvestment
    and the NeighborWorks network to continue its role as laboratory for
    the community development field.
      --Neighborhood Reinvestment partnered with 53 NeighborWorks
            organizations and 70 Public Housing Authorities in implementing
            the Section 8 homeownership option. Over the past four years,
            the NeighborWorks system has provided homebuyer education to
            2,000 families, produced over 200 new homeowners, and educated
            1,200 professionals on this new programmatic opportunity.
      --The NeighborWorks network developed 121 rental units affordable to
            families with incomes below 30 percent of area median income.
            These units were in 14 developments totaling over 1,300 units.
            Remarkably, many of these extremely low-income units will be
            affordable to families with incomes less than 30 percent of
            area median income without the need for a Section 8 voucher or
            certificate. Were it not for this special set-aside, these
            units would not have been developed.
        Lastly, we continued to provide high quality services to
    NeighborWorks organizations, aiding their continuing work of providing
    needed services in their communities. In fiscal year 2002, Neighborhood
    Reinvestment and NHSA:
      --Conducted organizational assessments of each NeighborWorks
            organization;
      --Provided over 11,000 individuals with training, amounting to over
            188,000 contact hours;
      --Purchased over $60 million in loans from NeighborWorks
            organizations; and
      --Distributed 69 percent of Neighborhood Reinvestment's appropriation
            in the form of grants.

                         OUTCOMES FOR FISCAL YEAR 2004

        For fiscal year 2004, we are requesting an appropriation of $115
    million. At this funding level, Neighborhood Reinvestment will be able
    to expand its services in support of the White House's initiative on
    increasing minority homeownership and other homeownership activities,
    as well as continue to recruit and retain staff that will increase its
    service to the NeighborWorks network.
        A $115 million appropriation will assist the NeighborWorks network
    to:
      --Leverage nearly $2.2 billion in direct total investment in
            distressed communities;
      --Use each dollar Congress appropriates to leverage $18 from other
            sources;
      --Assist nearly 79,000 families obtain and maintain safe and
            affordable rental and homeownership housing; and
      --Provide pre- and post-purchase homeownership counseling and
            financial literacy training to nearly 84,000 families.
        To support and expand these significant accomplishments, the
    Neighborhood Reinvestment Corporation and NHSA will:
      --Conduct 240 organizational assessments of member organizations;
      --Provide 220,000 training contact hours to community development
            leaders and practitioners through the Neighborhood Reinvestment
            Training Institute and regional training venues;
      --Disburse 69 percent of Neighborhood Reinvestment's congressional
            funding in the form of grants; and
      --Purchase $65 million in loans from NeighborWorks organizations.
        The main purpose of the $10 million increase over the President's
    fiscal year 2003 budget will be used to help meet the aggressive goals
    Neighborhood Reinvestment has set in support of the White House's
    initiative to increase minority homeownership rates.
        The added funding in fiscal year 2004 will also help Neighborhood
    Reinvestment address rising personnel and benefits costs. While
    Neighborhood Reinvestment staff has actually decreased since 1999,
    benefits costs for our staff have risen. The increase in personnel and
    operating costs is attributed to higher gross salaries and costs of
    health care and other benefits. The increase in salaries includes a
    five percent merit pool and small bonuses; the Corporation does not
    provide a cost-of-living increase.

                        PRIORITIES FOR FISCAL YEAR 2004

        In developing our fiscal year 2004 budget, we sought to continue
    our excellent work from prior years, while defining more aggressive
    expectations for the NeighborWorks system. We have always worked to be
    good stewards of the funds that Congress has entrusted to us, and we
    continue to diligently work to maximize our efficiency and
    effectiveness. In order to meet these expectations, Neighborhood
    Reinvestment and the NeighborWorks system will continue to respond to
    communities in need, champion homeownership for families of modest
    means, and create and sustain a network of excellence.

                             NETWORK OF EXCELLENCE

        Regardless of their target communities, NeighborWorks
    organizations function as partnerships of local residents, lenders and
    other business leaders, and local government representatives. They
    produce creative strategies, share best practices, and develop flexible
    financing mechanisms. In order to facilitate, encourage and promote
    this network of excellence, the Neighborhood Reinvestment Corporation
    provides guidance, assistance and oversight in the following areas:

    Financial Support
        Equity capital grants are a critically important financing vehicle
    that Neighborhood Reinvestment provides to NeighborWorks organizations
    for capital and revolving loan funds. NeighborWorks organizations use
    these grants to provide equity and gap financing necessary to make
    loans for home purchases, rehabilitation and small businesses, and
    provide financing for real estate development.
        Neighborhood Reinvestment also provides expendable grants to
    NeighborWorks organizations to strengthen and increase their
    organizational ability to develop and administer responsive products
    and services. Particular emphasis is placed on activities crucial to
    increasing production and efficiency, thereby generating sustained
    community impact and ensuring the long-term success of the
    organization.

    Technical Assistance
        In tandem with financial assistance, Neighborhood Reinvestment
    provides a wide range of technical assistance. NeighborWorks
    organizations request practical, systems-based assistance in
    programmatic, organizational, administrative, financial or management
    areas of strategic importance to their organization. Neighborhood
    Reinvestment responds with a team of professionals familiar with each
    organization's local market, environmental challenges, structure and
    mission, and provides technical assistance in six key programmatic
    areas: organizational development; resource development and marketing;
    community revitalization, economic development and business planning;
    technology and financial management systems; single-family housing and
    lending; and real-estate development and management.

    Organizational Assessment
        As part of our responsibility to act as a good steward of federal
    funding, and to protect the investment of other partners as well as the
    high standards and the reputation of the NeighborWorks network as a
    whole, Neighborhood Reinvestment Corporation is committed to promoting
    and maintaining a network of high-performing, well-managed, nonprofit
    housing and community development corporations that deliver high
    quality services responsive to local needs and have a measurable impact
    on their communities. One of the tools employed in doing this is a
    uniform program review and assessment system.
        Through a system of continuous monitoring, each NeighborWorks
    organization is subject to an annual risk assessment through either
    off-site or on-site program reviews. Off-site reviews involve the
    collection and analysis of data about the organization. These data are
    analyzed in eight risk areas on a quarterly basis. If a risk alert is
    identified, the degree to which the organization has the capacity to
    manage the risk is determined.

    Training
        A comprehensive, systematic program of training and informing
    powerfully augments on-site technical assistance. The Neighborhood
    Reinvestment Corporation is nationally recognized as the premier
    provider of training in the housing and community development field,
    having founded its Training Institute 15 years ago. Today, the
    Neighborhood Reinvestment Training Institute offers more than 150
    courses and reaches more than 5,000 people a year from more than 4,000
    communities across America.
        Neighborhood Reinvestment's Training Institutes are typically
    scheduled five times each year at various locations around the country.
    Approximately half of the attendees of the Institutes come from
    organizations within the NeighborWorks network; the rest come from
    other communities and organizations around the country. This is one of
    the many ways that the support Congress provides Neighborhood
    Reinvestment Corporation reaches not only the 2,300 NeighborWorks-
    assisted communities, but also the broader community development field.
        Beginning in 2002, Neighborhood Reinvestment introduced a unique
    program for seasoned practitioners. The Advanced Practitioner Platform
    requires participants to shape and focus their efforts on challenges
    that can make a tangible difference for their organizations, and for
    the housing and community development field. Participants establish
    ambitious goals and hold themselves and each other accountable for
    achieving them. This self-motivated and disciplined approach is fully
    focused on ensuring the success of participants as they advance their
    own work in building strong community-based organizations.

    Expansions, Organizational Mergers and New Affiliates
        In today's community development industry, effective and efficient
    growth strategies do not necessarily mean creating or adding new
    organizations. In many underserved areas, the most sensible and cost-
    effective approach is to expand the reach or programmatic services of
    an existing network member, or to facilitate a merger of two
    organizations to create a more powerful organization with greater
    impact and efficiency. Neither of these approaches results in the
    addition of new organizations, yet both can result in productive
    outcomes, more efficient use of resources, and expanded coverage.
    Mergers are becoming an increasingly common practice. The combined
    efforts resulting from mergers can result in achieving greater impact
    at equal or less cost.
        Neighborhood Reinvestment receives a far greater number of requests
    for new affiliations than it can hope to satisfy responsibly. To
    prioritize requests from new applicants, the Corporation seeks those
    environments where its resources and assistance are likely to add the
    greatest value to local efforts and produce the most pronounced impact.
    Through a careful affiliation process, Neighborhood Reinvestment works
    with interested existing community-based organizations to ensure that
    before any organization is chartered as a NeighborWorks entity, it is:
    sound and productive; led by a responsible board of directors
    reflective of the community it serves; and, committed to a mission
    compatible with the focus and priorities of the NeighborWorks network.

                       RESPONDING TO COMMUNITIES IN NEED

        Twenty-five years ago, the Neighborhood Reinvestment Corporation
    was created because there was a noticeable void in the nation's lending
    system; namely, there were few opportunities for families of modest
    means to obtain mortgages and rehabilitation loans from the private
    lenders. Although the larger environment in which the NeighborWorks
    system operates has changed dramatically over the years, the
    Corporation's role as a bridge between mainstream financial
    institutions and lower-income communities remains relevant and
    critical. Neighborhood Reinvestment and the NeighborWorks network
    continue to operate in underserved communities that are home to people
    who lack access to decent affordable housing, financial products,
    services, and the kind of investments that sustain communities.

    Revolving Loan Funds
        Because of their flexibility and local control, revolving loan
    funds are central to the impact of the NeighborWorks system. These
    loans are local pools of money administered by NeighborWorks
    organizations to meet the lending needs of borrowers who do not qualify
    under conventional loan underwriting criteria and to serve as equity
    capital in support of major capital projects. Funding comes from
    private- and public-sector investors as well as from Neighborhood
    Reinvestment's equity capital grants. Most revolving loan fund capital
    comes from local sources--loans and grants made by banks, insurance
    companies, foundations, local governments and other local investors. In
    fiscal year 2002, nearly $95 million from NeighborWorks revolving loan
    funds were invested in communities.
        Loans are made at flexible rates and terms that fit the lower-
    income borrower's ability to repay, and are typically secured by a lien
    on the property, often a second or third lien to allow for investment
    by other public and private sector entities. Seventy-one percent of
    loans made through NeighborWorks revolving loan funds are made to very
    low- or low-income households, 53 percent to minority-headed
    households, and 45 percent to female-headed households. The liquidity
    of local revolving loan funds is maintained by selling loans to NHSA.

    Supporting Rural Efforts
        In 2002, 60 NeighborWorks organizations identified their primary
    service areas as rural communities, which is 27 percent of the
    NeighborWorks network and comprises the fastest growing segment of the
    network. Moreover, as our existing NeighborWorks organizations expand
    their target areas, they begin to capture rural areas with their
    services. The network has proven its ability to address housing needs
    in rural communities, particularly through our partnership with Rural
    NeighborWorks Alliance. With seed funding from Neighborhood
    Reinvestment and the Northwest Area Foundation, rural NeighborWorks
    organizations have grown a shared revolving loan fund that provides
    bridge financing for local housing or economic development projects at
    below-market rates. With current loan assets of over $2.1 million, the
    Rural NeighborWorks Alliance has made 40 loans totaling more than $4.5
    million to 14 rural NeighborWorks organizations. These loans have
    supported the production of 413 units of housing and 26 economic
    development projects, and leveraged $33 million in total project
    financing.

    Using Multifamily Rental as an Asset
        Understanding the importance of multifamily rental housing in a
    comprehensive neighborhood revitalization strategy, a group of
    NeighborWorks organizations formed the NeighborWorks Multifamily
    Initiative in 1999. Together, these organizations own more than 34,000
    units of affordable and well-maintained rental housing. The members of
    the NeighborWorks Multifamily Initiative make it their mission to
    provide sustainable multifamily homes, which are characterized over the
    long-term by:
      --Affordability, as defined by local market conditions;
      --Ongoing economic viability;
      --High quality maintenance and management; and
      --Access to on-site learning centers designed to advance the personal
            assets of residents--academic success of youth, employability
            of adults, financial savings, and homeownership.
        With $5 million provided by Congress in fiscal year 2002, the
    Corporation embarked on an ambitious effort to create mixed-income
    multifamily properties serving families and individuals below 30
    percent of area median income. With that funding, Neighborhood
    Reinvestment provided 14 grants, which funded the development of those
    units affordable to families with extremely low-incomes. The
    congressional funding produced 121 units affordable to extremely low-
    income families. These units accounted for nine percent of the total
    units in the properties in which they were located, while 79 percent of
    the units were affordable to families with incomes between 30 and 60
    percent of area median income. The remaining 12 percent of the units
    were affordable to families with incomes greater than 60 percent of the
    area median. The $5 million congressional set-aside helped invest over
    $141 million in targeted communities. Further, these units were
    developed in a myriad of settings--urban, suburban, rural, large and
    small developments as well as scattered site. Most importantly, many of
    these units will be affordable to extremely low-income families without
    need for a Section 8 voucher or certificate or other form of on-going
    subsidy. The report summarizing preliminary findings of this effort can
    be found in the Corporations fiscal year 2004 Budget Justification.

            CHAMPIONING HOMEOWNERSHIP FOR AMERICANS OF MODEST MEANS

        Neighborhood Reinvestment and the NeighborWorks network have been
    particularly active promoting homeownership. Over the past 10 years,
    the NeighborWorks Campaign for Home Ownership has made significant
    headway. The combined efforts of the Campaign created more than 60,000
    new homeowners and provided counseling to over 350,000 individuals. As
    a result, $5 billion was invested in many of America's distressed
    communities.

    Supporting the President's Homeownership Goals
        For years, the NeighborWorks system has been a leader in bringing
    homeownership opportunities to all Americans. Among the families
    assisted by the NeighborWorks Campaign for Home Ownership from 1998
    through 2002, 54 percent are racial and/or ethnic minorities--compared
    to 19 percent minorities served by the conventional market (based on
    2000 HMDA data).
        In June 2002, President Bush announced a national goal of
    increasing the number of minority homeowners by at least 5.5 million by
    the end of this decade. The NeighborWorks system has been active
    partners in the development and unveiling of the White House's
    initiative on increasing minority homeownership. Rather than making
    changes in its basic strategies, the Corporation will expand the tools
    and efforts that have proven to be the most effective in addressing
    critical areas affecting homeownership opportunities, particularly for
    minorities and other underserved populations such as Spanish-speaking
    families who are not bilingual.
        In support of the White House's initiative, over the next ten years
    the NeighborWorks system will:
      --Make available housing counseling assistance to more than 650,000
            families, of which 59 percent will be minority households;
      --Provide direct home-ownership assistance to more than 130,000
            families, of which more than 59 percent are estimated to be
            minority families;
      --Provide training, outreach, translation and other supports with an
            eye to increasing the minority homeownership rate; and
      --Raise $750 million in private sector social investments for NHSA's
            secondary market activities.

    NeighborWorks Campaign for Home Ownership
        The NeighborWorks Campaign for Home Ownership is the largest
    initiative of its kind to bring families of modest means into the
    economic mainstream by helping them achieve homeownership. Neighborhood
    Reinvestment has coordinated this joint effort of banks, insurance
    companies, secondary markets, government, the real estate community and
    others, involving more than 140 local community-based NeighborWorks
    organizations since the initial launch of the NeighborWorks Campaign
    for Home Ownership in 1993.
        Over the past 10 years, Neighborhood Reinvestment and the
    NeighborWorks network have met challenging goals and accomplished
    significant outcomes through the NeighborWorks Campaign for Home
    Ownership, including:
      --Assisted more than 60,000 families to become homeowners, of which
            54 percent are minority and 67 percent have incomes below 80
            percent of area median income;
      --Provided more than 350,000 individuals with pre-purchase homebuyer
            education and counseling services; and
      --Invested more than $5 billion in America's distressed neighborhoods
            and communities.
        The Campaign for Home Ownership, a partnership among Neighborhood
    Reinvestment and NeighborWorks members, has focused on supporting
    NeighborWorks organizations to help establish clear, aggressive goals,
    and define and abide by high quality standards. Innovative tools and
    ideas, such as Full Cycle Lending, SM NeighborWorks
    HomeOwnership Centers, SM Financial Fitness, and Section 8
    homeownership, have also been developed and supported. More recently,
    Neighborhood Reinvestment and members of the NeighborWorks network
    have begun to work with families even earlier in the process, through a
    financial education program called Financial Fitness. The Corporation
    has developed standards, adapted and created training materials,
    trained trainers through the Neighborhood Reinvestment Training
    Institute, and initiated a pilot Financial Fitness program at 39
    NeighborWorks sites nationwide. This program intends to give
    participants an understanding of basic finances and healthy financial
    relationships that benefit both the individual and the community.
        By the end of calendar year 2002, NeighborWorks organizations
    enrolled over 8,700 people in the training, and graduated more than
    5,500 individuals. Of these, nearly 59 percent are minorities, 93
    percent are renters, 65 percent are women, and 75 percent have incomes
    below 80 percent of the area median income.
        The Campaign for Home Ownership has set new goals for the next five
    years, including
      --Creating 50,000 new homeowners, including 30,000 minority
            homebuyers.
      --Assisting 50,000 families to preserve homeownership and improve
            their homes through housing rehabilitation, maintenance,
            repairs, delinquency and foreclosure prevention, loss
            mitigation, and refinancing.
      --Establishing a coordinated outreach, public information and
            counseling effort to reach 500,000 families through educational
            programs, such as Financial Fitness classes, anti-predatory
            lending efforts, pre- and post-purchase counseling, and
            expansion of NeighborWorks HomeOwnership Centers.
            SM
      --Working with up to 10 pilot NeighborWorks organizations to
            establish geographically-targeted revitalization efforts, which
            will include homeownership promotion as well as single- and
            multi-family real estate development, resident leadership, and
            commercial and economic development.
      --Promoting the growth of the homebuyer education industry through
            the development of up to 10 national alliances, establishing
            national standards for training and certifying homebuyer
            educators and counselors, and providing tools and best
            practices that can help the industry become more effective,
            efficient and sustainable.

    Helping Section 8 Families Move to Homeownership
        The NeighborWorks system is dedicated to expanding homeownership
    opportunities across the country, particularly for families and
    individuals with low and moderate incomes. One of the most innovative
    programs used in this effort is the Section 8 homeownership option.
    Strong technical and financial support from the Neighborhood
    Reinvestment Corporation has enabled NeighborWorks organizations to
    serve as a bridge between private lenders and public housing
    authorities to make homeownership a reality for qualified Section 8
    voucher holders. Congress has propelled the NeighborWorks network's
    efforts by providing funding specifically targeted to NeighborWorks
    organizations partnering with Public Housing Authorities (PHAs).
        In recognition of the early success of this effort, the
    Corporation's fiscal years 2001 and 2002 appropriation included a total
    of $15 million set-aside to develop capacity and effective
    partnerships. Most of the funds were used to capitalize NeighborWorks
    organizations' revolving loan funds serving as a source for second
    mortgages, with a smaller portion being used for capacity-building
    grants. These grants helped some NeighborWorks organizations tailor
    their pre- and post-purchase services to the specific needs of their
    Section 8 population, develop unique systems to work with a Section 8
    voucher and the PHA, or defray a portion of the costs associated with
    hiring additional staff to implement the program. The appropriation
    set-asides also support a performance-monitoring component with
    assistance from a third-party consulting and research firm.
        The set-asides helped fund 53 NeighborWorks organizations develop
    partnerships with 70 PHAs, provide 2,000 families with pre-purchase
    homebuyer education, and resulted in over 200 new homeowners. The
    median income of these families was slightly over $24,000, compared to
    the median family income of the typical U.S. buyer of $48,991. These
    partnerships are built upon the NeighborWorks network's solid
    experience in pre- and post-purchase counseling, innovative mortgage
    financing and in leveraging public resources and private investment.
        Both the multifamily and Section 8 homeownership efforts of the
    NeighborWorks network exemplify Neighborhood Reinvestment's charter: to
    operate as a laboratory for the community development field in order to
    identify models and practices that keep America's communities strong
    and vital.

                                   CONCLUSION

        Let me close by thanking the Subcommittee for the wonderful
    opportunity you have given the NeighborWorks system to serve America's
    communities, and to ask for your continued support. After 25 years,
    Neighborhood Reinvestment Corporation continues to strive for the
    maximum efficiency in the delivery of its services to America's
    communities. We are proud of the work that the NeighborWorks system
    has accomplished over the last quarter century; we also know that more
    work is left to be done.
        Our proposed priorities for fiscal year 2004 allow us to continue
    the balance between efficiency and creativity, between responsible
    stewardship and locally-controlled programmatic flexibility. This
    Subcommittee has been our most vocal supporter in productively
    maintaining this balance since 1978.
        Neighborhood Reinvestment Corporation is committed to building
    healthy, strong and safe communities all across America. Your continued
    support is vital to us in accomplishing this goal.
                                     ______

                            SELECTIVE SERVICE SYSTEM

            Prepared Statement of Lewis C. Brodsky, Acting Director

                                    PREFACE

        For many years, I had the privilege of accompanying past Directors
    of the Selective Service System in their appearances before this
    Committee while serving in the capacity of the Agency's Director of
    Public and Congressional Affairs. Time and circumstances caused me to
    change roles early this year and today I am pleased to represent the
    Selective Service System as its Acting Director. Director Rascon
    resigned his position on January 2, 2003, because of health reasons;
    and I do not know how long it will take for the President to nominate
    and the Senate to confirm a new Director. But I can assure you that the
    Selective Service System continues to drive forward. We are improving
    registration compliance, shifting our focus in consonance with the most
    likely needs of the Department of Defense (DOD), and undergoing
    restructuring in line with the President's Management Agenda.
        I welcome this opportunity to support the President's fiscal year
    2004 appropriations request of $28,290,000 for the Selective Service
    System. This is a 6.8 percent increase over the current fiscal year.
    The proposed budget will cover the cost of current services, provide a
    small program increase for unavoidable information technology changes,
    and accommodate a 3.6 percent annual salary increase. By adjusting its
    operational priorities, reducing full-time military staffing, and
    employing state-of-the-art information technologies over time, the
    Agency has been able to accomplish its statutory responsibilities
    without interruption.

                                  CAPABILITIES

        The SSS stands ready to perform its mission. It can conduct a draft
    that is efficient, fair, equitable, and accepted by the public, should
    the President and the Congress authorize a return to a draft. It is
    also ready to administer a program of alternative community service for
    men who are classified as conscientiously opposed to military service.
    With its routine communication with all men in the U.S., 18 through 25
    years old, and its ability to mobilize national manpower on a large
    scale, the Agency is also capable of performing additional human
    resource support missions related to national security or service, if
    so directed.
        I am pleased to report that the men and women of Selective Service
    are making a good Agency even better. For example, the Agency continues
    its close partnership with the DOD by providing direct support to Armed
    Forces recruiting and accessions processing. Specifically, Selective
    Service provides the names of its registrants to the Secretary of
    Defense for recruiting purposes, in accordance with a provision in
    Military Selective Service Act. Additionally, we have taken this
    cooperation a step further since January 2000, by continuing an
    effective joint mailing program. As we reported previously to this
    Committee, information about Armed Forces opportunities and a business
    reply card are now enclosed with the registration acknowledgment that
    the SSS sends to each new registrant. Thus, the Defense Department
    benefits by ``piggy-backing'' on our routine mailings and it reimburses
    us for the additional costs.
        Beyond these tangible services, Selective Service also promotes an
    intangible national benefit. For present and future generations of
    America's young men, it represents a very critical link between
    society-at-large and today's volunteer military. It is a reminder that,
    as Americans, every young man is personally responsible for ``providing
    for the common defense'' in the time-honored tradition of preceding
    generations.

                                 PRIORITY AREAS

        Since becoming Acting Director less than four months ago, I have
    focused Agency activities on complying with President Bush's Management
    Agenda. We are reexamining our processes and restructuring the SSS to
    meet the most likely manpower needs of the Department of Defense while
    finding improved ways of serving the public. Three initiatives are
    especially noteworthy because they are providing the largest return on
    investment while producing more effective and responsive customer
    service. Each satisfies the Administration and Congressional charges to
    Federal agencies to evolve into performance-based organizations.

        1. Organizational Realignment.--Expanding upon our fiscal year 2002
    Agency's Workforce Restructuring Plan, a complete ``bottom-up review''
    is underway with contractor assistance. After several recent
    consultations with senior Defense manpower officials, it is apparent to
    me that the Agency's current organizational structure is not as
    responsive or relevant to the contemporary needs of the DOD as it might
    be. Consequently, we are shifting our programmatic emphasis from
    readiness to conscript of large numbers of untrained men within 193
    days of activation to a draft of smaller numbers of critical skills
    personnel in shorter time frames. This necessary realignment can be
    accomplished within current resources and will probably result in less
    management overhead, merging of offices and programs, and increased
    potential for outsourcing some Agency functions. The benefits accrued
    from strategic management of human capital, competitive sourcing,
    improved financial performance, expanded e-Government, and better
    integration between budget and performance should substantially
    increase Agency efficiency. In this ongoing review, there are no
    ``sacred cows.'' All functions and programs are on the table, and each
    structural change and staffing decision will be driven by practical,
    cost-conscious considerations.

        2. Registration Compliance.--The SSS registration compliance rate
    for men 18 through 25 years old declined steadily from a high of over
    98 percent in 1991 to a low point of 88 percent in 1999. This decrease
    was cause for serious concern because of our self-imposed ``fairness''
    criteria. We believe a compliance rate of less than 90 percent would
    contribute to a lack of public confidence because the resulting draft
    would not be considered fair or equitable. The public would believe,
    rightly so, that not everyone who should be in the manpower pool is
    accounted for; and therefore those who are registered have an increased
    chance of being called for involuntary service. This is why SSS
    Directors since 1992 have placed a consistent priority on raising the
    registration rate. Our concentrated efforts to halt and reverse the
    downward spiral are achieving success. We held the line at 88 percent
    overall registration compliance in 2000 and, at the end of 2001, we had
    turned the corner and started an upward trend, achieving 89.1 percent
    compliance by 18- to 25-year old men. For 2002, Selective Service
    achieved 91 percent compliance. The other good news is that the
    statistics for fiscal year 2002 are indicating a 74 percent compliance
    rate for ``on-time'' registration of men turning 18. This is the
    highest compliance rate achieved for this year group since 1994. We
    will continue to use a combination of approaches and the attendant
    resources will be traded off among other programs, if necessary. To
    reinforce success, we:
      --Are continuing to develop and distribute public service broadcast
            messages to low compliance markets, together with new printed
            materials. To support this effort, additional radio public
            service announcements (at no cost for air time) in English and
            Spanish are being distributed. These high-quality products have
            received laudatory comments from viewers around the country and
            are receiving no cost annual air play commercially valued at
            $7.2 million.
      --Have just revamped the interactive Selective Service pages on the
            World Wide Web (http://www.sss.gov) where online registration,
            database verification, the ability to file changes of
            information, and a wealth of other Agency information are now
            available to anyone with access to the Internet. For fiscal
            year 2002, 69 percent of registrations reach the SSS through
            electronic means, or about 135,000 registrations per month, and
            we continue to expand our Website's capabilities. We are also
            placing links to our site with other Federal, state and local
            agencies and schools to enhance public education and facilitate
            customer responsiveness.
      --Are benefitting from an increasing number of states which link
            obtaining a driver's license or state I.D. card to the
            Selective Service registration requirement. These state laws
            are currently providing the SSS with an average of 27,500
            registrations per month. As of this month, 30 states, two
            territories, and the District of Columbia have legislation in
            place. They represent over 56 percent of the national 18-year-
            old male registrant population and we are working closely with
            additional states where such legislation is pending.

        3. Information Technology (IT).--In concert with the President's
    Management Agenda, we are convinced that in an era of constrained
    resources, expanding workload, and performance-based organizations, one
    major strategy must be to continue to invest in IT. It has been the
    SSS' major approach to improving customer service and organizational
    productivity while conserving limited human and fiscal resources. We
    began modernization of the Agency's technology infrastructure fiscal
    year 1997 and plan to continue through fiscal year 2004 and beyond. Our
    Information Technology Architecture Plan focuses on adding new
    information technologies to the Agency's infrastructure. In fiscal year
    2004 we must make additional refinements in hardware and software which
    are driven primarily by changing customer needs and revised government
    requirements. The goal of upgrading the Agency's IT platforms is based
    on re-engineering critical mainframe computer systems. Integrating the
    SSS mainframe computer systems into more user-friendly Web-based
    applications is our strategy over the next several years. By embracing
    change and applying technology, Agency activities are leading toward a
    paperless work environment and a more efficient means of doing
    business. These revamped systems are paying important dividends in end-
    user convenience and better service to our customers, as well as
    increasing the productivity of the Agency's workforce.

                              ADAPTABLE TO CHANGE

        We are also ready to aid the Administration and the Congress with
    any future initiatives that could capitalize upon Selective Service's
    unique capabilities. There has been much dialogue among the public,
    private groups, academia, and the Administration concerning a draft,
    volunteerism, and national service. Selective Service has a wealth of
    experience in managing volunteers (Board Members), and administering
    programs of alternative community-based service (for men classified as
    Conscientious Objectors) throughout its 63-years of existence. The
    Agency also has experience in conducting a fair and equitable
    classification procedure to determine who should serve when not all can
    serve. To ensure fairness and equity, each SSS Board is a melting pot
    of civic-minded men and women reflecting the racial, cultural and
    ethnic diversity of the young men within the communities it serves.
    Through these volunteers, a unique bond has been formed at the grass
    roots with young American men, society-at-large, and the U.S. Armed
    Forces. Through the Selective Service structure, every American
    community plays a positive role in providing for the common defense. In
    short, this Agency has extensive practical experience in identifying,
    contacting and classifying people to participate in a national security
    or service program. If called upon to support any new ``service''
    initiatives of the Administration, Selective Service can lend its
    expertise and ample experience to the task.

                                    CLOSING

        Today, Mr. Chairman, thanks in very large measure to your personal
    interest in this Agency and the continuing support of the Subcommittee
    and its staff members, the Selective Service System stands prepared to
    perform its time-tested responsibilities, if so directed. The fiscal
    year 2004 appropriation request of $28,290,000 will be invested
    prudently in one of the Nation's important security assets. Its
    rationale for existence and its credentials are the same: to provide a
    compact, cost efficient structure capable of rapid expansion in a
    crisis; to provide manpower to our Armed Forces as required; and to do
    it fairly, equitably, and within the necessary time frames. The
    Selective Service System remains resolute in its organizational
    realignment and operational streamlining. It has improved service to
    its customers, reinforced its commitment to America, and stands ready
    to play a key role in our Nation's future.
        Thank you, Mr. Chairman.

    DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND
            INDEPENDENT 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 recieved by
    the Subcommittee on VA, HUD and Independent 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 non-
    departmental witnesses.]

        Prepared Statement of the Lac du Flambeau Band of Lake Superior
                                Chippewa Indians

        The Lac du Flambeau Reservation is in the ``North Woods Area'' of
    Wisconsin and our homeland is called Waswagoning. The Lac du Flambeau
    tribal members always want to remind Congress about the special and
    unique relationship the Federal government has with Indian tribes. The
    Federal government is obligated by Treaty and Executive Order to
    provide for critically needed social, education, health and
    governmental services to the Band and its members in exchange for the
    land, water, natural resources and peace our forefathers provided. As
    Congress and the President work on the fiscal year 2004 Budget, the
    obligations and commitments to provide for these services must not be
    forgotten and should be given the highest priority. The Lac du Flambeau
    Band submits the following issues and concerns to the Subcommittee
    concerning veteran's affairs, housing and the environment.

                            VETERANS' ADMINISTRATION

        The Lac du Flambeau Band would like to address how the system is
    failing our American Indian veterans with regard to accessing veterans'
    benefits. American Indians across the country have the highest record
    of military service per capita when compared with other ethnic groups.
    These men and women have put their lives at risk to ensure the survival
    of future generations and the freedom of all Americans, yet they
    consistently have problems accessing basic benefits and services. It is
    difficult and frustrating for our veterans to get to the County
    Veterans Service Office (``CVSO'') located almost 50 miles away.
    According to a resolution prepared by the Great Lakes Inter Tribal
    Council in Lac du Flambeau, there are approximately 40,000 American
    Indian veterans in Wisconsin. It is estimated that only 5 percent of
    these veterans are aware of the benefits programs for veterans.
        We urge the Committee to establish Tribal Veterans Service Office
    (``TVSO'') on Indian Reservation to render services locally to American
    Indian veterans and their families. Currently, the Band is not a
    recipient for Federal or State grants in regards to securing tribal
    veterans' benefits. By Congress appropriating $150,000 as a proposed
    budget, we can finance and secure office space for a TVSO at Lac du
    Flambeau. We ask that this TVSO have autonomy and the same benefits and
    opportunities as the CVSO. We respectfully request that Congress honor
    our warriors and ensure that these American Indian veterans can access
    veterans' benefits with fewer barriers by placing a TVSO on the Lac du
    Flambeau Reservation.

                                    HOUSING

        There is a shortage of housing on the Lac du Flambeau Reservation.
    Additionally, the housing that is in place is substandard and lending
    to an ever-increasing black mold problem. Four hundred and twenty five
    (425) homes were tested for mold with 85 percent testing positive for
    mold. In March 2000, the Bureau of Indian Affairs released a Labor
    Force Survey that shows the Lac du Flambeau enrolled membership
    population is 3,056 with a projected population growth of 4 percent by
    the year 2005. The Tribal Housing Authority's NAHASDA Block Grant is
    $1,639,625.00. The Band's housing stock is 191 rental units and 68
    Mutual Help units--a total of 249 units and over half the units are
    considered to have overcrowded living conditions. The rental units are
    17 to 38 years old and are in substandard condition, most of which
    require major rehabilitation and modernization. There are currently 300
    Lac du Flambeau members on the waiting list for housing. Band members
    continue to move back to the reservation only to find overcrowded
    living conditions and no housing.
        Lac du Flambeau's Chippewa Housing Authority continues to face the
    housing shortage and inadequate funds to renovate existing units. Toxic
    mold has been found in 85 percent of our housing units. Because of the
    shortfalls in funding, it becomes a balancing act to determine if you
    use the funding for housing development, rehabilitation of older units
    or toxic mold re-mediation. Housing development, renovation and
    modernization needs must be addressed simultaneously. Unfortunately,
    lack of funding is an obstacle in providing safe, healthy and
    affordable housing for the tribal membership.
        President Bush's budget proposal for fiscal year 2004 is $641
    million for the Indian Housing Block Grant (IHBG), the major Native
    American housing program authorized by the Native American Housing
    Assistance and Self-Determination Act of 1996 (NAHASDA). This amount is
    identical to funding requested and enacted for the past three years.
    According to data from the National Association of Home Builders, the
    median cost of a new home has risen 34 percent over the past ten years
    and has increased almost 5 percent annually over the past four years.
    In order for the Committee to understand the funding shortfall, it is
    estimated that Lac du Flambeau's Housing Authority would require $2.5
    million per year for maintenance and rehabilitation for existing
    NAHASDA units, $1.2 million annually for new housing development and
    $1.5 million for administrative costs. The Band urges Congress to
    increase the NAHASDA appropriations to a level that is responsive to
    the growing housing needs on the reservation.
        It must be noted that the toxic mold is a very serious problem in
    Lac du Flambeau and we also urge Congress to hold hearing on this
    specific problem in Indian Country. The purpose of the hearing would be
    to determine the causes, extent of and cost to fix the problem. Toxic
    mold has been associated with numerous health related issues.

                                  ENVIRONMENT

        The Lac du Flambeau Reservation is rich with water bodies and
    forests with nearly 50 percent of the reservation is saturated with
    water. The total resource areas are as follows: Wetlands--24,000 acres
    (27.7 percent), Lakes & Rivers--17,897 (20.7 percent), Forested
    Uplands--41,733 (48.2 percent), and Other--3,000 (3.5 percent).
    Approximately 25 percent of the reservation area is owned by non-Band
    members and is considered fee land. The Band was blessed with a very
    diverse ecosystem and a huge responsibility to protect, enhance, and
    conserve the natural resources for present and future generations.
        Based on the above the Lac du Flambeau Band is very concerned with
    the decrease in Section 106 funding in fiscal year 2004. It is estimate
    that Band, along with other Region V Tribes, will have their 106
    funding reduced by $30,000-$32,000 in fiscal year 2004. The reasons for
    the funding shortfall are two-fold.
        Starting this year EPA is using Census 2000 data. Through fiscal
    year 2002 EPA had used 1990 census data. Use of the Census 2000 data
    redistributes funds among the Regions. The updated numbers of eligible
    Tribes and the new census data caused Region 5's allocation of 106
    funds to drop from approximately $4.14 million in fiscal year 2002 to
    $3.87 million in fiscal year 2003.
        EPA is currently reworking their funding formula to address
    Oklahoma Tribes. The criteria being used to allocate 106 funds to date
    have not given credit to Region 6 for all of the land areas of these
    Tribes. When land areas and population data for the Oklahoma Tribes are
    built into the allocation formula, this has the effect of reducing the
    allocation to Region 5 (and other Regions, particularly Region 8).
    Although the numbers are still evolving, Region 5's allocation could go
    down to approximately $3.29 million in fiscal year 2004.
        To off set the decrease in funding due to the combine factors
    mentioned above, the Band urges Congress to make additional funds
    available in EPA's 2004 budget for Section 106 grants to Tribes.
        EPA has also helped the Band in developing underground storage
    tank, radon, and solid waste programs on the reservation. These
    programs have succeeded largely due to the General Assistance Program
    (``GAP''). The monies received since 1992 have allowed the Band to make
    significant progress, however $110,000 is not adequate to support the
    implementation of these federally mandated programs. Indian Tribes are
    required to comply with many environmental mandates. We need an
    increase to at least $135,000 for fiscal year 2004 to support
    additional staff, which is needed to assist the Band in protecting and
    conserving our natural resource.
        In addition, the recently enacted Tribal Cooperative Agreement
    Authority, which allows the EPA to award cooperative agreements to
    Tribes to assist in implementing Federal environmental programs, should
    be renewed permanently or at least for an additional year. A specific
    tribal set aside for this new program would also be helpful to the Band
    in achieving necessary environmental goals. Currently this Cooperative
    Agreement Authority does not carry any additional funding allocation
    for Tribes. Tribes are precluded from obtaining any State dollars
    allocated for similar EPA/State Cooperative Agreement Authority.

                          WATERS OF THE UNITED STATES

        The scope of federal jurisdiction under the Clean Water Act was
    severely limited by the U.S. Supreme Court decision in the case of the
    Solid Waste Association of North Cook County (SWANCC). Today many
    waters are treated as ``jurisdictionally isolated waters'' that are no
    longer subject to CWA regulation. Congress should redefine waters of
    the United States to cover these ``jurisdictionally isolated waters''
    back within the scope of CWA jurisdiction. Many States are taking steps
    to close this loophole, which is resulting in a jurisdictional
    patchwork of water regulations, where there used to be uniformity.
    Wetlands are essential for clean water, flood control and fish and
    wildlife habitat.

                                     ______

        Prepared Statement of the Great Lakes Indian Fish and Wildlife
                              Commission (GLIFWC)

                 ENVIRONMENTAL PROTECTION AGENCY APPROPRIATIONS

        GLIFWC seeks $311,000 from various EPA programs for its ceded
    territory treaty rights environmental protection program:
        Lake Superior Bi-National Program and Lake Superior LaMP.--$80,000
    for continued GLIFWC participation in the Bi-National Program, in the
    on-going work regarding the Lake Superior LaMP, and in IJC, SOLEC and
    other Great Lakes forums.
        Ceded Territory Fish Consumption Mercury Advisory Program.--
    $141,000 to continue GLIFWC's long-standing program to collect and test
    fish for mercury content and to communicate up-to-date information to
    tribal communities and the public through health care providers and
    Geographic Information System (GIS) maps.
        Lake Superior Habitat and Human Health Research.--$90,000 for
    research projects on contaminant levels in Lake Superior whitefish and
    on potentially contaminated whitefish and lake trout spawning grounds
    in Lake Superior.

                GLIFWC'S GOALS FOR EPA'S FISCAL YEAR 2004 BUDGET

        GLIFWC asks Congress to provide adequate appropriations for EPA's
    programs that fund GLIFWC's work in these areas, and to instruct EPA to
    provide the funds to meet GLIFWC's needs. Over the past 8 years,
    Congress and EPA have funded GLIFWC's treaty rights environmental
    protection program under a variety of budget categories, including:
    wetlands (Section 104(b)(3) funds), coastal environmental management
    (CEM), the Great Lakes National Program Office (GLNPO), the Office of
    Pollution Prevention and Toxics, and environmental justice grants. \1\
    The Clean Water Act (33 U.S.C. Sec.  1268) requires the EPA and GLNPO
    to integrate tribal agencies in the development and implementation of
    action plans to carry out the United States' responsibilities under the
    Great Lakes Water Quality Agreement. In addition, GLIFWC and its member
    tribes are among the partners implementing the Great Lakes Strategy for
    2002--A Plan for the New Millennium.
    ---------------------------------------------------------------------------
        \1\ The Administration casts its proposed fiscal year 2004 budget
    in terms of the EPA strategic plan's goals. For GLIFWC's ceded
    territory purposes, the relevant goals and related funding categories
    appear to be: Goal 2: Clean and Safe Water; Goal 4: Preventing
    Pollution and Reducing Risk in Communities, Homes, Workplaces and
    Ecosystems; Goal 6: Reduction of Global and Cross-Border Environmental
    Risks; Goal 7: Quality Environmental Information; and Goal 8: Sound
    Science, Improved Understanding of Environmental Risk and Greater
    Innovation to Address Environmental Problems.
    ---------------------------------------------------------------------------

                CEDED TERRITORY TREATY RIGHTS AND GLIFWC'S ROLE

        Tribal members rely upon fish, wildlife, and plants for religious,
    cultural, medicinal, subsistence, and economic purposes. Their treaty
    rights mean little if contamination of these resources threatens the
    health, safety, and economy of tribal members, or if the habitats
    supporting these resources are degraded.

        GLIFWC was established in 1984 as a ``tribal organization'' within
    the meaning of the Indian Self-Determination Act (Public Law 93-638).
    It exercises authority delegated by its member tribes to implement
    federal court orders and various interjurisdictional agreements related
    to their treaty rights. GLIFWC assists its member tribes in:
      --securing and implementing treaty guaranteed rights to hunt, fish,
            and gather in Chippewa treaty ceded territories; and
      --cooperatively managing and protecting ceded territory natural
            resources and their habitats.
        The requested EPA funds would assist GLIFWC in achieving its
    broader conservation/habitat protection mission by maintaining
    partnerships with other resource managers and scientific/conservation
    organizations and by funding specific environmental research projects.
        For the past 17 years, Congress and Administrations have funded
    GLIFWC through the BIA, EPA and other agencies to meet specific federal
    obligations under: a) a number of U.S./Chippewa treaties; b) the
    federal trust responsibility; c) the Indian Self-Determination Act, the
    Clean Water Act, and other legislation; and d) various court decisions,
    including a 1999 U.S. Supreme Court case, affirming the treaty rights
    of GLIFWC's member Tribes. GLIFWC serves as a cost efficient agency to
    conserve natural resources, to effectively regulate harvests of natural
    resources shared among treaty signatory tribes, to develop cooperative
    partnerships with other government agencies, educational institutions,
    and non-governmental organizations, and to work with its member tribes
    to protect and conserve ceded territory natural resources.
        Under the direction of its member tribes, GLIFWC operates a ceded
    territory hunting, fishing, and gathering rights protection/
    implementation program through its staff of biologists, scientists,
    technicians, conservation enforcement officers, and public information
    specialists. Its activities include: natural resource population
    assessments and studies; harvest monitoring and reporting; enforcement
    of tribal conservation codes into tribal courts; funding for tribal
    courts and tribal registration/permit stations; development of natural
    resource management plans and tribal regulations; negotiation and
    implementation of agreements with state, federal and local agencies;
    invasive species eradication and control projects; biological and
    scientific research; and development and dissemination of public
    information materials.

                    GLIFWC PROGRAMS CURRENTLY FUNDED BY EPA

        GLIFWC currently administers EPA funding for a variety of ceded
    territory environmental protection programs and studies.

        1. Participation in the Lake Superior Bi-National Program.--Since
    fiscal year 1996, EPA has provided CEM funds for a 1 FTE equivalent to
    facilitate GLIFWC's participation in the Bi-National Program to Restore
    and Protect Lake Superior, including preparation of the Lake Superior
    LaMP and participation in various International Joint Commission (IJC)
    and State of the Lake Ecosystem Conference (SOLEC) forums. In fiscal
    year 2003, GLIFWC administered $77,000 in EPA CEM funds to facilitate
    participation in these forums as well as in the implementation of the
    Great Lakes Strategy for 2002--A Plan for the New Millennium.

        2. Study of Proposed Crandon Mine in Wisconsin.--GLIFWC's work
    related to the proposed mine includes hydrological modeling,
    contaminant transport analysis, and baseline biomonitoring studies. In
    fiscal year 2002, GLIFWC administered $68,700 in EPA wetlands (Section
    104(b)(3)) funds to continue its technical studies and assessments. In
    fiscal year 2003, Congress provided $144,000 for GLIFWC's review,
    analysis and GIS mapping related to the mine, particularly as to
    completion of an ongoing baseline biomonitoring project, participation
    as a ``cooperating agency'' in the preparation of the federal EIS, and
    maintenance of hydrological and contaminant transport expertise.

        3. Research and Special Projects.--Since fiscal year 1997, EPA has
    provided a combination of CEM, GLNPO, and Environmental Justice funds
    for GLIFWC to conduct scientific research to produce data relevant to
    the Bi-National Program/Lake Superior LaMP and to human health. In
    fiscal year 2003, GLIFWC will continue to administer $82,000 from EPA's
    Pollution Prevention and Toxics program and Environmental Justice
    program to test several Lake Superior fish species for dioxin and
    persistent organic pollutants.

                    FISCAL YEAR 2004 FUNDING NEEDS/RATIONALE

        GLIFWC would use fiscal year 2004 funds for:

        1. Participation in the Lake Superior Bi-National Program.--$80,000
    for continued funding of GLIFWC staff (1 FTE equivalent, and related
    travel and other expenses) who will participate in the Bi-National
    Program, in the on-going implementation of the Lake Superior LaMP, in
    IJC and SOLEC forums, and in the implementation of the Great Lakes
    Strategy for 2002--A Plan for the New Millennium.
        Rationale.--GLIFWC has been actively involved in the Bi-National
    Program since 1993. However, it was not able to adequately participate
    until EPA first provided CEM funds for this purpose in fiscal year
    1996. As a result, GLIFWC currently serves on the Bi-National Program's
    Task Force and Workgroup, and on the Workgroup's chemical, terrestrial
    and habitat committees. Its staff Co-Chairs the Workgroup's habitat
    committee and terrestrial committee. GLIFWC is participating in the on-
    going review and implementation of the Lake Superior LaMP. It also
    helps to liaison with other relevant Great Lakes institutions, such as
    the Great Lakes Fishery Commission, on issues of mutual concern between
    environmental and natural resource managers.
        As for IJC forums, GLIFWC staff regularly attend the biennial IJC
    meetings and provide periodic comments when issues arise in the
    interim, such as on the matter of Great Lakes water diversions. As for
    SOLEC, GLIFWC staff has addressed plenary sessions on the topic of wild
    rice and has organized breakout sessions on wild rice.
        This funding is necessary for GLIFWC to live up to its partnership
    responsibilities under the Great Lakes Strategy for 2002--A Plan for
    the New Millennium.

        2. Ceded Territory Fish Consumption Mercury Advisory Program.--
    $141,000 to continue GLIFWC's long-standing program to collect and test
    fish for mercury content and to communicate testing results to tribal
    communities and the public through health care providers and Geographic
    Information System (GIS) maps.
        Rationale.--Over the past seven years, GLIFWC has instituted an
    unprecedented lake-specific mercury advisory program to help tribal
    members and the general public consume fish as part of a healthy diet.
    The health benefits of eating fish are well known, but can be
    undermined if the fish are contaminated. GLIFWC has developed a system
    for sampling and testing walleye and muskellunge fillets, and then
    disseminating consumption advisories for specific lakes based upon the
    mercury contaminant data for that lake. This allows harvesters to make
    informed decisions about where they should fish and how much fish they
    should eat from a particular lake.
        GLIFWC has sampled and analyzed 1,919 walleye fillets harvested
    from 137 previously un- or undersampled Wisconsin lakes. It has
    combined its data with that previously collected by the State, with a
    resulting mercury database of 4,951 walleye fillets. In addition,
    GLIFWC has collected 94 walleye samples from 7 Minnesota lakes and 181
    walleye samples from 14 Michigan lakes.

        Over the years, as of 1999, GLIFWC's mercury testing surpassed the
    State's in the Wisconsin ceded territories. Current state budget
    crunches will only exacerbate this trend. Moreover, GLIFWC's recent
    federal funding for its mercury testing program has subsided, most
    notably with the completion of the ATSDR-funded Ojibwe Health Study.
        GLIFWC seeks EPA funding to continue this program for three more
    years, specifically for:
      --Collecting and testing walleye and musky for mercury content.--
            GLIFWC will continue to test 22 long term study lakes on an
            alternating year basis. The goal is to provide a 10-year data
            set for researchers to assess mercury trends in northern
            Wisconsin waters. GLIFWC also will test an additional 42 lakes
            over a three year period. All samples will be tested at the
            University of Wisconsin-Superior's Environmental Health
            Laboratory, which was established cooperatively by the Tribes
            and University in 1990.
      --Communication of testing results through Geographic Information
            System (GIS) maps.--GLIFWC will continue to produce lake-
            specific color-coded mercury advisory maps. Since 1995, these
            maps have been used by tribal members and the general public to
            identify lakes and sizes of ogaa (walleye) low in hazardous
            methyl mercury. They are distributed to tribal communities at
            registration stations, through GLIFWC's newspaper and other
            publications, and through GLIFWC's Website (www.glifwc.org).
      --Linkages with Health Care Networks.--GLIFWC also will continue to
            provide this information to health care providers (Indian
            Health Service and others). Since 1999, GLIFWC has provided its
            maps and data to clinics, to tribal health care providers
            serving the WIC program, and at local and regional nursing
            conferences.
      --Support the Memorandum of Understanding with the Wisconsin
            Department of Natural Resources.--GLIFWC will continue to meet
            its obligations under a 1996 agreement with the Wisconsin DNR
            to share fish contaminant testing results. The DNR integrates
            GLIFWC and state data to publish the State's annual fish
            advisory document.

        3. Continuing Research and Special Projects.--$90,000 for Lake
    Superior habitat and human health research projects related to the Bi-
    National Program and the Great Lakes Strategy for 2002--A Plan for the
    New Millennium.
        Rationale.--GLIFWC has undertaken a number of studies over the
    years related to the Lake Superior ecosystem. For example, with GLNPO
    and CEM funds, GLIFWC is preparing a report on the threat of wetland
    and terrestrial exotic plants to Lake Superior, has studied sturgeon in
    the Lake Superior basin, and has prepared GIS maps of fish spawning and
    nursery locations for both native and exotic species. In addition, as
    part of its ongoing natural resource contaminant/human health research,
    GLIFWC used Environmental Justice grants to update its fish consumption
    advisory database and to undertake wild rice contaminant research for
    heavy metals.
        For fiscal year 2004, GLIFWC would explore EPA funding for two
    projects:
      --Keweenaw Peninsula Mining Waste Assessment.--Assess impacts from
            mining waste (stamp sands) dumped into Lake Superior near
            Michigan's Keweenaw Peninsula during the late 1800s, map an
            important whitefish and lake trout spawning reef in Keweenaw
            Bay, and determine the distribution of stamp sands in relation
            to the spawning reef.
      --Lake Superior Whitefish Contaminant Assessment.--Assess mercury,
            PCB and organochlorine levels in whitefish harvested by tribes
            in western Lake Superior waters, and evaluate the new data in
            relation to current fish consumption advisories.

                                     ______

            Prepared Statement of the City of St. Helena, California

                               CITY OF ST. HELENA

        The City of St. Helena is located in the center of the wine growing
    Napa Valley, 65 miles north of San Francisco. The area was settled in
    1834 as part of General Vallejo's land grant. The City of St. Helena
    was incorporated as a City on March 24, 1876 and reincorporated on May
    14, 1889.
        The City from its inception has served as a rural agricultural
    center. Over the years, with the growth and development of the wine
    industry, the City has become an important business and banking center
    for the wine industry. The City also receives many tourists as a result
    of the wine industry. While, the main goal of the City is to maintain a
    small-town atmosphere and to provide quality services to its citizens,
    this is becoming increasingly difficult. Regulatory, administrative and
    resource requirements placed on the City through the listing of
    threatened and endangered species under the Endangered Species Act on
    the Napa River, as well as significant Clean Water Act requirements
    require the City with a small population base to face significant
    financial costs.
        The City of St. Helena is a General Law City and operates under the
    Council-City Manager form of government. The City Council is the
    governing body and has the power to make and enforce all laws and set
    policy related to municipal affairs. The official population of the
    City of St. Helena as of January 1, 2002 is 6,019. St. Helena is a full
    service City and encompasses an area of 4 square miles. Because of its
    size and its rural nature, St. Helena has serious infrastructure, as
    well as, flood protection and environmental needs that far exceed its
    financial capabilities.
        The Napa River flows along the north boundary of the City of St.
    Helena in northern Napa County. The overall Napa River Watershed
    historically supported a dense riparian forest and significant wetland
    habitat. Over the last 200 years, approximately 6,500 acres of valley
    floor wetlands have been filled in and 45,700 acres of overall
    watershed have been converted to urban and agricultural uses. This
    degradation of natural habitats has had a significant effect on water
    quality, vegetation and wildlife, and aquatic resources within the Napa
    River Watershed.
        Surface water quality of the Napa River is dependent upon the time
    of year, runoff from York and Sulphur Creeks, and urban area
    discharges. During the winter months when streamflow is high,
    pollutants are diluted; however, sedimentation and turbidity is high as
    well. During the summer months when streamflow is low, pollutants are
    concentrated and oxygen levels are low, thereby decreasing water
    quality. Agricultural runoff adds pesticides, fertilizer residue, and
    sometimes sediment. Discharges from urban areas can include
    contaminated stormwater runoff and treated city wastewater. The Napa
    River has been placed on the Clean Water Act 303(d) List and TMDL
    Priority Schedule due to unacceptable levels of bacteria,
    sedimentation, and nutrients. It is against this backdrop that the City
    of St. Helena faces its biggest challenges.

                                  PROJECT NEED

        While much of the City's character is tied to its location along
    the Napa River, since 1853, it has been a continual battle defending
    St. Helena and its residents from the flooding Napa River. The City of
    Napa has suffered from 27 floods between 1862 and 1997, with the
    largest flood occurring on February 18, 1986. Between 1961 and 1997,
    Napa County residents suffered $542 million in property damage. In 1995
    and 1997, the Napa River overflowed its banks, turning most towns along
    the Napa River into churning tributaries, and forcing people to abandon
    their homes and businesses (FEMA, 2001). In an effort to address not
    only its significant flood management issues, but to improve the land,
    habitat and water quality in the Napa River, the City has developed an
    integrated plan.
        The St. Helena flood protection and corridor restoration project is
    a multi-objective project which will provide flood damage reduction
    through restoration and re-establishment of the natural floodplain
    along the project reach, setting back of levees and the re-creation and
    restoration of a natural floodway corridor providing over 22-acres of
    high value riparian forest. This forested area will improve both
    terrestrial and fish habitat on the Napa River, which is listed by the
    EPA as an impaired waterway. Steelhead and salmon recovery will be
    improved by the project and passive recreation will provide Napa River
    viewing and interpretive opportunities for local residents who now have
    no access to this reach of the Napa River. The project will also
    provide all-weather cross-Napa Valley access for the residents of the
    City to its nearest hospital, which is presently inaccessible during
    flood events greater than the 50-year probability storm.
        The St. Helena Habitat Terraces, a portion of the overall St.
    Helena plan, are critically needed to address water quality, habitat
    and flood management issues. Given the Napa River's status by EPA as an
    impaired waterway, immediate measures are necessary to improve water
    quality. Storm water discharge from the City's urban area is a
    significant water quality problem. The filtering of non-point source
    storm water runoff provided by the habitat terraces is critical to meet
    the City's TMDL and NPDES needs. This is an innovative non-structural
    water pollution control approach which will have positive implications
    for other communities across the country.
        In addition, the Napa River and its riparian corridor are
    considered Critical Habitat for Steelhead and Salmon Recovery, as well
    as a significant migratory corridor for a number of birds that use the
    Pacific Flyway. Without an integrated program to address the water
    quality and the Endangered Species Act (ESA) habitat issues, both water
    quality and key habitat issues will undermine the Napa River condition.
    Therefore, the St. Helena Habitat Terraces are necessary to address the
    key environmental issues for the Napa River.

                                PROJECT BENEFIT

        The St. Helena Habitat Terraces would be developed to serve as low
    velocity run-out zone in which sediments may be trapped during
    intermediate and lower river flows. Any contaminants found in the
    City's storm water system which will be discharged through the newly
    vegetated terraced area to the west of the Napa River, may be retained
    in the area during the first flush of the system each winter. The
    Adaptive Management Plan being formulated by the City will address the
    accumulation of these deposits and their impact on flood protection and
    enhancement benefits.
        The Habitat Terraces are part of a multi-purpose plan St. Helena is
    developing to manage the flood and environmental issues along the Napa
    River by re-creating and restoring the natural floodplain corridor
    through the one mile project reach and re-connecting the Napa River to
    its historic floodplain. Creation of flood and habitat terraces on the
    east bank of the Napa River and flood terraces set at geomorphically
    appropriate discharge elevations will be excavated and planted with
    native habitat allowing for restoration of the natural floodplain
    terraces.
        Over 20 acres of rich floodplain riparian habitat will be re-
    established and restored through re-vegetation of native communities of
    willow/alder, vine/ash, Oak/Snowberry and Buckeye/Walnut in the newly
    created overflow channels. Aquatic habitat will be improved through the
    project reach through these plantings providing new Shaded Riverine
    Habitat as well as through installation of large logs and woody debris
    providing improved fish passage habitat. There is presently little
    varied down wood in the existing river corridor due to demands for
    regular river clearing to maximize floodwater conveyance. The St.
    Helena project will rectify this situation providing a resting placed
    for migrating salmonids.
        Because of the critical storm water management and water quality
    issues within the Napa River and its riparian corridor, which are
    considered a critical habitat for the threatened steelhead, innovative
    efforts like the St. Helena Habitat Terraces are important to address
    the complexity of environmental issues facing St. Helena and are an
    innovative approach to addressing local issues stemming from federal
    statutes. This effort could be used as a model for other waterway and
    riparian corridors across the country.
        The City of St. Helena, therefore, respectively requests the
    Committee's support of $2,000,000 in appropriations in fiscal year 2004
    within the Environmental Protection Agency's Environmental Programs and
    Management account, so that St. Helena may proceed with this unique
    water quality and environmental restoration effort, the St. Helena
    Habitat Terraces.

                                     ______

      Prepared Statement of the Upper Mississippi River Basin Association

        The Upper Mississippi River Basin Association (UMRBA) is the
    organization created in 1981 by the Governors of Illinois, Iowa,
    Minnesota, Missouri, and Wisconsin to serve as a forum for coordinating
    the five states' river-related programs and policies and for
    collaborating with federal agencies on regional water resource issues.
    As such, the UMRBA has an interest in the budget for the water programs
    of the U.S. Environmental Protection Agency (EPA).

                  STATE POLLUTION CONTROL GRANTS (SECTION 106)

        UMRBA supports the Administration's proposed 4 percent increase in
    funding for Section 106 State Pollution Control Grants. Federal Section
    106 funds, in combination with the states' matching dollars, support
    the core state water quality programs, including water quality
    assessment and monitoring, water quality planning and standard setting,
    total maximum daily load (TMDL) development, point source permitting,
    and training and public information. Adequate funds are particularly
    critical to supporting the states' development and implementation of
    total maximum daily loads. The tasks associated with developing TMDLs
    for impaired waters include watershed characterization, computer
    modeling and related analyses, allocation of permissible loads,
    development of TMDL reports and plans, and public outreach and
    stakeholder development. These responsibilities have the potential to
    overwhelm state agency resources that are in many cases already
    strained. Under the fiscal year 2004 budget proposal of $200 million,
    the five states in the Upper Mississippi River Basin would be allocated
    a total of $20 million in Section 106 funding. This funding is
    fundamentally important to the states' ability to carry out their
    responsibilities under the Clean Water Act.

    TMDLS, WATER QUALITY CRITERIA & STANDARDS, AND WATER QUALITY MONITORING
                                  & ASSESSMENT

        EPA's fiscal year 2004 proposed budget for Environmental Programs
    and Management (EPM) includes $25 million for TMDLs, $24 million for
    Water Quality Criteria and Standards, and $14 million for Water Quality
    Monitoring and Assessment. All of these amounts reflect modest, but
    important, increases over the Agency's fiscal year 2003 request. The
    TMDL funding will help support EPA's TMDL-related responsibilities,
    such as developing guidance and technical support for states and
    approving/disapproving TMDLs in a timely fashion. Funding for water
    quality criteria and standards will support EPA's standards-related
    efforts, such as development of criteria and helping states link
    standards to TMDLs. The funding for water quality monitoring and
    assessment will enable EPA to help states and local watershed groups
    enhance their monitoring programs, including increased use of a
    probabilistic approach to support water quality decision-making. UMRBA
    supports funding for these three key EPM programs which, coupled with
    the Section 106 grants, will help states fulfill their basic Clean
    Water Act responsibilities.

                       CLEAN WATER STATE REVOLVING FUNDS

        The UMRBA is deeply concerned about the lack of support in the
    Administration's fiscal year 2004 budget proposal for the Clean Water
    State Revolving Fund (CWSRF), which helps address wastewater
    infrastructure needs. The CWSRF has made tremendous contributions to
    improving the nation's water quality. In fiscal year 2002, the five
    Upper Mississippi River Basin states received a total of $177 million
    in CWSRF funding. However, the CWSRF is proposed to be cut by 63
    percent in fiscal year 2004. This would mean $850 million for the
    CWSRF, rather than its authorized and historical level of $1.35
    billion. Given the flexibility to redirect wastewater funds to the
    Drinking Water State Revolving Fund (DWSRF), even less than $850
    million might well be available for the wastewater SRFs. While the
    flexibility to shift between these two programs can help the states
    address their most pressing needs, it is no substitute for adequate
    funding. Estimates of the nation's wastewater infrastructure needs
    certainly vary, as evidenced in the Congressional deliberations on new
    water infrastructure financing legislation. However, there is
    absolutely no doubt there are substantial unmet needs. The high demand
    for these funds underscores the need to reauthorize CWSRF funding and
    increase annual federal appropriations to $2 billion.

                   STATE NONPOINT SOURCE GRANTS (SECTION 319)

        The Administration has requested $238.5 million for the Section 319
    state nonpoint source grant program, slightly less than the $240
    million provided in fiscal year 2003. Nonpoint sources are one of the
    major causes of water pollution in the Upper Mississippi River Basin,
    which drains the nation's agricultural heartland. For each of the past
    three years, the five states in the Upper Mississippi River Basin have
    been allocated a total of $34 million in nonpoint source grants.
    Adequate funding for Section 319 and complementary efforts, including
    the USDA's conservation programs, is essential to meeting the region's
    major water quality challenges. With the expansion of USDA conservation
    programs, it is especially important to fund the Section 319 program as
    well, given that it supports a variety of efforts unrelated to
    agriculture, such as Phase II stormwater work. Thus, at a minimum,
    UMRBA urges Congress to maintain funding for state nonpoint source
    grants at the fiscal year 2003 level of $240 million, recognizing that
    continued progress in addressing nonpoint pollution will require
    significantly increased resources.

                    ENVIRONMENTAL MONITORING AND ASSESSMENT

        EPA's fiscal year 2004 budget includes $38.87 million for its
    Environmental Monitoring and Assessment Program (EMAP). EMAP is of
    particular interest to the UMRBA because it includes the Central Basin
    Integrated Assessment, as well as research related to environmental
    indicators. The Central Basin assessment focuses on large rivers in the
    Mississippi Basin, which are challenged by long term loadings of
    nutrients, sediments, and toxic chemicals, as well as extensive habitat
    alternatives. This Central Basin EMAP initiative is intended to fill
    the scientific gaps (e.g., indicators, sampling design, and sampling
    methodology) that currently limit our ability to assess baseline
    conditions and measure the performance of environmental protection
    activities. The resulting advancements in monitoring technology and
    approaches could be potentially useful in guiding the development of
    TMDLs on major rivers such as the Missouri and Mississippi Rivers. In
    addition, the states bordering the Upper Mississippi River are hopeful
    that EMAP will help in the development of ``indicators of impairment.''
    Such indicators are critically needed for large border rivers to
    improve the states' ability to meet their Clean Water Act
    responsibilities on these rivers. Fiscal year 2003 marked the beginning
    of the Central Basin EMAP. In fiscal year 2004, EPA will begin the
    first full year of monitoring to measure the conditions of these large
    rivers. UMRBA thus supports proposed funding for the Central Basin
    EMAP.

                    HYPOXIA ACTION PLAN AND WATERSHED GRANTS

        The UMRBA is disappointed that the Administration's fiscal year
    2004 budget proposal does not include additional new resources to
    address the recommendations in the Hypoxia Action Plan, submitted by
    the Mississippi River/Gulf of Mexico Watershed Nutrient Task Force in
    January 2001. The states in the Upper Mississippi River Basin have
    consistently said that reductions in nutrient inputs to the Gulf of
    Mexico and monitoring to evaluate the effectiveness of these efforts
    will only be possible if significant new budgetary resources are
    provided by the federal government. While the states continue to
    support the goals and strategies set forth in the Action Plan, little
    progress will be made to reduce the Gulf hypoxic zone and improve water
    quality conditions throughout the basin without a major federal
    financial commitment.
        EPA's fiscal year 2004 budget documentation indicates that the
    agency intends to focus a portion of the Targeted Watershed Grants to
    support implementation of the Hypoxia Action Plan. Although UMRBA is
    pleased that the unique needs of the Mississippi River Basin are being
    recognized, the watershed grant program established just last year,
    does not, in fact, represent additional new funding. The $20 million
    recommended by the Administration for Targeted Watershed Grants in
    fiscal year 2004 comes at the expense of water quality cooperative
    agreements (Section 104(b)(3) grants), which are recommended to be
    reduced by $20 million in fiscal year 2004. Although UMRBA supports
    funding for watershed planning and management, it should not come at
    the expense of other well-established programs.
                                     ______

    Prepared Statement of the Santa Clara Valley Water District, San Jose,
                                   California

      PERCHLORATE CLEANUP PROJECT, SANTA CLARA COUNTY, CALIFORNIA--SUMMARY

        This statement urges the Committee's support for an appropriation
    add-on of $1 million, for technical and logistical assistance to the
    San Martin Community and local and state agencies regarding the cleanup
    of a 7\1/2\ mile groundwater plume of perchlorate that has affected
    several hundred water supply wells.

                              STATEMENT OF SUPPORT

        Background.--The Central Coast Regional Water Quality Control Board
    (Regional Board) is providing regulatory oversight of the Olin
    Corporation led investigation and cleanup for perchlorate contamination
    in the San Martin Area associated with their former highway flare
    manufacturing plant. The Regional Board currently does not have
    adequate resources to address the magnitude of the perchlorate
    contamination which has affected several hundred drinking water supply
    wells. Groundwater is currently the only source of drinking water in
    this area and over 1,500 families have been provided with bottled
    water. Significant concerns remain regarding this community's exposure
    to perchlorate in their drinking water and perchlorate accumulation in
    agricultural crops and livestock. To address these concerns and ensure
    that the groundwater basin in this area is aggressively restored and
    cleaned up the Santa Clara Valley Water District (District) is
    requesting Federal assistance. We respectfully request funding to
    facilitate a prompt and complete cleanup of groundwater resources in
    the San Martin area of Santa Clara County.
        Demographics.--
      --Established residential community to Silicon Valley.
      --Important agricultural resource area.
      --Community provides housing to Silicon Valley workers.
        Perchlorate Investigation and Cleanup Status.--The source of the
    perchlorate is attributed to a former safety flare manufacturing plant
    owned by Olin Corporation that opened in 1955. Potassium perchlorate is
    a component of these flares. Perchlorate contamination in groundwater
    was initially detected at low concentrations in shallow groundwater
    samples collected at the site of the facility in August 2000, as part
    of due diligence investigation by a prospective purchaser of the site.
    The Regional Board directed an investigation of the site that led to
    sampling of nearby domestic wells in the fall of 2002. After the
    detection of perchlorate in domestic wells immediately downgradient of
    the site, the District became concerned that significant contamination
    could exist over a larger area. Additional sampling of domestic wells
    performed in December 2002 by the District confirmed that suspicion.
    San Martin does not have a municipal water system and the water supply
    comes from over 2,000 domestic and small water system wells in the
    area. Groundwater is the sole source of their water. Working with the
    Regional Board, the District acted swiftly to notify private well
    owners of the potential problem in the affected area and assured that
    their wells would be sampled. The District has also offered to provide
    free bottled water to those in the affected area while investigation of
    the contamination continues. To date the District has sampled over 1000
    domestic wells in the San Martin Area. Results to date for 700 wells
    show 450 wells with no detectable concentrations (<4 ppb) and over 250
    wells with detectable perchlorate above 4 ppb. In addition Olin
    Corporation is also sampling over 300 domestic wells. Bottled water is
    being delivered to over 1,865 families and businesses in the area. The
    District is currently funding bottled water at 1,100 locations while
    Olin Corporation is providing bottled water to an estimated 765
    locations.
        The full extent of perchlorate contamination is not expected to be
    known until the end of 2003 at which time an interim cleanup plans may
    have been developed. There are currently no firm estimates to how long
    it will take to develop a long-term solution for cleanup of
    groundwater.
        Fiscal Year 2004 Funding Recommendation.--It is requested that the
    Congressional Committee support an appropriation add-on of $1 million,
    to determine the best long-term solution and to initiate clean up
    efforts.

                                     ______

     Prepared Statement of the Metropolitan Water Reclamation District of
                                Greater Chicago

                          TUNNEL AND RESERVOIR PROJECT

        I am Terrence J. O'Brien, President of the Metropolitan Water
    Reclamation District of Greater Chicago, and on behalf of the Water
    Reclamation District, I want to thank the Subcommittee for this
    opportunity to present our priority for fiscal year 2004, and express
    our appreciation for your support of our requests over the years. The
    Metropolitan Water Reclamation District (District) is the sponsor for
    the federally approved combined sewer overflow (CSO) project, the
    Tunnel and Reservoir Plan (TARP), in Chicago, Illinois. Specifically,
    we are asking that $5 million be included to continue construction of
    this project in the Subcommittee's VA, HUD and Independent Agencies
    Appropriations Bill for fiscal year 2004. The following outlines the
    project and the need for the requested funding.

                                  INTRODUCTION

        The District was established in 1889 and has the responsibility for
    sewage treatment, and is also the lead agency in providing sponsorship
    for flood control and stormwater management in Cook County, Illinois.
    In fact, the District was established in response to an epidemic of
    waterborne diseases caused by drinking polluted Lake Michigan water,
    which killed 90,000 people in 1885. By 1900, the District had reversed
    the flows of the Chicago and Calumet Rivers to carry combined sewage
    away from Lake Michigan, the area's main water supply. The District has
    been involved with major engineering feats since its inception.
        In an effort to meet the water quality goals of the Clean Water
    Act, to prevent backflows into Lake Michigan, and to provide an outlet
    for floodwaters, the District designed the innovative TARP. The TARP
    tunnels, which were judged by the Environmental Protection Agency (EPA)
    on two occasions as the most cost-effective plan available to meet the
    enforceable provisions of the Clean Water Act, are a combined sewer
    overflow elimination system. The TARP reservoirs, also under
    construction, will provide flood control relief to hundreds of
    thousands of residents and businesses in the Chicagoland area.

                           TUNNEL AND RESERVOIR PLAN

        The TARP is an intricate system of drop shafts, tunnels and pumping
    stations which will capture combined sewer overflows from a service
    area of 375 square miles. Chicago will remove three times the amount of
    CSO pollution as Boston's projected removal--for approximately the same
    cost. The remaining Calumet tunnel system will provide 4.1 million
    pounds of biological oxygen demand (BOD) removal versus Boston's one
    million pounds of BOD removal per year. In fact, Chicago's CSO
    pollution problems are worse than the combination of Boston, New York,
    and San Francisco's pollution problems. The Chicago Metropolitan Area's
    annual BOD loading from CSO pollution is 43 million pounds per year.
    This contrasts with the combination of Boston, New York and San
    Francisco's combined annual BOD loading of 35 million pounds.
        A good portion of the remainder of the TARP system is to be built
    in the southeast side of Chicago and the southern suburbs (Calumet
    system), a low-income, highly neglected and highly polluted area. This
    community suffers from tremendous land, air and water pollution--
    literally a dumping ground for multi-media pollution ranging from
    chemical waste to serious water pollution.
        Due to the enormous risk to the community, the District as the
    local sponsor cannot afford to leave the citizens vulnerable.
    Therefore, it is imperative that this work must continue. Because we
    have awarded construction contracts in the area, the climate is
    favorable for continuing with this work at this time, producing
    significant cost savings. What we are seeking, then, is funding to
    advance federal work.
        We have a proven and cost-effective program. In fact, we have
    estimated that TARP's cost is about a quarter of the cost of separating
    the area's existing combined sewer systems into separate sewage and
    stormwater systems. Upon reanalysis, the EPA has consistently found the
    TARP program to be the most cost-effective solution that will reduce
    the impacts by the greatest degree to meet the enforceable requirements
    of the Clean Water Act, with the least amount of dollars. The project,
    while relating most specifically to the 52 tributary municipalities in
    northeastern Illinois, is also beneficial to our downstream communities
    such as Joliet and Peoria. These benefits occur because of the capture
    of wastewater in the tunnels during the storm periods and by treatment
    of the discharge before being released into the waterways.
        Since its inception, TARP has not only abated flooding and
    pollution in the Chicagoland area, but has helped to preserve the
    integrity of Lake Michigan. In the years prior to TARP, a major storm
    in the area would cause local sewers and interceptors to surcharge
    resulting in CSO spills into the Chicagoland waterways and during major
    storms into Lake Michigan, the source of drinking water for the region.
    Since these waterways have a limited capacity, major storms have caused
    them to reach dangerously high levels resulting in massive sewer
    backups into basements and causing multi-million dollar damage to
    property.
        Since implementation of TARP, 734 billion gallons of CSOs have been
    captured by TARP, that otherwise would have reached waterways. Area
    waterways are once again abundant with many species of aquatic life and
    the riverfront has been reclaimed as a natural resource for recreation
    and development. Closure of Lake Michigan beaches due to pollution has
    become a rarity. After the completion of both phases of TARP, 99
    percent of the CSO pollution will be eliminated. The elimination of
    CSOs will reduce the quantity of discretionary dilution water needed
    for flushing of Chicago's waterway system, making it available as
    drinking water to communities in Cook, DuPage, Lake, and Will counties,
    which have been on a waiting list. Specifically, since 1977, these
    counties received an additional 162 million gallons of Lake Michigan
    water per day, partially as a result of the reduction in the District's
    discretionary diversion in 1980. Additional allotments of Lake Michigan
    water will be made to these communities, as more water becomes
    available from sources like discretionary diversion.
        With new allocations of lake water, more than 20 communities that
    previously did not get to share lake water are in the process of
    building, or have already built, water mains to accommodate their new
    source of drinking water. The new source of drinking water will be a
    substitute for the poorer quality well water previously used by these
    communities. Partly due to TARP, it is estimated by IDOT that between
    1981 and 2020, 283 million gallons per day of Lake Michigan water would
    be added to domestic consumption. This translates into approximately 2
    million additional people that would be able to enjoy Lake Michigan
    water. This new source of water supply will not only benefit its
    immediate receivers but will also result in an economic stimulus to the
    entire Chicagoland area, by providing a reliable source of good quality
    water supply.
        TARP was designed to give the Chicago metropolitan area the optimal
    environmental protection that could possibly be provided. More
    importantly, no other project was found to be as cost-effective. In
    addition, the beneficial use of the project is being enhanced by the
    addition of the flood control reservoirs now being designed and
    constructed by the Corps of Engineers, which will be connected to the
    tunnels for additional capture and storage of combined sewage during
    flood events. We believe TARP stands as a tribute to our nation's Clean
    Water goals and one that is being accomplished within the most
    economical constraints.

                                REQUESTED ACTION

        The $5 million we are seeking in fiscal year 2004 funding in the
    Subcommittee's bill will help keep the local sponsor whole for the
    advance construction it plans to accomplish on the Little Calumet Leg
    for the Calumet System of the congressionally-authorized TARP project.
    While the TARP project was originally authorized at 75 percent federal
    funding, the District as local sponsor has been contributing at least
    50 percent of the total project cost. We greatly appreciate the
    Subcommittee's endorsement of our request over the years to advance the
    construction of this work. This fiscal year 2004 work will go a long
    way to address serious water quality, stormwater and safety problems.
    It will have a tremendously beneficial impact on a community which
    suffers from water pollution and significant flooding problems. The EPA
    has approved the facilities plan for the overall TARP project and
    design has been completed. The EPA has identified this particular
    segment of work as the next critical section of the plan to be
    constructed based on significant water quality benefits.
        Once on-line, the Little Calumet Leg of the Calumet System will
    capture 1.5 billion gallons of CSOs per year and will protect 14.9
    square miles of the City of Chicago from raw sewage backup and
    flooding.
        We urgently request that this funding be included in the
    Subcommittee's bill for the construction of the Calumet System of the
    TARP project. We thank you in advance for your consideration of our
    request.
                                     ______

           Prepared Statement of the Calaveras County Water District

        Calaveras County is located on the eastside of the Central Valley
    of California and encompasses approximately 1,028 square miles of land,
    stretching across more than 50 miles of valleys, foothills, and
    mountain peaks. The topography ranges from approximately 200 feet above
    mean sea level (ft-msl) in the northwestern region of the County, to a
    peak height of 8,170 ft-msl near Alpine County.
        The communities of West Point, Wilseyville and Bummerville are
    located in the northeastern portion of the county in the sparsely
    populated higher foothills. The topography ranges from approximately
    2,500 feet in Wilseyville to 3,200 feet in Bummerville. Mild summers
    and cold winters characterize the region, with temperatures ranging
    from the low 20's to the middle 80's. Snow accounts for a large
    percentage of the precipitation in the watersheds supplying the study
    area.
        In the fall of 1946, the Calaveras County Water District (CCWD) was
    organized under the laws of the State of California as a public agency
    for the purpose of developing and administering the water resources in
    Calaveras County. Therefore, CCWD is a political subdivision of the
    State of California and is governed by the California Constitution and
    the California Government and Water Codes. CCWD is not a part of or
    under the control of the County of Calaveras. CCWD was formed to
    preserve and develop water resources and to provide water and sewer
    service to the citizens of Calaveras County.
        Under state law, CCWD, through its Board of Directors, has general
    powers over the use of water within its boundaries. These powers
    include but are not limited to: the right of eminent domain, authority
    to acquire, control, distribute, store, spread, sink, treat, purify,
    reclaim, process and salvage any water for beneficial use, to provide
    sewer service, to sell treated or untreated water, to acquire or
    construct hydroelectric facilities and sell the power and energy
    produced to public agencies or public utilities engaged in the
    distribution of power, to contract with the United States, other
    political subdivisions, public utilities, or other persons, and subject
    to the California State Constitution, levy taxes and improvements.
        CCWD provides water service to over 10,000 connections throughout
    Calaveras County. CCWD operates five independent treatment facilities
    with a combined treatment capacity of over 13 million gallons per day.
    The water facilities include approximately 290 total miles of
    transmission and distribution pipelines ranging from 4 to 20 inches in
    diameter and 31 storage tanks with capacity of over 14.5 million
    gallons. CCWD provides water and/or sewer service to 65 percent of the
    residents of Calaveras County.

             WEST POINT, WILSEYVILLE AND BUMMERVILLE SYSTEM HISTORY

        CCVD owns and operates the domestic water system in the rural
    communities of West Point, Wilseyville, Bummerville and part of Sandy
    Gulch. This water system is located in the District's West Point
    Service area, located in the Mokelumne River Watershed, Calaveras
    County, Central California, in the foothills of the Sierra Nevada
    Mountains. Population growth in the service area has generally averaged
    less than one percent annually over the last 15 years. This low growth
    rate may be attributed in part to the reduction in industry within the
    service area. Presently, the economic base of the community is
    principally related to retirement living with some of the population
    commuting to larger nearby communities for employment opportunities.
        The communities of West Point and Wilseyville developed over the
    last 150 years, initially as mining companies and later as logging
    communities. Originally, these areas were served water through a series
    of mining ditches associated with these activities. The decline of
    these industries, which were critical to the area economy, brought
    about CCWD's purchase of the water and conveyance systems.
        The West Point water system was purchased in 1954 by CCWD from the
    West Point Ditch Company. The predecessor to Sierra Pacific Logging
    Company owned and built the Wilseyville system and sold it to CCWD in
    1964. The Bummerville system was connected to the West Point system in
    1959. Between 1964 and 1974 the system was brought into compliance with
    state and federal regulations for operation by CCWD.
        The existing water system serves 520 connections, a total
    population of 1,298, including a local Native American Reservation. The
    current facilities include two raw water reservoirs (Wilson Lake and
    the Regulating Reservoir); two raw water diversion facilities (Bear
    Creek gravity and Middle Fork Mokelumne pumped); one water treatment
    plant (West Point); two treated water pump stations (Bummerville and
    Upper Wilseyville); and the associated distribution and storage
    systems.
        The two main sources for water supply for the West Point water
    treatment plant are the Bear Creek diversion, which is a gravity
    source, and the pumped source from the Mokelumne River. Both raw
    sources are generally of good quality and are very easily treated to
    potable standards. Water rights for the West Point/Wilseyville water
    system are derived from existing water rights agreements for diversion
    of flow from Bear Creek and from the Middle Fork of the Mokelumne
    River. These agreements provide for adequate water to serve the present
    water customers, as well as future full buildout of the adjacent areas.
    In the case of drought, the Bear Creek supply can be supplemented with
    water from the Middle Fork of the Mokelumne River. In addition, the
    District maintains the 50 acre-foot Regulating Reservoir (also referred
    to as the West Point Reservoir), which may be called upon to supplement
    and augment supply during dry periods.
        The West Point/Wilseyville water system and related facilities were
    primarily constructed before 1960 and many system components are either
    inadequate or in need of replacement. Several changes have been made to
    the systems in response to more stringent regulations, which allowed
    the abandonment of the Wilseyville plant. In addition, the West Point
    water treatment plant and pump stations have been upgraded and an
    intertie has been installed between West Point and Wilseyville.
        Distribution system deficiencies are evident when evaluated against
    current water industry standards for publicly owned and operated
    systems. The 1996 Master Plan was completed to address these
    deficiencies. Specific recommendations were presented to bring the
    system into compliance with current and anticipated water industry
    standards. In 1998, a Master Plan Supplement provided additional
    analysis for improvements to the West Point Wilseyville, and
    Bummerville systems.
        West Point, Wilseyville and Bummerville have infrastructure
    requirements that far exceed their financial capabilities. However, the
    infrastructure is crucial to the health, safety, and existence of these
    small, rural communities. In addition, rising water and sewer rates
    have been necessary due to new regulatory requirements and these rising
    rates have been difficult for the community to face. The closing of
    lumber mills in Calaveras and neighboring Amador County (over the last
    ten years) has also made a difficult situation worse for those
    dependent on that industry for employment, especially in this current
    climate of high unemployment rates. In an effort to begin addressing
    these needs at the state and local level, a $500,000 feasibility study
    state grant and a $1.9 million Bear Creek state construction grant have
    recently been provided. In order to build on these state and local
    efforts and to meet the critical infrastructure needs and the needs of
    the community, we respectfully request assistance for the following
    project components:

           WATER SUPPLY INFRASTRUCTURE REHABILITATION PROJECT REQUEST

        The small rural communities of West Point, Wilseyville, and
    Bummerville are faced with unaffordable water system replacement costs
    for aging supply and distribution systems. Water pressure and fire flow
    are inadequate in much of the service area. The raw water storage and
    transmission facilities are in need of immediate repairs.
        Seven projects have been identified to provide the West Point water
    system with a safer and more reliable level of service. These projects
    include:
      --West Point Clearwell Replacement.--The upgraded West Point Water
            Treatment Plant is operational; however, the current clearwell
            will not provide sufficient contact time for compliance with
            disinfection regulations. This project will demolish and
            replace the old 500,000 gallon tank with a new 600,000 gallon
            steel tank.
      --Bummerville Treated Water Storage Tank Replacement.--Replacement of
            small redwood tanks with a single 150,000 gallon steel tank.
      --Wilson Lake Embankment.--Assessment and reconstruction of a primary
            storage reservoir that is no longer functional.
      --West Point-Wilseyville Distribution System.--Replace the aging
            ``backbone'' transmission and distribution piping and provide a
            second intertie between West Point and Wilseyville service
            areas to improve fire flow and system reliability.
      --Bummerville Treated Water Distribution System--Replacement of old,
            leaking, small-diameter piping to improve flow and fire
            protection.
      --Mokelumne River Intake and Pump Station.--Relocation of the pump
            station out of the flood plain, replacement of the raw water
            line to the treatment plant, and modification of the existing
            river diversion structure.
      --Regulating Reservoir.--Remediation projects to improve water
            quality problems at a primary storage reservoir.
        This funding we are requesting here is necessary to assist in the
    upgrade, reconstruction, and repair of water system infrastructure
    critical for basic water pressure and fire flow. The District,
    therefore, respectfully requests the Committee's support for a
    $2,500,000 appropriation in fiscal year 2004 under the Environmental
    Protection Agency's State and Tribal Grant Assistance Program, so that
    efforts to initiate construction in the much-needed West Point Drinking
    Water System can proceed.

                                     ______

       Prepared Statement of the Washington Suburban Sanitary Commission

        The Washington Suburban Sanitary Commission (Commission or WSSC),
    established in 1918, is a public, bi-county agency providing water and
    wastewater services to Montgomery and Prince George's Counties in the
    Washington Capital region. WSSC is governed by six Commissioners with
    equal representation from each county and has developed its systems to
    the point where it is a national leader in the water and sewerage
    industry. The Commission is the among the ten largest water and
    wastewater utilities in the country, serving approximately 1.6 million
    people in a 1,000 square mile service area. In addition, the Commission
    provides services to 26 key federal installations and facilities in the
    Washington area, including such important military facilities as
    Andrews Air Force Base; the National Imagery and Mapping Agency; the
    National Naval Medical Center; the Naval Surface Warfare Center; the
    U.S. Army Research Center. Numerous other state and local security-
    related installations and offices also receive service from the
    Commission.
        Water treatment and distribution facilities operated by the
    Commission include three water supply reservoirs; two water filtration
    plants; fourteen water pumping stations; 5,100 miles of water mains;
    and 54 treated-water storage facilities. Water production at Commission
    facilities is 166 million gallons per day. In terms of wastewater
    facilities, the Commission operates six wastewater treatment plants; 41
    wastewater pumping stations; and approximately 4,900 miles of sewer
    mains.

                     WASTEWATER DISINFECTION SYSTEM UPGRADE

        Since September 11, 2001, the Commission has worked with security
    consultants to aggressively assess the vulnerability of our key
    facilities to terrorist attack. As a result of that effort, the
    Commission has identified and implemented numerous enhancements to our
    security programs to prevent and/or provide early detection of
    physical, chemical or biological attack on our systems. Aspects of
    these improvements range from monitoring programs to detect chemical or
    biological irregularities to the physical ``hardening'' of several of
    our key facilities.
        These vulnerability assessments revealed a particular concern
    regarding the storage and use of gaseous chlorine at WSSC wastewater
    treatment facilities. The high risk from using and storing chlorine can
    be eliminated by switching to a system using ultraviolet disinfection
    methods. In addition to eliminating the need to use and store a
    hazardous chemical, switching to ultraviolet disinfection also has
    other environmental benefits because it does not form other potentially
    harmful byproducts in effluent.
        Due to the immediate and critical importance of reducing this high
    risk factor, WSSC has budgeted funds in its fiscal year 2004 budget to
    begin this switchover. In order to implement the switch from chlorine
    disinfection to UV disinfection, $2 million in federal EPA STAG funds
    is needed immediately so that this critical regional safety issue can
    be accomplished as quickly as possible. Three wastewater treatment
    plants: the Western Branch; Seneca; and Piscataway must all be switched
    over to UV disinfection systems. The total cost for this switchover is
    $13.5 million. WSSC is working closely with the Montgomery and Prince
    George's County governments and the Maryland Department of the
    Environment in order to carry out these projects.

                    PATUXENT WATER TREATMENT PLANT EXPANSION

        The vulnerability assessments also indicated that the Potomac River
    watershed, due to its size, could be vulnerable to tampering and
    contamination. Thus, additional water supply capacity for the region is
    needed in the event that the Potomac River cannot be used as a source
    of water. Thus in order to ensure adequate water supply to the region,
    other sources of water must be secured or expanded. WSSC believes that
    the Patuxent River can be used in emergency situations to help supply
    water to the region.
        The Patuxent River Water Treatment Plant is unique from several
    perspectives. The Plant's watershed is rather small and is easier to
    protect than the Potomac River watershed. Its raw water is also of
    better general quality than the Potomac River. Finally, it is located
    at a higher elevation than the Potomac and needs far less energy to
    provide water to WSSC. As such, this plant is easily and cost-
    effectively amenable to reliability enhancements for both quantity and
    quality aspects. The Commission seeks to increase the capacity of the
    Patuxent River plant to nominal 72 million gallons per day (MGD)/120
    MGD emergency capacity. This additional capacity will allow WSSC to
    continue services during any emergency that might adversely affect the
    operation of the Potomac Plant.
        This project was previously identified and has been broken into two
    phases. Phase I will rehabilitate this plant to provide 40 MGD of
    capacity. Phase I will be completed shortly and is being implemented
    with local resources. Phase II would see the plant expanded to 72 MGD.
    Specifically, the updgrade and expansion will consist of the addition
    of a sixth treatment train (flocculators, sedimentation basins,
    disinfectant contact chamber, and filters); a new fourth raw water main
    from the T. Howard Duckett Dam and Rocky Gorge Pumping Station to the
    Plant; and the modification and expansion of the Rocky Gorge Raw Water
    Pumping Station.
        The estimated cost of Phase II of this regional security measure is
    $33 million, and WSSC requests $2 million in fiscal year 2004 to begin
    implementing these needed improvements. In order to carry out this
    project, WSSC is working closely with the Montgomery County government;
    the Prince George's County government; the Maryland National Capital
    Park and Planning Commission, the Maryland Department of the
    Environment, and the Interstate Commission on the Potomac River Basin.
                                     ______

            Prepared Statement of the American Astronomical Society

        The astronomical research enterprise in the United States is
    supported in large part by the National Science Foundation (NSF) and
    the National Aeronautics and Space Administration (NASA). Federal
    support of astronomy research has been the foundation of our success in
    the last five decades, enabling fundamental discoveries about the
    nature of universe and its history, including the existence of dark
    matter and dark energy, and the discoveries of planets around other
    stars. The U.S. research community leads the world in astronomical
    discovery, and federal support of basic research is key to maintaining
    the preeminent role of American astronomical research.
        Beyond the excitement of new discoveries in astronomy, basic
    research in the physical sciences in the United States contributes to
    the national economy and helps to maintain our robust economic
    competitiveness in the world market. Astronomy attracts students to
    careers science and engineering and motivates students to achieve a
    high level of competence in technical fields. Federal funding for
    missions and telescopes provides the infrastructure for astronomical
    research. The importance of federal funding extends beyond support for
    missions and facilities, however; it is federal support for research
    that allows us to produce our basic and most important products: new
    discoveries and scientifically literate and trained personnel.
        Each decade, the astronomical community reaches consensus on the
    most important large, medium, and small research projects for the next
    ten years, ranked in a priority manner based on their scientific
    benefit. This consensus, called the Decadal Survey of Astronomy and
    Astrophysics, is created under the auspices of the National Research
    Council as a National Academy Report. The most recent report,
    ``Astronomy and Astrophysics in the New Millennium'' represents the
    fifth such decadal survey. During the subsequent decade, the NRC
    Committee on Astronomy and Astrophysics reviews the progress of the
    ranked projects and suggests any necessary augmentations or changes.
    Decadal Surveys are now also available for two related fields,
    Planetary Science and Solar Physics.
        The value of the Decadal Surveys to policy makers is quite clear.
    Usually, the projects listed require federal support. With a list of
    projects, prioritized by the scientific community itself, appropriators
    may confidently allocate funds, knowing that they are supporting the
    best possible science.
        The American Astronomical Society, which represents nearly 6,500
    professional astronomers, almost all of whom live and work in the
    United States, has endorsed these reports and I have included the text
    of those endorsements below. The complete reports are available in
    print and online (for free) from the National Academy Press
    (www.nap.edu).
        The Society thanks the members of the Senate VA-HUD-IA
    appropriations subcommittee for their support of basic science and
    urges the subcommittee to utilize the Decadal Survey Reports for
    Astronomy and Astrophysics, for Planetary Science, and for Solar
    Physics in making funding decisions this year and throughout the
    decade.

          ENDORSEMENT OF THE DECADAL ASTRONOMY AND ASTROPHYSICS REPORT

    Adopted 7 January 2001, San Diego, CA
    Astronomy and Astrophysics in the New Millennium
        A report of the Astronomy and Astrophysics Survey Committee, Board
    on Physics and Astronomy, Space Studies Board, Commission on Physical
    Sciences, Mathematics and Applications, and National Research Council
        ``Whereas, the National Research Council has recently completed and
    published the report Astronomy and Astrophysics in the New Millennium
    and,
        Whereas, the report represents a consensus of the astronomy and
    astrophysics community as to the priorities for federal investment in
    astronomy and astrophysics research for the coming decade and,
        Whereas, the process by which the report was produced was carried
    out in a fully open manner and included many opportunities for input
    from the astronomy and astrophysics community as well as open public
    sessions in several locations and at meetings of the American
    Astronomical Society and,
        Whereas, the report will be presented to Congress as an important
    and useful document for establishing federal investment in astronomical
    and astrophysical research in the coming decade,
        The American Astronomical Society hereby endorses the report as
    presenting a valid and balanced set of priorities for the coming decade
    for investment in astronomy and astrophysical research.
        Further, the American Astronomical Society encourages its members,
    other astronomy, astrophysics and related researchers, astronomy and
    astrophysics enthusiasts, the public and especially members of Congress
    and the Administration to fully embrace the report and use it when
    making policy decisions regarding federal investment in astronomical
    and astrophysical research during the coming decade.''

     ENDORSEMENT OF THE NRC REPORT ``NEW FRONTIERS IN THE SOLAR SYSTEM: AN
                       INTEGRATED EXPLORATION STRATEGY''

    Adopted 30 September 2002
        The American Astronomical Society hereby endorses the National
    Research Council Report ``New Frontiers in the Solar System: An
    Integrated Exploration Strategy'' as a balanced set of priorities for
    Federal expenditure in solar system studies for the coming decade.
        This report was completed by the National Research Council after
    substantial input from the planetary sciences community with the
    support of the Division for Planetary Sciences of the American
    Astronomical Society. The report represents a community consensus as to
    the priorities for federal investment in solar system exploration for
    the period 2003-2013.
        The key overall recommendations include maintenance of NASA's
    Discovery program of low-cost missions, a Kuiper-Belt/Pluto medium
    class mission and the large-cost category Europa Geophysical Explorer.
    There are also a separate set of prioritized recommendations for the
    Mars Exploration Program.
        The survey endorses several ground-based facilities recommended by
    the recent Astronomy and Astrophysics decadal survey, including the
    Giant Segmented Mirror Telescope and the Large-Aperture Synoptic Survey
    Telescope with operating modes supportive of solar system studies. It
    also points out the important role planetary astronomy plays in support
    of NASA missions.
        The AAS encourages its members, other astronomy, astrophysics and
    related researchers, astronomy and astrophysics enthusiasts, the public
    and especially members of Congress and the Administration to fully
    embrace the report and use it when making policy decisions regarding
    federal investment in solar system exploration during the coming
    decade.

                                     ______

     Prepared Statement of the American Indian Higher Education Consortium

        This statement focuses on three areas: Department of Housing and
    Urban Development, National Science Foundation, and National
    Aeronautics and Space Administration.
        Mr. Chairman and Members of the Subcommittee, on behalf of this
    nation's 34 American Indian Tribal Colleges and Universities (TCUs),
    which comprise the American Indian Higher Education Consortium (AIHEC),
    thank you for the opportunity to express our views and requests for
    fiscal year 2004.

                              SUMMARY OF REQUESTS

    Department of Housing and Urban Development (HUD)
        Since fiscal year 2001, a modest TCU initiative has been funded
    within the Community Development Block Grant program. This competitive
    program supports efforts by the TCUs to assist their communities by
    addressing dire community-based facilities and infrastructure needs. We
    strongly urge the Subcommittee to support this program at a minimum $5
    million, an increase of $2 million over the President's fiscal year
    2004 budget request.

    National Science Foundation (NSF) Programs
        Tribal Colleges and Universities Program (TCUP).--Over the past few
    years, this program has provided important assistance to TCUs as they
    build their capacity to provide strong science, technology,
    engineering, and mathematics (STEM) teaching and learning programs for
    American Indians. In three years, 19 of the 32 eligible TCUs have begun
    participating in the program, along with seven Alaska Native and Native
    Hawaiian serving institutions. We request that Congress expand this
    vital program to $15 million, $5 million above the President's budget
    request, to help support funding of Alaska Native and Native Hawaiian
    serving institutions, which NSF includes in the TCU program and funds
    to a significant extent.

    Tribal College Linkages with K-12 Schools
        Rural Systemic Initiative (TC-RSI) and the Math Science Partnership
    Program (MSP).--In the mid-1990s, NSF established a program to assist
    TCUs and other rural higher education institutions in promoting
    systemic change in STEM education in rural K-12 schools. This program
    has proven to be remarkably successful, yet NSF plans to terminate the
    program as current grants expire. In fiscal year 2002, the President
    established a similar, but significantly expanded new program, the Math
    Science Partnership program. In the first year, none of the 24 programs
    funded included minority serving institutions (MSIs) or specifically
    targeted American Indian children. We strongly urge the Subcommittee to
    support the ESR division budget and to establish American Indian and
    Rural Schools programs within the MSP program or to include report
    language reaffirming Congressional support for the TC-RSI program
    beyond the current grant period.
        Advanced Networking with Minority Serving Institutions.--In fiscal
    year 1999, NSF funded a project to help MSIs develop the campus
    infrastructure and national connections necessary to participate in the
    Internet-based Information Age. The project involves a historic and
    successful collaboration between three minority communities and
    mainstream institutions, which had little or no prior experience
    working together. AN-MSI has developed a successful model for providing
    support and technical assistance and is working with tribal colleges on
    collaborative education and research projects. AN-MSI's funding expires
    at the end of fiscal year 2003, and if new funding is not secured, the
    project's work will cease. We request that the Subcommittee include
    funding within NSF's CISE directorate to continue and expand the AN-MSI
    program at $3 million in fiscal year 2004.

    National Aeronautics and Space Administration (NASA)
        In fiscal year 2001, the tribal colleges established a formal
    cooperative agreement with NASA for a project designed to increase
    access, participation, and success of American Indians in high quality
    K-16 mathematics, science, engineering, and technology programs. The
    agreement includes a TCU liaison between AIHEC and NASA to oversee
    implementation of the project and provides modest program enrichment
    grants to the colleges. However, as NASA implements a major
    reorganization of its education programs, it is unclear whether and how
    it will support partnerships with the tribal colleges and universities.
    We urge Congress to include report language to encourage NASA to extend
    its successful cooperative agreement on behalf of TCUs; ensure that the
    modest existing initiatives for TCUs are not eliminated in the
    reorganization of NASA's education programs; and encourage NASA faculty
    exchange programs and IPA contracts with TCUs to provide needed on-site
    expertise and partnerships. Additionally, we ask for report language to
    encourage the development of new initiatives to address the technology
    infrastructure needs at the TCUs.

                                   BACKGROUND

        As a group, Tribal Colleges and Universities are this nation's
    youngest institutions of higher education. The first tribal college--
    Navajo Community College (now Dine College) in Tsaile, Arizona--was
    established in 1968. Over the next few years, a succession of tribal
    colleges followed, primarily in the Northern Plains. In 1972, the first
    six tribally controlled colleges established AIHEC to provide a support
    network for member institutions. Today, AIHEC represents 34 TCUs
    located in 12 states. Collectively, these institutions serve 30,000
    full- and part-time American Indian students from more than 250
    federally recognized tribes. Yet in comparison with other institutions,
    TCUs benefit from only a handful of dedicated programs and receive only
    a very small portion of overall Federal higher education funding.
        The vast majority of TCUs is accredited by independent, regional
    accreditation agencies and like all institutions of higher education,
    must undergo stringent performance reviews on a periodic basis. In
    addition to associate, bachelor, and master's degree programs, TCUs
    provide much needed high school completion (GED), basic remediation,
    job training, adult education, and vitally needed community-based
    continuing education programs. Tribal colleges function as community
    centers; libraries; tribal archives; career and business centers;
    economic development centers; public meeting places; and child care
    centers. Each TCU is committed to improving the lives of students
    through higher education and to moving American Indians toward self-
    sufficiency.
        TCUs provide access to higher education for American Indians and
    others living in some of this nation's most rural and economically
    depressed areas. These institutions, chartered by their respective
    tribal governments, combine traditional teachings with conventional
    postsecondary courses and curricula. They have developed innovative
    means to address the needs of tribal populations and are successful in
    overcoming long-standing barriers to higher education for American
    Indians. Over the past three decades, these vital institutions have
    come to represent the most significant development in the history of
    American Indian education, providing access to under-represented
    students and promoting achievement among students who may otherwise
    never have known postsecondary education success.
        Despite their remarkable accomplishments, TCUs are the most poorly
    funded institutions of higher education in the country. Chronically
    inadequate operations funding remains the most significant barrier to
    their success. Funding for basic institutional operations of 24
    reservation-based TCUs is provided through Title I of the Tribally
    Controlled College or University Assistance Act (Public Law 95-471).
    Funding under the Act was first appropriated in 1981 and is still, over
    20 years later, less than two-thirds of its authorized level of $6,000
    per full-time Indian student (ISC). Despite a nearly $2 million
    increase in basic operations funding in fiscal year 2003, Title I
    colleges are receiving $3,908 per full-time equivalent Indian student,
    an $8 decrease per ISC from the fiscal year 2002 funding level, due to
    enrollment increases and an unclear method for allocating operations
    funding. While mainstream institutions have a foundation of stable
    state tax support, TCUs must rely on annual appropriations from the
    Federal government for their basic institutional operating funds.
    Because TCUs are located on Federal trust territories, states have no
    obligation to fund them even for the non-Indian state-resident students
    who account for approximately 20 percent of TCU enrollments. Yet, if
    these same students attended any other public institution in the state,
    the state would provide basic operating funds to the institution.
        As a result of more than 200 years of Federal Indian policy--
    including policies of termination, assimilation and relocation--many
    reservation residents live in abject poverty comparable to that found
    in Third World nations. Through the efforts of TCUs, American Indian
    communities receive services they need to reestablish themselves as
    responsible, productive, and self-reliant.

                                 JUSTIFICATIONS

    Department of Housing and Urban Development
        We are pleased that the President's fiscal year 2004 budget request
    includes $3 million for HUD-TCU program funded under the Community
    Development Block Grant program. This competitive grants program
    enables tribal colleges to expand their roles and effectiveness in
    addressing development and revitalization needs in their respective
    communities. No academic or student support programs are funded through
    this program; rather, funding is available only for community-based
    outreach and service programs at TCUs. Over the past few years, a
    handful of tribal colleges have been able to build or enhance child
    care centers, social service offices; help rehabilitate tribal housing;
    establish and expand small business development; and enhance vitally-
    needed library services.
        The number of TCUs is continuing to grow. Two additional colleges
    have joined our ranks, Saginaw Chippewa Tribal College, in Mt.
    Pleasant, Michigan and Tohono O'odham Community College in Sells,
    Arizona. We strongly urge Congress to continue to fund this program at
    a minimum of $3 million, included in the President's budget request, to
    help ensure that much needed community services and programs are
    expanded and continued.

    National Science Foundation Programs
        Tribal Colleges and Universities Technology Initiative.--In fiscal
    year 2001, NSF launched a new TCU initiative designed to enhance the
    quality of science, technology, engineering and mathematics (STEM)
    instruction and outreach programs, with an emphasis on the leveraged
    use of information technologies at TCUs. The program enables colleges
    to implement comprehensive institutional approaches to strengthen
    teaching and learning in ways that improve access, retention, and
    completion of STEM programs, particularly those that have a strong
    technological foundation. Through this program, colleges gain support
    their efforts to bridge the ``digital divide'' and prepare students for
    careers in information technology, science, mathematics, and
    engineering fields. The overall goals of the program are to improve
    access, retention, and graduation rates among American Indian students
    and to increase the number of American Indians in the information
    technology, science, mathematics and engineering workforce. In three
    years, 19 of the 32 eligible TCUs are participating in the program,
    along with seven Alaska Native and Native Hawaiian serving
    institutions. We request that Congress expand this vital program to $15
    million, $5 million above the President's budget request. This level
    more accurately reflects the true needs of the eligible pool, which NSF
    significantly expanded when it included Alaska Native and Native
    Hawaiian serving institutions, in the TCU program.
        Tribal College Linkages with K-12 Schools: Rural Systemic
    Initiative (TC-RSI) and the Math Science Partnership Program (MSP).--In
    the mid-1990s, NSF established a program to assist tribal colleges and
    other rural institutions of higher education in promoting systemic,
    standards-based change in STEM education in rural K-12 schools. Since
    1995, this program has proven to be remarkably successful in terms of
    standards-based testing, professional development of teachers, and
    enhanced learning strategies. Fourteen TCUs currently participate in
    the program. Despite its success, NSF has decided to terminate the
    program as current grants expire.
        In fiscal year 2002, the President established a similar, but
    significantly expanded new program, the Math Science Partnership
    program (MSP). MSP seeks to strengthen K-12 science and mathematics
    education through partnerships involving K-12 schools, institutions of
    higher education and community stakeholders. In the first year, NSF
    funded 24 programs. None included minority serving institutions or
    specifically targeted American Indian children. We strongly urge the
    Subcommittee to support the ESR division budget and to establish
    American Indian and Rural Schools programs within the Math Science
    Partnership program or to include report language reaffirming
    Congressional support for the TC-RSI program beyond the current grant
    period.
        Advanced Networking with Minority Serving Institutions (AN-MSI).--
    Four years ago, NSF funded a project within its Computer and
    Information Science and Engineering (CISE) Directorate to help
    minority-serving institutions (MSIs) develop the campus infrastructure
    and national connections necessary to participate in the emerging
    Internet-based Information Age. The project involves an historic and
    successful collaboration between three minority communities and
    mainstream institutions, which had little or no prior experience
    working together. AN-MSI has developed a successful model for providing
    TCUs and other MSIs with technical assistance, education, and training
    programs to improve campus-based information and communications systems
    and strengthen IT staff. While much has been accomplished, TCUs are at
    the beginning stages of technology use, particularly for collaborative
    education and research. AN-MSI's funding expires at the end of fiscal
    year 2003, and if new funding is not secured, the project's work will
    cease. We request that the Subcommittee include funding within NSF's
    CISE Directorate to continue and expand the AN-MSI program at $3
    million in fiscal year 2004.

    National Aeronautics and Space Administration (NASA)
        In fiscal year 2001, TCUs established a formal cooperative
    agreement with NASA for a project designed to increase access,
    participation, and success of American Indians in high quality K-16
    mathematics, science, engineering, and technology programs. The
    agreement includes a TCU liaison between AIHEC and NASA to oversee
    implementation of the project and provides modest program enrichment
    grants to the colleges. However, as NASA implements a major
    reorganization of its education programs, it is unclear whether and how
    it will support partnerships with tribal colleges. We urge Congress to
    include report language to encourage NASA to extend its successful
    cooperative agreement on behalf of TCUs; ensure that the modest
    existing initiatives for TCUs are not eliminated in the reorganization
    of NASA's education programs; and encourage NASA faculty exchange
    programs and IPA contracts with TCUs to provide needed on-site
    expertise and partnerships. Additionally, we ask for report language to
    encourage the development of new initiatives to address the technology
    infrastructure needs at TCUs.

                                   CONCLUSION

        In light of the justifications presented in this statement and the
    overwhelming evidence of inequitable access to technology in rural
    America, we respectfully request Congress increase funding for Tribal
    College and University programs to help bring economic self-sufficiency
    to Indian Country. Fulfillment of AIHEC's fiscal year 2004 request will
    strengthen the missions of TCUs and the enormous, positive impact they
    have on their respective communities. Your support will help ensure
    that they are able to educate and prepare thousands of American Indians
    for the workforce of the 21st Century. TCUs have proven to be very
    responsible with the Federal support they have received over the past
    three decades. It is important that the Federal government now
    capitalize on its investment. We respectfully request your continued
    support of tribal colleges and full consideration of our fiscal year
    2004 appropriations requests.

                                     ______

          Prepared Statement of the American Society for Microbiology

        The American Society for Microbiology (ASM), the largest single
    life science organization in the world, comprising more than 40,000
    members, appreciates the opportunity to provide written testimony on
    the fiscal year fiscal year 2004 appropriation for the National Science
    Foundation (NSF).
        The ASM represents scientists who work in academic, industrial,
    medical and governmental institutions worldwide. Microbiologists are
    involved in research to improve human health and the environment. The
    ASM's mission is to enhance the science of microbiology, to gain a
    better understanding of basic life processes, and to promote the
    application of this knowledge for improved health, and for economic and
    environmental well being.
        The following testimony will outline the ASM's funding
    recommendations for the NSF for fiscal year 2004.

                          NATIONAL SCIENCE FOUNDATION

        The ASM endorses the level of funding approved by Congress in the
    NSF Authorization Act of 2002 (Public Law 107-368) to provide $6.39
    billion, a 20 percent increase, for the NSF in fiscal year 2004. This
    would raise the NSF budget by $1.1 billion from its current $5.3
    billion level of funding for fiscal year 2003. The ASM strongly
    supports Congress's bipartisan commitment to strengthen scientific
    research and education. The NSF budget is one of the nation's most
    important investment opportunities because it funds research in new
    frontiers of scientific inquiry and contributes to creating a highly
    skilled, competitive workforce in science and engineering. Although NSF
    accounts for only 4 percent of federal R&D spending, it supports nearly
    50 percent of the non-medical basic research at our colleges and
    universities. A 20 percent increase will fund additional excellent
    rated research projects in pursuit of important discoveries and
    innovations. In addition, increasing NSF's budget beyond the
    Administration's proposed $5.5 billion budget will allow the NSF to
    continue making increases in the size and duration of NSF grants,
    graduate student stipends and investments in priority areas, such as
    Biocomplexity in the Environment and Nanoscale Science and Engineering.
    Increases in these areas will ensure high productivity among
    researchers and will improve the attractiveness and viability of the
    science and engineering fields to future students. Achieving these
    goals requires public investment that reflects the importance of
    science and engineering to the social and economic foundation of the
    nation.
        The NSF's mission is to promote and advance scientific,
    mathematical, and engineering research and education in the United
    States. It is a key agency for supporting research that uses genomic
    information in new and creative ways through interagency partnerships
    that advance all the sciences. The NSF has launched several grants that
    seek to bring multidisciplinary approaches to ecology, human health,
    and genomic sequencing. These efforts are supported by promising
    partnerships with the National Institutes of Health (NIH), the U.S.
    Department of Agriculture (USDA), the U.S. Geological Survey (USGS),
    and the Department of Energy (DOE). Other NSF initiatives will result
    in increased understanding of environmental and human microbial
    interactions, which have particular relevance to global environmental
    change as well as infectious diseases and represent a new frontier in
    scientific research.
        Continued research concerned with the impact of microorganisms on
    the well being of humans, animals, plants and the environment is
    critical. The ASM supports NSF's continued focus on microbial biology
    and the diversity of microorganisms. Microorganisms play key roles in
    processing our wastes, recycling the nutrients that support our
    agriculture, forests and fisheries, yield new pharmaceuticals, provide
    key tools for biotechnology, affect the quality of our food and water,
    control some pests, and cause disease. The NSF recognizes the important
    role microorganisms play in our well-being and funds programs that
    advance our understanding of the microbial world. This effort has led
    to new programs such as the Microbial Observatories program, which
    focuses on the discovery of important but uncultured microorganisms. It
    also provided the foundation for NSF's participation in the interagency
    effort, ``The Microbe Project.''

                        BIOCOMPLEXITY IN THE ENVIRONMENT

        The ASM supports the proposed $100 million budget for fiscal year
    2004 for Biocomplexity in the Environment (BE) research. BE is an
    integrative program that utilizes all of the NSF science directorates
    to address some of the worlds most pressing scientific and societal
    challenges, such as, climate change and the complicated question of
    long-term environmental security. This intradirectorate initiative
    seeks to better understand the complexity of interactions between
    local, regional and global ecosystems that is inextricably linked to
    human well being. Advances in molecular biology, ecology, the
    geosciences, mathematics and the computational sciences have made it
    feasible to begin to understand these complex interactions.
    Microorganisms are key components of the soil, water, plant, and animal
    environments and therefore are dominant factors in understanding these
    interactions. Furthermore, only a small percentage of the microbial
    species on earth are known, leaving their functional role unknown.
    These unknown organisms are the largest untapped source of biodiversity
    and a potential source of new pharmaceuticals, enzymes, biocontrol
    agents, and tools for nanotechnologies.
        The ASM also endorses the program's emphasis on microbial genomic
    sequencing as a major new tool in furthering our understanding of the
    microbial world. In 2004, BE will focus on a number of priorities that
    will enhance our fundamental understanding of microorganisms important
    in nature and to humans (e.g., Microbial Genome Sequencing (MGS)
    activity). The MGS activity will focus on microorganisms chosen for
    their fundamental biological interest through the peer-reviewed process
    and for their importance in agriculture and forestry, relevance to the
    safety and quality of the food and water supply, and as potential
    bioterrorism agents. The ASM is also pleased with the Tree of Life
    Project. The NSF expects this program to capitalize on new and powerful
    computational and genomic technologies, which biologists' will then use
    to construct a universal genealogy for all 1.7 million named species of
    living organisms on Earth. Genome sequencing will provide the basis of
    efforts to better manage these organisms. The ASM is equally pleased to
    see joint efforts with NIH, USDA, NSF, USGS, USDA, and the National
    Aeronautics and Space Administration (NASA) continue in the Ecology of
    Infectious Disease activity. Research will focus on ecological
    determinants of disease transmission, possible health effects from
    environmental change, and improved tracking of outbreaks, which should
    be useful in following the West Nile virus. BE's research (Coupled
    Biogeochemical Cycles activity) in the biological, geochemical,
    geological, and physical processes is promoting new multidisciplinary
    approaches to traditional biological and geochemical science and should
    be continued.
        ASM applauds NSF's continued leadership in expanding
    multidisciplinary research opportunities and urges Congress to fully
    support BE.

                       NANOSCALE SCIENCE AND ENGINEERING

        The NSF is the lead agency in the National Nanotechnology
    Initiative, which allows scientific disciplines an opportunity to focus
    information technology, biology, engineering, physics, chemistry, and
    material and computer sciences into a unified research effort to make
    discoveries in materials and manufacturing, medicine, environment and
    energy and national security. The ASM supports the Administration's
    proposed level of funding of $249 billion for this program. The
    Biological Directorate's (BIO) portion of the fiscal year 2004
    initiative is $5 million, which represents a $2 million increase from
    fiscal year 2003.
        The ASM supports the Biosystems at the Nanoscale program ($21
    million). This program will study biologically based systems that have
    potential applications in biocompatible nanostructured materials, new
    devices for research in genomics, proteomics and cell biology, and
    nanoscale sensory systems. Nanoscale research could be particularly
    beneficial to understanding cellular communication and detection of
    environmentally important signals.
        The NSF is a pioneer among federal agencies involved with
    nanotechnology research and the ASM supports additional interagency
    cooperation between the NSF and the Department of Energy.

                    NATIONAL ECOLOGICAL OBSERVATORY NETWORK

        The National Ecological Observatory Network (NEON) is a
    continental-scale initiative composed of 10 distinct geographically
    distributed, networked observatories that will serve as a platform for
    integrated research across the sciences. NEON will allow for the first
    time, teams of scientists to monitor the environment as it changes,
    providing new insights into regional and national ecological health and
    sensitivity. NEON will require new technologies, approaches and
    methodologies and will provide an opportunity for scientists to break
    new ground on innovative equipment and instrumentation that is so
    crucial to move science forward. NEON sites will also provide
    opportunities for other agency scientists to work in partnership with
    NSF grantees on multidisciplinary projects that will enhance all of the
    sciences.
        The Administration has proposed $12 million for the initiative in
    fiscal year 2004. The ASM is encouraged by the Administration's
    support; however, the ASM recommends that the Subcommittee build upon
    the President's request and fund NEON at $20 million for fiscal year
    2004. This level of funding would allow the construction of one
    complete observatory and a more rapid realization of NEON.
        The ASM recommends that Congress give high priority to increasing
    the NSF's funding as it considers its fiscal year 2004 appropriation.
    Many of today's scientific achievements leading to the development of
    biotechnology, antifreeze proteins, improved crops and plant-based
    products, and DNA fingerprinting have their roots in basic research
    supported by the NSF. The many future health and environmental
    challenges the United States will face can only be overcome through the
    potential of basic research to generate crucial new scientific
    knowledge and advancements that lead to new technologies for the
    future.
                                     ______

        The following testimony will outline the ASM's funding
    recommendations for EPA's research and development programs for fiscal
    year 2004.

                        ENVIRONMENTAL PROTECTION AGENCY

        The EPA's scientific research and development programs are critical
    to researchers in the fields of applied and environmental microbiology.
    Research on environmental microbiology is essential for improving air,
    water, and soil quality; for assuring the safety of potable water
    supplies; for protecting public water systems from biological threats;
    for providing safe means for waste disposal; and for cleanups of
    environmental contaminants. The ASM believes that sound public policy
    for environmental protection depends on adequately funded programs of
    intramural and extramural research based on a system of peer review to
    assure that support is awarded to research programs having both quality
    and relevance. The EPA has begun its own peer review system based upon
    the National Science Foundation model. Critical peer review of both the
    intramural and extramural research programs of the EPA are necessary
    for ensuring the quality and scientific validity of studies that are
    funded.

                         SAFE WATER AND WATER RESEARCH

        The ASM strongly recommends increasing the Administration's request
    of $49.2 million for Safe Drinking Water Research. The ASM also
    believes the total funding level for Clean and Safe Water programs at
    $2.9 billion is very inadequate and should be restored to fiscal year
    2003 levels. The ASM is very concerned that the Administration
    continues to cut the budgets of EPA's water programs that help to
    ensure the quality of the nation's water system. The ASM requests that
    Congress restore critical funding across EPA's water programs that
    ensure the Clean Water Act and the Safe Drinking Water Act are properly
    maintained. Maintaining a strong infrastructure for water quality is
    the foundation of EPA's Area-Wide Optimization Program (AWOP), which is
    designed to reduce consumers' exposure to microbial contaminants by
    improving the performance of filtering technology. This program is
    particularly important in maintaining the viability of drinking water
    systems ability to comply with drinking water regulations, especially
    the arsenic and microbial, disinfectant and disinfection by-products
    rules.
        The ASM applauds the EPA's continuing support of program
    initiatives such as drinking water safety standards (e.g., Contaminant
    Candidate List (CCL)), cost-effective water treatment technologies
    focusing on microbes, improved water safety guidelines and pollution
    indicators, and a federal database of beach advisories and closings
    across the United States. It is essential that EPA's water quality
    programs continue to focus on reducing the uncertainties surrounding
    the exposure to biological and chemical contaminants by improving
    analytical methods and risk assessments. ASM encourage these and other
    efforts to improve drinking water implementation programs that
    strengthen coordination between local, state, and federal authorities.

                   SCIENCE TO ACHIEVE RESULTS PROGRAM (STAR)

        The ASM is concerned that the Administration is funding the STAR
    program at the fiscal year 2000 level of $100 million. The flat funding
    of this program over the past four fiscal cycles has lead to a
    reduction in the program's ability to attract new researchers.
    Therefore, the ASM believes the program would be better served if
    funded at $110 million for fiscal year 2004. The STAR program is an
    important mission-driven, extramural research initiative. This program
    funds important environmental research proposals from scientists
    outside the federal government and is a valuable resource for the EPA
    in finding solutions to many complex environmental problems. Grants
    made under the STAR program last from two to three years and provide
    about $150,000 of scientific support per grant year. The STAR program
    funds projects in specific focal areas including global warming,
    drinking water, ecology of harmful algal blooms, water and watersheds,
    ecological indicators, and pollution prevention (e.g., mercury), which
    have significant microbiological components. For instance, in 1999,
    STAR program grantees developed a model to better understand mercury's
    terrestrial and aquatic fate and transformation processes that
    influence environmental exposure and toxicity. This study is
    particularly important in understanding ecosystem responses to changes
    in mercury inputs and its affect on water quality, wildlife, and
    humans.
        The ASM is pleased to see that the EPA continues to expand the
    bounds of STAR research by developing multi-year plans (e.g., for
    Particulate Matter) that will relate STAR and intramural research
    products to the Agency's strategic goals for different program areas.
    These plans will help provide a framework for the Agency to consider,
    and to explain the balance of R&D performers in individual research
    areas. The ASM also recommends that 20 percent of the STAR budget
    remain open for exploring broader issues not covered by targeted RFA's.
    This mechanism captures the creativity of the scientific community to
    foresee EPA relevant needs and solutions.

                   GRADUATE ENVIRONMENTAL FELLOWSHIP PROGRAM

        The EPA's Graduate STAR Environmental Fellowship Program has been
    an outstanding success in attracting some of the best young talent to
    environmental research. Examples of research conducted in the STAR
    program include new methods of classifying biologically impaired
    watersheds and the human health effects of particulate matter. This
    type of research is generally unique to the EPA and is integral to its
    role as steward of the environment. Unfortunately, the Administration
    is cutting the program funding in half ($4.9 million) in its fiscal
    year 2004 budget. Therefore, the ASM highly recommends that the
    Subcommittee allocate the necessary funds ($10 million) to keep the
    STAR fellowship program competitive for the nation's best students.
        The ASM believes the Fellowship program is one of the many
    initiatives the federal government must fully support to ensure that
    the nation is prepared to answer the complex scientific questions of
    the future. Both the public and private sectors will benefit from a
    steady stream of well-trained environmental specialists. The proposed
    elimination of the program will hinder further research in such areas
    as bioremediation, global warming, and water safety. The ASM also
    shares the concern raised by the EPA's Science Advisory Board (SAB)
    that without the Fellowship program, the EPA may be unable to replace
    many of the EPA scientists nearing retirement with top-level
    scientists. The ASM is also concerned that the quality and regard for
    EPA science will suffer in the short and long-term if the program is
    abolished. The EPA would not only lose valuable graduate research, but
    the partnerships developed between industry environmental labs and the
    EPA.
        During this year's appropriations process, the ASM urges Congress
    to consider these needs and provide the necessary incremental funding.
    The ASM appreciates the opportunity to comment and would be pleased to
    provide additional information.
                                     ______

        Prepared Statement of the Northwest Indian Fisheries Commission

        Mr. Chairman, and Honorable Members of the Committee, I am Billy
    Frank, Jr., Chairman of the Northwest Indian Fisheries Commission
    (NWIFC). On behalf of all the tribes in the State of Washington I would
    like to thank you for the opportunity to provide testimony concerning
    the Environmental Protection Agency's (EPA) fiscal year 2004
    appropriations.
        We are specifically requesting that you identify $700,000 within
    EPA's 104(b)(3) program for the tribes in Washington State, through the
    Northwest Indian Fisheries Commission, for the purpose of maintaining
    the existing and successful Coordinated Tribal Water Quality Program
    (CTWQP). The purpose of our request is to continue implementation of
    this inter-governmental mechanism for twenty-six participating tribes
    and tribal organizations in the State of Washington for fiscal year
    2004. We thank you for your support this past fiscal year when the
    Committee provided us $630,000 for our needs. This program, has
    provided a forum for continuous and meaningful communication between
    tribal, state and federal agencies for more than a decade. Strong
    congressional support for implementation of this tribal initiative
    which began in 1990, and is still present today.
        In recent years Congress has been very responsive to tribal
    environmental protection issues through unprecedented increases in the
    Environmental Protection Agency's General Assistance Program (GAP) for
    tribes. Paradoxically, during this same time, this important tribal/EPA
    water initiative is losing funding. The urgency of this request is a
    result of significant erosion of base level funding for the CTWQP
    potentially jeopardizing the long-term investment of federal and tribal
    government's within this efficient and effective water resources
    protection and management program.
        The intent of this testimony and funding request is to maintain
    this important and successful tribal initiative by:
      --Providing implementation funding to further tribal objectives
            relative to water resource management and protection of the
            twenty-six participating tribes; and,
      --Maintaining centralized program coordination at the Northwest
            Indian Fisheries Commission.
        Support for this model tribal initiative is timely, as it
    complements and supports federal initiatives aimed at maintaining
    healthy waterways. Further, as an existing program that centers around
    watershed-based water quality protection by building partnerships, and
    fostering inter-jurisdictional cooperation, it maximizes and leverages
    the efficiency of available resource dollars. Additionally, it is a
    critical component in the protection and restoration of our northwest
    salmon and shellfish.
        Justification for this funding request is based on:
      --Legal rights and obligations of the federal government to protect
            the treaty-reserved rights of the tribes;
      --The United States' trust responsibility to protect the health and
            environment of the tribes on a government-to-government basis;
      --Cost effective use of a cooperative intergovernmental strategy to
            accomplish national clean water goals; and,
      --The minimization of conflict between multiple jurisdictions who
            manage water resources.
        To assist the Committee members, I would like to summarize
    background information relevant to our request.

                                   BACKGROUND

        The NWIFC request is made on behalf of our nineteen (19) member
    treaty fishing tribes, the Hoh, Chehalis, and Shoalwater Bay tribes in
    western Washington, and the Yakama Indian Nation, Colville
    Confederated, Spokane, and Kalispel Tribes in eastern Washington. The
    funding request is to continue implementing the model Coordinated
    Tribal Water Quality Program that began in 1990.
        The State of Washington has been blessed with bountiful rivers and
    streams. Five species of Pacific salmon and three species of anadromous
    trout use streams in the State of Washington during the fresh water
    stages of their life cycles. Historically, there were ample supplies of
    fish for ceremonial, subsistence, commercial and recreation purposes.
    Old growth conifer removal, riparian zone impacts, farming activities,
    and channelization of the streams has reduced the productive capacity
    of these streams to extremely low levels. Currently, there are Puget
    Sound salmon stocks listed under the Endangered Species Act.
        In 1979, the United States Supreme Court re-affirmed the treaty
    tribes right to catch half of the harvestable number of anadromous fish
    passing through tribal usual and accustomed areas. In 1980, the Federal
    District Court held that the United States and the State of Washington
    must not permit degradation of fish habitat which would diminish the
    treaty harvest right. This decision specifically included degradation
    by point and non-point pollution. The federal courts have recognized
    that protection of water quality and other attributes of fish habitat
    are necessary to secure the Constitutionally-protected rights of the
    tribes to harvest fish.
        The sovereign authorities of the Tribes and the legal principles
    enunciated in United States v. Washington and other federal court
    decisions support tribal involvement with both on and off-reservation
    environmental issues. The federal court decisions recognized the tribes
    as co-managers of the fish resource and water quality in our state. As
    co-managers in Washington, the tribes must have the resources to
    adequately participate in environmental protection programs.
        The EPA Indian policy (1984) of working with federally recognized
    tribes on a government-to-government basis concerns more than 375
    Indian tribes in the lower 48 states which control more than 52 million
    acres of land base. In our state, tribal reservations make up
    approximately six percent (6 percent) of the State of Washington. Our
    tribes have also retained usual and accustomed fishing grounds that
    include most of the State of Washington.
        The combined area of Indian reservations nationally is larger than
    all of New England, yet EPA now devotes only a tiny fraction of its
    personnel and funds to environmental protection for the tribes. This is
    clearly a discriminatory prioritization of federal funds. On a national
    level, tribal reservations represent three percent (3 percent) of the
    land base of this nation. Although the EPA has worked closely with the
    states to implement adequate environmental programs, little has been
    done, until recently, to accomplish the same for the tribal
    governments. Indian tribes are over two decades behind the states both
    in resources received from the EPA and in technical assistance provided
    by the EPA in developing tribal water program offices. A front end
    investment will promote cooperation and increased tribal involvement in
    environmental protection, as has been the case between the EPA and
    state governments for the past 20 years. The Coordinated Tribal Water
    Quality Program enables and fosters cooperative inter-jurisdictional
    partnerships.
        We recognize, support, and appreciate the successful efforts that
    have been made to improve EPA Indian Programs and tribal funding. Our
    request for additional funding is intended to stabilize existing
    program implementation activities. Clearly, a means must be found to
    support the long term funding of tribal programs that seek to protect
    tribal treaty rights, their waters, and their peoples, or, the efforts
    being made by EPA will not continue to be successful.

                               TRIBAL/STATE ROLES

        Beginning in 1990, the State of Washington has supported tribal
    involvement in environmental protection, both off and on-reservation.
    The state is committed to work with the tribes on a government-to-
    government basis as co-managers of the water resource in the
    implementation of this program. The federally recognized Indian tribes
    in our region have a long legacy of working cooperatively with the
    State of Washington. The intent to foster that kind of relationship was
    articulated in the Centennial Accord with Governor Gardner in 1989 and
    was re-affirmed with Governor Locke in the 1999 Leavenworh Agreement.
    The water quality protection efforts supported by EPA funding are part
    of sustaining that kind of inter-governmental cooperation.
        The Coordinated Tribal Water Quality Program, an EPA/Tribal
    partnership, has generated successful models of state/tribal inter-
    jurisdictional cooperation. Examples of these models are:
      --the Tribal Water Quality Standards Template, which encourages
            inter-governmental uniformity and coordination of water quality
            management;
      --the Clean Water Act Sec. 303(d) Cooperative Management Program,
            which provides a forum for state/tribal government-to-
            government relations throughout the CWA Sec. 303(d) listing and
            implementation process; and,
      --the Coordinated Tribal Data Management System for Water Quality,
            design to promote efficiency, accuracy and cooperation in
            utilizing water quality data.
        The tribes must be part of the solutions to prevent and control
    water pollution in the State of Washington. The tribes must participate
    in these activities to protect their governmental interests and treaty-
    protected fishing rights. In this time of existing and pending listings
    of salmon stocks under the Endangered Species Act, neither we, nor the
    resource, can afford to lose programs integral to our inter-
    governmental cooperative watershed program. The Coordinated Tribal
    Water Quality Program is part of protecting our nation's environmental
    heritage.

                                   CONCLUSION

        For thirteen years, Congress has recognized and supported the
    Coordinated Tribal Water Quality Program by appropriating funding to
    maintain its operation. Even with the increased EPA General Assistance
    Program tribal set aside, tribes in the State of Washington are in
    danger of losing this successful tribal water quality initiative. This
    model program demonstrates how tribes can develop environmental
    programs and work with EPA to realize its long-range objective of
    including tribal governments as partners in decision-making and program
    management of tribal lands and resources.
        We appreciate the difficulty Congress is facing in making decisions
    for this next fiscal year. In the case of the EPA, Congress and the
    Administration will probably direct their resources to address those
    areas of highest risk to human health, public safety, and the
    environment. Therefore, we want to reiterate that tribal reservations
    and protection of their treaty resources have not been adequately
    addressed for the past twenty years and thus represent the highest of
    risks to this nation.
        Sufficient and permanent funding is necessary to continue the
    tribal cooperative program. Certainty of funding is necessary for the
    tribes to hire permanent and professional staff to implement this
    program. Without an ongoing investment by Congress much of the good
    that has been accomplished to date will be lost.
        Please consider our request for $700,000 for the Washington State
    Tribal Water Quality Initiative. Once again, thank you for the
    opportunity to provide testimony. Thank you also for your support in
    developing a national model, which demonstrates the ability of tribal
    governments to address environmental protection priorities through
    cooperative watershed processes with state and local governments.
        Thanks to this Committee, we are making significant progress, and
    this water quality initiative is being supported at all levels. We hope
    you and the Committee will continue to look favorably on our request.

                                     ______

     Prepared Statement of the Quinault Housing Authority, Quinault Indian
                                  Reservation

        Thank you Chairman Walsh and other distinguished Members of this
    Subcommittee for accepting this written testimony. The Quinault Indian
    Nation and Quinault Housing Authority (QHA) Board of Commissioners
    appreciate this opportunity to present our housing priority requests,
    on the fiscal year 2004 Budget for the Department of Housing and Urban
    Development, Indian Housing, Office of Native American Programs, to
    this Subcommittee.
        I would also like to take this opportunity to express my sincere
    appreciation to the military personnel who are away from home and their
    loved ones. On behalf of my People, I pray that they will have a safe
    and expedient return to their families and to their Homeland.

                         NATIONAL INDIAN HOUSING NEEDS

        $1 Billion.--For Native American Housing Assistance and Self-
    Determination Act (NAHASDA)
        $150 Million.--For Community Development Block Grants (CDBG)
        $20 Billion.--For Indian Health Service Sanitation Facilities
    Construction
        $26 Million.--For USDA Indian Set-Aside for Utilities
        $35 Million.--For Supplemental Housing Efforts
        $4.8 Million.--For Technical Assistance to Indian Housing
    Authorities by the Native American Indian Housing Council

                           JUSTIFICATION OF REQUESTS

        For 32 years I have worked to improve living conditions on the
    Quinault Indian Reservation, located on the Olympic Peninsula, in
    Coastal Washington State. As an employee and Executive Director for the
    Quinault Housing Authority, I am disappointed, to say the least, with
    the President's budget proposal for Indian Housing for fiscal year
    2004.
        Today, we have the same concerns as other Americans about terrorist
    attacks, chemical warfare, and how Homeland Security will protect our
    Nation during this time of war. But, for American Indians and Alaskan
    Natives (AI/AN), our concerns are heightened during these times because
    of our basic human needs, which are often taken for granted by people
    who do not live in rural remote areas such as reservations. Shelter for
    our tribal members is a high priority for the Quinault Tribal
    Government and the Quinault Housing Authority.
        Many factors complicate and make costly the development and
    maintenance of affordable housing for AI/AN. Noted studies, reports and
    testimony on this subject have documented many of the obstacles and
    challenges Indian Housing Authorities (IHAS) are confronted with in
    just trying to provide housing to Indian people on reservations. While
    the list may be extensive, the challenges identified most frequently
    are (1) the remoteness of the reservations limit infrastructure and the
    availability of human resources; (2) land-use restrictions and the
    unfavorable land conditions on most reservations complicate the
    development and maintenance of low-income housing; and (3) the cost of
    the projects spiral upward because of the aforementioned challenges.
        While there will always be hurdles to scale over and barriers to
    remove, I find my job more benefiting than ever; not only to the people
    I serve, but to myself as well. And, the Native American Housing
    Assistance and Self-Determination Act of 1996 (NAHASDA) is largely
    responsible for this new attitude.
        The reauthorization of NAHASDA last fall opens the regulations up
    to review and revisions. The negotiated rulemaking committee will need
    the support of the Quinault Housing Authority, as well as the other
    IHAS, to improve upon how NAHASDA works for us all. Each area will have
    a representative and an alternate on the committee and it is our
    responsibility to maintain a line of communication with these
    representatives to know what is going on throughout the negotiated
    rulemaking process and to provide an advisory role to our area
    representatives.
        If Congress supports our requests for increased funding, on behalf
    of the Quinault Housing Authority, I would like to offer my support to
    the negotiated rulemaking committee to support the formula they design
    to distribute all new monies. I encourage my colleagues who operate
    Indian Housing Authorities to support this committee in their efforts
    to make NAHASDA an even better mechanism to improve housing on Indian
    land.

    Native American Housing Assistance and Self-Determination Act of 1996
            (NAHASDA)--$1 Billion
        The Indian Housing Block Grant line item has been flat-lined since
    1998 but tribal housing needs have continued to increase with births,
    marriages, extended life cycles of our Tribal Elders and tribal members
    returning to the reservations. Many reports indicate that Indian
    Housing is the worse in the United States, with an immediate need for
    200,000 homes. One may ask how and why, but it is quite simple: we have
    never received enough funding to eliminate the worse case conditions.
        NAHASDA allows Tribes to develop and utilize their grants to fit
    the needs of each Tribe. One thing we know is that we cannot develop
    homes without an infrastructure. The Quinault Housing Authority has
    been successful with NAHASDA. The flexibility of the Block Grant has
    allowed us to assist our Tribal Elders by providing them with a home in
    which they could age without the threat of eviction and homelessness.
    Tribal youth activities have been accessible and have offered our youth
    positive choices as alternatives to illegal drug and alcohol use. We
    have acquired homes that families have out-grown and, in some cases,
    where families have downsized and are no longer in need of the larger
    homes they once occupied, we have also intervened.
        The Quinault Housing Authority has been utilizing a USDA utilities
    grant along with NAHASDA grants to develop the water/sewer, water
    storage tank, power, telephone and streets for an eighty-unit (80)
    development (Phases I and II). We are nearing the completion of the
    USDA grant and we are moving forward and powering up the water/sewer
    treatment facilities. We can now begin the development of homes.

    Community Development Block Grant--$150 Million
        This is a valuable grant utilized by Tribes to assist them in the
    development of Community buildings, health clinics, youth facilities,
    economic development, and infrastructure. As we continue to strive to
    build healthy communities for our Tribal members we request an Indian
    Set-Aside at a minimum of $150 Million.

    Indian Health Service Sanitation Facilities Construction Funds--$20
            Million
        Presently, appropriation report language precludes Tribes from
    utilizing IHS Sanitation Facilities Construction funds for HUD-funded
    housing projects. With this restrictive language, Tribes are forced to
    utilize NAHASDA funds to develop infrastructure rather than houses.
    Removing the language will allow for Tribal flexibility for sanitation
    construction, but will place additional stress on limited funding. We
    support Health & Humans Services Secretary Tommy Thompson's request for
    an additional $20 Million to improve sanitation and infrastructure
    needs on Indian Reservations, with the removal of restrictive
    appropriations language.

    USDA Indian Set-Aside for Utilities--$26 Million
        This program is vital to Tribal Housing Infrastructure needs. While
    $13 Million is greatly appreciated, because of the cost of developing
    utilities on a remote Indian Reservation, this amount would assist
    little more that 13 Tribes. Increasing this amount to $26 million would
    allow for NAHASDA funds to build houses.
        The Quinault Housing Authority has developed the infrastructure for
    a forty-unit housing development, Phase I, with streets, electricity,
    telephone lines, water wells, water treatment, water storage tanks and
    a sewer treatment facility. We have invested $6 million dollars into
    this development. Engineering and construction estimates have projected
    that housing will cost $3.2 million. We will extend the development to
    include an additional forty (40) homes, Phase II, when funding is
    available.

    Bureau of Indian Affairs Housing Improvement Program--$35 Million
        The Quinault Housing Authority administers this program for the
    Quinault Indian Nation. Although the funding is minimal at $70,000
    annually, it is vital to our Elders. Each year we are able to
    rehabilitate two houses or construct one. This program allows for our
    Indian Elders to live their declining years in comfort. We request $35
    Million a year to supplement other housing efforts.

    Technical Assistance--$4.8 Million
        While the Quinault Housing Authority has not utilized the National
    American Indian Housing Council's technical assistance, we are aware of
    tribes who have. Most of these tribes are small and either lack
    experience or knowledge in construction, administration, or grant
    application preparation. Keep in mind the remoteness of many of these
    Tribes. In order for grant dollars to get to the people identified and
    most in need, and to get houses built, it is imperative that technical
    assistance be provided. The National American Housing Council has a
    vehicle in place to provide this expertise that is so desperately
    needed by so many tribes. We support NAIHC's request of $4.8 Million
    for fiscal year 2004.

    Performance Concerns and Performance Based-Budgeting
        HUD Assistant Secretary Michael Liu recently reported that 40
    percent of NAHASDA funds remain unspent. We request that HUD be
    required to provide an accurate accounting of IHBG funds and 1937
    Housing Act funds alleged to be in the pipeline because we feel this is
    an inaccurate estimation of the performance of NAHASDA.
        We also request that the A-133 Audit supplemental be expanded to
    accurately account for the performance of Indian Housing Block Grants.
    Presently Indian Housing Plans and Annual Performance Reports are NOT
    adequate to provide an accurate accounting of Tribal performance. Both
    of these documents are extremely time consuming and repetitive. HUD
    conducts their Audits, Reviews and Monitoring with the ``GOTCHA''
    mentality. The Seattle HUD Office of Native American Programs has four
    Certified Public Accountants (CPA's) on staff to conduct the reviews or
    audits. We have the Federal Government conducting Financial Audits in
    addition to the Independent Auditors; this is excessive. In some cases
    we have had the Inspector General's Office also conducting audits.
        Tribal Independent Financial Auditors are required to audit not
    only the financial records, but verify that Current Assisted Stock
    funding from the grant formula is being spent on the 1937 Housing Act
    units as required. They also test the financial expenditures against
    the Indian Housing Plans and verify the Annual Performance Reports'
    accuracy. Again, we feel that this is over zealous auditing and
    oversight.
        Our opinion is that HUD needs to provide some hands-on technical
    assistance to struggling Tribes, rather than having four CPA's come in
    afterwards to criticize what they could have prevented. An Architect or
    Engineer on staff would better serve Tribes. The CPA's would be better
    utilized providing technical assistance in bookkeeping and accounting
    focusing on those auditable areas for reporting.

                                   CONCLUSION

        We ask that you inquire into HUD's inaccurate accountability for
    the Indian Housing Block Grant funding and further investigate the
    Infrastructure funding for Tribes.
        Mr. Chairman, and Honorable Committee members, I thank you for this
    opportunity to be heard today. My thoughts and prayers are with you in
    the difficult days ahead.
        We appreciate and thank you for your hard work and attention to
    Indian Housing issues and concerns.

                                     ______

              Prepared Statement of the Fleet Reserve Association

        Mr. Chairman, members of the Subcommittee, the membership is again
    pleased that the Fleet Reserve Association (FRA) has been invited by
    the Subcommittee to present our legislative goals for the year 2004. On
    behalf of more than 134,000 shipmates, I extend gratitude for the
    concern, active interest and progress to date generated by the
    Committees in protecting, improving, and enhancing benefits that are
    richly deserved by our Nation's veterans.
        FRA was established in 1924 and its name is derived from the Navy's
    program for personnel transferring to the Fleet Reserve or Fleet Marine
    Reserve for the Marine Corps after 20 or more years of active duty but
    not 30 years to fully retire. During the required period of service in
    the Fleet Reserve, assigned personnel earn retainer pay and are subject
    to recall by the Secretary of the Navy.
        FRA is the oldest and largest professional military enlisted
    association exclusively serving and representing men and women of the
    three Sea Services. It continues to seek protection and equity for
    those who serve in or have retired from the United States Navy, Marine
    Corps, Coast Guard and those veterans requesting assistance. The
    Association has been active over the past 77 years in pursuing
    Congressional and the respective Administration's support for quality
    of life and veterans' programs for enlisted Sea Services personnel.

                           LEGISLATIVE GOALS IN BRIEF

        FRA's membership has an average age of 68 years, all veterans of as
    many as three wars, mostly retired from the Sea Services. Our members
    have tasked us with the following Legislative priorities and to work
    with Congress to obtain appropriate funding for each.
      --Expand Military Retiree Access to the VA Health Care System.
      --Explore possibilities for alternative Managed Health Care Programs
            in VA.
      --Expand Health Care Options for Retired Military Veterans under Age
            65.
      --Funding for the construction and leasing of additional nursing and
            long-term care facilities.
      --Amend Title 38 USC to authorize concurrent receipt of military
            retired pay and veterans' compensation.
      --Support statute requiring the repayment of separation pay if the
            service member reenlists in the Reserve component, subsequently
            is entitled to retired pay, or becomes entitled to VA
            compensation.
      --Support H.R. 1111 that amends the Uniformed Services Former Spouse
            Protection Act to deter state courts from dividing VA or DOD
            disability pay as property in divorce proceedings.
      --Enhance educational programs and provide voluntary open enrollment
            in the Montgomery GI Bill for all current active duty military
            personnel, including military personnel who never enrolled in
            VEAP or MGIB.

             DEPARTMENT OF VETERANS AFFAIRS FISCAL YEAR 2004 BUDGET

    Fiscal Year 2004 Budget
        FRA continues its quest for a realistic DVA budget that will
    provide adequate funding to care for all of the Nation's veterans,
    their families and survivors. Although the fiscal year 2004 budget has
    the largest percentage increase for any Government department, we
    believe that in real funds no substantial increase has been noted and
    that the increases are based on optimistic goals of collections and
    other monetary reimbursements that we hope can be met. FRA has listed
    the following veterans' programs it believes should be authorized and
    funded in full. The Association urges your consideration and adoption
    of these programs to assure America's veterans that they will be fully
    compensated for their sacrifices while in the uniform of the Armed
    Forces of the United States, and that their families and survivors will
    be cared for as prescribed in the mission of the Department of Veterans
    Affairs. Currently the Veterans Benefits Administration (VBA) part of
    the DVA budget is funded as mandatory spending. FRA concurs with and
    endorses the House Veterans Affairs Committee recommendation to convert
    the veterans health care account from discretionary to mandatory. This
    will ensure that the Veterans Healthcare Administration (VHA) has
    sufficient funding without the necessity for annual hearings.

                         VETERANS HEALTH ADMINISTRATION

    Suspension and Realignment of Veterans Categories
        In January, citing mounting deficits and difficulties of operating
    on funding based on Continuing Resolutions, Secretary Principi
    suspended enrollments in Priority 8 for the remainder of this year. We
    applaud the effort it took to make this decision to concentrate on the
    VA core values of providing care for Service Connected veterans,
    indigent and homeless veterans and those that need specialized services
    such as blind rehabilitation and prosthetic services. The Secretary
    promised that he will monitor the situation and if warranted may
    possibly re-open enrollment sooner. We hope that with adequate funding
    this suspension will be terminated in the near term.
        The VA's proposal of a $250 yearly enrollment fee for non-service
    connected Priority 7 and Priority 8 veterans is totally unacceptable.
    All veterans, regardless of their financial status should be afforded
    an opportunity to enroll in VA health care programs. We understand the
    need for re-imbursement of monies utilized in treatment of veterans,
    but believe it would make more sense for those veterans that are
    Medicare eligible, and choose to have their health care at VA
    facilities, be covered by subvention which is reimbursement of fees
    directly to the VA by the Department of Health and Human Services. This
    proposed new enrollment fee combined with new drug co-pay proposals for
    Priority 7 & 8 veterans would have the effect of driving away many
    veterans who just cannot afford the increased costs.
        A second initiative announced by the Secretary will be the
    establishment of a VA+Choice Medicare plan for Priority 8 veterans aged
    65 or older who are denied enrollment in the VA system. Although this
    is a good idea that will assist in providing medical coverage for
    veterans unable to qualify for VA healthcare, we question the ability
    of VA to provide adequate and accredited services for treatment within
    a 30 day Medicare-mandated period and not somehow shortchange many
    veterans who are waiting many months for appointments. We do not see
    any excess capacity for treatment in most VA facilities especially in
    areas where the majority of veterans live. At the press conference
    announcing the VA's fiscal year 2004 budget, the Assistant Deputy
    Secretary for Finance William H. Campbell was asked what would be done
    if capacity was insufficient or the required Medicare standards could
    not be met. He answered that the obvious response would be to contract
    out the necessary services. It would seem that any outsourcing of
    services would defeat the stated purpose of providing VA healthcare
    services to those veterans unable to join the VA health care system.
    FRA believes contracting out the necessary services would only anger
    and confuse many older veterans who would be torn between remaining in
    the VA system to continue on waiting lists or disenroll from the VA
    Health Care System and then enroll in the VA+Choice in order to gain
    access to health care in a more timely manner. A final consideration
    for this proposal is the state of all Medicare+Choice programs. There
    are problems with these programs and it is becoming more difficult for
    Medicare-eligible people to locate plans and doctors willing to accept
    new Medicare insured patients. FRA believes this could very well happen
    with a VA+Choice plan as well.
        Now that the war with Iraq has started, FRA notes with
    encouragement the letter from Senator Specter and Senator Graham which
    was sent to the Pentagon on February 14, 2003 requesting a formal
    report on the ``military's preparedness to protect forces in southwest
    Asia'' and a second letter from VA Secretary Principi on the same day
    which requested information on the current health of the deploying
    forces. Further this letter requested information on ``record-keeping
    of medical treatment during deployment; information-gathering
    mechanisms; and the Pentagon's preparedness to share data with the
    Department of Veterans Affairs''. We believe the proactive actions by
    the members of these two committees and Secretary Principi's foresight
    should help in resolving any healthcare issues from a possible conflict
    in the area and will hopefully prevent or at least mitigate any
    problems such as what happened with the so called Gulf War Syndrome. We
    trust that continued pressure from Congress will ensure the Pentagon
    maintains its improved record keeping and will share their information
    in a timely manner to aid the DVA in its mission.
        FRA understands the VHA is undergoing major changes and that one of
    its stated goals is to drastically reduce the waiting times for primary
    care. We hope that this goal includes dental care. In December FRA
    received a call from one of its members who lives in the Phoenix area.
    He is 100 percent service connected disabled and entitled to dental
    care which he desperately needs as one of his prescriptions has badly
    deteriorated his teeth. When he called to make an appointment he was
    told the earliest he could be seen was two years and three months. We
    hope this is not wide-spread throughout the VA system, if so, FRA
    believes that expanded recruiting efforts and increased pay levels for
    dentists as briefed to VSO's at the January meeting of the National
    Leadership Board will help ease the long waiting times for dental care.
    Nursing Homes, Long Term Care, and Other Health Care Programs
        Public Law 106-117, Section 101, The Veterans Millennium Health
    Care Act made great strides in providing long-term care for our
    veterans. However, this program is only authorized for a four-year
    period, and only for veterans who need care for a service-connected
    disability, and/or those with service-connected disability ratings of
    70 percent or more. This program should be extended, expanded and
    funded to include veterans with service-connected disability ratings of
    50 percent.
        World War II and Korean veterans are in their 60s and older, as are
    some Viet Nam veterans, and many require a greater level of long-term
    care. No one can argue that as veterans grow older, more and more of
    them will become dependent upon the VA to provide the necessary care in
    nursing homes, domiciles, state home facilities, and its underused
    hospital beds. The Nation can ill afford to wait for out-year funds
    before it expands nursing or long-term care.
        FRA disagrees with the methodology used in collecting funds for the
    Millennium Act and transferring that money to the Treasury. VA's
    rationale for this is to allow more discretionary VA spending under the
    current caps set in the Balanced Budget Act. The Association views this
    a slight of hand rather than a reliable business practice and firmly
    believes any money collected from veterans for veterans' health care
    should stay within the VHA.

    Tobacco-related Illnesses
        In 1998, Congress changed the law prohibiting service-connection
    for disabilities related to smoking. Many veterans began using tobacco
    during their military service. It was a way of life and information
    detailing the health risks associated with tobacco use and nicotine
    addiction was nonexistent. In earlier years there were many who
    believed the Armed Services facilitated smoking by including cigarettes
    in meal rations, and cigarettes were sold at discounted prices in
    military exchanges. FRA recommends that Congress revisit and repeal its
    1998 decision, and provide the appropriate funds.

    Medical and Prosthetic Research
        Dollar for dollar, VA is widely recognized for its effective
    research program. FRA continues to support adequate funding for medical
    research and for the needs of the disabled veteran. The value of both
    programs within the veterans' community cannot be overstated.

                        VETERANS BENEFITS ADMINISTRATION

    Separation Pays
        Under current law, service members released from active duty who
    fail to qualify for veterans' disability payments, and are not accepted
    by the National Guard or Reserve, never have to repay any portion of
    separation pay. If, however, qualified for either, it's time for pay-
    back. FRA has difficulty understanding why the individual willing to
    further serve the Nation in uniform, or is awarded service-connected
    disability compensation, should have to repay the Federal government
    for that privilege.
        FRA is opposed to the repayment requirement. The Association
    recommends the repeal or the necessary technical language revision to
    amend the applicable provisions in Chapters 51 and 53, 38 USC, to
    terminate the requirement to repay the subject benefits. (Also requires
    an amendment to 1704(h)(2), 10 USC.)

    Court-Ordered Division of Veterans Compensation
        The intent of service-connected disability payments is to
    financially assist a veteran whose disability may restrict his or her
    physical or mental capacity to earn a greater income from employment.
    FRA believes this payment is exclusively that of the veteran and should
    not be a concern in the states' Civil Courts. If a Civil Court finds
    the veteran must contribute financially to the support of his or her
    family, let the court set the amount allowing the veteran to choose the
    method of contribution. FRA has no problem with child support payments
    coming from any source. However VA disability should be exempt from
    garnishment for alimony. If the veteran chooses to make payments from
    the VA compensation award, then so be it. The Federal government should
    not be involved in enforcing collections ordered by the states. Let the
    states bear the costs of their own decisions. FRA recommends the
    adoption of stronger language offsetting the provisions in 42 USC, now
    permitting Federal enforcement of state court-ordered divisions of
    veterans' compensation payments.

    Montgomery GI Bill (GI Bill)
        The GI Bill is one of the major enticements for enlisting in the
    United States Armed Forces. FRA believes that continued improvements to
    the GI Bill are necessary in order to continuously attract new recruits
    per Congressionally mandated recruitment levels each year.
        The Association is grateful that the 107th Congress passed enhanced
    MGIB benefits. We are also very encouraged and heartily endorse the
    House Veterans Affairs Committee recommendation to increase the MGIB
    payment to $1,200 effective October 1, 2004. FRA believes Congress
    should increase MGIB benefits annually based on a current average cost
    of a four-year state run college education.
        In the past, would be participants in the MGIB were not permitted
    to enroll because they never enrolled in the Veterans Educational
    Assistance Program (VEAP). During the VEAP era, that program was
    considered to be insufficient in providing adequate funding for a
    college education. Therefore, current active duty military members who
    have never enrolled in VEAP or MGIB should be given an opportunity to
    participate. It is somewhat puzzling to know that an individual may
    enlist to enroll in the MGIB, but cannot enroll if he or she reenlists.
    The question is, WHY NOT?
        Meanwhile the Association continues to subscribe to the belief once
    offered by the Treasury Department, that veterans who take advantage of
    their GI bill will eventually return more money to the U.S. Treasury
    than was spent by the Federal government for their education.

    Disability Compensation Claims Processing
        FRA believes VA's efforts in decreasing the backlog of initial
    disability claims are commendable and are continuing at a very good
    rate.
        However there appears to be an impediment at the Board of Veterans
    Appeals (BVA) that is growing daily. In February 2002, the BVA started
    a process that allows them to be responsible for gathering all
    available information to assist their efforts in processing veterans'
    claims and appeals. Currently there are over 9,000 cases in various
    stages of development. Since last year they have only cleared a little
    over 600 cases. The 26 employees doing this work are overwhelmed.
    During a recent visit to the BVA, a member of the FRA staff was told
    there are no plans in the immediate future to expand the workforce
    dealing with these claims. It appears that strides made in initial
    claims processing may be negated by this current and growing backlog of
    cases on appeal. FRA urges the VBA to expeditiously expand the
    workforce dealing these cases.

                        NATIONAL CEMETERY ADMINISTRATION

    Cemetery Systems
        The National Cemetery Administration (NCA) has undergone many
    changes since its inception in 1862. Currently, the administration
    maintains almost 2.5 million gravesites at 124 national cemeteries in
    39 states, the District of Columbia and Puerto Rico.
        One quarter of the nation's 26 million veterans alive today is over
    the age of 65. Rapidly aging veteran populations coupled with the death
    rate of World War I and World War II veterans create resource
    challenges within the NCA. It was estimated that the number of deaths
    in 2002 were over 680,000 veterans, and by 2006 that number will
    increase to 687,000 annually, or an average of 1,900 funerals a day.
    During this time period, the interment rate will continue to rise
    thereby placing even greater strain on NCA's workforce and equipment.
        FRA is grateful to Congress for its increased funding for new
    cemetery sites in Atlanta, Detroit, Southern Florida, Oklahoma City,
    Pittsburgh and Sacramento. The NCA is doing much to meet resource
    challenges and the demand for burial spaces for aging veterans. With
    additional resources, the NCA will hopefully be able to meet the
    demand. FRA urges increased funding, structured so the NCA has
    exclusive use for the purchase of land, preparation, construction and
    operation of new cemeteries, the maintenance of existing cemeteries,
    and the expansion of grants to States to construct and operate their
    own cemeteries.

                                   CONCLUSION

        Mr. Chairman. In closing, allow me to again express the sincere
    appreciation of the Association's membership for all that you, the
    Veterans Affairs Committees, have done for our Nation's veterans over
    these many years.
        FRA is grateful to address its recommendation for funding of the
    Department of Veterans affairs. Granted, not all veterans' issues are
    cited in this statement; however, the Subcommittees do have the
    Association's support for the improvement or enhancement of any
    veterans programs not addressed herein.

                                     ______

       Prepared Statement of the University Corporation for Atmospheric
                                Research (UCAR)

        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 testimony for the record of the U.S. Senate Committee on
    Appropriations, Subcommittee on VA, HUD and Independent Agencies. 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
    addition to its member universities, UCAR has formal relationships with
    approximately 100 additional undergraduate and graduate schools
    including historically black and minority-serving institutions, and 40
    international universities and laboratories. UCAR is supported by the
    National Science Foundation (NSF) and other federal agencies including
    the National Aeronautics and Space Administration (NASA).

                       NATIONAL SCIENCE FOUNDATION (NSF)

        The science community was encouraged last year when Congress
    passed, and the President signed, the National Science Foundation
    Authorization Act of 2002 authorizing the doubling of NSF's budget over
    the next several years. Doubling the NSF budget would allow for the
    long overdue enhancement of the research directorates, enable funding
    of several critical large facility projects that have already been
    approved by the National Science Board, and strengthen NSF's K-12
    education projects including those targeting populations of students
    who are underrepresented in this nation's scientific endeavors. While
    last year's support from Congress and the White House looked promising,
    the NSF fiscal year 2004 Request recommends $5.48 billion overall, a
    flat budget at best when compared to fiscal year 2003 final funding
    plus inflation. I urge the Committee to appropriate for NSF a budget of
    $6.39 billion (a 19 percent increase over the fiscal year 2003 final
    appropriation), as authorized by Congress, in order to bring this
    country's physical sciences and engineering programs into parity with
    those of the life sciences.

    NSF Research and Related Activities (R&RA)
        The peer-reviewed work supported by the directorates and programs
    of NSF's Research and Related Activities represent a major portion of
    this nation's scientific research achievement and technological
    progress. The fiscal year 2004 request for RR&A is $4.1 billion, a
    completely inadequate 0.6 percent increase over the fiscal year 2003
    final budget. I urge the Committee to appropriate for Research and
    Related Activities an amount commensurate with the doubling of the NSF
    budget as authorized by Congress.
        Geosciences (GEO) Directorate.--This NSF Directorate is the
    principal source of federal funding for university-based research in
    the geosciences. The GEO section of the fiscal year 2004 NSF Request
    states that, ``Breakthroughs in observing, modeling, and understanding
    complex Earth systems are coming just at the time when society is in
    critical need of sound scientific advice on how to mitigate or adapt to
    changes in the habitability of the planet. The geosciences stand poised
    to make tremendous contributions to improve the quality of life by
    providing useful information to decision makers about the key planetary
    processes, their complex interactions, and, where possible, their
    future implications.'' This tremendous potential cannot be achieved
    with diminished resources as suggested by the fiscal year 2004 request
    of $687.9 million, a 0.19 percent decrease when compared with the
    fiscal year 2003 final appropriation. I urge the Committee to
    appropriate for the Geosciences Directorate an amount commensurate with
    the doubling of the NSF budget as authorized by Congress.
        Atmospheric Sciences (ATM).--Within the GEO Directorate, the
    Division of Atmospheric Sciences supports research that contributes new
    understanding of the behavior of the Earth's atmosphere and its
    interactions with the sun in addition to supporting the operation and
    maintenance of large, complex facilities required for such research.
    ATM programs are of direct importance to the physical safety of our
    citizens, our economic health, and global issues of national security
    relevance, such as severe weather, climate change, the security of our
    communications infrastructure, and the environmental health of the
    planet. I urge the Committee to appropriate for the Atmospheric
    Sciences within the Geosciences Directorate an amount commensurate with
    the doubling of the NSF budget as authorized by Congress.
        National Center for Atmospheric Research (NCAR).--Funded within
    ATM, the world-class National Center for Atmospheric Research supports
    the country's entire atmospheric and related sciences community through
    observational and computer facilities, instrumented research aircraft,
    and an extensive visiting scientist program. The work of NCAR is
    critical to our understanding of weather phenomena, space weather,
    climate change, the chemical composition and behavior of the Earth's
    atmosphere, and the societal impacts of environmental change. In
    addition, NCAR's research products are applied to create technologies
    that mitigate the impacts of hazardous weather on air and surface
    transportation and that provide support for the prediction and control
    of wildland fire. I urge the Committee to appropriate for the National
    Center for Atmospheric Research an amount commensurate with the
    doubling of the NSF budget as authorized by Congress.

    Major Research Equipment and Facilities Construction (MREFC) Programs
        Support for unique national facilities, as provided through NSF's
    MREFC account, is necessary to advance U.S. capabilities required for
    world-class research. While requested fiscal year 2004 funding exceeds
    that of the fiscal year 2003 final by 35 percent, this amount will
    still not allow the tremendous progress that this country is capable of
    making in developing MREFC projects that have already been approved by
    the National Science Board and that could serve this nation well. I
    urge the Committee to appropriate for the Major Research Equipment and
    Facilities Construction (MREFC) Programs, an amount commensurate with
    the doubling of the NSF budget as authorized by Congress.
        HIAPER.--When the Budget Request was prepared, the fiscal year 2003
    final budget for NSF had not been completed. Since HIAPER development
    funding was completed in the fiscal year 2003 Omnibus Bill, HIAPER,
    funded in the fiscal year 2004 Request at $25.5 million, does not need
    to be included in the final budget. This gives the Committee a
    tremendous opportunity to apply this $25.5 million to another project
    in the extensive list of those approved by the National Science Board.
    On behalf of the atmospheric sciences community, I want to thank the
    Committee for the crucial role it played in seeing that funding for
    HIAPER, the nation's newest high-altitude research aircraft, was
    appropriated over the past several years.
        Earthscope.--This multi-purpose geophysical instrument array will
    allow scientists to make major advances in our knowledge and
    understanding of the structure and dynamics of the North American
    continent. The initial Earthscope activity, deployment of high-
    capability seismometers throughout the United States, will improve our
    resolution of the subsurface structure, lead to advances in
    understanding fault conditions and the rupture processes of
    earthquakes, and make contributions to the atmospheric sciences. I urge
    the Committee to support the fiscal year 2004 request of $45.0 million
    for Earthscope.

    Education and Human Resources (EHR)
        Nothing is more important for the future of our nation than the
    education of the next generation of leaders. I applaud the EHR request
    for increased stipends to $30,000 annually to attract our best
    graduates for research and teaching fellowships and ask the Committee
    to ensure that this is included in the final budget bill.
        National STEM Digital Library (NSDL).--I would like to draw the
    Committee's attention to a bold, new NSF effort to provide the nation
    with a comprehensive digital library for the sciences. NSDL will
    provide innovative infrastructure to support teaching and learning
    across scientific fields. Such a massive effort needs strong backing,
    particularly during the initial development-into-operations phase. I
    urge the Committee to support the NSDL effort, the budget for which
    appears to be eroding (down $5 million in the Request from the fiscal
    year 2003 appropriation of $25 million), even in this early, critical
    stage of its development.

    Climate Change Research Initiative (CCRI)
        NSF has played a key role in the U.S. Global Change Research
    Program (USGCRP) and now, as part of the Administration's multi-agency
    Climate Change Research Initiative, the agency will support research to
    reduce uncertainty and provide timely information to facilitate policy
    decisions. The Request states that, ``These investigations will
    complement NSF's ongoing programs in climate change science.'' In my
    opinion, the Administration could take far more advantage of NSF's
    strengths in achieving the nation's climate research goals. Therefore,
    I urge the Committee to support, at the very least, the fiscal year
    2004 request for $25 million for CCRI, ask that you ensure that these
    activities truly complement and not diminish the critical research
    activities that have existed in the past under USGCRP, and ask that you
    investigate expanding NSF's climate change research responsibilities in
    fiscal year 2004 in order to tap NSF's extraordinary potential to
    advance the research agenda.

              NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA)

        Following the space shuttle disaster, we understand that NASA has
    the enormous and unfortunate task of examining and possibly revamping
    the Space Flight account. As this task is performed, I urge the
    Committee to protect NASA's strong and vibrant science accounts and not
    allow them to be harmed by fund transfers. I would like to comment on
    the following NASA Science Aeronautics and Exploration programs that
    contribute to the health and well being of the nation, in part through
    the achievements of the atmospheric and related sciences community:

    Space Science Enterprise
        The extraordinary mission of the Space Science Enterprise is to
    chart the evolution of the universe and understand its galaxies, stars,
    planetary bodies, and life; to discover planets around other stars; and
    to understand the behavior of the sun and its interaction with Earth. I
    urge the Committee to support the Administration's fiscal year 2004
    request for the Space Science Enterprise of $4.0 billion.
        Sun Earth Connections (SEC).--The SEC program within the Space
    Science Enterprise formulates missions to investigate the effects of
    solar phenomena on Earth and on the space environment. Its overall goal
    is to understand the changing sun and its effects on the Solar System,
    life, and society. I urge the Committee to support the Administration's
    fiscal year 2004 request for Sun Earth Connections by appropriating the
    request of $769.6 million. SEC contains several missions that promise
    great benefit to society, and are of particular importance to our
    community, including the following:
        Thermosphere, Ionosphere, Mesosphere, Energetics and Dynamics
    (TIMED), the first science mission of Solar Terrestrial Probes within
    SEC, was successfully launched in 2001. The mission provided the first
    ever data on the composition of the Mesosphere and Lower Thermosphere/
    Ionosphere (MLTI) region of the Earth's atmosphere, and is
    investigating the influences of the sun and humans on this altitude
    (60-180 km) in order to understand MLTI variability and the potential
    impact of these changes on satellite tracking, spacecraft lifetimes,
    degradation of spacecraft materials, and re-entry of piloted vehicles.
    I urge the Committee to continue to support TIMED operations and data
    analysis at a level at least equal to the fiscal year 2003
    appropriation.
        Solar-B is a U.S./Japan collaboration to investigate the
    interaction between the Sun's magnetic field and its corona. The
    mission will provide space weather data to help understand events such
    as solar mass ejections that can endanger astronauts in orbit and
    impact Earth's atmosphere occasionally causing expensive communications
    disruptions. The Solar-B launch, originally scheduled for 2005, has
    been delayed in Japan until 2006. This unavoidable shift in schedule
    will add to the cost of the program. I urge the Committee to support
    the fiscal year 2004 request for $12.5 million for the continued NASA
    development of the Solar B mission's instrument subsystems, and to
    support, with new funding so as not to adversely affect the mission,
    additional costs that are incurred as a result of launch delay.

    Earth Science Enterprise (ESE)
        The purpose of ESE missions is to provide data sets that hold the
    key to answering one of the most important questions for the future of
    this planet: ``How is the Earth changing, and what are the consequences
    for life on Earth?'' Even so, the fiscal year 2004 Request gives ESE
    the only decrease of any NASA Enterprise. In addition to its ongoing
    programs that have important practical applications for watershed
    management, flood remediation, ecosystem management, and wildland fire
    assessment and response, ESE will play an increasingly important role
    in the Administration's Climate Change Research Initiative by providing
    state-of-the-art remote sensing measurements critical to understanding
    climate change processes. While the fiscal year 2004 Request states
    that the ESE decrease reflects the fact the several large programs are
    past their peak development phases, the funding level allows for no
    growth. I urge the Committee to keep the investment in NASA balanced by
    providing an increase for the Earth Science Enterprise that is
    consistent with increases for other NASA Enterprises such as Space
    Science and Biological and Physical Research. Such support would
    provide ESE with an approximate 10 percent increase over the fiscal
    year 2003 appropriated amount.
        Earth System Science.--Within ESE, Earth System Science employs a
    constellation of more than 15 Earth observing satellites collecting
    global data used to analyze, model, and improve our understanding of
    the Earth system. Application of these data will enable improved
    predictions of climate, weather, and natural hazards. I urge the
    Committee to support the fiscal year 2004 budget request of $1.47
    billion for the Earth System Science Theme. This Theme area contains
    several programs that are of great benefit to society, and are of
    particular importance to the atmospheric sciences community, including
    the following:
        Climate Change Research Initiative (CCRI) Acceleration.--New in
    this year's ESE request is the CCRI Acceleration program that advances
    several climate change data collection and evaluation programs that are
    of great importance to society. I urge the Committee to support the
    CCRI Acceleration activities as long as the request of $26.0 million is
    not drawn from and thereby diminishing other critical research
    programs.
        Earth Observing System Data and Information System (EOSDIS)
    Development.--EOS satellites collect data on the major interactions of
    the land, oceans, atmosphere, ice, and life that comprise the Earth
    system in order to answer questions about how the Earth is changing and
    what the consequences of those changes are for life. EOSDIS development
    supports new Earth Science Enterprise missions and the data sets are
    used broadly in a number of scientific fields. I urge the Committee to
    support the fiscal year 2004 request of $98.3 million for EOSDIS.
        AURA.--Scheduled to launch next year, this EOS mission will provide
    data to answer such critical questions as whether the Earth's ozone
    layer is recovering and whether air quality is deteriorating around the
    globe. These are issues that affect environmental policies and
    international agreements. I urge the Committee to support the fiscal
    year 2004 budget request of $52.5 million for AURA development.
        Missions in Formulation.--As the first cycle of EOS missions comes
    to a close, future missions are being planned to continue to meet the
    scientific needs of the NASA Earth System Science projects. I urge the
    Committee to support the Administration's fiscal year 2004 request of
    $274.4 million for EOS Missions in Formulation.
        U.S. Global Change Research Program (USGCRP).--While the
    interagency USGCRP is not called out specifically in the Request, I
    would like to acknowledge the crucial role NASA has played in this
    program in the past and the critical role it plays and will play in the
    Administration's Climate Change Research Initiative. NASA research
    efforts in global change involve space-based, satellite studies of the
    Earth as an integrated system. These activities, concentrated within
    the ESE, represent a critical investment for the future of this
    country, its economy, and the health and safety of its citizens. I urge
    the Committee not to lose sight of critical U.S. Global Change Research
    Program activities as the Climate Change Research Initiative continues
    to provide important new structure to this nation's climate research
    efforts.

    Earth Science Applications
        Within NASA's Earth Science Applications Theme, we are pleased to
    note the increased request for Earth Science Education and the
    continuation of the GLOBE Program. I urge the Committee to support the
    fiscal year 2004 request of $20.8 million for Earth Science Education.

    Office of Aeronautics Technology
        Within the Office of Aeronautics Technology, The Aviation Safety
    and Security Program encompasses four areas, one of which is Weather
    Safety Technologies. In partnership with the FAA, the Department of
    Defense and the aviation industry, this program develops and supports
    the implementation of technologies to reduce fatal aviation accidents
    and delays caused by weather hazards. I urge the Committee to support
    the fiscal year 2004 request for the Weather Safety Technologies
    program of $42.3 million.
        On behalf of the UCAR community, I want to thank the Committee for
    the important work you do for U.S. scientific research, education, and
    training. We 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 science and technology
    today. We appreciate your attention to the recommendations of our
    community concerning the fiscal year 2004 budget of NSF and NASA.

                                     ______

               Prepared Statement of the Doris Day Animal League

        Mr. Chairman and members of the Subcommittee, thank you for the
    opportunity to present testimony relevant to the fiscal year 2004
    budget request for the U.S. Environmental Protection Agency's (EPA)
    Office of Research and Development (ORD) and Science and Technology
    Account. I hope the Subcommittee will consider the concerns of the
    350,000 members and supporters of the Doris Day Animal League and take
    steps to ensure the EPA recognizes the necessity of sound science
    approaches in its research, development and validation of non-animal,
    alternative toxicological test methods. These methods can significantly
    reduce the numbers of, and ultimately replace, animals in its testing
    programs.

     RESEARCH, DEVELOPMENT AND VALIDATION OF NON-ANIMAL, ALTERNATIVE TEST
                                    METHODS

        In recent fiscal years, the enacted budget for the ORD has hovered
    at approximately $500 million, comprising just 9 percent of EPA's total
    budget. In a report filed by the agency's own Science Advisory Board,
    fiscal year 2002 Presidential Science and Technology Budget Request for
    the Environmental Protection Agency: An SAB Review, the SAB urged
    Congress to increase the proportion to 12 percent by 2004. However,
    within these appropriations, we have found it difficult, if not
    impossible, to track funding by ORD for specific non-animal,
    alternative test methods to meet the EPA's needs in new testing
    programs. It is our contention that many emerging technologies, which
    often prove to be faster to run, less expensive and at least as
    predictive as current animal tests used for hazard and risk assessment,
    would benefit from research and development dollars.
        Thanks to the leadership of Chairman James Walsh, House
    Subcommittee on VA, HUD and Independent Agencies Appropriations, the
    House inserted a $4 million directive for the EPA to research, develop
    and validate non-animal, alternative test methods in the fiscal year
    2002 bill. Ultimately, the conference committee for the VA, HUD and
    Independent Agencies fiscal year 2002 bill agreed to the following
    language:

        ``The conferees have agreed to provide $4,000,000 from within
    available funds throughout the Science and Technology account, for the
    research, development, and validation of non-animal, alternative
    chemical screening and prioritization methods, such as rapid, non-
    animal screens and Quantitative Structure Activity Relationships
    (QSAR), for potential inclusion in EPA's current and future relevant
    chemical evaluation programs. Activities funded in this regard should
    be designed in consultation with the Office of Pollution Prevention and
    Toxic Substances.''

        The animal advocacy community is greatly appreciative of this
    first-ever directive to the EPA. However, the House report language for
    fiscal year 2002 also included a directive for a report to Congress on
    the specifics of the EPA's expenditures. It is truly unfortunate that
    this language was deleted from the final conference report as we have
    had significant difficulty in obtaining concrete information from the
    agency on the expenditure of funds to date. And, in fact,
    communications from the EPA which have been shared with Chairman Walsh
    clearly delineate an agency preference for ``basic research'' into long
    range potential methods versus ``applied research'' that may yield
    immediate results with existing promising methods. In addition, to our
    current knowledge, the EPA did not of its own volition direct
    additional resources to these efforts in fiscal year 2003.
        We request that $5 million, from the current budget request, be set
    aside for research, development and validation for regulatory
    acceptance of non-animal, alternative test methods. Activities funded
    by these allocations shall be designed in consultation with the Office
    of Pollution Prevention and Toxic Substances. It is our preference that
    these test methods have direct relevance to new EPA testing programs,
    including the High Production Volume chemical testing program,
    Endocrine Disruptor Screening Program (EDSP) and Children's Health
    initiative. A case in point is the lack of strategy by the agency to
    research, develop, validate and integrate in vitro systems for thyroid
    disruption and metabolism, which would greatly reduce the numbers of
    animals slated for death under the EDSP. Our request for $5 million
    represents just 1 percent of the total ORD budget and would be
    perceived by all stakeholders as a genuine commitment by EPA to new
    non-animal, alternative test methods.
        I also request that the Subcommittee require the EPA report to the
    Subcommittee by April 30, 2004 regarding expenditures and plans for
    additional expenditures for fiscal year 2004 funds.

                   CONTINUED RELIANCE ON ANIMAL TEST METHODS

        As you may know, the EPA requires substances such as pesticides,
    industrial chemicals, and others to be tested for their rates of skin
    corrosion, skin absorption, and skin irritation. Traditionally, these
    tests cause grave pain, distress and death to great numbers of
    animals--including literally chemical burns through the skin and organs
    of rabbits.
        Fortunately, there are non-animal test methods that are just as
    predictive, if not more so. 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 United States is a key member, as complete replacements for animal-
    based skin corrosion studies. Another non-animal method,
    CorrositexTM, has been assessed as scientifically valid by
    the U.S. Interagency Coordinating Committee on the Validation of
    Alternative Methods and data generated from the non-animal test is
    accepted by the relevant federal agencies. Various tissue-based methods
    have been accepted in Europe as total replacements for skin absorption
    studies in living animals. Government regulators in Canada accept the
    use of a skin-patch test in human volunteers as a replacement for
    animal-based skin irritation studies (for non-corrosive substances free
    of other harmful properties).
        I therefore respectfully urge that you also include language in the
    report accompanying the fiscal year 2004 VA, HUD and Independent
    Agencies Appropriations bill stating that: No funds for the EPA
    (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.

                                   CONCLUSION

        I respectfully request that the Subcommittee direct the EPA provide
    $5 million for the ORD to research, develop and validate non-animal,
    alternative toxicological test April 24, 2003 Page 4 methods for
    regulatory acceptance and that the agency be required to provide a
    timely, detailed report on the expenditure of these funds.
        I also respectfully request that the Subcommittee direct that no
    funds be used to assess data from an animal-based method when a
    scientifically valid non-animal test is widely accepted.

                                     ______

       Prepared Statement of the Mickey Leland National Urban Air Toxics
                                Research Center

        The Mickey Leland National Urban Air Toxics Research Center (NUATRC
    or Leland Center) is requesting a $2.5 million appropriation for fiscal
    year 2004 to continue the air quality public health research on air
    toxics in urban areas as directed by the U.S. Congress. The NUATRC is a
    501(c)(3) institution, which was authorized by Congress in the Clean
    Air Act Amendments of 1990 (Title III, Section 301 (p)).
        The NUATRC has been operational for over ten years as a unique
    public/private research partnership. Active research has been performed
    for eight years. The NUATRC receives EPA Assistance Awards based upon
    Congressional appropriations. We leverage these federal funds with non-
    federal funds contributed from a variety of government and non-
    government sources. Our 2003 non-federal contributor's commitments
    included major U.S. companies, local government, and a local privately
    funded ambient monitoring network; with industrial firms being the
    major private contributors. To further leverage our funding, NUATRC
    utilizes an administrative services agreement with The University of
    Texas-Houston Health Science Center in the Texas Medical Center
    complex. This arrangement lowers the NUATRC's overall costs and allows
    the NUATRC to take advantage of the world-renowned scientific community
    at The University of Texas and the Texas Medical Center, as directed by
    Congress, while still remaining an independent entity.
        The NUATRC's mission is to sponsor and direct sound, peer-reviewed
    scientific research on the human health effects of air toxics in urban
    populations. The NUATRC's goal is research on these topics driven by
    scientific questions requiring answers by policy and decision makers in
    government, industry and academia to improve the scientific basis of
    regulatory decisions. It is an integral part of the air toxics strategy
    established by Congress to assess the risks posed by air toxics to
    individuals living in areas where air quality concerns have been
    expressed by both medical and scientific experts and urban community
    leaders.
        The NUATRC is governed by a nine-member Board of Directors,
    appointed pro rata by the Speaker of the U.S. House of Representatives,
    the Majority Leader of the U.S. Senate, and the President of the United
    States. The current membership of the Board of Directors is shown in
    Attachment 1. We are grateful for the recent appointments of Wilma
    Delaney, Monica Samuels, and Mary Gade by the President to our Board.
    We are awaiting action on the appointment of two additional Board
    Members. One is a House appointment; one is a Senate appointment.
    Amongst its duties, the NUATRC Board appoints a 13-member Scientific
    Advisory Panel, selected from national research institutions, academic
    centers, government agencies, and the private sector. The current
    membership of the Scientific Advisory Panel is shown in Attachment 2.

                                  ACHIEVEMENTS

        We have established the following major scientific achievements
    over the last several years that are in keeping with our Congressional
    charge in the Clean Air Act Amendments of 1990:
      --Establishment of the importance of personal exposure (e.g. what
            people breathe) to the evaluation of possible public health
            effects. These findings are stimulating a reevaluation of the
            national emphasis on outdoor levels and sources.
      --Development of inexpensive and accurate personal monitoring
            technology to allow measurements of individual exposures to air
            toxics. This provides a new and, for the first time, direct
            view of the possible public health risks of personal exposure
            to air toxics. To our knowledge, this is a unique contribution
            by the NUATRC. See the supplemental material for photos and
            further descriptions of this technology (Attachment 3).
      --Results that support a new focus on those air toxics that exist on
            particles and may be a factor in the claims of increased
            mortality from these exposures.
      --Initiation of community-based studies that involve participation by
            those citizens directly exposed to urban levels of air toxics.
            This includes early data from NUATRC's involvement in the
            National Health and Nutrition Examination Survey (NHANES).
        We owe these advances in large part to the work of our Scientific
    Advisory Panel, made up of world class scientists from the public
    (EPA), private and academic sectors, who have spent considerable time
    and effort to develop and refine these studies in a collegial and
    efficient manner. We also are fortunate to have had the encouragement
    of this body, which has consistently supported the NUATRC with annual
    appropriations in the EPA budget, without which we would not be able to
    continue.
        We continue to work closely with the EPA, through which we access
    the Congressionally-appropriated funds. We have an excellent working
    relationship with the EPA scientists that serve on our research panels,
    and we are continuing to interact with their administrative
    counterparts to establish a firmer base for our EPA financial support.

                               CURRENT ACTIVITIES

        The NUATRC has been very active on its air toxics research
    initiatives. One of these initiatives addresses the national concerns
    about asthma. The NUATRC's initiative seeks to determine whether air
    toxics play a major role in the exacerbation of asthma, which is a
    multi-faceted, complex, and increasing public health issue especially
    among the minority and underserved populations. The NUATRC has had
    several discussions with the scientific staff at the National
    Institutes of Environmental Health Sciences (NIEHS) to understand how
    we can best leverage our experience in personal exposure assessment
    with the NIEHS' well known expertise in public health effects. We are
    hopeful of developing considerable support in 2003-2004 for joint
    NUATRC-NIEHS programs on urban air toxics and asthma exacerbation.
        To further understand asthma the NUATRC has begun receiving
    preliminary results from the NUATRC sponsored research program on
    children's asthma and the effects, if any, that result from exposures
    to air toxics. The pilot study is entitled ``Oxygenated Urban Air
    Toxics and Asthma Variability in Middle School Children: A Panel
    Study'' or Air Toxics and Asthma in Children (ATAC). We expect that
    this study will be completed in 2004. Aside from generating important
    health data in Houston, it will help define the cost and scope of any
    national study of this kind, similar to what we are discussing with
    NIEHS. Our ability to discern specific personal exposures to those air
    toxics that are thought to play a role in asthma exacerbation will
    allow us to pinpoint and separate those effects from the many urban
    confounders that often mask the important factors in the spread of this
    disease. We have relied on scientific input from our expert Panel and
    submit all proposals to external peer-review. This process has led us
    to select a team of physician/scientists from major medical research
    institutions at the Texas Medical Center. Specifically, NUATRC has
    selected an excellent interdisciplinary research team whose members
    represent Baylor College of Medicine, The University of Texas School of
    Public Health and Texas Children's Hospital to carry out this work with
    asthmatic middle school children in the Houston area. This research is
    supported by EPA funding, funding from local government, and private
    sector contributions. We are hopeful that the success of this program
    will lead to NIEHS involvement in a wider ranging study of asthma and
    air toxics with a national focus, and part of our appropriations
    request is for leveraging the NIEHS support.
        In addition to funding research, publication of research findings
    is a NUATRC goal. Our priority is to support research leading to peer-
    reviewed publications. A list of the NUATRC's publications is presented
    in Attachment 4. Another NUATRC goal is the participation in or hosting
    of an annual Workshop or Symposia. In 2004, NUATRC will sponsor a
    workshop or symposium on ``Association Between Microenvironments and
    Levels of Air Toxics from Personal and Biological Monitoring''.

                           RESEARCH FINDINGS TO DATE

        In 2004, NUATRC will continue research efforts to better understand
    the personal exposures of people living in urban areas to a number of
    the 188 air toxics defined in the Clean Air Act. However, NUATRC is
    also beginning to receive data from our new health effects studies, an
    emphasis area on which we will continue to focus in 2004.
        From our earlier exposure studies we have achieved pioneering
    accomplishments in measuring levels of personal exposures to toxic air
    pollutants. These studies in New York, New Jersey, Los Angeles and
    Houston have ended. We anticipate the final report shortly and that the
    information generated will be reported at a number of major scientific
    meetings, and published, during the next 12 months. The investigators
    at Columbia University, EOHSI in New Jersey and The University of Texas
    have obtained massive amount of important data which will be the
    subject of many analyses and publications over the next several years.
    These data point conclusively to the importance of personal exposures
    in terms of assessing the actual public health risk from air toxics.
        In Attachment 5 to this submission, we provide examples of the kind
    of information we are obtaining, which suggests that the nation's
    environmental resources need to be focused on personal situations, as
    opposed to a continuing emphasis on fixed site urban air monitors.
        These fixed site monitors, which play a key role in determining
    overall urban air quality and air quality standard attainment, are not
    numerous enough or precise enough to address public health risks. The
    support we have received from this Subcommittee has been instrumental
    in creating a new scientific emphasis on personal exposure measurement.
    The EPA has now accepted the importance of such approaches and is
    instituting its own program in this area.
        The NUATRC research programs at Harvard and Washington State
    University are focused on the air toxic component of fine particles,
    notably metals, in terms of possible effects on peoples' heart rate and
    pulmonary functions when exposed to fine particles. These
    epidemiological studies also allow us to better define future research,
    which will combine personal exposure measurements, the apportionment of
    source contributions and the health effects end points, as are being
    developed in this work at Harvard and Washington State. Of course, the
    NUATRC's pilot asthma studies will be a major advance in the public
    health science area.
        We have also expanded our involvement in community-based
    environmental health research, which is an important element in our
    charge, as air toxics health effects can be expected to
    disproportionately impact the economically and medically underserved
    people in our urban populations. Through our Small Grants Program we
    have recently completed research underway in Baltimore under a Johns
    Hopkins University research grant to address exposures to air toxics in
    a residential community in close proximity to an industrial complex.
    This research also has met the goal of keeping the community informed
    as to the results of our studies, which is all too often ignored or
    neglected in our haste to complete studies and submit them for
    publication. We have a somewhat similarly-intentioned program in
    progress at the University of Illinois at Chicago, which deals with the
    levels of polycyclic aromatic hydrocarbons (PAH) in indoor
    environments.

                                 ADMINISTRATION

        The NUATRC operates with an efficient administrative staff of five
    full-time and one part-time equivalent staff, one consultant, and
    important administrative support from The University of Texas Health
    Science Center at Houston (UTHSC). Our staff is employed by UTHSC,
    which obviates the need for considerable personnel support services and
    allows us the benefit of residence a world class health science center,
    while remaining an independent institution. This provides important
    scientific and administrative benefits, including access to the Medical
    School and School of Public Health faculty. We are extremely conscious
    of and pleased to call attention to our ratio of monies spent directly
    on research compared to administrative costs, and we will continue to
    leverage of our research funds.

                          2004 BUDGET RATIONALIZATION

        For 2004 the NUATRC will support several categories for individual
    research studies. The research category budgets are shown in the budget
    table below. First, the NUATRC will continue to fund asthma and air
    toxics research in 2004. NUATRC's pilot asthma work (ATAC) is planned
    to be expanded to a national study with NIEHS, which we will cost share
    with NIEHS and/or other interested participants. NUATRC has recently
    completed several data rich urban air toxics research studies. For 2004
    NUATRC plans to offer additional data analysis and interpretation RFA's
    to the scientific community to ``mine'' this rich, complex, and deep
    data base. The particle personal cascade impactor and pump development
    has been completed. Funding in this category for 2004 will also be used
    to fund the use of both in research studies. We also would continue our
    involvement with the NHANES program run by the National Center for
    Health Statistics, in which our participation is highly leveraged. The
    evaluation of Perinatal Health Effects of Air Toxics is an emerging and
    important area of research. For 2004, at the direction of NUATRC's SAP,
    NUATRC plans the development and release of an RFA to assess the
    status, scope, and direction of this research area. Current NUATRC
    sponsored Health Effects Research has shown results on the effects of
    air toxic exposures on human respiratory functions and is planned to
    continue with new studies for 2004. The Small Grants Program has been a
    successful, cost effective program for NUATRC in terms of
    identification of emerging research areas and publications in the peer-
    reviewed literature. We will continue this program in 2004. The
    emphasis we place on having Workshops and/or Symposia every year has
    proven cost-effective in advancing the understanding of air toxics
    health effects. With 2004 funding we will continue to support an annual
    Workshop or Symposium. The Research Support category is essential to
    provide funds for scientific peer-review, publications, reports,
    additional scientific research, quality assurance and other activities
    recommended by the SAP and approved by the Board. This budget also
    serves an important strategic research function for the entire NUATRC
    program. The total budget shown below is an effort recognizing current
    budget pressures. However; the budget presented below also capitalizes
    on the legacy investment in research already made by providing
    resources to fully analyze and capture the knowledge inherent in the
    study results in time for answers to regulatory and scientific
    questions. We will continue, as noted elsewhere, to seek supplemental
    funding sources for our research program. We are encouraged with the
    interest in our research program by non-federal funding sources. For
    the first time in the NUATRC's history we have received project
    specific funding commitments from Harris County, Texas and the Houston
    Regional Monitoring Corporation. We are also encouraged by the
    contributions of several private companies such as ExxonMobil, Rohm and
    Haas, Inc., and Shell Oil Foundation (and 7 other organizations) as
    contributors the NUATRC's research program.

                             Fiscal Year 2004 Budget
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Asthma Studies/Air Toxics Research......................        $450,000
    Perinatal Health Effects of Air Toxics Research.........         300,000
    Data Analysis, Interpretation, and Presentation                  250,000
     (``Mining'')...........................................
    Health Effects Research.................................         150,000
    Small Grants............................................         300,000
    Workshops, Symposia.....................................          50,000
    Research Support........................................         100,000
    Administration..........................................         900,000
                                                             ---------------
          Total.............................................       2,500,000
    ------------------------------------------------------------------------

                                     ______

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

        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 Environmental
    Protection Agency (EPA). Our testimony will focus on chemical tests
    allowed or required by the EPA to be conducted on animals.
        As you may know, the EPA requires substances such as pesticides,
    industrial chemicals, and others to be tested for, among many other
    hazards, their rates of skin corrosion, skin absorption, and skin
    irritation. Traditionally, these particular tests have involved
    smearing chemicals on animals' shaved backs, often causing effects
    ranging from swelling and painful lesions to wounds where the skin is
    totally burned through.
        Fortunately, there are non-animal test methods that are just as
    effective, if not more so, for these three endpoints. ``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 United States 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. Various tissue-based methods have been accepted in
    Europe as total replacements for skin absorption studies in living
    animals. In fact, in 1999 the EPA itself published a proposed rule for
    skin absorption testing using a non-animal method that has never been
    finalized. Government regulators in Canada accept the use of a skin-
    patch test in human volunteers as a replacement for animal-based skin
    irritation studies (for non-corrosive substances free of other harmful
    properties).
        However, the EPA continues to require the use of animals for all
    three of these endpoints, despite the availability of the non-animal
    tests.\1\
    ---------------------------------------------------------------------------
        \1\ The EPA may allow the use of EpiDermTM, however it
    will apparently require confirmatory testing on animals of any negative
    non-animal test results. This sets an unjustified precedent of
    requiring confirmatory testing of validated non-animal tests with non-
    validated animal tests.
    ---------------------------------------------------------------------------
        In fiscal year 2002, the subcommittee allocated the first-ever
    appropriation for the EPA to research, develop, and validate non-animal
    methods. The appropriation was in the amount of $4,000,000 and was to
    be used for ``non-animal, alternative chemical screening and
    prioritization methods, such as rapid, non-animal screens and
    Quantitative Structure Activity Relationships.'' However, to date, the
    EPA has refused to provide a detailed accounting of how this
    appropriation was spent and exactly what non-animal testing methods
    received these funds.
        We respectfully request that the subcommittee include report
    language ensuring that no funds for the EPA (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. We also request that $5 million from the current budget
    request be set aside for the research, development, and validation of
    non-animal test methods, and that the EPA be required to report to
    Congress on how these funds are spent.

                      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, the
    pain is excruciating. In skin absorption tests, the rate at which a
    chemical is able to penetrate the skin is measured by shaving the backs
    of rats and smearing the substance on them for an exposure period of up
    to 24 hours. They are eventually killed, and their skin, blood, and
    excrement are analyzed. A similar method is used to test for skin
    irritation, except the unfortunate subjects are again rabbits, who are
    locked in full-body restraints. A test chemical is applied to their
    shaved backs, and the wound site is then covered with a gauze patch for
    normally four hours. A chemical is considered to be an irritant if it
    causes reversible skin lesions or other clinical signs, which heal
    partially or totally by the end of a 14-day period. Animals used in the
    above tests are not given any painkillers.

          THESE TESTS HAVE NEVER BEEN PROVEN TO BE RELEVANT TO HUMANS

        None of the animal tests currently used for skin corrosion,
    absorption, or irritation has ever been scientifically validated for
    its reliability or relevance to human health effects. Animal studies
    yield highly variable data and are often poor predictors of human
    reactions. For example, one study, which compared the results of rabbit
    skin irritation 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, test methods have been found to accurately predict
    skin corrosion, absorption, and irritation.
        EpiDermTM and EpiSkinTM are test systems
    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.
        For skin absorption tests, the absorption rate of a chemical
    through the skin can be measured using skin from a variety of sources
    (e.g. human cadavers). The reliability and relevance of these in vitro
    methods have been thoroughly established through a number of
    international expert reviews, and have been codified and accepted as an
    official test guideline of the OECD.
        Instead of animal-based skin irritation studies, government
    regulators in Canada accept the use of a skin-patch test using human
    volunteers. (The chemical is first determined to be non-corrosive and
    free of other harmful properties before being considered for human
    studies.)

      NON-ANIMAL TEST METHODS CAN SAVE TIME, MONEY, AND YIELD MORE USEFUL
                                    RESULTS

        Unlike animal testing that can take two to four weeks,
    CorrositexTM testing can provide a classification
    determination in as little as three minutes and no longer than four
    hours.
        Tissue culture methods to test for skin absorption allow
    researchers to study a broader range of doses, including those at the
    actual level of exposure that occurs in the occupational or ambient
    environment, which is not possible with the animal-based method.
        Many non-animal methods can yield results with greater sensitivity
    and at a lower cost than animal-based methods. Protocols are more
    easily standardized, and the variations among strains and species are
    no longer a factor.

                THE EPA CONTINUES TO REQUIRE THE USE OF ANIMALS

        Despite the ethical, financial, efficiency, and scientific
    advantages of the above non-animal methods, the EPA continues to
    require and accept the unnecessary use of animals in tests for skin
    corrosion, absorption, and irritation.

                                    SUMMARY

        Non-animal methods are available now to replace animal-based
    methods to test substances for skin corrosion, absorption, and
    irritation. There simply is no excuse for continuing to cause animals
    to suffer when 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 VA,
    HUD and Independent Agencies Appropriations bill stating that:
      --no funds for the EPA (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;
      --an allocation in the amount of $5 million of the EPA's research
            budget be directed toward the research, development, and
            validation of non-animal test methods; and
      --the EPA must report to the Subcommittee by April 30, 2004,
            providing a detailed accounting of how the above allocation is
            spent.
        Thank you for your consideration of our request.

                                     ______

                Prepared Statement of the Joslin Diabetes Center

                                  INTRODUCTION

        Mr. Chairman, thank you for this opportunity to provide a status
    report on the Diabetes Project conducted jointly by the Joslin Diabetes
    Center in Boston, MA and the Department of Veterans Affairs (Medical
    Care account), for which you provided $5 million each in the fiscal
    year 2001, fiscal year 2002 and the fiscal year 2003 Appropriations
    Acts.
        Our request for fiscal year 2004 to continue this project with the
    VA is $5 million in the Medical Care account, of which the VA's costs
    represent approximately 50 percent. I am Dr. Sven Bursell, Principal
    Investigator of the project and Associate Professor of Medicine at the
    Harvard Medical School.

                                   BACKGROUND

        Joslin Diabetes Center has been involved with the Department of
    Defense and the Department of Veterans Affairs in a pilot demonstration
    project for the advanced detection, prevention, and care of diabetes.
    The Joslin Vision Network (JVN) has been deployed in VA sites in VISN
    21 in Hawaii (Honolulu, Hilo and Maui), VISN 1 in New England (Boston,
    Brockton in Massachusetts, and Togus, Maine) and VISN 19/20 (Seattle
    and Tricities in Washington, Anchorage in Alaska and Billings in
    Montana). The JVN employs telemedicine technology to image the retina,
    through an undilated pupil, of patients with diabetes, and produces a
    digital video image that is readable in multiple formats.
        This project was funded initially through the Department of Defense
    Appropriations Act. The Department of Veterans Affairs medical staff
    was eager to expedite the deployment of this advanced diabetes
    technology beyond the limited resources available through participation
    in the DOD funded project. We petitioned this Subcommittee for
    additional resources to be made available to the VA for discretionary
    diabetes detection and care.
        This Committee provided $2 million in fiscal year 2000 and $5
    million each in fiscal year 2001, fiscal year 2002 and fiscal year 2003
    for expansion of this project within the VA. The VA has indicated a
    desire to continue expansion, citing the JVN as the model of the future
    telemedicine in a recent conference of the Association of Military
    Surgeons-General of the US (AMSUS). We are seeking $5 million to
    continue this expansion, and are supported by the VA medical policy
    staff.
        The leadership shown by this Subcommittee has enabled the VA to
    provide its patient population the best diabetes care, prevention, and
    detection in the world. We extend our sincere appreciation to you for
    your response to that request.

                FISCAL YEAR 2002 AND FISCAL YEAR 2003 ACTIVITIES

        The policy and program officials of the VA have established the
    appropriate contracts and statements of work that resulted in consensus
    with respect to deployment of the Joslin Vision Network (JVN)
    technology to three sites: Anchorage, Alaska, TriCities, Washington,
    and Billings, Montana. A Reading Center will be created and utilized in
    Seattle, Washington. In addition, the refinement of JVN technology,
    both hardware and software, will move toward developing a scalable
    system that is capable of widespread deployment agency-wide. This
    system was completed and it is anticipated that this next generation of
    the system will be completely integrated into the VA's VISTA Medical
    Records System and the VA communications infrastructure.
        Results from our various demonstration installations have shown
    that appropriate clinical resources can be efficiently allocated with
    respect to appropriate ophthalmology referral. For example, the
    installation in Togus, Maine where there is no ophthalmology resources
    on site has shown that the use of the JVN system can effectively
    prioritize patients that need to be seen by the opthalmologist at the
    time when the ophthalmologist plans to visit that clinic. This site is
    imaging approximately 10 patients per day and they find the JVN program
    extremely resource efficient in providing the appropriate eye care to
    their patients.
        The same experience was noted from the VA clinics in Hilo and Maui
    where the Optometrist from the Honolulu VA visits these island clinics
    once a month and was able to effectively focus his time on the patients
    that really needed his expertise for managing their diabetes eye
    complications.
        Results from a recently completed cost efficiency study using the
    VA diabetic patient population showed that the use of the JVN system
    was both less costly and more effective for detecting diabetic
    retinopathy than traditional dilated eye examination performed by a
    retinal specialist. Additionally, data showed that the JVN system was
    both less costly and more effective for preventing severe visual loss
    in VA diabetic patients compared to traditional ophthalmoscopy.
        An equally important concentration of resources in fiscal year
    2001-2003 was focused on refining the technical core using outcomes
    based medical and case management scenarios to develop a diabetes
    healthcare model that is modular, customizable and that can be
    seamlessly integrated into the existing VA telemedicine systems. This
    is the stated goal of the medical leadership in the VA, DOD and HIS
    health care systems. The overarching vision for the VA/JVN project is a
    web-based comprehensive diabetes health care system that can be
    interactively used by both patients and providers, that incorporates
    diagnosis specific education and training modules for patients and
    providers and that incorporates software applications that allow
    outcome measures to be statistically assessed and individual treatment
    programs to be interactively adjusted based on these outcome measures.
    The JVN Eye Health care system exists as a component of a comprehensive
    diabetes management system, incorporating other clinical disciplines
    such as endocrinology, vascular surgery and internal medicine.

                          FISCAL YEAR 2002-2003 GOALS

        The use of the JVN equipment and expansion of screening
    opportunities are a continuing major focus for fiscal year 2003
    activities. The actual number of sites deployed to will be determined
    on the locales with the greatest need for diabetes care in conjunction
    with the telecommunications infrastructure at the identified sites and
    the ease and costs associated with interfacing the JVN technology into
    the existing infrastructure.
        We will also develop clinical pathways and protocols to facilitate
    access and coordination of care for diabetic patients using mobile JVN
    systems. The goal is to access diabetic patients from smaller Community
    Based Outpatient Clinics (CBOC) where specialty eye care is not
    available and where performance with respect to accessing diabetic
    patients for eye care falls below the performance standards set by the
    VA.
        We have expended considerable effort in migrating the JVN
    demonstration technology platform into an application that is totally
    compliant with existing medical informatics infrastructures and the
    existing VISTA infrastructure of the VA system. This will encompass the
    integration of hardware and software in close collaboration with
    available resources from the VA VISTA program that will allow a highly
    scaleable transparent integration of the JVN Diabetes Eye Health Care
    system into the existing health informatics infrastructures of the VA
    system.
        For the fiscal year 2002-2003 project phase, we have established
    the following tasks, targets, and activities:
      --Deployment of fixed site and mobile units of a viable, sustainable,
            and refined operating JVN Diabetes Eye Health Care model and
            Comprehensive Diabetes Management program.
      --Develop a modularized medical outcomes based telemedicine diabetes
            management program in continued collaboration with the VA with
            outcome measures incorporated into software based on clinical
            results and research experiences of the fiscal year 2001
            efforts.
      --Develop curriculum based patient and provider educational modules.
      --Integrate internet based portals that are accessed by patients for
            reporting of glucose values and receiving feedback with respect
            to goals for self management of their diabetes and adjustments
            of their treatment plans based on these goals. These portals
            will also provide regular education modules for the patients
            that are customized to their particular needs and clinical
            diabetes risk assessment.
        The effort for fiscal year 2003 will result in the development of
    modular applications associated with different aspects of total
    diabetes disease management such as clinical risk assessment, outcomes
    assessments, behavior modification in an interactive electronic
    environment, and education programs. These applications will be
    designed in collaboration with participating VA sites to provide an
    ultimate product that appropriately assesses the clinical diabetes risk
    and provides treatment plans and behavior modifications that are
    tailored to any particular patients needs. The programs will also be
    designed so that they can realize a significant cost and resource
    efficiency with respect to support and maintenance of the JVN component
    and the diabetes management programs that will facilitate an
    accelerated deployment in the future.
        Technologically, we will be providing an application that
    automatically detects retinal pathology from the JVN images. Using this
    first step approach it is anticipated that we can reduce the load on
    the reading center by as much as 50 percent. This is achieved through
    the use of a computer application that scans the images and detects any
    abnormalities that may be associated with the development of diabetic
    retinopathy. In those cases where the computer detects pathology a
    reader will be notified to perform the appropriate reading for
    retinopathy assessment. In the case where the computer does not detect
    any pathology the patient can be assigned to a low risk priority where
    the computer findings can be rapidly confirmed by the reader and the
    patient asked to return for repeat JVN imaging in a year.

                            FISCAL YEAR 2004 REQUEST

        For fiscal year 2004, we request that in the VA Medical Account $5
    million be allocated to continue and expand this project. The positive
    response within the VA system indicates that with sufficient resources,
    the JVN technology would be deployed in a number of sites with the
    ultimate goal of incorporating the JVN technology throughout the VA
    Medical Care system. The VA Budget Request by the fiscal year 2005
    cycle will include provisions for full deployment for the JVN
    throughout the VA Medical Care system. As the technology, systems and
    production of equipment are standardized to off the shelf
    specifications, the expense per site will decrease.
        The specific goals for fiscal year 2004 include the following:
      --Establish specific medical codes that will allow the VA to track
            performance with respect to these JVN examinations and to
            ensure that it conforms with VA performance criteria in
            multiple remote VA outpatient settings;
      --Improve adherence to scientifically proven standards of diabetes
            eye care and diabetes care;
      --Improve/promote access to diabetes eye care;
      --Increase number/percentage of patients with Diabetes Mellitus
            obtaining eye care;
      --Provide education patients and providers in the clinical setting.

                                   CONCLUSION

        We request continuation and maintenance of this Committee's policy
    of support for the improvement of the diabetes care in the VA medical
    system. Through funding of This $5 million request, the benefits by the
    close of fiscal year 2004 will include:
      --Deployment of JVN detection and care at 5 different VA centers
            where each center will provide services for 6 different remote
            sites for a total 35 sites.
      --JVN accessibility to increase VA capability to achieve patient
            compliance to eye examinations to at least 95 percent of the
            diabetic patient population in any area being serviced. From an
            estimate of the VA diabetic patient population we would
            estimate that the JVN would be accessing an estimated patient
            population of 196,000, or an estimated 11 percent of the total
            VA Diabetic population after completing anticipated 2002
            deployments.
      --The model for VA's deployment of the JVN as a diabetes detection
            and Disease management platform for expansion to availability
            for the entire VA Patient population.
        Thank you for this opportunity to present this request for $5
    million for fiscal year 2004 and status report for fiscal year 2003 on
    a medical technology breakthrough for the patients and health care
    system within the Department of Veterans Affairs.

                                     ______

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

        Mr. Chairman and Members of the Subcommittee, the Consortium of
    Social Science Associations (COSSA) represents over 100 professional
    associations, scientific societies, universities and research
    institutes concerned with the promotion of and funding for research in
    the social, behavioral and economic sciences (SBE). COSSA functions as
    a bridge between the research world and the Washington community. A
    list of COSSA's Members, Affiliates, and Contributors is attached. We
    appreciate the opportunity to comment on the spending request for
    fiscal year 2004 for the National Science Foundation.
        COSSA appreciates the Subcommittee's past strong support for NSF,
    particularly last year's substantial budgetary increase. COSSA is well
    aware that each year you confront difficult choices among competing
    agencies under the Subcommittee's jurisdiction. COSSA is delighted that
    the Subcommittee leadership has expressed that NSF will remain a
    significant priority for them.
        COSSA strongly believes that investing in NSF's research and
    education efforts will help determine this country's future economic
    well-being and national security. Therefore, COSSA finds the
    administration's proposal for a $171 million increase for NSF in fiscal
    year 2004 totally inadequate. In agreement with the Coalition for
    National Science Funding, the Subcommittee's leadership, and the NSF
    reauthorization bill, COSSA strongly supports doubling the NSF budget
    over the next five years. The Coalition for National Science Funding
    (CNSF), in congruence with the reauthorization legislation, recommends
    a fiscal year 2004 budget for NSF of $6.391 billion. COSSA endorses
    this recommendation. This budget enhancement will return many-fold its
    value in economic growth, help save lives, promote prosperity, and
    improve society, and provide more excellent science from more excellent
    scientists.
        Over the past half century science has been the engine that has
    driven the nation's economic success and quality of life improvements.
    Fundamental university-based science has delivered the great
    technological advances that have provided for new methods and products
    that have advanced our nation forward. These include: geographic
    information systems, World Wide Web search engines, automatic heart
    defibrillators, product bar codes, computer aided modeling, retinal
    implants, optical fibers, magnetic resonance imaging, and composite
    materials used in aircraft.
        A substantial increase for NSF in fiscal year 2004 will forge great
    advances in the 21st Century. A much larger than proposed budget
    enhancement would allow NSF a much-needed boost for the size and
    duration of its research and education grants. It would also lead to
    improving the scientific literacy of the nation's students and general
    population. As our business leaders understand, without improvements in
    education and training and new innovations and scientific findings,
    growth will stall. NSF needs a significant influx of new funds.

      THE FISCAL YEAR 2004 BUDGET AND THE SOCIAL, BEHAVIORAL AND ECONOMIC
                                 SCIENCES (SBE)

        COSSA also believes the small 1.2 percent increase proposed for the
    Research and Related Activities Account is dismal. The reauthorization
    bill calls for a fiscal year 2004 amount of $4.8 billion for R&RA and
    COSSA strongly endorses that figure.
        For the Social, Behavioral and Economic Sciences Directorate (SBE),
    the administration proposes $211 million for fiscal year 2004. The
    final fiscal year 2003 appropriation for SBE was $191 million. With
    some restored funding for the Science, Resources, and Statistics
    division the SBE current plan is $195.6 million. Although the proposed
    increase from fiscal year 2003 to fiscal year 2004 is 8.2 percent,
    seemingly larger than most of the other directorates, in absolute terms
    this is only $16 million, quite smaller than almost all of the other
    directorates. For the two research divisions the increase is only $12.1
    million. Another thing to keep in mind is that NSF provides almost one-
    half of federal support for basic research for these sciences. For some
    fields in the SBE sciences, NSF is the only source of federal support
    for basic research and infrastructure development.
        The Social, Behavioral and Economic (SBE) Sciences are poised and
    ready to make significant discoveries in the future. Improvements in
    computer computation, computer communication, and the rapid increases
    in multidisciplinary scientific endeavors make the old model of these
    sciences as ``cottage industries'' a difficult one to sustain any more.
    Collaborations, collaboratories, merged databases, functional MRIs, and
    virtual centers are the future of SBE research.
        Recognizing this, NSF has proposed a Foundation-wide priority
    called Human and Social Dynamics (HSD) in the fiscal year 2004 budget.
    This priority area has been developed and discussed with the SBE
    community for over three years. Begun with $10 million in seed money in
    fiscal year 2003, HSD has a proposed budget of $24.5 million in fiscal
    year 2004, about two-thirds of which is from the SBE proposed budget.
        The priority area seeks to understand change: its causes and
    ramifications, how to anticipate it, how the human mind and social
    structures create it, and how people and organizations manage it. These
    questions will be investigated using multidisciplinary approaches with
    already existing sophisticated research techniques as well as providing
    support for the development of improved tools for future
    investigations.
        For fiscal year 2004 areas of emphasis include: 1) enhancing human
    performance on the individual and organizational levels; 2)
    understanding decision-making under uncertainty; 3) comprehending
    agents of change, particularly in large scale transformations, such as
    globalization and democratization; 4) analyzing and modeling various
    aspects of HSD, including complex networks such as terrorism; 5)
    improving and using spatial social science techniques to explore HSD
    topics; and 6) developing and supporting instrumentation and data
    resources such as cognitive neuroimaging and longitudinal surveys to
    upgrade the measurement and analysis of information from diverse
    sources. COSSA strongly supports the implementation of the priority and
    its increased funding.
        In addition to the priority area, the NSF budget includes $20
    million for a second year of funding for Science of Leaning Centers.
    The SBE sciences are in the forefront of providing research and
    evidence for improving how our children learn and survive in the
    modern, complex societies in which we live. Fundamental research by
    developmental psychologists, cognitive scientists, sociologists, and
    economists, has revealed a wealth of data about how children think and
    learn and how these processes are mediated by family demographics,
    community politics, and the structure of the schools. COSSA strongly
    supports the continued funding of the Science and Learning Centers.
        Furthermore, increased support will enhance funding for research in
    the learning and developmental sciences to integrate studies of
    cognitive, linguistic, social, cultural, and biological processes
    related to children and adolescent learning. This support will include
    research funded under the Children's Research Initiative (CRI). We
    appreciate the Committee's willingness to ensure that the CRI remains
    an open competition where the merit review process is allowed to work
    unhindered by any attempts at privileging certain institutions.
        COSSA also strongly supports the funding for research on the
    ethical, legal, and social consequences of technological change. Both
    the Information Technology and Research area and the Nanoscale Science
    and Engineering area include funding to answer important questions on
    how the results of this cutting-edge research will impact humans and
    society. From increasing privacy concerns, to the ethics of genetic
    testing, to how we relate in Web based communities, to how our
    political system works, SBE scientists are exploring many aspects of
    this issue.
        It is also clear that the NSF's new emphasis on Environmental
    Research and Education provides exciting opportunities for the SBE
    sciences. The recent report: Complex Environmental Systems: Synthesis
    for Earth, Life, and Society in the 21st Century, outlines a research
    agenda that includes Coupled Human and Natural Systems as a key area.
    This area integrates population, ecosystems and socioeconomic models to
    understand and enable response to issues such as landscape
    fragmentation, spread of pathogens and water resources. SBE will also
    fund centers focusing on Risk Analysis and Decision-making on global
    climate change.
        SBE continues to maintain support for major long-term data bases
    such as the Panel Study on Income Dynamics, the General Social Survey,
    and the American National Election Studies. These three data series
    paint a portrait of American's attitudes and behavior over almost 40
    years. In addition, SBE is providing support for the National
    Historical Geographic Information System, which will provide free
    public access to U.S. Census databases from 1790 to the present. By
    digitizing the data, place-specific information can be utilized by
    geographic information systems.
        Research in the SBE sciences continues to examine the ever more
    complex and important human dimensions of issues and generates new
    knowledge and insights to help us understand human commonalities and
    human differences. Basic research in these disciplines also develops
    information that policymakers can use later to formulate solutions to
    individual and societal problems. The research portfolio is diverse and
    supports science of enormous intellectual excitement and substantial
    societal importance. It deserves enhanced resources.
        The Science, Resources and Statistics (SRS) division is an
    important resource for the whole Foundation and for the entire science
    and engineering community. The high quality data it provides to
    researchers and policymakers about the science and technology
    enterprise merits generous support. The redesign of its survey samples
    to reflect the changes discovered in the 2000 Census explain the large
    jump from fiscal year 2002 to fiscal year 2003. As SRS continues to
    improve its products its support should be increased.

                                  OTHER ISSUES

        COSSA supports the increased funding proposed for the Graduate
    Fellowship programs. Raising the stipend to $30,000 will attract more
    excellent students into graduate study in all the sciences. The
    enhanced stipends should not occur with a corresponding reduction in
    the number of these prestigious, portable, student-controlled
    fellowships for graduate training.
        COSSA also strongly supports continuation of the Interagency
    Education Research Initiative (IERI), a collaboration among the NSF,
    Department of Education, and the National Institute of Child Health and
    Human Development. The IERI provides significant support over a period
    of time to conduct meaningful studies of factors affecting student
    achievement and to seek and disseminate answers to how we can improve.

                                   CONCLUSION

        COSSA urges the Subcommittee to significantly boost support for the
    National Science Foundation in fiscal year 2004. NSF will then provide
    the fundamental research that will help the world stay healthy,
    prosperous, and secure. In addition, with increased funding the Social,
    Behavioral and Economic Sciences Directorate can support basic research
    in these disciplines to help meet the needs of this country and the
    world for evidence-based policies to work on the complex problems
    affecting us all.
        Thank you for the opportunity to present our views.

                                     ______

              Prepared Statement of The American Chemical Society

        The American Chemical Society (ACS) would like to thank Chairman
    Christopher Bond and Ranking Member Barbara Mikulski for the
    opportunity to submit testimony for the record on the VA, HUD and
    Independent Agencies Appropriations bill for fiscal year 2004.
        ACS is a non-profit scientific and educational organization,
    chartered by Congress, representing more than 160,000 individual
    chemical scientists and engineers. The world's largest scientific
    society, ACS advances the chemical enterprise, increases public
    understanding of chemistry, and brings its expertise to bear on state
    and national matters.
        The ACS would like to thank the members of the Subcommittee for
    strong and continued support for investment in NSF. We understand the
    difficult choices that must be made in drafting the VA-HUD bill,
    particularly in this time of worsening deficits. We commend the
    Subcommittee for taking the long view and providing a notable increase
    for NSF in fiscal year 2003.
        In developing the fiscal year 2004 NSF budget, we believe the
    subcommittee has an excellent guide. The NSF authorization law that
    President Bush signed in December sets out sound program directions for
    NSF and calls for an investment of $6.4 billion for the Foundation in
    fiscal 2004. We respectfully ask the subcommittee to support this level
    during markup of the bill.
        NSF has earned strong bipartisan support for advancing new
    discoveries, industries, and the work of countless scientists and
    engineers--including most Nobel laureates in science. As the only
    agency devoted to supporting basic research and education across all
    scientific fields, NSF is critical to continued progress in all areas
    of science and engineering. Support for the best ideas and new
    frontiers across core disciplines has been the hallmark of NSF and the
    backbone our research system. We believe renewed support for core
    disciplinary research is essential to address unmet needs and to
    sustain NSF's support for high quality, high-risk research. This
    investment is also essential in promoting the success of
    multidisciplinary initiatives such as information technology and
    nanotechnology--areas ripe for scientific progress to benefit society.
        On April 8th, an article in the New York Times highlighted the
    enormous potential benefits of nanotechnology research to our military
    and other national needs. It emphasized the importance of federal
    funding in this area, which is led by DOD, NSF, and other agencies. The
    article noted ``nearly 25,000 graduates in Asian countries received
    doctoral degrees in engineering fields related to nanotechnology in
    2000, compared with fewer than 5,000 in the U.S.'' A senior Pentagon
    official was quoted as saying that ``nanotechnology will eventually
    alter warfare more than the invention of gunpowder.''
        We also encourage the subcommittee to grow NSF's budget to help
    address the need for renewed federal investment in physical sciences
    and engineering research, which has lagged over the last decade.
    President Bush's top science and technology advisory council, the Hart-
    Rudman Commission on National Security, and many other groups have
    called for boosting federal investment in this area given its central
    role in advancing our economic, energy, and homeland security. One need
    only look at the current reliance of our troops on technology to know
    that our long-term national security depends on scientific advances. We
    commend the House and Senate Appropriations Committees for recognizing
    this need in the fiscal year 2003 omnibus appropriations bill. While
    the administration did emphasize physical sciences research at NSF in
    its budget, the request unfortunately would not translate into notable
    increases over the enacted fiscal year 2003 level.
        NSF is very important to transforming scientific knowledge into
    economic value. NSF investments are critical to productivity in many
    sectors, including chemicals, electronics, communications, and
    biotechnology. While the avid support for NSF among our academic
    members may not come as a surprise, it is often our industrial
    members--who make up 60 percent of ACS--who speak most passionately
    about the importance of NSF. They understand the key role of basic NSF
    research in enabling industrial innovation, productivity growth, and
    the training of the next generation of scientists and engineers.
        Sustaining America's global technological and economic leadership
    demands improvements in science and engineering education at all
    levels. It is alarming that the nation's growing workforce demand is
    coming at a time of declining science achievement by high school
    students and while decreasing numbers of students are earning science
    and engineering degrees. NSF's research and education programs are
    essential to improving science education at the precollege,
    undergraduate, and graduate levels and in expanding opportunities for
    students to pursue and remain in science and engineering programs at
    universities. The Foundation's Education and Human Resources (EHR)
    division plays a critical role in this effort.
        Precollege Education.--With an emphasis on curriculum reform,
    assessment, and teacher preparation and professional development, EHR's
    precollege programs improve standards-based, inquiry-centered math and
    science education across the country. ACS encourages continued support
    for NSF's precollege programs to nurture the development of the next
    generation of technologically proficient workers. ACS supports the
    administration's $200 million request for the Math and Science
    Partnership program, which establishes alliances between schools,
    colleges and universities, and other stakeholders to improve teacher
    quality and student achievement in math and science. Strong funding
    will continue to provide effective model programs and strategies to
    improve teacher training and curriculum development across the nation.
        Underrepresented Groups.--ACS strongly supports NSF efforts to help
    cultivate the vast pool of untapped talent among women and
    underrepresented minorities. With an emphasis on two-year colleges,
    NSF's Advanced Technological Education program promotes science,
    technology and mathematics preparation for today's technology-based
    workplace. The two-year college system is especially important for
    economically disadvantaged students who use it as a point of entry into
    higher education. In addition, ACS also supports the Science,
    Technology, Engineering and Mathematics Talent Expansion Program, which
    provides grants to higher education institutions for initiatives that
    increase the number of degrees in these fields. Strategies in this area
    have included summer learning, faculty development, research
    experiences, scholarships, and partnerships.
        Noyce Scholarships.--Since 2002, the Noyce Scholarships have
    provided multi-year awards to institutions of higher education to
    provide future teachers with scholarships, stipends, and training
    toward teacher certification or alternative certification. These
    scholarships are an important step in the process of recruiting high
    quality science and mathematics teachers to increase American students'
    performances in these subjects. The Congress has recognized the value
    of the Noyce scholarships by authorizing $20 million annually through
    fiscal year 2005, and we support the administration's request for
    increased funding in fiscal year 2004.
        NSF programs also provide critical support for graduate and post-
    doctoral fellowships, which can shorten the time to Ph.D. degree,
    increase the participation of underrepresented groups in science and
    engineering, and significantly broaden research and training
    opportunities. The Graduate Research Fellowship Program provides
    support for graduate students pursuing research-based master's or
    doctoral degrees in science and engineering. This flagship program
    selects and supports the most promising science and engineering
    students in the US and provides support for stipends and cost of
    education allowances for their graduate education.
        As the Subcommittee knows, it takes years to train scientists and
    engineers and to develop new technologies to advance our economic and
    national security. The fruit of this investment does not ripen
    overnight, nor does it come cheaply. Despite fiscal pressures, we hope
    the subcommittee will continue to take the long view and fund NSF at a
    level more commensurate with the scope and importance of its mission.
    One need only look at NSF's low overhead, its renowned peer review
    system for determining quality science, and its top management ratings
    from OMB to have the utmost confidence that NSF will allocate increases
    wisely. NSF is an investment in every sense of the word. And the return
    on this investment has been extraordinary by any measure.

                                     ______

         Prepared Statement of the Association of American Universities

        Mr. Chairman and Members of the Subcommittee, I am pleased to have
    this opportunity to present to you the views of the Association of
    American Universities (AAU) concerning the fiscal year 2004 budget
    proposals and matters pertaining the VA, HUD and Independent Agencies
    Appropriations Bill.
        This year, that AAU is asking for two things of this Subcommittee.
    First, AAU strongly urges the Congress to appropriate funding for the
    National Science Foundation (NSF) in fiscal year 2004 at the level
    authorized by Public Law 107-368, the NSF Authorization Act of 2002.
    Second, AAU urges Congress to support $7.7 billion for National
    Aeronautics and Space Administration (NASA) Science, Aeronautics, and
    Exploration (SAE) activities, a total increase of $440 million (6.1
    percent) over the fiscal year 2003 level. Even though AAU recognizes
    that some changes may be made to NASA's fiscal year 2004 request in the
    coming months, strong funding of the agency's science programs is still
    in the best interest of the nation.
        I cannot overstate the importance to our nation's future prosperity
    of investment in basic scientific research and in the people who
    conduct this research. The innovation that flows from basic research
    has fueled the explosion of technological advancements in our lifetimes
    and is key to continuing progress. Research in all the physical
    sciences is increasingly interdependent, and medical technologies such
    as magnetic resonance imagery, ultrasound, and genomic mapping could
    not have occurred without underlying knowledge in biology, physics,
    mathematics, computer sciences, chemistry and engineering. Significant
    future medical advances also require advances in the sciences.
    Industries, state governments, and federal laboratories are entering
    into partnerships with universities at a rate that multiplies daily
    because in a knowledge economy, our economic leadership depends on
    ideas we generate. University research is the primary source for these
    ideas.

                          NATIONAL SCIENCE FOUNDATION

        NSF is the heart of the federal investment in basic scientific
    research. Since its founding in 1950, NSF has had an extraordinary
    impact on American scientific discovery and technological innovation.
    Despite its size, it is the only federal agency with responsibility for
    research and education in all major scientific and engineering fields.
    Approximately 95 percent of the agency's total budget directly supports
    the actual conduct of research and education, while less than five
    percent is spent on administration and management.
        In recent years, the NSF has enjoyed strong support from the VA,
    HUD and Independent Agencies Subcommittee in both the House and Senate.
    In fiscal year 2001, with the Subcommittee's help, Congress provided
    the single largest funding increase, in both percentage and dollar
    terms, in the history of the NSF. The Congress again substantially
    increased funding for the NSF in both fiscal year 2002 and fiscal year
    2003. We thank the Subcommittee, and in particular Chairman Bond and
    Ranking Member Mikulski, for their critical role in securing these
    increases; the university community is enormously grateful for this
    support.
        The tremendous level of support for NSF was also demonstrated last
    year when Congress passed H.R. 4664, The NSF Authorization Act of 2002,
    a bill aimed at putting the NSF on a track to double its budget over
    five years. This Act (Public Law 107-368), signed into law by President
    Bush on December 19, 2002, authorized a maximum funding level for the
    NSF in fiscal year 2004 of $6.4 billion. For fiscal year 2004, AAU
    endorses the authorized funding level and urges the Congress to
    appropriate $6.4 billion in funding for the NSF. This represents a $1.1
    billion increase over the fiscal year 2003 level of $5.3 billion. The
    President has requested $5.5 billion for NSF in fiscal year 2004.
        The AAU would suggest that approximately half of this fiscal year
    2004 funding increase be devoted to advancing NSF's core research
    programs and priority areas. Of the remainder of our recommended
    increase, AAU would urge that approximately two-thirds go to advancing
    the Foundation's education and training efforts, and one-third be used
    to upgrade and enhance the nation's science and engineering
    infrastructure. More specific details concerning how we feel funding
    increases should be used are outlined below.
        Advance core programs for research.--Presently, 15 to 20 percent of
    highly-rated proposals to the NSF are not funded because of inadequate
    resources. In some NSF programs, this percentage is even higher. The
    Congress should strive to see that all highly-rated NSF proposals are
    funded. Had this occurred in fiscal year 2002, 1800 additional
    proposals (proposals which while rated as high as the average NSF award
    by external reviewers, were declined due to lack of available funding)
    would have been awarded requiring an additional $1 billion. Likewise,
    grant size and duration should be increased. Increasing the size and
    time period of grants will enable researchers to concentrate more of
    their time on working with students and on research and discovery
    rather than paperwork.
        Continue support for key initiatives and priorities areas.--New and
    exciting multidisciplinary initiatives at the NSF should be promoted
    and encouraged. Significant growth in NSF budgets over the next several
    years will allow the Foundation to support focused initiatives such as
    those launched in recent years in nanotechnology, biocomplexity,
    information technology research and workforce development, which foster
    new and innovative multidisciplinary efforts on university campuses.
        Increase support for education and training.--Declines in
    enrollment of United States students in science, engineering and
    mathematics programs at all levels are due to our failure to stimulate,
    maintain and adequately support students with interests in these
    fields. We therefore support increasing the NSF graduate student
    stipend to $30,000 and urge additional support of graduate student
    research throughout the NSF. Likewise, additional funding should be
    provided for programs such as the Research Experiences for
    Undergraduates (REU) program and other new and innovative programs
    aimed at stimulating involvement of undergraduates in research.
    Finally, we encourage support for programs, such as Math and Science
    Partnership initiative, which are specifically focused on improving K-
    12 math and science education.
        Increase support for research infrastructure.--In its recently
    issued report, the National Science Board (NSB) expresses concerns
    regarding the current state of your scientific and engineering research
    infrastructure. Specifically, they suggest increasing resources to
    ensure that individual investigators and groups of investigators have
    the necessary resources and tools to work at the frontiers of science
    and engineering. The AAU supports the NSB's recommendations with
    regards to increasing support of research infrastructure and would call
    our attention to the need to upgrade mid-level infrastructure and to
    the specific needs we have to upgrade university-based research
    facilities and instrumentation. We also support funding for large-scale
    research proposals, such as those proposed for funding within the NSF's
    Major Research Equipment (MRE) account.

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

        NASA has a long history of productive collaboration with
    universities, supporting research that has given the United States the
    undisputed leadership role in the study of space and the earth's
    environment. University-based research, with important technological
    applications, has been supported through research grants, individual
    collaborations between faculty and NASA scientists, and formal
    partnerships between NASA centers and universities.
        Workforce issues continue to be of concern to both NASA and
    research universities. Both the current and former NASA Administrators
    have publicly expressed concern about NASA's ability to attract and
    retain qualified scientists and engineers. Within the next five years,
    one third of NASA's workforce will be eligible for retirement. Many
    university space science teams are facing similar problems. Formerly
    strong teams are weakening as key investigators age and retire. In some
    fields the problem is acute, with the major scientists all in their
    sixties coupled with low enrollments of graduate students to follow
    them. In other areas, there are major new initiatives to be undertaken
    and yet no certainty that the required educated workforce will be
    available. The nation's security depends on an aggressive space program
    for surveillance and active defense, and economic impacts of space
    communications and remote sensing are large. We must not lose our lead
    in space research because we lack educated manpower.
        The Subcommittee recognized the seriousness of this problem last
    year and included report language in the fiscal year 2003 VA-HUD
    Appropriations report asking NASA, OSTP and NSF, in cooperation with
    the nation's leading research universities, to develop a comprehensive
    plan and implementation strategy that will result in the number of
    students pursuing advanced degrees. AAU remains eager to work with the
    agencies on this issue. Moreover, while we are pleased that NASA has
    created the Education Enterprise, we remain concerned that the primary
    emphasis is still on K-12 programs. The Scholarship for Service program
    is a step in the right direction, but there is much more that can be
    done.
        The AAU supports $7.7 billion for NASA's Science, Aeronautics, and
    Exploration (SAE) activities, $34 million above the President's fiscal
    year 2004 request. This would be a total increase of $440 million (6.1
    percent) over the fiscal year 2003 level. The AAU recommendation is
    consistent with the President's fiscal year 2004 budget proposal for
    SAE with the exception of the Earth Science Enterprise. For that
    office, AAU proposes a 2 percent inflationary increase over the fiscal
    year 2003 appropriation of $1.7 billion. This would increase funding
    for the office by $34 million. In particular, AAU supports the $26
    million requested for acceleration of the Climate Change Research
    Initiative. Universities are working with the Earth Science Enterprise
    to develop new instruments and smaller, more capable spacecraft to
    respond to research needs. The increased funding would help achieve
    these goals.
        AAU supports the Administration's fiscal year 2004 request of $4
    billion for the Space Science Enterprise. This would be an increase of
    $506 million (14.4 percent) over fiscal year 2003. The request funds
    all currently planned missions, but also contains $59 million for an
    exciting initiative called Beyond Einstein. This initiative has the
    potential to answer three questions left unanswered by Albert
    Einstein's theories: What powered the Big Bang? What happens to space,
    time, and matter at the edge of a black hole? What is the mysterious
    dark energy expanding the universe? Research in this area has the
    potential to transform our understanding of the universe.
        The Space Science request also includes new initiatives for power
    and propulsion technology and for optical communications. The
    development of these capabilities would address current limitations in
    robotic space flight and have the potential to revolutionize the type
    of planetary missions that can be flown a decade hence. AAU supports
    this revitalization effort.
        For the Biological and Physical Research Enterprise, AAU supports
    the budget request of $973 million, an increase of $110 million (12.7
    percent) over the fiscal year 2003 appropriation. The request includes
    $39 million to begin a Human Research Initiative to further understand
    and address health and logistical challenges encountered in long-
    duration space flights. Although NASA emphasizes biomedical research
    associated with crew health maintenance, a large number of
    investigations address cutting-edge scientific problems with direct
    application to Earth-based technological, industrial, and health
    issues. Ground-based research is also essential for developing the
    knowledge and validating experimental approaches for spaceflight
    experiments, and is especially important at a time when the space
    shuttle fleet is grounded. NASA currently funds about five ground-based
    investigations for each flight investigation, and hopes eventually to
    reach a ten-to-one ratio. Increased funding for this office would
    permit more grants to be funded at higher levels for longer periods of
    time.
        The highly-leveraged Space Grant program plays an important and
    successful role in workforce development through university programs
    and K-12 outreach. AAU also urges the Committee to fund the Space Grant
    program at its authorized level of $28 million.
        Competitive Merit Review.--Finally, NASA's scientific achievements
    are due both to the hard work of agency and university scientists and
    to the agency's use of merit review for allocating research funding. We
    believe that NASA should continue to use merit review to allocate
    research funds, since this process has helped produce the discoveries
    and advances from which the nation has benefited.
        Thank you for your attention to these matters, and for the
    opportunity to provide this testimony.

                                     ______

               Prepared Statement of the Society for Neuroscience

        Good morning Mr. Chairman and members of the Subcommittee. I am
    pleased to be submit testimony for this Subcommittee's consideration. I
    am Dr. Huda Akil and I serve as the President of the Society for
    Neuroscience. Our organization has a membership of more than 31,000
    basic and clinical researchers. We are the largest scientific
    organization in the world dedicated to the study of the brain, spinal
    cord and nervous system. The Society's primary goal is to promote the
    exchange of information among researchers. We are also devoted to
    education about the latest advances in brain research and the need to
    make neuroscience research a funding priority.
        Aside from my work at the Society, I am the Gardner Quarton
    Distinguished University Professor of Neuroscience in Psychiatry at the
    University of Michigan. I am also the Co-Director of the Mental Health
    Research Institute in Ann Arbor. I study the biology of the emotional
    circuits in the brain along with the impact of the environment on these
    circuits. My work focuses on stress, mood disorders, and substance
    abuse.
        Mr. Chairman, the Society appreciates this opportunity to testify
    and to discuss some of the important VA and NSF sponsored research
    being conducted in the field of neuroscience. We thank the members of
    this Subcommittee for their dedication to biomedical research at the
    National Science Foundation (NSF) and the Veterans Administration (VA).

                          NATIONAL SCIENCE FOUNDATION

        SfN is pleased with the funding levels outlined in the National
    Science Foundation Reauthorization Act of 2002. This legislation
    demonstrates Congress's commitment to a solid foundation for scientific
    endeavors. In order to maintain the technological progress the United
    States has consistently made, including advances in medical research,
    this foundation is critical. For the National Science Foundation (NSF),
    the President's budget request recommends $5.48 billion, an increase of
    $450 million or 9.0 percent. The Society for Neuroscience endorses the
    Coalition for National Science Funding (CNSF) request of $6.39 billion,
    the same as the level included in the reauthorization.
        While psychiatry, neurology, and neurosurgery are the better-known
    medical specialties that have their basis in neuroscience, this
    research has an impact on so many aspects of our lives and our nation's
    health. Even for individuals not specifically diagnosed with brain
    disorders or neurological conditions, neuroscience research facilitates
    scientists' understanding of how the brain functions. This knowledge is
    essential to understanding the impact of other diseases and disorders.
    For example, there is ample evidence that depression increases the
    likelihood of heart disease and that in turn heart disease can trigger
    severe depression. Obesity is a major health issue in our country.
    Feeding behavior and metabolic activity is controlled by the brain.
    Understanding how to help moderate these two factors could save
    billions of dollars in health care costs.
        With the introduction of programs like Project BioShield and the
    creation of the new Department of Homeland Security, the threat of
    imminent danger is now a part of our daily lives. This threat will
    undoubtedly have an impact on our nation's mental health. In addition
    to conducting basic research, NSF research can help researchers
    understand and treat the psychological effects of living with the
    threat of terrorism and now, under conditions of a war. The science of
    the brain can have great impact on the overall mental and physical
    health of this nation.
        As the Committee is aware, nearly all NSF appropriated funds are
    received through competitively awarded grants, with only five percent
    going to salaries and expenses. NSF is unique in its ability to channel
    the majority of its funding to the specific goal of acquiring knowledge
    and conducting research.

                         DEPARTMENT OF VETERANS AFFAIRS

        The Veterans Health Administration (VHA) is the nation's largest
    direct provider of healthcare services and the nation's most clinically
    focused setting for medical and prosthetics research. The research
    component attracts innovative researchers and provides veterans with
    access to innovative therapies.
        For the VA Medical and Prosthetics Research, we support the Friends
    of VA Medical Care and Health Research (FOVA) and the Independent
    Budget for the Veteran's Administration fiscal year 2004 Funding
    Recommendation of $460 million. The VA's Medical and Prosthetic
    Research Program fulfills a critical promise to our nation's veterans,
    but also yields innovative research for the nation as a whole.
    Investments in investigator-initiated research projects at VA have led
    to an explosion of knowledge that promises to advance our understanding
    of disease and unlock strategies for prevention, treatment, and cures.
    Additional funding is needed to improve quality of life for our
    veterans and plan for care of our nation's soldiers currently serving
    in Iraq.

     INCIDENCE AND ECONOMIC BURDEN OF NEUROLOGICAL AND PSYCHIATRIC DISEASES

        Each year, we try to convey the importance of biomedical research
    in terms of longer, healthier lives for those who suffer from
    debilitating neurological and psychiatric disorders. It is in the
    economic costs and burdens that the impact of these diseases is
    measurable. For example:
      --All Depressive Disorders affect 18.8 million Americans and cost $44
            billion per year;
      --Hearing loss costs the United States $56 billion per year, on the
            28 million Americans affected;
      --Alzheimer's Disease affects 4 million Americans and costs $100
            billion a year;
      --4 million people are affected by stroke, which costs the United
            States $30 billion per year;
      --$32.5 billion per year is spent on the 3 million Americans that
            have schizophrenia;
      --1.5 million Americans are affected by Parkinson's Disease at a cost
            of $15 billion per year;
      --Multiple Sclerosis affected 350,000 Americans at a cost of $7
            billion per year.

                                   CONCLUSION

        NSF and the VA medical system attract top researchers and serve a
    critical role by providing the opportunity to learn more about the
    diseases and conditions that affect our quality of life. With NSF
    building a fundamental base for scientific research and VA researchers
    building on this, our country will continue to excel in technological
    and biomedical advancements. Thank you for your efforts to ensure
    adequate resources for this important endeavor. The Society would also
    like to thank you for the opportunity to present testimony to the
    Subcommittee.

                                     ______

         Prepared Statement of the American Society of Plant Biologists

        Founded in 1924, the American Society of Plant Biologists (ASPB)
    represents nearly 6,000 plant scientists. The largest segment of ASPB
    members conducts research at universities in each of the 50 states.
    ASPB membership also includes scientists at government and commercial
    laboratories. We appreciate this opportunity given by the Subcommittee
    to submit these comments on behalf of the plant science community.
        The plant biology community joins with other biologists in
    extending our deep appreciation to Chairman Bond, Ranking Member
    Mikulski, and to all members of the Subcommittee for your strong
    support of plant genome research and other fundamental research
    sponsored by the National Science Foundation (NSF) Directorate for
    Biological Sciences and other directorates.
        Tremendous advances in the area of plant genomics have resulted
    from the interdisciplinary research efforts of plant biologists and
    physical scientists supported by NSF. As the broadly based science
    coalition, the Coalition for National Science Funding, noted in its
    brochure on NSF printed last month (the NSF Directorate for Biological
    Sciences section of the brochure is attached):

        ``Accomplishments
        Plant Genomics & Economically Important Crops
        A study that used microarray technology simultaneously explored the
    expression of thousands of genes in soybeans in order to better
    understand this economically vital plant's responses to drought and
    disease. A separate study on the petunia flower revealed changes in
    plant gene function that are inherited but that do not entail a change
    in DNA sequence.''

        Thanks to the support of the Subcommittee, NSF has been able to
    sponsor genomic research on economically important plants and on the
    model plant Arabidopsis thaliana. The entire Arabidopsis genome
    sequence was completed in 2000, well ahead of schedule. Following the
    completion of sequencing the genome, NSF has been proceeding with the
    ``2010 Project'' to determine the function of every gene in this model
    plant. Knowledge of the comparatively simple Arabidopsis genome will
    facilitate discovery of genes and their functions in other flowering
    plants, including valuable agricultural crops, energy crops and crops
    that will be the source of new pharmaceutical products.
        NSF-funded researchers studying Arabidopsis and economically
    important plants have learned from this research that some plants are
    more resistant than others to viral, bacterial or fungal diseases.
    Identification of specific disease-resistant genes will allow for the
    development of commercially important plants that are resistant to
    disease. Changes in Arabidopsis gene expression in response to light,
    temperature, water availability, salinity, air quality and other
    environmental factors have been found. Genes for cold tolerance have
    been identified. This is a genomic treasure of knowledge that combined
    with biotechnology will lead to the development of hardier food and
    energy crops resistant to heat, drought, cold and other environmental
    challenges. Scientists will have more effective tools to help prevent
    environmental, agricultural crop and forestry disasters with the
    increased knowledge available through genomic research.
        With the knowledge gained through finding similarities between
    genomes of different species of plants, scientists can manipulate
    genomes of grains, fruits and flowers to create improved crops
    including safer food crops with enhanced nutritional qualities. For
    example, research is contributing to improved, higher quality vegetable
    oil with reduced polyunsaturated fat, corn with higher quality protein,
    and foods with inactivated allergens.
        NSF-sponsored plant research has enabled scientists to successfully
    inactivate allergens in the major food crop, wheat and in other foods.
    Allergic reactions to wheat products such as bread and pasta should be
    significantly reduced when these experimental food crop products become
    commercially available.
        The White House-appointed National Science and Technology Council,
    Committee on Science, Interagency Working Group (IWG) on Plant Genomes
    has reported on the significant progress made with NSF-sponsored plant
    genome research. For example, NSF-supported researchers are developing
    methodologies that will enhance and facilitate use of the information
    encoded in the plant genome. These methodologies include microarray
    analysis, chromatin charting, and comparative genomics.
        The National Science and Technology Council's IWG cites the need to
    increase support for plant genome research to $1.3 billion over the
    next five years to reach objectives of its five-year plan. ASPB
    strongly endorses the recommendations of the National Science and
    Technology Council's IWG as outlined below in the IWG's January 2003
    report: National Plant Genome Initiative: 2003-2008:
      --$400 million for generating sequences and sequence resources for
            genome structure and organizational studies will result in the
            production of: (1) a completely finished rice genome sequence;
            (2) completely finished and mapped sequences of gene-rich
            regions of the maize genome; (3) highly accurate draft
            sequences of gene-rich regions of several key plant species;
            and (4) a variety of genome analysis tools to study structure
            and organization of a large number of plant species of economic
            importance.
      --$200 million for functional genomics studies will allow U.S.
            scientists to participate in international projects to
            determine the function of all of the genes in Arabidopsis and
            rice. The resulting functional genomics research resources will
            be shared freely and quickly, building a foundation for
            functional genomics research for all plant species.
      --$300 million for translational genomics studies will enable a broad
            community of scientists to begin applying the knowledge,
            resources and tools of genomics to understand the fundamental
            biology of plants and the underlying mechanisms for
            economically important plant processes.
      --$250 million for data management and informatics tools development
            will enable a broad community of both basic and applied
            scientists to utilize the outcomes of NPGI (National Plant
            Genome Initiative) research activities. $250 million is a
            conservative estimate since all plant genome research
            activities described above will include informatics as an
            integral component, and thus the actual expenditure for data
            management and informatics will be considerably higher.
      --$125 million for training, education and outreach will allow
            establishment of a NPGI training grant program and
            incorporation of training activities in all NPGI research
            activities.
        The National Science and Technology Council's IWG is made up of
    representatives from the National Science Foundation, Department of
    Agriculture, Department of Energy, National Institutes of Health, White
    House Office of Science and Technology Policy and Office of Management
    and Budget.
        Plant genome research and research on the applications of plant
    biotechnology, supported by this Subcommittee have revolutionized the
    way scientists can improve plants. This is essential to meeting the
    growing national and world needs for food, much of the world's energy,
    industrial feed stocks, clothing and building materials, and for
    lifesaving medicines.
        We commend the Subcommittee for its fair and balanced support of
    biological, physical and social and behavioral sciences sponsored by
    the National Science Foundation. As the Subcommittee understands,
    biological research sponsored by NSF differs significantly from medical
    research sponsored by the National Institutes of Health (NIH). The
    fundamental biology questions addressed by NSF-sponsored researchers
    are not the same questions addressed by NIH-sponsored research.
        Future discoveries providing novel ways to contribute to a cleaner
    environment; better protection of limited fresh water and other
    resources; and more effective responses to severe weather conditions
    and other environmental stresses affecting plants and other organisms
    could be lost if there was inadequate support for the NSF Directorate
    for Biological Sciences.
        The nation's capabilities in fundamental biology research in
    plants, systematics, physiology, water relations, environmental stress
    and other areas would decline rapidly if the NSF Directorate for
    Biological Sciences received less emphasis for support. We appreciate
    the Subcommittee's recognition of the substantial differences between
    research sponsored by NSF and NIH. The nation benefits from support of
    each of the science disciplines.
        We strongly endorse and appreciate the efforts on the Subcommittee
    to double support for NSF over five years.

                                     ______

        Prepared Statement of the National Council for Science and the
                                  Environment

                                    SUMMARY

        The National Council for Science and the Environment (NCSE) urges
    Congress to appropriate the funds necessary to implement the National
    Science Foundation Authorization Act of 2002. The Act authorizes a
    doubling of the NSF budget over five years, as championed by Senators
    Bond and Mikulski. In fiscal year 2004, NCSE supports the authorized
    NSF funding level of $6.39 billion. In addition to increasing the total
    NSF budget to the authorized funding level, NCSE urges Congress to
    provide strong support across NSF's entire portfolio, including its
    environmental research and education portfolio.
        The NSF budget request for fiscal year 2004 falls far short of the
    funding level authorized. Senator Christopher Bond expressed his views
    on the NSF budget request as follows: ``To say I am very disappointed
    that the President's fiscal year 2004 budget request only provides a 3
    percent increase over fiscal year 2003 would be a drastic
    understatement.''
        Federal investments in R&D and science education are essential to
    the future well-being and prosperity of the nation and deserve the
    highest priority of Congress. The long-term prosperity of the nation
    and the maintenance of our quality of life depend on a steady and
    growing commitment of federal resources to science and technology.
    Environmental R&D is a critical component of the nation's R&D portfolio
    and the National Science Foundation plays a pivotal role in supporting
    environmental R&D. We encourage Congress to explore the role of
    environmental R&D in homeland security and counterterrorism.
        NCSE encourages Congress to strongly support full and effective
    implementation of the National Science Board (NSB) report,
    Environmental Science and Engineering for the 21st Century: The Role of
    the National Science Foundation, within the context of efforts to
    double the budget of the NSF. The NSB report calls for significant
    improvements in the way that NSF supports environmental research,
    assessment and education, and proposes that the Foundation invest an
    additional $1 billion per year in these areas, to be phased in over
    five years. NSF has taken many steps to implement the NSB report and
    deserves full support from Congress.
        NCSE emphasizes the need for increased funding for NSF's Priority
    Area on Biocomplexity and the Environment. In addition, we recommend
    full funding for two large projects--the National Ecological
    Observatory Network (NEON) and EarthScope--which would create
    unprecedented opportunities for environmental research.
        NCSE urges Congress to restore full funding for the Environmental
    Protection Agency's (EPA) Science to Achieve Results (STAR) graduate
    fellowship program. The fiscal year 2004 budget request for EPA would
    cut funding for the EPA STAR fellowship program by 50 percent, from
    $9.75 million in fiscal year 2003 to $4.875 million in the fiscal year
    2004 budget request.
        NCSE commends the Chairman and Ranking Member of the Senate
    Appropriations Subcommittee on VA, HUD, and Independent Agencies for
    their bipartisan leadership on science for the nation's future. No
    other Appropriations Subcommittee has a greater impact on the future of
    environmental science.

                                  INTRODUCTION

        The National Council for Science and the Environment thanks the
    Senate Appropriations Subcommittee on VA, HUD, and Independent Agencies
    for the opportunity to provide testimony on the National Science
    Foundation budget request for fiscal year 2004.
        NCSE is a nonprofit, nonpartisan organization that has been working
    since 1990 to improve the scientific basis for environmental
    decisionmaking. Our work is endorsed by nearly 500 organizations,
    ranging from the U.S. Chamber of Commerce to the Sierra Club, including
    the National Association of Attorneys General, National Association of
    Counties, some 300 colleges and universities, and more than 80
    scientific and professional societies. As a neutral science-based
    organization, NCSE promotes science and its relationship with
    decisionmaking but does not take positions on environmental issues
    themselves.

                    FEDERAL INVESTMENTS IN ENVIRONMENTAL R&D

        Federal investments in R&D and science education are essential to
    the future well-being and prosperity of the nation and deserve the
    highest priority of the Congress. The long-term prosperity of the
    nation and the maintenance of our quality of life depend on a steady
    and growing commitment of federal resources to science and technology.

                                      TABLE 1.--ENVIRONMENTAL R&D BY FEDERAL AGENCY
                                        (Budget authority in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                     Environmental R&D (dollars in           Change (percent)
                                                               millions)            --------------------------------
                                                   ---------------------------------   Fiscal     Fiscal     Fiscal
                                                                                     Year 2002  Year 2002  Year 2002
                        Agency                                                         Actual     Request    Actual
                                                      Fiscal     Fiscal     Fiscal       to         to         to
                                                    Year 2002  Year 2003  Year 2003    Fiscal     Fiscal     Fiscal
                                                      Actual     Request    Enacted  Year 2003  Year 2003  Year 2003
                                                                                       Request    Enacted    Enacted
    ----------------------------------------------------------------------------------------------------------------
    National Science Foundation...................      1,062      1,164      1,177        9.7        1.1       10.9
    NASA..........................................      1,628      1,628      1,708        0.0        4.9        4.9
    Environmental Protection Agency...............        592        617        643        4.2        4.4        8.7
    Department of Energy..........................      1,840      1,649      1,813      -10.4        9.9       -1.5
    Department of Defense.........................        400        471        498       18.0        5.7       24.7
    Department of Commerce--NOAA..................        677        605        684      -10.6       13.1        1.1
    Department of the Interior....................        623        608        627       -2.4        3.1        0.7
    U.S. Department of Agriculture................        504        473        531       -6.3       12.3        5.2
    National Institutes of Health.................         81         74         84       -7.7       12.9        4.1
    Department of Transportation..................         68         67         71       -2.1        6.3        4.1
    Smithsonian Institution.......................         40         41         41        3.8        0.0        3.8
    Corps of Engineers............................         27         27         29        0.0        8.5        8.5
                                                   -----------------------------------------------------------------
          TOTAL...................................      7,541      7,425      7,907       -1.5        6.5        4.9
    ----------------------------------------------------------------------------------------------------------------
    Source: AAAS/NCSE estimates based on OMB data for R&D in the fiscal year 2003 Budget, agency budget documents,
      and information from agency budget offices.

        Environmental R&D is a critical component of the nation's R&D
    portfolio. NCSE estimates that federal funding for environmental R&D in
    fiscal year 2003 is approximately $7.9 billion, an increase of $366
    million or 4.9 percent relative to fiscal year 2002 (Table 1), based on
    an analysis of the federal R&D budget conducted jointly with the
    American Association for the Advancement of Science.
        The Appropriations Subcommittee on VA, HUD and Independent Agencies
    plays the largest role in setting funding levels for environmental R&D.
    It has jurisdiction over agencies that account for 45 percent of
    federal funding for environmental R&D.
        Congress has played a crucial role in determining the level and
    growth rate of federal funding for environmental R&D. The President's
    fiscal year 2003 budget request would have cut federal funding for
    environmental R&D by $116 million or 1.5 percent relative to fiscal
    year 2002. Congress restored the $116 million cut and added an
    additional $366 million above the President's fiscal year 2003 budget
    request (Table 1).
        In the fiscal year 2003 enacted appropriations bills, federal
    funding for environmental R&D increased by 4.9 percent relative to
    fiscal year 2002. However, federal funding federal funding for
    environmental R&D grew at approximately one-third the rate of total
    R&D, which increased by 13.8 percent to $117.3 billion. Federal
    investments in environmental R&D need to keep pace with the growing
    need to improve the scientific basis for environmental decisionmaking.
        The National Science Foundation plays a pivotal role in supporting
    environmental R&D. Environmental research often requires knowledge and
    discoveries across disciplinary and institutional boundaries. The NSF
    recognizes this and encourages multidisciplinary interactions within
    directorates and among directorates and programs, as well as with other
    federal agencies. The NSF has established a ``virtual directorate'' for
    environmental research and education. Through this virtual directorate,
    NSF coordinates the environmental research and education activities
    supported by all the directorates and programs. NSF's Environmental
    Research and Education portfolio has grown from $595 million in fiscal
    year 1999 to over $900 million in fiscal year 2003.

                       IMPLEMENTING THE NSF DOUBLING ACT

        The National Council for Science and the Environment urges Congress
    to implement the National Science Foundation Authorization Act of 2002,
    which passed Congress on November 15, 2002 and was signed into law by
    the President on December 19, 2002. A central goal of the Act is to
    double the budget of the National Science Foundation in five years. It
    authorizes a budget increase of 105 percent for the NSF, from $4.8
    billion in fiscal year 2002 to $9.8 billion in fiscal year 2007.
        NCSE commends the Chairman and Ranking Member of the Senate
    Appropriations Subcommittee on VA, HUD, and Independent Agencies for
    their sustained leadership in a bipartisan, bi-cameral effort to double
    NSF's budget over a five-year period. Senator Christopher Bond (R-MO)
    and Senator Barbara Mikulski (D-MD) initiated a letter signed by a
    bipartisan majority of 54 Senators aimed at doubling the budget of the
    NSF in five years. They were original co-sponsors of the National
    Science Foundation Doubling Act of 2002. Senator Bond said, ``I believe
    this bill underscores the critical role NSF plays in the economic and
    intellectual growth and well-being of this Nation,'' upon introduction
    of the legislation.
        The NSF Authorization Act has strong bipartisan support in
    Congress. Senator Barbara Mikulski said, ``with this bill, we take an
    important step to ensure the well-being of this nation and its
    citizens.''
        ``This is landmark legislation,'' said Science Committee Chairman
    Sherwood Boehlert (R-NY), who championed the bill in the House. ``From
    our nation's students, to our economy, and to our security, the fruits
    of this effort will be enjoyed for many years to come.''
        Rep. Nick Smith (R-MI), Chairman of the House Science Subcommittee
    on Research, said, ``These efforts will pay off in the form of
    continued scientific breakthroughs that will improve our lives in ways
    that we can only imagine today.''
        ``Passage of this bill is a great achievement,'' said Rep. Vernon
    Ehlers (R-MI). ``The research results, while not clear now, will reap
    huge benefits in the future.''
        The NSF Authorization Act of 2002 is a major milestone for the NSF,
    the scientific community, and the nation. In order to realize the
    outcomes envisioned by this legislation, Congress must appropriate the
    funding levels authorized in the NSF Authorization Act.
        national science foundation budget request for fiscal year 2004
        The National Council for Science and the Environment urges Congress
    to appropriate the authorized funding level of $6.39 billion for the
    National Science Foundation in fiscal year 2004. The fiscal year 2004
    budget request would increase funding for NSF by 3.2 percent to $5.5
    billion. The fiscal year 2004 budget request of $5.5 billion falls far
    short of the $6.39 billion budget and 15 percent increase authorized in
    the NSF doubling act (Table 2).
        At a recent congressional hearing, Senator Christopher Bond (R-MO)
    expressed his views on the NSF budget request as follows: ``To say I am
    very disappointed that the President's fiscal year 2004 budget request
    only provides a 3 percent increase over fiscal year 2003 would be a
    drastic understatement.''
        In addition to increasing total NSF funding to the authorized
    level, NCSE urges Congress to provide strong support across NSF's
    entire research portfolio. When the NSF Authorization Act was
    introduced in the House of Representatives on May 7, 2002, the bill
    included language about the allocation of funding among ``the physical
    sciences, mathematics, and engineering.'' References to ``physical
    sciences'' as opposed to all fields of science could have negative
    consequences for the environmental sciences, geosciences, non-
    biomedical life sciences, social sciences and interdisciplinary
    science. On May 22, 2002, the House Science Committee passed an
    amendment to the NSF authorization act that replaced ``physical
    sciences'' with ``sciences'' and made related revisions.
        The House Science Committee Report (House Report 107-488) on the
    NSF Authorization Act provides further guidance on the balance in the
    NSF's research portfolio: ``While the Committee is of the opinion that
    the mathematical, physical, and information sciences and engineering
    disciplines have been significantly underfunded, the Committee also
    recognizes that greater science funding for other disciplines,
    including the non-biomedical life sciences and the social sciences is
    also necessary . . . the committee strongly believes that all
    disciplines for which NSF provides support should receive significant
    budget increases.''
        NCSE supports the Science Committee's view that NSF's entire
    research portfolio--including the environmental sciences, geosciences,
    non-biomedical life sciences, social sciences, and interdisciplinary
    science--should receive significant budget increases. Although the
    fiscal year 2004 budget request would increase NSF's total budget by
    3.2 percent, several key programs that provide funding for
    environmental research would decline under the fiscal year 2004 budget
    request.

                                      TABLE 2.--NATIONAL SCIENCE FOUNDATION BUDGET
    ----------------------------------------------------------------------------------------------------------------
                                                  Budget Authority (dollars in millions)          Change (percent)
                                          --------------------------------------------------------------------------
                                                                                                  Fiscal     Fiscal
                 NSF Program                 Fiscal   Fiscal Year  Fiscal Year    Fiscal Year   Year 2002  Year 2003
                                           Year 2002      2003         2004          2004       to Fiscal  to Fiscal
                                             Actual   Enacted \1\  Request \2\  Authorized \3\  Year 2003  Year 2004
                                                                                                   \4\      Req. \5\
    ----------------------------------------------------------------------------------------------------------------
    Research and Related Activities            3,612       4,056        4,106          4,800         12.3        1.2
     (R&RA)..............................
        Biological Sciences..............        510         571          562   ..............       12.1       -1.6
        Computer & Info. Science &               515         579          584   ..............       12.3        1.0
         Engineering.....................
        Engineering......................        471         531          537   ..............       12.7        1.1
        Geosciences......................        610         684          688   ..............       12.3        0.5
        Mathematical & Physical Sciences.        920       1,035        1,061   ..............       12.4        2.6
        Social, Behavioral & Economic            184         191          212   ..............        3.8       10.9
         Sciences........................
        Polar Programs...................        301         319          330   ..............        6.1        3.4
        Integrative Activities...........        106         147          132   ..............       39.0       -9.9
        Budget Adjustment \6\............         -4  ...........  ...........  ..............  .........  .........
    Education and Human Resources (EHR)..        894         903          938          1,157          1.0        3.9
    Major Research Equipment.............        139         149          202            211          7.0       36.2
    Salaries and Expenses \7\............        170         193          226            214         13.0       17.2
    Office of Inspector General..........          7           9            9              8         35.9       -4.6
                                          --------------------------------------------------------------------------
            Total NSF Budget.............      4,823       5,310        5,481          6,391         10.1       3.2
    ----------------------------------------------------------------------------------------------------------------
    Source: NSF budget justification and data tables & AAAS (revised March 2003).

    \1\ Fiscal year 2003 Enacted figures reflect the final fiscal year 2003 omnibus appropriations bill passed by
      Congress on Feb. 13, 2003 and signed by the President on Feb. 20, 2003.
    \2\ Fiscal year 2004 President's budget request was released Feb. 3, 2003 before Congress passed the fiscal year
      2003 omnibus appropriations bill.
    \3\ Fiscal year 2004 Authorized figures are from the NSF Authorization Act of 2002, which was passed by Congress
      Nov. 15, 2002 and signed by the President Dec. 19, 2002.
    \4\ Percent change from fiscal year 2002 actual to fiscal year 2003 enacted appropriations.
    \5\ Percent change from fiscal year 2003 enacted budget to the President's fiscal year 2004 budget request.
    \6\ Adjustment from budget obligation to budget authority.
    \7\ Includes NSB Staff Salaries.

        Biological Sciences Directorate.--Under the fiscal year 2004 budget
    request, funding for NSF's Biological Sciences Directorate would
    decline by 1.6 percent relative to the fiscal year 2003 enacted
    appropriations bill (Table 2). Within the Biological Sciences
    Directorate, the budget for Environmental Biology would decline by 2.8
    percent, Integrative Biology and Neuroscience would decline by 3.1
    percent, and Emerging Frontiers would increase by 11.6 percent.
        Geosciences Directorate.--Funding for the Geosciences Directorate
    would increase by 0.5 percent, but two of its three divisions would
    face cuts in fiscal year 2004 relative to the fiscal year 2003 enacted
    appropriations bill. Funding for the Earth Sciences Division would
    decline by 4.9 percent and funding for the Ocean Sciences Division
    would decline by 0.7 percent.
        Biocomplexity and the Environment Priority Area.--NCSE is
    particularly supportive of NSF's priority area on Biocomplexity and the
    Environment. This initiative provides a focal point for investigators
    from different disciplines to work together to understand complex
    environmental systems, including the roles of humans in shaping these
    systems.
        The Biocomplexity and the Environment initiative is a growing
    priority within NSF, as reflected by the growth of its budget from
    $59.0 million in fiscal year 2002 to $99.8 million in the fiscal year
    2004 budget request. This priority area has been expanded to include
    research in microbial genome sequencing and ecology of infectious
    diseases--to help develop strategies to assess and manage the risks of
    infectious diseases, invasive species, and biological weapons. We urge
    Congress to support this critical initiative and to consider funding it
    at a level of $136 million, as proposed in fiscal year 2000 budget
    request for NSF.
        Major Research Equipment.--The NSF budget request includes funding
    for the National Ecological Observatory Network (NEON) and EarthScope
    in its account for Major Research Equipment and Facilities
    Construction. These projects would provide major new opportunities for
    environmental research.
      --National Ecological Observatory Network.--NEON would be a
            continental scale research instrument consisting of 10
            geographically distributed observatories, networked via state-
            of-the-art communications, for integrated studies to obtain a
            predictive understanding of the nation's environments. NSF is
            requesting $12 million in initial funding for the first two
            NEON observatories in fiscal year 2004.
      --EarthScope.--EarthScope would be a distributed, multi-purpose
            geophysical instrument array that is designed to make major
            advances in our knowledge and understanding of the structure
            and dynamics of the North American continent. Three components
            of the project would be the United States Seismic Array
            (USArray), the San Andreas Fault Observatory at Depth, and the
            Plate Boundary Observatory. NSF is requesting $45 million for
            EarthScope in fiscal year 2004.
        We urge Congress to fund both NEON and EarthScope at the levels
    specified in fiscal year 2004 budget request. Both NEON and EarthScope
    were included in NSF's budget request for fiscal year 2001 but funding
    for these projects was not provided in the enacted appropriations bill.
    NSF's budget request for fiscal year 2002 did not contain any new
    starts for the MREFC account. In fiscal year 2003, the NSF budget
    request included initial funding for both NEON and EarthScope. Congress
    appropriated $30 million for EarthScope in fiscal year 2003 but
    deferred funding for NEON ``without prejudice,'' implying that the
    project was not rejected based on merit and may be funded in the
    future.

     NATIONAL SCIENCE BOARD REPORT ON ENVIRONMENTAL SCIENCE AND ENGINEERING

        The National Council for Science and the Environment encourages
    Congress to support full and effective implementation of the National
    Science Board's report, Environmental Science and Engineering for the
    21st Century: The Role of the National Science Foundation, within the
    context of a doubling of the budget for the NSF.
        The NSB report sets out a bold, ambitious set of recommendations
    that could dramatically improve the scientific basis for environmental
    decisionmaking. The first keystone recommendation is as follows:

        ``Environmental research, education, and scientific assessment
    should be one of NSF's highest priorities. The current environmental
    portfolio represents an expenditure of approximately $600 million per
    year. In view of the overwhelming importance of, and exciting
    opportunities for, progress in the environmental arena, and because
    existing resources are fully and appropriately utilized, new funding
    will be required. We recommend that support for environmental research,
    education, and scientific assessment at NSF be increased by an
    additional $1 billion, phased in over the next 5 years, to reach an
    annual expenditure of approximately $1.6 billion.''

        NSF has taken many steps to implement the recommendations of the
    NSB. It has appointed an environmental coordinator and created a new
    position in the office of the Director. It has established a Priority
    Area on Biocomplexity and the Environment that provides new
    opportunities for multidisciplinary research on the interactivity of
    biota and the environment. NSF has formed an Advisory Committee on
    Environmental Research and Education. In January 2003, the Advisory
    Committee released a report entitled Complex Environmental Systems:
    Synthesis for Earth, Life, and Society in the 21st Century, which
    provides a 10-year outlook in environmental research and education for
    the NSF. The report presents pathways for building interdisciplinary
    bridges and increasing capacity to address environmental challenges.
    ``The concept of synthesis-based research is a touchstone for
    environmental research and education,'' said Stephanie Pfirman, Past
    Chair of the Advisory Committee, ``and long-term support is necessary
    to fulfill its promise.''
        Full implementation of the NSB report will require strong support
    from Congress and a significant increase in funding for NSF's portfolio
    of environmental science, engineering and education.

                     EPA'S STAR GRADUATE FELLOWSHIP PROGRAM

        NCSE urges Congress to restore full funding for the Environmental
    Protection Agency's Science to Achieve Results (STAR) graduate
    fellowship program. STAR is the only federally supported fellowship
    program specifically aimed at graduate students in the environmental
    sciences and policy areas. From 1995 to 2001, EPA funded over 800 STAR
    fellows at 168 colleges and universities. The STAR fellowship program
    is highly competitive, with only 7 percent of applicants being awarded
    fellowships.
        The fiscal year 2004 budget request for EPA would cut funding for
    the EPA STAR fellowship by 50 percent, from $9.75 million in the fiscal
    year 2003 omnibus appropriations bill to $4.875 million in the fiscal
    year 2004 budget request. Last year, the EPA budget request for fiscal
    year 2003 would have eliminated all funding for new STAR fellowships.
    Congress responded by restoring full funding for the STAR fellowship
    program in the fiscal year 2003 appropriations process and we call upon
    Congress to restore full funding again in fiscal year 2004. NCSE urges
    Congress to appropriate at least $9.75 million for the STAR fellowship
    program in fiscal year 2004. A higher appropriation is needed to
    redress the impact of the cancellation of the STAR fellowship
    competition last year. The proposed elimination of the STAR fellowship
    in the President's fiscal year 2003 budget request led to the
    suspension of new fellowships beginning in February 2002, despite the
    fact that over 1,400 applications had already been received and
    reviewed for 100 new fellowships.

                    HOMELAND SECURITY AND ENVIRONMENTAL R&D

        Environmental R&D is a critical component of homeland security.
    Homeland defense will benefit from a robust and balanced research
    agenda in addition to the rapid development of existing technologies.
    Consider, for example, research on the explosion of a ``dirty bomb'' in
    an urban area. In addition to research related to the treatment of
    victims, protection of first responders, and emergency response plans,
    a balanced research agenda would include interdisciplinary studies on
    the fate, transport, and clean-up of radionuclides and toxins in air,
    water, and land. Environmental scientists conduct research on chemical,
    isotopic and biological tracers on a broad range of length scales and
    time scales. They are well-positioned to contribute to homeland
    defense. We encourage Congress to explore the role of environmental R&D
    in homeland security and counterterrorism and to recommend actions that
    would improve the nation's capacity in this area.
        The National Council for Science and the NCSE commends the Chairman
    and Ranking Member of the Senate Appropriations Subcommittee on VA,
    HUD, and Independent Agencies for their bipartisan leadership on
    science for the nation's future. No other Appropriations Subcommittee
    has a greater impact on the future of environmental science.
    Investments in the environmental science continue to pay enormous
    dividends to the nation. Thank you very much for your interest in
    improving the scientific basis for environmental decisionmaking.

                                     ______

                     Prepared Statement of American Rivers

        This year, American Rivers was joined by more than 400 national,
    regional and local organizations concerned with river conservation
    throughout the United States \1\ in calling for significantly increased
    funding for the following Environmental Protection Agency (EPA)
    programs and other programs funded through the Veteran's Affairs,
    Housing and Urban Development, and Independent Agencies (VA-HUD)
    Appropriations bill. I urge that these requests be incorporated in the
    VA-HUD Appropriations bill for fiscal year 2004.
    ---------------------------------------------------------------------------
        \1\ These groups have endorsed the ``River Budget for fiscal year
    2004'', a report of national funding priorities for local river
    conservation. A list of groups endorsing the River Budget can be viewed
    at http://www.americanrivers.org/riverbudget/default.htm.
    ---------------------------------------------------------------------------

                        CLEAN WATER STATE REVOLVING FUND

        With the passage of the Clean Water Act 30 years ago, Congress made
    a financial commitment to protecting and improving water quality
    through grants to municipalities for construction of wastewater
    treatment systems. In 1987, the construction grants program was
    converted to a revolving loan program, in which federal capitalization
    grants are made to states that then make low-interest loans to
    municipalities for wastewater, stormwater, and other water quality
    protection activities. The 1996 Safe Drinking Water Act also created
    state revolving funds (SRFs) for drinking water treatment and
    protection of source water and wellhead areas.
        Maintaining the nation's high-quality drinking water and wastewater
    services will require a substantial increase in spending over the next
    two decades. Aging infrastructure, increased population and sprawl have
    stressed existing water infrastructure systems, as evidenced by the
    yearly 1.2 trillion gallons of stormwater overflows from combined sewer
    systems that carry untreated sewage into the nation's rivers and other
    water bodies. A May 2002 study by the Congressional Budget Office
    estimates that from 2000 to 2019, annual costs for investment in the
    nation's water systems will average between $11.6 billion and $20.1
    billion for drinking water systems and between $13.0 billion and $20.9
    billion for wastewater systems.
        The SRF programs have been used to fund projects that reduce non-
    point pollution, protect estuaries, prevent contamination of drinking
    source waters, and reduce polluted runoff by protecting natural areas
    and other ``green infrastructure,'' such as stream buffers. These
    approaches are often more cost-effective and provide a wide array of
    environmental and social benefits, including open space, wildlife
    habitat, recreation, and water supply.
        Congress should reauthorize the Clean Water SRF program at $3.2
    billion and the Drinking Water SRF at $1.5 billion, and appropriate the
    full amount authorized to both SRF programs.

             FEDERAL SALMON PLAN FOR THE COLUMBIA AND SNAKE RIVERS

        Several Members of Congress from the Northwest, as well as the
    Administration, have pledged to work to restore twelve Endangered
    Species Act listed stocks of Snake and Columbia river salmon without
    partially removing the lower four Snake River dams. Congress can help
    honor that commitment by funding the necessary salmon recovery
    measures. As we approach the first ``check-in'' for the 2000 federal
    Salmon Plan for the Columbia and Snake Rivers this September, federal
    agencies have failed to fulfill over 70 percent of its requirements.
        So far, Salmon Plan implementation has fallen well behind schedule,
    due in part to inadequate federal funding. Full funding for fiscal year
    2004 will require $529.3 million distributed among ten federal agencies
    through five different appropriations bills. The VA-HUD and Independent
    Agencies Appropriations bill provides funding to one of these agencies,
    the Environmental Protection Agency. EPA is charged with addressing
    water quality issues in the Snake and Columbia rivers, including the
    unnaturally high water temperatures and dissolved gas levels caused by
    the 29 federal dams in the Columbia River Basin.
        In fiscal year 2003, the EPA was one of only two agencies charged
    with implementing the Salmon Plan to receive sufficient funding. In
    fiscal year 2004, Congress should maintain the EPA's Columbia Basin
    budget at $18.3 million.

           TOTAL MAXIMUM DAILY LOADS, CLEAN WATER ACT SECTION 303(D)

        The water quality of America's natural water bodies is damaged and
    threatened by a wide range of activities and sources. Water quality
    impairments will not be cured without accounting for all of these
    sources and addressing problems in troubled watersheds in a
    comprehensive manner. The establishment of Total Maximum Daily Loads
    (TMDLs) under section 303(d) of the Clean Water Act is a sensible and
    necessary step in this process. States and the Environmental Protection
    Agency (EPA) must identify all sources of water quality impairment to
    rivers, streams and lakes that do not meet water quality standards,
    develop specific goals for improvement, and design plans to achieve the
    best overall results for the water bodies.
        However, this sensible process has not proceeded as quickly and
    efficiently as it should, due in part to a shortage of resources within
    regulatory agencies responsible for making the comprehensive
    assessments and strategies for improvement. Investigations of the harm
    caused by point source and non-point source pollution, physical
    alterations and habitat destruction in aquatic systems, and biological
    contaminants and invasive species can be complicated and must be done
    thoroughly and professionally. TMDLs must be developed in a way that is
    consistent with the Clean Water Act, is compatible with related water
    quality programs and regulatory processes, and leads to real
    improvements, rather than more paperwork and delay. The development of
    strong TMDLs requires adequate commitment and resources.
        In this, the 30th anniversary of the Clean Water Act, far too many
    of our nation's waters fail to support healthy natural communities of
    animals and plants and are dangerous or unsuitable for people to use
    and enjoy. Congress should show its continued commitment to restoring
    our natural heritage and appropriate $250 million for EPA's State
    Program Management Grants (Section 106 of the Clean Water Act) for
    grants to states for TMDL development and implementation in fiscal year
    2004.

                       NONPOINT SOURCE MANAGEMENT PROGRAM

        Every time it rains, silt, fertilizer, pesticides, oil, manure, and
    other pollutants flow into rivers and streams. As societal growth paves
    more land area, produces more air emissions, culverts and manipulates
    more streams and drainage channels, and generally encroaches further
    into naturally-functioning systems with human-designed environments, it
    damages water bodies in countless ways. Though the idea of water
    pollution often produces visions of pipes spewing industrial wastes or
    sewage into streams, these ``non-point sources'' of pollution degrade
    thousands of stream miles and hundreds of lakes, ponds, and wetlands.
    The damage caused by non-point source pollution includes habitat and
    aquatic life degradation, drinking water contamination, swimming area
    closures, lost recreational opportunities, fish kills, aesthetic
    degradation of waterways, and many other severe environmental and human
    health problems.
        While the Clean Water Act (CWA) established regulatory limits,
    targets, and penalties for point source pollution in 1972, it did not
    provide resources to address polluted runoff until 1987. That year,
    Congress recognized the need for greater federal leadership to reduce
    non-point source pollution by amending the CWA to establish the Section
    319 Non-point Source Management Program. The Section 319 program
    provides grant money that states, territories, and Indian tribes can
    use for a wide variety of non-point pollution reduction activities
    including technical and financial assistance, education, training,
    technology transfer, demonstration projects, and monitoring.
        The threat posed by non-point source pollution is as great as or
    greater than ever before and increasing. Congress should appropriate
    $250 million for EPA's Section 319 Non-point Source Management Program
    to help states and localities reduce runoff pollution.

           ENFORCEMENT OF DISCHARGE PERMITS UNDER THE CLEAN WATER ACT

        The Environmental Protection Agency's (EPA) ability to enforce
    environmental laws is critical to our nation's efforts to fulfill the
    Clean Water Act's stated objective of restoring waters to fishable and
    swimmable conditions. While the nation has made great progress in
    cleaning up its waters, we continue to need a strong enforcement
    presence by EPA because 40 percent of waters remain unsafe for fishing
    or swimming.
        The Clean Water Act prohibits discharges of pollutants through
    point sources into U.S. waters without a National Pollution Discharge
    Elimination System permit. These permits contain limits on what can be
    discharged, monitoring and reporting requirements, and other provisions
    to ensure that the discharge does not harm water quality or human
    health.
        Nationwide, about one-fourth of all major water polluters, nearly
    1,700 facilities, are operating without current permits to discharge
    wastes to the nation's waters. More than 750 major facility permits
    have been expired for two years, and 251 have been expired for 5 years.
    Many of these facilities dump huge amounts of highly toxic effluent
    into receiving waters. More than one-fourth of major facilities were in
    significant noncompliance with their permits over a recent 15-month
    period.
        To ensure that permits are current and properly complied with, EPA
    engages in enforcement activities, including inspections, sampling,
    testing, as well as civil and criminal enforcement actions. It is
    essential that EPA maintain a strong enforcement presence working with
    the states to undertake civil and criminal enforcement activities at
    facilities that can result in real improvements in environmental
    quality. For example, recent settlements with multiple cities across
    the country have helped clean our rivers and coastal waters of raw
    sewage overflows, improved operation and maintenance, and expanded
    treatment capacity. EPA needs adequate level-funding to conduct
    activities such as laboratory analysis and the hiring of expert
    witnesses to bring cases to make polluters pay for actions that harm
    the environment.
        The need to vigilantly guard the health of the nation's waters from
    illegal discharges is greater than ever before. It is essential that
    Congress fund the EPA Office of Enforcement and Compliance at a level
    sufficient to retain fiscal year 2002 staffing levels with adequate
    increases to allow for cost of living increases. Congress should fund
    EPA's enforcement programs at $485 million.

                             CHESAPEAKE BAY PROGRAM

        The Chesapeake Bay, the nation's largest estuary and one of the
    most ecologically productive in the world, is home to more than 15
    million people and 3,600 species of plants and wildlife. The 64,000-
    square mile watershed drains more than 100,000 streams and rivers,
    provides important opportunities for recreation and refuge for fish and
    wildlife, and serves as a key resource for the prosperity of the
    region.
        Unfortunately, the ecological integrity and productivity of the
    Bay's watershed have been severely compromised by development,
    agriculture, over-harvesting of resources, and more than 2,500 small
    dams and other obstructions that block migratory fish from their
    historic spawning habitats. The impact on the Bay's important seasonal
    fisheries has been dramatic. Annual harvests of Bay shad have dropped
    from 17.5 million pounds to less than 2 million during the past
    century. Between 1976 and 1985, the commercial harvest of anadromous
    fish in the Bay declined by 82 percent.
        Concern over these threats culminated in the creation of the
    Chesapeake Bay Program (CBP) in 1983, establishing what is now a
    national and international model for estuarine research and
    restoration. The program focuses on restoring tributaries, underwater
    Bay grasses, and fish passage, and also reducing agricultural runoff
    pollution and toxics. Among other goals, the CBP hopes to reopen more
    than 1,350 miles of upstream spawning habitat for migratory fish by
    removing small dams and other blockages on the Bay's rivers by 2003. In
    the past decade, the program has reopened more than 1,000 miles of
    habitat to migratory fish.
        Restoring the Bay's fisheries would provide the region with a
    significant economic boost. According to the Fish and Wildlife Service,
    healthy fish populations in the Bay and its tributaries would generate
    $10 to $30 million per year in shad sport fishing alone.
        In fiscal year 2004, Congress should provide the CBP with $30
    million to better protect and restore this valuable ecosystem. In
    addition, Congress should make the Chesapeake Bay Small Watershed
    Grants Program, a popular funding source for education and restoration
    projects throughout the Bay watershed, a separate line item to ensure
    its long-term success and to help restore funding to other Bay program
    areas, including fish passage engineering, construction and
    coordination.

                          WATERSHED ASSISTANCE GRANTS

        Solving today's water quality challenges, especially habitat loss
    and non-point source pollution, requires the active involvement of
    local citizens who care about the water quality where they live and are
    willing to take action. Ideally, locally-based watershed partnerships
    provide the frameworks to focus public and private sector efforts to
    identify needs, define protection and improvement goals, implement
    solutions, and measure progress in protecting and restoring watersheds.
        Yet without a sustainable, healthy organizational structure and
    good leadership, the survival of local watershed partnerships becomes
    harder. Without a watershed steward, it becomes difficult to implement
    the actual on-the-ground restoration work. To address this problem, the
    U.S. Environmental Protection Agency (EPA) teamed up with citizen
    activists to institute the Watershed Assistance Grants program.
        Administered in collaboration with the EPA, the Watershed
    Assistance Grants program supports the growth, sustainability, and
    organizational capacity of local watershed partnerships across the
    United States in the form of grants. Its goals are essential to the
    river movement, as the program addresses a serious funding gap in local
    watershed protection efforts.
        Unfortunately, minimal program funding is available to build the
    strength of these partnerships. In the last three years, only 6 percent
    of the proposals received by the program were funded, with award
    amounts ranging from $1,000 to $30,000. To date, 1,360 proposals
    (requesting approximately $25 million) have been submitted, but only 80
    awards have been made to locally initiated watershed partnerships in 39
    states.
        Each year for the past two years, the program has reviewed $2
    million in worthwhile applications. In fiscal year 2004, Congress
    should provide the Watershed Assistance Grants program with $2 million
    to support innovative efforts that build the capacity of community-
    based partnerships to conserve and restore watersheds.

                                     ______

     Prepared Statement of the State and Territorial Air Pollution Program
       Administrators and the Association of Local Air Pollution Control
                                   Officials

        The State and Territorial Air Pollution Program Administrators
    (STAPPA) and the Association of Local Air Pollution Control Officials
    (ALAPCO) appreciate this opportunity to provide testimony regarding the
    fiscal year 2004 proposed budget for the U.S. Environmental Protection
    Agency (EPA), particularly regarding grants to state and local air
    pollution control agencies under Sections 103 and 105 of the Clean Air
    Act.
        STAPPA and ALAPCO are the national associations of air quality
    officials in 54 states and territories and more than 165 metropolitan
    areas across the country. The Clean Air Act gives state and local air
    quality officials the primary responsibility for implementing our
    country's clean air program on behalf of our citizens. These agencies
    must work to limit or prevent emissions of a host of pollutants from a
    variety of sources that have impacts on public health. These include
    particulate matter, ground-level ozone, toxic air pollution, and acid
    rain, among others. State and local air agencies must maintain the
    fundamental elements of their programs--the foundation of our clean air
    efforts--while, at the same time, addressing new and emerging problems.

                                 RECOMMENDATION

        The President's fiscal year 2004 budget request calls for $228.5
    million for state and local air agency grants under Sections 103 and
    105 of the Clean Air Act, which is $5 million more than Congress
    appropriated for fiscal year 2003. While we appreciate this modest
    increase, the total is not sufficient to support our vital air quality
    efforts. Furthermore, the increase is earmarked for a specific
    purpose--air toxics monitoring--so it is not available to fund many of
    the different and varied programs that state and local air agencies
    must undertake. While we agree that monitoring toxic air pollution is
    very important, there are many other activities that are in great need
    of additional funding as well. The fact of the matter is that state and
    local air agencies are currently underfunded in general and are in need
    of substantial increases for numerous activities.
        We are very aware that there are tremendous budgetary pressures
    facing Congress, mostly due to the increased need for homeland security
    and expenses related to events in Iraq. As a result, many programs
    cannot be funded as robustly as needed. However, in light of the fact
    that air pollution poses a considerable threat to the public health of
    our country, we believe it should be considered one of our highest
    priorities. We recommend, then, that federal grants to state and local
    air quality agencies be increased by $25 million above the President's
    request, which is only a small share of the amount that is actually
    needed.

                        THE NEED FOR INCREASES IS GREAT

        It is well established that air pollution presents a pervasive
    national threat to public health and the environment. The health risks
    are not only significant, we know of no other environmental problem
    presenting greater risk. Air quality regulators at all levels of
    government have worked diligently for many years in pursuit of our
    clean air goals. In spite of the considerable improvements that we have
    achieved, clean, healthful air nationwide still eludes us.
        The magnitude of our air quality problem and the associated health
    effects, which will be discussed below, make it clear that funding for
    the control of air pollution should be a top priority. Unfortunately,
    the reality is that state and local air agencies are underfunded.
    Although states and localities devote significant resources to their
    air quality programs, air agencies have been operating for years with
    inadequate financial support from the federal government. As a result,
    many of our programs are not as robust as they need to be.
        A few years ago, STAPPA and ALAPCO, in cooperation with EPA,
    conducted a study of air program funding and estimated that federal
    grants to state and local air pollution control agencies under Section
    105 of the Clean Air Act fell short of our needs by nearly $100 million
    a year. While we have received modest funding increases in recent
    years, and additional grants are proposed for fiscal year 2004, these
    are simply not enough, especially in light of our expanded
    responsibilities. Unless our programs receive a substantially greater
    boost in funding, we will continue to face a serious financial
    shortfall, which will adversely affect our ability to protect and
    improve air quality. This shortfall will only become worse as greater
    demands are placed on our programs. Among the air program priorities
    for which state and local agencies require additional funding are
    hazardous air pollutants (HAPs); fine particulate matter, especially
    diesel particulate; compliance; inspections; monitoring; data
    improvements, including maintaining and improving infrastructures,
    emission inventories and modeling; haze and visibility monitoring; and
    outreach to and education of the public and regulated community.
        To address the problem of inadequate funds we have identified, we
    recommend that federal grants to state and local air pollution control
    agencies be increased in fiscal year 2004. While we believe an increase
    of $100 million would help our programs tremendously, we recognize that
    there are many other competing programs also in need of additional
    funding, especially this year. Therefore, we are requesting an increase
    of a quarter of that amount--$25 million.

                   THE MAGNITUDE OF THE AIR POLLUTION PROBLEM

        Air pollution is a persistent, nationwide problem. Over 170 million
    tons of pollution are emitted into the air each year across the United
    States. One hundred and thirty-three million people live in areas of
    the country that violate at least one of the six health-based National
    Ambient Air Quality Standards (NAAQS), not to mention the many millions
    of people who are exposed to toxic air pollutants that cause cancer and
    other health problems. As noted, the health risks from air pollution
    are significant and far exceed those from almost every other
    environmental medium. State and local agencies must address a range of
    serious air quality problems, a few of which are briefly described
    below.
        Perhaps the most complex air quality problem we face is achievement
    and maintenance of the NAAQS for particulate matter and ozone. In 1997,
    EPA established a new standard for fine particulate matter
    (PM2.5). Although we are still working to complete the data-
    gathering efforts necessary to determine which areas of the country
    violate the PM2.5 standard, one thing is very clear:
    PM2.5 poses the greatest health risk of any air pollutant,
    resulting in as many as 30,000 premature deaths each year.
    Additionally, fine particles are responsible for a variety of adverse
    health impacts, including aggravation of existing respiratory and
    cardiovascular disease, damage to lung tissue, impaired breathing and
    respiratory symptoms, irregular heart beat, heart attacks and lung
    cancer.
        Fine particles are not only emitted into the atmosphere directly
    from combustion processes, they are also formed secondarily in the
    atmosphere from such precursor emissions as oxides of nitrogen
    (NOX), sulfur dioxide and ammonia; in addition to their
    adverse health consequences, fine particles also contribute to regional
    haze. Based on preliminary air quality monitoring data, it appears that
    PM2.5 concentrations in over 170 counties throughout the
    U.S. exceed the health-based standard.
        Overall, progress in attaining clean air has been slowest with
    respect to ground-level ozone. Some parts of the country actually
    experienced increased levels of ozone in the past 10 years, and in 33
    national parks, ozone levels have risen by more than 4 percent. A
    significant factor in this trend is the increase we have experienced in
    NOX emissions, which are not only a precursor to ozone, but
    also a contributor to such public health and welfare threats as acid
    rain, eutrophication of water bodies, regional haze and, as mentioned,
    secondary PM2.5. Over the past 20 years, NOX
    emissions have increased by almost 9 percent, largely due to emissions
    from nonroad engines and diesel vehicles. Current data show that almost
    300 counties measure exceedances of the eight-hour ozone standard.
        The serious public health threat posed nationwide by emissions of
    hazardous air pollutants (HAPs) is another continuing concern we have.
    Last year EPA released the most recent results of its National-Scale
    Air Toxics Assessment (NATA), which provides nationwide estimates of
    exposure and health risks associated with 32 HAPs. While the NATA
    information reflects the situation of several years ago, it still
    provides the best indication we have of the magnitude of the problem.
    According to EPA, more than 200 million people in the U.S. live in
    areas where the lifetime cancer risk from exposure to HAPs exceeds 1 in
    100,000. Moreover, approximately 3 million face a lifetime cancer risk
    of 1 in 10,000. Considering that EPA has established 1 in 1,000,000 as
    the generally acceptable level of risk, these estimates not only
    illustrate the pervasive nature of the threat posed by HAPs, they also
    speak to the level of effort that will be required to reduce the risk
    and the high level of priority that should be placed on doing so.
        One HAP of special concern is mercury. Some portion of the mercury
    that is found in fish is the result of air emissions of that
    contaminant. The deposition of air emissions in our water bodies, and
    ultimately into our fish, is a significant problem, especially for
    those who rely on fish as an important part of their diets. Because of
    public health concerns, many states have had to issue advisories to the
    public about elevated concentrations of mercury in the fish that is
    caught in their water bodies. In fact, by 2001, 44 states had issued
    advisories, with 17 of them applying statewide. An additional nine
    states issued advisories for their coastal waters.
        The effect of air pollution on the nation's population is very
    troubling. This concern is only sharpened when we consider the adverse
    impact of air contaminants on one of our most sensitive and precious
    populations--our nation's children. Because they are still developing
    and spend more hours exercising outdoors, air quality has a greater
    impact on them. EPA recently published a study entitled, America's
    Children and the Environment (February 2003), which contains extremely
    disturbing data related to air pollution and children. For example, the
    report concludes the following:
      --in 2001, approximately 15 percent of children lived in counties in
            which the one-hour ozone standard was exceeded on at least one
            day per year;
      --in 2001, nearly 40 percent of children lived in counties that
            exceeded the eight-hour ozone standard;
      --in 2001, approximately 25 percent of children lived in counties
            that exceeded the PM2.5 particulate matter standard;
      --in 1996, all children lived in counties in which the combined
            estimated concentrations of hazardous air pollutants exceeded
            the 1-in-100,000 cancer risk benchmark; approximately 95
            percent lived in counties in which at least one HAP exceeded
            the benchmark for health effects other than cancer;
      --in 1999-2000, about 8 percent of women of child-bearing age had at
            least 5.8 parts per billion of mercury in their blood (children
            born to women with blood concentrations above that number are
            at some increased risk of adverse health effects); and
      --between 1980 and 1995, the percentage of children with asthma
            doubled, to 7.5 percent, and by 2001, 8.7 percent of all
            children had asthma.
        The magnitude of the air quality problem and the associated health
    effects make it clear that significantly increased funding for the
    control of air pollution should be a top priority.

                        EXPENDITURE OF ADDITIONAL FUNDS

        STAPPA and ALAPCO recently collected information from their members
    to learn about funding priorities for state and local air pollution
    control programs. The report we compiled presents valuable information
    about the highest priorities of state and local agencies and how they
    would spend additional federal grant funds. We provided you this report
    when it was completed and would be happy to supply you with an
    additional copy if you wish.
        Among the general activities that state and local air agencies
    identified as their highest priorities, and those on which they would
    spend increased grant funds, are efforts addressing hazardous air
    pollutants; compliance, fine particulate matter, especially diesel
    particulates; inspections; monitoring; improvements in data, including
    maintaining and improving infrastructures, emission inventories and
    modeling; haze and visibility monitoring; and outreach and education
    for the public and regulated community. Depending on what the high-
    priority issues in their areas are, state and local agencies identified
    a range of specific activities to which they would target a grant
    increase. These included the following, among others:
      --improve emission inventories of toxic air pollution;
      --increase the frequency of inspections of major and minor sources;
      --meet the various federal and public expectations under Section 112
            (air toxics);
      --expand criteria pollutant monitoring;
      --improve risk assessment capacity;
      --reduce concentrations of fine particulates;
      --increase public outreach efforts;
      --improve small business compliance assistance;
      --purchase replacements for equipment that has outgrown its expected
            usage;
      --increase the number of air toxics monitoring locations to better
            characterize baseline concentrations and localized impacts; and
      --improve modeling tools to determine emission reductions needed.
        State and local air agencies' need for increased grants is very
    great; there are many critical activities that are currently
    underfunded. Many of these activities are the foundation of our air
    quality program and are, therefore, essential. Without additional
    federal grants, and the flexibility to target them to the activities
    that are most appropriate in individual states and communities, state
    and local air agencies will find it increasingly difficult to obtain
    and maintain healthful air quality.

                                  EPA'S BUDGET

        Finally, notwithstanding the essential contributions of state and
    local air agencies to air quality, the federal government's job is
    critical as well. We need a strong and effective EPA to carry out its
    responsibilities if we are to achieve and maintain healthful air
    quality. Therefore, we recommend that Congress provide adequate funding
    for EPA so that the agency can continue its efforts related to
    particulate matter; mobile sources; national emission standards,
    including toxic air pollutant standards; training; health research and
    risk estimates; and modeling.

                                   CONCLUSION

         We must always keep in mind that the most valuable asset our
    nation can ever have is a healthy population and a clean environment.
    In working to achieve our clean air goals, protecting these assets must
    be our highest priority. Accordingly, we strongly recommend and
    urgently request that Congress increase federal grants to state and
    local air quality agencies under Sections 103 and 105 of the Clean Air
    Act by $25 million in fiscal year 2004.
        Thank you very much for this opportunity to provide you with our
    testimony. Please contact us if you have questions or require any
    additional information.

                                     ______

           Prepared Statement of the PATH Industry Steering Committee

        Mr. Chairman and Members of the Subcommittee, my name is Michael
    Chapman, and I am a home builder from Santa Fe, New Mexico. As Chairman
    of the Industry Steering Committee for the Partnership for Advancing
    Technology in Housing (``PATH'') program, I welcome the opportunity to
    submit testimony in support of continued funding for the PATH
    initiative at the fiscal year 2001 level of $10 million.
        First, let me thank you, Mr. Chairman, as well as Ranking Democrat
    Senator Mikulski and all the members of this subcommittee for your
    foresight and leadership in helping to support this program. Second, I
    would like to point out that the current HUD leadership has not put the
    PATH program in the Administration budget, making it necessary for the
    direction to come from this committee to ensure continued funding.
    Although I can't explain the rationale for HUD's position, PATH is
    clearly within the congressional mandate embodied in Title V of the
    basic HUD statute, that the

        ``Secretary shall require, to the greatest extent feasible, the
    employment of new and improved technologies, methods, and materials in
    housing construction, rehabilitation, and maintenance . . . with a view
    to reducing costs, and shall encourage and promote the acceptance and
    application of such advanced technology, methods, and materials by all
    segments of the housing industry''.

    It is a goal of the Industry Steering Committee to educate the HUD
    leadership as to the importance of this program to the housing
    industry.
        The PATH program seeks to accelerate the creation and widespread
    use of advanced technologies in order to improve the quality,
    affordability, and durability of our nation's housing stock. A recently
    released report by the RAND Science and Technology Policy Institute
    makes a compelling case for federal investment in housing R&D programs
    such as PATH. It has long been recognized that housing is a major
    driver in the economy, and as such, innovation in housing has
    significant economic ramifications. The report states that ``innovation
    contributes positively to increased productivity and provides other
    benefits to all who are involved . . . [including] a broad range of
    housing industry participants from homebuilders to manufacturers,
    insurers, regulators, homeowners, and others.'' You should also know
    that the PATH program money is leveraging $5-6 million of private
    sector investment in program activities.
        Now in its fifth year of funding, the accomplishments of the PATH
    program are real and demonstrable, from funding for basic research
    activities at Universities to industry efforts at technology transfer.

                            PATH UNIVERSITY RESEARCH

        Due entirely to PATH and the interagency co-operation it has
    fostered, universities now have the only national research grant
    program for faculty in housing technology, and the only university
    program in housing technology in US history. HUD and NSF are
    collaborating on the PATH-NSF ``Program Awards in Housing Technology''
    which provide funding to spur innovative basic research so researchers
    in universities and academic institutions can bring new conceptual
    approaches to the homebuilding community. PATH fosters this dedication
    and innovation by working directly with universities, connecting
    members of the academic research community with each other and to the
    housing industry. PATH makes it clear to Federal and industrial
    stakeholders that quality research on housing is being done in
    America's institutions of higher learning. To date, 28 universities
    have benefited from the Program awards, and numerous other faculty are
    starting to focus their research agendas for the benefit of America's
    housing. This includes work as varied as manufactured housing factory
    streamlining at Michigan State, studies of new house panel systems and
    information technologies at Virginia Tech, and new multifamily
    development systems at the University of Central Florida. Over the long
    term this will be of enormous benefit to housing, both in producing
    research results and in engaging students in housing technology
    curricula.

                     PATH GOVERNMENT/INDUSTRY COLLABORATION

        The inability to accurately determine the durability or predict the
    ``service life'' of building materials exposed to outside weathering
    continues to be major barrier to innovation in housing. This is clearly
    illustrated by the dilemma faced by a manufacturer of a new product and
    the willingness of consumers to purchase this product. The manufacturer
    either can wait 5-20 years to fully develop the durability data from
    existing methods, or can introduce the product to the market without
    reliable durability data and expose the corporation to potentially
    significant liability.
        The service life prediction problem extends far beyond the housing
    industry. It encompasses everything from plastic toys for children, to
    coatings for automobiles and orbiting satellites. Despite the obvious
    need for improved service life prediction, it is one of a handful of
    scientific problems that has not experienced significant progress over
    the last 100 years. This problem has proven too complex to address with
    the resources of any individual entity such as a university laboratory
    or single corporation. PATH has recognized, facilitated and invested in
    a unique public/private sector partnership led by the Commerce
    Department's National Institute of Standards and Technology (NIST). The
    partnership includes four federal agencies, the Smithsonian Institution
    and eighteen major U.S. corporations. This multidisciplinary public-
    private approach is leveraging knowledge discovered in skin cancer
    research and applying it to measuring and predicting the weathering of
    building materials.
        This NIST-led approach has developed a device known as ``SPHERE''
    (Simulated Photodegradation by High Energy Radiant Exposure) which is
    illustrated in a separate handout. SPHERE compresses the time required
    to evaluate a material's response to weathering in two ways: first, it
    operates 50 times faster than outdoor exposure, and second, it can
    accommodate more than 500 samples distributed into as many as 32
    specimen chambers with known UV, temperature, and humidity conditions.
    Each chamber can generate exposures similar to a Texas summer dawn, a
    North Dakota winter night, a mid-summer Florida afternoon and a
    California sunset, plus up to 28 other environments, all at the same
    time. Materials exposed to the SPHERE's UV light for one day receive
    the equivalent of 50 days of sunlight.
        Although NIST is still in the early stages of this research, the
    SPHERE has already challenged long-held beliefs about the weathering of
    materials. For example, it is widely believed that paint fails through
    a process where it wears away due to intense sunlight exposure. This
    PATH-sponsored research has shown that, in reality, the coating fails
    through the formation of pits. Shown in another handout at an early
    stage of degradation, these pits are just one-twentieth the width of a
    human hair. They are large enough to breach the coating, yet small
    enough that the coating appears defect free to the eye. Surprisingly,
    these damaging pits are formed only when sunlight and water (humidity)
    are combined, and not just by intense sunlight.
        This result plus others embolden the private-sector partners to
    believe that this PATH research is on the cusp of fundamentally
    changing the methods used to predict durability. The ability to rapidly
    and accurately predict in-service performance allows manufacturers to
    deliver innovative products more quickly into the housing and other
    markets.
        This innovation will take many forms. Our private sector partners
    are actively considering two innovations. The first is materials
    specifically formulated for local climate durability. The second is
    tools enabling builders, owners, operators and even homeowners the
    ability to calculate the economic consequences of particular building
    material or formulation choices in constructed facilities.

                            PATH TECHNOLOGY SCANNING

        PATH has spent considerable time searching outside of the home
    building industry to identify promising technologies that could help
    meet the program's goals. Summaries of the findings have been published
    and widely distributed (see handouts). Dozens of technologies that are
    potentially applicable to home building have been identified. For
    example, the U.S. military is involved in research to develop fabric-
    based materials that can transport power and signals. These types of
    breakthroughs could have a significant impact on the development of
    panelized construction for homes by providing highly durable materials
    that can have combined functions, such as wall coverings and power. On
    the private sector side, the composite materials industry is now
    developing materials that can serve as both the structure and the
    finish surface on a wall, floor, or roof. These are exciting
    developments. Our challenge is to work with the manufacturing and
    building communities to realize their potential and bring them into the
    building process.

                          PATH TECHNOLOGY ROADMAPPING

        The objective of PATH technology roadmapping is to identify
    technological research in home building and serve as a guide for
    research investments by government and industry. The roadmaps identify
    the main areas for research and development that can advance the PATH
    goals. Roadmapping results are being provided to private sector
    interests to guide their technology development and their investments
    in research and development. Through this process, new technologies
    will be generated and additional research needs will be identified.
        PATH initiated the overall roadmapping process during early 2000.
    Participation to date includes over 300 builders and remodelers,
    housing manufacturers, material and product suppliers, academicians,
    researchers, code officials and other stakeholders who identified and
    prioritized technologies that hold promise for achieving PATH's goals.
    The result is five specific roadmapping activities that are currently
    in different stages of development:
      --Information Technology to Accelerate and Streamline Home Building
      --Whole-House and Building Process Redesign
      --Energy Efficiency in Existing Homes
      --Technology Roadmapping for Manufactured Housing, and
      --Advanced Panelized Construction.
        For example in the Advanced Panelized Construction roadmap, an
    important first step was to identify materials from other industries
    that are stronger, lighter in weight, and more durable; and that could
    be used successfully in housing construction. One example is the honey-
    comb technology which has been used for decades by the composite
    industry to build airplanes, subway cars, and other types of vehicles
    because it is strong, lightweight, and durable. Combining this
    technology with a durable high-pressure laminate finish could lead to
    the next generation of panels for house construction. The next step is
    to make the panels more cost effective to produce, and to design for
    the integration of utilities, such as electric wiring and plumbing.

                         PATH AND MANUFACTURED HOUSING

        Major strides have been made in the area of manufactured home
    innovation. According to the Congressional ``Millennial Housing
    Commission'' report, the manufactured housing industry provides 72
    percent of the nation's affordable housing. In the past three years,
    PATH research has helped develop approaches to eliminate moisture
    problems (the underlying cause of mold and material degradation),
    improve energy efficiency by more than 20 percent, increase factory
    production efficiencies, create more durable foundation systems able to
    withstand natural disasters, and expand the cost and quality advantages
    of factory manufacturing to a larger portion of the home building
    industry. PATH research plays a pivotal role in keeping housing costs
    under control for low and moderate income buyers.

                               FIELD EVALUATIONS

        There are over 40 PATH field evaluation projects that have been
    completed, are in progress, or are under development. As you can see by
    the stars on the map, these projects are distributed across the United
    States. I personally participated in a field demonstration in Santa Fe
    that utilized technologies that could greatly benefit housing in the
    arid western states. In this project we installed a rainwater
    collection system as well as a graywater reuse system. These systems
    allowed us to downsize the septic system, fully landscape the lots and
    even plant a small orchard while saving water.
        Another example of PATH's impact is a recently initiated field
    demonstration taking place on a Marine base in Oahu, working with the
    University of Hawaii and a military contractor to reduce the cost of
    steel construction. The U.S. military is particularly dependent on
    steel framing for their new homes because of the climates in which they
    typically build. In Hawaii, the Formosan termite has made steel framing
    a necessity for almost all new housing.
        A significant cost barrier inherent in residential steel
    construction is in fastening. The typical hammer and nails used in wood
    frame construction is extremely quick and efficient. By contrast, the
    screws and special fasteners used in steel framing are much more labor
    intensive and more expensive. One promising category of fastening
    methods is ``clinching''. The PATH Technology Inventory describes
    clinching as a method of joining two pieces of sheet metal by pressing
    them together into a die that forms a connection. Expensive fasteners
    such as self-tapping screws or pins are not required with clinching.
    However, the connections need to be field tested for ease of use by the
    labor force, laboratory tested for strength and corrosive resistance,
    and approved by code officials. Current clinching tools may also need
    to be redesigned for this application.
        Although the U.S. military is leading the way, the private sector
    is quickly following their lead. Hunt Building Company, an El Paso-
    based military housing contractor, is working with PATH on field tests
    on military housing. A local production home builder in Hawaii is
    filling the same role on homes built for the private sector. Both
    companies are investing significant resources of their own in the
    clinching demonstration, which can potentially lead to lower
    construction costs and improved quality. We expect initial results on
    this project sometime this fall.

                                   CONCLUSION

        In summary, the PATH program has had wide reaching impacts. PATH
    has been consistently praised by the National Academy of Sciences in
    three evaluation reports. PATH has awarded grants and contract work to
    over 60 firms including numerous small and minority businesses,
    universities, manufacturers, and trade associations. PATH has leveraged
    government funding with private sector investments. And PATH has
    created an environment of innovation in an industry that must innovate
    to have a strong future. We request your help and support to make the
    program continue.

                                     ______

       Prepared Statement of the National Association of Counties, U.S.
     Conference of Mayors, National League of Cities, National Association
     of Local Housing Finance Agencies, and National Community Development
                                  Association

        Mr. Chairman and Members of the Subcommittee, this statement is on
    behalf of the National Association of Counties, the U.S. Conference of
    Mayors, the National League of Cities, the National Community
    Development Association, and the National Association of Local Housing
    Finance Agencies. We appreciate the opportunity to present our views on
    fiscal year 2004 appropriations for the Department of Housing and Urban
    Development, and in particular, the two priority programs for local
    governments--the Community Development Block Grants (CDBG) and the Home
    Investment Partnerships program (HOME).
        We thank you, Mr. Chairman and Members of the Subcommittee for your
    continuing support for these priority local government programs. We
    were especially pleased by the $111 million increase in HOME formula
    funding included in the fiscal year 2003 omnibus appropriations bill.
        Mr. Chairman, local government officials urge you to increase CDBG
    formula funding in fiscal year 2004 to $5 billion and HOME formula
    funding to $2.25 billion. These programs work, they make a real
    difference in people's lives, and it is our sincere hope that they will
    be funded at levels that reflect the very real community development
    and affordable housing needs that exist across our country.

                  WHY CDBG IS EFFECTIVE AND CRITICALLY NEEDED

        Now in its 29th year, CDBG is arguably the Federal government's
    most successful domestic program. CDBG helps communities tackle some of
    their most serious community development challenges. The CDBG program's
    success stems from its utility, i.e., providing cities and counties
    with an annual, predictable level of funding, which can be used with
    maximum flexibility to address unique neighborhood revitalization
    needs. Based on the fiscal year 2002 CDBG grantee data from the IDIS
    system, CDBG provided funding to 187,380 housing units. In addition to
    providing funding to housing units, the program created or retained
    over 90,000 jobs principally for low and moderate income persons.
        The great success of the CDBG program has come through dedicated
    practitioners working very hard to ensure good program performance and
    timely expenditure of funds. As cities face greater demands on staff to
    monitor subrecipients, undertake good effective program planning, the
    resources are just not there to get and keep staff properly trained.
    There have been no CDBG funding available for technical assistance and
    training at the national level or at the local field office level.
    Therefore, we ask the Subcommittee to include in this appropriations
    bill statutory language for a guaranteed source of funding for HUD and
    interested groups to provide technical assistance and training in much
    the same way as does the HOME program.
        Throughout its history, CDBG has garnered tremendous support from
    virtually all sectors, public and private. States and local governments
    have seen modest increases in formula funding which has been well
    received, however with the completion of the 2000 Census, the
    subsequent redistribution of funds, and with the new definition of MSA
    that will be incorporated into the CDBG program in fiscal year 2004,
    there will likely be an additional 80 to 100 new entitlement cities
    added to the program If funding for the CDBG formula program remains at
    its current level, all existing cities in the program will receive
    cuts. Many cities received substantial cuts resulting in their fiscal
    year 2003 allocation, resulting from the 2000 Census data. Should
    formula funding levels main stagnant, with approximately 80-100 new
    communities to share a shrinking pot, many community development
    programs will not receive enough funding to continue to operate.
    Therefore, we the locally elected officials, urge the Subcommittee to
    provide at least $5 billion in formula grants for CDBG in fiscal year
    2004.

                  HOME INVESTMENT PARTNERSHIPS (HOME) PROGRAM

        The HOME Investment Partnerships (HOME) Program is also an
    effective block grant program; providing affordable, decent, and safe
    housing to thousands of families across the country. According to
    cumulative HUD data, since 1992 HOME has helped to develop or
    rehabilitate over 718,000 affordable homes for low- and very-low income
    families. Ninety percent of the HOME funds used for rental housing must
    be targeted to families with incomes at or below 60 percent of the area
    median. The balance may assist those with incomes up to 80 percent of
    the median income. The majority of HOME funds have been committed to
    housing that will be occupied by very low-income people and a
    substantial amount will assist families with incomes no greater than 30
    percent of median. As of the end of February 2003, more than 84 percent
    of HOME assisted rental housing was benefiting families at or below 50
    percent of area median income. Forty nine percent of all home-assisted
    rental housing (including tenant-based rental assistance) was helping
    families with incomes at or below 30 percent of area median income.
        HOME funds also help low- and very-low income families realize the
    dream of homeownership by providing for construction and rehabilitation
    of housing as well as providing the down payment and or closing cost
    assistance in the form of second mortgages necessary to bridge the gap.
    Since 1992, HOME funds have been committed to 140,170 homeowner units,
    with an additional 270,258 household receiving homebuyer assistance.
        HOME is cost effective and provides the gap financing necessary to
    attract private loans and investments to projects. For each HOME
    dollar, $2.92 of private and other funds has been leveraged since the
    program's inception. This clearly illustrates the effective and
    judicious use of HOME funds by participating jurisdictions.
        We are concerned that there is an increasing use of set-asides
    within HOME. We note that the Bush Administration has proposed a new
    $25 million innovative lead hazard demonstration program within HOME.
    We prefer the new lead hazard grant program that was funded in the
    fiscal year 2003 omnibus appropriations bill, aimed at communities with
    the highest lead hazard abatement needs, to the Administration's HOME
    set-aside. We support the Administration's proposal to fund housing
    counseling as a separate program, instead of as a set-aside under the
    program. We hope that this trend continues with other set-asides under
    HOME.
        We greatly appreciate the increase of $111 million in formula
    funding for the program in fiscal year 2003. However, with the 2000
    Census data, approximately 20 new participating jurisdictions will
    become eligible to receive HOME funds in fiscal year 2004, thereby
    eroding this increase in formula funding. We, therefore, urge you to
    fund the HOME program in fiscal year 2004 at a level of at least $2.25
    billion in formula grants.

                          SECTION 108 AND BROWNFIELDS

        We have serious concerns about the Administration's decision to
    zero out several important economic development tools in the fiscal
    year 2004 budget proposal, including the Section 108 loan guarantee
    program and the Brownfields Economic Development Initiative (BEDI)
    program. These programs fund much-needed investment in our communities,
    helping to create jobs and reclaim contaminated sites that can be made
    productive again. The Section 108 program provides communities with a
    source of financing for economic development, housing rehabilitation,
    public facilities, and large-scale physical development projects. BEDI
    annually provides $25 million in grants to communities for brownfields
    projects focused on economic redevelopment. In its fiscal year 2004
    budget, the Administration has proposed to shift all responsibility for
    the redevelopment of brownfields to the EPA. The EPA focuses on
    assessment and remediation of contaminated sites, not the redevelopment
    of the site, which is where HUD's expertise lies. We request that the
    BEDI program remain at HUD and that you follow the Administration's
    original proposal and fund BEDI at $50 million for fiscal year 2004. We
    ask you to fund Section 108 at its fiscal year 2003 level.

    RENEWAL OF EXPIRING SECTION 8 RENT SUBSIDY CONTRACTS AND BLOCK-GRANTING
                                  OF SECTION 8

        Mr. Chairman, we commend the Subcommittee and the Congress for
    fully funding all expiring tenant-based and project-based rent subsidy
    contracts in fiscal year 2003 as in previous years. We urge you to do
    the same this year. The need for affordable housing continues to grow
    as housing prices increase faster than wages for low-income Americans.
        We note, too, that the Administration has proposed converting the
    Section 8 program into a block grant and turning program administration
    over to the states. We are strongly opposed to this proposal. The
    Section 8 voucher program is a highly cost-effective, market driven
    program. Though voucher utilization has become more difficult in recent
    years, a recent survey by leading public housing and private landlord
    groups shows that local Section 8 voucher administrators have adapted
    and utilization rates have gone up 6 percent in the last year. Moreover
    Section 8 is not only a successful means of providing decent, safe and
    affordable housing in its own right, but it is also an important
    lynchpin in supporting a wide variety of other housing programs such as
    homeless grants, HOPE VI and homeownership. We are also concerned that
    block granting will result in a reduction in the number of families for
    which the federal government will provide assistance. We do not believe
    that building a larger state bureaucracy is the most effective means of
    moving Housing Choice Voucher funds to the citizens who need them. We
    urge the Congress to reject this proposal.

                            HOMELESS HOUSING FUNDING

        Mr. Chairman, we support a funding level of $1.32 billion for
    homeless housing programs as proposed by the Bush Administration. We
    have been working with the authorizing committees to craft legislation
    converting the McKinney Act's homeless housing programs into a pure,
    formula-driven block grant program, like the CDBG and HOME block grant
    programs. In order for such a program to give sufficient funds to
    communities to carry out meaningful projects at the local level, it
    needs an appropriation of at least $1.3 billion. We support the
    existing Continuum of Care planning process and would recommend that
    this process be codified as part of the block grant. We also urge full
    funding of Shelter Plus Care contract renewals. We also support the
    Administration's proposed $50 million Samaritan Initiative. This
    initiative is intended to address the most pressing homeless issue--
    chronic homelessness--to be joined with $10 million from the Department
    of Health and Human Services and the Veteran's Administration to fund
    services, such drug abuse treatment and primary health care for this
    population.

                             LEAD HAZARD REDUCTION

        According to HUD, approximately 25 million housing units have lead
    hazards. Of this number, 5.6 million house children under the age of
    six. At least 1.6 million of these units house low-income families with
    children under the age of six, the population most at-risk of elevated
    blood lead levels. This is a serious health problem that must be
    remedied.
        Programs such as CDBG and HOME assist this population with their
    rehabilitation needs, but these funds can only go so far. We want to
    thank Congress for providing $50 million for a new lead hazard
    reduction program that will begin in fiscal year 2004. This program is
    the first step to providing funding to eradicate lead-based paint from
    the nation's housing; however, because of the cost of abatement of lead
    hazards, much more funding is needed. We urge Congress to provide $75
    million for this program in fiscal year 2004, the same level as
    proposed initially by the Senate in fiscal year 2003. We also ask that
    Congress re-shape the program into a formula-allocated block grant to
    those areas that are most in need of the funds. A competition is too
    time-consuming for both grantees and HUD. It also doesn't provide the
    money to localities in a quick fashion.

                                 PUBLIC HOUSING

        We note that the President's budget proposes to zero out the HOPE
    VI demolition and replacement of severely distressed public housing
    program. We oppose this recommendation. The HOPE VI program eliminates
    distressed public housing and replaces it with mixed-income
    developments. It harnesses the private sector, working in partnership
    with public housing agencies. Since 1993, the $3.9 billion appropriates
    for this program has resulted in the demolition of some 54,000 units
    and another 45,000 are planned for demolition.
        The fiscal year 2004 budget also proposes to fund the public
    housing operating program at $3.57 billion, down from the $3.6 billion
    appropriated in fiscal year 2003. However, the fiscal year 2003
    appropriation had to make up for a $250 million shortfall from fiscal
    year 2002. This left a shortfall in fiscal year 2003 that will have to
    be made up in fiscal year 2004. We urge the Subcommittee to provide
    sufficient additional funding in fiscal year 2004 to solve the
    shortfall going forward. In addition, with the continued shortfall,
    there is no opportunity to use operating funds to fund the drug
    elimination efforts envisioned when that program was terminated two
    years ago.

                  ADMINISTRATION'S TAX FREE DIVIDEND PROPOSAL

        Though the issue is not before this Subcommittee, we want to advise
    you of our deep concern over the unintended adverse impact of the
    Administration's tax-free dividend proposal on two key affordable
    housing resources--the Low-Income Housing Tax Credit and tax-exempt
    housing bonds. According to an analysis of the proposal by Ernst &
    Young, the dividend proposal, if enacted, would result in a loss of
    40,000 units annually or 35 percent of the 115,000 currently produced.
    It would also add 25 to 50 basis points in additional borrowing costs
    to issuers of tax-exempt bonds, including housing bonds. This is a
    serious loss of critical housing units at a time of growing needs of
    households with worst-case housing needs--paying more than 50 percent
    of their income for rent or living in substandard housing. We are
    working with the tax-writing committees to protect the tax credit and
    bonds from the unintended impact of the proposal as it works its way
    through the legislative process. We urge the Subcommittee to join us in
    that effort.

                           FAITH BASED PROPOSED RULE

        The HUD programs administered by local governments have enjoyed a
    long and wonderful partnership with faith-based entities across the
    nation. Without the support of these and other non-profit groups, the
    meals on wheels programs, community center activities, day care and
    other much needed services would not be part of the daily lives of many
    of our citizens. HUD's proposed faith-based rule implies that these
    great partnerships between cities and their faith-based community--that
    have come to be common place--need federal intervention to ensure
    greater success. The locally elected officials and the community
    development and housing practitioners that administer HUD programs want
    you to know that we greatly support faith-based groups working with us
    in our communities and that there is no additional incentive required
    to strengthen the powerful relationships that currently exit.

                                   CONCLUSION

        Mr. Chairman, local government officials believe that a strong
    Federal role in housing and community development programs must
    continue. Since the Housing Act of 1937, Congress has enunciated, and
    repeated in subsequent housing acts, that, as a matter of national
    policy, the Federal government has an obligation to assist states and
    local governments in providing decent, safe and sanitary housing for
    lower income households. Perhaps, Congress said it best in a
    ``Declaration of National Housing Policy'' included in Section 2 of the
    Housing Act of 1949:

        ``The Congress hereby declares that the general welfare and
    security of the nation, and the health and living standards of its
    people, require housing production and related community development
    sufficient to remedy the serious housing shortage, the elimination of
    substandard and other inadequate housing through the clearance of slums
    and blighted areas, and the realization as soon as feasible, of the
    goal of a decent home and suitable living environment for every
    American family.
        We submit to you that, while progress has been made toward this
    goal, it has not been fully achieved. The Federal government must
    continue its commitment to this National Housing Policy, backed by the
    necessary resources with which to continue the battle against
    neighborhood deterioration and a decaying housing stock.''

        Mr. Chairman, we look forward to working with you and the
    Subcommittee in adequately funding HUD's Housing and Community
    Development Programs for fiscal year 2004. Thank you.
                                     ______

                   Prepared Statement of The American Legion

        Mr. Chairman and Members of the Subcommittee, thank you for the
    opportunity to submit testimony reflecting the views of the 2.8 million
    members of The American Legion regarding the Department of Veterans
    Affairs' (VA) fiscal year 2004 budget request. As veterans' advocates,
    it is our job to ensure that VA is funded at a level that is adequate
    to fulfill the mandate ``to care for him who has borne the battle, his
    widow and his orphan.''
        On April 11, the House and Senate passed the budget resolution
    which lays out the funding levels for the appropriations of the federal
    government and it's agencies. Included in this resolution is an
    understanding that the VA mandatory levels (Compensation and benefit
    programs) will not be subject to budget offsets in fiscal year 2004.
    The Senate and House agreed to set the funding level for VA at $63.8
    billion in budget authority. The Conference also agreed to provide
    within that level $30 billion for discretionary spending for fiscal
    year 2004. This is a $3.5 billion increase from the levels appropriated
    for 2003, but is slightly less than the Administration's budget
    request.
        The American Legion is adamant that VA is provided full funding at
    these levels. In the wake of Operation Iraqi Freedom it is clear that
    VA will have a vital role in providing health care and transitioning
    programs to our returning service members. The ability of the VA to
    provide these necessary and earned benefits and programs will be
    incumbent on the funding provided by Congress.
        For over a decade, The American Legion has advocated allowing
    veterans to spend their health care dollars on the health care system
    of their choice. The American Legion believes the Veterans Health
    Administration (VHA) can efficiently expand to meet the health care
    needs of the men and women who have honorably served this nation in its
    armed forces--in war and in peace.
        The American Legion believes the level of funding proposed in the
    fiscal year 2004 budget request may meet the President's goals, but
    will lead to over 1.2 millions veterans leaving the system. The
    American Legion also has reservations about the budgetary impact on
    other aspects of VA operations, to include the Veterans Benefit
    Administration (VBA).

                                  MEDICAL CARE

        The American Legion recommends $24.5 million for direct medical
    care in fiscal year 2004; however, strongly recommend to add, rather
    than offset, MCCF and authorize VA to bill, collect, and retain third-
    party reimbursements from the nation's largest health insurance
    program--Medicare--for the treatment on nonservice-connected medical
    conditions on a fee-for-service basis.
        VA's integrated health care delivery system is not only the largest
    health care provider in the nation, but it has established itself as a
    formidable leader in the health care industry. Veterans receive quality
    health care and are choosing VA as their health care provider in record
    numbers. VA is currently struggling to meet their needs and, with VA's
    proposed fiscal year 2004 budget, it will continue to struggle.
        The President's fiscal year 2004 budget request introduces several
    proposals to generate increased revenues from the pockets of veterans
    through an enrollment fee, copayments and third-party reimbursements.
    According to VA, these proposals will reduce the resource demand by
    $1.3 billion collectively and hopefully encourage 1.2 million veterans
    to leave the system. The budget request also seeks management savings
    of over $1.1 billion. This adds up to a $2.4 billion offset to the
    requested $25.4 billion budget for medical care.
        The American Legion is concerned with several of the budget
    proposals:
      --Limit enrollment.--VA proposes to continue the suspension of
            enrollment of new Priority 8 veterans. These veterans have
            incomes above $24,644 for a single veteran and above the
            Housing and Urban Development (HUD) geographic means test
            level, to include noncompensable, 0 percent service-connected
            veterans. Although these service-connected veterans may seek
            health care for their service-connected disability, they are
            prohibited from enrolling for treatment of or prescriptions for
            any nonservice-connected medical conditions.
              The American Legion continues to disagree with this recent
            decision. We believe denying veterans access to VA health care,
            particularly while we prepare to go to war, is unacceptable.
            Many recently separated veterans would fall into this Priority
            Group. By denying health care to Priority Group 8 veterans, VA
            is sending the message that these veterans are not welcomed,
            even if they have the expendable income or private health
            insurance coverage that VA can bill for the cost of their
            nonservice-connected medical treatment. In some cases, a simple
            ``zip code'' is the difference between being listed as a
            Priority Group 7 or 8--not their honorable military service.
              In order for more veterans to access VA health care,
            additional revenue streams must be generated to supplement the
            discretionary funding. The American Legion strongly advocates
            Congress authorize VA to bill, collect, and retain third-party
            reimbursements from CMS for treatment of Medicare-allowable,
            nonservice-connected medical conditions of Medicare-eligible
            veterans. Since Medicare is a Federally mandated, pre-paid
            health insurance program, The American Legion believes
            Medicare-eligible veterans should be allowed to choose their
            health care provider.
      --Assess an annual enrollment fee.--VA proposes a $250 annual
            enrollment fee for non-service-connected (NSC) Priority 7
            veterans and all Priority 8 veterans. Priority 7 veterans have
            incomes above $24,644 for a single veteran and below the HUD
            geographic means test level, to include noncompensable, 0
            percent service-connected disabled veterans. This annual
            enrollment fee would apply even if the veteran has third-party
            health insurance that reimburses VA for the treatment of
            nonservice-connected medical conditions. This annual enrollment
            fee would apply even if the veteran were willing to make
            copayments for treatment of nonservice-connected medical
            conditions, pharmacy, and specialized care (like long-term
            care). However, this annual enrollment fee does not guarantee
            timely access to quality health care. According to President
            Bush and Secretary Principi, these veterans are their primary
            focus.
              The American Legion cannot support this proposal because it
            is designed to discourage the enrollment of veterans based
            solely on their income and not their honorable military
            service. Furthermore, it does not guarantee these veterans
            timely access to quality health care. There are Priority Group
            7 and 8 veterans with military awards and decorations for
            wartime service that, for the grace of God, were not seriously
            wounded.
              The American Legion would urge Congress to reject this
            proposal just as it did the Administration's plan last year to
            charge Priority Group 7 veterans a $1,500 deductible.
      --Change the veteran's share of outpatient and pharmacy copayments.--
            This proposal entails reducing the pharmacy copayment burden
            for Priority 2-5 veterans, while increasing Priority 7 and 8
            pharmacy copayments from $7 to $15. It also increases
            outpatient primary care copayments from $15 to $20 for all
            Priority 7 and 8 veterans.
              While The American Legion applauds the reduction of the
            pharmacy copayment for veterans in Priority Groups 2-5, the
            recent increase in copayments from $2 to $7 was accompanied by
            a decrease in the outpatient copayment from $50 to $15. The
            American Legion would rather VA seek reimbursements from CMS
            for all enrolled Medicare-eligible veterans being treated for
            nonservice-connected medical conditions, before trying to
            balance the budget on the backs of Priority Groups 7 and 8
            veterans.
      --Require reimbursement for services provided to health maintenance
            organization and preferred provider organization members.--This
            proposal seeks to establish VA as a preferred provider for
            members of Health Maintenance Organizations (HMOs) and
            Preferred Provider Organizations (PPOs) and would obligate
            these organizations to reimburse VA for health care provided to
            their members.
              The American Legion believes this change would help VA
            increase third-party reimbursements. The fact that VA currently
            cannot bill HMOs and PPOs is unfair considering VA treats many
            veterans who belong to these organizations. The American Legion
            would welcome this change; however, it seem odd to mandate
            private sector insurance plans to recognize VA as a preferred
            provider and not mandate CMS to recognize VA as a Medicare
            provider, especially since VA meets or exceeds most of CMS' own
            quality performance standards. If CMS' goal is to provide its
            beneficiaries with the best quality health care, VA should be a
            recognized Medicare provider. In fact, CMS Director Scully
            claimed before the Presidential Task Force To Improve Health
            Care Delivery for Our Nation's Veterans (PTF) that he
            encourages veterans to go to VA rather than private health care
            providers.
      --Change the institutional long-term care services provided to
            veterans.--This proposal would allow non-institutional, as well
            as institutional workload, in community and State Home Nursing
            programs along with VA Nursing to count toward the 1998
            capacity level. VA would supposedly expand their total long-
            term care capacity by increasing non-institutional long-term
            care.
              The American Legion believes the proposal will further
            stagnate long-term care services. The passage of the Veterans
            Millennium Health Care and Benefits Act (Public Law 106-117) on
            November 30, 1999, was the first step toward ensuring a
            comprehensive long-term care plan for veterans. The American
            Legion fully supported this insightful decision by Congress,
            especially with the aging veterans' population. It required the
            VA to bring the census back to 1998 levels. So far they have
            failed to do that. VA has the authority to establish copayments
            for nonservice-connected veterans in need of long-term care--a
            time in their lives when they and their families desperately
            need help from VA. The President and the Secretary want to
            reduce the number of long-term care beds without any
            recommendations from the PTF or the Capital Assets Realignment
            for Enhanced Services (CARES). In fact, the CARES process is
            currently not addressing either long-term care or mental health
            inpatient needs. The ``market plans'' currently being developed
            by each VISN will not be including institutionalized care
            involving long-term care or mental health. The American Legion
            cannot accept this recommendation.

                        MEDICAL AND PROSTHETIC RESEARCH

        The American Legion recommends $445 million for medical and
    prosthetic research in fiscal year 2004.
        Two of the biggest challenges facing VA's Medical and Prosthetic
    Research Program are facility infrastructure and recruitment and
    retention. Like the rest of VHA's buildings, research facilities are in
    desperate need of repair. They have been neglected over the years due
    to budgetary constraints. Currently, R&D have nearly 30 facilities in
    varying states of disrepair. The condition of these facilities impacts
    the recruitment and retention of qualified researchers. The ability to
    maintain a state-of-the-art facility is vital to retaining talented and
    motivated researchers.
        The accomplishments of the VA research program cannot be
    overstated. The program has been recognized both nationally and
    internationally for its efforts toward the betterment of veterans'
    lives and advances in their health care. Without proper funding the
    program cannot possibly maintain its current level of success. The
    American Legion believes VA's budget request for $408 million is
    inadequate.

                MEDICAL CONSTRUCTION AND INFRASTRUCTURE SUPPORT
                           MAJOR & MINOR CONSTRUCTION

        The American Legion recommends $320 million for major construction
    and $240 million for minor construction to make a combined total of
    $560 million.
        Year after year, needed major and minor construction projects are
    not funded, because the money is just not there. A 1998 study conducted
    by Price-Waterhouse recommended that VA fund 2 percent to 4 percent of
    Plant Replacement Value (PRV) per year and to reinvest in new
    facilities to replace aging facilities. The conclusion of this analysis
    was that VA's reinvestment rate of .84 percent was significantly lower
    than the benchmark of 2 percent. That equates to hundreds of millions
    of dollars that conceivably could be used for major construction
    projects. Private consultants have been warning for years that dozens
    of VA patient buildings were at the highest level of risk for
    earthquake damage or collapse, yet funding continues to be woefully
    short of what is actually needed to correct this problem. The
    President's budget request of $422 million falls well short of funds
    needed to ensure the safety of the nation's veterans.

         GRANTS FOR THE CONSTRUCTION OF STATE EXTENDED CARE FACILITIES

        The American Legion recommends funding of $115 million for this
    program.
        The State Veterans Home Program is an important adjunct to VA's own
    nursing, hospital and domiciliary programs. The American Legion
    believes it must continue, and even expand, its role as an extremely
    vital asset to VA. This program has proven to be a cost-effective
    provider of quality care to many of the nation's veterans.
        The American Legion recognizes the growing long-term health care
    needs of older veterans and would like to reemphasize the essential
    service that the State Veterans' Home Program provides to these
    veterans. The program is a viable and important alternative health care
    provider to the VA system.

                     NATIONAL CEMETERY ADMINISTRATION (NCA)

        The American Legion recommends $150 million for the National
    Cemetery Administration in fiscal year 2004.
        The National Cemetery Administration (NCA) honors veterans with a
    final resting-place and lasting memorials that commemorate their
    service to the nation. More than two million Americans, including
    veterans of every war and conflict--from the Revolutionary War to the
    Gulf War--are honored by burial in VA's national cemeteries. Nearly
    14,000 acres of land are devoted to this formidable mission.
        The Veterans' Millennium Health Care and Benefits Act (Public Law
    106-117) required NCA to establish six new National Cemeteries. Fort
    Sill opened in 2001 under the fast-track program, while the remaining
    five, Atlanta, Detroit, South Florida, Pittsburgh, and Sacramento are
    in various stages of completion.
        Maintaining cemeteries as national shrines is one of NCA's top
    priorities. This commitment involves renovating gravesites by raising,
    realigning and cleaning headstones and markers. The work that has been
    done so far has been outstanding however, adequate funding is key to
    maintaining this very important commitment.

                         STATE CEMETERY GRANTS PROGRAM

        The American Legion recommends $37 million for the State Cemetery
    Grants Program in fiscal year 2004.
        The State Veterans Cemetery Grant Program continues to be a very
    popular and much needed program administered by VA. This program was
    designed to assist states in providing gravesites for veterans where
    NCA is unable to do so. This program is not intended to replace
    National Cemeteries, but to complement them. Grants for state-owned and
    operated cemeteries can be used to establish, expand and improve on
    existing cemeteries.
        The State Cemeteries accommodated over 15,000 burials in fiscal
    year 2001. In light of the aging veteran population and with deaths
    expected to peak at 687,000 in 2006, it is necessary that this program
    remain viable. Now is the time to ensure that funding is commensurate
    with the mission of the program.

                        VETERANS BENEFITS ADMINISTRATION

        The American Legion is gravely concerned by the proposed straight
    line staffing request for the Veterans Benefits Administration's (VBA)
    Compensation and Pension Service and for the Board of Veterans Appeals.
    There are long-term workload demands associated with the current
    backlog of pending claims that will extend well into fiscal year 2004.
    VBA acknowledges there will also be a continued influx of new and
    reopened claims, based on the enactment of expanded benefit
    entitlements by the 107th Congress, including the Combat Related
    Special Compensation Pay Program, an expectation of additional
    presumptive diseases, and recent precedent decisions of the courts.
        Despite assertions of improved quality decision making, the number
    of appeals being filed continues to increase as does the number of
    appeals requiring further development either by the regional offices or
    the Board of Veterans Appeals. The American Legion believes these
    organizations will require additional personnel, if they are to achieve
    the ambitious service improvement goals promised the nation's veterans
    and their families in this budget request.

            VETERANS BENEFITS ADMINISTRATION LEGISLATIVE INITIATIVES

        VBA's net mandatory funding request reflects the enactment of
    several legislative proposals. These include:
      --A two-percent COLA in compensation benefits. The American Legion
            supports an annual cost-of-living adjustment in disability
            compensation and DIC benefits.
      --Legislation to overturn the decision of U.S. Court of Appeals for
            the Federal Circuit in Allen v. Principi, which held that VA
            must pay compensation for alcohol or drug-abuse disabilities,
            if they are secondary to a service-connected disability. The
            American Legion is opposed to any effort to eliminate or
            restrict a veteran's right to compensation for any disability
            or disabilities that are determined to be secondary to or a
            manifestation of the service connected disability. VA is
            responsible for administering the law not making moral judgment
            concerning what is or is not misconduct, as it did with the
            issue of tobacco-related illnesses. Such legislation would be
            an effort to punish certain disabled veterans for their
            service-related problems.
      --Legislation to pay the full rate of compensation to certain
            Filipino veterans and their survivors. The American Legion
            continues to support this change in the law to recognize the
            military service performed by these veterans during World War
            II.
      --Legislation to extend the operations of the Manila VA Regional
            Office for an additional five years. The American Legion favors
            the VA's continued presence in the Philippines, in order to
            provide timely service to these veterans and their families.
      --Amend the law to extend the time limit for education benefits for
            members of the National Guard. Because the National Guard is
            now such an integral part of the armed forces, The American
            Legion believes this will be a much needed change in the law.
      --Amendment of the Montgomery GI Bill to provide for on-the-job
            training for certain self-employment training programs. This
            will assist veterans in taking advantage of additional training
            through self-employment training programs.
      --Legislation authorizing the extension of the Education Advisory
            Committee.
      --Terminate the Education Loan Program. If this program were, in
            fact, not being utilized as it was originally intended, The
            American Legion would not object to its termination.
      --Convert the Homeless Veterans Guaranteed Transitional Housing Loan
            Program to grant program. The American Legion has been a strong
            supporter of the Homeless Veteran Transitional Housing Program.
            The American Legion would have no objection to making it into a
            grant rather than a loan guaranty program.
      --Elimination of the 45-day rule for Death Pension. The American
            Legion has sought the elimination of this restriction, since
            enactment of OBRA 90.
      --Authorize entitlement to government grave marker or headstone for a
            veteran's marked or unmarked grave, effective from November 1,
            1990. This will enable the families of thousands of deceased
            veterans to obtain a government marker or headstone to reflect
            their honorable service to the nation.
      --Authorize the payment of the burial plot allowance to state
            veterans' cemeteries. The American Legion has long favored this
            additional support for the State Veterans Cemetery Program.
        Under the new budget format, the request for VBA provides for a
    total of $33.7 billion in mandatory funding for compensation, pension,
    education, vocational rehabilitation, and other benefit entitlements.
    Within this total, $26.3 billion will be required for the compensation
    program, $3.3 billion for the pension program, $1.9 billion for
    education, and $2.4 billion for the other veterans benefit programs.
    This represents an overall increase of $9.8 billion, over fiscal year
    2003. Compensation benefits will increase by $1.8 billion reflecting
    the proposed two-percent COLA, additional benefit payments as a result
    of Allen v. Principi, an increase in diabetes cases, and increases in
    the net caseload and benefit payments.
        Discretionary funding for VBA's nine business lines totals $1.2
    billion. While it provides for an additional 17 FTE for the Education
    Program, which is much needed, The American Legion is deeply disturbed
    by the lack of any increase in staffing for compensation programs. We
    believe this will constrain VBA's ability to address the many
    challenges emerging in fiscal year 2003, which will have profound
    budgetary and operational implications for the fiscal year 2004 budget.
        Given the varied issues that VBA is faced with, it is imperative
    that Congress critically evaluate the level of discretionary funding
    requested and whether this will enable the regional offices to operate
    efficiently and provide timely, quality service that this nation's
    veterans expect and deserve. Individuals currently on active duty must
    also be assured that VA will not only be ready and willing to assist
    them, but have physical capacity to provide them the timely, quality
    service they expect and deserve, without compromising current
    operations or benefits programs.
        Over the course of fiscal year 2002 and fiscal year 2003, VBA has
    been able to make substantial progress toward realizing Secretary
    Principi's goal of a pending case backlog of 250,000 cases with an
    average processing time of 100 days by the end of September 2003. In
    March 2002, the regional office backlog peaked with over 423,000
    pending cases requiring rating action. 40 percent of these cases were
    over six months old. There were also 147,000 case requiring some other
    type of action. Only 12 percent were six months or older. In addition,
    there were approximately 107,000 cases in appellate status. Of these,
    over 20 percent were cases that had been remanded by the Board of
    Veterans Appeals for further required development and readjudication.
    In human terms, there were over 670,000 claimants waiting and waiting
    for action on their case. Those with remanded appeals would have been
    waiting two to three years or longer.
        According to VA data, by January 2003, the number of cases awaiting
    rating action had been reduced to 330,300 with only 32 percent older
    than six months and the number of cases requiring some other type of
    action was down to 81,500 but over 28 percent were older than six
    months. However, the number of cases in appellate status had grown to
    over 122,000. These statistics give a false impression of improvement.
    The drop in the claims backlog has been achieved largely at the expense
    of those whose claims were on appeal at the regional offices. VBA's
    efforts and resources were focused almost exclusively on pending
    claims, while appeals, including remands, were virtually ignored, since
    there was no work credit toward the station's production goals. In
    response to The American Legion's criticism concerning the lack of
    action on appeals and the hardship imposed on disabled veterans,
    regional offices have, within the last several months, begun to address
    their appellate workload and pending remands, in particular.
        The backlog of claims and appeals are, in our view, a symptom of
    unresolved systemic problems that have for years adversely affected the
    claims adjudication and appeals process. These problems include
    frequent decision-making errors, lack of compliance with the VCAA's
    notice and development requirements, the absence of personal
    accountability, ineffective quality control and quality assurance, and
    inadequate training. The current work measurement system does not
    provide reliable, accurate data upon which to assess VBA's real
    resource needs. VBA is faced with a serious dilemma. While endeavoring
    to address these thorny quality-related issues, the regional offices
    are, at the same time, aggressively trying to process claims faster.
    From the results, it appears they still have not found a way to
    successfully balance these competing priorities. The American Legion
    remains concerned by the effects of VBA's emphasis on production rather
    than quality decision making, i.e., ensuring full and complete
    development with a decision that is fair and proper--the first time.
    This results in cases continuing to churn through the system, for the
    sake of an artificial goal.
        The straight line staffing level requested for fiscal year 2004 is
    based on the assumption that, with the realization of the Secretary's
    backlog reduction goal, VBA would be able to more effectively address
    the many quality-related problems as well other long-outstanding
    issues. Given past performance, The American Legion believes this is an
    unrealistic strategy and will not afford VBA the flexibility to cope
    with current workload demands, let alone some unanticipated
    contingency.
        The American Legion believes that an increase in staffing in the
    compensation and pension programs for fiscal year 2004 is both prudent
    and necessary. This reflects the increasingly complex nature of the
    claims and appeals process, the volume of additional work anticipated
    in fiscal year 2003-2004, and the ongoing need to rebuild the core
    adjudication staff to replace the increasing number of experienced
    decision makers who are retiring within the next one to two years.

                                    APPEALS

        Staffing at the Board of Veterans Appeals in fiscal year 2004 will
    decrease by 3 FTE from the fiscal year 2003 level to 184 FTE. The
    proposed reduction in personnel is predicated on the expected lower
    volume of incoming new appeals and returning remands. However, given
    the number of appeals currently in the system and regional offices'
    continuing quality problems, The American Legion is concerned that the
    Board's new Development Program will require additional support both
    from the Board and from the C&P Service.
        Beginning in February 2002, the BVA was given the authority to
    further develop appeal cases rather than remanding them to the regional
    office. 15 FTE were assigned to this unit. By the end of fiscal year
    2002, of the 17,231 appeals decided, the Board had remanded 3,328 or 19
    percent. This figure is somewhat misleading, since, in addition to the
    regular remands, the Board has undertaken development of over 9,000
    cases that would have previously required a remand back to the regional
    office for further needed development and readjudication. Staffing for
    this unit is 32 FTE. The goal of the program is to ensure greater
    attention to full due process and quality decision-making, while
    providing claimants more timely action on the appeal. However, without
    a substantial improvement in the quality of regional office decisions,
    the BVA will have to assume more and more of the regional office's
    development and adjudication workload, which will require additional
    staffing resources.
        The American Legion is concerned that regional office's focus on
    speed and production versus quality and propriety is directly
    contributing to the growth of the appellate backlog, which now tops
    123,000 appeals. Each of these cases represents a veteran or a
    veteran's family who, after many months of waiting, is very
    dissatisfied with the decision they received on their claim for
    disability or death benefits. They will wait many more months before
    their case gets before the Board. In 2002, the average appeals
    resolution time was 731 days. This is projected to improve to 590 days
    in fiscal year 2003 and to 520 days in fiscal year 2004.

                                   EDUCATION

        The American Legion commends the increased-funding request for
    educational programs and support staff for the fiscal year 2004 budget.
    The American Legion deeply appreciates Congress' attempts to provide
    for a stronger Montgomery GI Bill, (Chapter 30) including an increase
    in the monthly entitlement rate for active duty members from $900 to
    $985. However, due to the increased use of Reservists for homeland
    security and various overseas commitments around the world, there needs
    to be a significant increase in their monthly entitlement rates that
    are currently below $300 a month.
        The American Legion also acknowledges the proposed increase in
    benefits to children and spouses of veterans who died of a service-
    connected disability or whose service-connected total disability is
    rated permanent, under Chapter 35 of title 38, United States Code.
    Having a stronger dependent/survivor educational benefit program is
    necessary to provide the nation with the caliber of individuals needed
    in today's all volunteer Armed Forces. Without providing incentives,
    the military of the 21st century will be hard pressed to carry out its
    mission.

                    VOCATIONAL REHABILITATION AND EMPLOYMENT

        The American Legion is pleased with the funding level requested for
    the Vocational Rehabilitation and Employment program in fiscal year
    2004. The American Legion has always been a strong supporter of the
    services this program provides eligible service-disabled veterans. The
    training and education assist disabled veterans in becoming employable
    and helps them obtain and maintain suitable employment. The American
    Legion is pleased by the emphasis placed on the new Employment
    Specialist position as a means of redirecting the program toward the
    veteran's employment. During this time of economic uncertainty,
    meaningful employment should never be denied to veterans, especially
    those with a service-connected disabling condition.

                                   CONCLUSION

        Mr. Chairman and Members of the Subcommittee, The American Legion
    has outlined many issues in this testimony today. We believe all of
    these issues are important and we are fully committed to working with
    each of you to ensure that America's veterans receive the entitlements
    they have earned. Whether it is improved accessibility to health care,
    timely adjudication of disability claims, improved educational benefits
    or employment services, each and every aspect of these programs touches
    veterans from every generation. Together we can ensure that these
    programs remain productive, viable options for the men and women who
    have chosen to answer the nation's call to arms.
        Thank you for allowing The American Legion the opportunity to
    submit testimony.

                                     ______

      Prepared Statement of the American Society of Mechanical Engineers
                                 International

                          NATIONAL SCIENCE FOUNDATION

        The National Science Foundation (NSF) Task Force of the Council on
    Education of the American Society of Mechanical Engineers (ASME
    International) is pleased to provide comments on the NSF fiscal year
    2004 budget request. This portion of the statement represents the views
    of the NSF Task Force, an interdisciplinary committee of the Council on
    Education and is not necessarily a position of ASME International as a
    whole.
        ASME International is a worldwide engineering society focused on
    technical, educational and research issues. It conducts one of the
    world's largest technical publishing operations, holds some 30
    technical conferences and 200 professional development courses each
    year, and sets many industry and manufacturing standards.

                                    OVERVIEW

        The National Science Foundation plays a critical leadership role in
    directing the nation's non-defense related scientific and engineering
    research. Through thoughtful and visionary planning, NSF has greatly
    contributed to the technological superiority that the United States
    enjoys today. ASME shares NSF's broad-based, cross-cutting vision for
    basic engineering and scientific research. As such, ASME strongly
    endorses the Foundation and its efforts to continually improve and
    expand the ``innovative ideas, outstanding people, and cutting-edge
    tools'' that comprise the nation's technological and scientific
    infrastructure.
        The Budget Request for fiscal year 2004 represents a 9.0 percent
    increase over the fiscal year 2003 Budget Request, but only 3.2 percent
    over the recent fiscal year 2003 Appropriation. Within this request,
    funding for the Engineering Directorate would increase to $537 million.
    NSF continues to include funding for major initiatives or Priority
    Areas in its budget request. The five standing major initiatives will
    increase. Information Technology Research will increase to $303
    million. Nanoscale Science and Engineering will be raised to $249
    million. Increases for Biocomplexity in the Environment to $100
    million, Mathematical Sciences to $89 million and for Human and Social
    Dynamics to $24 million have also been requested. In addition, NSF has
    identified a new thrust area for fiscal year 2004 called Workforce for
    the 21st Century for which $9 million in funds have been requested.
    Though not specifically identified as such, the Math and Science
    Partnerships (MSP) is essentially a seventh initiative area. This
    program began in fiscal year 2002 as part of President Bush's No Child
    Left Behind paradigm for K-12 math and science education.

                                                         TABLE 1
                                                  [Dollars in millions]
    ----------------------------------------------------------------------------------------------------------------
                                                        NSF Agency Wide                    Engineering (ENG)
                                             -----------------------------------------------------------------------
                                                Fiscal      Fiscal                  Fiscal      Fiscal
                                               Year 2003   Year 2004    Percent    Year 2003   Year 2004    Percent
                                                Request     Request     Change      Request     Request     Change
    ----------------------------------------------------------------------------------------------------------------
    Total Budget............................   $5,028.22   $5,481.20         9.0     $487.98     $536.57        10.0
        Salaries and Expenses...............      202.95      225.70        11.2     ( \1\ )     ( \1\ )     ( \1\ )
        Inspector General...................        7.70        8.77        13.9     ( \1\ )     ( \1\ )     ( \1\ )
    Administration/Management...............  ..........  ..........  ..........        6.47        6.90         6.6

    Total Program Budget....................    4,818.02    5,246.73         8.9      481.51      529.67        10.0
        Info. Technology Research...........      285.83      302.61         5.9       11.17       11.17         0.0
        Nanoscale Science & Eng.............      221.25      248.99        12.5       94.35      106.85        13.2
        Biocomplexity in the Envir..........       79.20       99.83        26.0        6.00        6.00         0.0
        Mathematical Sciences...............       60.09       89.09        48.3        0.91        2.91       219.8
        Human & Social Dynamics.............       10.00       24.25       142.5  ..........        2.00     ( \1\ )
        Workforce 21st Century..............     ( \1\ )        8.50     ( \1\ )     ( \1\ )  ..........     ( \1\ )
        SBIR................................  ..........  ..........  ..........       83.65      101.15        20.9
    Remaining Funds.........................    4,161.65    4,473.46         7.5      285.43      299.59        5.0
    ----------------------------------------------------------------------------------------------------------------
    NSF Budget overview with and without the initiative areas. Comparisons include both agency-wide and the
      Engineering Directorate.

    \1\ Not applicable.

        Comparing the fiscal year 2004 Budget Request with fiscal year 2003
    is somewhat problematic given the late passage of fiscal year 2003
    appropriations covering NSF. For example, the overall 9 percent
    increase over the fiscal year 2003 Budget Request appears positive and
    consistent with Congress's goal of doubling NSF's budget in five years
    beginning with fiscal year 2004. However, the current request is only
    3.2 percent more that the recently passed fiscal year 2003
    appropriation. For this analysis, comparisons will be made between the
    fiscal year 2003 and fiscal year 2004 Budget Requests. It is important
    to note, however, that questions of balance (i.e. balance across the
    nation's science and technology research and development portfolio,
    balance between initiative driven research and core programs within
    NSF, and finally, balance between NSF's traditional basic research
    mission and its new math and science education mission) are much more
    critical when one considers a 3.2 percent increase versus a 9 percent
    increase.

                            THE TASK FORCE POSITION

        The NSF Task Force of ASME's Council on Education continues its
    strong endorsement of NSF's leadership role in guiding the nation's
    basic research and development activities. Throughout its existence,
    NSF has built an outstanding record of supporting a broad spectrum of
    research of the highest quality, from ``curiosity-driven'' science to
    focused initiatives. This record has been made possible only through
    strict adherence to the independent peer review process. ASME
    recognizes the importance and timeliness of NSF's initiative areas that
    address major national needs for the 21st century. However, as will be
    discussed in the next section, it is not clear that an optimum balance
    has been achieved.
        There are a number of particularly positive items in the fiscal
    year 2004 Budget Request, beginning with the planned increase in the
    size of graduate fellowship stipends. Ensuring a continuous stream of
    well-educated, highly qualified research scientists into leadership
    positions is critical to the survival and growth of the nation. In this
    respect, ASME strongly endorses NSF's planned increase in stipends for
    graduate fellows from $25,000 to $30,000. Making fellowship stipends
    attractive to the nation's best and brightest students is certainly a
    positive step. This serves to enhance the nation's pool of science and
    engineering educators and leaders.
        The increase in numbers of graduate fellowships is also especially
    positive. In comparison to the fiscal year 2003 Budget Request, it
    appears that, in addition to the 20 percent increase in stipends, there
    will be a concomitant 10 percent increase in the number of Fellows
    supported in fiscal year 2004. NSF is the only federal agency directly
    chartered to educate graduate students for research and development
    careers. It is therefore imperative that this be a major priority area
    in perpetuity. It is interesting to note however that $89.4 million is
    requested for the Graduate Research Fellowship (GRF) program to support
    2,200 students in fiscal year 2004 while $42.5 million for the GK-12
    Fellowship program will support less than 900 students. It is not clear
    that the GK12 program has sufficient ``value added'' to justify its
    higher cost per student. Nor is it clear that the correct balance
    between types of graduate fellowships has been struck. It is critically
    important that education-based programs do not jeopardize the nation's
    world leadership in basic research.
        In general, the Task Force also supports and applauds activities
    within ENG. NSF's vision of a committed balance between people, ideas
    and tools is exemplified within ENG. It is important to recognize that
    fundamental sciences and engineering funded by NSF quite frequently
    spawns next generation technologies. Examples of successes emerging
    from ENG include development of an artificial retina and a biocapsule
    for insulin delivery. ENG is also funding work on ``pico-newtons'',
    microscopic chains for magnetized particles that may be precursors of
    materials that will protect buildings from earthquakes.
        ASME has strongly supported the nanotechnology initiative since its
    inception as an NSF emphasis area in fiscal year 2000. In the past
    three years, funding for this initiative has grown substantially. With
    a growing record of research and development successes, the
    transitioning of nano-science and engineering into commercially viable
    technologies is becoming a pressing challenge for nano-science and
    engineering. For this reason, it is important that multi-institutional
    tools be developed in the near term in which access, maintenance and
    staffing issues have been resolved.
        Finally, ASME continues to endorse NSF's participation in K-12
    math, science and engineering education initiatives consistent with the
    agency's broader mandate to lead the nation's research and development
    enterprise. Most notably, NSF has again included $200 million in its
    fiscal year 2004 budget request for the Math and Sciences Partnership
    (MSP) program. The goal of MSP is coupling K-12 and higher education
    STEM education into a single integrated effort by encouraging
    universities to adopt STEM into their core missions.
        In this technological age, providing the highest quality math,
    science and technology education to all children should be a national
    imperative. The Task Force applauds President Bush's No Child Left
    Behind policy and NSF's role. However, the Task Force cautions that a
    proper balance' must be struck to preserve the integrity of NSF's
    fundamental research and development mission.

                             QUESTIONS AND CONCERNS

        Continuing with central themes raised in previous years, the Task
    Force's key questions and concerns arising from the fiscal year 2004
    budget request center on matters of balance. In particular, ASME is
    concerned with:
      --the gross funding imbalance in the federal R&D portfolio,
      --inadequate funding levels for existing grants,
      --insufficient support for core engineering programs at NSF.
        The overall imbalance in the federal R&D portfolio remains a major
    concern to ASME. The requested funding for NIH this year is almost half
    of the total non-defense R&D request. Focusing purely on health issues
    while the nation faces threats from dwindling energy supplies, aging
    infrastructure and geopolitical instability, to name but a few, is
    entirely inconsistent with a balanced leadership plan. Even the health
    science community is concerned that insufficient technology development
    in related fields may be the greatest impediment to major medical
    breakthroughs. Failure to adequately support broad, cross-cutting
    fundamental research inherent to most NSF programs continues to
    undermine the long-term health and vitality of the nation. As noted
    earlier, this is particularly nettlesome when considering that the
    fiscal year 2004 NSF Budget Request actually represents only a 3.2
    percent increase over fiscal year 2003 appropriations.
        NSF has had considerable success to date in stretching its funds to
    bridge (i.e. mask) imbalances in the federal R&D portfolio. Indeed, NSF
    richly deserves the governmental acclaim it has received for its
    efficiency and impact in managing basic research and development.
    However, this efficiency is coming at the expense of quality research.
    The projected median research award size for fiscal year 2004 is
    estimated to be $90,890 per year for three years. This is in general
    sufficient to support one graduate student and a senior investigator
    with only a limited amount remaining to actually conduct the research.
    An extended period of constant grant sizes has eroded buying power and
    the ability to adequately support professional development. Further,
    forming small teams (2-3 senior investigators) to pursue and define
    major initiative areas, often in interdisciplinary areas, is equally
    difficult. Thus to truly advance the frontiers of science and
    technology, significant increases must be made not only to the number
    of grants, but to the size of each grant as well. By way of reference,
    NIH's projections for the average size of new competitive research
    project grants (RPGs) in fiscal year 2004 are $358,300 per year with an
    average project duration of 3.8 years.
        Maintaining a fundamental knowledge base is essential for
    intelligent and effective response to rapidly evolving technological
    challenges facing the nation. Current world events, including the
    heightened awareness of homeland security needs, highlight the
    impossibility of predicting what scientific and engineering disciplines
    will be needed in response to future technology challenges. Meeting
    those needs will often come from applying state-of-the-art fundamental
    science and engineering knowledge in new and innovative ways.
        However, the record on funding core programs over the past few
    years has not been strong. Over the past five years, increases in
    funding for initiative areas have outstripped growth in core programs.
    That this trend will continue into fiscal year 2004 can be seen in
    Table I, where requested NSF funding across the entire agency and
    within ENG are compared with and without funding for the initiative
    areas. One can clearly see that funding for initiative areas (including
    the SBIR program) within ENG constitute a full 44 percent of the budget
    request for ENG. The increase for initiatives exceeds 17 percent. By
    comparison, Table I shows that funding for the rest of ENG, which will
    be considered as core programs, will only increase by 5 percent.
        A specific example of the unbalanced emphasis on initiative driven
    activity is the Chemical and Transport Systems (CTS) Subactivity in
    ENG. The total request for CTS in fiscal year 2004 is $66.2 million
    representing a $7.26 million or 12.3 percent increase relative to the
    fiscal year 2003 Budget Request. If one subtracts increases for the
    initiative programs, totaling $4.88 million, and $4.0 million
    transferred into ENG ``for a new Science and Technology Center (STC) on
    New Materials for Water Purification'', there will be a net decrease of
    $1.62 million in funds available for core CTS research programs. This
    is particularly noteworthy because funding for initiatives and the STC
    will total $36.1 million in fiscal year 2004, over 54 percent of the
    CTS request.
        This discussion, of course, is exacerbated in light of the recent
    fiscal year 2003 appropriations bill effectively reducing the total
    requested increase for fiscal year 2004 to 3.2 percent. Continued focus
    on initiatives at the cost of maintaining a balanced science and
    technology knowledge base may have unforeseen negative impacts in the
    future. The issues of balance raised in this statement need to be
    seriously considered.

                                    SUMMARY

        The Task Force continues its enthusiastic support for the National
    Science Foundation and its leadership in articulating the nation's
    basic research and development vision. In fiscal year 2004, NSF has
    requested funding to expand major, cross cutting initiatives addressing
    pivotal technological issues facing the nation. This includes the
    nanotechnology initiative strongly endorsed by ASME. Expansion of the
    graduate fellows programs coupled with increases in stipend levels
    reinforces NSF's commitment to graduate education (i.e. developing
    people). The focus on developing people and ideas in general is
    certainly reflected throughout the ENG directorate's budget request as
    well. The challenge for this year appears to be maintaining a healthy
    balance between maintaining world R&D leadership and incorporating K-12
    math, science and engineering education and between supporting core
    programs and expanding key initiatives.
        There is great concern over the growing imbalance between life
    sciences funding and the rest of the nations research and development
    portfolio. Crises, such as those occurring in the gasoline and power
    production industries, reflect long term failure to value and support
    core research focused at advancing the nation's technological
    infrastructure. In addition, recent events strongly underscore the fact
    that it is impossible to know what part of the science and technology
    base will be needed on short notice to respond to rapidly developing
    opportunities or crises. The current budget plan does not appear to
    permit NSF to meet key fiscal year 2004 Performance Goals (i.e. Goals
    III-1 and III-2). Increasing the number and size of its awards with
    enable NSF to better position itself to fulfill its leadership
    responsibility in directing the nation's research and development
    activities.

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

        The ASME Aerospace Division would like to thank you for this
    opportunity to comment on the National Aeronautics and Space
    Administration's fiscal year 2004 budget request. Our statement will
    specifically address the nation's critical aeronautics research and
    development programs. This portion of the statement represents the
    views of the ASME Aerospace Division and is not necessarily a position
    of ASME International as a whole.
        For the past four years, ASME has been working with an Aviation
    Research and Development Coalition, comprised of 15 leading aerospace,
    aeronautics and aviation organizations, calling for a renewed national
    commitment to sustain U.S. leadership in aviation and aeronautics
    research and technology. Our organizations are extremely concerned that
    the United States is in grave danger of losing its position as the
    world leader in aeronautics and aviation. Our Coalition statement is
    attached.
        Since fiscal year 1998, NASA's aeronautics research budget has been
    cut in half. Last year, NASA introduced their ``Aeronautics Blueprint--
    Toward a Bold Era of Aviation''--presenting an exciting vision of what
    could be achieved with additional investments in aeronautics research
    and development. Yet, even while NASA outlined technologies that the
    U.S. could invest in that would significantly lower noise, as well as
    emissions and fuel consumption, and reinvigorate basic and applied
    research in aeronautics and aviation, their budget was again cut--this
    time by $58 million in fiscal year 2003. While, NASA's fiscal year 2004
    budget reflects a 1 percent increase in aeronautics funding compared to
    fiscal year 2003, additional funding for aeronautics research over the
    next five years is projected to be reduced by 4 percent.
        According to a recently released report, ``The National Economic
    Impact of Civil Aviation,'' the total economic impact of civil aviation
    exceeded more than $900 billion and 11 million jobs to the U.S. economy
    in the year 2000, roughly 9 percent of the total U.S. gross domestic
    product. The U.S. aerospace and the air transportation industry has a
    major economic and employment impact in all 50 states and is a major
    force of civil, military and space manufacturing and air operations in
    nearly half of the nation's states.
        Decreased federal investment in aviation and aeronautics R&D is
    destined to weaken the economic competitiveness of the U.S. aviation
    industry. For the first time ever, Airbus won 50 percent of new
    aircraft orders during 2002. Our international competitors are well on
    their way to overtaking us in global air transportation markets. If the
    U.S. aviation industry is to continue to be a positive contributor to
    U.S. balance of trade, then we must have the ability to develop the
    next generation of aircraft that will enable it to compete
    internationally.
        Over the past several years, de-emphasis of long-term aeronautical
    research at NASA has impaired U.S. universities' ability to maintain
    vibrant aeronautical engineering programs. The nation is experiencing a
    diminishing pipeline of qualified aeronautical engineering students at
    both the undergraduate and graduate levels. Engineers and scientists do
    not consider aerospace a growth industry.
        Allow me to quote from the Aerospace Commission's report:
      --``There is a major workforce crisis in the aerospace industry. Our
            nation has lost more than 600,000 scientific and technical
            aerospace jobs in the past 13 years.''
      --``The aerospace workforce is `aging' and that 26-27 percent of
            aerospace workers are eligible to retire by 2008. The average
            of age of production workers is 44 in the commercial sector, 53
            in defense and 51 at NASA.''
      --``In addition, the proportion of workers age 30 or younger dropped
            by almost two-thirds, from 18 percent in 1987 to 6.4 percent in
            1999.''
      --``U.S. graduates at the bachelor and master degree levels in
            aerospace engineering and related disciplines have dropped by
            47 percent and 39 percent, respectively, since 1990.''
        This is great cause for alarm. For the past 75 years American
    universities have provided creative, skilled engineers for national
    defense and aeronautical commerce. Our educational base has been
    declining and will continue to erode if we do not nurture and support
    basic aeronautics research in the United States. Two decades ago, we
    began to see manufacturing jobs move overseas. Today, we are witnessing
    white-collar jobs, including engineering, moving offshore as well.
    Investment in research and development is vitally needed to keep the
    U.S. on the cutting edge of high value, new technologies, including the
    development of advanced global air transportation systems. Without this
    investment, the U.S. will lose its technological edge and will continue
    to see engineering jobs move offshore.
        The United States has been at the forefront of discovery and
    innovation throughout the history of aeronautics and aviation.
    Honorable Robert S. Walker, the Aerospace Commission Chair and
    transition team senior advisor on science, space and technology, stated
    upon releasing the Commission's report, ``A strong aerospace industry
    is essential to enable the United States to defend itself, compete in
    the marketplace, maintain a highly skilled workforce, and provide all
    Americans with the ability to travel safely and securely anywhere in
    the world.''
        As we approach the centennial of the Wright Brothers' first flight,
    it is crucial that the United States re-establish preeminence in
    aviation and aeronautics research. We urge you to support aerospace as
    a national priority by providing robust and stable funding for NASA's
    aeronautics and development programs.

                                     ______

              Prepared Statement of the American Heart Association

        Heart attack, stroke and other cardiovascular diseases remain
    America's leading cause of death, hospitalizations and a main cause of
    disability. The 950,000 deaths each year from cardiovascular diseases
    represent nearly 40 percent of all American deaths.
        The American Heart Association, with its 22 million volunteers and
    supporters, works to reduce disability and death from heart attack,
    stroke and other cardiovascular diseases. We commend this Committee's
    support of the Department of Veterans Affairs' Medical and Prosthetic
    Research program.

                                STILL NUMBER ONE

        Heart attack, stroke and other cardiovascular diseases have been
    America's No. 1 killer since 1919. Nearly 62 million Americans of all
    ages suffer from cardiovascular diseases. Hundreds of millions of
    Americans have major risk factors for cardiovascular diseases--an
    estimated 50 million have high blood pressure, 42 million adults have
    high blood cholesterol (240 mg/dL), nearly 49 million adults smoke,
    more than 129 million adults are obese or overweight and nearly 11
    million have confirmed diabetes. As the baby boomers age, the number of
    Americans afflicted by these often lethal and disabling diseases will
    increase substantially. Cardiovascular diseases cost Americans more
    than any other disease--an estimated $352 billion in medical expenses
    and lost productivity in 2003.
        Heart disease and stroke occur at all ages, but they are most
    common in Americans over age 65--a group that is nearly 12.4 percent of
    the U.S. population and will be 16.5 percent by year 2020. By 2020, the
    percentage of veterans over age 65 will be about three times that of
    the general population. The VA's planning models recognize that its
    aging patient population demands more care. As the veteran population
    ages, the number with heart disease and stroke will increase
    substantially.

                         HOW YOU CAN MAKE A DIFFERENCE

        We advocate for an fiscal year 2004 appropriation of $460 million
    for direct costs of the VA Medical and Prosthetic Research program and
    $45 million for research facility improvements. Our recommendation is
    consistent with that of the Friends of VA Medical Care and Health
    Research and the Independent Budget, a detailed analysis of VA funding
    needs developed by four of the major veterans service organizations and
    endorsed by more than 60 other groups. An appropriation of $460 million
    would accommodate biomedical research inflation and federal pay
    increases as well as a major new initiative in deployment health
    research and expansion in areas such as terrorism, emerging pathogens,
    special populations, quality improvement, chronic diseases, including
    heart disease and stroke, and diseases of the brain, including study of
    rehabilitation of stroke victims. The President's budget of $408
    million for direct costs of this vital program represents a 2.7 percent
    increase. This is inadequate to sustain the current level of effort or
    to accommodate new initiatives.
        The Association challenges our government to significantly increase
    funding for heart and stroke research supported by the VA Medical and
    Prosthetic Research program. We commend the VA for establishing a
    Rehabilitation Research Outcomes Center (REAP) targeting stroke
    patients. We urge the VA to not only expand this center, but also to
    augment the REAP on heart disease. These initiatives would help advance
    the battle against heart disease, stroke and other cardiovascular
    diseases. Our government's response to this challenge will help define
    the health and well being of citizens for decades to come. In addition,
    we recommend $45 million for facilities construction and renovation.
    The VA has had to defer almost $350 million of major and minor
    construction repairs on its aging research infrastructure. Delaying
    these renovations impairs the quality of VA medical research and
    threatens the VA's ability to recruit and retain first-class
    investigators.

         INSUFFICIENT VA RESOURCES DEVOTED TO HEART AND STROKE RESEARCH

        The VA Medical and Prosthetic Research program plays an important
    role in heart and stroke research and deserves the strong support of
    Congress. In fiscal year 2002, VA support for heart research was $23.8
    million (still below the high of fiscal year 2000), accounting for only
    4 percent of the fiscal year 2002 VA's Medical and Prosthetic Research
    budget. In fiscal year 2002, VA-supported stroke research represented
    $7.7 million or 2.1 percent of the research budget. We are concerned
    that insufficient money is being devoted to America's No. 1 killer--
    heart disease--and our No. 3 killer--stroke. Both are major causes of
    permanent disability.

              VA HEART AND STROKE RESEARCH BENEFITS ALL AMERICANS

        The VA Medical and Prosthetic Research program is dedicated to
    ``discovering knowledge and creating innovations that advance the
    health and care of veterans and the nation.'' While the primary purpose
    of the VA health care system is the provision of quality health care to
    eligible veterans, VA-supported research contributes to the quality of
    care by bringing talented and dedicated physicians into the VA system.
    In a recent survey, 62 percent of researchers indicated that they would
    not work in the VA without research opportunities. VA-supported
    research discoveries benefit veterans, science and the world's health.
        VA cardiovascular research is an integral part of the effort. VA
    cardiovascular researchers include nationally recognized, distinguished
    scientists and several Nobel Laureates. The VA supported Ferid Murad,
    M.D., 1998 Nobel Prize winner for research demonstrating the role of
    nitric oxide in regulating blood pressure. American Heart Association
    volunteer Gerald DiBona, M.D., was awarded the prestigious VA Middleton
    Award in 1995 for internationally recognized research on kidney and
    cardiovascular diseases.
        The Medical Research Service component of the VA Medical and
    Prosthetic Research program supports basic and clinical research,
    mainly investigator-initiated peer reviewed studies. It provides funds
    for support of VA-based faculty members (M.D.s or Ph.D.s) at various
    stages in their careers and research equipment. VA investigators
    provide core faculty support at major medical schools affiliated with
    VA institutions. This small but internationally recognized, highly
    competitive research program in fiscal year 2002 supported 3,167
    investigators at 115 VA-supported facilities.
        VA heart and stroke research is largely clinical. Hence, the VA is
    a major contributor to clinical research, playing a unique role because
    of its ability to immediately translate research findings into
    practice. VA research has produced landmark results and revolutionized
    treatment in heart disease and stroke. You and your family have
    benefited from VA heart and stroke research. Cutting-edge examples
    follow.
      --Heart Attack Diagnosis.--VA Researchers developed a simple,
            inexpensive blood test that can rule out heart attack within 90
            minutes with 100 percent accuracy, reducing critical care
            admissions 40 percent and general hospital admissions 20
            percent.
      --Aspirin and Angina.--An estimated 6.6 million Americans suffer from
            angina (chest pain) due to insufficient blood supply to the
            heart. In another landmark study, VA research found that
            aspirin cuts deaths and heart attacks by 50 percent in patients
            suffering from unstable angina.
      --Angioplasty Benefits.--In 2000, more than 1 million angioplasty
            procedures were performed in our nation to restore blood flow
            to the heart by widening narrowed arteries. VA research was the
            first to evaluate angioplasty. Results showed that after
            undergoing angioplasty, patients suffered less pain and can
            exercise longer than those taking only medication. Another
            study found clot-busting drugs had similar results to
            angioplasty for heart attack survivors at savings of $3,000 per
            patient. Annually, over 150,000 people are candidates for clot-
            busting drugs, according to the VA.

    Heart Failure
      --Heart Failure Drugs.--A VA study, which has revolutionized heart
            failure treatment, showed that heart medications can enhance
            the heart's pumping ability and keep patients suffering from
            heart failure alive and living more productive lives.
      --Heart Failure Diagnosis.--VA researchers developed a first-ever
            blood test that emergency department doctors use to diagnose
            heart failure in 15 minutes. More than 1,200 hospitals
            nationwide use this test, which offers an option to exams, x-
            rays, stress tests and echocardiography to diagnose heart
            failure. Conventional tests often require a hospital stay.
      --High Blood Pressure.--An estimated 50 million Americans have high
            blood pressure, the most critical stroke risk factor and a
            major cause of heart attack and heart failure. VA research has
            confirmed private sector statistics demonstrating that
            physicians increase the dose of antihypertensive medicines in
            only 25 percent of patients. These patients, many who had their
            blood pressure monitored, were poorly controlled. An
            inexpensive computerized reminder system helps doctors manage
            patients and cuts cost by reducing use of calcium channel
            blockers. As a result of the VA-developed comprehensive model
            of psychosocial and cultural factors on poor blood pressure
            control, health care providers now incorporate the patients'
            social and medical environments into the treatment regimen.
            More aggressive blood pressure management will reduce heart
            attacks and strokes. Challenging long-held beliefs, VA
            researchers showed that malfunctioning kidneys are an important
            cause of high blood pressure, rather than the result of high
            blood pressure.
      --Cholesterol.--An estimated 11 million veterans are at increased
            risk of heart disease due to high cholesterol levels, according
            to the VA. A groundbreaking VA-supported clinical trial found
            that daily use of the drug gemfibrozil raises HDL cholesterol,
            the ``good'' cholesterol, by 6 percent, reduces coronary heart
            disease risk by 22 percent and stroke risk by 31 percent.
            Results could mean cost savings because gemfibrozil is cheaper
            than statin drugs. This is the first study to show significant
            reduction in risk of major cardiovascular diseases by raising
            HDL, the ``good'' cholesterol, lowering triglycerides and not
            changing LDL, the ``bad'' cholesterol. VA research showed the
            effectiveness of cholesterol screening to determine levels of
            HDL and LDL--even in patients older than age 65. Another study
            found that soy protein added to a low-fat diet lowers
            cholesterol in those with moderately high cholesterol levels.
      --Irregular Heartbeat Treatment.--An estimated 2 million Americans
            suffer from atrial fibrillation, the most common irregular
            heartbeat, which causes more than 75,000 strokes a year. VA
            researchers corrected atrial fibrillation using the ``Maze
            Procedure,'' with a hand-held radiofrequency probe to ``draw''
            ablation lines on the inside of the atria while the heart is
            exposed. Previously, the ``Maze Procedure'' was performed by
            cutting the atrium into multiple sections and then stitching it
            back together--a lengthy and high risk procedure. Another study
            of atrial fibrillation showed that digoxin was not effective in
            controlling heart rate when used alone. However, when digoxin
            was combined with a beta-blocker, patients achieved almost
            perfect heart rate control. These results will enhance
            treatment for atrial fibrillation and reduce stroke risk.

    Stroke
      --Stroke Survivor Improvements.--Stroke is a major cause of permanent
            disability and America's No. 3 killer. VA studies have produced
            therapies to enhance quality of life for survivors. Researchers
            have created a software program to assess and treat the stroke-
            related speech disorder aphasia. They have also shown that
            strenuous exercise can benefit stroke survivors who are
            paralyzed on one side of their body, and have developed a
            rehabilitation procedure to restore arm movement. Researchers
            have also identified seven pathways associated with motor
            recovery from stroke, allowing more precise predictions about
            functional recovery. In another study, VA researchers implanted
            electrodes in leg muscles of stroke patients and used
            sophisticated software to electronically stimulate muscles. VA
            researchers were the first to demonstrate that robot-assisted
            therapy is more effective than conventional treatment in
            restoring upper limb movement.
      --Psychoeducational Program for Stroke Family Caregivers.--Most
            stroke survivors are helped in the recovery process by a family
            caregiver, usually the spouse. A pilot study testing a program
            to reduce physical and psychological demands on family
            caregivers found this intervention reduced depression and
            caregiver burden and better prepared them for their role.
            Initial results found that a telephone intervention may be as
            helpful as the in-home program. Execution of this program could
            have vital results for family caregivers of many of our 4.7
            million stroke survivors.

         HEART AND STROKE RESEARCH CHALLENGES AND OPPORTUNITIES FOR VA

        Research advances have been made possible by congressional support
    of the VA Medical and Prosthetic Research program. Thanks to research,
    more Americans survive their heart attack or stroke. But, while more
    Americans are surviving, heart attack is still the single largest
    killer in the United States and stroke remains the No. 3 killer. The
    disability caused by heart attacks and strokes requires costly medical
    care and loss of productivity and quality of life. Clearly more work is
    needed if we are to win the fight against heart disease and stroke.
    These challenges create abundant research opportunities to advance the
    battle against heart disease and stroke. Examples of on going VA
    research are highlighted below.
      --Heart Failure.--Nearly 5 million Americans suffer from heart
            failure, a major cause of hospitalization of Americans age 65
            and older. A VA study is comparing the effects of three anti-
            clotting therapies (aspirin, warfarin or clopidogrel) in heart
            failure patients. Another study is creating a large DNA bank of
            sufferers to examine the genetic basis of heart failure. A
            third study, the first large scale, international, randomized
            clinical trial, is evaluating the effects of digitalis, a 200-
            year old treatment, in preventing heart failure deaths.
      --Inflamed Arteries.--Many heart attacks and strokes are the end
            result of atherosclerosis or hardening of the arteries, the
            disease process that causes obstructed blood vessels. VA-
            supported research has shown that inflammation may cause
            atherosclerosis and may also cause previously stable
            atherosclerotic plaques in arteries to become unstable, which
            can lead to a heart attack or stroke. Scientists have
            identified large numbers of receptors in heart blood vessels
            that attract the blood cells that cause inflammation. If
            researchers can create a way to block that receptor,
            progression of atherosclerosis might be prevented.
      --Heart Attack.--An estimated 1.1 million Americans suffer a heart
            attack each year. VA research is assessing cost-effective ways
            to diagnose patients at risk of heart attack without costly
            invasive procedures, including a computer analysis of the
            heart's electrical signals during exercise and a new scoring
            system in treadmill tests. They are examining long-term outcome
            and risk factors for heart attack sufferers, for those who have
            heart attack during surgery and for those who have heart bypass
            surgery. Researchers have identified a molecular marker that
            may help predict heart attack. They are studying if attacks can
            be prevented by increasing levels of a protein that stimulates
            blood vessel growth and helps repair damaged tissue. Findings
            could save money, improve health and reduce surgery.
      --Angioplasty.--In the first study of its kind, the VA COURAGE trial
            is comparing the effectiveness of angioplasty with medical
            therapy versus aggressive medical therapy alone in patients
            with heart disease. The results of this study could
            revolutionize treatment of heart disease. In 2000, more than 1
            million angioplasty procedures were performed to restore blood
            flow to the heart by widening narrowed arteries.
      --Heart Bypass Surgery.--In 1999, VA doctors performed nearly 6,000
            coronary artery bypass surgery procedures. VA researchers are
            comparing two coronary artery bypass surgical procedures--
            standard coronary artery bypass surgery using a cardiopulmonary
            bypass machine, versus surgery while the heart is still
            beating, without requiring the bypass machine, to assess, among
            other outcomes, how cognitive function is affected.
      --Stroke.--Stroke strikes about 700,000 Americans each year, leaving
            about 1 in 4 survivors permanently disabled. Researchers found
            restricting use of limbs unaffected by stroke can help patients
            recover use of affected limbs more quickly and fully. Progress
            in deciphering language of the brain's motor cortex could lead
            to new technology that may reconnect damaged areas or
            communication pathways of the brain and may restore lost
            function after a stroke. Researchers are studying genetic
            susceptibility to carotid atherosclerosis, a major cause of
            stroke. A REAP will use an innovative approach to understanding
            stroke and its often-debilitating effects, drawing on medical
            research, exercise physiology and rehabilitation medicine. This
            REAP will also serve as a unique training vehicle for early-
            career stroke researchers.
        The Medical Research programs highlighted below are of interest to
    the American Heart Association.
      --Investigator-Initiated Studies.--During fiscal year 2002 this
            program constituted an estimated 73 percent of the Medical and
            Prosthetic Research appropriated budget. These investigators
            comprise the core of all VA research and provide the
            preceptorship for career development awardees.
      --Cooperative Studies.--In fiscal year 2000 this program supported an
            estimated 38 clinical trials. The VA offers a unique
            opportunity for cooperative studies due to close linkage among
            hospitals. These studies provide a mechanism by which research
            on the effectiveness of diagnostic or therapeutic techniques
            can achieve statistically significant results by pooling data
            on patients from a number of VA hospitals. The Cooperative
            Studies Evaluation Committee evaluates proposals developed by
            teams of clinicians and biostatisticians. The VA has supported
            landmark clinical trials in the cardiovascular field (e.g. high
            blood pressure treatment and coronary artery bypass surgery).
      --Career Development Awards.--Applications for these awards are
            reviewed both locally and by the VA Central Office. In response
            to the Research Realignment Advisory Committee's suggestion to
            rejuvenate this program, a renewed emphasis began in fiscal
            year 1997 for the VA's Medical Research Service, Health
            Services Research and Development Service and, for the first
            time, Rehabilitation Research and Development Service. This
            resulted in 188 Career Development Awards in fiscal year 2002.
      --Rehabilitation Research and Development Service.--Dedicated to
            improving the quality of life of impaired and disabled veterans
            through a full range of research, this intramural program has
            been very important to veterans suffering from heart disease,
            stroke and other cardiovascular diseases.

                                 ACTION NEEDED

        Investment in medical research will lead to future returns. These
    include continued decreases in death rates from heart attack, stroke
    and other cardiovascular diseases, reduced federal outlays for hospital
    and long-term care, a well-trained cadre of medical researchers and a
    healthier society. Consistent with the Friends of VA Medical Care and
    Health Research and the Independent Budget, we advocate an fiscal year
    2004 appropriation of $460 million for direct costs of the Medical and
    Prosthetic Research program. This will allow maintenance of fiscal year
    2003 initiatives and implementation of new initiatives, including
    continuation of research momentum in heart disease and stroke and
    maintenance of VA's vital role in this field. We urge the VA to expand
    a Rehabilitation Research Outcomes Center, targeting stroke patients,
    and augment the REAP into heart disease and stroke to advance the fight
    against heart disease, stroke and other cardiovascular diseases--
    America's No. 1 killer and a cause of permanent disability. Also, we
    recommend $45 million for facilities construction and renovation to
    enhance VA research and help recruitment and retention of quality
    investigators.

                                     ______

          Prepared Statement of the American Public Power Association

        The American Public Power Association (APPA) is the national
    service organization representing the interests of over 2,000 municipal
    and state-owned utilities in 49 of the 50 States (all but Hawaii).
    Collectively, public power utilities deliver electricity to one of
    every seven electric consumers (about 40 million people), serving some
    of the nation's largest cities. However, the vast majority of APPA's
    members serve communities with populations of 10,000 people or less.
        We appreciate the opportunity to submit this statement outlining
    our fiscal year 2004 funding priorities within the VA-HUD
    Subcommittee's jurisdiction.

             ENVIRONMENTAL PROTECTION AGENCY: ENERGY STAR PROGRAMS

        According to data compiled the Environmental Protection Agency
    (EPA), its Energy Star program helped save American businesses and
    consumers more than $5 billion and substantially reduced greenhouse gas
    emissions (the equivalent of the emissions released by 10 million cars)
    in the year 2000.
        Energy Star is a voluntary partnership program pairing EPA with
    businesses and consumers nationwide to enhance investment in
    underutilized technologies and practices that increase energy
    efficiency while at the same time reducing emissions of criteria
    pollutants and greenhouse gases. In particular, APPA member systems
    across the country have been active participants in a subset of the
    Energy Star program called ``Green Lights.'' The Green Lights program
    encourages the use of energy efficient lighting to reduce energy costs,
    increase productivity, promote customer retention and protect the
    environment.
        APPA appreciates the support of both the Administration and
    Congress for the programs encompassed by Energy Star and supports their
    continued robust funding.

       ENVIRONMENTAL PROTECTION AGENCY: LANDFILL METHANE OUTREACH PROGRAM

        APPA supports EPA's Landfill Methane Outreach Program (LMOP) and
    encourages the Subcommittee to continue its support as well. The
    Landfill Methane Outreach Program helps to partner utilities, energy
    organizations, states, tribes, the landfill gas industry and trade
    associations to promote the recovery and use of landfill gas as an
    energy source.
        Landfill gas is created when organic waste in a landfill
    decomposes. This gas consists of about 50 percent methane and about 50
    percent carbon dioxide. Landfill gas can be captured, converted, and
    used as an energy source rather than being released into the atmosphere
    as a potent greenhouse gas. Converting landfill gas to energy offsets
    the need for non-renewable resources such as coal and oil, and thereby
    helps to diversify utilities' fuel portfolios and to reduce emissions
    of air pollutants from conventional fuel sources.
        As units of local and state governments, APPA's member utilities
    are uniquely poised to embark on landfill-gas to energy projects. EPA's
    LMOP facilitates this process by providing technical support and access
    to invaluable partnerships to our members and the communities they
    serve.

                        COUNCIL ON ENVIRONMENTAL QUALITY

        APPA supports the Administration's request of $3.23 million for
    fiscal year 2004 for the White House's Council on Environmental Quality
    (CEQ). Public power utilities have experienced a general lack of
    consistency in federal government regulation, particularly involving
    environmental issues. While additional layers of government should be
    avoided, a central overseer can perform a valuable function in
    preventing duplicative, unnecessary and inconsistent regulation. CEQ is
    responsible for ensuring that federal agencies perform their tasks in
    an efficient and coordinated manner.
        Again, we appreciate your consideration of our priorities for the
    VA-HUD Subcommittee's fiscal year 2004 appropriations.

                                     ______

       Prepared Statement of The Coalition for Effective National Service

        Mr. Chairman and Members of the Committee, the members of the
    Coalition for Effective National Service, a membership organization
    composed of national nonprofit grantees of the Corporation for National
    and Community Service, thank you for the opportunity to submit
    testimony. We thank you for your leadership and commitment to national
    service. It is because of your vision and leadership that more than
    300,000 AmeriCorps members in the last decade have dedicated themselves
    to serving the nation and their communities.
        We are now almost two years removed from the tragedy of September
    11, 2001. Yet in many ways, that awful time looms over us. According to
    the noted social scientist Robert Putnam ``in the aftermath of
    September's tragedy, a window of opportunity has opened for a civic
    renewal that occurs only once or twice a century.'' In spite of this
    window and in spite of President Bush's leadership, we have made
    limited progress in realizing the President's goal of a nation of

        ``.  .  .  citizens, not spectators; citizens, not subjects;
    responsible citizens, building communities of service and a nation of
    character.''

        This is a wonderful, measurable goal that if met, will truly
    transform America for the better. We believe that by growing
    AmeriCorps, fully funding the challenge grant program, and eliminating
    the ``cap'' on national nonprofits we can create a comprehensive
    national service movement that generates community volunteers,
    reinvigorates citizenship and democracy and sparks a new culture of
    service, citizenship, and responsibility in the United States.
        This has been a difficult year for AmeriCorps. The enrollment
    ``pause'' and the confusion surrounding the National Service Trust have
    seriously disrupted programs at the local level. In his fiscal year
    2003 budget, President Bush called for an increase in funding to
    support 25,000 additional AmeriCorps members, but program funds were
    reduced and are now at their lowest level since 1994.
        In his fiscal year 2004 budget, the President again calls on
    Congress to increase the size of AmeriCorps. We urge you to honor the
    President's request.

     IN ORDER TO GROW AMERICORPS, WE WILL HAVE TO DRAMATICALLY EXPAND THE
                      OPPORTUNITIES FOR AMERICANS TO SERVE

        AmeriCorps is a proven program that works. Expanding by 25,000
    members a year will be a terrific first step towards providing many
    more opportunities for Americans to serve, and we should continue to
    grow the program from there. Every American should be challenged and
    given the opportunity to serve. Many proven programs, such as Habitat
    for Humanity, YouthBuild, Jumpstart, Teach for America, the National
    Association of Service and Conservation Corps, City Year, are ready to
    go to scale and need only the resources to do so.
        Since 1994, more than 300,000 AmeriCorps members have produced
    significant results-meeting critical needs in education, public safety,
    health and human services, and the environment in every state across
    the nation. The following examples are just a few of the contributions
    made by AmeriCorps members over the past nine years:
      --Students tutored by AmeriCorps members improved their reading
            performance more than the gain expected by the typical child at
            their grade level;
      --Established, expanded, or operated 46,000 safety patrols;
      --Served more than 1 million at-risk youth in after-school programs;
      --Provided food, clothing, and other necessities to more than 5
            million homeless people;
      --Provided job or career counseling to more than 550,000 people;
      --Immunized more than 1 million people;
      --Helped more than 650,000 seniors to live independently; and,
      --Recruited, trained, or supervised more than 2.5 million community
            volunteers to help non-profits meet important community needs.
        More specifically, examples of the impact of national nonprofits
    include:
      --Teach For America participants have taught more than 1 million
            students in low-income communities throughout America since the
            inception of AmeriCorps;
      --City Year has engaged more than 700,000 citizens of all ages in
            service around the country;
      --Jumpstart has prepared more than 10,000 pre-schoolers from low-
            income families to be ready to read when they start school;
      --The National Association of Community Health Centers has supported
            health care services to more than 350,000 residents of
            medically underserved areas;
      --Habitat for Humanity built more than 11,000 homes;
      --Public Allies has placed more than 1,000 future leaders in almost
            600 partner organizations, served 300,000 people, and engaged
            30,000 community volunteers; and,
      --In 2001-2002, AmeriCorps members serving with the Youth Volunteer
            Corps of America recruited almost 5,200 Youth Volunteers for
            service-learning projects, an additional 5,000 to implement
            community service projects, and worked with 518 community
            partners.
      --The National School and Community Corps has engaged more than
            125,000 urban students in grades K-12 in programs during
            school, after school, and in the summer resulting in increased
            student achievement and attendance, reduced youth violence, and
            improved school climates.
      --In 2001-2002, Northwest Service Academy AmeriCorps members and the
            volunteers they generated cleared 380 acres of non-native
            invasive plants, planted almost 175,000 native trees, plants,
            and shrubs, restored more than 1,700 miles of trail and
            provided environmental education to 36,000 students and
            community members.
      --Over the past five years CLEARCorps members have protected more
            than 2,500 children by controlling lead hazards in the homers
            and have educated more than 75,000 parents and community
            members on the causes and prevention of childhood lead
            poisoning.
      --Since 1995, approximately 600 bilingual AmeriCorps members serving
            with the Association of Farmworker Opportunity Programs have
            trained almost 300,000 members of farmworker families in
            pesticide safety. Serving in 23 states, and often working with
            local health clinics and churches, they have provided free
            environmental health training to growers, some of whom own
            family farms.
      --In 2002 members of the National Association of Service and
            Conservation Corps enrolled more than 24,000 people, provided
            18.3 million hours of service to their communities, and
            mobilized more than 11,000 community volunteers who contributed
            an additional 1.8 million hours of service.
        All of this great work has been made possible by the federal
    government, not in running the programs, but in providing the resources
    and the umbrella organization to get this valuable work done.
        There are now more than 800 AmeriCorps programs nationwide,
    including 42 fully stipended ones operated by national nonprofits that
    are laying the foundation for a much more comprehensive system for
    national service. Other national nonprofits operate large Education
    Award Programs. With expanded resources and an increase in the quantity
    and quality of service opportunities for Americans, we believe that
    service can become a common experience for every American and that we
    can realize President Bush's powerful vision.
        Both the Commission on National and Community Service, established
    by President George H.W. Bush, and the Corporation for National and
    Community Service, established by President Clinton, took an innovative
    approach to developing national service in America. Rather than
    creating one single federal national service program, they recognized
    that national service is about citizenship; it should come from the
    bottom up, and the federal government should play the role of catalyst,
    resource provider, standard setter, promoter, and umbrella. Our
    programs respond to local needs.
        We need to continue to nurture an environment in which investment,
    growth, and best practices are encouraged. The end result will be high
    quality, cost-effective programs that meet real needs. This environment
    can be stimulated by leveraging investment from all sectors and
    stakeholders and by recognizing the unique contribution of national
    nonprofit AmeriCorps programs to the entire movement.

          FEDERAL INVESTMENT IS A POWERFUL CATALYST FOR DEVELOPING A
                    COMPREHENSIVE SYSTEM OF NATIONAL SERVICE

        Federal investment in national service, beginning with the
    administration of President George H.W. Bush in 1992, has allowed our
    organizations to grow to their current scale, serving communities all
    over the country. Federal investment hasn't displaced private
    investment; rather it has stimulated it, and national nonprofit
    programs have matched every dollar invested by the federal government
    through the Corporation for National and Community Service with private
    sector support, foundation funds, and fee-for-service work.
        National service programs across the country leverage significant
    private sector funds, and have the capacity to do much more. In a 1999
    survey, each AmeriCorps program was found to be involved with an
    average of 2-3 businesses. Programs like Public Allies match their
    federal monies 2:1, leveraging resources from partner nonprofit
    organizations that benefit from their services, and raising other
    contributions from individuals, foundations, and corporations.
        National service programs also leverage considerable state and
    local public sector funds. AmeriCorps has benefited school systems, in
    particular. School systems inn Atlanta, Philadelphia, Chicago, Oakland,
    and dozens of other cities have invested in AmeriCorps because its
    members are skilled, enthusiastic, dedicated, and provide important
    services as tutors, mentors and after school and summer counselors.
        The Coalition for Effective National Service enthusiastically
    supports President Bush's proposal to fund the challenge grant
    provision in the National and Community Service Act. A strategic use of
    federal matching fund challenge grants will leverage federal dollars
    and unleash private philanthropy to help established programs with
    proven track records to provide opportunities for young people to serve
    in many more American communities. We urge you to fully fund this
    initiative in fiscal year 2004.

     NATIONAL NON-PROFITS ARE A STRONG AND EFFICIENT DELIVERY VEHICLE FOR
                                NATIONAL SERVICE

        National nonprofits that operate AmeriCorps programs have a unique
    role to play in the national service universe. Known as National
    Directs, these programs provide quality control and expertise, engage
    national companies as sponsors, and achieve economies of scale through
    centralized ``back office'' operations. However, in the spirit of
    experimentation and devolution, Congress placed a ``cap'' upon National
    Direct funding in 1997, shrinking it from 33 percent to about 17
    percent of total AmeriCorps program funds in fiscal year 2002. Because
    we are convinced that National Directs are crucial to promoting
    innovation, quality, replication, and sustainability in the national
    service field we urge you to eliminate this limitation.
        National Direct AmeriCorps programs operate in every state in the
    country. They share the following characteristics: they participate in
    a highly demanding national competitive process in order to receive
    funds from the Corporation for National and Community Service, they
    oversee operating sites in multiple states, and they are frequently
    housed within major national and international nonprofit organizations,
    such the American Red Cross and Habitat for Humanity. Others stand
    alone.
        National Directs have significant advantages that enable them to
    play a key role in building a comprehensive system and infrastructure
    for national service in America. They bring significant resources to
    the national service field including: the ability to build strong
    infrastructures, deeply committed Board members, developed business
    practices, skilled professionals, programs tested and implemented on a
    national scale, and the potential to partner with national companies
    and foundations on important projects and initiatives. National Direct
    programs include:
      --Teach for America, an independent nonprofit operating in 20 regions
            nationwide, which places outstanding recent college graduates
            in under-served urban and rural public schools to teach for two
            years;
      --Habitat for Humanity AmeriCorps, housed within Habitat for Humanity
            International and operating in eighteen states, which builds
            and renovates houses with low-income families;
      --Youthbuild USA AmeriCorps, of Youthbuild USA, operating in 23
            states, which recruits disadvantaged youth to construct low-
            income area housing and ``rebuild their neighborhoods as they
            rebuild their lives'';
      --Jumpstart for Young Children, Inc. which pairs federal work-study
            college students with preschool children struggling in early
            learning programs in four states;
      --Community HealthCorps, operated by the National Association of
            Community Health Centers in fourteen states, the District of
            Columbia, and Puerto Rico which provides culturally appropriate
            preventive and primary health care to medically underserved
            populations and communities; and
      --National Collaboration for Homeless Veterans, operated by the
            United States Veterans Initiative, which provides services to
            homeless veterans to connect them with housing, employment, and
            treatment services and to help them successfully reintegrate
            into society.
        Quality control.--Like successful franchises, National Direct
    AmeriCorps programs create replicable service models to adapt to any
    area. National Direct programs do not start from scratch; they
    establish new programs on the basis of years of experience building
    local community relationships and uniting local resources, and they
    work with local leaders to establish new sites. National Direct
    operating sites work with their respective State Commissions, lending
    resources, attending trainings and program director meetings, and
    ensuring that program funders are recognized in the state's portfolio.
    In addition, about twenty parent organizations for National Direct
    operating sites also receive funding through some State Commissions.
    Often, working with local champions such as CEOs and mayors, national
    nonprofit programs have begun operations in a new locality with
    national direct funding and then have been brought into the State
    portfolio by the State Commission through the competitive stream.
        Expertise.--National Direct programs support community-based
    organizations by delivering federal resources while taking on the
    bureaucratic reporting and administration that go with it. Public
    Allies, for example, has placed AmeriCorps members in 550 community-
    based organizations in seventeen regions across the country to date; 93
    percent of those organizations report strengthened capacity such that
    they will sustain the projects and relationships developed by their
    members.
        National reach.--National Directs have the potential to leverage
    investment on a large scale. For example, Cisco Systems, Compaq
    Computer Corporation, MFS Investment Management, and the Timberland
    Company have each committed more than $1 million to the City Year
    AmeriCorps program because of its national reach. Sponsorship for
    national nonprofits is of significant interest to multi-state
    corporations because it meets their employees' and customers' interests
    in serving in more than one location. Furthermore, sponsorship in one
    city by nationally recognized corporations and foundations frequently
    influences potential sponsors in another city. These are dollars that
    would not otherwise be leveraged by local service programs. National
    Directs have a unique capacity to enlarge the share of philanthropic
    dollars spent on service.
        Cost-effectiveness.--Because National Directs centralize standard
    operations, significant economies of scale and sustainability can be
    achieved. Centralized financial administration, such as single payroll
    and budget services, single audits, single legal representation, a
    shared line of credit, or a shared national endowment can sharply
    reduce costs per site. Standardized communications protocol leads to
    effective brand management, targeted research, and central evaluation,
    allowing reports on aggregate data from across the country. Also,
    national programs can quickly leverage and build upon local innovation.
    Best practices can be quickly and efficiently communicated across
    operating sites, shared corps recruitment and human resources systems
    leverage multiple applicants, and alumni have an instant cross-country
    network.
        Demonstrable impact.--National Directs are able to aggregate their
    results on a large scale and unify a range of service activities from
    multiple programs through a focused mission. Lines of accountability
    for service outcome are that much easier to control, and results are
    easier to collect. Below are some examples:
      --Teach for America reports that 96 percent of principals rated their
            members as excellent or good in terms of achievement,
            orientation, and drive to succeed; 97 percent would absolutely
            hire their members again;
      --In 2001, members serving with the National Collaboration for
            Homeless Veterans provided more than 10,000 homeless
            individuals, of which nearly 6,500 were homeless veterans, with
            services including: intake, case management, group support,
            legal services, transportation, and housing;
      --Over a three-year period, Community Health Center members provided
            a ``medical home'' for 27,644 residents of medically
            underserved areas, provided 47,266 patient encounters to
            improve health care utilization and cost effectiveness
            (including understanding benefits, doctor instructions and
            follow up), and generated 23,631 referrals to link patients
            with other health and social services.
        Whether operated by national nonprofits, community- and faith-based
    organizations, universities, state and city departments, or
    foundations, AmeriCorps programs work. It is time to take national
    service to the next level through challenges to the private sector,
    increased resources, and restoration of the historical role for
    National Directs.
        As Americans, we now have a historic, and perhaps unique,
    opportunity to call all Americans to give back to their communities. We
    look back at the Greatest Generation with admiration and reverence
    because they overcame the Great Depression and fought a world war for
    freedom and democracy. Today, while we fight a global war on terrorism
    there are still great challenges here at home. We must capitalize on
    this moment in our history to challenge each and every citizen to
    answer the call to serve our nation and we must build a system of
    national service that enables them to do so. If we build that system,
    every generation of Americans will become a Greatest Generation,
    because they will rise to serve causes larger than themselves. The
    moment is here, but it is brief. It is up to us, working together, to
    secure national service for the next generation of young people and all
    Americans.
        The Coalition again thanks you for your leadership, your example,
    and your commitment to making service to community and country an
    opportunity for all Americans.

                                     ______

                    Prepared Statement of Teach For America

        Mr. Chairman, Senator Mikulski and Members of the Subcommittee,
    thank you for the opportunity to submit testimony regarding the
    President's fiscal year 2004 budget proposal to provide $3 million for
    Teach For America. Mr. Chairman and Senator Mikulski, I applaud your
    commitment to national service and desire to help AmeriCorps realize
    its full potential. Thanks to your leadership and the work of this
    Subcommittee, Teach For America corps members have reached more than
    one million students in under-resourced school districts since the
    inception of AmeriCorps.
        I would like to take this opportunity to discuss Teach For America
    and our current growth plans. I will also focus on the $3 million line
    item in the President's fiscal year 2004 budget and explain why it is
    critical to Teach For America's ability to grow to scale.
        As you know, Teach For America is the national corps of outstanding
    recent college graduates of all academic majors who commit two years to
    teach in urban and rural public schools and become lifelong leaders in
    the effort to ensure that all children in our nation have an equal
    chance in life. We are a private, national non-profit organization, as
    well as one of the original AmeriCorps programs. Our teachers receive a
    salary from their local school district as well as education awards
    through AmeriCorps. These education awards can be used for graduate
    level education courses necessary to obtain teacher certification, to
    pay back qualified student loans, or for future education. Mr. Chairman
    and Senator Mikulski, since these awards are such a valuable asset for
    Teach For America corps members, I want to let you know how much I
    appreciate your recent efforts to provide adequate funding in the
    National Service Trust for education awards.
        Since 1990, when I founded Teach For America, our organization has
    grown from 500 corps members teaching in 5 regions to what will soon be
    3,500 corps members teaching in 20 regions during the 2003-2004 school
    year. Teach For America corps members are having an impact throughout
    our nation, from St. Louis to Baltimore, and from New Mexico's Navajo
    Nation to the Rio Grande Valley in South Texas.

                     TEACH FOR AMERICA MEETS CRITICAL NEEDS

        Our mission is to build a movement to eliminate the educational
    inequality that exists in our country today. By the age of nine,
    children in low-income areas are already three grade levels behind in
    reading ability (Source: National Center of Education Statistics,
    2000). As these children progress in the educational system, this
    achievement gap only widens, to the point that a child who grows up in
    a low-income community is seven times less likely to graduate from
    college than a child growing up in a more privileged area (Source:
    Education Trust, 1998).
        Our corps members help close the achievement gap for the students
    they reach during their two-year commitment. At the same time, they
    gain insight and added commitment that shapes them into an important
    leadership force, working from inside of education and from other
    sectors, for long-term change.

                                  OUR PROGRAM

        We recruit the most highly sought-after college graduates of all
    academic majors, career interests, and backgrounds from leading
    colleges and universities. We then select corps members who demonstrate
    records of achievement and leadership, as well as a commitment to
    expanding opportunity for children in low-income areas.
        Admission to Teach For America is highly selective, with
    approximately 15 percent of our applicants gaining admission to the
    corps. Of our 2002 corps members, 89 percent held leadership positions
    on their campuses or in their communities. They earned average SAT
    scores of 1310 and average GPAs of 3.5. In addition, 38 percent of
    corps members are people of color.
        This year, 15,700 young people applied for only 1,900 slots as
    first year teachers. At many top schools, Teach For America is
    considered one of the most prestigious post-graduate opportunities.
    This year, 19 percent of Spelman's senior class applied to the corps.
    And at top, larger universities, Teach For America attracted
    significant portions of the student body: 5 percent of Yale and
    Princeton seniors applied, as did 4 percent of seniors at Michigan and
    Harvard. All are competing for the opportunity to teach in America's
    neediest schools.
        Corps members are selected into Teach For America if they
    demonstrate strong leadership characteristics such as achievement
    orientation, critical thinking, personal responsibility for success,
    and the ability to influence and motivate others, as well as high
    expectations for students and families in low-income communities and
    the desire to work relentlessly toward this particular mission.
        Those selected attend a summer training institute where corps
    members teach in local public summer schools and participate in a full
    afternoon and evening schedule of professional development activities.
    We aim to ensure that corps members internalize the overarching
    approach utilized by the most successful teachers in urban and rural
    areas; and that they gain skills in instructional planning and
    delivery; building a strong classroom culture; literacy development;
    and teaching the specific content-area and grade-level they will be
    teaching.
        Following the institute, corps members assume teaching positions in
    school districts in 20 urban and rural areas. They are clustered in
    schools and receive extensive ongoing support and professional
    development through Teach For America and through local teacher
    education programs.
        Following their two-year commitments, corps members can remain in
    teaching (and about 60 percent teach for at least a third year). We
    expect that they will ask themselves how they can have the greatest
    possible impact on the challenges they and their students experienced
    during their two years, and we provide a network of resources and
    support that they can tap into as they continue working in educational
    and social reform throughout their lives.

            IMMEDIATE IMPACT ON COMMUNITIES AND STUDENT ACHIEVEMENT

        Our success in recruiting and preparing exceptional classroom
    teachers has led education policy makers to highlight our impact on
    disadvantaged communities. Reflecting on his tenure as Superintendent
    of the Houston Independent School District, Secretary of Education Rod
    Paige noted, ``Every year, our best teachers came from Teach For
    America.''
        In a study released in August 2001, researchers at the Center for
    Research on Education Outcomes (CREDO) at Stanford University compared
    the impact of Teach For America corps members in Houston on their
    students' achievement to that of other teachers. Researchers found that
    the students of corps members, compared with students of other new
    teachers, achieved greater or equal gains on standardized tests in
    every subject and every grade level.
        Another way we evaluate corps member impact is through a bi-annual
    survey of principal satisfaction conducted by Kane, Parsons &
    Associates, Inc., an independent research firm. In the spring 2001
    survey by Kane, Parsons & Associates, principals credit Teach For
    America teachers as having positive effects on their schools and on
    student achievement. Almost four out of five principals reported that
    corps members are more effective than their other beginning teachers.
    An average of over ninety percent of these principals rated corps
    members as good or excellent on 22 indicators of effective teaching,
    including:
      --96 percent--Achievement orientation and drive to succeed;
      --94 percent--Knowledge of the subject matter;
      --98 percent--Ability to think logically and critically;
      --92 percent--Integrating into the school community; and
      --93 percent--Assuming responsibility for student achievement.

                                LONG-TERM IMPACT

        Teach For America is building a force of leaders and citizens with
    a lifelong commitment to addressing the issues they witness during
    their two years of service. Education Week, a leading national journal
    of K-12 education, profiled Teach For America's alumni in an article
    titled ``Most Likely To Succeed'' and called Teach For America a
    ``leader-making machine.''
        According to a survey conducted in the fall of 2002, our alumni are
    deeply influenced by their Teach For America experience:
      --Nationally, 63 percent of our alumni are working full-time in
            education, 37 percent as K-12 teachers and 26 percent as
            administrators, in higher education, education-related non-
            profits and other positions in the field of education; and
      --Both within and outside of the education field, 79 percent of
            alumni have been influenced in their career decisions by their
            desire to expand opportunities in low-income neighborhoods, and
            84 percent of alumni participate in civic activities motivated
            by this same desire.
        Even more striking is the extent to which Teach For America alumni
    have already assumed leadership in the broader effort to improve
    education--they are running many of the most highly acclaimed charter
    schools in the country; they are turning around major urban schools as
    principals; they are winning some of the highest accolades teachers can
    win (as state and city teachers of the year); they are serving on
    school boards and advising Governors and Members of Congress on
    education policy; and they are leading model education reform, public
    health and economic development initiatives.

           TEACH FOR AMERICA NEEDS INCREASED FUNDING TO GROW TO SCALE

        Teach For America is in the midst of a 5-year expansion plan to
    more than triple the size of its teacher corps. Before this expansion
    effort, Teach For America had just over 1,000 teachers in 13
    communities and a budget of under $10 million. In 2004, Teach For
    America will have nearly 4,000 corps members in at least 21 sites and
    will need to raise a budget in excess of $30 million. At that scale,
    Teach For America teachers will reach more than 300,000 public school
    students every day in this country's lowest-income neighborhoods.
        Seventy-five percent of our funding comes from private sources,
    much of it from the local communities where our teachers teach. We have
    a highly diversified base of more than 2,000 private donors from all
    over the country. Top donors include Don and Doris Fisher's Pisces
    Foundation; the Broad Foundation; the Walton Family Foundation; the New
    Schools Venture Fund; Wachovia Corporation; and AT&T.
        To raise our expanded budget, we must significantly increase our
    private funding base while growing our federal funding proportionately.
    With adequate federal funding, we can expand to reach more communities
    and engage more recent college graduates while continuing to provide
    highly qualified teachers for America's neediest classrooms. The
    Corporation for National and Community Service's $3 million fiscal year
    2004 budget line item would allow us to maintain our current ratio of
    federal to private funding and enable us to execute our growth plan.

                                   CONCLUSION

        I hope you will agree that we have demonstrated all the
    characteristics of an exemplary AmeriCorps program: we recruit talented
    young people into competitive positions in critical areas of public
    need; we have a significant impact in the communities we serve; we
    influence the civic commitment and career path of our corps members;
    and we leverage our public support for significant private resources.
    As we continue our efforts to more than triple in size and reach
    hundreds of thousands of children each year, we seek your support so
    that Teach For America can expand its scale and impact. Mr. Chairman
    and Members of the Subcommittee, we hope you will support the
    President's request for $3 million for Teach for America in the fiscal
    year 2004 budget.

                                     ______

              Prepared Statement of the American Thoracic Society

        The American Thoracic Society (ATS) is pleased provide our
    recommendations for programs in the Department of Veterans Affairs (VA)
    medical and prosthetic research program and the Environmental
    Protection Agency.
        The ATS, founded in 1905, is an independently incorporated,
    international education and scientific society which focuses on
    respiratory and critical care medicine. The Society's members help
    prevent and fight respiratory disease around the globe through
    research, education, patient care and advocacy. The Society's long-
    range goal is to decrease morbidity and mortality from disorders and
    life-threatening acute illnesses.
        Lung disease is a significant health problem in the U.S. Lung
    disease is the third leading cause of death in the U.S.--responsible
    for one in every seven deaths. More than 35 million Americans suffer
    from a chronic lung disease. Lung diseases cost the U.S. economy an
    estimated $144.9 billion annually in direct and indirect costs. Lung
    disease represents a spectrum of chronic and acute conditions that
    interfere with the lung's ability to extract oxygen from the
    atmosphere, protect against environmental and biological assaults, and
    regulate a number of vital metabolic processes. Lung diseases include:
    chronic obstructive pulmonary disease (COPD--which includes emphysema
    and chronic bronchitis), lung cancer, tuberculosis, pneumonia,
    influenza, sleep-disordered breathing, pediatric lung diseases,
    occupational lung diseases, sarcoidosis, asthma, acute lung injury and
    severe acute respiratory syndrome (SARS).

                         DEPARTMENT OF VETERANS AFFAIRS

    VA Research Medical and Prosthetic Research Program
        The American Thoracic Society strongly supports the VA research
    program. The VA research program is a valuable tool for attracting and
    retain top-notch physicians to VA system. The VA research program also
    is an important source of training support for VA physicians. The VA
    research program also supports state-of-the-art research that is
    leading to better treatment and cures for all Americans. Most
    importantly, the VA research program is good for veterans. The research
    and training programs are focused on the unique needs of veterans.
        We applaud the Bush Administration and Department of Veterans
    Affairs Secretary Anthony J. Principi for recognizing the invaluable
    contribution VA research makes to deliver high quality care for
    veterans and toward improving the health of veterans and the nation.
    However, the proposed $10.6 million (2.7 percent) increase in the
    direct costs of the program is inadequate to sustain the current level
    of effort or to accommodate new initiatives.
        The Friends of VA Medical Care and Health Research (FOVA), a
    coalition of 82 medical, research, physician, academic, patient
    advocacy and Veterans organizations committed to quality care for
    veterans an fiscal year 2004 appropriation of at least $460 million for
    the direct costs of the VA research program and $45 million for
    research facility improvements. The ATS supports the FOVA
    recommendations for fiscal year 2004.
        The $460 million allows overall growth of $63 million (16 percent)
    over fiscal year 2003. An increase of this size is justified by the
    need to accommodate biomedical research inflation and federal pay
    increases as well as a major new initiative in deployment health
    research and expansion in areas such as terrorism, emerging pathogens,
    special populations, quality improvement, chronic diseases and diseases
    of the brain. We urge to the Subcommittee to support continued, steady
    growth in the annual appropriation.

    VA Research Facility Renovation
        Separate from its recommendations for the VA research
    appropriation, FOVA also recommends the Committee to address the
    increasingly urgent need for improvements in VA's research facilities
    by recommending a specific allocation of $45 million for these needs.
    The ATS strongly supports FOVA recommendations for research facilities
    improvements.
        The ATS notes that the House VA-HUD subcommittee designated $25
    million for minor construction research facility improvements in the
    fiscal year 2003 VA-HUD bill. However, appears that conferees for the
    fiscal year 2003 Omnibus Appropriations legislation reduced the total
    minor construction budget to $15 million and did not make reference to
    funds available for research space rehabilitation.
        Despite having top-notch researchers, the VA system has a sub-par
    physical infrastructure for supporting research. Substandard facilities
    make VA a less attractive partner in research collaborations with
    affiliated universities; reduce VA's ability to leverage the research
    and development (R&D) appropriation with other federal and private
    sector funding; and make it difficult to attract cutting edge
    researchers, both clinician investigators and laboratory scientists, to
    pursue careers in the VA. Facility R&D Committees regularly disapprove
    projects for funding consideration because the facility does not have
    the necessary infrastructure and has little prospect of acquiring it.
        Under the current system, research must compete with other medical
    facility and clinical needs for basic infrastructure and physical plant
    support. Unfortunately, the minor construction appropriation is
    chronically inadequate to meet facility needs for clinical improvements
    much less research upgrades, and year after year the list of urgently
    needed research repairs and upgrades grows longer. The VA has
    identified 18 sites in urgent need of minor construction funding to
    upgrade their research facilities. These sites, plus the many
    facilities with smaller, but no less important needs, provide more than
    sufficient justification for an appropriation of $45 million
    specifically for research facility improvements.
        The ATS strongly encourages the Subcommittee on Veterans Affairs to
    support a fiscal year 2004 appropriation of at least $460 million for
    the direct costs of the VA research program and $45 million for
    research facility improvements.

                     ENVIRONMENTAL PROTECTION AGENCY (EPA)

        Nearly all lung diseases are impacted by air pollution. How well or
    poorly our lungs perform is contingent on the quality of air around us,
    making the impact of air pollution inescapable. Air pollution remains a
    primary contributor to a high prevalence of respiratory diseases.
        For nearly 40 years, the ATS has conducted scientific, public
    health and educational programs to fight air pollution and to improve
    the quality of the air we breathe. We remain strong supporters of the
    Clean Air Act and its amendments. We can attest to the significant
    impact that the Clean Air Act has had in improving the quality of our
    nation's air.
        However, much remains to be done. It is estimated that millions of
    Americans live in counties that do not meet current Clean Air Act
    health-standards, including our Nation's Capitol. EPA reports estimate
    that 170 million Americans live in areas that expose them to unsafe
    levels of ozone and particulate matter.
        Research has shown that air pollution is causing the premature
    death of literally thousands of people each year due to complications
    from exposure to air pollution.

    The Administration's Clear Skies Proposal
        Despite its appealing name, the Administration's Clear Skies
    proposal will increase air pollution in the U.S. The proposal would
    delay the implementation of emissions standards and increase the
    overall amount of pollution released from industrial facilities.
    Enforcement of the existing Clean Air Act laws will reduce air
    pollution in the U.S. faster than the Administration proposal. Beyond
    delaying implementation and increasing total emissions, the
    Administration proposal would deny state authority to take action to
    address air pollution.
        We recommend the Subcommittee to transfer the $7.7 million
    Administration Clear Skies budget proposal to EPA implementation and
    enforcement of the existing Clean Air Act standards.

    EPA Enforcement
        The ATS is encouraged that the Administration has proposed an
    increase in the EPA enforcement budget. However, we would note that
    cuts in the 2002 budget have eliminated over 100 positions from the EPA
    enforcement and compliance activities. A strong EPA enforcement program
    is needed to ensure all Americans can breath clean air.
        We are pleased that the President's budget restores the 100 FTE
    enforcement positions cuts in the previous budget, however, we note
    that federal enforcement activities are still 100 positions FTE short
    of what is needed to adequately protect our nation's environment and
    health.

    EPA Asthma Research
        The ATS is pleased that EPA has launched an asthma research
    program. The medical community has long known that air pollution can
    exacerbate existing asthma. In fact, a recent study published in the
    February 2, 2002 issue of Lancet showed a relationship between exposure
    to high levels of ozone and the development of asthma in children.\1\
    Additional research is needed to confirm and define the links between
    air pollution and asthma. The EPA Asthma Research programs will
    identify:
    ---------------------------------------------------------------------------
        \1\ R. McConnell, et.al., Asthma in Exercising Children Exposed to
    Ozone: A Cohort Study, Lancet, Feb. 2, 2002, p.386-391.
    ---------------------------------------------------------------------------
      --pollutants that contribute to the induction and exacerbation of
            asthma, such as air toxics, byproducts of combustion, aerosols,
            indoor allergens and environmental tobacco smoke;
      --susceptibility factors that contribute to asthma: genetics, prior
            health problems, socioeconomic status, residence and exposure
            history; and
      --risk assessment and risk management of environmental pollutants
            relevant to asthma.
    The ATS recommends the Subcommittee provide $12 million for the EPA
    Asthma Research program.

    NAAQS Research
        The ATS strongly supports the EPA National Ambient Air Quality
    Standards (NAAQS) research program. The NAAQS research program provides
    valuable information about the health effects of exposure to polluted
    air. The NAAQS also help develop the monitoring and pollution control
    technology that will ultimately lead to cleaner air of all of America.
        We recommend a $50 million increase in the EPA NAAQS research
    program.

    Fine Particulate Matter and Ozone
        Recent studies have confirmed the significant adverse impact that
    existing levels of smog and fine particles have on lung health. Two
    recent studies have made clear the need to proceed with enforcement of
    the health-based Clean Air standard established 1997. The Lancet study,
    referenced before, establishes a link between ozone and the development
    of asthma.\2\ A second study published in the March 6, 2002 edition of
    the Journal of the American Medical Association establishes a
    correlation between exposure to fine particulate air pollution and
    increased mortality from lung cancer and cardiopulmonary diseases.\3\
    Despite the growing body of evidence that air pollution plays a direct
    role in causing lung disease, the EPA has yet to implement the new,
    more protective standards finalized in July 1997.
    ---------------------------------------------------------------------------
        \2\ Ibid.
        \3\ C. Pope, et.al., Lung Caner, Cardiopulmonary Mortality, and
    Long-term Exposure to Fine Particulate Air Pollution, JAMA, March 6,
    2002, p. 1132-1141.
    ---------------------------------------------------------------------------
        As the members of the Subcommittee know, the state of the 1997 fine
    particulate matter and ozone rules had been tied up in courts until
    recently. In March 2002, the U.S. Court of Appeals ruled that the 1997
    standards were a proper exercise of EPA's power. Now that all legal
    barriers have been removed, it is time EPA began enforcing its 1997
    health-based Clean Air Act standards.
        The ATS urges the Subcommittee to provide EPA with the resources to
    expeditiously implement and enforce the 1997 health-based standards.

    New Source Review
        We are extremely concerned about Administration initiatives to
    weaken the Clean Air Act and undermine the enforcement of the law. In
    particular, we are concerned about the effort to undercut the Clean Air
    Act's New Source Review Program. New Source Review (NSR) is a simple
    concept, made extremely complicated by those who want to avoid
    complying with the law. Simply stated, the NSR program requires
    facilities that undergo modification that significantly increase
    emissions to install pollution control equipment. If the facility does
    not increase pollution, NSR does not apply. This program only applies
    when pollution increases. The NSR program is reducing pollution and is
    saving lives this year and every year. Legislative proposals promising
    greater air pollution reductions are no substitute for NSR. Such
    proposals must be implemented in concert with NSR, just as the current
    acid rain reduction program is. The public demands cleaner air and this
    program provides substantial public health benefits.
        We urge the Subcommittee to resist efforts by the Administration to
    weaken the implementation or enforcement of the EPA New Source Review
    program.

    Tier 2 and Heavy Duty Vehicles Standards
        In 1999, the EPA established new tailpipe and gasoline standards
    for cars, light trucks, minivans and SUVs. The EPA also established new
    limits on sulfur in gasoline. When fully implemented, this program
    would be the equivalent of taking 164 million cars off the road. EPA
    calculates that the final rule will prevent as many as 4,300 deaths,
    more than 10,000 cases of chronic and acute bronchitis, and tens of
    thousands respiratory problems a year.
        In 2000, EPA established new emission standards for heavy-duty
    vehicles and diesel fuel. These standards provide dramatic pollution
    reduction. As a result of this program, each new truck and bus will be
    more than 90 percent cleaner than current models. The clean air impact
    of this program will be dramatic when fully implemented. This program
    will provide annual emission reductions equivalent to removing the
    pollution from more than 90 percent of today's trucks and buses, or
    about 13 million vehicles.
        We encourage the Subcommittee to provide EPA the resources
    necessary to proceed with implementation and enforcement of the Tier 2
    and Heavy-Duty Vehicle Standards.

    Ozone Depleting Gases Transition
        The ATS supports the work of the EPA and the Food and Drug
    Administration (FDA) to complete the transition process of removing
    ozone-depleting gases from the U.S. market place as called for the
    Montreal Protocol. One of the few remaining uses of ozone deleting
    gases is chlorofluorocarbon (CFC) propelled drugs used to treat asthma
    and chronic obstructive pulmonary disease. Last year, the FDA published
    criteria for reviewing essential use exemptions for CFC propelled
    medications as non-ozone depleting drug formulations became available.
        The ATS, in conjunction with the American Lung Association and
    several other physician and patient organizations, has filed a citizen
    petition asking the FDA to end the essential use exemption for CFC
    propelled albuterol sulfate--a drug used to treat asthma and other
    obstructive lung diseases. Currently, there are two manufacturers who
    produce a non-ozone deleting formulation of albuterol sulfate. A third
    manufacturer is seeking FDA approval of its non-ozone depleting
    formulation of albuterol sulfate. Data from the U.S. and European
    markets has proven the new formulations to be safe and effective.
        We encourage the EPA to work with the FDA and the Department of
    State to develop a position to achieve adoption of a Protocol decision
    this year that deems albuterol non-essential for developed countries by
    2005 and takes other steps to bring timely and effective closure to the
    Protocol's essential use exemption.
        In conclusion, lung disease is a growing problem in the United
    States. It is America's number three killer, responsible for one in
    seven deaths. The ATS requests Congress' continued support for the VA
    and the EPA research programs to enable the pulmonology and critical
    care medicine community to continue with its efforts to find better
    ways to treat and prevent lung disease.

                                     ______

              Prepared Statement of the American Lung Association

        The American Lung Association is pleased to offer this testimony to
    the Committee on Appropriations Subcommittee on Veterans, Housing and
    Urban Development and Independent Agencies on the programs of the
    Environmental Protection Agency. The American Lung Association,
    established in 1904, is one of the nation's oldest voluntary health
    organizations. The American Lung Association is committed to fighting
    lung disease and promoting lung health.
        Lung disease is the third leading cause of death in the U.S.--
    responsible for one in every seven deaths. More than 35 million
    Americans suffer from a chronic lung disease. These diseases cost the
    U.S. economy an estimated $144.9 billion annually. Lung disease
    represents a spectrum of chronic and acute conditions that interfere
    with the lung's ability to extract oxygen from the atmosphere, protect
    against environmental and biological assaults, and regulate a number of
    vital metabolic processes. We are talking about diseases that are very
    familiar--such as asthma, emphysema, chronic bronchitis, lung cancer,
    tuberculosis, pneumonia, and influenza--and others, which are much less
    well known. Lung disease touches virtually every American.
        Lung diseases are made worse by air pollution. How well or poorly
    our lungs perform depends on the quality of air around us, making the
    impact of air pollution inescapable.
        For nearly 40 years, the American Lung Association has conducted
    scientific, public health and educational programs to fight air
    pollution and to improve the quality of the air we breathe. We remain
    strong supporters of the Clean Air Act and its amendments. We can
    attest to the significant impact that the Clean Air Act has had in
    improving the quality of our nation's air.
        However, much remains to be done. EPA's own estimates show that
    over 170 million people live in areas with unhealthy levels of smog and
    soot based on current standards. We know people living in these areas
    suffer air pollution-related asthma attacks, are hospitalized for
    aggravated lung disease, lose days at work, school and play, and even
    face an early death.
        Research has shown that air pollution is causing the premature
    death of literally thousands of people due to complications linked to
    air pollution exposure.

                   ADMINISTRATION'S AIR POLLUTION LEGISLATION

        The Administration's air pollution legislation, known as Clear
    Skies, will weaken the Clean Air Act and severely undermine efforts to
    curb air pollution. The plan will not reduce power plant emissions
    enough to clean the air or protect the nation's health. In fact, timely
    enforcement of the current Clean Air Act will provide greater pollution
    reductions sooner than the Administration's bill.
        Unfortunately, the Administration is currently focused on attempts
    to avoid implementation of existing clean air regulations. The
    Administration's proposal, which would not be fully implemented for
    more than two decades, would delay reaching important clean air goals
    even further. The plan preempts state authority to aggressively pursue
    clean air for their citizens. Indeed, air pollution clean-up plans
    needed to meet public health standards for smog and fine particles
    issued in 1997 are still years away.
        The American Lung Association strongly encourages the Subcommittee
    to redirect the $7.7 million proposed to fund Clear Skies into
    implementing the ozone and fine particle standards.

                          FEDERAL ENFORCEMENT FUNDING

        We are pleased to see that the President's budget has proposed an
    increase for Environmental Protection Agency enforcement. The $21
    million increase will add 100 positions. Unfortunately, due to previous
    cuts, the enforcement program is still down 100 positions from the
    fiscal year 2001 proposed level. We have much cleaner air today than we
    did in 1970 because of EPA's ability to enforce the law. Without strong
    continued federal leadership, the quality of our nation's air will
    suffer.
        The American Lung Association strongly encourages the Subcommittee
    to increase the enforcement and compliance program to restore all the
    positions that have been eliminated.

                            ASTHMA RESEARCH STRATEGY

        Last fall, the American Lung Association joined EPA Administrator
    Whitman to announce the release of the EPA Office of Research and
    Development's Asthma Research Strategy. The Asthma Research Strategy
    will guide EPA research efforts to address the significant issues of
    exposures, effects, risk assessment and risk management of
    environmental pollutants relevant to asthma.
        The Asthma Research Strategy will address the following issues:
      --pollutants that contribute to the induction and exacerbation of
            asthma, such as air toxics, byproducts of combustion, aerosols,
            indoor allergens and environmental tobacco smoke;
      --susceptibility factors that contribute to asthma: genetics, prior
            health problems, socioeconomic status, residence and exposure
            history; and
      --risk assessment and risk management of environmental pollutants
            relevant to asthma.
    We were pleased that the Administration requested an additional $1
    million for children's asthma research in this year's request bring the
    total request to $6.2 million.
        The American Lung Association strongly encourages the Subcommittee
    to double the investment in children's asthma research to $12.4
    million.

                              AMBIENT AIR RESEARCH

        The American Lung Association strongly supports the EPA National
    Ambient Air Quality Standards research program. This research program
    provides valuable information on the health effects of exposure to
    polluted air. This research is essential for the development of the
    most cost effective strategies and technologies needed for protecting
    public health from air pollution.
        The American Lung Association recommends a $50 million increase in
    the EPA National Ambient Air Quality Standards research program.

                               VEHICLES STANDARDS

        This year, EPA will propose new standards for non-road diesel
    engines. Commonly referred to as heavy equipment, this category
    includes vehicles used in a variety of applications in construction and
    agriculture. We expect EPA to propose emissions standards and fuel
    standards for these vehicles that are comparable to the new standards
    for on road heavy-duty vehicles and fuels. This rule will save
    thousands of lives each year. This proposal builds on EPA's previous
    initiatives to clean up heavy-duty diesel trucks and buses and cars,
    light trucks and SUVs. We expect this program to provide even greater
    benefits than the on-road rule. The American Lung Association strongly
    supports this EPA initiative that will bring tremendous air quality and
    public health benefits. Some have suggested that EPA reopen the widely
    supported rule for on road heavy-duty trucks and buses. The American
    Lung Association strongly urges EPA to move ahead with the new non-road
    rulemaking without reopening the on-road rule.
        The American Lung Association encourages the Subcommittee to
    provide EPA the resources necessary to proceed with non-road rulemaking
    and finalize the rule as soon as possible.

                               NEW SOURCE REVIEW

        We are extremely concerned about Administration initiatives to
    weaken the Clean Air Act and undermine the enforcement of the law. In
    particular, we are concerned about the effort to undercut the Clean Air
    Act's New Source Review program. New Source Review, also known as NSR,
    is a simple concept, made extremely complicated by those who want to
    avoid complying with the law. Simply stated, the NSR program requires
    facilities that undergo modification that significantly increase
    emissions, to install pollution control equipment. If the facility does
    not increase pollution, New Source Review does not apply. The NSR
    program is reducing pollution and saving lives this year and every
    year. Legislative proposals promising the potential of greater air
    pollution reductions in the years to come are no substitute for this
    effective clean-up program.
        The American Lung Association urges the Subcommittee to resist
    efforts by the Administration to weaken the implementation or
    enforcement of the EPA New Source Review program.

                       FINE PARTICULATE MATTER AND OZONE

        On March 26, 2002, the D.C. Circuit of the United States Court of
    Appeals rejected the last of the industry challenges to the National
    Ambient Air Quality Standards issued by the EPA in July 1997 for PM 2.5
    (fine particles) and 8-hour levels of ozone smog. After a five-year
    delay caused by specious industry litigation, we expect EPA to treat
    implementation of these standards as a matter of great urgency. We urge
    this committee to ensure that the agency does so.
        EPA's review of the health standards is once again overdue. The
    review of the National Ambient Air Quality Standards for Ozone and
    Particulate Matter was supposed to be completed by July 2002. It is
    critical that the EPA devote sufficient resources to complete the
    timely review of the health based air pollution standards.
        The American Lung Association urges the Subcommittee to direct EPA
    to complete the timely review of the ambient air quality standards.

                                 MDI TRANSITION

        The American Lung Association is continues to work with the EPA and
    the Food and Drug Administration (FDA) to complete the transition
    process of removing ozone depleting substances from the U.S. market
    place as called for the Montreal Protocol. One of the few remaining
    uses of ozone depleting substances are CFC propelled drugs used to
    treat asthma and chronic obstructive pulmonary disease. Last year, the
    FDA published criteria for reviewing essential use exemptions for CFC
    propelled medications as non-ozone depleting drug formulations became
    available.
        The American Lung Association, in conjunction with several of
    physician and patient organizations, has filed a citizen petition
    asking the FDA to end the essential use exemption for CFC propelled
    albuterol sulfate--a drug used to treat asthma and other lung diseases.
    Currently, there are two manufacturers who produce a non-ozone
    depleting formulation of albuterol sulfate. Data from the U.S. and
    European markets have proven the new formulations to be safe and
    effective.
        The American Lung Association encourages the EPA to work with the
    FDA and the Department of State to develop a position to achieve
    adoption of a Protocol decision this year that deems albuterol non-
    essential for developed countries by 2005 and takes other steps to
    bring timely and effective closure to the Protocol's essential use
    exemption. We believe this action is an important step to fulfill the
    U.S. commitment to phase-out all uses of ozone-depleting substances.
        The American Lung Association urges the Subcommittee to support the
    transition process to remove ozone-depleting gases.
        The American Lung Association thanks the Subcommittee for
    consideration of its views. We look forward to working with you to
    further promote and protect the health of the American public.

                                     ______

     Prepared Statement of the Association of Minority Health Professions
                                    Schools

        Mr. Chairman and members of the subcommittee, thank you for the
    opportunity to express the views of the Association of Minority Health
    Professions Schools (AMHPS).
        I am Dr. John E. Maupin Jr., President of Meharry Medical College
    in Nashville, Tennessee and President of AMHPS. AMHPS is an
    organization which represents twelve (12) historically black health
    professions schools in the country. Combined, our institutions have
    graduated 50 percent of African-American physicians and dentists, 60
    percent of all the nation's African-American pharmacists, and 75
    percent of the African-American veterinarians.
        AMHPS has two major goals: 1) to improve the health status of all
    Americans, especially African-Americans and other minorities; and 2) to
    improve the representation of African-Americans and other minorities in
    the health professions. We are working toward achieving this goal by
    seeking to strengthen our institutions and fortify other programs
    throughout the nation that will improve the role of minorities in the
    provision of health care and research.

                AGENCY FOR TOXIC SUBSTANCES AND DISEASE REGISTRY

        Congress created the Agency for Toxic Substances and Disease
    Registry (ATSDR) to implement the health-related sections of law that
    protect the public from hazardous wastes and environmental spills of
    hazardous substances. The mission of ATSDR is to serve the public by
    using the best science, taking responsive public health actions, and
    providing trusted health information to prevent harmful exposures and
    illness related to toxic substances.
        ATSDR works in partnership with Environmental Protection Agency,
    the Centers for Disease Control and Prevention, and the National
    Institute of Environmental Health Sciences to carry out its public
    health activities. Since the September 11th attacks, ATSDR has worked
    with other federal, state, and local agencies to respond to the
    enormous aftermath of this tragedy. Approximately, one-fourth of the
    agency's 430 employees were directly involved in the response to 9/11
    at some time during fiscal year 2002.
        ATSDR is performing critical work in the field of environmental and
    toxicological studies that has a profound impact on public health. In
    order to carry out the level of activity that is called for in its
    mission statement, AMHPS recommends an appropriation of $95 million for
    ATSDR in fiscal year 2004, an increase of $12.2 million over fiscal
    year 2003.

       THE ATSDR/AMHPS COOPERATIVE AGREEMENT ON ENVIRONMENTAL HEALTH AND
                              TOXICOLOGY RESEARCH

        In 1992, ATSDR identified a need for enhanced information on 38
    hazardous substances. Through a cooperative agreement between ATSDR and
    the Minority Health Professions Foundation (MHPF), the historically
    black health professions schools that I represent are engaged in
    research on twelve of these priority hazardous substances. They
    include:
      --Lead
      --Mercury
      --Benzene
      --Cadmium
      --Benzo (a) pyrene
      --Flouranthene
      --Trichlorocthylene
      --Toluene
      --Zinc
      --Manganese
      --Chlordane
      --Di-n-butylphthalate
        The productivity of this research program is evidenced by the
    number of publication and scientific presentations made by the funded
    investigators. To date, more that 55 manuscripts reporting the finding
    of the various research projects have been published in peer-reviewed
    and prestigious scientific journals. These journals include: Brain
    Research, Neurotoxicology, Journal of Neurochemistry, and Environmental
    Health Prospectives.
        Moreover, investigators have made more than 120 presentations at
    national and international scientific meetings, including the annual
    meeting of the Society of Toxicology, the Experimental Biology meeting,
    the International Congress of Toxicology meeting, and the International
    Society of Psyschoneuropharmacology meeting. Finally, the AMHPS/ATSDR
    Cooperative Agreement has contributed significantly to the training of
    students in toxicology and environmental health. Annually, more than 30
    students, both graduate and undergraduate, are actively involved in the
    research program.
        Mr. Chairman, AMHPS and ATSDR are completing ten years of
    successful research. We expect to continue with a new cooperative
    agreement in fiscal year 2003. In addition to basic toxicological
    research, the new cooperative agreement will focus on: 1) translation
    of environmental science into environmental medicine and public health
    practice; 2) development of a surveillance system to track disease,
    disability and dysfunction among targeted populations in communities of
    concern, and 3) investigations of the role of the environment in
    eliminating racial/ethnic health disparities.
        Traditionally, the AMHPS/ATSDR research partnership has been
    supported by ATSDR at a level of $4 million a year. For fiscal year
    2004, we encourage the subcommittee to support this important
    collaboration by directing $4 million within the ATSDR budget for the
    cooperative agreement.
        Thank you very much for the opportunity to present the views of the
    Association of Minority Health Professions Schools.

                                     ______

             Prepared Statement of the EZ/EC Foundation Consortium

        I am Janet Levy, Executive Director of the EZ/EC Foundation
    Consortium. The Consortium is a partnership of ten foundations formed
    in 1997 to support successful implementation of the Empowerment Zone/
    Enterprise Community Initiative and to help others learn from the work
    of EZ/EC sites. Our foundation members have included the Annie E. Casey
    Foundation, Cleveland Foundation, East Bay Community Foundation, Ford
    Foundation, Greater Kansas City Community Foundation, William and Flora
    Hewlett Foundation, Robert Wood Johnson Foundation, W.K. Kellogg
    Foundation, John D. and Catherine T. MacArthur Foundation, and
    Rockefeller Foundation.
        We appreciate this opportunity to respond to a request by the
    Empowered Communities Caucus to submit for both Senate and House
    Appropriations Committee consideration some insights about the Round II
    Empowerment Zones, based on effective approaches to community
    revitalization that the philanthropic sector has gained through its
    work over the past decade. Our experience points, in particular, to the
    importance of complementing incentives designed to create employment
    opportunities with strategies that help people prepare for and perform
    well in those jobs and that address other aspects of healthy community
    life. We also have learned of the important contribution to sustained
    success that comes from engaging all parts of the community in a strong
    partnership, a process that rarely is easy but which promises rich
    rewards to those who dedicate the required effort.
        These insights bear directly on an issue that is before the
    Subcommittees--whether continued grant-funded strategies are necessary
    to complement tax incentives in achieving successful and sustainable
    revitalization. Tax incentives are a promising mechanism for
    encouraging businesses to expand employment opportunities. But these
    mechanisms are not designed to nor can they support the workforce
    development, quality of life, and engagement strategies that, as we
    indicate above, are an essential complement in a revitalization effort.
    These latter strategies require a direct outlay of dollars. By assuring
    the availability of grant funds which can be used for these purposes--
    whether for programming itself or to leverage even greater commitments
    of funds from state and local government and the nonprofit and
    philanthropic sectors--the federal government both secures and enhances
    the investment it is making through the provision of tax incentives.
    Based on our experience, we firmly believe that a combination of
    incentives and grants are the most promising route to achieve the
    laudable objectives of the EZ/EC Initiative.

             FOUNDATION-SPONSORED COMMUNITY REVITALIZATION EFFORTS

        The Consortium's member foundations, as well as many others, have a
    substantial history of commitment to low-income communities and of
    investment in efforts to revitalize areas of deep, persistent poverty.
        Beginning about a decade ago, these foundations launched a new
    generation of such efforts. Among the most notable in terms of their
    contribution to the current state of knowledge about community
    revitalization have been the Casey Foundation's New Futures, Rebuilding
    Communities and current Neighborhood Transformation and Family
    Development Initiative, the Ford Foundation's Neighborhood and Family
    Preservation Initiative, and the Rockefeller Foundation's Community
    Planning and Action Program.
        These experiments helped form the basis of new thinking about how
    best to challenge poverty and provide poor communities and their
    residents with greater economic opportunity and an improvement in the
    overall quality of life. Rather than focusing on fixing an isolated
    problem, such as housing, they considered the community as a whole. A
    vibrant community which supports its families and nurtures its
    children, offers jobs, decent and affordable housing, safety, good
    quality schools and outside-school opportunities for children and
    youth, and special supports when crises occur that threaten well-being.
    Effective revitalization likewise needed to be multifaceted,
    incorporating simultaneous and coordinated efforts to address economic
    opportunity, the skills and capacities of the community's residents,
    quality of life issues such as crime, and strengthening of the
    community's social fabric.
        These foundation-sponsored experiments also took the position that
    how decisions are made about programmatic content may be as important
    as the content itself. On the one hand, acknowledging the unique
    understanding each community has of its particular assets,
    opportunities and needs, the foundations gave their local partners a
    great deal of latitude in selecting the specific programmatic
    strategies they would pursue. But at the same time, the foundations
    pushed for a new kind of local decisionmaking, which would engage a
    broad range of stakeholders and would specifically encourage serious
    and consequential participation by residents of the targeted areas.
        From these experiments emerged guiding principles for the
    revitalization approach that came to be known as ``community-
    building'':
      --Significant and sustainable revitalization requires simultaneous
            and coordinated economic development, investment in a
            community's human capital, and help to strengthen the social
            fabric of the community.
      --Successful, sustainable revitalization requires harnessing the
            knowledge, resources, capacity and commitment of all those with
            a stake in the well-being of the community--the public sector,
            the private sector, the nonprofit sector, and the residents.
      --Successful, sustainable revitalization is not a quick process. It
            takes time and patience first to do the planning and build the
            partnerships that provide a solid foundation, and then to
            attract the jobs and implement the many projects that will be
            needed to counter what often have been many years of
            deteriorating conditions.

                     PHILANTHROPY AND THE EZ/EC INITIATIVE

        No matter how ambitious the efforts of the philanthropic sector to
    improve conditions in low-income communities, the resources of that
    sector could never come close to addressing the true scope of need.
    Therefore, foundations were heartened at the renewed commitment of the
    federal government reflected in the EZ/EC Initiative, especially
    because that commitment was grounded in the principles of sound
    community-building cited above.
        The philanthropic sector's experience was tapped even at the design
    stage of the EZ/EC Initiative, when the Carnegie Corporation convened a
    seminar for federal officials in which foundation executives, staff and
    experts shared the knowledge gained through a decade of
    experimentation. As the Initiative unfolded, foundations invested
    locally in the development of applications and then in implementation.
    Because it was the only entity trusted by the many diverse
    stakeholders, one community foundation even agreed to serve as the lead
    entity for the local effort.
        Complementing these individual actions, a group of foundations
    formed the EZ/EC Foundation Consortium to support successful
    implementation of the Initiative and to help others learn from the work
    of the sites. Our work has included various forms of technical
    assistance to sites, with special emphasis on peer exchange. Most
    recently, for example, we convened a meeting of Round I and Round II EZ
    directors, giving them an opportunity to share experiences and ideas on
    topics such as the use of tax incentives, ways to measure and report
    results, and ways to sustain accomplishments over time. We also have
    produced or have under development a variety of publications. Some give
    an overview of the EZ/EC Initiative in ways that complement
    publications by the federal government and researchers--for example,
    presenting photographs by young people that show how the Initiative is
    affecting their families and communities. Other publications under
    development will explore in some depth particular aspects of the
    Initiative, such as strategies to promote broad participation and the
    use of tax incentives by sites.

                      LESSONS FROM THE WORK OF EZ/EC SITES

        The Consortium has been a partner with and student of the work of
    EZ/EC sites since the early days of implementation. This work is a rich
    source of lessons that will be valuable guides for Round III
    Empowerment Zones and Renewal Communities, as well as for future
    efforts to revitalize distressed communities.
        Most relevant for the immediate purposes of this Subcommittee, the
    long experience of the Round I sites in particular offers specific
    insights about the combined and complementary contributions to be made
    by both tax incentives and flexible federal grants. Those communities
    had the benefit of assured funding throughout the ten-year designation.
    Their experience suggests that tax incentives that are designed well
    and marketed effectively can be an important tool to foster economic
    revitalization of distressed communities, especially with respect to
    large businesses. But, just as economic development itself is not
    enough to achieve and sustain the deep-reaching change that is needed,
    so too is it important to complement tax incentives with resources
    through which critical areas beyond economic development can be
    addressed.
        Federal grant dollars have been essential in allowing EZ/EC sites
    to pursue valuable components of revitalization such as:
      --Helping people prepare for, obtain and perform well in the jobs
            made available through economic development activities.--Some
            community residents begin with the experience and personal
            wherewithal to take advantage of expanding economic opportunity
            on their own. But, for many others, help in developing a resume
            and presenting oneself to a potential employer, or in acquiring
            the skills that employers are seeking, or in overcoming
            barriers to employment may be essential. With federal grant
            dollars, EZ/EC sites have been able to address not just job
            development, but also workforce development, offering the pre-
            employment, connection to work, and on-the-job services that
            have helped many community residents take advantage of
            expanding opportunities to achieve real change in economic
            well-being.
      --Addressing key quality-of-life issues that affect a community's
            ability to attract and retain businesses and to nurture strong
            and healthy families.--Businesses care about the financial
            ``bottom line,'' which potentially is aided by tax incentives,
            but they also care about the environment in which they operate.
            A low crime rate assures safety and security for their workers
            and their physical plant. The ability of workers to find child
            care and help when crises arise reduces absenteeism and
            turnover that detract from a business's financial success.
            Young people who are getting a good education and developing
            their talents through positive activities stay out of trouble
            and promise businesses a strong and capable workforce in the
            future. EZ/EC sites have used federal dollars, sometimes
            directly for programming but more often to leverage major
            contributions from other sources and better coordination of
            existing services, to reduce crime, expand the availability and
            quality of child care, and offer children and youth healthy and
            productive ways to spend their time. At Detroit's Family Place
            and Louisville's Nia Center, families can readily find the
            services that once were scattered and difficult to access. In
            the Rio Grande Valley, a decrepit facility that lacked even
            running water has been replaced by a brand new Boys and Girls
            Club built with the aid of an Empowerment Zone challenge grant.
            At the United Teen Equality Center, developed with leadership
            from the Lowell Enterprise Community, adolescents of diverse
            ethnicities and backgrounds no longer face conflict on the
            streets, but now gather in a place that nurtures cooperation
            and positive growth.
      --Bringing all stakeholders together in effective partnerships that
            allow each group to tap its particular strengths to contribute
            to overall success.--A community's residents, government,
            business, and nonprofit organizations all have a stake in
            revitalization efforts and the community's well-being. And each
            group brings assets to a potential effort--dollars to spend,
            the promise of new jobs, an understanding of the market that is
            created by a community's history, conditions, and desires. But
            each group also brings its own frame of reference, experiences,
            and operating style, and these must be woven together to shape
            a collaborative venture that can pursue an ambitious and
            complex agenda. These are not easy partnerships to form and
            sustain, and not all EZ/EC sites have been successful. But for
            those that have effectively used federal dollars to build the
            capacity of the community and to help the diverse voices find
            common ground in a shared vision for success, we see not only
            near-term progress but also a foundation of ongoing leadership.
            Village Centers in Baltimore and Community Trust Boards in
            Philadelphia, for example, are vehicles through which community
            residents have gained an understanding of economic development
            and which now provide a forum where developers, residents, and
            government can combine their assets to foster continuing
            expansion of economic opportunity and improvement in the
            community's quality of life for years to come.
        In summary, the experience of the philanthropic sector with
    community revitalization efforts and the Consortium's observations of
    the EZ/EC Initiative to date point strongly to the importance of
    working simultaneously on multiple fronts--expanding economic
    opportunity, investing in the community's human capital, and
    strengthening the community's social fabric. To do so requires vehicles
    as varied as the strategies. Tax incentives are one tool. But equally
    important are flexible dollars through which issues other than economic
    development can be addressed. For this reason, we believe that the
    success of Round II Urban Empowerment Zones likely will rest in
    substantial measure on their ability to draw on the full range of
    benefits which were envisioned when they were created.

                                     ______

        Prepared Statement of the National Service-Learning Partnership

        The National Service-Learning Partnership calls upon Congress to
    include young people in citizen service by increasing the Federal
    investment in Learn and Serve America.
        I am Anthony Welch, Chair of the Board of Directors of the National
    Service-Learning Partnership. With more than 3,000 organizational and
    individual members, the Partnership is the nation's largest leadership
    organization devoted to strengthening service-learning. The Partnership
    urges you to increase funding for the Learn and Serve America program
    administered by the Corporation for National Service.
        Youth Citizen Service.--In his inaugural address, President George
    W. Bush challenged Americans to be ``citizens, not spectators'' and to
    help build ``communities of service and a nation of character.'' More
    recently, noted education historian, Dr. Diane Ravitch, noted that,
    ``We must teach students to appreciate and defend our democratic
    institutions.'' During this time of great national purpose, we cannot
    overlook young people's eagerness to serve. In order to do so, however,
    they need the kind of opportunities and support that the educational
    method, service-learning, provides. The National Commission on Service-
    Learning, chaired by former Senator John Glenn, called service learning
    ``the single best way to educate young people for active citizenship in
    a democracy.'' Service-learning offers unique support for the American
    commitment to public schooling as a necessity for creating an informed
    citizenry.
        Service-learning.--Service-learning is a powerful form of service
    in which students design projects to meet community needs as part of
    their academic and civic studies. Using service-learning, elementary
    school students tutor younger students, and both improve their mastery
    of essential literacy skills. Math students make calculations that
    persuade the local authorities to install a traffic light near their
    schools so as to reduce accidents at a dangerous corner. History
    students research the local heroes identified on plaques in their
    community and share what they have learned at the annual Memorial Day
    ceremony. Language arts students hone their writing skills by
    organizing a campaign to reduce bullying on their school buses.
        Service-learning offers students such as these the kind of balanced
    education Americans want for students, according to a poll conducted in
    the fall of 2000 by Roper Starch Worldwide. Americans believe that
    service-learning can help prepare young people for work, citizenship,
    and lifelong learning. Furthermore, service-learning elicits the kind
    of engagement with learning that reinforces students' motivation to
    learn. When students apply new knowledge and skills to real challenges
    outside the classroom, they are far less likely to ask their teachers
    ``Why do I have to learn this?''
        Prevalence of service-learning.--One third of public school
    students participate in service-learning. Most of this activity is
    supported by local resources. However, since former President George
    H.W. Bush signed the National and Community Trust Act of 1990, an
    important grant program under that law, Learn and Serve America, has
    engaged nearly 10 million students in serving others and their
    communities. Currently, 50 states and territories receive funds from
    Learn and Serve America, the only Federal program dedicated to
    promoting and supporting service-learning. Nearly 1.5 million students
    each year are involved in grassroots initiatives that address local
    concerns, and about 80 percent of each state's formula grant goes
    directly to support for school-community partnerships.
        Impact of Service-Learning.--In addition to being a cost-effective,
    service-learning works. A growing body of scholarly research and other
    evaluations demonstrate that when well implemented, service-learning
    improves students' academic achievement, civic engagement, preparation
    for the world of work, and responsible behavior. Alan Melchior of
    Brandeis University estimates that each dollar invested in service-
    learning returns $4 in investment in the community. Service-learning
    research has identified many ways in which service-learning improves
    students' civic and academic engagement while strengthening their
    communities.
      --Service-learning promotes youth civic engagement.--Service-learning
            is one of the most effective ways for young people to practice
            the habits of civic responsibility. Scholars from universities
            across the United States have found that students engaged in
            high quality service-learning projects showed an increase in
            the degree to which they felt aware of community needs,
            believed that they could make a difference, and were committed
            to service now and later in life. For instance, a study by Dr.
            James Younis at Catholic University and Dr. Miranda Yates at
            Brown University found that high school students who
            participated in service-learning are more likely to be engaged
            in a community organization and are more likely to vote 15
            years after their participation in the program than those who
            did not participate.
      --Service-learning supports students' academic achievement.--When
            rigorous study in academic disciplines is linked with serious
            work on real needs, students' motivation for learning
            increases. Students participating in service-learning have
            better grades and rates of attendance, as well as improved
            attitudes to school.
      --Service-learning strengthens communities.--Community-based
            organizations can do more with the help of students engaged in
            service-learning. Furthermore, community members who
            participate in service-learning see youth as valued resources
            and positive contributors to community.
        The Need for Federal Action in the Fiscal Year 2004 Appropriations
    Cycle.--Within the Corporation for National and Community Service,
    Learn and Serve America serves the most participants. Despite a record
    of success, Learn and Serve America funding has remained essentially
    flat for the past 10 years. Increasing the Federal investment in Learn
    and Serve America will give a larger proportion of younger Americans
    the support they deserve to answer the national call to serve
    neighborhood and nation.
        Partnership asks for Increased Learn and Serve America Funding.--
    The Partnership asks this subcommittee to increase funding for service-
    learning through an incremental increase of $18 million during fiscal
    year 2004: $12 million to increase funding for grants made to K-12
    schools, tribes, and community-based organizations as part of the Learn
    and Serve program and $6 million to increase designated resources for
    technical assistance for Learn and Serve America grantees, including
    preparing practitioners to link service-learning to the teaching of
    history, civics, and civic education.
        A Time to Preserve and Protect Democracy.--Citizen service is for
    all of us. High-quality service-learning should become a core element
    of the educational experience of every elementary, middle, and high
    school student in the United States. By offering service-learning,
    policymakers, educators, and parents open the door to a multi-faceted
    education so that students may walk through it to become better
    citizens, better learners, and better workers.

                                     ______

               Prepared Statement of the Alliance to Save Energy

                                  INTRODUCTION

        My name is David Nemtzow. I am the President of the Alliance to
    Save Energy, a bi-partisan, non-profit coalition of business,
    government, environmental, and consumer leaders dedicated to improving
    the efficiency with which our economy uses energy. Senators Charles
    Percy and Hubert Humphrey founded the Alliance in 1977. The leadership
    of the Alliance is also a partnership between the private sector and
    government chaired by Senator Byron Dorgan (D-ND) and co-chaired by
    Dean Langford the former CEO of Osram Sylvania. Over seventy companies
    currently participate in the Alliance's Associates program and with
    your permission Mr. Chairman I would like to include for the record a
    complete list of the Alliance's Board of Directors and Associates. This
    list includes the nation's leading energy efficiency firms, electric
    and gas utilities, and other companies committed to promoting sound
    energy use.
        Thank you for the opportunity to testify regarding the energy-
    related components of the Environmental Protection Agency's (EPA)
    fiscal year 2004 budget request. Specifically, I respectfully urge you
    to significantly increase your support for the EPA's Energy Star
    program. The Energy Star program is an entirely voluntary program that
    yields significant economic returns to our nation's consumers while
    generating considerable environmental benefits for our nation--all
    through energy efficiency.
        The Alliance has a long history of advocating for, as well as
    researching and evaluating, federal efforts to promote energy
    efficiency. While many of these efforts include laws passed by this
    Congress and federal regulations and standards issued pursuant to those
    laws, we especially applaud efforts that rely on cooperative
    partnerships between government and business and between the federal
    and state governments, and not just government mandates. EPA's climate
    programs are entirely voluntary and address the national goals of
    broad-based economic growth, environmental protection, national
    security and economic competitiveness at the same time. The EPA's
    Energy Star program is a shining example of such a program. The Climate
    Protection Division at EPA which operates the Energy Star program works
    closely with the private sector manufacturers, retailers, building
    owners, and energy service providers, as well as state and local
    governments, non-profits, and other organizations to promote energy
    efficient products and buildings. And they do it extremely well--for
    every tax dollar spent by the Energy Star program, $75 or more of
    energy savings are returned. Last year alone, Americans with the help
    of Energy Star saved enough energy to power 15 million homes and avoid
    the greenhouse gas emissions from 14 million cars--all while saving
    over $6 billion.

                ENERGY EFFICIENCY AS A VALUABLE ENERGY RESOURCE

        Mr. Chairman, over the past 30 years, energy efficiency has met
    more of the country's energy needs than any other single domestic
    energy resource. Energy efficiency is a significant and valuable
    resource. Furthermore, energy efficiency measures are powerful and
    dynamic policy tools through which prices, supply, and emissions can be
    radically adjusted. While the Alliance to Save Energy believes that an
    effective energy policy must include a combination of measures that
    provide electricity, heating fuel, and motor fuel to Americans, it also
    believes that we must first go after the resource that is cheapest, can
    be delivered most quickly, and can stand up to all environmental
    scrutiny--that resource is energy efficiency.
        Energy efficiency gains have significantly improved the way we use
    energy. The U.S. economy grew nearly five times faster than did energy
    use from 1973 to 2001. A refrigerator sold today uses about 70 percent
    less energy than one built in the early 1970s. Since 1973, energy
    efficiency has saved the nation 27 quadrillion Btus (quads) of energy
    annually, more than one-fifth of total consumption, and about $150
    billion each year. The energy efficiency industry has become a vibrant
    part of the American economy. More than 5,000 companies provide energy-
    saving equipment and services, contributing over $10 billion and a
    quarter-million jobs to our economy each year.
        But despite these new technologies and the integration of energy
    efficiency into the nation's energy policies and economy, we have
    barely scratched the surface of energy efficiency's potential.
    Technologies that dramatically increase the efficiency of electric
    distribution lines, lighting systems, air conditioning and
    refrigeration, and other products are moving out of laboratories. It
    seems that every year technological developments bring more and better
    measures at our disposal to reduce electricity demand, make homes more
    energy-efficient, and go further on less gasoline. But Mr. Chairman, we
    must make sure that we are able to maximize these resources.

                  HOW ENERGY STAR CAPITALIZE ON THIS RESOURCE

        Mr. Chairman, EPA's Energy Star program has proven to be an
    extremely effective way for this nation to capitalize on the potential
    of energy efficiency as a resource. In fact, over the last decade,
    Energy Star successfully promoted the use of advanced technologies that
    are quite common today such as power management systems for office
    equipment, LED traffic lights, and low standby energy use. The
    President's National Energy Plan even recommends that the Energy Star
    program be expanded to include schools, retail buildings, health care
    facilities, and homes, and that the Energy Star labeling program be
    extended to cover more products. And, Mr. Chairman, the President Bush
    has publicly declared his strong support of the program.
        Energy Star's voluntary partnership program--which includes Energy
    Star Buildings, Energy Star Homes, Energy Star Small Business, and
    Energy Star Labeled Products--works by removing marketplace barriers to
    existing and emerging technologies, resulting in faster deployment of
    energy efficient technology into the residential and commercial sectors
    of the economy.
        Rather than providing financial subsidies or tax breaks, Energy
    Star develops voluntary partnerships and provides clear, reliable
    information to the public. The Environmental Protection Agency is
    uniquely qualified to operate these voluntary programs in the public
    interest with the confidence of market participants. The program has
    proved successful in providing information on technology opportunities,
    generating awareness of energy efficient products and services, and
    educating consumers about life cycle energy savings so that consumers
    can make informed purchases. In fact, the Energy Star label is a
    nationally recognized label for energy efficiency, used by many
    (including retailers and utilities) to promote efficiency. According to
    the EPA, as of 2002, the label has achieved more than forty percent
    awareness among the public.
        Providing the catalyst for many businesses, state and local
    government institutions, and consumers to invest in energy efficiency,
    Energy Star helps overcome market barriers through brand recognition,
    information, and positive publicity. Because Energy Star takes a
    strategic approach to energy management, it can produce twice the
    savings--savings for the environment and for consumers.

                       ABOUT THE ENERGY STAR PARTNERSHIPS

        Energy Star is composed entirely of voluntary partnerships, and
    they have grown since the early 1990s to include thousands of
    partnerships with product manufacturers, private and public building
    owners and operators, homebuilders, small businesses, utilities, and
    retailers. The sheer number of these partnerships is a testament to the
    fact that energy efficiency delivers ``pollution prevention at a
    profit.''
        Energy Star serves broad constituencies across every state in the
    country. Energy Star includes over 1,250 manufacturing partners of over
    35 different product categories, who make and market over 18,000
    different models of Energy Star qualified products. Energy Star assists
    over thousands of small businesses with their efforts to maximize the
    energy efficiency of their facilities. Energy Star's work with partners
    further advances the education of energy efficiency and the reduction
    in energy consumption. For example, by working with builders, Energy
    Star helps the customers of those builders make smart decisions--
    decisions that will save the consumer money and the country pollution--
    for as long as the home is standing. To date, more than 3,000 builders
    have built over 100,000 Energy Star-qualified homes, locking in
    financial savings for homeowners of more than $26 million annually. The
    Energy Star Building Partnership currently represents 17 percent of the
    U.S. building floor space.
        Recently, the Alliance to Save Energy asked many of Energy Star's
    partners if they would support our request for a significant increase
    in funding for these important programs. The response was remarkable.
    Over 650 businesses, from large businesses like Merrill Lynch & Co.,
    Inc., the Target Corporation, and Exxon Mobil to smaller businesses
    like Target Aluminum, Inc. and Thomas Homes, Inc. (in Bridgeton, MO and
    Dunkirk, MD, respectively) and even schools such as the Howard County
    Public School System in Maryland pledged their support for these
    important programs. Each member of the Subcommittee will receive a copy
    of this letter with the list of businesses. With your permission Mr.
    Chairman I would like to include for the record a copy of this letter.
        Lowe's Companies, Inc., another company that has pledged their
    support for increased funding of the program, also recently committed
    to increasing nationwide sales of Energy Star qualified products in by
    twenty percent in 2003. While saving their customers money with reduced
    utility bills, Lowe's will also helped to reduce the emissions of
    greenhouse gases.
        Energy Star proves that environmental protection can not only be
    achieved without harming the economy, but also that such protections
    can act to boost consumer savings and economic growth. Energy Star
    provides the catalyst for many businesses, state and local government
    institutions, and consumers to invest in energy efficiency, which in
    turn yields multiple private and public benefits. It does this by
    providing access to information, improving brand recognition, and
    reporting positive publicity. This voluntary partnership program
    reduces pollution through cost-effective measures; promotes economic
    growth by stimulating investment in new technology; and helps ensure
    the reliability of our electric system by reducing peak demand.

                 INVESTMENTS IN ENERGY STAR PAY BACK FOR YEARS

        While consumers who purchase Energy Star-labeled products save
    through the life of the product, product manufacturers get the economic
    boost and incentives from the purchases of these products. According to
    EPA, consumers and businesses saved more than $6 billion in 2002 alone
    by investing in energy-efficient technologies. In addition, EPA
    predicts cumulative net energy bill savings for consumer and businesses
    of $85 billion through 2012.
        Pollution savings are as dramatic as the financial savings. EPA
    estimates that emissions reductions averaging more than 35 million
    metric tons of carbon equivalent (MMTCE) per year between now and 2012
    were locked in last year based on actions already taken by EPA's
    Climate Protection program's voluntary partners. Because many of the
    investments in energy-efficient technology promoted by Energy Star
    offer a life of ten years or more, these investments will continue to
    deliver economic and environmental benefits through 2012 and beyond.
        The Energy Star program seeks to influence those capital investment
    decisions in a way that helps individual purchasers save money while
    simultaneously helping the nation meet its clean air and greenhouse gas
    emissions-reduction goals. All of this through voluntary participation
    in Energy Star, and the voluntary, market-based choices made by
    thousands of partners and millions of American consumers. No
    regulations, no government mandates.

        MUCH HAS BEEN ACCOMPLISHED, BUT HUGE POTENTIAL REMAINS UNTAPPED

        As noted earlier, Mr. Chairman, Energy Star ensures American
    consumers have access to information about the energy efficiency of the
    products they consume. However, Energy Star does not cover all
    products. The Alliance to Save Energy agrees with the President's
    National Energy Plan that notes, ``energy efficiency would be further
    promoted if the Energy Star program were expanded to a broader range of
    products.'' We believe, Mr. Chairman, that the Energy Star program
    should have the appropriate resources to do just that.
        While the Energy Star program has thus far made significant
    reductions in greenhouse gas emissions, opportunities to use energy
    efficiency to further eliminate pollution and cut energy bills remain
    untapped. Over 85 percent of the major air emissions in the U.S. are
    attributable to energy consumption. Furthermore, American families and
    businesses spend over $700 billion each year on energy bills according
    to the Energy Information Administration. As successful as the Energy
    Star programs have been, these programs could accomplish much more.
    According to EPA, a typical homeowner could save roughly thirty percent
    per year on their energy bills by using Energy Star-labeled products.
    Imagine how much Americans could save with the help of a stronger, even
    more effective Energy Star program.
        Unfortunately, these important programs have received a virtual
    level funding request for the past three years, even as the number of
    products and manufacturers in the Labeling program has greatly
    expanded, and the number of partners in the Buildings, Homes, and Small
    Business programs have soared.
        Appropriations to the Energy Star program go directly to fund the
    underlying research, program implementation, and technical assistance
    to partners. These funds are hugely leveraged through EPA's thousands
    of voluntary partnerships with product manufacturers, home builders,
    state and local government institutions, commercial building owners,
    and small businesses. For every federal dollar spent on these programs,
    EPA can show an average of $75 or more in energy bills savings and $15
    in private sector investment in energy efficient technology, reductions
    in greenhouse gas emissions of 1.0 metric ton of carbon equivalent, and
    an addition of over $60 to the economy.

                                RECOMMENDATIONS

        Mr. Chairman, I hope that I have helped to demonstrate the
    extensive value of EPA's Energy Star program. The Energy Star program
    has proven to be an extremely effective way to capitalize our nation's
    resource of energy efficiency and successfully make use of energy
    efficiency's ability to enhance energy security, reduce pollution, and
    provide economic value at the same time.
        The Alliance to Save Energy would like to respectfully recommend
    the Subcommittee take the following actions to best maximize the
    successful efforts of EPA's Energy Star program.
      --Last year, the Senate provided a $6.4 million increase in funding
            for this program over the fiscal year 2002 levels.
            Unfortunately, this was omitted in Conference. However, both
            the Senate and Omnibus report marks the first time the Energy
            Star program and its funding have been mentioned in a VA-HUD
            appropriations report. I strongly encourage the committee to
            again make its funding intent for the program clear with report
            language.
      --In addition, due to the multiple benefits of the Energy Star
            program, I respectfully request a significant increase in
            funding for the program from the fiscal year 2003 levels of
            $49.8 million.

                                   CONCLUSION

        Over the past decade, the Energy Star programs have demonstrated
    their effectiveness by achieving great savings in the nation's
    collective energy bill and in energy-related pollution. They are well-
    run, they are cost-effective, they have consistently exceeded their
    goals, and they have the support, even explicit endorsement of
    businesses across the country.
        While there are many demands on the countries financial resources,
    I respectfully urge greater support to what works. Energy Star has
    proven tremendously cost-effective and it can deliver even greater
    benefits to the nation with increased funding resources. Increasing
    funding for these programs in fiscal year 2004 is a high-return
    investment for the nation's economy and environment.
        Thank you for the opportunity to testify.
                                     ______

     Prepared Statement of the American Association of Nurse Anesthetists
                    and Association of VA Nurse Anesthetists

        The American Association of Nurse Anesthetists (AANA) is the
    professional association that represents over 28,000 certified
    registered nurse anesthetists (CRNAs) across the United States. The
    Department of Veterans Affairs (DVA) currently employs over 530 full
    time CRNAs with less than 50 representing contract or part time
    employees. We appreciate the opportunity to present our testimony to
    the subcommittee and to offer recommendations on ways to improve the
    retention and recruitment of CRNAs in continuing to provide access to
    quality of care for our nation's veterans.

                       BACKGROUND INFORMATION ABOUT CRNAS

        In the administration of anesthesia, CRNAs perform the same
    functions as physician anesthetists (anesthesiologists) and work in
    every setting in which anesthesia is delivered including hospital
    surgical suites and obstetrical delivery rooms, ambulatory surgical
    centers, health maintenance organizations, and the offices of dentists,
    podiatrists, ophthalmologists, and plastic surgeons. Today CRNAs
    administer approximately 65 percent of the anesthetics given to
    patients each year in the United States. They are masters prepared and
    meet the most stringent continuing education and recertification
    standards in the field, helping make anesthesia 50 times safer now than
    20 years ago according to the Institute of Medicine's 1999 Report, ``To
    Err is Human.'' CRNAs are also the sole anesthesia provider in at least
    70 percent of rural hospitals, which translates into anesthesia
    services for millions of rural Americans. In addition, CRNAs are the
    sole anesthesia providers in twenty percent of the VA facilities.
        CRNAs have been a part of every type of surgical team since the
    advent of anesthesia in the 1800s. Until the 1920s, anesthesia was
    almost exclusively administered by nurses. In addition, nurse
    anesthetists have been the principal anesthesia providers in combat
    areas in every war the United States has been engaged in since World
    War I. Most recently, 364 CRNAs have been deployed to the Middle East
    to ensure military medical readiness during the ``Operation Iraqi
    Freedom''. Data gathered from the U.S. Armed Forces anesthesia
    communities' reveal that CRNAs have often been the sole anesthesia
    providers, both at home and while forward deployed. For decades CRNAs
    have staffed ships, isolated U.S. Bases, and forward surgical teams
    without physician anesthesia support. The U.S. Army Joint Special
    Operations Command Medical Team and all Army Forward Surgical Teams are
    staffed solely by CRNAs. Military CRNAs have a long proud history of
    providing independent support and quality anesthesia care to military
    men and women, their families and to people from many nations who have
    found themselves in harms way. CRNAs also provide anesthesia services
    in the medical facilities of the Department of Defense, the Public
    Health Service, the Indian Health Service, the Department of Veterans
    Affairs, and countless other public and private entities.
        One of the differences between CRNAs and anesthesiologists is that
    prior to anesthesia education, anesthesiologists receive medical
    education while CRNAs receive a nursing education. However, the
    anesthesia part of the education is similar for both providers, and
    both professionals are educated to perform the same clinical anesthesia
    services. CRNAs and anesthesiologists are both educated to use the same
    anesthesia procedures and techniques in the provision of anesthesia and
    related services.
        CRNAs continue to provide the same standard of quality care in the
    administration of anesthesia as their MDA counterparts. That is why
    patient outcome data has consistently shown that there is no difference
    in outcomes between these two providers. With CRNAs administering
    approximately sixty-five percent of the anesthetics given to patients
    each year in the United States, the Institute of Medicine reported in
    their 1999 Report ``To Err is Human'' that anesthesia is fifty times
    safer now than twenty years ago.
        The practice of anesthesia is a recognized specialty within both
    nursing and the medical professions. Both CRNA's and anesthesiologists
    administer anesthesia for all types of surgical procedures; from the
    simplest to the most complex, either as single providers or in a ``care
    team setting''.
        Patients are just as safe receiving their anesthesia care from
    CRNAs or physician anesthesiologists, working individually, or from
    CRNAs and anesthesiologists working in anesthesia care teams. An April
    2003 study titled, ``Surgical Mortality and Type of Anesthesia
    Provider,'' analyzed the effect of different types of anesthesia
    providers on the death rates of Medicare patients undergoing surgery.
    According to the study, surgical death rates were essentially the same
    whether anesthesiologists or nurse anesthetists provided the anesthesia
    individually or worked together in anesthesia care teams.
      inclusion of aas under the va health system: where is the oversight?
        The VHA Handbook 1123 on Anesthesia Service expired on March 31,
    2003, with a new draft to be finalized shortly. In 2002, the
    Anesthesiology Field Advisory Committee for the Veterans Administration
    made revisions and changes to the March 27, 1998 VHA Handbook 1123
    through a collective method of meetings and conference calls. Proposals
    for changes were brought to the committee as a whole to ensure that any
    revisions considered would be discussed and voted on. Again, the
    directive for the Anesthesiology Field Advisory Committee is to ensure
    the best possible care in anesthesia for our veterans.
        It is the understanding of AANA and AVANA that as of March 3, 2003
    the latest revisions of the VHA Handbook 1123 were not approved in
    collective manner. Further, we were informed that Dr. Michael J.
    Bishop, MD, Director VA Headquarters Anesthesia included some revisions
    without committee approval. Specifically, Dr. Bishop included a new
    provider anesthesiologists assistants (AAs) under section (5) Local
    Facility Anesthesia Personnel marked (e) Ancillary Personnel in the VHA
    Handbook 1123 ``Anesthesia Services''.
        We are concerned that there was no proper oversight to include AAs,
    especially since there are no national qualification standards under
    Title 38 or pay category under Title 5 for AAs. Before the inclusions
    of AAs were made in the VHA Handbook 1123, were any ``quality of care
    studies'' on the safety record of AAs performed? How can VA simply
    allow AAs to practice in their facilities if AA's have ``no scope of
    practice'' within the Federal Government system? It seems apparent to
    us that until a study is conducted on AA's practice, and financial
    impact, they should not become a new provider in the VA system.
        There is little known about the practice of AAs, since they are not
    recognized providers of anesthesia in all 50 states. Further, only five
    states provide separate licensure for AAs (Alabama, Georgia, New
    Mexico, Ohio, and South Carolina). If most of the country does not
    recognize the AA practice, why should VA have AAs practice in a
    national arena on our men and women who have served in the military?
    The VA health system should continue to hold the highest standard of
    health care for the men and women who have served in our armed
    services. Therefore, we request that there is appropriate congressional
    oversight to include new providers under the VA system.
        The scope of training for AAs is severely limited. For example, the
    Emory program in Georgia does not provide clinical instruction in the
    administration of regional anesthesia. The AA curriculum is
    characterized by training that allows them to ``assist'' the
    anesthesiologist in technical functions. By contrast, nurse
    anesthetists are capable of high-level independent function and receive
    instruction in the administration of all types of anesthesia including
    general and regional anesthesia, conscious sedation, and monitored
    anesthesia care. The ability to make independent judgments and provide
    multiple anesthetic techniques are critical to meeting an array of
    patient and surgical needs. AAs have a very limited scope of practice,
    as they are required by law to administer anesthesia only under the
    close supervision of an anesthesiologist. Since AAs must work under the
    close supervision of an anesthesiologist, they cannot act independently
    and quickly in an emergency situation. Immediate and independent action
    is required when providing anesthesia, especially for those patients in
    the VA health system. In addition, AAs will not resolve the anesthesia
    provider shortage within the VA because there is already an increased
    demand for anesthesiologists.

        NURSE ANESTHESIA PROVIDER SHORTAGE: HOW THIS COMMITTEE CAN HELP

        While both types of health professionals can provide the same or
    similar services, it costs the Department of Veterans Affairs (DVA)
    significantly less to retain CRNAs because they draw a significantly
    lower salary than their physician counterparts. It is in the best
    interest of the DVA, and this Committee, to implement policies and to
    support initiatives that assist in the effort to maintain adequate
    numbers of CRNA employees in the DVA. Therefore, this Committee can
    greatly assist in the effort to attract and maintain essential numbers
    of CRNAs in the DVA by their support of competitive salaries and nurse
    anesthesia education programs.
        The current employment scenario for CRNAs and the DVA is
    complicated by the national nurse anesthesia provider shortage. The
    number of nurse anesthetist vacancies increased 250 percent from 1998-
    2001, according to CRNA managers' surveys. Health professions staffing
    firms report CRNA recruitment rising by up to ten-fold from 1997-2000,
    making nurse anesthesia the second most recruited health professional
    specialty. In addition, this is compounded by the baby boom generation
    approaching retirement. As the number of Medicare-eligible Americans
    climbs, it compounds the number of surgical procedures requiring
    anesthetics. The solution is to increase funding for our nurse
    anesthesia schools, which are currently at capacity.
        As of the fall of 2002, the VA system had approximately forty to
    fifty CRNA vacancies. This is compounded by the number of CRNAs between
    the ages of fifty-two and fifty-four in the VA system that will be
    eligible for retirement by 2006, which is greater than fifty percent of
    the current work force. The DVA will not be able to keep up with the
    recruitment of CRNAs to meet the growing needs of the older veteran
    patient population at this rate. This workload will be exacerbated as
    the VA health system becomes the back up health system for the to the
    military medical system due to the military involvement in the war in
    Iraq. Therefore, this Committee can greatly assist in the effort to
    increase the number of CRNAs practicing in the VA through the support
    of nurse anesthesia education programs.
        The DVA is also looking for innovative ways attract nurse
    anesthetists to work in their facilities through educational
    opportunities. The DVA proposed a nurse anesthesia program beginning
    June 2004 with both the military and VA at Ft. Sam Nurse Houston
    Anesthesia program in San Antonio, TX. The pilot program would create
    ten openings for VA registered nurses (RNs) to apply to and attend a
    graduate program in nurse anesthesia at Ft. Sam Houston. After, their
    didactics are completed these student would do their clinical training
    at accredited VA facilities. Bridging the two programs would cost the
    VA program money in the short term, but savings in the long term with
    these CRNAs obligated to practice in the VA for two to five years after
    their board certification. This is similar to the Department of Defense
    anesthesia programs, where officers receiving a nurse anesthesia
    education, are obligated to serve in the military for an obligated
    four-year pay back. The cost to run the program the first year would be
    $450,000 including both set up and administrative costs. After wards,
    the cost would be $300,000 annually to continue to educate ten VA RNs
    to become nurse anesthetists. Both funding for student CRNAs and a
    faculty director are required to making this pilot program a success.
    Funding support for a VA nurse anesthesia program in conjunction with
    the Army nurse anesthesia program at Ft. Sam Houston, San Antonio, TX
    is one viable solution to both educating and employing CRNAs within the
    Veterans' health system.

                        LOCALITY PAY AND RETENTION BONUS

        One thing that consistently attracts and maintains good employees
    is an attractive salary. Competitive salaries would assist the DVA with
    retention of cost-effective CRNAs to provide anesthesia services for
    our nation's veterans. But providing competitive salaries for employees
    can be an ongoing battle, especially in the face of restricted budgets.
    This is where this Committee can help, by providing adequate funding
    for personnel through the locality pay adjustments, which are currently
    not competitive with the private market.
        If salaries cannot stay competitive in the face of a national
    nursing shortage, then the DVA will surely continue to face a shortage
    of CRNAs. Historically, the cost to correct such a problem has been
    steep. The DVA faced a severe shortage of CRNAs once before in the
    early 1990s, which was moderately corrected with the implementation of
    a locality pay system in 1991. In 1992, Congress expanded the authority
    of the local medical directors and allowed them to survey an expanded
    area to determine more competitive average salaries for CRNAs, which
    boosted pay and morale. Implementation of this expanded authority
    helped assist the DVA in making great leaps in retention and
    recruitment of CRNAs at that time, but times have changed. Due to the
    nationwide shortage of CRNAs over the last few years, salaries have
    increased in the private sector to stay competitive in employing CRNAs.
    This means that the DVA locality pay system is no longer competitive
    with the private sector, with new nurse anesthetist graduates choosing
    not to work in the VA health system.
        In a recent national survey conducted by Ms. Laura Cohen, the chief
    nurse anesthetist at the local New Orleans VA, showed only one of the
    hospitals surveyed had a competitive new graduating starting salary.
    The response rate for the VA CRNA salary survey was 76 (60 percent) of
    the 124 sites that employ CRNAs. Therefore the numbers only apply to
    those 76 stations, but it was felt that these stations are
    representative of the situation that exists regarding VA CRNA salaries.
    The results showed that our national average for both entry level pay
    and senior positions fall several thousand dollars below the national
    average. In some locations new graduate starting salaries are as much
    as $30,000 below the community. This is caused by the low pay
    categories for Nurse I/Step I to Nurse 4/Step 4, but also the fact that
    many station directors for VA facilities continue to use locality
    surveys at their discretion without the input of CRNA staff or
    disregard the results completely in the locality surveys.
        According to the CRNA Qualifications Standards, a new graduate CRNA
    should come into the VHA at Nurse I/Step 1. The results found that only
    one station could easily recruit a new graduate at the intended
    starting salary and 14 stations had beginning salaries that might be
    able to recruit, depending on location. Thus, a minimum of 61 stations
    and a maximum of 75 stations could not recruit a new graduate CRNA.
    Most stations facing this situation are bringing in a new graduate
    CRNAs at a much higher step in Nurse I to be competitive in the local
    market. This practice, while attractive to the new graduate, does
    nothing for retention of the current CRNA workforce with years of
    service and little hope of a salary increase.
        This same analysis revealed that 29 stations (39.1 percent) have
    Nurse III salaries that reach the federal maximum. The rest of the
    stations (61.9 percent) require Nurse IV, which can only be reached by
    the Chief Nurse Anesthetist, before the federal maximum salary of
    $126.5 thousand can be attained. Raising the Nurse I/Step 1 to the
    current market value and increasing the federal maximum salary would
    not only increase recruitment but also help greatly to retain the CRNAs
    already employed and continue the high standards of anesthesia care
    that the VA health system demands for the veteran population.
        Finally, creating a structure for recruitment and retention bonuses
    to help VA facilities attract and retain CRNAs. The VA needs to
    establish a bonus system for CRNAs, similar to the military structure
    for incentive special pay, to stay competitive in the marketplace.
        We strongly encourage this Committee to continue their role in
    facing this nursing shortage head on, by providing adequate funding for
    personnel. With the current shortage of nurse anesthetists, we must
    insure competitive salaries and education funding to retain and recruit
    high quality, cost-effective anesthesia providers. We look forward to
    working with this committee to ensure that veterans have continued
    access to quality health care at the VA.

                                     ______

      Prepared Statement of the American Society for Engineering Education

        On behalf of the American Society for Engineering Education
    Engineering Deans Council (EDC), I would like to express appreciation
    for the opportunity to present written testimony on fiscal year 2004
    appropriations for the National Science Foundation. I request that my
    testimony be made part of the record of the hearings on the fiscal year
    2004 NSF budget. The Engineering Deans Council of the American Society
    for Engineering Education (ASEE) is the leadership organization of more
    than 300 deans of engineering in the United States. ASEE is a non-
    profit association established in 1893 and dedicated to the improvement
    of engineering and engineering technology education.
        I want to begin by thanking the subcommittee Members for their
    commitment to a strong budget for the National Science Foundation. The
    NSF plays a vital role in supporting and advancing basic research in
    science and engineering and in developing the human capital needed to
    advance science and technology. Funding levels for the agency greatly
    impact engineering educators, as well as the country as a whole.
        I want to thank Chairman Bond and Senator Mikulski for their
    leadership and persistence in advocating doubling the National Science
    Foundation's budget and their strong and continuing support for good
    budgets for the agency. I also want to extend the thanks of all the
    Engineering Deans Council to all of the other Members of the
    subcommittee for their support for doubling the NSF budget. The NSF
    Authorization Act of 2002 provides for doubling the NSF over a 5 year
    period. This Act represents a major milestone for the NSF and for the
    scientific community, because it authorizes increasing the budget of
    the NSF from its fiscal year 2002 level of approximately $4.8 billion
    to the level of $9.8 billion in fiscal year 2007.
        For the fiscal year 2004 NSF budget, the EDC recommends an increase
    of $1.09 billion above the fiscal year 2003 level of $5.3 billion, to
    provide the agency with a budget of $6.39 billion, the funding
    authorized in the 2002 law.
        At the outset I want to express the strong support of the
    Engineering Deans Council for the new 5-year Workforce for the 21st
    Century Initiative under which all the NSF directorates will be
    partnering in an integrated research and education effort to address
    science and engineering workforce needs.
        The NSF occupies a unique position, with the ability to influence
    the economic strength of the nation through research and innovation.
    Basic research funded through the NSF opens the doors for further
    discoveries that can advance medical care; improve communications
    equipment, and continue to create better civilian and military security
    systems. In the current climate of increasing global economic
    competition and a heightened need to protect our citizens and
    infrastructure, strong support of the NSF serves a vital national
    interest.
        Science and technology have become a core component of economic
    strength and competitiveness. The NSF brings special expertise to the
    task of identifying and promoting the basic science and engineering
    research that underlies the United States' world economic leadership. A
    growing chorus touts the importance of this kind of federal engagement
    with science and technology, including Federal Reserve Chairman Alan
    Greenspan, the Council on Competitiveness, and Business Week, among
    many others. As Chairman Greenspan said in 2002, ``there is just no
    question that if you're going to have technology as the base of your
    economy, which we do, research is crucial.''
        NSF is the sole federal agency charged with the important task of
    funding a broad range of research, spanning a wide variety of
    disciplines including basic science, engineering, mathematics, and
    computing. It provides necessary financial and intellectual support for
    scientists working on groundbreaking research, much of which will lead
    to innovations that could impact any number of emerging technologies.
    While NSF accounts for less than 4 percent of total federal research
    and development spending, the agency supports almost half of the non-
    medical basic research at American colleges and universities. In the
    field of engineering, NSF provides nearly one third of all federal
    support for basic research and has contributed to important
    developments such as computer-aided design, fiber optics,
    biotechnology, advanced composite materials, and magnetic resonance
    imaging (MRI). Renewing support for research and equipment will allow
    the nation to take advantage of the opportunities presented by these
    new technologies, creating further economic opportunities and improving
    overall quality of life.
        NSF-sponsored research has led to many of the current developments
    in the area of homeland security. Recent NSF projects ranging from the
    study of the ecology of infectious diseases to the Scholarship for
    Service program, which trains students in information security, help
    bolster our nation's ability to prevent and respond to terrorist
    attacks. ``The scientific and engineering community is aware that it
    can make a critical contribution to protecting the nation from
    catastrophic terrorism,'' Lewis M. Branscomb, emeritus professor, John
    F. Kennedy School of Government, said in a 2002 National Academies of
    Science report.
        The benefits of a strong science investment are evident as the men
    and women of our armed forces respond to unprecedented threats to U.S.
    national security. Because of its superiority, much of it brought about
    by investments in S&T, this nation's military is successfully waging
    war against terrorism. In this new environment, characterized by
    unforeseen and unpredictable threats, maintaining and enhancing
    technological superiority will become even more imperative.
        Across all fields, NSF support for research produces first-rate
    results on modest levels of investment. NSF-supported work is
    exceptionally well managed, and attracts additional funding from
    outside sources on a regular basis. For example, an additional $86
    million in support from industry, other federal agencies, universities,
    and ten states leveraged NSF support for the Engineering Research
    Centers program. The agency has a diverse, responsive, results-oriented
    staff, efficient business processes that take advantage of staff
    knowledge and technology resources, and state-of-the-art business tools
    and technology. NSF has exceptional business practices, and won the
    only ``green light'' given out in the Office of Management and Budget's
    Executive Branch Scorecard report in December 2001. OMB Director
    Mitchell Daniels said that the NSF deserves to be strengthened, noting,
    ``NSF is one of the true centers of excellence in the government where
    95 percent of the funds that taxpayers provide goes out on a
    competitive basis directly to researchers pursuing the frontiers of
    science at a very low overhead cost.'' NSF's management successes
    include doubling its budget between 1990 and 2000 while simultaneously
    decreasing the number of employees at the agency.
        Much of NSF's work looks beyond technological innovation by
    engaging new generations of students to aid in discoveries while
    gaining valuable skills that help prepare them for the cutting-edge
    research of the future. Many NSF grants require undergraduate students
    to be involved in performing federally funded research. K-12 teachers
    are invited to join in summer research programs at MIT's radio Haystack
    Observatory, and then are able to develop lesson plans that integrate
    modern scientific concepts and real life research processes. The NSF's
    Math and Science Partnership Program extends improved science education
    into classrooms by uniting local school districts with the faculties of
    nearby colleges and universities. NSF also helped to sponsor ``Deans
    Summit II: Fostering Campus Collaborations,'' earlier this year. The
    meeting catalyzed the formation of many partnerships between
    engineering and education deans to improve K-12 science and mathematics
    education.
        Engaging students in science from their pre-kindergarten education
    through college will help endow growing generations of Americans with
    the skills and interests necessary both to maintain U.S. leadership in
    economic, health, and military fields, as well as to function as
    citizens in an increasingly technology-driven society. A vibrant
    engineering education enterprise benefits civic, economic and
    intellectual activity in the country. Engineering graduates learn to
    integrate scientific and engineering principles to develop products and
    processes that contribute to economic growth, advances in medical care,
    enhanced national security systems, ecologically sound resource
    management, and many other beneficial areas. As a result, students who
    graduate with engineering degrees bring highly prized skills into a
    wide spectrum of sectors in the American workforce. Some conduct
    research that results in socially or economically valuable
    technological applications. Others produce and manage the technological
    innovations said to account for one-third to one-half of growth in the
    American economy. Still more bring advanced analytical abilities and
    knowledge of high technology to fields as diverse as health care,
    financial services, law, and government. Within all of these groups,
    the diversity of engineering graduates' backgrounds and viewpoints
    contributes to their ability to achieve the advances in innovation,
    productivity, and effectiveness that make them valuable contributors to
    the American workplace. As former Presidential Science Adviser Neal
    Lane observed: ``Chief executive officers of American industry say that
    the biggest threat to U.S. competitiveness in the next century is a
    shortage of technologically skilled workers. Those future scientists
    and engineers must come out of the nation's universities and colleges.
    The surest way to leave the United States vulnerable to this threat is
    to cut funding for the NSF.''
        Engineering graduates in particular bring highly prized skills into
    all sectors of the American workforce. The most advanced carry on the
    research that pays off in many surprising ways. Other engineering
    graduates produce and manage many of the technological innovations said
    to account for one-third to one-half of the recent growth in the
    American economy. Still others bring advanced analytical abilities and
    knowledge of high technology to fields as diverse as health care,
    financial services, law, and government. In the Addendum immediately
    following my testimony, I have attached additional documentation of the
    many ways NSF support is promoting engineering education and research
    at U.S. colleges and universities. This wealth of human capital owes
    much of its capacity to strategic NSF support for engineering
    education.
        A succession of predictable, sizable increases to the NSF budget
    will permit even greater development of human resources. In addition to
    the Math and Science Partnership initiative, NSF programs have become
    important vehicles for broadening the participation of under-
    represented groups such as minorities and women in the fields of
    science, math, and engineering. Through programs like the Experimental
    Program to Stimulate Competitive Research (EPSCoR), NSF works to
    strengthen the research and development infrastructure of many rural
    and low-population states. Consistent growth in the NSF budget will
    permit the allocation and coordination of the activities needed to
    promote the broadest possible development of science, mathematics, and
    technology skills among all Americans.
        A $1.09 billion increase for the NSF budget will enhance the value
    of the agency's other cross-cutting initiatives. New funding for
    multidisciplinary mathematics research will enhance the transfer of
    results and applications from mathematics and statistics research to
    science and engineering disciplines, expanding the cadre of researchers
    trained in both mathematics and science. Dynamic interdisciplinary work
    across engineering and science disciplines promises startling advances
    in, for example, medicine, manufacturing, and communications. The
    assurance of steady resources over extended periods of time for high-
    risk, high-reward endeavors--such as research in nanotechnology,
    biocomplexity, and high-speed computing--would greatly enhance their
    prospects for success. As Harold Varmus, former Director of the
    National Institutes of Health and currently President of the Memorial
    Sloan-Kettering Cancer Center, has said, ``it is crucial that leaders
    of science agencies be able to anticipate several years of steady
    growth during periods of expansion. These agencies make multi-year
    awards and are responsible for training and research infrastructure, as
    well as the operational costs of doing research.'' In an increasingly
    interdependent research system, the NSF is uniquely situated to
    initiate and promote productive exchanges across the full range of
    scientific and engineering disciplines.
        Thank you for the opportunity to testify. The Engineering Deans
    Council would be pleased to respond to any questions from you and your
    staff.

           ADDENDUM: EXAMPLES OF NSF PROGRAMS AT ENGINEERING SCHOOLS

        Securing Laptops.--As more and more sensitive information is
    carried on government laptop computers, theft or loss of these laptops
    becomes an issue of national importance. Zero Interaction
    Authentication (ZIA) technology developed by the University of Michigan
    with NSF support provides a way of automatically encrypting sensitive
    information on a computer when it is removed from the proximity of its
    authorized user. The technology combines a high level of security with
    a low level of user dependence to create a practical and easily
    implemented layer of protection.
        Modeling Buildings in 3-D.--Researchers at the University of
    Virginia and the University of North Carolina are developing technology
    to build extremely detailed three-dimensional computer models of the
    real world using laser rangefinders and digital cameras. The project,
    funded by the National Science Foundation, partners academic
    researchers with the FBI to investigate forensic scanning of crime
    scenes, the Thomas Jefferson Foundation to examine laser scanning for
    historical preservation, and with the New Orleans Museum of Art to
    explore virtual tourism using the resulting 3-D computer models.
        Improving Structural Engineering.--Lehigh University's ATLSS Center
    is one of 15 major experimental installations linked through the
    internet to make up the George E. Brown, Jr. Network for Earthquake
    Engineering Simulation (NEES) project. This project, funded in part
    through the NSF, involves ATLSS scientists in experimentation to
    improve the seismic design and performance of the nation's civil and
    mechanical infrastructure systems. Researchers from the ATLSS Center
    were recently involved in conducting inquiries into the collapse of the
    World Trade Center.
        Detecting and Fighting Breast Cancer.--Researchers at the
    University of Wisconsin-Madison, funded in part by the NSF, are
    developing non-invasive techniques for early stage breast cancer
    detection, monitoring, and treatment. Breast carcinomas significantly
    scatter microwaves, so an array of antennas sequentially transmits a
    low-power, ultra-short microwave pulse into the breast and collects the
    backscatter signal. The group hopes to adapt space-time signal
    processing algorithms for detecting and localizing small malignant
    lesions.
        Creating Higher Strength Steel.--The use of higher strength steels
    in automobiles is an economical way to reduce oil consumption and
    increase safety. Unfortunately, the use of higher strength steels is
    hindered by changes in other properties of the steel that increase with
    strength. Changes in processing and steel composition, being studied by
    researchers at Seattle University through a grant from NSF, will result
    in large savings of energy and other resources for the manufacturing
    sector and safer, more fuel efficient vehicles for consumers.
        Touching Virtual Objects.--Researchers at Georgia Tech are working
    with a grant from the NSF to develop ``Virtual Clay'', a new type of
    computer device that will allow users to see and feel a virtual 3-D
    surface. The device will not only be able to display a surface for the
    user to feel and touch, but it will also be able to be molded by the
    user and the resulting surface can be reproduced within the computer
    model. Potential applications range from design, scientific data
    visualization, and arts for use by the visually impaired.
        Reconfiguring Manufacturing Systems.--The NSF Engineering Research
    Center for Reconfigurable Manufacturing systems designs and studies
    equipment for the next generation of manufacturing facilities. In 2002,
    engineers at the University of Michigan unveiled the worlds' first
    full-scale reconfigurable machine too- an important step to designing
    more flexible and efficient factories for the future. Factories built
    around reconfigurable manufacturing technology will be able to respond
    to market demand more quickly, ultimately offering consumers more
    product choices at lower prices.
        Improving Airport Baggage Security.--A three-year NSF grant awarded
    in September 2001 is funding an examination of the nation's aviation
    security system. A University of Illinois professor of engineering is
    developing operations research models for aviation security operations
    and performing a computational analysis of algorithms for designing
    aviation security systems. The models will help security personnel
    target more quickly and accurately potential risks that might be
    lurking in baggage, passenger manifests, service routines, and other
    operations related to air traffic.
        Water Contaminant Removal.--Scientists at Penn State University are
    working to alleviate a common type of water contaminant called
    perchlorate which has been detected in the water supplies of
    approximately twelve million people, and has proved difficult to remove
    through conventional water treatment technologies. Penn State
    researchers are investigating biological treatment of perchlorate where
    microbes reduce the contaminant to innocuous oxygen and chloride. The
    commercial effect of this would be to save large amounts of money,
    which has been currently ear-marked for water purification to be used
    for both future development and current residential and commercial
    usage.

                                     ______

         Prepared Statement of The Humane Society of the United States

        On behalf of our over 7 million members and constituents, The
    Humane Society of the United States (HSUS) appreciates the opportunity
    to submit testimony regarding fiscal year 2004 appropriations for the
    Environmental Protection Agency (EPA). We wish to thank the
    Subcommittee for directing the EPA to spend $4,000,000 for the
    research, development, and validation of non-animal, alternative
    chemical screening and prioritization methods. Prioritizing funding for
    non-animal test methods is a critical step, encouraging the EPA to
    promote and support these more humane, often faster, less expensive,
    and more scientifically sophisticated procedures. We wish to commend
    the Subcommittee for improving federal regulatory decision-making
    processes on chemical safety and for helping to reduce needless animal
    suffering. Our testimony for fiscal year 2004 focuses on the EPA's
    Office of Research and Development (ORD) and the agency's Endocrine
    Disruptor Screening Program (EDSP).
        The EDSP is the largest of several chemical testing programs
    administered by the EPA. These programs will collectively subject
    millions of animals to suffering and death in painful toxicity tests.
    Indeed, the EDSP itself is perhaps the largest government-sponsored
    animal testing program in history. Yet without the Subcommittee's
    intervention, the EPA's ORD budget has no identifiable program to
    develop alternative tests that can replace, reduce, or refine existing
    animal-based tests. We are still not seeing sufficient commitment from
    EPA to provide the initial investments needed to produce alternatives
    (or batteries of alternatives) to address issues such as the Endocrine
    Disruptors. Eli Lilly and Company eliminated its cat test for glucagon,
    replacing it with an alternative test, and calculated that it was
    saving $1 million a year as a result of the new test. However, it cost
    Eli Lilly $2 million to develop and validate the alternative. There
    will be a need for similar up-front investment by the EPA.
        The EPA, moreover, is not taking full advantage of an existing
    interagency committee with expertise in assessing new testing methods
    to evaluate their acceptability for regulatory use. The Interagency
    Coordinating Committee on the Validation of Alternative Methods
    (ICCVAM) is the federal government's focal point for assessing the
    validation and regulatory acceptability of new test methods. The EPA is
    a participating member of ICCVAM and was very involved in developing
    and approving the ICCVAM structure. Yet the EPA is bypassing the
    ICCVAM's review mechanism for many of the new tests in its EDSP,
    instead relying on in-house assessments. This move has worried many
    animal protection advocates as well as other stakeholders.
        The HSUS respectfully urges this Subcommittee to request that the
    ORD establish a substantial program to research and develop alternative
    methods (as it already committed to do for the High Production Volume
    chemical testing program but has not yet pursued), and that the EPA
    take full advantage of ICCVAM's expertise in evaluating new testing
    methods of multi-agency interest.
      research and development of alternative testing methods at epa's ord
        The ORD budget in recent years has been approximately $500 million.
    Within these appropriations, it has been nearly impossible to identify
    funding by the ORD for non-animal alternative testing methods to meet
    EPA's specific needs in new testing programs. We believe that
    innovative non-animal alternative testing technologies would benefit
    from research and development funding. Therefore, we respectfully
    request that at least $10 million either from the existing budget or
    over and above the President's budget request be appropriated for
    research, development and validation of non-animal, alternative testing
    methods. Given the potential long-term benefits of such investment in
    alternatives development, it is surprising to us that the EPA is not
    already actively pursuing this approach. Activities funded by these
    allotments should be designed in consultation with the Office of
    Pollution Prevention and Toxic Substances.
        It would be appropriate for this funding to be targeted at testing
    methods with direct application to recent and new EPA testing programs,
    which include the EDSP, High Production Volume (HPV) chemical testing
    program, and the Voluntary Children's Chemical Evaluation Program
    (VCCEP). For example, there is a specific rat neurological development
    test that is widely regarded as inadequate but is still being proposed
    as one of the battery of tests under the VCCEP.
        The HSUS also asks that the Subcommittee require the EPA to submit
    a report to the Subcommittee by March 30, 2004 regarding expenditures
    and plans for additional expenditures for fiscal year 2004 funds under
    the EDSP.
        The request for $10 million represents approximately 2 percent of
    ORD's total budget, a modest but nonetheless significant commitment by
    EPA to alternative test methods. The HSUS would like to emphasize that,
    in making this request, we believe this course of action would also be
    in the best interests of human and environmental safety.

                THE ENDOCRINE DISRUPTOR SCREENING PROGRAM (EDSP)

        Under the 1996 Food Quality Protection Act (FQPA) and the Safe
    Drinking Water Act Amendments, Congress mandated that EPA determine
    whether certain substances may have an effect in humans that is similar
    to an effect produced by a naturally occurring estrogen, or such other
    endocrine effects as EPA may designate. The congressional mandate came
    as a response to public concern that exposures to synthetic chemicals
    in the everyday environment may be adversely affecting the endocrine
    systems of wildlife and humans, thereby causing reproductive and
    developmental anomalies.
        In response to Congress' mandate, the EPA formed the Endocrine
    Disruptor Screening and Testing Advisory Committee at the close of
    1996. This entity devised the testing framework for the EDSP.
    Currently, the proposed EDSP testing scheme consists of a battery of 16
    tests designed to assess the toxicity of up to 80,000 chemicals. These
    tests are largely animal-based. Some scientific estimates have
    projected that between 600,000 and 1.2 million animals will be killed
    for every 1,000 chemicals tested.
        Animal protection organizations and members of the public have
    serious concerns about the process by which the proposed EDSP tests
    will be evaluated. The FQPA stated that all screens and tests used in
    the EDSP should be properly validated, to ensure their relevance and
    reliability for assessing endocrine disruption. The proposed EDSP
    testing methods are all either new or revised for new endpoints, and
    therefore each should be evaluated for the EDSP as a matter of sound
    science. The natural entity to conduct this evaluation is the ICCVAM.
    Since its creation in 1994, the ICCVAM has benefited EPA and many other
    federal agencies, as well as research entities, by successfully
    evaluating the validity of new and revised testing methods
    (alternatives included) that have cross-agency relevance.
        In December of 2000, Congress upgraded ICCVAM from an ad hoc
    committee to a standing body, thereby solidifying its crucial role. It
    is clear that ICCVAM can provide a standardized assessment of the
    validity and regulatory acceptability of all EDSP tests and screens.
    This would be particularly appropriate given the level of interest in
    these methods by other federal agencies such as the Food and Drug
    Administration and other national and international organizations,
    including the Organization for Economic Cooperation and Development.
        However, EPA has developed a bifurcated validation plan for the
    EDSP that calls upon its own Science Advisory Board (SAB)/Science
    Advisory Panel (SAP) to review all the animal-based tests and screens,
    while asking the ICCVAM to review only the non-animal testing methods.
    This approach has many observers worried that the animal-based methods
    will be evaluated using lower standards than the non-animal methods. In
    addition to qualms voiced by animal protection advocates, the Advisory
    Committee on Alternative Toxicological Methods (ACATM) for the National
    Toxicology Program passed two unanimous resolutions questioning the
    EPA's plan and supporting the mission of ICCVAM. The Committee's
    primary concern was that both in vitro and in vivo methods be subjected
    to the same rigorous peer review and validation process to ensure the
    highest likelihood of acceptance by the regulatory agencies, the
    scientific community and the public.
        The HSUS strongly urges the Subcommittee to call on the EPA to use
    ICCVAM's expertise to assess the validity and regulatory acceptability
    of all EDSP tests and screens, with appropriate fiscal support from the
    EPA. Furthermore, ICCVAM should collaborate with EPA's SAB/SAP to avoid
    any unnecessary delay in the program. Among other things, ICCVAM's
    review of the EDSP testing methods can serve to ensure that proper
    consideration is granted for the replacement, reduction, and refinement
    of the use of animals in these proposed tests and screens.

                                   CONCLUSION

        The HSUS respectfully requests that the VA-HUD Appropriations
    Subcommittee provide funding to the EPA with the direction that the ORD
    expand its research and development activities to include alternative
    methods. We also urge the Subcommittee to ensure that any new or
    revised testing methods with multi-agency or international interest be
    evaluated through the Congressionally-established ICCVAM for sound
    science and consistency with the replacement, reduction, or refinement
    of animal use.
        Finally, The HSUS requests language in the report accompanying the
    fiscal year 2004 VA-HUD and Independent Agencies Appropriations bill
    stating that no funds for the EPA may be used for the purpose of
    assessing data from an animal-based testing method when a non-animal
    test for the desired endpoint has been validated/accepted by the OECD
    or its member nations. This request will ensure that the EPA not only
    honors its stated concern for animal welfare, but also honors its
    international commitments to the latest scientific methods.

                                     ______

            Prepared Statement of the American Psychological Society

        Mr. Chair, Members of the Committee: Thank you for this opportunity
    to present the views of the American Psychological Society (APS) on the
    fiscal year 2004 appropriations of the National Science Foundation
    (NSF). I am Alan Kraut, Executive Director of APS. We are a 15,000-
    member organization of scientists and academics, most of whom are
    located in colleges and universities across the country. The NSF
    supports many members of the American Psychological Society, and much
    basic research in our field could not exist without NSF funding.
      --As a member of the Coalition for National Science Funding (CNSF),
            APS strongly supports CNSF's recommendation of $6.39 billion
            for the National Science Foundation in fiscal year 2004.
      --Within the NSF Budget, we ask the Committee to fully fund the
            President's request for the Social, Behavioral and Economic
            Sciences (SBE) Directorate.
                the nation's premiere basic research enterprise
        CNSF's recommendation for fiscal year 2004 is based on the level of
    funding authorized for NSF in HR 4664, passed in the 107th Congress and
    signed by the President. This level of funding is the first step toward
    a much-needed doubling the Nation's premiere basic research enterprise.
    NSF is the primary funding source of non-medical basic research
    conducted at colleges and universities in the United States. Last fall,
    Congress passed an historical authorization bill for NSF, supporting a
    schedule of increases in NSF's budget from the fiscal year 2002 level
    of $4.79 billion to $9.84 billion in fiscal year 2007. The basic
    science community now turns to you, the appropriators, and asks you to
    make this authorization a reality.
        Both Congress and the Administration have expressed a high degree
    of confidence in NSF's mission and its efficient management of
    resources. The House Committee on Science made a clear case clear for
    the importance of basic science to our progress as a nation. As
    Chairman Boehlert noted, ``NSF-supported research [is] integral to
    progress in priority areas such as health care and national security,
    among others,'' could not be more accurate. He also noted, ``Science
    and technology have the potential to cure numerous domestic and global
    social ills--disease, poverty, hunger, cultural isolation and
    environmental degradation, just to name a few.'' But perhaps most
    relevant is this final statement by Mr. Boehlert: ``Advances in science
    and technology do not come cheap, or without focused effort.'' The
    increase that you and your colleagues in the Senate provided for NSF in
    fiscal year 2003, and the increase that we are recommending in fiscal
    year 2004, are important steps in offsetting the comparative
    underfunding that has characterized NSF's budget in the past several
    years. The scientific community is grateful for your support and it is
    our hope that you will continue to endorse the much-needed expansion of
    NSF's budget.

         THE SOCIAL, BEHAVIORAL AND ECONOMIC SCIENCES (SBE) DIRECTORATE

        Within the NSF budget, we ask the Committee to continue its history
    of support for behavioral and social science research at NSF. This
    Committee was instrumental in encouraging NSF to establish its Social,
    Behavioral, and Economic Sciences (SBE) Directorate a decade ago, and
    over the years has encouraged many of the initiatives coming out of
    that directorate. The fiscal year 2004 budget request to Congress
    contains a 10.8 percent increase for SBE, which would bring it to
    $211.7 million. (And of course to the extent that you appropriate funds
    for NSF above the requested amount, we ask that the SBE directorate
    share proportionately in such increases.)
        In fiscal year 2003 the President proposed a 6.3 percent increase
    for SBE. Unfortunately, when the dust settled, SBE received an increase
    of only 3.9 percent over fiscal year 2002. We are concerned about this
    shortfall, given the enormous potential of behavioral science to
    address many critical issues facing the Nation. To offset the previous
    year's underfunding, the SBE directorate received the largest proposed
    increase of any directorate in 2004. We ask this committee to fully
    fund the President' budget request for SBE in fiscal year 2004.
        Before addressing specific activities of the SBE directorate, I
    first want to provide a brief overview of basic psychological research,
    to give you an idea of the scope and breadth of the field that I
    represent.
        An Overview of Basic Psychological Research: Programs and
    initiatives that involve psychological science are our best chance to
    solve the enigma that has perplexed us for so long: How does the human
    mind work and develop? APS members include thousands of scientists who
    conduct basic research in areas such as learning, cognition, and
    memory, and the linked mechanisms of how we process information through
    visual and auditory perception. Others study decision-making and
    judgment; mathematical reasoning; language development; the
    developmental origins of behavior; and the impact of individual,
    environmental and social factors in behavior. The basic psychological
    research conducted by APS members has implications for a wide range of
    applications, including designing technology that incorporates the
    perceptual and cognitive functioning of humans; teaching math to
    children; improving learning through the use of technology; developing
    more effective hearing aids and speech recognition machines; increasing
    workforce productivity; and ameliorating social problems such as
    prejudice or violence. While this is a diverse range of topics, all of
    these areas of research are bound together by a simple notion: that
    understanding the human mind, brain, and behavior is crucial to
    maximizing human potential. That places these pursuits squarely at the
    forefront of several of the most pressing issues facing the Nation,
    this Congress, and the Administration.
        Progress and investments in psychological science will not simply
    lead us to a better understanding of how humans think, decide,
    evaluate, and adapt. It will lead us to revolutionary advances in our
    powers to predict, detect, and prevent. In this time of uncertainty,
    where we can come to rely so heavily on technology to keep us safe and
    confident, we must turn to cognition in order to maximize this
    technology. An understanding of how people process information will
    enable us to design technology and computers that fit our needs and
    make us comfortable when using them. The potential for advances would
    be limitless.

                         HIGHLIGHTS OF SBE INITIATIVES

        Turning now to the SBE Directorate, I'd like to highlight some of
    its programs. These initiatives exemplify SBE's essential leadership on
    the cutting-edge frontiers of research, and they illustrate the
    important work that will only flourish if adequately funded.
        Cognitive Neuroscience Initiative.--Theoretical work in behavioral
    science has greatly advanced our understanding of the basic mechanisms
    underlying memory, emotion, learning, and other psychological and
    cognitive processes. Recognizing the potential contributions of
    neuroscience to these and related areas, the directorate has added
    funds to these programs for the express purpose of bringing more
    neuroscience perspectives to bear on these topics, and to map these
    psychological mechanisms onto the physical dimensions of the brain.
    Cognitive neuroscience, within the last decade, has become an active
    and influential discipline, relying on the interaction of a number of
    sciences, including cognition, neurology, neuroimaging, physiology and
    others. The cross-disciplinary aspects of this field have spurred a
    rapid growth in significant scientific advances. Research topics
    examined under the program so far have included sensory processes,
    higher cognitive functions, language, learning, memory, and the list
    goes on. Cognitive neuroscientists are able to further clarify their
    findings by examining developmental and transformational aspects of
    these phenomena across the lifespan.
        NSF, with the right support, will have the ability to link advances
    in human thought and behavior to the natural and social sciences. Now,
    with brain imaging and other non-invasive techniques, we are poised to
    confirm and extend these theories through studies of the living brain.
    The Cognitive Neuroscience program solicits innovative proposals aimed
    at advancing an understanding of how the human brain supports thought,
    perception, affect, action, social processes, and other aspects of
    cognition and behavior. Scientists from a range of areas will be able
    to test theories about normal brain functioning; assess the behavioral
    consequences of brain damage; and reach new levels of understanding of
    how the brain develops and matures, in terms of both structure and
    function. The program is particularly interested in supporting the
    development of new techniques and technologies for recording,
    analyzing, and modeling complex brain activity.
        On a related note: A stable, long-term commitment to the study and
    development of new technology ensures continued advances in all fields,
    including our own discipline of psychological science, which is part of
    the broader behavioral and social science research enterprise. Emerging
    fields, such as behavioral genetics and cognitive neuroscience--which
    employ the latest in imaging and computing technology to unlock the
    mysteries of the mind and the origins of behavior--are examples of
    where gains in technology are necessary if we are to see a return on
    our investment in science. In addition, addressing human factors in the
    design of technology is essential; advances in technology will be
    severely undermined unless we incorporate what we know about
    perception, learning and memory, and other behavior-based processes
    that people draw on when using technology. Advances in science and
    technology will not only make the U.S. a world leader in many arenas,
    but will also contribute to better homeland security and a stronger
    economy.
        Developmental and Learning Sciences.--This initiative supports
    studies that increase our understanding of cognitive, social, and
    biological processes related to children and adolescents' learning in a
    variety of settings. Additional priorities are the support of research
    on learning and development that incorporates multidisciplinary, multi-
    method, microgenetic, and longitudinal approaches. This program will
    lead to the development of new methods and theories, and assess peer
    relations, family interactions, social identities, and motivation. It
    examines the impact of family, school, and community resources, as well
    as assesses adolescents' preparation for entry into the workforce; and
    investigates the role of demographic and cultural characteristics in
    children's learning and development. The results of this initiative
    will add to our basic knowledge of children's learning and development
    and, ultimately, will lead to better educated children and adolescents
    who grow up to take productive roles as workers and as citizens.
        NSF's Children's Research Initiative.--Recognizing that a
    combination of perspectives--cognitive, psychological, social, and
    neural--is needed to fully understand how children develop and how they
    acquire and use knowledge and skills, the SBE directorate supports new
    interdisciplinary research centers that will focus primarily on
    integrating traditionally disparate research disciplines concerned with
    child development. Known as the Children's Research Initiative (CRI),
    this program is bringing together such areas as cognitive development,
    cognitive science, developmental psychology, linguistics, neuroscience,
    anthropology, social psychology, sociology, family studies, cross-
    cultural research, and environmental psychology, to name only some of
    the relevant disciplines.
        Psychology researcher Stephen J. Ceci, of Cornell University, who
    is also an APS Fellow, leads one of the CRI's four research centers.
    The Cornell Institute for Research on Children will conduct rigorous
    multi-disciplinary research on issues of significance to children and
    their families. Specifically, the center will commission national teams
    of the nation's most distinguished developmental scientists to study
    policy relevant questions, and to create a consensus position for
    dissemination to the public. Ultimately, this project will place
    science-based information in the hands of Congress and other
    policymakers. On a different front, the North Carolina Child
    Development Research Collaborative is preparing to launch an
    interdisciplinary longitudinal study of early childhood, aimed at
    examining linguistic, emotional and intellectual changes from birth to
    school entry. The focus is on the individual in the context of social
    relationships. These two centers are just a sampling of what the CRI
    can accomplish. Over 80 proposals for new studies were received last
    fall, and this spring will see another round of competition for
    collaborative projects and more centers.
        The initiatives I just described are in the Division of Behavioral
    and Cognitive Science. Basic behavioral science supported by this
    division traditionally has included research in cognition, perception,
    language, development, emotion/affect, and social psychology. SBE's
    other main component, the Division of Social and Economic Sciences,
    also supports a substantial amount of basic psychological science.
    Examples of research topics being addressed in that division include:
    human dimensions of global change, group and individual decision
    making, risk management, and human factors. Research in these areas has
    the potential to increase employee and organizational productivity,
    improve decision making in critical military or civilian emergency
    situations, and inform the public policymaking processes across a range
    of areas.

                      CROSS-CUTTING BEHAVIORAL INITIATIVES

        The Science of Learning.--How people think, learn and remember is a
    core area of interest at NSF. Known as the science of learning, this
    field draws from a variety of research topics across psychology, such
    as brain and behavior, learning, memory, perception, social psychology,
    and development. The basic challenge for both the science and education
    communities is this: How can we apply and extend our knowledge of how
    people think, learn and remember to improve education?
        Last year, as this program was in the planning stages, we asked for
    your support. In the fiscal year 2003 appropriations report, you
    stated, ``the Committee recognizes that investment in basic,
    multidisciplinary research on learning is crucial to both successful
    educational reform and effective workforce development. In this regard,
    the Committee's recommendation includes support for the NSF Science of
    Learning Centers.'' We thank you for your support last year, and we ask
    that you continue to support this program in fiscal year 2004.
        NSF's Science of Learning program has two broad goals: improving
    our understanding of the learning process, and transferring that
    understanding into application. We have the knowledge base and a
    critical mass of top-flight scientists to help solve the educational
    and learning issues that have been identified by the government as high
    priorities. But getting that knowledge into the classroom is going to
    require a multi-disciplinary, multi-agency effort. This will be
    facilitated via investigations in human-computer interactions,
    cognitive psychology, cognitive neuroscience, and other activity
    related to child learning and cognitive development. Through the
    establishment of three or four multi-disciplinary Science of Learning
    Centers, NSF will for the first time attempt to focus the full range of
    science and research onto a scientific workforce objective. These
    centers will also provide a research base for the President's Math and
    Science Partnership.
        Human and Social Dynamics.--NSF's newest priority area, Human and
    Social Dynamics, will support multi-disciplinary approaches to better
    understand the causes and impact of social change, as well as to
    increase understanding of behavior and the human mind. This new
    priority area will expand knowledge of the cognitive and social
    structures that create and define change. Decision making under
    uncertainty and enhancing human performance are just two examples of
    topical areas that will be addressed in the early stages of this
    effort.
        One of the biggest challenges facing behavioral scientists is the
    better understanding of everyday human performance and action, and how
    such performance is influenced by rapid change. NSF is currently
    seeking research proposals that will examine this challenge. Research
    on cognition, development, behavior, emotion and language is converging
    with advances in biology, engineering, and technology. This convergence
    can be used to illustrate how we can improve performance in the face of
    rapid change. The early stages of research in this new area will
    enhance our fundamental understanding of basic research on human
    performance in the behavioral sciences, and will strengthen the links
    between this research and other relevant scientific communities,
    especially biology, engineering, and information technology. This
    priority area seeks to refine our knowledge about decision-making,
    risk, and uncertainty, and then take this new knowledge and translate
    it into improved decision-making techniques. Now more than ever, we
    live in a world where science such as this cannot afford to fail.
        In closing, I want to note that building and sustaining the
    capacity for innovation and discovery in the behavioral and social
    sciences is a core goal of the National Science Foundation. We ask that
    you encourage NSF's efforts in these areas, not just those activities
    I've described here, but the full range of activities supported by the
    SBE directorate and by NSF at large. Your support in fiscal year 2004
    will help NSF lay the groundwork for this long-overdue emphasis on
    these sciences.
        Thank you again for the opportunity to appear before you to present
    our recommendations. I would be pleased to answer questions or provide
    additional information.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Alliance to Save Energy, Prepared Statement of...................   566
    American Association of Nurse Anesthetists and Association of VA
      Nurse Anesthetists, Prepared Statement of......................   570
    American Astronomical Society, Prepared Statement of.............   471
    American Chemical Society, Prepared Statement of.................   504
    American Heart Association, Prepared Statement of................   543
    American Indian Higher Education Consortium, Prepared Statement
      of.............................................................   472
    American Legion, Prepared Statement of...........................   531
    American Lung Association, Prepared Statement of.................   558
    American Psychological Society, Prepared Statement of............   579
    American Public Power Association, Prepared Statement of.........   547
    American Rivers, Prepared Statement of...........................   518
    American Society for Engineering Education, Prepared Statement of   573
    American Society for Microbiology, Prepared Statement of.........   476
    American Society of Mechanical Engineers International, Prepared
      Statement of...................................................   538
    American Society of Plant Biologists, Prepared Statement of......   510
    American Thoracic Society, Prepared Statement of.................   554
    Ashby, Cornelia M., Director, Education, Workforce and Income
      Security Issues, General Accounting Office, Prepared Statement
      of.............................................................   293
    Association of American Universities, Prepared Statement of......   506
    Association of Local Air Pollution Control Officials, Prepared
      Statement of...................................................   521
    Association of Minority Health Professions Schools, Prepared
      Statement of...................................................   560

    Benson, Eric, Acting Under Secretary for Memorial Affairs,
      Department of Veterans Affairs.................................    75
    Boesz, Christine C., Inspector General, National Science
      Foundation.....................................................   221
        Prepared Statement of........................................   246
        Statement of.................................................   245
    Bond, Senator Christopher S., U.S. Senator from Missouri:
        Opening Statements of.....................1, 75, 141, 221, 271, 351
        Questions Submitted by..................38, 104, 180, 257, 266, 315
    Brodsky, Lewis C., Acting Director, Selective Service System,
      Prepared Statement of..........................................   451
    Brown, Tony T., Director, Community Development Financial
      Institutions Fund, Department of the Treasury..................   325
        Prepared Statement of........................................   330
        Statement of.................................................   328
    Brownlee, Honorable Les, Under Secretary of the Army and Acting
      Assistant Secretary of the Army (Civil Works), Department of
      the Army--Civil, Prepared Statement of.........................   424
    Burns, Senator Conrad, U.S. Senator from Montana, Questions
      Submitted by..................................................55, 110
    Byrd, Senator Robert C., U.S. Senator from West Virginia,
      Questions Submitted by.........................................    72

    Calaveras County Water District, Prepared Statement of...........   468
    Campbell, William H., Assistant Secretary for Management,
      Department of Veterans Affairs.................................    75
    City of St. Helena, California, Prepared Statement of............   461
    Clutter, Mary, Assistant Director for Biological Sciences,
      National Science Foundation....................................   221
        Statement of.................................................   257
    Coalition for Effective National Service, Prepared Statement of..   548
    Colwell, Rita R., Director, National Science Foundation..........   221
        Prepared Statement of........................................   236
        Statement of.................................................   234
    Consortium of Social Science Associations (COSSA), Prepared
      Statement of...................................................   502
    Cooper, Vice Admiral Daniel L., (USN Ret.), Under Secretary for
      Benefits, Department of Veterans Affairs.......................    75
    Craig, Senator Larry, U.S. Senator from Idaho:
        Questions Submitted by.....................................262, 398
        Statements of..............................................147, 388

    Davenport, Linda, Acting Deputy Director for Policies and
      Programs, Community Development Financial Institutions Fund,
      Department of the
      Treasury.......................................................   325
    DeWine, Senator Mike, U.S. Senator from Ohio:
        Questions Submitted by......................................59, 399
        Statement of.................................................   357
    Dollar, the Honorable Dennis, Chairman, National Credit Union
      Administration, Prepared Statement of..........................   403
    Domenici, Senator Pete V., U.S. Senator from New Mexico,
      Questions Submitted by........................ 56, 111, 202, 263, 269
    Donohue, Kenneth, Inspector General, Department of Housing and
      Urban Development..............................................     1
        Statement of.................................................    32
    Doris Day Animal League, Prepared Statement of...................   492

    EZ/EC Foundation Consortium, Prepared Statement of...............   562

    Falk, Henry, M.D., M.P.H., Assistant Administrator, Agency for
      Toxic Substances and Disease Registry, Department of Health and
      Human Services, Prepared Statement of..........................   417
    Fleet Reserve Association, Prepared Statement of.................   485

    George, J. Russell, Inspector General, Corporation for National
      and Community Service..........................................   271
        Prepared Statement of........................................   287
        Statement of.................................................   285
    Gianni, Gaston L., Jr., Inspector General, Office of Inspector
      General, Federal Deposit Insurance Corporation, Prepared
      Statement of...................................................   427
    Great Lakes Indian Fish and Wildlife Commission (GLIFWC),
      Prepared Statement of..........................................   457
    Griffin, Richard, Inspector General, Department of Veterans
      Affairs........................................................    75
    Guillermin, Michelle, Chief Financial Officer, Corporation for
      National and Community Service.................................   271

    Harkin, Senator Tom, U.S. Senator from Iowa, Questions Submitted
      by...........................................................129, 347
    Herrling, Major General John P., USA (Ret), Secretary, American
      Battle Monuments Commission, Prepared Statement of.............   440
    Humane Society of the United States, Prepared Statement of.......   577
    Hutchison, Senator Kay Bailey, U.S. Senator from Texas:
        Prepared Statement of........................................   356
        Statement of.................................................   354

    Johnson, Senator Tim, U.S. Senator from South Dakota:
        Prepared Statements of......................................83, 223
        Questions Submitted by............................... 134, 265, 348
    Jones, Owen, Deputy Director for Management and Chief Financial
      Officer, Community Development Financial Institutions Fund,
      Department of the Treasury.....................................   325
    Joslin Diabetes Center, Prepared Statement of....................   499

    Kohl, Senator Herb, U.S. Senator from Wisconsin, Question
      Submitted by...................................................   401
    Kramer, Honorable Chief Judge Kenneth B., U.S. Court of Appeals
      for Veterans Claims, Prepared Statement of.....................   413

    Lac du Flambeau Band of Lake Superior Chippewa Indians, Prepared
      Statement of...................................................   455
    Lazar, Ellen, Executive Director, Neighborhood Reinvestment
      Corporation, Prepared Statement of.............................   444
    Leahy, Senator Patrick J., U.S. Senator from Vermont:
        Prepared Statement of........................................8, 149
        Questions Submitted by......................................70, 216
        Statement of.................................................   148
    Lenkowsky, Les, CEO, Corporation for National and Community
      Service........................................................   271
        Prepared Statement of........................................   278
        Statement of.................................................   276
    Liu, Michael, Assistant Secretary, Public and Indian Housing,
      Department of Housing and Urban Development....................     1
        Statement of.................................................    27

    Mangano, Philip, Executive Director, Interagency Council on
      Homelessness, Department of Housing and Urban Development......     1
        Statement of.................................................    37
    Marburger, John H., III, Director, Office of Science and
      Technology Policy, Executive Office of the President...........   221
        Prepared Statement of........................................   229
        Statement of.................................................   227
    Martinez, Mel, Secretary, Department of Housing and Urban
      Development....................................................     1
        Prepared Statement of........................................    12
        Statement of.................................................     9
    Mehan, G. Tracy, III, Assistant Administrator, Office of Water,
      Environmental Protection Agency................................   141
        Remarks Delivered to the EPA Forum on Closing the Gap:
          Innovative Responses for Sustainable Water Infrastructure..   168
    Merritt, Carolyn W., Chairman and Chief Executive Officer, U.S.
      Chemical Safety and Hazard Investigation Board, Prepared
      Statement of...................................................   408
    Metropolitan Water Reclamation District of Greater Chicago,
      Prepared Statement of..........................................   466
    Mickey Leland National Urban Air Toxics Research Center, Prepared
      Statement of...................................................   494
    Mikulski, Senator Barbara A., U.S. Senator from Maryland:
        Prepared Statements of.....................................145, 327
        Questions Submitted by............................59, 115, 138, 205
        Statements of.............................6, 80, 144, 222, 274, 353

    National Association of Counties, Prepared Statement of..........   528
    National Association of Local Housing Finance Agencies, Prepared
      Statement of...................................................   528
    National Community Development Association, Prepared Statement of   528
    National Council for Science and the Environment, Prepared
      Statement of...................................................   512
    National League of Cities, Prepared Statement of.................   528
    National Service-Learning Partnership, Prepared Statement of.....   565
    Northwest Indian Fisheries Commission, Prepared Statement of.....   480

    O'Keefe, Sean, Administrator, National Aeronautics and Space
      Administration.................................................   351
        Prepared Statement of........................................   365
        Statement of.................................................   357

    PATH Industry Steering Committee, Prepared Statement of..........   524
    People for the Ethical Treatment of Animals (PETA), Prepared
      Statement of...................................................   497
    Poling, Susan A., Associate General Counsel, General Accounting
      Office, Prepared Statement of..................................   293
    Principi, Anthony J., Secretary of Veterans Affairs, Department
      of Veterans Affairs............................................    75
        Prepared Statement of........................................    88

    Quinault Housing Authority, Quinault Indian Reservation, Prepared
      Statement of...................................................   482

    Reid, Senator Harry, U.S. Senator from Nevada, Questions
      Submitted by...................................................   136
    Roswell, Robert H., M.D., Under Secretary for Health, Department
      of Veterans Affairs............................................    75

    Santa Clara Valley Water District, San Jose, California, Prepared
      Statement of...................................................   465
    Shelby, Senator Richard C., U.S. Senator from Alabama, Statement
      of.............................................................   356
    Society for Neuroscience, Prepared Statement of..................   509
    State and Territorial Air Pollution Program Administrators,
      Prepared Statement of..........................................   521
    Stevens, Senator Ted, U.S. Senator from Alaska, Statement of.....   382

    Teach For America, Prepared Statement of.........................   552

    University Corporation for Atmospheric Research (UCAR), Prepared
      Statement of...................................................   489
    Upper Mississippi River Basin Association, Prepared Statement of.   463
    U.S. Conference of Mayors, Prepared Statement of.................   528

    Washington Suburban Sanitary Commission, Prepared Statement of...   470
    Washington, Warren M., Chair, National Science Board, National
      Science Foundation.............................................   221
        Prepared Statement of........................................   241
        Statement of.................................................   240
    Weicher, John C., Assistant Secretary, Housing, and Federal
      Housing Commissioner, Department of Housing and Urban
      Development....................................................     1
        Statement of.................................................    32
    Whitman, Christine Todd, Administrator, Environmental Protection
      Agency.........................................................   141
        Prepared Statement of........................................   152
        Statement of.................................................   150
        Remarks to the National Water Infrastructure Forum...........   166

                                 SUBJECT INDEX

                                  ----------

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

                                                                       Page
    Accountability...................................................   315
    Additional Committee Questions...................................   315
    Administration Earmarks..........................................   311
    America's Promise................................................   322
    Audit of the Trust...............................................   289
    Audits of State Commissions......................................   288
    Board of Directors...............................................   314
    ``Challenge'' Grants.............................................   317
    Challenge Grant Proposals........................................   311
    CNCS Senior Leadership...........................................   306
    Cost Accounting System...........................................   318
    Education Trust:
        Enrollments..................................................   305
        Model........................................................   308
    Establishment of Evaluation Section..............................   287
    Financial Model: Large Cap, Mid Cap, IPOs........................   313
    Fiscal Year 2003 Appropriations..................................   280
    Fiscal Year 2004:
        Budget Request...............................................   280
        Challenge Grant Request......................................   310
    Investigation of the Trust.......................................   290
    Legislative Reforms..............................................   284
    Leveraging More Volunteers.......................................   319
    Literacy.........................................................   320
    Management of the Trust..........................................   305
    Management Reforms...............................................   279
    Multiple Federal Funding Sources.................................   323
    National Service Trust Audit and Investigation...................   288
    New Policies Established, but Additional Changes may be Needed...   298
    Outreach to Organizations that Serve Immigrant Populations.......   314
    Performance:
        Measures.....................................................   316
        Of America's Promise.........................................   322
    Preliminary Observations on the National Service Trust and
      AmeriCorps.....................................................   293
    Reauthorization..................................................   319
    Recommendations..................................................   292
    Relationship with Freedom Corps..................................   309
    Review of the Corporation's Alternative Personnel System.........   287
    Sustainability...................................................   317
    Three Factors Contributed to the Need to Suspend AmeriCorps
      Enrollments....................................................   296
    USA Freedom Corps................................................   315

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Additional Committee Questions...................................    38
    Asset Control Area Demo..........................................    36
    Asset Control Areas..............................................    47
    CDBG Formula Funding.............................................    52
    Communities Served Under Brownfields.............................    66
    Elimination of the Rural Housing and Economic Development Program    55
    Embracing High Standards of Ethics, Management, and
      Accountability.................................................    22
    Empowerment Zones................................................    73
    Ensuring Equal Opportunity in Housing............................    21
    Faith-Based Organizations........................................33, 42
    FHA..............................................................    35
        Multifamily and Single Family Contractor Accountability......    48
        Single Family Mortgage Insurance.............................    46
    Financial Management and Information Systems.....................    55
    Fiscal Year 2003 Technical Assistance for Homeless Assistance
      Grant Program..................................................    64
    Fraud............................................................    31
    GAO High Risk--FHA Single Family Insurance.......................    46
    GSE Oversight....................................................    59
    Housing Assistance for Needy Families (HANF).............11, 26, 38, 67
        Funding Proposal.............................................    66
    Hiring...........................................................    25
    Home Program.....................................................    10
    Homeless:
        Assistance...................................................    53
        Funds in Burlington..........................................    70
    HOPE VI......................................................11, 28, 69
    Housing Opportunities for Persons with AIDS (HOPWA)..............    60
        Renewed Grantees.............................................    60
    Increasing Homeownership Opportunities...........................    13
    Interactive Web-Based Lead Database..............................    69
    Interagency:
        Council on Homelessness......................................    37
        Investment in Childhood Lead Poisoning Reduction.............    70
    ITAG/OTAG........................................................    52
    Lack of Affordable Housing.......................................    46
    Management Issues................................................    12
    Mark-to-Market...................................................    54
    Metropolitan Statistical Area....................................    57
    NAHASDA Funding..................................................    58
    National Homeless Data Analysis Project..........................    64
    Native American Housing Block Grants.............................    54
    Neighborhood Networks............................................    65
    New Lead-Based Paint Abatement Program...........................    59
    New York Disaster Assistance Funds...............................    52
    Outreach and Technical Assistance Grants.........................    59
    Promoting:
        Decent Affordable Housing....................................    15
        Home Ownership...............................................    10
        The Participation of Faith-based and Community Organizations.    22
    Public Housing:
        Capital Fund.................................................    44
        Elderly/Minimum Rent.........................................    30
        HOPE VI......................................................    43
        Operating Fund...............................................33, 72
        Operating Funding............................................    41
        Reinvestment Loan Guarantee Initiative.......................    34
    Puerto Rico Public Housing Authority.............................    54
    Reserves.........................................................    67
    Rural Housing and Economic Development Program...................    52
    Samaritan Initiative.............................................    56
    Section 8........................................................    27
        Certificate Fund.............................................    39
        Project-Based Assistance.....................................    53
        Rental Subsidy Overpayments..................................    41
    Section 811 Housing for the Disabled.............................56, 58
    Severely Distressed Public Housing...............................    69
    Staffing.........................................................    45
    Strengthening Communities........................................    18
    Study on Voucher Utilization.....................................    68
    Technical Assistance in CDBG.....................................    64
    Unused Budget Authority..........................................    67
    Voucher Utilization..............................................67, 68

                           DEPARTMENT OF THE TREASURY

                    Development Financial Institutions Fund

    Additional Committee Questions...................................   347
    CDFI Fund Programs Overview......................................   333
    Management and Operations........................................   331
    President's Fiscal Year 2004 Budget..............................   331

                         DEPARTMENT OF VETERANS AFFAIRS

    Additional Committee Questions...................................   104
    Antipsychotic Drug Zyrexa........................................   114
    Burial...........................................................    92
    Capital Asset Realignment for Enhanced Services (CARES).........90, 106
    Claims Processing..............................................108, 113
        Waiting Times................................................   120
    Collections....................................................107, 119
    Community-Based Outpatient Clinics...............................   111
    Copayment Increases..............................................   118
    Cost-share Proposals.............................................   104
    Enrollment Fee...................................................    95
    Fiscal Year 2004 Budget Request Summary..........................    84
    Fort Howard......................................................   126
    Gulf War Lesson..................................................    96
    Health Care Quality Management and Patient Safety................   109
    Homeland Security................................................   127
    Homeless:
        Spending.....................................................   108
        Veterans.....................................................   113
    Homelessness.....................................................   107
    Long Term Care...................................................   123
    Management Improvements..........................................    92
    Mandatory Spending for Health Care...............................   109
    Medical:
        And Prosthetic Research......................................    90
        Research.....................................................   139
    Medical Care.....................................................    88
        Waiting Lines................................................   120
    Patient Safety in Medical Research...............................   124
    Physician:
        Assistant Advisor............................................   128
        Time and Attendance........................................122, 138
    Prescription Drugs...............................................   106
    Priority 7 and 8 Veterans........................................   115
    Questions Submitted to the:
        Department of Veterans Affairs...............................   104
        Inspector General............................................   138
    Raising of Copayments............................................   100
    Suspension of Priority 8 Enrollment..............................    87
    Transitional Housing.............................................   129
    $250 Enrollment Fee..............................................   118
    Veterans' Benefits...............................................    91
    Waiting List(s)............................................86, 100, 105

                        ENVIRONMENTAL PROTECTION AGENCY

    A Commitment to Reform and Results...............................   155
    An Integrated Approach to System Management......................   160
    Additional Committee Questions...................................   179
    Advance Information Security and Communication...................   174
    Aging Water Infrastructure.......................................   186
    Approval Process for Genetically Engineered Crops................   190
    Arsenic Cost.....................................................   185
        Rural Communities............................................   186
    Arsenic Standard.................................................   157
        EPA:
            Facilitation.............................................   185
            Funding for Communities..................................   202
        Legislative Assistance.......................................   203
    Better Protected Land............................................   153
    CAFO Rule Implementation.........................................   178
    CAFOs Rule:
        New Mexico Producers.........................................   204
        Region 6:
            General Permit...........................................   204
            Versus National Rule No. 1...............................   203
            Versus National Rule No. 2...............................   204
    Children's Health Report & Clear Skies...........................   219
    Clean Air: Protecting Public Health..............................   210
    Clean Water SRF:
        President's Request..........................................   156
        Proposed Reduction...........................................   158
        Reduction....................................................   180
    Cleaner Air......................................................   152
    Clear Skies......................................................   207
        Budget Request...............................................   206
        Funding Request..............................................   207
        Legislation Dependent........................................   206
        Legislation Enactment........................................   207
        Mercury MACT.................................................   209
    Clear Skies Act vs. Clean Air Act..............................208, 217
    Combined and Sanitary Sewer Overflows............................   156
    Commit to Strong Environmental Enforcement.......................   174
    Concentrated Animal Feeding Operations...........................   190
    Core Water Programs..............................................   205
    Cost Estimates of Sanitary Sewer Overflows.......................   157
    CSO and SSO Infrastructure.......................................   180
        U.S. Cities..................................................   181
    CWSRF and DWSRF Oversight........................................   194
    Elizabeth Mine.................................................175, 216
    Enforcement......................................................   155
        EPA's:
            Evaluation...............................................   216
            Fiscal Year 2004 Plans...................................   215
        Fiscal Year 2004 Budget......................................   216
        GAO's Evaluation Recommendation..............................   215
        Personnel by Activity........................................   214
            Fiscal Year 2004 Budget..................................   215
        Proposed Cuts................................................   214
        Vacancies....................................................   215
    Enhance Preparedness and Response................................   174
    Enhancing Strong Science.........................................   154
    Ensuring Safe Food...............................................   155
    Financing Infrastructure Investment..............................   162
    Fiscal Year 2004 Budget Proposal.................................   218
    Global Pollution.................................................   194
    Ground Zero Air Statements.......................................   193
    Homeland Security....................................154, 172, 173, 192
        Chemical Companies...........................................   193
        Research.....................................................   174
    Hudson River Dredging Delay......................................   191
    Interstate Transport of Air Pollution............................   210
    Lake Champlain...................................................   219
    Mercury Emissions..............................................175, 217
    MTBE Contamination Issue.........................................   189
    New Cancer Risk Guidelines for Children..........................   191
    New Corn Pest Control............................................   190
    New Source Review................................................   188
        Improvement Rules: Petitions for Review Filed................   188
    NOX and SO2 Reductions.....................   209
    Oversight and Accountability.....................................   201
    Prioritizing Water Needs with Arsenic Standard...................   187
    Promote Safer Chemicals and Strengthen Laboratories..............   173
    Protect:
        Ambient and Indoor Air Environments..........................   173
        Drinking Water and Wastewater Facilities.....................   173
    Public Education.................................................   164
    Purer Water......................................................   153
    Quality Environmental Information................................   155
    Quality Trading Program: Increased Pollution.....................   213
    Safeguard EPA Personnel and Infrastructure.......................   174
    Ship Scrapping...................................................   214
        Disposing of Ships...........................................   213
        International Conditions.....................................   214
    SRFs--State Priorities...........................................   178
    St. Louis--Attainment Status.....................................   179
    Suggestions Discussed by Forum Participants for:
        Financial Responses..........................................   165
        Managerial Responses.........................................   165
        Technological Responses......................................   166
    Summary of Discussions From the Closing the Gap: Innovative
      Solutions for America's Water Infrastructure Forum.............   159
    Superfund:
        Funding:
            Recoveries...............................................   188
            Responsible Parties......................................   187
            Versus CWSRF Funding.....................................   187
        President's Request..........................................   177
        State Control................................................   188
    The Role of Pricing..............................................   163
    TMDL.............................................................   189
        Status of Rule...............................................   177
    Water Infrastructure...........................................193, 206
        Needs........................................................   180
        Gap:
            Conference...............................................   205
            Funding Cut..............................................   205
        Water and Sewer Funding......................................   205
    Water Quality Trading Program:
        Caps.........................................................   211
        Monitoring Trades............................................   212
        Permit Levels................................................   212
        Sensitive Areas..............................................   212

                       EXECUTIVE OFFICE OF THE PRESIDENT

                    Office of Science and Technology Policy

    Agency Budget Highlights.........................................   230
    Fiscal Year 2004 OSTP and Federal R&D Budget.....................   229
    Interagency Initiatives..........................................   231
    Managing the Federal Research Budget.............................   233
    Math and Science Partnerships....................................   267
    National Aeronautics and Space Administration (NASA).............   231
    National Science Board Budget....................................   253
    Office of Science and Technology Policy..........................   221
    Plant Biotechnology:
        Education....................................................   255
        Research in the Developing World.............................   266
    Priority Setting for Major Research Facilities...................   266
    Questions Submitted to the Office of Science and Technology
      Policy.........................................................   266
    Tech Talent......................................................   268
    The President's Fiscal Year 2004 R&D Budget......................   229
    2004 NSF Budget: Increment of Increase...........................   250

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    Academic Programs................................................   384
    Additional Committee Questions...................................   398
    Anticipating A Return to Flight..................................   367
    Associated Universities Research Associates (AURA)...............   395
    Audited Financial Statements.....................................   364
    Aviation Security Initiative.....................................   362
    Beyond Einstein Initiative.......................................   362
    Biological and Physical Research Programs........................   400
    Budget Restructuring.............................................   363
    Climate Change Research Initiative...............................   362
    Columbia Recovery Effort Update..................................   358
    Commercial Technology and Commercial Space Product Development
      Programs.......................................................   401
    Communications, Navigation and Surveillance (CNS) System.........   401
    DOD/FAA/NASA Task Force..........................................   383
    Education Initiative.............................................   363
    Establishing Our Blueprint.......................................   368
    Explorer Program.................................................   390
    Fiscal Year 2004 Budget Request...........................357, 360, 367
    Hubble Space Telescope...........................................   394
        Anniversary..................................................   360
    Human Research Initiative........................................   361
    Human Resource Challenges........................................   364
    Implications of Suspension of Shuttle Flights....................   366
    Innovative Technology Transfer Partnerships (ITTP)...............   400
    Integrated:
        Budget Performance...........................................   364
        Financial Management System..................................   364
        Space Transportation:
            Plan.....................................................   363
            Program..................................................   389
    ISS's Resupply Missions..........................................   385
    Launch Technologies--NASA/DOD....................................   390
    Linking Investments to Strategic Plan............................   370
    Microgravity Research Program....................................   396
    National Airspace System Transformation Augmentation.............   362
    Next Generation:
        Launch Technology Program....................................   401
        Turbine Engines..............................................   399
    Nuclear Power Propulsion.........................................   397
    Optical Communications Initiatives...............................   361
    Orbital Space Plane............................................385, 392
    President's Budget Request.......................................   387
    Project Prometheus........................................360, 392, 399
    Propulsion Research..............................................   391
    Pursuing Critical New Opportunities..............................   370
    Quiet Aircraft Technology Acceleration...........................   362
    Recruiting and Retention.........................................   393
    Return to Flight.................................................   386
    Shuttle Costs....................................................   384
    Small Explorer Mission (SMEX)/Mission of Opportunity.............   390
    Space Station Research Priorities................................   397
    Strengthening Our Foundation.....................................   369
    Ultra-Low Power Electronics Technology...........................   398

                          NATIONAL SCIENCE FOUNDATION

    Additional Committee Questions...................................   257
    Additional Funds Investments.....................................   251
        Examples of..................................................   252
    Antarctic Infrastructure Planning................................   248
    Award Administration.............................................   249
    Business Analysis Plan...........................................   259
    Engineered Vaccinations..........................................   256
    Experimental Program to Stimulate Competitive Research (EPSCoR)262, 265
    Formula-driven Funding Increases.................................   264
    Human and Social Dynamics Priority Area..........................   253
    Intergovernmental Personnel Act Appointments.....................   261
    Large Facility Management Issues: Progress.......................   254
    Legal Counsel for the National Science Board.....................   258
    Major Research Equipment and Facilities Construction:
        For Fiscal Year 2004.........................................   258
        Program......................................................   259
    Management of Large Infrastructure Projects......................   247
    Math and Science Partnership (MSP) Program.......................   261
    National Radio Astronomy Observatory (NRAO)......................   264
    National Science Board Budget....................................   253
    National Science Digital Library.................................   265
    NSF Funding Priorities...........................................   257
    NSF/USAID Collaboration..........................................   257
    Open Meetings of the National Science Board......................   259
    Plant Biotechnology Education....................................   255
    Proposed Reduction for the Science, Technology, Engineering, and
      Mathematics Talent Expansion Program (STEP)....................   265
    Research Infrastructure Improvement Awards.......................   262
    Research Instrumentation and Infrastructure......................   263
    Science, Technology, Engineering, and Mathematics Talent
      Expansion Program (STEP).......................................   262
    Strategic Management of Human Capital............................   250
    2004 NSF Budget: Increment of Increase...........................   250
    Use of EPSCoR State Faculty in Merit Review Process..............   263