[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

                                 ______


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                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
                    James W. Morhard, Staff Director
                 Lisa Sutherland, Deputy Staff Director
              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).
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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.
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    \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].
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    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.
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    \2\ Office of Inspector General, National Science Foundation, Audit 
of the Financial Management of the Gemini Project, Report No. 01-2001 
(Dec. 15, 2000).
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    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.
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    \3\ Office of Inspector General, National Science Foundation, Audit 
of Funding for Major Research Equipment and Facilities, Report No. 02-
2007 (May 1, 2002).
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    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.
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    \4\ National Science Foundation, Large Facility Projects Management 
& Oversight Plan NSB-01-153 (Sept. 2001).
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    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.
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    \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.
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    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\
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    \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.
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    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.
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    \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).
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    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.
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    \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).
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    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.
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    \12\ Compare NSF's fiscal year 1983 Budget Request to Congress with 
NSF's fiscal year 2004 Budget Request to Congress.
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    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.
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    \13\ S. Rep. No. 107-43 (2001).
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    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.
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                           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.
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    \1\ The National and Community Service Act of 1990 created the 
Corporation.
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    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.)
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    \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.
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    \3\ We have not examined and accordingly express no opinion on 
whether the Corporation is appropriately obligating program costs in 
the applicable appropriation account.
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    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.
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    \4\ The Corporation's 2003 grant review cycle began in the spring 
of 2003.
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    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

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